FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1995
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 0-11691
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ELEXSYS INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Delaware 95-3534864
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1188 Bordeaux Drive, Sunnyvale, California 94089
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(Address of principal executive offices) (Zip Code)
(408) 743-5400
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 Par Value
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(Title of Class)
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
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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 of the registrant held by
non-affiliates of the registrant on December 11, 1995 based on the average bid
and asked prices of such stock on such date was $64,507,000. As of December 11,
1995, there were 9,023,930 outstanding shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of registrant's definitive proxy statement for its 1996 Annual Meeting
of Stockholders (the "1996 Proxy Statement") are incorporated by reference into
Part III as set forth herein. Portions of registrant's annual report to
stockholders for the year ended September 30, 1995 are incorporated by reference
into Part II as set forth herein. With the exception of those portions which are
expressly incorporated herein by reference, said 1996 Proxy Statement and annual
report are not deemed filed as part hereof.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Elexsys International, Inc., formerly Diceon Electronics, Inc.
("Elexsys" or the "Company"), is a leading manufacturer of interconnect products
used in advanced electronic equipment. The Company manufactures complex products
in the mid-volume sector of the electronic interconnect industry. The Company
offers to its customers complete original design capability up to top level
assembly, as Elexsys' products generally require greater engineering and
manufacturing expertise than mass-produced, less complex products. The Company
manufactures custom-designed, press-fit backpanels, surface mount backpanel
assemblies and subsystems (known as a card cage complete with an assembled
backpanel, power supply, fan and cable attachments), as well as multilayer, high
density printed circuit boards. Elexsys works closely with its customers,
beginning with the early stages of the customer's product design and
development.
Elexsys believes its capabilities both in manufacturing multilayer,
high density printed circuit boards (including complex blind and buried via
product, described below) and in providing value-added manufacturing services
advantageously position the Company to serve high growth original equipment
manufacturers ("OEM") in the rapidly changing electronics markets. Elexsys' OEM
customers include a diversified base of manufacturers in the telecommunications,
datacommunications, computer, industrial systems and medical systems segments of
the electronics industry, such as Northern Telecom, DSC Communications, Digital
Equipment, Honeywell, Tandem, Motorola Inc., Siemans Inc., Silicon Graphics,
Inc. and AT&T Corporation.
Elexsys' strategy is to continue to utilize its well established high
technology printed circuit board manufacturing and engineering capabilities to
further expand into the rapidly growing outsourcing market, providing products
including complex press-fit backpanels, surface mount backpanel assemblies and
subsystems. Key elements of this strategy include providing its customers with
the highest levels of quality, superior service and leading edge technology.
The Company was originally incorporated in California in 1980 and
reincorporated in Delaware in 1987.
On April 28, 1995, the Company acquired substantially all the assets of
Technet Electronics, Limited, a manufacturer of printed circuit boards located
in Peterborough, England, for approximately $3,300,000, which consisted of
$560,000 of cash and assumption of liabilities of approximately $2,740,000,
including Technet's current lines of credit.
ELECTRONIC INTERCONNECT INDUSTRY OVERVIEW
Multilayer, high density printed circuit boards including complex blind
and buried via products: According to the Institute for Interconnecting and
Packaging Electronic Circuits ("IPC"), an industry data research firm, the
United States printed circuit board market was approximately $6 billion in 1994
(the most recent year for which such information is available). Approximately $5
billion of this market was available to independent manufacturers such as
Elexsys. IPC's data indicates that this market grew approximately 12% in 1994.
Multilayer, high density printed circuit boards, the fastest growing segment,
accounted for approximately 66% of the 1994 market. IPC also estimates that the
percentage of the printed circuit board market available to independent printed
circuit board manufacturers such as Elexsys, has increased from 66% to 83% since
1991. The European printed circuit board market is approximately $3.5 billion
and the multilayer segment of the European market is approximately $1.4 billion.
Backpanels: According to Fleck Research, an industry data research
firm, the North American backpanel market was approximately $657.5 million in
1994 (the most recent year for which such information is available), an increase
of 14.2% over 1993. This market may change if OEMs who currently have in house
("captive") operations decide to outsource their backpanel production, as has
been the trend with printed circuit boards. According to this research firm, the
European backpanel market is approximately $307.8 million.
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Value Added Contract Manufacturing: According to IPC, the United States
value added contract manufacturing market, defined as printed circuit boards,
backpanel assemblies, printed circuit board assembly and subsystems, was
approximately $9.4 billion in 1994 and is growing at a rate of approximately 20%
per year. Based on industry data, the Company believes that OEMs are
increasingly relying upon independent manufacturers of complex, electronic
interconnect products, such as Elexsys, rather than on captive production. Some
original equipment manufacturers (OEMs) have discontinued, sold or curtailed
domestic, captive, printed circuit board or backpanel production since 1990
including AT & T Corp., Data General Corporation, General Electric Company,
Hewlett-Packard Company, Northern Telecom Limited, Raytheon Company, Unisys
Corporation and Xerox Corporation. Elexsys' strategy will be to concentrate on
the market niche of backpanel assemblies, subsystems, and printed circuit
boards.
Other factors which Elexsys believes will lead OEMs to utilize contract
manufacturers include:
Design Expertise: The customer benefits from custom design capabilities of
contract manufacturers. For example, Elexsys works with the customer from the
conceptual, design stage, to the prototype stage and through to the
preproduction and production phases, to achieve a product design that is
manufacturable economically at or near the commencement of the production runs.
Reduced Capital Investment Requirements: As electronic products have become more
technologically advanced, the manufacturing process has become increasingly
sophisticated and automated, requiring a greater level of investment in capital
equipment. By outsourcing certain assemblies, OEMs can reduce their overall
capital equipment requirements while maintaining access to advanced
manufacturing facilities.
Focused Resources: In recent years, the electronics industry has experienced
greater levels of competition and rapid technological change, and many OEMs
increasingly are seeking to focus their limited resources on activities and
technologies to provide products that add the greatest value to their markets.
By offering printed circuit board fabrication and assembly services,
manufacturers concentrating on these special services allow OEMs to focus on
core technologies and activities such as product development, marketing and
distribution.
Access to Leading Manufacturing Technology: Electronic interconnect products and
related manufacturing technology have become increasingly sophisticated and
complex, making it difficult for OEMs to maintain the necessary technological
expertise in process development and control. OEMs are motivated to outsource
product in order to gain access to the manufacturer's process expertise and
manufacturing capabilities.
Improved Inventory Management and Purchasing Power: Electronics industry OEMs
are faced with increasing difficulties in planning, procuring and managing their
inventories efficiently due to frequent design changes, short product
life-cycles, large investments in electronic components, component price
fluctuations and the need to achieve economies of scale in materials
procurement. OEMs can reduce production costs by using the contract
manufacturer's volume procurement capabilities and inventory management skills.
BUSINESS STRATEGY
In response to the foregoing industry trends, Elexsys has structured
its business to supply high technology printed circuit boards, sophisticated
complex backpanel assemblies and value added electronic interconnect assemblies
("subsystems") including card cage, power supplies, fans, cables and harnesses.
Elexsys' business strategy encompasses several elements:
Focus on quality: The Elexsys team strives to insure the highest levels of
quality control in all phases of its operations, as quality is a critical,
competitive factor in the electronic interconnect market. The Company strives
for continuous improvement of its processes and has adopted a number of quality
improvement and measurement techniques to improve its performance. All Elexsys'
plants are ISO 9002 certified (excluding the recent acquisition in Peterborough,
England and the newly opened facility in Plano, Texas). The operation in
Peterborough, England has been certified under the United Kingdom's quality
standard. It is anticipated that the operation will receive ISO 9002
certification upon completion of an audit.
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Providing service oriented manufacturing: The Company manufactures all of the
printed circuit boards used in its subsystems, motherboard assemblies and custom
designed backpanels in order to maintain control over costs, quality and timely
delivery of its products. This vertical integration also allows the Company to
provide a broader range of assembly services, including prototype and high
technology products.
Maintain technology leadership: Elexsys seeks to deliver advanced manufacturing
and test engineering, responsive materials management, and technologically
advanced, flexible and service-oriented manufacturing for the complex,
leading-edge products of its OEM customers.
Target high value-added electronic interconnect products: Elexsys focuses on
leading manufacturers of advanced electronic equipment, such manufacturers
generally require custom designed, more complex interconnect products and short
lead-time manufacturing services, such as quick-turn, multilayer printed circuit
boards, complex backpanels, motherboard assemblies and subsystems. By focusing
on such customer needs. Elexsys has been able to increase revenues and margins
and the Company believes it has differentiated itself from many participants in
the electronic interconnect industry.
Pursue a "teamwork" approach with customers: Elexsys seeks to establish "teams"
with its customers by involving Elexsys engineers and staff in the early design
stages of its customers' product development, and by providing quick-turnaround
manufacturing services and just-in-time, kanban and dock-to-stock inventory
management programs. Through this approach, Elexsys seeks to forge lasting
customer relationships across a number of products and through multiple product
generations.
Maintain a diversified customer base: Elexsys services a diversified customer
base spread over a variety of growing industry segments. Elexsys' customers are
in the telecommunications, datacommunications, computer, industrial and medical
systems segments of the electronics industry. During fiscal 1995, the Company
manufactured and sold circuit boards and backpanel assemblies to approximately
317 customers which are located primarily in North America and Europe. During
fiscal 1995, 1994 and 1993, export sales were approximately $13,100,000,
$8,500,000, $13,700,000 or 13 percent, 9 percent, and 14 percent of net sales,
respectively. In aggregate, Elexsys' ten largest customers accounted for 66% of
the Company's net sales. During fiscal 1995, three customers, Northern Telecom
Corporation, DSC, and Tellabs, Inc. accounted for 24 percent, 12 percent, and 10
percent of net sales, respectively. Northern Telecom and the Company have had an
established relationship since 1985. The two companies have entered into a
one-year agreement commencing January 1, 1996, pursuant to which Northern
Telecom has agreed to purchase a specified amount of the Company's circuit
boards and backpanel assemblies as long as the Company satisfies certain
conditions, including conditions on the quality and timely delivery of its
products. The agreement is renewable on an annual basis. Elexsys' business may
be subject to seasonal fluctuations of our customers.
PRODUCTS AND SERVICES
Elexsys produces multilayer, high technology printed circuit boards,
custom designed press-fit backpanels, surface mount backpanels and subsystems
that are used in the manufacture of sophisticated electronic equipment. In
fiscal 1995, most of Elexsys net sales were attributable to printed circuit
boards (including multilayers) and backpanels.
Custom designed backpanels are assemblies of stamped and plated
pins, plastic housings and other components on multilayer or two-sided printed
circuit boards. Backpanels are used in electronic systems to distribute power
and ground, and to connect printed circuit boards which plug into the backpanel
with other printed circuit boards, power supplies, and other circuit elements.
They also are used to transfer information into and out of the system. As
semiconductor speeds have increased and design requirements have become more
stringent, backpanel complexity has increased significantly, often requiring the
use of large multilayer printed circuit boards of six through 32 layers. The
Company manufactures backpanels with up to 32 layers, .300 inches thick, and 2
feet by 3 feet in size. Elexsys has recently added a complete, fine-pitch
surface mount technology
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("SMT") assembly operation to its backpanel assembly capabilities, satisfying
the emerging technology of a combination of press-fit connectors and active
components on the same platform. SMT allows components to be placed on both
sides of the printed circuit board, thereby permitting even greater density.
Multilayer printed circuit boards consist of three or more layers of a
printed circuit board laminated together and interconnected by plated-through
holes. Printed circuit boards consist of metallic interconnecting paths on a
non-conductive material, typically laminated epoxy glass. Holes drilled in the
laminated and plated-through with conductive material from one surface to
another, called plated-through holes, are used to receive component leads and to
interconnect the circuit layers. On SMT boards electrical components are
soldered instead of being inserted into through-holes. "Buried vias" or "blind
vias" are very small drilled and plated holes which join the circuitry on
adjacent layers within the board, but which do not connect the surfaces of the
board. Multilayer boards increase packaging density, improve power and ground
distribution, and permit the use of higher speed circuitry. The development of
electronic components with increased speed, higher performance and smaller size
has stimulated a demand for multilayer printed circuit boards, as they provide
increased reliability, density and complexity. Since even the most sophisticated
two-sided printed circuit boards cannot meet the requirements of today's circuit
designers for packaging density, an increasing number of designs use multilayer
technology.
Subsystems consist of assembled backpanels, power supplies, fans and
cable attachments that are enclosed in card cages, which are usually fabricated
from steel or aluminum.
Elexsys has developed a highly sophisticated mechanical design
capability to provide its customers with design services. This capability allows
Elexsys to establish a close partnership with its customers and gives Elexsys
visibility for potential future customer requirements.
Elexsys' products generally tend to have a broad range of prices and
tend to be manufactured in relatively small quantities. For printed circuit
boards, prices are dependent on the size of the board, the complexity, the
timing of the customer's delivery request and the quantity ordered. For
backpanel assemblies, prices are dependent on the size of the backpanel, the
amount of components to be inserted and the quantity ordered. For subsystems,
prices are dependent on the material content, complexity of assembly and the
quantity ordered. In general, better profit margins have been obtained from
complex backpanel assemblies, subsystems and high density multilayer circuit
boards than from less advanced printed circuit boards and backpanel assemblies.
MANUFACTURING CAPABILITIES AND SERVICES
Elexsys seeks to establish a relationship with customers by formulating
a "team" approach and by providing high quality, responsive, flexible design and
manufacturing capabilities and services. Elexsys offers:
Advanced Manufacturing Equipment: Elexsys' concentration on complex, electronic
interconnect products has necessitated a substantial capital investment in
advanced equipment and the continued introduction of new manufacturing
processes. Elexsys has established an engineering capability to select and
implement the latest manufacturing technology. For example, the fine lead
spacing or "pitch" in SMT requires an exacting printed circuit board
manufacturing and assembly process. The Company uses numerically controlled pin
installation and high voltage electrical test equipment in its backpanel
assembly manufacturing, and has developed a design and manufacturing capability
for controlled impedance, multilayer printed circuit boards and backpanel
assemblies. Elexsys' printed circuit board manufacturing operations require
state-of-the-art equipment and processes. Elexsys' equipment portfolio includes
a computerized, artwork generation system, numerically controlled drillers and
routers, automatic electroless deposition lines, dry film photo-imaging
equipment, automatic gold plating lines, computerized, electrical testers and
automatic optical inspection readers.
Value Added Manufacturing: Computer integrated manufacturing ("CIM") services
provided by Elexsys consist of developing manufacturing processes, along with
tooling and test sequences for new products from product designs received from
its customers. In addition, Elexsys' interconnect products division provides
design and engineering services in the early stages of product development, thus
assuring that both mechanical and electrical considerations are integrated into
a subsystem approach to achieve a manufacturable, high quality and cost
effective product. Elexsys also evaluates customer designs for manufacturability
and, when appropriate,
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recommends design changes to reduce manufacturing costs or lead times or to
increase manufacturing yields as well as the quality of finished backpanel
assemblies and mother boards.
Quick turnaround: Elexsys' quick-turnaround manufacturing capabilities enables
the Company to better serve the needs of its customers for quick response to
their product designs. Shorter customer product life cycles and the need to
bring new products to market quickly have created a demand for small quantities
of complex multilayer printed circuit boards delivered in relatively short
periods of time, typically from three to ten days. Sales of printed circuit
boards produced in this manner accounted for approximately 14% of the Company's
printed circuit boards sales in fiscal 1995. After engineering of an
interconnect product is completed, Elexsys has the capability to manufacture
prototype or preproduction versions of such product on a quick-turnaround basis.
Elexsys believes that the demand for engineering and quick-turnaround prototype
and preproduction manufacturing services will increase as OEMs' products become
more complex and as the customers' product life cycles shorten. The Company's
continued success depends upon its ability to respond to the evolving needs of
customers in a timely manner.
Multilayer Printed Circuit Board Manufacturing: Elexsys' ability to manufacture
printed circuit boards, including large, complex multilayer printed circuit
boards with close tolerances, plated-through hole diameters and other
characteristics important to backpanel applications, is one of the major factors
that has enabled the Company to become an important supplier of complex,
technologically advanced backpanel assemblies and multilayer printed circuit
boards to the electronics industry. The Company began manufacturing multilayer
printed circuit boards in 1979 and in fiscal 1995 multilayer sales constituted
the majority of the Company's printed circuit board revenues. Today, Elexsys is
capable of efficiently producing commercial quantities of printed circuit boards
with up to thirty-two layers and circuit track widths as narrow as four mils.
The manufacture of complex multilayer interconnect products often
requires the use of blind or buried vias and adherence to strict electrical
characteristics to maintain consistent, circuit transmission speeds (referred to
as "controlled impedance boards"). These technologies require adherence to rigid
lamination and etching tolerances and are especially critical for printed
circuit boards with ten or more layers. The Company specializes in multilayer
boards requiring controlled impedance and has developed the ability to
manufacture large, thick multilayer backpanel boards using Cyanate Ester BT and
GETEK(R) base materials for ultra, high-speed applications. By concentrating on
the multilayer segment of the printed circuit boards market, where quality,
technology and customer service are more important than the market for less
complex boards, the Company believes it faces less direct competition.
The manufacture of printed circuit boards involves several steps
including dry film imaging, photoimageable soldermask processing, computer
controlled drilling and routing, automated plating and process controls and
achievement of controlled impedance. Manufacture of printed circuit boards used
in backpanel assemblies requires specialized expertise and equipment because of
the size of the backpanel relative to other printed circuit boards and the
closer-to-hole diameter tolerances required for press-fit pin assembly.
Multilayer manufacturing involves the placement of multiple layers of electrical
circuitry within a single, printed circuit board or backpanel expanding the
number of circuits and components that can be contained on the interconnect
product. The operating speed of a system is increased by reducing the distance
that electrical signals must travel. To increase the density of the circuitry in
each layer, OEMs reduced the width of the circuit tracks, placing them closer
together on the printed circuit board or backpanel. Interconnect products having
narrow, closely spaced circuit tracks are known as "fine line" products.
Materials Procurement and Handling: Materials procurement and handling services
provided by Elexsys include planning, purchasing and warehousing of electronic
components and metal housings used in interconnect products. Elexsys uses a
variety of materials in the manufacture of its products, including copper clad
laminates, dry film photo resists, connectors, terminals and pins. Elexsys
participates with our customers on various types of inventory management
programs including, but not exclusive of, "dock to stock" and "just in time".
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ISO 9002 Registration: As of November 8, 1994, the Company received ISO 9002 (an
international quality standard) certification at all of its operations except
for the newly opened Plano, Texas facility and the Peterborough, England
facility. The company is currently pursuing such registration for the operations
not certified. ISO 9002 registration, a worldwide standard for quality, is based
on successful implementation of quality assurance requirements and requires
annual compliance audits conducted by an independent quality assessor.
RAW MATERIALS
Elexsys' policy is to maintain more than one supply source when
practical, however, components for major OEM contracts are sometimes obtained
from a single source. Also, the Company generally uses a single source to supply
virtually all of the Company's requirements for laminate and glass materials. An
interruption or loss of single-sourced raw materials could have a materially
adverse effect on the Company's business.
COMPETITION
The market for printed circuit boards, backpanels and subsystems is
very competitive. Competition is principally based on price, product quality,
technical capabilities and the ability to deliver product on schedule. Both the
price of and the demand for most products are sensitive to economic conditions
and certain segments of the electronics industry have experienced and may in the
future experience reduced demand for their products.
The technology used in the manufacture of double-side boards, most
multilayer boards, backpanel press-fit assembly, surface mount backpanel
assemblies, and subsystems is widely available and there are approximately 700
manufacturers of these products. The Company believes only a few dozen
manufacturers of boards and subsystems in the United States are presently
producing high technology, multilayer printed circuit boards, backpanel
assemblies and subsystems in commercial quantities. Elexsys competitors include
both producers which primarily sell to others and OEMs that produce boards for
their own use. Many of these firms are larger than the Company and have
significantly greater financial, marketing and other resources. However the
Company believes the trend of outsourcing manufacturing by OEMs will continue.
RISK FACTORS
An investment in securities of Elexsys involves certain risks. In
evaluating Elexsys and the Company's business, prospective investors should give
careful consideration to the factors discussed below, in addition to the
information provided elsewhere in the Annual Report on Form 10-K and in other
documents filed with the Securities and Exchange Commission.
Some of Elexsys' customers have their own captive manufacturing
operations which produce some of their requirements for printed circuit boards,
backpanels and subsystems manufactured by the Company. There is a risk,
particularly during times of lower demand when manufacturing facilities are
operating at less than full capacity, that some of Elexsys customers will make
greater use of their own facilities rather than purchase from the Company.
During times of lower demand, the Company may not be price competitive with
captive operations, among other reasons, because of the substantial fixed costs
already borne by Elexsys' customers with respect to such operations.
There are risks that other customers will develop their own "in-house"
capabilities, that additional competitors will acquire the ability to compete
against the products and services offered by the Company, and that foreign firms
will increase their share of the United States market. Additionally, future
technological advances in electronics could render the printed circuit boards,
backpanels or subsystems manufactured by Elexsys less significant to the
electronics industry.
The Company's customers generally order product by purchase order and
not by long term supply contracts that irrevocably commit the customers to
purchases over long periods. A customer could shift production to another vendor
or itself without extensive advance notice to Elexsys. Thus, the loss of a
significant customer could result in Elexsys not being able to identify and
qualify, and commence production for, new customers in
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sufficient time to avoid a reduction in revenue or profitability. Generally, to
establish a relationship with a new customer requires an extensive and lengthy
qualification process and there are no assurances the production volumes with
the new customer will match or exceed production volumes with the lost customer.
Indeed, no assurance can be had that Elexsys would even be able to identify new
customers at all.
If any of the adverse events described in this section or elsewhere in
this Form 10-K occurred, the results of operations of Elexsys could be
materially adversely affected.
COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS
The Company's manufacturing processes utilize substantial quantities of
chemicals as well as substantial quantities of water. The Company is subject to
and believes it is in compliance with federal, state and local environmental
laws and regulations regarding air, water and land use, the generation, use,
storage and disposal of hazardous materials and wastes and the operation and
closure of manufacturing facilities at which hazardous materials are used or
hazardous wastes are generated. The Company is aware of contamination of soil
and ground water (principally by metals and solvents) at two of its former
facilities in Northern California. At one of these facilities, soil has been
remediated, but the likely future cost of ground water cleanup at that facility
is not yet reasonably estimable. Investigative costs of $30,000 have been
incurred. At the other former facility in Northern California, the Company
incurred costs of approximately $137,000 for cleanup of soil contamination and
the property was returned to its owner during the second quarter of fiscal 1995.
In addition, the facility is adjacent to an existing State of California
administered Superfund site and may become part of a related State of California
administered regional ground water investigation; the likely future cost to the
Company in connection with possible ground water cleanup is not yet reasonably
estimable. At another former facility in Southern California, the Company
conducted limited groundwater sampling in connection with a potential sale of
the property, and low concentrations of solvents were detected. Notification was
made to the proper agencies. At this time, it is not possible to determine
whether any response actions will need to be taken; and accordingly, the likely
future cost to the Company is not yet reasonably estimable.
The Company is further aware of soil and ground water contamination
(principally by metals and solvents) at two currently used facilities, one in
Northern California and one in Southern California. At its Northern California
facility, the Company is indemnified by the former property owner who has
acknowledged his obligation. At its Southern California facility, the Company's
preliminary estimate of remedial costs, expected to be incurred over five to
seven years, ranges from approximately $880,000 to $1,480,000 (including between
approximately $300,000 and $400,000 estimated capital expenditures for waste
treatment equipment acquisition and installation costs). At its Northern
California facility, the Company has also received notice that regulatory
authorities plan to reduce the discharge limits for industrial waste water
discharge containing heavy metals. New limits are expected to become effective
in October 1996. Based on the proposed limits, the cost to the Company of
additional equipment and process modifications needed to comply with the reduced
limits is preliminarily estimated by the Company to be between $100,000 and
$250,000.
As of September 30, 1995, the Company believes it has appropriately
recorded all known costs related to environmental matters, including the minimum
amounts where the estimated costs are within a range. Such known costs are
primarily accrued in other current liabilities. However, actual future
environmental related expenditures are subject to numerous uncertainties,
including the discovery of additional environmental concerns, further
development of cost estimates, new and changing environmental laws and
requirements, or new interpretations of existing laws and requirements.
Accordingly, there can be no assurance that future environmental related
expenditures will not exceed the Company's current estimates or that they will
not have a materially adverse effect on the Company.
EMPLOYEES
At September 30, 1995, the Company had 940 full-time employees,
including 838 involved in manufacturing, quality control, product development
and testing. The remainder are in sales, marketing,
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administration and executive positions. None of Elexsys' employees is covered by
a collective bargaining agreement. The Company considers its relations with its
employees to be good.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of November 30, 1995, are as
follows:
Name Age Position with Company
- - ---- --- ---------------------------
Milan Mandaric 57 Chairman of the Board,
Chief Executive Officer and
President
W. Barry Hegarty 44 Chief Operating Officer
Michael S. Shimada 45 Vice President, Finance,
Chief Financial Officer and
Secretary
Mr. Mandaric was appointed Chairman of the Board on June 30, 1994. Mr.
Mandaric became Chief Executive Officer and President on October 3, 1994. Prior
to joining Elexsys, Mr. Mandaric founded Lika Corporation, a manufacturer of
circuit boards, in the early 1970's and served as its CEO until its sale to
Tandy Corporation in 1980. He later founded Sanmina Corporation, a manufacturer
of high technology multilayer printed circuit boards and backpanels, and served
as its President and Chairman through July 1989 and as a director until February
1994. He also served as Chairman of Senses International, Inc., a designer and
manufacturer of wireless security systems, from July 1989 to May 1995.
Mr. Hegarty was appointed Chief Operating Officer in April 1995. Prior
to joining Elexsys, Mr. Hegarty was Vice President of Sales and Marketing at
Sanmina Corporation from 1987 to 1995. From 1979 to 1987, Mr. Hegarty was
employed at Kollmorgen Corporation. He was National Sales Manager and Product
General Manager for the Additive Products Division in New York from 1983 to
1987, and Senior Finance Manager for the Industrial Drives Division in Europe
from 1979 to 1983.
Mr. Shimada served as Controller of the Company from July 1983 to
January 1990; as Vice President, Finance from January 1990 to December 1993; and
as Chief Financial Officer from February 1993 to December 1993. In December
1993, Mr. Shimada resigned from the Company. In March 1994, Mr. Shimada returned
to the Company as Vice President, Finance and Chief Financial Officer. In
October 1994, Mr. Shimada was appointed Secretary of the Company.
PROPRIETARY TECHNIQUES
The Company has developed expertise and techniques which it uses in
the manufacture of printed circuit boards, backpanels and subsystems. Generally,
the Company relies on common law trade secret protection and on confidentiality
agreements with its employees to protect its expertise and techniques. The
Company owns but one patent and believes that patents have not historically
constituted a significant form of intellectual property right in its industry.
BACKLOG
At September 30, 1995, the Company had a backlog of approximately
$26,414,000 as compared to approximately $17,358,000 at September 30, 1994.
Backlog is comprised of orders believed to be firm for products which have a
firm scheduled shipment date during the next twelve months. However, some orders
in the backlog may be canceled under certain conditions. The majority of the
backlog is scheduled to be shipped within 120 days.
Page 9
<PAGE>
ITEM 2. PROPERTIES.
Elexsys currently leases or owns eight production facilities, a sales
office in Raleigh, North Carolina, and an information systems facility located
in Irvine, California. The Company believes that its present facilities are well
suited to its current operations and are in good repair.
The following table lists the production facilities of the Company:
Owned Lease
No. of Square Leased Lease Renewal
Location (1) Locations Feet or Both Expiration Option
- - ------------------------- --------- ------ ------- ---------- -------
Irvine, California 1 50,000 Leased 1999 No
Chatsworth, California 1 31,000 Owned
Mountain View, California 1 50,000 Leased 1999 Yes
Sunnyvale, California 1 31,000 Leased 1999 Yes
Plano, Texas 1 31,000 Leased 2002 Yes
Peterborough, England 1 31,000 Leased 1998 Yes
Santa Ana, California 1 30,000 Owned
Nashua, New Hampshire 1 39,000 Leased 1996 Yes
(1) This table includes facilities which were closed during previous years. The
facility in Chatsworth currently has a tenant who is currently paying rent to
the Company. The facility in Santa Ana is currently vacant. The facility in
Chatsworth and the facility in Santa Ana are currently held for sale.
ITEM 3. LEGAL PROCEEDINGS.
On November 8, 1995, a former executive of the Company filed a
complaint in the Superior Court of California, County of Santa Clara, alleging
negligent misrepresentation concerning certain aspects of the plaintiff's
severance agreement arrangement with the Company. The amount of damages claimed
is approximately $800,000, plus unspecified punitive damages. The Company
believes the complaint is not meritorious and Elexsys expects to vigorously
defend against the complaint.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None during the fiscal quarter ended September 30, 1995.
Page 10
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is hereby incorporated herein by reference the information
appearing under the caption "Price Range of Common Stock" which appears on page
24 of the registrant's Annual Report to Stockholders for the fiscal year ended
September 30, 1995 (the "1995 Annual Report").
ITEM 6. SELECTED FINANCIAL DATA
There is hereby incorporated herein by reference the information
appearing under the caption "Selected Financial Data" which appears on page 4 of
the 1995 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
There is hereby incorporated herein by reference the information
appearing under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" which appears on pages 5 through 9 of the
1995 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
There is hereby incorporated herein by reference the information
appearing on pages 10 through 23 of the 1995 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
Page 11
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is hereby incorporated herein by reference the information
appearing under the captions "Election of Directors", "Board Committees and
Meetings" and "Compliance with the Reporting Requirements of Section 16(a)" of
the 1996 Proxy Statement. Information regarding executive officers of the
Company is included in Item 1 of Part I hereof under the caption "Executive
Officers of the Registrant" and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated herein by reference the information
appearing under the captions "Executive Compensation" and "Performance
Measurement Comparison" of the 1996 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated herein by reference the information
appearing under the caption "Security Ownership of Certain Beneficial Owners and
Management" of the 1996 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated herein by reference the information
appearing under the caption "Certain Transactions" of the 1996 Proxy Statement.
Page 12
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedules, and Exhibits
1. Independent auditors' report
The following financial statements are incorporated by reference
under Item 8. above:
-Consolidated balance sheets as of September 30, 1995 and 1994;
-Consolidated statements of operations for each of the three years in
the period ended September 30, 1995;
-Consolidated statements of stockholders' equity (deficit) for each of
the three years in the period ended September 30, 1995;
-Consolidated statements of cash flows for each of the three years in
the period ended September 30, 1995;
2. Financial statement schedules:
All other schedules have been omitted since the information therein is
not required to be included herein, is not present in amounts
sufficient to require submission, or the required information is
included in the consolidated financial statements including the notes
thereto.
3. Exhibits
Exhibit
Number Description of Exhibit
- - ------- ----------------------
3.1* Amended and Restated Certificate of Incorporation of the Company
(filed as Exhibit 3.1 to the Form 10-Q for the quarterly period ended
July 1, 1995).
3.2* Amended and Restated Bylaws by the Company (filed as Exhibit 3.2 to
the Form 10-Q for the quarterly period ended July 1, 1995).
4.1 Specimen Common Stock Certificate of the Registrant.
4.2* Form of Indenture, dated as of February 15, 1987, and Form of Specimen
of 5 1/2% Convertible Subordinated Debentures due March 1, 2012 (filed
as Exhibit 4.2 to the Form S-2).
4.3* Registration Rights Agreement, dated as of May 11, 1987 (filed as
Exhibit 4 to the Current Report on Form 8-K of the Registrant, dated
May 11, 1987).
10.1* Lease, dated August 13, 1968, between Birtcher Pacific and Pritec
Corporation (formerly known as "Diceon Electronics, Inc.") (Filed as
Exhibit 10.1 to the Registration Statement on Form S-1 of the
Registrant, Registration No. 2-86316 (the "Form S-1")).
10.2* Lease, dated February 1, 1984, between Toussaint Limited and Diceon
Electronics, Inc., a California corporation ("Diceon California")
(filed as Exhibit 10-2 to the Annual Report on Form 10-K of the
Registrant for the year ended September 30, 1989 (the "1989 Form
10-K")).
Page 13
<PAGE>
10.3* Option Agreement and Limited Right of First Offer, dated as of
February 1, 1984 by and between Toussaint Limited and Diceon
California (filed as Exhibit 10.3 to the 1989 Form 10-K).
10.4* Lease, dated November 28, 1986, between Kollmorgen Corporation and
Diceon California (filed as Exhibit 10.6 to the Form S-2).
10.5*+ Employee Stock Option Plan (1983) (filed as Exhibit 10.9 to the Form
S-1).
10.6*+ First Amendment to Employee Stock Option Plan (1983) (filed as Exhibit
10.9.1 to the Form S-1).
10.7*+ Second Amendment to Employee Stock Option Plan (1983) (filed as
Exhibit 10.8 to the 1990 Form 10-K).
10.8*+ Third Amendment to Employee Stock Option Plan (1983) (filed as Exhibit
10.10 to the Annual Report on Form 10-K of the Registrant for the year
ended September 30, 1988 (the "1988 Form 10-K")).
10.9*+ Fourth Amendment to Employee Stock Option Plan (1983) (filed as
Exhibit 10.10 to the 1990 Form 10-K).
10.10*+ Fifth Amendment to Employee Stock Option Plan (1983) (filed as Exhibit
10.12 to the 1992 Form 10-K).
10.11*+ Sixth Amendment to Employee Stock Option Plan (1983) (filed as Exhibit
10.12 to the 1992 Form 10-K).
10.12*+ Form of Incentive Stock Option Agreement (filed as Exhibit 10.12 to
the 1988 Form 10-K).
10.13*+ Non-Qualified Stock Option Plan (1984) (filed as Exhibit 10.12 to the
1990 Form 10-K).
10.14*+ First Amendment to Non-Qualified Stock Option Plan (1984) (filed as
Exhibit 10.13 to the 1990 Form 10-K).
10.15*+ Second Amendment to Non-Qualified Stock Option Plan (1984) (filed as
Exhibit 10.14 to the 1991 Form 10-K).
10.16*+ Third Amendment to Non-Qualified Stock Option Plan (1984) (filed as
Exhibit 10.17 to the 1992 Form 10-K).
10.17*+ Form of Non-Qualified Stock Option Agreement (filed as Exhibit 10.15
to the 1988 Form 10-K).
10.18*+ Profit Sharing Bonus Plan (incorporated by reference to the section
captioned "Executive Compensation and Other Information - Bonus Plan"
included in the Registrant's Definitive Proxy Statement, dated
November 27, 1991).
10.19*+ Form of Indemnification Agreement (filed as Exhibit 10.14 to the Form
S-2).
10.20*+ Non-Qualified Stock Option Agreement, dated November 17, 1989, between
Sherwin L. Samuels and the Registrant (filed as Exhibit 10.21 to the
1988 Form 10-K).
Page 14
<PAGE>
10.21*+ Form of Executive Compensation Agreement between Registrant and
salaried officers or key employees (filed as Exhibit 10.22 to the 1988
Form 10-K).
10.22*+ Non-Qualified Stock Option Agreement, dated November 15, 1990, between
Sherwin L. Samuels and the Registrant (filed as Exhibit 10.22 to the
1990 Form 10-K).
10.23* Purchase and Sale Agreement, dated November 28, 1989, by and among
Symtron Corp., NTI, and John Davila (filed as Exhibit 2.1 to the
Current Report on Form 8-K of the Registrant, dated December 12, 1989
(the "1989 Current Report")).
10.24* Lease for 1625 Plymouth Avenue, Mountain View, California, dated
November 28, 1989, by and among Pritec Corporation, a California
corporation ("Lessee"), and John Davila and Liane Davila individually
and as Co-Trustees of the Davila Revocable Living Trust, dated March
13, 1989 (collectively, the "Lessor") (filed as Exhibit 2.2 to the
1989 Current Report).
10.25* Lease for 2400 Michelson Drive, Irvine, California, dated
October 10, 1991, by and among Elexsys International, Inc. (formerly
Diceon Electronics, Inc.), and Fujita Corporation, USA ( filed as
Exhibit 10.26 to the 1991 Form 10-K).
10.26* Lease for 2500 Michelson Drive, Irvine, California, dated November 1,
1987, by and among Elexsys International, Inc. and Consolidated
American Properties IV (filed as Exhibit 10.28 to the 1993 Form 10-K).
10.27* First Amendment to Lease for 2500 Michelson Drive, Irvine, California,
dated October 1992, by and among Elexsys International, Inc.
("Lessee"), and The Josephine Troy Trust and The Hausman Family Trust
(collectively, the "Lessor") (successor to Consolidated American
Properties IV) (filed as Exhibit 10.29 to the 1993 Form 10-K).
10.28* Lease for 2400 Michelson Drive, Irvine, California, dated April 12,
1993, by and among Elexsys International, Inc. and Fujita California
Partners II (filed as Exhibit 10.31 to the 1993 Form 10-K).
10.29*+ Severance Arrangements (incorporated by reference to the section
captioned "Compensation and Other Information" included in the
Registrant's Definitive Proxy Statement, dated December 15, 1993.
10.30*+ Severance Arrangement by and among Elexsys International, Inc. and
certain key executives as set forth in Exhibit 10.32 (filed as Exhibit
10.33 to the 1993 Form 10-K).
10.31*+ Non-Qualified Stock Option Agreement, dated as of March 9, 1993, by
and between C. Stephen Mansfield and the Registrant (filed as Exhibit
10.34 to the 1993 Form 10-K).
10.32* Securities Exchange Agreement dated as of June 7, 1994, as amended by
First Amendment to Securities Exchange Agreement dated as of June 30,
1994, between Mr. Milan Mandaric and the Registrant, Inc. (filed as
Exhibits 5-1 and 5-2 to the Current Report on Form 8-K dated June 30,
1994).
Page 15
<PAGE>
10.33* Loan and Security Agreement dated December 17, 1993, between Foothill
Capital Corporation, a California corporation, and the Registrant
(filed as Exhibit 10-1 to the Form 10-Q for the quarterly period ended
January 1, 1994).
10.34*+ 1994 Incentive Stock Option Plan and Incentive Stock Option Agreement
dated April 14, 1994 (filed as Exhibits 4.1 and Exhibits 4.2 to Form
S-8 dated May 18, 1994).
10.35*+ Non-Qualified Stock Option Agreement, dated as of July 14, 1994, by
and between Charles Handley and the Registrant (filed as Exhibit 10.38
to the 1994 Form 10-K).
10.36* Lease for 1188 Bordeaux Drive, Sunnyvale, California, dated October
24, 1994, by and among Symtron Corporation and Redtree Properties, LP
(filed as Exhibit 10.1 to the Form 10-Q for the quarterly period ended
December 31, 1994).
10.37* Lease for 2609 Technology Drive, Plano, Texas 75074, dated March 1995
between Elexsys International, Inc. and Property Reserve, Inc. (filed
as Exhibit 10.2 to the Form 10-Q for the quarterly period ended April
1, 1995).
10.38* Asset Purchase Agreement dated April 28, 1995 between Elexsys
International, Inc. and Technet Ltd, UK (filed as Exhibit 10.3 to the
Form 10-Q for the quarterly period ended April 1, 1995).
10.39* Securities Exchange Agreement dated as of March 29, 1995, between Mr.
Milan Mandaric and the Registrant, Inc. (filed as Exhibits 10-1 to the
Current Report on Form 8-K dated April 4, 1995).
10.40+ 1995 Stock Option Plan.
10.41+ Form of Incentive Stock Option Agreement under the 1995 Stock Option
Plan.
11 Computation of Earnings Per Common and Common Equivalent Share for the
Fiscal Years Ended September 30, 1995, 1994, and 1993.
13 Annual Report to Stockholders for the Fiscal Year Ended September 30,
1995.
21 List of subsidiaries of the Registrant.
23 Consent of Deloitte & Touche LLP dated December 18, 1995 to
incorporation by reference in Registration Statements No. 33-21826,
No. 33-02384 and No. 33-58033 on Form S-8 and Registration Statement
No. 33-22598 on Form S-3.
27 Financial Data Schedule
Page 16
<PAGE>
(B) REPORTS ON FORM 8-K
Report on Form 8-K dated February 28, 1995, reporting under Item 5
of Form 8-K (i) approval by Registrant's stockholders of
Registrant's Amended and Restated Certificate of Incorporation
which, among other things, changed Registrant's name to "Elexsys
International, Inc." (ii) and election of William "Barry" Hegarty as
Chief Operating Officer.
Report on Form 8-K dated March 20, 1995, reporting under Item 5 of
Form 8-K, listing of Registrant's Common Stock on The Nasdaq Stock
Market's SmallCap Market under the symbol "ELEX".
Report on Form 8-K dated March 31, 1995, exchange by Mr. Milan
Mandaric and Registrant of 400,000 newly issued shares of
Registrant's common stock for $4 million in aggregate principal
amount of Registrant's outstanding 5 1/2% Convertible Subordinated
Debentures due 2012, pursuant to the terms of the Second Exchange
Agreement dated as of March 29, 1995.
-----------------------------------------------------------------------
* Incorporated by reference.
+ Management or compensatory plan, contract or arrangement
Page 17
<PAGE>
SIGNATURES
In accordance with 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.
ELEXSYS INTERNATIONAL, INC.
(Registrant)
By: /s/ Milan Mandaric December 22, 1995
- - -------------------------------------------- --------------------
Milan Mandaric Date
Chairman of the Board, President and
Chief Executive Officer
In accordance with 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.
/s/ Milan Mandaric December 22, 1995
- - -------------------------------------------- --------------------
Milan Mandaric Date
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
/s/ Peter S Jonas December 22, 1995
- - -------------------------------------------- --------------------
Peter S. Jonas Date
Director
/s/ Roland G. Matthews December 22, 1995
- - -------------------------------------------- --------------------
Roland G. Matthews Date
Director
December 22, 1995
- - -------------------------------------------- --------------------
Charles H. Handley Date
Director
/s/ Michael S. Shimada December 22, 1995
- - -------------------------------------------- --------------------
Michael S. Shimada Date
Vice President of Finance,
Chief Financial Officer and
Secretary (Principal Financial
and Accounting Officer)
Page 18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To Elexsys International, Inc.:
We have audited the consolidated financial statements of Elexsys International,
Inc., formerly Diceon Electronics, Inc. and its subsidiaries as of September 30,
1995 and 1994, and for each of the three years in the period ended September 30,
1995, and have issued our report thereon dated October 16, 1995; such
consolidated financial statements and report are included in your 1995 Annual
Report to Stockholders and are incorporated herein by reference. Our audits also
included the financial statement schedules of Elexsys International, Inc.,
listed in Item 14. These financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedules, when considered
in relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
Deloitte & Touche LLP (Sig)
Costa Mesa, California
October 17, 1995
Page 19
[FRONT OF STOCK CERTIFICATE]
[Certificate outlined by border]
[LOGO]
ELEXSYS INTERNATIONAL, INC.
NUMBER LU 6266 [graphic omitted] SHARES [graphic omitted]
Incorporated Under the See reverse for certain definitions
Laws of the State of Delaware CUSIP 28626C 10 8
This Certifies that
["SPECIMEN" stamped here]
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $1.00 PAR VALUE, OF
==================ELEXSYS INTERNATIONAL, INC.==================
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
/s/ Michael Shimada /s/ Milan Mandaric
- - ------------------- ------------------
Secretary President
[GRAPHIC OMITTED]
ELEXSYS INTERNATIONAL, INC.
CORPORATE SEAL
DELAWARE 1986
COUNTERSIGNED AND REGISTERED: U.S. STOCK TRANSFER CORPORATION
(GLENDALE, CA)
TRANSFER AGENT AND REGISTRAR
BY AUTHORIZED SIGNATURE
[The artwork of the stock certificate is blue with embroidered borders.]
<PAGE>
[BACK OF STOCK CERTIFICATE]
The Corporation shall furnish without charge to each stockholder who
so requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock of the
Corporation or series thereof and the qualifications, limitations of
restrictions of such preferences and/or rights. Such requests shall be made to
the Corporation's Secretary at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants in entireties
JT TEN - as joint tenants with right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT -________Custodian________
(Cust) (Minor)
under Uniform Gifts to Minors
Act____________________
(State)
UNIF TRF MIN ACT -________Custodian (until age_________)
(Cust)
________under Uniform Transfers to Minors
(Minor)
Act____________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,_______________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[BOX OMITTED HERE]
["SPECIMEN" stamped here]
______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_________________________________________________________________________Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint______________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated__________________________
X __________________________
X __________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By__________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVING AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM). PURSUANT TO
S.E.C. RULE 17Ad-15.
ELEXSYS INTERNATIONAL, INC.
1995 STOCK OPTION PLAN
I. INTRODUCTION
1. Purposes. The purposes of the 1995 Stock Option Plan (the "Plan") of Elexsys
International, Inc., a Delaware corporation (the "Company") and its subsidiaries
from time to time (individually a "Subsidiary" and collectively the
"Subsidiaries") are to align the interests of the Company's stockholders and the
recipients of options under this Plan by increasing the proprietary interest of
such recipients in the Company's growth and success and to advance the interests
of the Company by attracting and retaining officers, directors and key
employees. For purposes of this Plan, references to employment by the Company
shall also mean employment by a Subsidiary.
2. Administration. This Plan shall be administered by a committee (the
"Committee") designated by the Board of Directors of the Company (the "Board")
consisting of two or more members of the Board, each of whom shall be a
"disinterested person" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"); no member of the
Committee, during the one year prior to service on the Committee or during such
service, shall have been or be granted or awarded shares of Common Stock of the
Company, options to purchase shares of Common Stock, stock appreciation rights
or other equity securities of the Company pursuant to this Plan or any other
plan of the Company or any affiliate of the Company, except for a grant or award
which would not result in such member ceasing to be a "disinterested person"
within the meaning of Rule 16b-3 under the Exchange Act.
The Committee shall, subject to the terms of this Plan, select eligible
officers, directors, key employees, consultants and advisors to the Company for
participation in this Plan and, with respect to each such participant, shall
determine the number of shares of Common Stock subject to each option granted
hereunder, the exercise price of such option, the time and conditions of
exercise of such option and all other terms and conditions of such option,
including, without limitation, the form of the option agreement. The Committee
shall, subject to the terms of this Plan, have the authority to interpret this
Plan, establish rules and regulations for the administration of this Plan and
may impose, incidental to the grant of an option, conditions with respect to the
grant, competitive employment or other activities. All such interpretations,
rules and regulations shall be conclusive and binding on all parties. Each
option hereunder shall be evidenced by a written agreement (an "Agreement")
between the Company and the optionee setting forth the terms and conditions
applicable to such option.
The Committee may delegate some or all of its power and authority
hereunder to the Chief Executive Officer or other executive officer of the
Company as the Committee deems appropriate; provided that the Committee may not
delegate its power and authority with regard to the selection for participation
in this Plan of an officer or other person subject to
<PAGE>
Section 16 of the Exchange Act or decisions concerning the timing, pricing and
amount of a grant to an officer or such other person.
No member of the Board of Directors or Committee, and neither the Chief
Executive Officer nor other executive officer to whom the Committee delegates
any of its power and authority hereunder, shall be liable for any act, omission,
interpretation, construction or determination made in connection with this Plan
in good faith, and the members of the Board of Directors and the Committee and
the Chief Executive Officer or other executive officer shall be entitled to
indemnification and reimbursement by the Company in respect of any claim, loss,
damage or expense (including attorneys' fees) arising therefrom to the full
extent permitted by law and under any directors' and officers' liability
insurance that may be in effect from time to time.
A majority of the Committee shall constitute a quorum, and the acts of
a majority of the members present at any meeting at which a quorum is present,
or acts approved in writing by a majority of the Committee without a meeting,
shall be the acts of the Committee.
3. Eligibility. Participants in this Plan shall consist of such officers,
directors and key employees of the Company and its Subsidiaries and consultants
and advisors to the Company and its Subsidiaries as the Committee in its sole
discretion may select from time to time. Non-employee directors of the Company
shall be eligible to participate in this Plan on the same terms and conditions
as employees of the Company, except as otherwise expressly noted. The
Committee's selection of a person to participate in this Plan in any year shall
not require the Committee to select such person to participate in this Plan in
any other year.
4. Shares Available. Subject to adjustment as provided in Section III.7 of this
Plan, 1,000,000 shares of the common stock, $1.00 par value per share, of the
Company ("Common Stock"), shall be available for grants of options under this
Plan. To the extent an outstanding option expires or terminates unexercised or
is cancelled or forfeited, the shares of Common Stock subject to the expired,
unexercised, cancelled or forfeited portion of such option shall again be
available for grants of options under this Plan.
Shares of Common Stock to be delivered under this Plan shall be
authorized and unissued shares of Common Stock, or authorized and issued shares
of Common Stock reacquired and held as treasury shares or otherwise or a
combination thereof.
II. STOCK OPTIONS
1. Grants of Stock Options.
(a) Employees, Consultants and Advisors. The Committee, in its
discretion, may grant either incentive stock options that meet the requirements
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
any successor provision ("Incentive
-2-
<PAGE>
Stock Options") or non-qualified stock options to purchase shares of Common
Stock to such eligible persons, other than non-employee directors, as may be
selected by the Committee, provided that consultants and advisors shall not be
eligible to receive Incentive Stock Options.
(b) Non-employee Directors. On [JULY 18] of each year for so long as
this Plan remains in effect, commencing [JULY 18, 1995/96], each non-employee
director of the Company shall be granted [_____] non-qualified stock options,
subject to the limitations set forth herein.
(c) General. Any option, or portion thereof, that for any reason fails
to meet the requirements of Section 422 of the Code and, therefore, is not an
Incentive Stock Option, shall be a non-qualified stock option. Each Incentive
Stock Option shall be granted within ten years of the effective date of this
Plan. To the extent the aggregate Fair Market Value (as defined below),
determined as of the date of grant, of shares of Common Stock with respect to
which options designated as Incentive Stock Options are exercisable for the
first time by such participant during any calendar year (under this Plan or any
other plan of the Company, or any parent or Subsidiary of the Company) exceed
$100,000, such options shall constitute non-qualified stock options.
2. Terms of Stock Options. Options shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of this Plan, as the Committee shall deem advisable:
(a) Number of Shares and Purchase Price. The number of shares of Common
Stock subject to an option and the purchase price per share of Common Stock
purchasable upon exercise of the option shall be determined by the Committee,
but in no event shall the purchase price per share of Common Stock subject to an
Incentive Stock Option be less than 100% of the Fair Market Value of a share of
Common Stock on the date of grant of such option, provided that if an Incentive
Stock Option shall be granted to any person who, at the time such option is
granted, owns capital stock of the Company possessing more than ten percent of
the total combined voting power of all classes of capital stock of the Company
(or of any parent or Subsidiary of the Company) (a "Ten Percent Holder"), the
purchase price per share of Common Stock shall be not less than the price
(currently 110% of Fair Market Value) required by the Code in order to
constitute an Incentive Stock Option. The purchase price per share of Common
Stock subject to a non-qualified stock option shall not be less than 85% of the
Fair Market Value of a share of Common Stock on the date of grant of such
option, provided that such price shall be 110% of the Fair Market Value of a
share of Common Stock in the event of non-qualified stock options granted to Ten
Percent Holders.
(b) Fair Market Value. "Fair Market Value" of a share of Common Stock
on a specified date shall be determined as follows: (i) if the Common Stock is
then listed or admitted to trading on an exchange, the closing price on the
principal exchange on which the Common Stock is then traded, as such price is
officially reported by the composite tape of transactions on such exchange (or,
if there shall be no sale on such date, on the next preceding date for which a
sale was reported), (ii) if the Common Stock is then listed on Nasdaq's National
Market or SmallCap Market, the last or closing price officially reported
-3-
<PAGE>
with respect thereto (or, if there shall be no sale on such date, on the next
preceding date for which a sale was reported), (iii) if the Common Stock is not
then listed or admitted to trading on an exchange, the average of the highest
bid and lowest asked prices as furnished by the National Association of
Securities Dealers, Inc., through NASDAQ, or a similar organization furnishing
such information with respect to the over-the-counter market in which the Common
Stock is then traded (or, if there shall be no sale on such date, on the next
preceding date for which a sale was reported), or (iv) if the Fair Market Value
cannot be determined as provided in (i), (ii) or (iii) above, the Fair Market
Value shall be determined by the Committee by whatever means or method as the
Committee, in the good faith exercise of its discretion, shall at such time deem
appropriate.
(c) Option Period, Exercisability and Vesting. The period for the
exercise of an option shall be determined by the Committee; provided that no
option shall be exercisable later than ten years after its date of grant, and
any Incentive Stock Option granted to a Ten Percent Holder shall be exercisable
only within five years after its date of grant. The Committee shall determine
whether an option shall become exercisable in cumulative or non-cumulative
installments and in part or in full at any time; provided, however, that the
right to exercise each option granted shall become vested with respect to at
least 20% of the shares underlying such option on each of the first through
fifth anniversaries of the date of grant. An exercisable option, or portion
thereof, may be exercised only with respect to whole shares of Common Stock.
(d) Method of Exercise. An option may be exercised (i) by giving
written notice to the Company specifying the number of whole shares of Common
Stock to be purchased and accompanied by payment therefor in full (or
arrangement made for such payment to the Committee's satisfaction) either (A) in
cash, (B) in previously owned whole shares of Common Stock (which the optionee
has held at least six months prior to delivery of such shares and for which the
optionee has good title free and clear of all liens and encumbrances) having a
Fair Market Value, determined as of the date of exercise, equal to the aggregate
purchase price payable by reason of such exercise, (C) by authorizing the
Company to withhold whole shares of Common Stock which would otherwise be
delivered upon exercise of the option having a Fair Market Value, determined as
of the date of exercise, equal to the aggregate purchase price payable by reason
of such exercise, (D) in cash by a broker-dealer acceptable to the Company to
whom the optionee has submitted an irrevocable notice of exercise or (E) a
combination of (A), (B) and (C), in each case to the extent determined by the
Committee at the time of grant of the option, and (ii) by executing such
documents as the Company may reasonably request. The Committee shall have sole
discretion to disapprove of an election pursuant to any of clauses (B)-(E) and
shall have the further discretion to require that optionees subject to Section
16 of the Exchange Act comply with the rules and regulations thereunder. No
share of Common Stock shall be delivered until the full purchase price therefor
has been paid. Any fraction of a share of Common Stock which would be required
to pay such purchase price shall be disregarded and the remaining amount due
shall be paid in cash by the optionee.
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<PAGE>
3. Termination of Employment or Service to the Company or Cessation of Status as
Non-Employee Director.
(a) Death or Disability. If an optionee dies, or if by reason of his or
her permanent and total disability (within the meaning of Section 22(e)(3) of
the Code) (a "Permanent and Total Disability"), an optionee ceases to be an
employee, consultant or advisor to the Company or a non-employee director, then
each option held by such optionee shall be exercisable only to the extent that
such option is exercisable on the date of such death or on the date of such
cessation of employment, service as a consultant or advisor or non-employee
director status. Each such option shall remain exercisable for a period of one
year after such date, or until the expiration of the full term of the option
(the "Option Term"), whichever period is shorter. If during the period an option
remains exercisable such an optionee dies, then the exercisability period shall
expire on the earlier of (i) one year after the date of death and (ii) the
expiration of the Option Term and such an option shall be exercisable by the
optionee's designated beneficiary or, if none, the optionee's executor,
administrator, legal representative or similar person.
(b) Other Termination of Employment or Service or Status as
Non-Employee Director. Subject to paragraph (c) of this Section II.3, if for any
reason other than death or Permanent and Total Disability an optionee's
employment with or service as a consultant or advisor to the Company terminates
or an optionee's status as a non-employee director terminates, then each option
held by such optionee (i) shall be exercisable only to the extent such option is
exercisable as of the effective date of such termination and (ii) shall remain
exercisable for a period of 30 days after such date, or until the expiration of
the Option Term, whichever period is shorter. If any optionee shall die within
such 30-day period, the optionee's options shall remain exercisable by the
optionee's designated beneficiary, of if none, the optionee's executor,
administrator, legal representative or similar person for a period of six months
after the optionee's death or until the expiration of the term of the option,
whichever period is shorter. Notwithstanding the first sentence of this
subsection (b), if an optionee ceases to be employed by the Company (including
as a consultant or advisor) on account of such optionee's gross negligence,
willful misconduct, competition with the Company or an affiliate of the Company
within the meaning of Rule 144 promulgated under the Exchange Act (an
"Affiliate") or misappropriation of confidential information of the Company or
an Affiliate, such optionee's options shall terminate on the date the optionee's
employment with the Company terminates.
(c) Retirement; Board Consent. If an optionee's employment with or
service as a consultant or advisor to the Company terminates or an optionee's
status as a non-employee director terminates by reason of the optionee's
retirement after attainment of age 65 or by reason of the optionee's resignation
of employment, service as a consultant or advisor or status as a non-employee
director at any age with the prior consent of the Board, the stock options held
by such optionee shall be exercisable only to the extent that such options are
exercisable on the effective date of such optionee's retirement or resignation,
as the case may be, and after such date may be exercised by such optionee (or
such optionee's legal representative) for a period of three months after such
effective date or until the expiration of the Option Term, whichever period is
shorter. If the optionee who has so retired or resigned
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shall die within such period, the option shall be exercisable by the beneficiary
or beneficiaries duly designated by the optionee or, if none, the executor or
administrator of the optionee's estate or, if none, the person to whom the
optionee's rights under such option shall pass by will or by the applicable laws
of descent and distribution, to the same extent such option was exercisable by
the optionee on the date of the optionee's death, for a period ending six months
after the effective date of such optionee's retirement or resignation or until
the expiration of the Option Term, whichever period is shorter. The expiration
of a non-employee director's term as a director, including the failure of a
non-employee director to be nominated for an additional term or, if so
nominated, to win re-election, shall be deemed to be a resignation with the
consent of the Board for purposes hereof.
III. GENERAL
1. Effective Date and Term of Plan. This Plan shall be submitted to the
stockholders of the Company for approval and, if approved, shall become
effective as of July 18, 1995, the date of approval by the Board. If this Plan
is not approved by the stockholders of the Company on or before July 18, 1996,
this Plan and any options granted hereunder shall be null and void. Options may
be granted hereunder at any time on or after the effective date, and prior to
the termination of this Plan. This Plan shall terminate ten years after its
effective date unless terminated earlier by the Board. Termination of this Plan
shall not affect the terms or conditions of any option granted prior to
termination.
2. Amendments. The Board may amend this Plan as it shall deem advisable, subject
to any requirement of stockholder approval required by applicable law, including
Rule 16b-3 under the Exchange Act; provided, however, that no amendment shall be
made without stockholder approval if such amendment would (a) increase the
maximum number of shares of Common Stock available under this Plan (subject to
Section III.7), (b) reduce the minimum purchase price per share of Common Stock
subject to an option, (c) effect any change inconsistent with Section 422 of the
Code, or (d) extend the term of this Plan or the maximum period during which an
option may be exercised; provided, further, that the category of persons
eligible to be granted options shall not be amended more than once every six
months, other than to comply with changes in the Code and the Employee
Retirement Income Security Act of 1974, as amended, or the rules and regulations
thereunder. No amendment may impair the rights of a holder of an outstanding
option without the consent of such holder.
3. Agreement. No option shall be effective until an Agreement has been executed
by the Company and the optionee and, upon execution by the Company and the
optionee and delivery of the Agreement to the Company, such option shall be
effective as of the effective date set forth in the Agreement, subject to the
requirement of stockholder approval as described in Section III.1.
4. Non-Transferability. No option shall be transferable other than by will or
the laws of descent and distribution and shall be exercisable during the
optionee's lifetime only by the optionee or the optionee's guardian, legal
representative or similar person. Except as
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<PAGE>
permitted by the preceding sentence, no option hereunder shall be sold,
transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed
of (whether by operation of law or otherwise) or be subject to execution,
attachment or similar process. Upon any attempt to so sell, transfer, assign,
pledge, hypothecate, encumber or otherwise dispose of any option hereunder, such
option and all rights thereunder shall immediately become null and void.
5. Tax Withholding. The Company shall have the right to require, prior to the
issuance or delivery of any shares of Common Stock, payment by the optionee of
any Federal, state, local or other taxes which may be required to be withheld or
paid in connection with an option hereunder. An Agreement may provide that (i)
the Company shall withhold shares of Common Stock which would otherwise be
delivered upon exercise of the option having a Fair Market Value determined as
of the date the obligation to withhold or pay taxes arises in connection with
the option (the "Tax Date") in the amount necessary to satisfy any such
obligation or (ii) the optionee may satisfy any such obligation by any of the
following means: (A) a cash payment to the Company, (B) delivery to the Company
of whole shares of Common Stock (which the optionee has held at least six months
prior to delivery of such shares and for which the optionee has good title, free
and clear of all liens and encumbrances) having a Fair Market Value, determined
as of the Tax Date, equal to such obligation, (C) authorizing the Company to
withhold whole shares of Common Stock which would otherwise be delivered upon
exercise of the option having an aggregate Fair Market Value, determined as of
the Tax Date, equal to such obligation, (D) a cash payment by a broker-dealer
acceptable to the Company to whom the optionee has submitted an irrevocable
notice of exercise or (E) any combination of (A), (B) and (C); provided,
however, that the Committee shall have sole discretion to disapprove of an
election pursuant to any of clauses (B)-(E) and that in the case of an optionee
who is subject to Section 16 of the Exchange Act, the Company may require that
the method of satisfying any such obligation be in compliance with Section 16
and the rules and regulations thereunder. An Agreement may provide for shares of
Common Stock to be delivered or withheld having a Fair Market Value in excess of
the minimum amount required to be withheld. Any fraction of a share of Common
Stock which would be required to satisfy any such obligation shall be
disregarded and the remaining amount due shall be paid in cash by the optionee.
6. Restrictions on Shares. Each option shall be subject to the requirement that
if at any time the Company determines that the registration or qualification of
the shares of Common Stock subject to such option under any law, the consent or
approval of any governmental body, or the taking of any other action is
necessary or desirable as a condition of, or in connection with, the delivery of
shares thereunder, such shares shall not be delivered unless such registration,
qualification, consent, approval or other action shall have been effected or
obtained, free of any conditions not acceptable to the Company. The Company may
require that certificates evidencing shares of Common Stock delivered pursuant
to any option hereunder bear a legend indicating that the sale, transfer or
other disposition thereof by the holder is prohibited except in compliance with
the Securities Act of 1933, as amended, and the rules and regulations
thereunder.
7. Adjustment. In the event of any stock split, reverse stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, combination,
reclassification,
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exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock other
than a regular cash dividend, the number and class of securities available under
this Plan, the number and class of securities subject to each outstanding option
and the purchase price per security shall be appropriately adjusted by the
Committee, such adjustments to be made in the case of outstanding options
without a change in the aggregate purchase price. If any adjustment would result
in a fractional security being available under an option subject to this Plan,
such fractional security shall be disregarded.
8. Acceleration Upon Reorganization or Change in Control.
(a) Notwithstanding any other provision of the Plan or any provision of
any agreement, in the event of a Change in Control, all outstanding options
shall become immediately exercisable in full. In the event of a Change in
Control pursuant to Section III.8(b)(3) below, there may be substituted for each
share of Common Stock available under the Plan, whether or not then subject to
an outstanding option, the number and class of shares into which each
outstanding share of such Common Stock shall be converted pursuant to such
Change in Control. In the event of such a substitution, the purchase price per
share of Common Stock then subject to an outstanding option under the Plan shall
be appropriately adjusted by the Committee, but in no event shall the aggregate
purchase price for such shares be greater than the aggregate purchase price for
the shares of Common Stock subject to such option prior to the Change in
Control. If any such Change of Control involves a cash-out merger or similar
transaction in which the stockholders of the Company (other than the person or
persons acquiring control) receive cash in exchange for their shares of Common
Stock, all outstanding options shall be deemed to have been exercised on a
cashless or net basis immediately prior to such Change in Control. In the event
that an optionee does not exercise his or her options prior to the consummation
of such Change of Control, the optionee shall thereafter be entitled to receive
upon exercise of such options the amount of cash, shares of stock or other
securities or property to which such optionee would have been entitled as a
result of the Change of Control had such options been exercised immediately
prior thereto.
(b) For purposes of the Plan, "Change in Control" shall mean:
(1) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act, of beneficial ownership
within the meaning of Rule 13d-3 promulgated under the Exchange Act, of
25% or more of the combined voting power of the then outstanding
securities of the Company entitled to vote generally on matters
(without regard to the election of directors) (the "Outstanding Voting
Securities"), excluding, however, the following: (i) any acquisition
directly from the Company or an Affiliate (excluding any acquisition
resulting from the exercise of an exercise, conversion or exchange
privilege, unless the security being so exercised, converted or
exchanged was acquired directly from the Company or an Affiliate), (ii)
any acquisition by the Company or an Affiliate, (iii) any acquisition
by an employee benefit plan (or related trust) sponsored or maintained
by the Company or an Affiliate, (iv) any acquisition by
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<PAGE>
any corporation pursuant to a transaction which complies with clauses
(i), (ii) and (iii) of subsection (3) of this Section III.8(b), or (v)
any acquisition by Milan Mandaric, members of his immediate family or
any trust or similar arrangement (including any acquisition on behalf
of such trust or similar arrangement by the trustees or similar
persons), provided that none of the current beneficiaries of such trust
or similar arrangement are persons other than Milan Mandaric, members
of his immediately family or their lineal descendants (all such
persons, collectively, the "Exempted Persons");
(2) individuals who, as of June 30, 1995, constitute the Board
of Directors (the "Incumbent Board") cease for any reason to constitute
at least a majority of such Board, provided that any individual who
becomes a director of the Company subsequent to June 30, 1995, whose
election, or nomination for election by the Company's stockholders, was
approved by the vote of at least a majority of the directors then
comprising the Incumbent Board shall be deemed a member of the
Incumbent Board; provided, further, that any individual who was
initially elected as a director of the Company as a result of an actual
or threatened election contest, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act, or any other
actual or threatened solicitation of proxies or consents by or on
behalf of any Person other than the Board, shall not be deemed a member
of the Incumbent Board;
(3) approval by the stockholders of the Company of a
reorganization, merger or consolidation or sale or other disposition of
all or substantially all of the assets of the Company (a "Corporate
Transaction"), excluding, however, a Corporate Transaction pursuant to
which (i) all or substantially all of the individuals or entities who
are the beneficial owners of the Outstanding Voting Securities
immediately prior to such Corporate Transaction will beneficially own,
directly or indirectly, more than 50% of the combined voting power of
the outstanding securities of the corporation resulting from such
Corporate Transaction (including, without limitation, a corporation
which as a result of such transaction owns, either directly or
indirectly, the Company or all or substantially all of the Company's
assets) which are entitled to vote generally on matters (without regard
to the election of directors), in substantially the same proportions
relative to each other as the shares of Outstanding Voting Securities
are owned immediately prior to such Corporate Transaction, (ii) no
Person (other than the following Persons: (v) the Company or an
Affiliate, (w) any employee benefit plan (or related trust) sponsored
or maintained by the Company or an Affiliate, (x) the corporation
resulting from such Corporation Transaction, (y) the Exempted Persons,
(z) and any Person which beneficially owned, immediately prior to such
Corporate Transaction, directly or indirectly, 25% or more of the
Outstanding Voting Securities) will beneficially own, directly or
indirectly, 25% or more of the combined voting power of the outstanding
securities of such corporation entitled to vote generally on matters
(without regard to the election of directors) and (iii) individuals who
were members of the Incumbent Board will constitute at least a majority
of the members of the board of directors of the corporation resulting
from such Corporate Transaction; or
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<PAGE>
(4) approval by the stockholders of the Company of a plan of
complete liquidation or dissolution of the Company.
(c) Notwithstanding the foregoing, the grant of options under this Plan
shall in no way affect the right of the Company to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
9. Unfunded Plan. This Plan shall be unfunded. No person shall have any rights
greater than those of a general creditor of the Company.
10. No Right of Participation or Employment. No person shall have any right to
participate in this Plan. Neither this Plan nor any option granted hereunder
shall confer upon any person any right to continued employment by the Company or
any affiliate of the Company or affect in any manner the right of the Company or
any affiliate of the Company to terminate the employment of any person at any
time without liability hereunder.
11. Rights as Stockholder. No person shall have any right as a stockholder of
the Company with respect to any shares of Common Stock which are subject to an
option hereunder until such person becomes a stockholder of record with respect
to such shares of Common Stock.
12. Delivery of Financial Statements. The Company shall deliver to each optionee
financial statements of the Company at least annually while such optionee holds
an outstanding option.
13. Designation of Beneficiary.
(a) Each optionee may file with the Committee a written designation of
one or more persons as such optionee's beneficiary or beneficiaries (both
primary and contingent) in the event of the optionee's death. To the extent an
outstanding option granted hereunder is exercisable, such beneficiary or
beneficiaries shall be entitled to exercise such option.
(b) Each beneficiary designation shall become effective only when filed
in writing with the Committee during the optionee's lifetime on a form
prescribed by the Committee. The spouse of a married optionee domiciled in a
community property jurisdiction shall join in any designation of a beneficiary
other than such spouse. The filing with the Committee of a new beneficiary
designation shall cancel all previously filed beneficiary designations.
(c) If an optionee fails to designate a beneficiary, or if all
designated beneficiaries of an optionee predecease the optionee, then each
outstanding option hereunder held by such optionee, to the extent exercisable,
may be exercised by such optionee's executor, administrator, legal
representative or similar person.
14. Governing Law. This Plan, each option hereunder and the related Agreement,
and all determinations made and actions taken pursuant thereto, to the extent
not governed by the
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Code or the laws of the United States, shall be governed by the laws of the
State of Delaware and construed in accordance therewith without giving effect to
principles of conflicts of laws.
15. Approval of Plan. This Plan and all awards made hereunder shall be null and
void if the adoption of this Plan is not approved by the stockholders of the
Company by July 18, 1996.
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FORM OF STOCK OPTION AGREEMENT
ELEXSYS INTERNATIONAL, INC.
1995 STOCK OPTION PLAN
This Stock Option Agreement (the "Agreement") dated as of
_____________, _____, is entered into between Elexsys International, Inc., a
Delaware corporation (the "Company") and _____________________ ("Optionee").
1. Grant and Acceptance of Option.
1.1. Grant. The Company hereby grants to Optionee as of the
date here of (the "Grant Date") pursuant to the provisions of the Elexsys
International, Inc. 1995 Stock Option Plan (the "Plan"), an option to purchase
from the Company (the "Option") ________ shares of its common stock, $1.00 par
value per share (the "Common Stock"), at the price of $____ per share [IN THE
EVENT OF A GRANT OF INCENTIVE STOCK OPTIONS, NOTE RESTRICTIONS ON EXERCISE PRICE
AND VALUE OF SHARES WHICH CAN BECOME EXERCISABLE IN ANY GIVEN CALENDAR YEAR]
upon and subject to the terms and conditions set forth below. Capitalized terms
not defined herein shall have the meanings specified in the Plan.
1.2. Designation as [INCENTIVE] [NON-QUALIFIED] Stock Option.
The Option [IS] [IS NOT] intended to qualify as an "Incentive Stock Option"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
1.3 Option Subject to Acceptance of Agreement; Shareholder
Approval. The Option shall become null and void unless (i) the Plan shall have
been approved by holders of a majority of outstanding shares of Common Stock
entitled to vote at a meeting of shareholders held prior to July 18, 1996, and
(ii) the Optionee shall accept this Agreement by executing it in the space
provided below and returning it to the Company.
2. Time and Manner of Exercise of Option.
2.1. Maximum Term of Option. The term of the Option shall
commence as of the Grant Date and shall terminate on ______________ [MAXIMUM TEN
YEARS FROM GRANT DATE, EXCEPT FOR INCENTIVE STOCK OPTIONS GRANTED TO TEN PERCENT
HOLDER, IN WHICH CASE THE MAXIMUM IS FIVE YEARS] (the "Expiration Date"). The
Option shall not be exercised, in whole or in part, after the Expiration Date.
2.2. Exercise of Option. The Optionee may purchase shares that
are subject to the Option (i) on a cumulative basis or in non-cumulative
installments as the right to acquire such shares becomes vested as set forth
below, and (ii) as otherwise provided pursuant to Section 2.3 hereof or in
accordance with Section III.8 of the Plan [MUST NOT VEST PRIOR TO SHAREHOLDER
APPROVAL AND MUST VEST AT A RATE OF AT LEAST 20% PER YEAR]:
<PAGE>
Number of Shares
Vesting First Exercisable
Date on Such Date
------- -----------------
------------------------- -------------------------
------------------------- -------------------------
------------------------- -------------------------
------------------------- -------------------------
------------------------- -------------------------
The Optionee may purchase less than the number of shares covered hereby,
provided that no partial exercise of the Option may be for any fractional share
or less than a total of ten whole shares at any time.
2.3. [TERMINATION OF EMPLOYMENT] OR [CESSATION OF STATUS AS
NON- EMPLOYEE DIRECTOR].
(a) Death or Disability. If Optionee dies, or if by reason of
his or her permanent and total disability (within the meaning of Section
22(e)(3) of the Code) (a "Permanent and Total Disability"), Optionee ceases to
be an [EMPLOYEE] OR [NON-EMPLOYEE DIRECTOR], then the Option shall be
exercisable only to the extent that such Option is exercisable on the date of
such death or on the date of such cessation of [EMPLOYMENT] OR [NON-EMPLOYEE
DIRECTOR STATUS]. Such Option shall remain exercisable for a period of one year
after such date, or until the expiration of the full term of the Option (the
"Option Term"), whichever period is shorter. If during the period such Option
remains exercisable Optionee dies, then the exercisability period shall expire
on the earlier of (i) one year after the date of death, and (ii) the expiration
of the Option Term and such Option shall be exercisable by the Optionee's
designated beneficiary or, if none, Optionee's executor, administrator, legal
representative or similar person.
(b) Other [TERMINATION OF EMPLOYMENT] OR [CESSATION OF STATUS
AS NON-EMPLOYEE DIRECTOR]. Subject to paragraph (c) of this Section 2.3, if for
any reason other than death or Permanent and Total Disability Optionee's
[EMPLOYMENT WITH THE COMPANY] OR [STATUS AS A NON-EMPLOYEE DIRECTOR] terminates,
then the Option (i) shall be exercisable only to the extent the Option is
exercisable as of the effective date of such termination, and (ii) shall remain
exercisable for a period of 30 days after such date, or until the expiration of
the Option Term, whichever period is shorter. If Optionee shall die within such
30-day period, such Option shall remain exercisable by Optionee's designated
beneficiary or, if none, Optionee's executor, administrator, legal
representative or similar person for a period of six months after Optionee's
death or until the expiration of the Option Term, whichever period is shorter.
Notwithstanding the first sentence of this paragraph(b),
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if Optionee ceases to be [EMPLOYED BY THE COMPANY] OR [A NON-EMPLOYEE DIRECTOR]
on account of Optionee's gross negligence, willful misconduct, competition with
the Company or with an affiliate of the Company within the meaning of Rule 144
promulgated under the Exchange Act (an "Affiliate") or misappropriation of
confidential information of the Company or an Affiliate, the Option shall
terminate on the date Optionee's [EMPLOYMENT WITH THE COMPANY] OR [STATUS AS A
NON-EMPLOYEE DIRECTOR] terminates.
(c) Retirement; Board Consent. If Optionee's [EMPLOYMENT WITH
THE COMPANY] OR [STATUS AS A NON-EMPLOYEE DIRECTOR] terminates by reason of
Optionee's retirement after attainment of age 65 or by reason of Optionee's
resignation [OF EMPLOYMENT] OR [AS A NON-EMPLOYEE DIRECTOR] at any age with the
prior consent of the Board, the Option shall be exercisable only to the extent
that the Option is exercisable on the effective date of Optionee's retirement or
resignation, as the case may be, and after such date may be exercised by
Optionee (or Optionee's legal representative) for a period of three months after
such effective date or until the expiration of the Option Term, whichever period
is shorter. If Optionee shall die within such period, the Option shall be
exercisable by the beneficiary or beneficiaries duly designated by Optionee or,
if none, the executor or administrator of Optionee's estate or, if none, the
person to whom Optionee's rights under the Option shall pass by will or by the
applicable laws of descent and distribution, to the same extent the Option was
exercisable by Optionee on the date of Optionee's death, for a period ending six
months after the effective date of Optionee's retirement or resignation or until
the expiration of the Option Term, whichever period is shorter. [THE EXPIRATION
OF A NON-EMPLOYEE DIRECTOR'S TERM AS A DIRECTOR, INCLUDING THE FAILURE OF A
NON-EMPLOYEE DIRECTOR TO BE NOMINATED FOR AN ADDITIONAL TERM OR, IF SO
NOMINATED, TO WIN RE-ELECTION, SHALL BE DEEMED TO BE A RESIGNATION WITH THE
CONSENT OF THE BOARD FOR PURPOSES HEREOF.]
2.4. Method of Exercise.
(a) Subject to the limitations set forth in this Agreement,
the Option may be exercised by the Optionee (1) by giving written notice to the
Company specifying the number of whole shares of Common Stock to be purchased
and accompanied by payment therefor in full (or arrangement made for such
payment to the Committee's satisfaction) either (i) in cash, (ii) in previously
owned whole shares of Common Stock (which the Optionee has held for at least six
months prior to the date of delivery of such shares and to which the Optionee
has good title free and clear of all liens and encumbrances) having a Fair
Market Value, determined as of the date of exercise, equal to the aggregate
purchase price payable pursuant to the Option by reason of such exercise, (iii)
by authorizing the Company to withhold whole shares of Common Stock which would
otherwise be delivered upon exercise of the Option having a Fair Market Value,
determined as of the date of exercise, equal to the aggregate purchase price
payable pursuant to the Option by reason of such exercise, (iv) in cash by a
broker-dealer acceptable to the Company to whom the Optionee has submitted an
irrevocable notice of exercise, or (v) a combination of (i), (ii) and (iii), and
(2) by executing such documents as the Company may reasonably request. The
Committee shall have sole discretion to disapprove of an election pursuant to
any of clauses (ii) through (v). No share of Common Stock shall be delivered
until the full purchase price therefor has been paid. Any fraction of a share of
Common Stock which would be required to pay such
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<PAGE>
purchase price shall be disregarded and the remaining amount due shall be paid
in cash by the Optionee.
(b) Unless the Committee otherwise determines, if the Optionee
is subject to Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Optionee's election to authorize the Company to withhold
whole shares of Common Stock purchasable upon exercise of the Option in payment
of all or a portion of the option price (i) shall be subject to approval by the
Committee, (ii) may not take effect during the six-month period beginning on the
date of grant of the Option (other than in the event of the Optionee's death),
(iii) must be filed with the Chief Executive Officer during (or in advance of,
but to take effect during) the ten business day period beginning on the third
business day following the date of release of the Company's quarterly or annual
summary statements of sales and earnings, and (iv) the exercise of the Option
must occur during such ten business day period. Unless the Committee otherwise
determines, any such election may be revoked or changed prior to the exercise of
the Option during such ten business day period.
3. Additional Terms and Conditions of Option.
3.1. Nontransferability of Option. The Option may not be
transferred by the Optionee other than by will, the laws of descent and
distribution, or pursuant to Section III.13 of the Plan. During the Optionee's
lifetime the Option is exercisable only by the Optionee or the Optionee's legal
representative. Except as permitted by the foregoing, the Option may not be
sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise
disposed of (whether by operation of law or otherwise) or be subject to
execution, attachment or similar process. Upon any attempt to so sell, transfer,
assign, pledge, hypothecate, encumber or otherwise dispose of the Option, the
Option and all rights hereunder shall immediately become null and void.
3.2. Investment Representation. The Optionee hereby represents
and covenants that (a) any share of Common Stock purchased upon exercise of the
Option will be purchased for investment and not with a view to the distribution
thereof within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), unless such purchase has been registered under the Securities
Act and any applicable state securities law; (b) any subsequent sale of any such
shares shall be made either pursuant to an effective registration statement
under the Securities Act and any applicable state securities laws, or pursuant
to an exemption from registration under the Securities Act and such state
securities laws; and (c) if requested by the Company, the Optionee shall submit
a written statement, in form satisfactory to the Company, to the effect that
such representation (x) is true and correct as of the date of purchase of any
shares hereunder or (y) is true and correct as of the date of any sale of any
such shares, as applicable. As a further condition precedent to any exercise of
the Option, the Optionee shall comply with all regulations and requirements of
any regulatory authority having control of or supervision over the issuance or
delivery of the shares and, in connection therewith, shall execute any documents
which the Board or the Committee shall in its sole discretion deem necessary or
advisable.
-4-
<PAGE>
3.3. Withholding Taxes.
(a) As a condition precedent to any exercise of the Option,
the Optionee shall, upon request by the Company, pay to the Company in addition
to the purchase price of the shares, such amount of cash as the Company may be
required, under all applicable federal, state, local or other laws or
regulations, to withhold and pay over as income or other withholding taxes (the
"Required Tax Payments") with respect to such exercise of the Option. If the
Optionee shall fail to advance the Required Tax Payments after request by the
Company, the Company may, in the Committee's discretion, deduct any Required Tax
Payments from any amount then or thereafter payable by the Company to the
Optionee.
(b) The Optionee may elect to satisfy his or her obligation to
advance the Required Tax Payments by any of the following means: (1) a cash
payment to the Company pursuant to Section 3.3(a), (2) delivery to the Company
of previously owned whole shares of Common Stock (which the Optionee has held
for at least six months prior to the date of delivery of such shares and to
which the Optionee has good title, free and clear of all liens and encumbrances)
having a Fair Market Value, determined as of the date on which the obligation to
withhold or pay taxes first arises in connection with the Option (the "Tax
Date"), equal to the amount of the Required Tax Payments, (3) authorizing the
Company to withhold whole shares of Common Stock which would otherwise be
delivered to the Optionee upon exercise of the Option having a Fair Market
Value, determined as of the Tax Date, equal to the amount of the Required Tax
Payments, (4) a cash payment by a broker-dealer acceptable to the Company to
whom the Optionee has submitted an irrevocable notice of exercise or (5) any
combination of (1), (2) and (3). The Committee shall have sole discretion to
disapprove of an election pursuant to any of clauses (2) through (5). Shares of
Common Stock to be delivered or withheld may have a Fair Market Value in excess
of the minimum amount of the Required Tax Payments, but not in excess of the
amount determined by applying the Optionee's maximum marginal tax rate. Any
fraction of a share of Common Stock which would be required to satisfy any such
obligation shall be disregarded and the remaining amount due shall be paid in
cash by the Optionee.
(c) Unless the Committee otherwise determines, if the Optionee
is subject to Section 16 of the Exchange Act, the following provisions shall
apply to the Optionee's election to deliver to the Company whole shares of
Common Stock or to authorize the Company to withhold whole shares of Common
Stock purchasable upon exercise of the Option in payment of all or a portion of
the Optionee's tax liability in connection with such exercise:
(1) The Optionee may deliver to the Company
previously owned whole shares of Common Stock in accordance with Section 3.3(b),
if such delivery is in connection with the delivery of shares of Common Stock in
payment of the exercise price of the Option.
(2) The Optionee may authorize the Company to
withhold whole shares of Common Stock purchasable upon exercise of the Option in
accordance with Section 3.3(b), provided that such election (A) shall be subject
to approval by the Committee, (B)
-5-
<PAGE>
may not take effect during the six-month period beginning on the date of grant
of the Option (other than in the event of the Optionee's death), (C) must be
filed with the Chief Executive Officer during (or in advance of, but to take
effect during) the ten business day period beginning on the third business day
following the date of release of the Company's quarterly or annual summary
statements of sales and earnings and (D) the exercise of the Option must occur
during such ten business day period. Unless the Committee shall determine
otherwise, any such election may be revoked or changed prior to the exercise of
the Option during such ten business day period.
3.4. Adjustment. In the event of any stock split, reverse
stock split, stock dividend, recapitalization, reorganization, merger,
consolidation, combination, reclassification, exchange of shares, liquidation,
spin-off or other similar change in capitalization or event, or any distribution
to holders of Common Stock other than a regular cash dividend, the number and
class of securities subject to the Option and the purchase price per security
shall be appropriately adjusted by the Committee without a change in the
aggregate purchase price. If any adjustment would result in a fractional
security being subject to the Option, such fractional security shall be
disregarded.
3.5. Compliance with Applicable Law. The Option is subject to
the condition that if the listing, registration or qualification of the shares
subject to the Option upon any securities exchange or under any law, or the
consent or approval of any governmental body, or the taking of any other action
is necessary or desirable as a condition of, or in connection with, the purchase
or delivery of shares hereunder, the Option may not be exercised, in whole or in
part, unless such listing, registration, qualification, consent, approval or
other action shall have been effected or obtained, free of any conditions not
acceptable to the Company. The Company agrees to use reasonable efforts to
effect or obtain any such listing, registration, qualification, consent or
approval.
3.6. Delivery of Certificates. Upon the exercise of the
Option, in whole or in part, the Company shall deliver or cause to be delivered
one or more certificates representing the number of shares purchased against
full payment therefor. The Company shall pay all original issue or transfer
taxes and all fees and expenses incident to such delivery, except as otherwise
provided in Section 3.3.
3.7. Option Confers No Rights as Stockholder. The Optionee
shall not be entitled to any privileges of ownership with respect to shares of
Common Stock subject to the Option unless and until purchased and delivered upon
the exercise of the Option, in whole or in part, and the Optionee becomes a
stockholder of record with respect to such delivered shares. The Optionee shall
not be considered a stockholder of the Company with respect to any shares
subject to the Option not so purchased and delivered.
3.8. Option Confers No Rights to Continued Employment. In no
event shall the granting of the Option or its acceptance by the Optionee give or
be deemed to give the Optionee any right to continued employment by the Company
or any affiliate of the Company.
-6-
<PAGE>
3.9. Decisions of Board or Committee. The Board or the
Committee shall have the right to resolve all questions which may arise in
connection with the Option or its exercise. Any interpretation, determination or
other action made or taken by the Board or the Committee regarding the Plan or
this Agreement shall be final, binding and conclusive.
3.10. Reservation of Shares. The Company shall at all times
prior to the expiration or termination of the Option reserve and keep available,
either in its treasury or out of its authorized but unissued shares of Common
Stock, the full number of shares subject to the Option from time to time.
3.11. Agreement Subject to the Plan. This Agreement is subject
to the provisions of the Plan, and shall be interpreted in accordance therewith.
The Optionee hereby acknowledges receipt of a copy of the Plan.
4. Miscellaneous Provisions.
4.1. Usage. References in this Agreement to a statute or other
governmental rule are to it as amended and otherwise modified from time to time
(and references to any provision thereof shall include any successor provision).
4.2. Successors. This Agreement shall be binding upon and
inure to the benefit of any successor or successors of the Company and any
person or persons who shall, upon the death of the Optionee, acquire any rights
hereunder in accordance with this Agreement or the Plan.
4.3. Notices. All notices, requests or other communications
provided for in this Agreement shall be made in writing by hand-delivery,
first-class mail (registered or certified, return receipt requested), telecopier
or overnight air courier guaranteeing next business day delivery to the address
specified on the signature page of this Agreement or such other address as the
party entitled to notice shall designate in a notice in accordance with this
Section 4.3. Each such notice shall be deemed given: at the time delivered, if
personally delivered or mailed; when receipt is acknowledged, if telecopied; and
the next business day after timely delivery to the courier, if sent by overnight
air courier guaranteeing next business day delivery.
4.4. Governing Law. The Option, this Agreement, and all
determinations made and actions taken pursuant hereto and thereto, to the extent
not governed by the laws of the United States, shall be governed by the laws of
the State of Delaware and construed in accordance therewith without regard to
principles of conflicts of laws.
4.5. Acceleration Upon Reorganization or Change in Control.
(a) Notwithstanding any other provision of the Plan or any
provision of any agreement, in the event of a Change in Control, all outstanding
options shall become immediately exercisable in full. In the event of a Change
in Control pursuant to Section 4.6(b)(3) below, there may be substituted for
each share of Common Stock available under
-7-
<PAGE>
the Plan, whether or not then subject to an outstanding option, the number and
class of shares into which each outstanding share of such Common Stock shall be
converted pursuant to such Change in Control. In the event of such a
substitution, the purchase price per share of Common Stock then subject to an
outstanding option under the Plan shall be appropriately adjusted by the
Committee, but in no event shall the aggregate purchase price for such shares be
greater than the aggregate purchase price for the shares of Common Stock subject
to such option prior to the Change in Control. If any such Change of Control
involves a cash-out merger or similar transaction in which the stockholders of
the Company (other than the person or persons acquiring control) receive cash in
exchange for their shares of Common Stock, all outstanding options shall be
deemed to have been exercised on a cashless or net basis immediately prior to
such Change in Control. In the event that an optionee does not exercise his or
her options prior to the consummation of such Change of Control, the optionee
shall thereafter be entitled to receive upon exercise of such options the amount
of cash, shares of stock or other securities or property to which such optionee
would have been entitled as a result of the Change of Control had such options
been exercised immediately prior thereto.
(b) For purposes of the Plan, "Change in Control" shall mean:
(1) the acquisition by any individual, entity or
group (a "Person"), including any "person" within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act, of beneficial ownership within the
meaning of Rule 13d-3 promulgated under the Exchange Act, of 25% or more of the
combined voting power of the then outstanding securities of the Company entitled
to vote generally on matters (without regard to the election of directors) (the
"Outstanding Voting Securities"), excluding, however, the following: (i) any
acquisition directly from the Company or an Affiliate (excluding any acquisition
resulting from the exercise of an exercise, conversion or exchange privilege,
unless the security being so exercised, converted or exchanged was acquired
directly from the Company or an Affiliate), (ii) any acquisition by the Company
or an Affiliate, (iii) any acquisition by an employee benefit plan (or related
trust) sponsored or maintained by the Company or an Affiliate, (iv) any
acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (3) of this Section III.8(b), or (v)
any acquisition by Milan Mandaric, members of his immediate family or any trust
or similar arrangement (including any acquisition on behalf of such trust or
similar arrangement by the trustees or similar persons), provided that none of
the current beneficiaries of such trust or similar arrangement are persons other
than Milan Mandaric, members of his immediately family or their lineal
descendants (all such persons, collectively, the "Exempted Persons");
(2) individuals who, as of June 30, 1995, constitute
the Board of Directors (the "Incumbent Board") cease for any reason to
constitute at least a majority of such Board, provided that any individual who
becomes a director of the Company subsequent to June 30, 1995, whose election,
or nomination for election by the Company's stockholders, was approved by the
vote of at least a majority of the directors then comprising the Incumbent Board
shall be deemed a member of the Incumbent Board; provided, further, that any
individual who was initially elected as a director of the Company as a result of
an actual or threatened election contest, as such terms are used in Rule 14a-11
of Regulation 14A
-8-
<PAGE>
promulgated under the Exchange Act, or any other actual or threatened
solicitation of proxies or consents by or on behalf of any Person other than the
Board, shall not be deemed a member of the Incumbent Board;
(3) approval by the stockholders of the Company of a
reorganization, merger or consolidation or sale or other disposition of all or
substantially all of the assets of the Company (a "Corporate Transaction"),
excluding, however, a Corporate Transaction pursuant to which (i) all or
substantially all of the individuals or entities who are the beneficial owners
of the Outstanding Voting Securities immediately prior to such Corporate
Transaction will beneficially own, directly or indirectly, more than 50% of the
combined voting power of the outstanding securities of the corporation resulting
from such Corporate Transaction (including, without limitation, a corporation
which as a result of such transaction owns, either directly or indirectly, the
Company or all or substantially all of the Company's assets) which are entitled
to vote generally on matters (without regard to the election of directors), in
substantially the same proportions relative to each other as the shares of
Outstanding Voting Securities are owned immediately prior to such Corporate
Transaction, (ii) no Person (other than the following Persons: (v) the Company
or an Affiliate, (w) any employee benefit plan (or related trust) sponsored or
maintained by the Company or an Affiliate, (x) the corporation resulting from
such Corporation Transaction, (y) the Exempted Persons, (z) and any Person which
beneficially owned, immediately prior to such Corporate Transaction, directly or
indirectly, 25% or more of the Outstanding Voting Securities) will beneficially
own, directly or indirectly, 25% or more of the combined voting power of the
outstanding securities of such corporation entitled to vote generally on matters
(without regard to the election of directors), and (iii) individuals who were
members of the Incumbent Board will constitute at least a majority of the
members of the board of directors of the corporation resulting from such
Corporate Transaction; or
(4) approval by the stockholders of the Company of a
plan of complete liquidation or dissolution of the Company.
(c) Notwithstanding the foregoing, the grant of options under
this Plan shall in no way affect the right of the Company to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
4.6. Counterparts. This Agreement may be executed in
two counterparts each of which shall be deemed an original and both of which
together shall constitute one and the same instrument.
ELEXSYS INTERNATIONAL, INC.
By:
----------------------------------
Name
------------------------------
Title
-----------------------------
-9-
<PAGE>
Accepted this day of , 1995.
- - -----------------------
[NAME OF OPTIONEE]
Address for notices:
- - ------------------------------
- - ------------------------------
- - ------------------------------
-10-
EXHIBIT 11
ELEXSYS INTERNATIONAL, INC.
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994, 1993
(Thousands of dollars except per share amounts)
1995 1994 1993
---- ---- ----
Net income (loss) ................................ $5,132 $2,554 ($16,331)
Convertible debenture interest ................... 880
Net income (loss) applicable to common and
dilutive common equivalent share ................ $5,132 $3,434 ($16,331)
Earnings (loss) per common share and
common share equivalents, primary:
Income (loss) before extraordinary gain ......... $ 0.37 ($ 1.28) ($ 3.18)
Extraordinary gain, net of expenses and taxes ... $ 0.20 $ 1.82
Net income (loss) ............................... $ 0.57 $ 0.54 ($ 3.18)
Earnings (loss) per common share and
common share equivalents, fully diluted:
Income (loss) before extraordinary gain ......... $ 0.36 ($ 0.91) ( 3.18)
Extraordinary gain, net of expenses and taxes ... $ 0.20 $ 1.30
Net income (loss) ............................... $ 0.56 $ 0.39 ($ 3.18)
Weighted average of common and dilutive common
equivalent shares outstanding:
Primary weighted average shares ................ 8,623 5,953 5,133
Convertible debenture interest equivalent shares 405
Stock option equivalent shares ................. 395 29
Primary common and common equivalent shares .... 9,018 6,387
Fully diluted weighted average shares: ........... 8,623 8,335 5,133
Convertible debenture interest equivalent shares 405
Stock option equivalent shares .................. 464 29
Fully diluted common and common equivalent shares 9,087 8,769
Refer to Note 9 captioned "Net Income (Loss) Per Share" of Notes to
Consolidated Financial Statements in the Company's 1995 annual report on page 18
for additional discussion of earnings per share.
[LOGO]
ELEXSYS INTERNATIONAL, INC.
1995 ANNUAL REPORT
[GRAPHIC OMITTED]
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
- - --------------------------------------------------------------------------------
<CAPTION>
(In thousands except per
share data)
Years ended September 30, 1995 1994 1993 1992 1991 1990 1989 1988 1987
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $103,970 $ 95,680 $ 99,272 $101,396 $105,885 $125,466 $118,771 $140,685 $111,053
Income (loss) before
income taxes $ 3,519 $ (7,613) $(16,331) $(12,674) $(15,755) $(17,543) $ (4,687) $ 15,758 $ 17,835
Net income (loss) $ 5,132 $ 2,554 $(16,331) $(12,674) $(11,255) $(10,243) $ (2,287) $ 9,858 $ 9,535
Net income (loss)
as % of net sales 4.9% 2.7% (16.5%) (12.5%) (10.6%) (8.2%) (1.9%) 7.0% 8.6%
Net income (loss) per
common and com-
mon equivalent
share, primary $ 0.57 $ 0.54 $ (3.18) $ (2.46) $ (2.16) $ (1.85) $ (0.39) $ 1.62 $ 1.56
Total assets $ 45,139 $ 36,983 $48,040 $ 65,013 $ 79,405 $ 95,181 $102,953 $107,012 $101,562
Total stockholders'
equity (deficit) $ 13,908 $ 6,085 $(1,669) $ 14,639 $ 27,626 $ 38,813 $ 52,265 $ 54,552 $ 44,583
Working capital $ 7,174 $ 3,791 $ 7,172 $ 18,003 $ 16,318 $ 28,951 $ 31,386 $ 30,760 $ 21,625
</TABLE>
ABOUT THE COMPANY
- - --------------------------------------------------------------------------------
Elexsys International, Inc. is one of the country's leading manufacturers of
high performance medium and high density multilayer circuit boards, backpanel
assemblies and sophisticated card cage assemblies. The Company offers advance
interconnect solutions for the telecommunications, datacommunications,
industrial, medical and instrumentation markets.
As of September 30, 1995, Elexsys had 8,960,560 shares of common stock
outstanding. Elexsys is traded on Nasdaq's SmallCap Market under the symbol
ELEX.
<PAGE>
1995 IN REVIEW Elexsys International, Inc.
- - --------------------------------------------------------------------------------
If 1994 was a pivotal year in the long-term fortunes of Elexsys International,
Inc., then 1995 will be remembered as the year the financial fortunes of the
Company stabilized, for 1995 was the first year in seven years that the Company
reported operating profit.
The Financial Results:
For the year ended September 30, 1995, the Company reported income after taxes
and before extraordinary item of $3,299,000 or $.36 per fully diluted share. For
fiscal 1994, the Company reported a loss before extraordinary item of $7,613,000
or $.91 per fully diluted share. Net income including extraordinary item for
fiscal 1995 was $5,132,000 or $.56 per fully diluted share compared to net
income including extraordinary item for fiscal 1994 of $2,554,000 or $.39 per
fully diluted share. Net sales increased to $103,970,000 in fiscal 1995 from
$95,680,000 in fiscal 1994.
For the fourth quarter of fiscal 1995, the Company reported net income
of $3,018,000 or $.32 per primary share compared to a fourth quarter of fiscal
1994 loss of $2,686,000 or $.32 per primary share. Net sales for the fourth
quarter of fiscal 1995 increased to $30,512,000 from $21,273,000 for the
comparable period in 1994.
Extraordinary Items:
1995: In fiscal 1995, the Company reported a gain of $1,833,000 from the early
extinguishment of $4,000,000 of 5 1/2 percent Convertible Subordinated
Debentures due 2012.
1994: In fiscal 1994, the Company reported a gain of
$10,167,000 from the early extinguishment of $16,000,000 of 5 1/2 percent
Convertible Subordinated Debentures due 2012.
The Year in Review:
On October 2, 1994, I assumed the responsibilities of Chief Executive Officer
and President, accepting the task of returning this Company to profitability. We
started by reducing the workforce, from approximately 1,200 employees to
approximately 800 in the beginning of fiscal 1995, and by increasing
accountability at all levels of management.
During the first quarter of fiscal 1995, all operations officially
received ISO 9002 certification. This certification was one of the first steps
implemented to stabilize our relationships with our customers and to reaffirm
our position as a supplier of quality circuit boards and backpanel assemblies.
Beginning in the second quarter, we moved the backpanel assembly
operation and corporate headquarters to a new, larger operation with capacity of
31,000 square foot in Sunnyvale, California and we leased a new, 31,000 square
foot facility in Plano, Texas. These two new facilities will enable the Company
to expand its backpanel and card cage assembly capabilities.
Another significant step was the acquisition of substantially all the
assets of Technet Electronics, Limited, a manufacturer of printed circuit boards
located in Peterborough, England, for approximately $3,300,000, which consisted
of $560,000 in cash and assumption of approximately $2,740,000 in liabilities.
This acquisition commenced our strategic initiative to capitalize on the
European market.
In February 1995, the Board of Directors elected W. Barry Hegarty as
Chief Operating Officer. Mr. Hegarty joined the Company after eight years as
Vice President of Sales and Marketing at Sanmina Corporation, a circuit board
and backpanel manufacturer.
And in February 1995, the shareholders approved the name change from
Diceon Electronics, Inc. to Elexsys International, Inc., thus marking a new
beginning and a new image. One month later, on March 20, 1995, the Company
gained listing on Nasdaq's SmallCap Market under the ticker symbol ELEX.
Finally, on March 31, 1995, the Company addressed its balance sheet,
exchanging 400,000 newly issued shares of common stock for an aggregate of
$4,000,000 in principal amount of the Company's outstanding 5 1/2 percent
Convertible Subordinated Debentures. The net gain of $1,833,000 was recorded as
an extraordinary item in the second quarter. This transaction eliminated
$220,000 in annual interest expense and $4,000,000 in debt from the Company's
balance sheet.
Significant Financial Highlights:
Gross margin as a percentage of net sales for fiscal 1995 was 15.2 percent
compared to 7.7 percent in fiscal 1994, a 97 percent increase over the prior
year. Significantly, gross margin as a percentage of net sales for the quarter
ended September 30, 1995, was 22.3 percent, which places us with the elite in
our industry.
Sales per employee increased 21 percent to approximately $120,000 per
employee for fiscal 1995 compared to approximately $99,000 for fiscal 1994.
Working capital improved 89 percent from September 30, 1994 to
$7,174,000 at September 30, 1995. The assets of the company grew 22 percent to
$45,139,000. Stockholders' equity increased 129 percent to $13,908,000.
How the turnaround was accomplished:
A critical step in fiscal 1995 was to better identify the needs of our customers
and to respond quickly to those needs. We focused on our core engineering and
manufacturing competencies, with emphasis on marketing and selling profitable
products and better utilization of our existing manufacturing capacity. We also
reduced our dependence on outside manufacturing sources, which helps us enhance
gross margins.
To accomplish a turnaround of this magnitude required a significant
shift in the culture of the Company. Employees responded to the opportunity to
be on a winning team and that spirit was incorporated in everyone's daily
efforts. We rewarded this culture change through several incentive plans.
Incentives alone do not define success. Success comes from active
management of the business. Throughout the year, the management team worked to
focus the Company on its basic business principles. The improved financial
condition is a result of those efforts.
By facilitating greater cooperation among departments and by improving
communication among all operations and support functions, we were able to
establish 'Elexsys Pride'. 'Elexsys Pride' has been crucial in our initiatives
to improve customer responsiveness, to increase operational efficiency and to
return the Company to profitability.
The Future:
With the recent acquisition and facility improvements, we have sufficient
capacity in place for our near-term growth plans. Equipment and employees can be
added as sales growth is achieved without acquiring additional facilities.
The Company's primary source of growth will be in the production and
sale of backpanels and card cage assemblies. In addition to the backpanel and
card cage assembly operations in Sunnyvale, California and Plano, Texas, we will
expand our backpanel assembly capabilities in the Peterborough, England and the
Nashua, New Hampshire operations. We believe that we have geographically
positioned our facilities to provide the service that our customers demand.
We continue to invest in the future by hiring key people in sales,
engineering, and marketing, while concurrently adhering to our cost control
program.
We continue to expand our customer base into new regions and across
industries. One of our strengths is the breadth of our customer list: we shipped
products to approximately 317 customers in fiscal 1995. Fifty- five percent of
our customers are in telecommunications and the remainder are in
datacommunications and medical instrumentation.
In Summary:
I am pleased with the progress made by the new management team during fiscal
1995. Although optimistic about our future, we realize our task is far from
over. At this time, we would like to thank our customers, our suppliers, and,
most importantly, our employees. We are also appreciative of the support
provided by stockholders during the difficult years and we hereby renew a
commitment to make Elexsys a company of which we can all be proud.
Sincerely,
/s/ Milan Mandaric
Milan Mandaric
Chairman of the Board
and President
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA Elexsys International, Inc.
- - --------------------------------------------------------------------------------
<CAPTION>
Years ended September 30
(In thousands, except per share data) 1995 1994 1993 1992 1991
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $103,970 $95,680 $ 99,272 $101,396 $105,885
Cost of sales 88,137 88,301 98,024 100,864 104,391
-------- ------- -------- -------- --------
Gross profit 15,833 7,379 1,248 532 1,494
Operating expenses:
Selling, general and administrative 10,154 10,167 10,838 9,593 11,965
Research and development 395 718 2,302 2,868 1,542
Provision for restructuring of operations 2,100 3,000 3,500
-------- ------- -------- -------- --------
Total operating expenses 10,549 12,985 16,140 12,461 17,007
-------- ------- -------- -------- --------
Income (loss) from operations 5,284 (5,606) (14,892) (11,929) (15,513)
Other (income) expense:
Interest expense 1,765 2,034 1,856 1,872 1,928
Interest income (27) (417) (1,127) (1,686)
-------- ------- -------- -------- --------
Income (loss) before income tax provision (benefit) 3,519 (7,613) (16,331) (12,674) (15,755)
Income tax provision (benefit) 220 (4,500)
-------- ------- -------- -------- --------
Income (loss) before extraordinary item 3,299 (7,613) (16,331) (12,674) (11,255)
Extraordinary item:
Gain from exchange of Convertible
Subordinated Debentures for
common stock, net of expenses 1,833 10,167
-------- ------- -------- -------- --------
Net income (loss) $ 5,132 $ 2,554 $(16,331) $(12,674) $(11,255)
======== ======= ======== ======== ========
Net income (loss) per common and
common equivalent share:
Primary $ .57 $ .54 $ (3.18) $ (2.46) $ (2.16)
Fully diluted $ .56 $ .39 $ (3.18) $ (2.46) $ (2.16)
======== ======= ======= ======== ========
Weighted average common and common equivalent shares:
Primary 9,018 6,387 5,133 5,161 5,208
Fully diluted 9,087 8,769 5,133 5,161 5,208
======== ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
September 30 (in thousands)
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 7,174 $ 3,791 $ 7,172 $ 18,003 $ 16,318
Total assets 45,139 36,983 48,040 65,013 79,405
Long-term debt 1,280 406 456 501 546
Convertible subordinated debentures 12,000 16,000 32,000 32,000 32,000
Stockholders' equity (deficit) 13,908 6,085 (1,669) 14,639 27,626
======== ======= ======= ======== ========
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS Elexsys International, Inc.
- - --------------------------------------------------------------------------------
The following discussion should be read in conjunction with the Selected
Financial Data and the Consolidated Financial Statements and Notes thereto
contained elsewhere within this Annual Report.
RESULTS OF OPERATIONS: FISCAL 1995 TO FISCAL 1994
Net Sales
Net sales increased 8.7 percent from fiscal 1994. The increase in net sales
resulted from an increase in demand for the Company's circuit board products
from the Company's recurring customer base and five months of sales from the
Company's recent acquisition in the United Kingdom. The increase in net sales
was partially offset by lower sales for the Company's backpanel product line due
to changes in product mix. Management has reorganized its sales and technical
team for the purpose, among other things, of improving sales of its backpanel
product line; however, management does not expect improvement to occur in the
near future.
Cost of Sales
Cost of sales as a percentage of net sales decreased from 92.3 percent for
fiscal 1994 to 84.8 percent for fiscal 1995. The decrease is attributable to
lower fixed and variable costs per unit shipped for the circuit board product
line, partially offset by higher direct material costs in our backpanel product
line due to changes in product mix. The improvement in fixed and variable costs
per unit shipped for the Company's circuit board product line is related to
improvement in operating efficiencies, product mix and cost reductions. Although
management is continuing to work to improve operating efficiencies and to reduce
costs further, there can be no assurance that increased operating efficiencies
and cost reductions will result.
Selling and Marketing
Selling, general and administrative (SG&A) expense was approximately equal to
fiscal 1994 in absolute dollars. As a percentage of net sales, SG&A decreased
from 10.6 percent for fiscal 1994 to 9.8 percent for fiscal 1995. SG&A was
approximately constant in absolute dollars as a consequence of a reduction in
legal and consulting fees and lower wages and salaries, partially offset by
increased costs due to commissions to manufacturers' representatives, profit
sharing costs and five months of the United Kingdom subsidiary's selling,
general and administrative costs. The reduction in legal and consulting fees
were associated with the elimination of certain legal and consulting fees
incurred in fiscal 1994. The decrease in lower wages and salaries is
attributable to the October 3, 1994 announced downsizing of operations,
partially offset by reorganizing the sales and technical team. The decrease in
SG&A as a percentage of net sales was attributable to increased sales.
Research and Development
Research and development expenditures decreased 45 percent during fiscal 1995
compared to fiscal 1994. The decrease in expenditures is directly attributable
to the lower labor and benefit costs of engineers, as a consequence of past
restructuring by the Company.
Restructuring of Operations
At the beginning of fiscal 1995, the Company's balance for restructuring reserve
was $861,000, mainly constituting severance pay to executives with agreements.
As of September 30, 1995, there was no remaining balance, as all costs
associated with these agreements were paid during fiscal 1995.
Interest Income and Interest Expense
Interest income decreased 100 percent from fiscal 1994. The decrease was
primarily due to a reduction in interest bearing investments held by the Company
during fiscal 1995 compared to fiscal 1994. Interest expense decreased 13.2
percent from fiscal 1994. The decrease was attributable to the elimination of
interest obligations through two exchanges of the Company's 5 1/2 percent
Convertible Subordinated Debentures due 2012 (the Debentures) during the last
quarter of fiscal 1994 and the second quarter of fiscal 1995 (See Note 13 of
Notes to Consolidated Financial Statements) partially offset by interest expense
incurred by the Company's United Kingdom subsidiary and an increase in
short-term borrowings from the Company's asset-based lender during fiscal 1995.
<PAGE>
Provision for Income Taxes
Due to net operating losses and related loss carryforwards, there was no income
tax provision for fiscal 1993 and 1994. In fiscal 1995, the Company provided
$220,000 for income taxes related primarily to alternative minimum tax and
foreign income tax. As of September 30, 1995, the Company reported a net
operating loss carryforward for federal income tax purposes of approximately
$32,385,000 expiring in various amounts between 1996 and 2008, which net
operating loss carryforwards could offset 100 percent of taxable income for
regular tax purposes, and 90 percent of taxable income for federal and state
alternative minimum tax purposes. However, the Internal Revenue Code of 1986
contains limitations on the utilization of net operating loss carryforwards if a
"change of ownership," as described in Section 382 of the Internal Revenue Code,
occurs. In light of the substantial accumulation of common stock by Mr. Milan
Mandaric during fiscal 1994 and 1995, a modest change in ownership of the
Company could trigger such limitations. If such limitations are triggered,
utilization of net operating loss carryforwards could be delayed and such
carryforwards could expire prior to utilization. The United Kingdom subsidiary
has no available tax loss carryforwards and is taxed at the prevailing corporate
tax rates in that country. (See Note 8 of Notes to Consolidated Financial
Statements.)
Extraordinary Gain, Net of Expenses
On March 31, 1995, the Company and Mr. Mandaric exchanged an aggregate of
400,000 newly issued shares of common stock for $4,000,000 of principal amount
of Debentures. The net gain of $1,833,000 was recorded as an extraordinary item.
The net gain included a reduction of debt issuance costs related to the
Debentures and additional professional fees associated with the transaction. The
transaction included a payment of $18,333 for accrued interest on the Debentures
exchanged. (See Note 13 of Notes to Consolidated Financial Statements.)
RESULTS OF OPERATIONS: FISCAL 1994 TO FISCAL 1993
Net Sales
Net sales in fiscal 1994 decreased 3.6 percent from fiscal 1993. The decrease
resulted primarily from lower unit sales volume combined with a reduction in the
average sales price. The decrease in sales volume was attributable to a
decreased demand from the Company's recurring customer base. The reduction in
the average sales price was attributable to price discounting in a highly
competitive market.
Cost of Sales
Cost of sales as a percentage of net sales decreased from 98.7 percent for
fiscal 1993 to 92.3 percent for fiscal 1994. The decrease was attributable to
lower labor and benefits costs per units shipped, lower overhead costs per units
shipped, lower consumable materials costs per units shipped, and to a lesser
extent, lower direct material costs per units shipped. The improvement in labor
and overhead costs were due to more efficient utilization of labor after the
April 1993 closure of the Chatsworth, California facility, the January 1, 1994
reduction in the number of employees and reduced worker's compensation costs
resulting from a dividend received September 1994. The improvements in
consumable material costs and to a lesser extent, direct material costs were due
to improvements in operating efficiencies and cost reductions. The reduction in
direct material costs was partially offset by a change in product mix in our
backpanel operations.
Selling and Marketing
Selling, general and administrative expense decreased 6.2 percent from fiscal
1993. As a percentage of net sales, SG&A decreased from 10.9 percent for fiscal
1993 to 10.6 percent for fiscal 1994. The decrease in SG&A was due to a
reduction in labor and benefits related to the January 1, 1994 reduction in
personnel, a new compensation program for direct sales personnel resulting in a
reduction in commission expense and the Company's overall cost reduction
efforts. The decrease in SG&A was partially offset by an increase in marketing
literature costs and an increase in legal and consulting fees associated with a
line of credit agreement with an asset-based lender, costs associated with the
Company's discontinued, initial efforts to restructure its Debentures,
consulting fees related to improving manufacturing inefficiencies and legal
resolution of certain employee matters.
Research and Development
Research and development expenditures decreased 68.8 percent during fiscal 1994
compared to fiscal 1993. The decrease in expenditures primarily consisted of
reduced labor and overhead costs related to the closure of the Chatsworth,
California facility, which occurred during the second quarter of fiscal 1993.
<PAGE>
Restructuring of Operations
On January 6, 1994, the company announced the downsizing of all of its
operations. In connection with the downsizing, the Company reduced its work
force by approximately 150 employees and accrued a one-time charge of $600,000,
recognized during the quarter ended January 1, 1994. On October 3, 1994, the
Company announced an additional downsizing of its West Coast operations. As a
result of this downsizing, the Company accrued a one time charge of $1,500,000,
for a total of $2,100,000 for all of fiscal 1994. Included in the October 1994
restructuring charges were costs associated with a further reduction in its work
force by approximately 150 employees and the revaluation of certain assets,
primarily real estate held for sale, reflecting current market conditions.
During fiscal 1994, the Company reduced its work force by over 340
employees through both the downsizing of operations and attrition. The Company
eliminated several executive positions. Of the total $2,100,000 restructuring
charge for fiscal 1994, $653,000 was incurred and paid during fiscal 1994.
Approximately $586,000 of the restructuring charge was recorded in the fourth
quarter of fiscal 1994 against land and buildings to reflect their net
realizable value. The remaining restructuring charge, mainly to executives with
severance agreements, was paid in fiscal 1995. The land and buildings continue
to be held for sale with no foreseeable change in the Southern California real
estate market.
Interest Income and Interest Expense
Interest income decreased 93.5 percent from fiscal 1993. The decrease was
primarily due to a reduction in interest bearing investments held by the Company
during fiscal 1994 compared to fiscal 1993. Interest expense increased 9.6
percent from fiscal 1993. The increase was attributable to borrowings from the
Company's asset-based lender, partially offset by lower interest expense on the
Company's Debentures during the last quarter of fiscal 1994 attributable to the
exchange of Debentures for the Company's common stock. (See Note 13 of Notes to
Consolidated Financial Statements.)
Provision for Income Taxes
The Company recorded no provision for income taxes in fiscal 1994 due to
available tax carryforwards, and in accordance with Internal Revenue Code
Section 108, it appears a substantial amount, if not all, of the gain from the
exchange of Debentures for common stock will not be subject to income tax.
In addition, the Internal Revenue Service concluded an examination of
the Company's federal income tax returns for fiscal 1986 through 1991 which
resulted in no net tax deficiency for the years under examination.
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes", effective October 3, 1993. This
Statement supersedes SFAS No. 96, "Accounting for Income Taxes", that was
adopted by the Company in 1988. The cumulative effect of adopting SFAS No. 109
on the Company's consolidated financial statements for the year ended September
30, 1994 was not material. (See Note 8 of Notes to Consolidated Financial
Statement.)
Extraordinary Gain, Net of Expenses
In a two part transaction which occurred on June 30, 1994 and July 13, 1994, the
Company and Mr. Mandaric exchanged an aggregate issue of 3,200,000 common stock
for $16,000,000 in principal amount of Debentures. The net gain of $10,167,000
was recorded as an extraordinary item. The net gain included a reduction of debt
issuance costs related to the Debentures and professional fees associated with
the transaction. The transaction included a payment of $293,000 for accrued
interest on the Debentures exchanged and reimbursement of $50,000 for Mr.
Mandaric's professional expenses. (See Note 13 of Notes to Consolidated
Financial Statements).
Factors That May Affect Future Results
The Company's future operating results may be adversely affected by a number of
factors, including general economic conditions, foreign competition, industry
consolidation, the Company's ability to develop, manufacture, and sell its
products profitability, and the cyclical nature of the business of some of the
Company's customers.
The Company participates in a highly competitive industry. The printed
circuit board industry has been characterized by stringent customer demands for
timely deliveries, service and quality of products and by aggressive pricing
practices. The Company's operating results could be materially, adversely
affected should the Company be unable to meet any one of these customer demands.
<PAGE>
Inflation
Management believes that inflation has not significantly affected the prices of
the Company's products, the cost of its materials and labor, and its operating
results.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1995, the Company had cash and cash equivalents of $903,000,
which reflects a $659,000 decrease in the balance from September 30, 1994.
Working capital increased 89 percent from $3,791,000 to $7,174,000. Cash of
$4,403,000 was generated from operating activities with the principal sources of
cash provided by net income and an increase in accounts payable, offset by an
increase in accounts receivable and a decrease in the restructuring charge. The
increase in accounts receivable is attributable to the timing of shipments
during the last quarter of fiscal 1995 and the acquisition of the Company's
United Kingdom subsidiary. The increase in accounts payable is attributable to
an improvement of payment terms negotiated with a primary supplier in fiscal
1995. During fiscal 1995, the Company met its obligation to pay the annual
interest on its Debentures. All other activities experienced normal
fluctuations.
The cash generated from operating activities was offset by investing
activities of $4,683,000 at September 30, 1995 for the purchase of capital
equipment and $560,000 for the net asset purchase of Technet Limited. The
purchase of capital equipment was for normal replacement, equipment for
processes that the Company has outsourced, and equipment to enhance our assembly
capabilities.
Financing activities were partially funded by the exercise of stock
options by certain employees, offset by payment of approximately $282,000 of
long term debt of Technet Electronics Limited.
During fiscal 1995, the Company's maximum borrowings under the line of
credit established December 17, 1993 with an asset-based lender reached
approximately $6,974,000. During fiscal 1995, the Company repaid borrowings of
approximately $2,810,000, leaving net borrowings of $4,164,000 as of September
30, 1995. Also, under the terms of the loan agreement, all of the Company's cash
collections are applied to any outstanding borrowings upon the receipts clearing
the bank. At September 30, 1995, the asset-based lender was in possession of
approximately $916,000 of the Company's cash collections and, accordingly, such
funds have been applied to reduce the amount outstanding under the Company's
line of credit to $3,248,000.
At September 30, 1995, the Company's ratio of current assets to current
liabilities was 1.4 to 1. In addition, the Company had $903,000 in cash and cash
equivalents which are available for current operations, capital expenditures and
other purposes. The Company has requirements for capital expenditures of
approximately $500,000 to expand its backpanel assembly capabilities in addition
to normal replacement of capital equipment. The Company has no other material
cash obligations. Management believes that the Company's existing working
capital, the remaining borrowing capacity under the Company's line of credit and
funds generated from operations will be sufficient to meet presently anticipated
working capital requirements.
Environmental
The Company's manufacturing processes utilize substantial quantities of
chemicals as well as substantial quantities of water. The Company is subject to
and believes it is in compliance with federal, state and local environmental
laws and regulations regarding air, water and land use, the generation, use,
storage and disposal of hazardous materials and wastes and the operation and
closure of manufacturing facilities at which hazardous materials are used or
hazardous wastes are generated. The Company is aware of contamination of soil
and ground water (principally by metals and solvents) at two of its former
facilities in Northern California. At one of these facilities, soil has been
remediated, but the likely future cost of ground water cleanup at that facility
is not yet reasonably estimable. Investigative costs of $30,000 have been
incurred. At the other former facility in Northern California, the Company
incurred costs of approximately $137,000 for cleanup of soil contamination and
the property was returned to its owner during the second quarter of fiscal 1995.
In addition, the facility is adjacent to an existing State of California
administered Superfund site and may become part of a related State of California
administered regional ground water investigation; the likely future cost to the
Company in connection with possible ground water cleanup is not yet reasonably
estimable. At another former facility in Southern California, the Company
conducted limited groundwater sampling in connection with a potential sale of
the property, and low concentrations of solvents were detected. Notification was
made to the proper agencies. At this time, it is not possible to determine
whether any response actions will need to be taken; and accordingly, the likely
future cost to the Company is not yet reasonably estimable.
The Company is further aware of soil and ground water contamination
(principally by metals and solvents) at two currently used facilities, one in
Northern California and one in Southern California. At its Northern California
facility, the Company is indemnified by the former property owner who has
acknowledged his obligation. At its Southern California facility, the Company's
preliminary estimate of remedial costs, expected to be incurred over five to
seven years, ranges from approximately $880,000 to $1,480,000 (including between
approximately $300,000 and $400,000 estimated capital expenditures for waste
treatment equipment acquisition and installation costs). At its Northern
California facility, the Company has also received notice that regulatory
authorities plan to reduce the discharge limits for industrial waste water
discharge containing heavy metals. New limits are expected to become effective
in October 1996. Based on proposed limits, the cost to the Company of additional
equipment and process modifications needed to comply with the reduced limits is
preliminarily estimated by the Company to be between $100,000 and $250,000. As
of September 30, 1995, the Company believes it has appropriately recorded all
known costs related to environmental matters, including the minimum amounts
where the estimated costs are within a range. Such known costs are primarily
accrued in other current liabilities. However, actual future environmental
related expenditures are subject to numerous uncertainties, including the
discovery of additional environmental concerns, further development of cost
estimates, new and changing environmental laws and requirements, or new
interpretations of existing laws and requirements. Accordingly, there can be no
assurance that future environmental related expenditures will not exceed the
Company's current estimates or that they will not have a materially adverse
effect on the Company.
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS Elexsys International, Inc.
- - --------------------------------------------------------------------------------
<CAPTION>
Years ended September 30
(In thousands, except per share data) 1995 1994 1993
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $103,970 $95,680 $ 99,272
Cost of sales 88,137 88,301 98,024
-------- ------- ---------
Gross profit 15,833 7,379 1,248
Operating expenses:
Selling, general and administrative 10,154 10,167 10,838
Research and development 395 718 2,302
Provision for restructuring of operations 2,100 3,000
-------- ------- ---------
Total operating expenses 10,549 12,985 16,140
-------- ------- ---------
Income (loss) from operations 5,284 (5,606) (14,892)
Other (income) expense:
Interest expense 1,765 2,034 1,856
Interest income (27) (417)
-------- ------- ---------
Income (loss) before income taxes 3,519 (7,613) (16,331)
Provision for income taxes 220
-------- ------- ---------
Income (loss) before extraordinary item 3,299 (7,613) (16,331)
Extraordinary item:
Gain from exchange of the Debentures for
common stock, net of expenses 1,833 10,167
-------- ------- ---------
Net income (loss) $ 5,132 $ 2,554 $(16,331)
======== ======= =========
Primary net income (loss) per share (Note 9)
Income (loss) before extraordinary item $ .37 $ (1.28) $ (3.18)
Extraordinary item $ .20 $ 1.82
-------- ------- ---------
Net income (loss) $ .57 $ .54 $ (3.18)
======== ======= =========
Fully diluted net income (loss) per share (Note 9)
Income (loss) before extraordinary item $ .36 $ (.91) $ (3.18)
Extraordinary item $ .20 $ 1.30
-------- ------- ---------
Net income (loss) $ .56 $ .39 $ (3.18)
======== ======= =========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS Elexsys International, Inc.
- - --------------------------------------------------------------------------------
<CAPTION>
September 30
(In thousands, except share and per share data) 1995 1994
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 903 $ 1,562
Accounts receivable, less allowance for doubtful
accounts of $458 at September 30, 1995 and $450
at September 30, 1994 15,653 9,063
Inventories 7,860 7,277
Prepaid expenses and other current assets 709 381
--------- ---------
Total current assets 25,125 18,283
--------- ---------
Property, plant and equipment, net 18,980 17,778
Other assets 1,034 922
--------- ---------
Total assets $ 45,139 $ 36,983
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,854 $ 6,170
Accrued payroll and related costs 2,521 1,950
Restructuring reserve 861
Other current liabilities 1,965 2,005
Short-term borrowings 3,248 3,456
Current portion of long-term debt 363 50
--------- ---------
Total current liabilities 17,951 14,492
--------- ---------
Long-term debt 1,280 406
Convertible subordinated debentures 12,000 16,000
Stockholders' equity:
Preferred stock, $1.00 par value, 1,000,000 shares authorized, none issued
and outstanding at September 30, 1995 and 1994
Common stock, $1.00 par value, 20,000,000 shares authorized, 8,960,560
shares issued and outstanding at September 30,
1995 and 8,334,960 shares at September 30, 1994 8,961 8,335
Additional paid-in capital 5,460 3,373
Cumulative foreign currency translation adjustments (22)
Accumulated deficit (491) (5,623)
--------- ---------
Net stockholders' equity 13,908 6,085
--------- ---------
Total liabilities and stockholders' equity $ 45,139 $ 36,983
========= =========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Elexsys International, Inc.
- - --------------------------------------------------------------------------------
<CAPTION>
Restated Cumulative
Earnings Foreign
Common Stock Additional (Accumu- Currency Treasury Stock
--------------- Paid-in lated Translation --------------
(In thousands) Shares Amount Capital Deficit) Adjustment Shares Amount Net
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT OCTOBER 1, 1992 5,835 $5,835 $4,181 $ 8,154 (709) $(3,531) $14,639
Stock issued under Employee Stock
Bonus Plan 9 9 14 23
Net loss (16,331) (16,331)
--------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1993 5,844 5,844 4,195 (8,177) (709) (3,531) (1,669)
Common stock issued in exchange for
the Debentures 3,200 3,200 2,000 5,200
Retirement of treasury stock, at cost (709) (709) (2,822) 709 3,531
Net income 2,554 2,554
--------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1994 8,335 8,335 3,373 (5,623) 6,085
Common stock issued in exchange for
the Debentures 400 400 1,625 2,025
Employee stock options exercised 226 226 462 688
Foreign currency translation adjustment (22) (22)
Net income 5,132 5,132
--------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1995 8,961 $8,961 $5,460 $ (491) $(22) $13,908
================================================================================
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS Elexsys International, Inc.
- - --------------------------------------------------------------------------------
<CAPTION>
Years ended September 30
(In thousands) 1995 1994 1993
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,132 $ 2,554 $ (16,331)
Adjustments to reconcile net income (loss) to net cash
(used) provided by operating activities net of
effect of business acquired:
Extraordinary item (1,833) (10,167)
Depreciation and amortization 5,325 6,301 7,664
Provision for restructuring operations 2,100 3,000
(Increase) decrease in accounts receivable (5,726) 250 1,706
(Increase) decrease in inventories (143) 932 (1,828)
(Increase) decrease in prepaid expenses
and other current assets (285) 107 256
Increase (decrease) in accounts payable 2,956 (5,297) (217)
Increase (decrease) in accrued payroll and related costs 429 (847) (533)
Decrease in restructuring reserve (861) (1,402) (1,953)
Increase (decrease) in other current liabilities (110) (440) 1,053
Other (481) 226 (88)
------- ---------- ---------
Net cash (used) provided by operating activities 4,403 (5,683) (7,271)
------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Technet Limited (560)
Proceeds from maturity of short-term investments 4,000 20,000
Investment in short-term investments (9,989)
Purchase of property, plant and equipment (4,683) (2,660) (4,663)
Proceeds from sale of property, plant and equipment 79 79 690
------- ---------- ---------
Net cash (used) provided by investing activities (5,164) 1,419 6,038
------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt (356) (45) (45)
Proceeds from exercise of stock options 688
Net change in short-term borrowings (208) 3,456
------- ---------- ---------
Net cash (used) provided by financing activities 124 3,411 (45)
------- ---------- ---------
Effects of exchange rate changes on cash flows (22)
Net increase (decrease) in cash and cash equivalents (659) (853) (1,278)
Cash and cash equivalents, beginning of year 1,562 2,415 3,693
------- ---------- ---------
Cash and cash equivalents, end of year $ 903 $ 1,562 $ 2,415
======= ========== =========
<FN>
See notes 1 and 2 for supplemental information.
Supplemental schedule of noncash financing activity:
The Company exchanged $4,000,000 and $16,000,000 of Convertible
Subordinated Debentures for $2,025,000 and $5,200,000 of common stock,
respectively. In connection with these transactions, accruals of $50,000
and $250,000 for professional fees and the write-off of $92,000 and
$383,000 of deferred debt issuance costs, respectively, were netted
against the gain recognized on the two exchanges.
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Elexsys International, Inc.
- - --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General and Summary -- Elexsys International, Inc., formerly Diceon Electronics,
Inc. (the "Company"), manufactures and sells on credit terms high performance
medium and high density multilayer circuit boards, backpanel assemblies and
sophisticated card cage assemblies. The Company offers advanced interconnect
solutions for data communications, telecommunications and instrumentation
industries. The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.
Accounting period -- For convenience of presentation, the Company has indicated
its fiscal year as ending on September 30. The Company actually utilizes a
fifty-two or fifty-three week fiscal year ending on the Saturday nearest to
September 30, which, for the fiscal years ended in 1995, 1994 and 1993, was
September 30, October 1 and October 2, respectively.
Supplemental cash flow information -- Cash paid for interest and income taxes
refunded for each of the three years in the period ended September 30, 1995 was
as follows:
Thousands of dollars 1995 1994 1993
----------------------------------------------------------
Interest $2,201 $1,602 $1,813
Income taxes (refunded) paid $ 158 $ (33)
Cash equivalents -- The Company classifies all short-term investments with
original maturities of three months or less as cash equivalents.
Accounts receivable -- The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. The Company maintains
reserves for potential credit losses, and such losses have been within
management's expectations.
Inventories -- Inventories are stated at the lower of average cost or market and
consist of the following:
Thousands of dollars 1995 1994
------------------------------------------------------
Inventories:
Raw materials $2,843 $4,233
Work in progress 5,017 3,044
------ ------
Totals $7,860 $7,277
====== ======
Property, plant and equipment -- Property, plant and equipment are stated at
cost less accumulated depreciation and amortization. Depreciation and
amortization are computed using the straight-line method over estimated useful
lives as follows:
Buildings and improvements -- 30 years
Machinery and equipment -- 3 to 10 years
Leasehold improvements -- shorter of the
estimated useful life or lease term
Expenditures for repairs and maintenance were $4,201,000, $3,989,000 and
$4,386,000 in the years ended September 30, 1995, 1994 and 1993, respectively.
Income taxes -- The Company accounts for income taxes under the provision of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Under SFAS No. 109, deferred tax assets and liabilities are
recognized to reflect the estimated future tax effects, calculated at currently
effective tax rates, of future deductible or taxable amounts attributable to
events that have been recognized on a cumulative basis in the financial
statements. A valuation allowance related to a deferred tax asset is recorded
when it is more likely than not that some portion of the deferred tax asset will
not be realized. The cumulative effect of adopting SFAS No. 109 on the Company's
financial statements for the year ended September 30, 1994 was not material.
Revenue recognition -- The Company recognizes revenues upon shipment of related
products.
Translations of Foreign Currencies -- Assets and liabilities of the Company's
United Kingdom subsidiary are translated into U.S. dollars at the exchange rates
in effect at the end of the period. Revenue and expense accounts are translated
at a weighted average of exchange rates which were in effect during the year.
Translation adjustments that arise from translating the Company's United Kingdom
subsidiary's financial statements from the pound sterling to U.S. dollars are
accumulated in a separate component of stockholders' equity. Transaction gains
and losses that arise from exchange rate changes on transactions denominated in
a currency other than the local currency are included in results of operations
as incurred. For the year ended September 30, 1995, transaction gains and losses
were immaterial.
<PAGE>
2. PROVISIONS FOR RESTRUCTURING OF OPERATIONS
On March 1, 1993, the Company announced the closure of its Chatsworth,
California facility effective at the end of April 1993. In connection with the
closure, the Company reduced its work force by approximately 100 employees.
Accordingly, the Company accrued a one-time charge of $3,000,000 for closure
costs recognized during the quarter ended April 3, 1993. The majority of the
advanced fabrication previously handled in Chatsworth was transferred to Irvine,
California and to Nashua, New Hampshire. This provision initially included a
loss of $1,315,000 expected to be incurred upon disposition of excess equipment
and $1,685,000 in cost for the realignment and consolidation of operations.
As of September 30, 1994, the actual losses incurred and costs paid were
$924,000 for disposition of excess equipment, $584,000 for closure and cleanup
costs for returning the building to its original condition, $579,000 for rent
and other occupancy costs during the clean up period, $635,000 of wages and
benefits for severance pay and wages and benefits paid to employees to assist
with the cleanup, $194,000 to dispose of excess inventory and $84,000 related to
other realignment and consolidation costs. The Chatsworth building was turned
over to the landlord on April 29, 1994.
On January 6, 1994, the Company announced the downsizing of all its
operations. In connection with the downsizing, the Company reduced its work
force by approximately 150 employees and accrued a one-time charge of $600,000
recognized during the quarter ended January 1, 1994. As of September 30, 1994,
all costs incurred were paid.
On October 3, 1994, the Company announced an additional downsizing of its
West Coast operations. In connection with the downsizing, the Company further
reduced its work force by approximately 150 employees and accrued a one-time
charge of $1,500,000 recognized during the quarter ended September 30, 1994. In
addition, the President and Chief Executive Officer and a Senior Vice President
resigned and the employee stock bonus plan was cancelled.
As of September 30, 1995, the actual losses incurred and costs paid were
$1,500,000 which represented wages and benefits for severance pay, mainly to
executives.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
Thousands of dollars 1995 1994
--------------------------------------------------------
Land $ 2,357 $ 2,357
Buildings and improvements 1,939 1,939
Machinery and equipment 62,790 54,932
Leasehold improvements 6,594 6,253
--------- ---------
73,680 65,481
Less accumulated depreciation
and amortization (54,700) (47,703)
--------- ---------
$ 18,980 $ 17,778
========= =========
4. REVOLVING CREDIT AGREEMENT
On December 17, 1993, the Company entered into a revolving credit agreement
providing for working capital advances up to $7,500,000 (based on certain
eligible account balances and recent cash collections) and financing for
equipment purchases of up to $2,500,000 from an asset based financing company.
Cash borrowings under the line of credit bear interest at prime rate (8 3/4%)
plus 3 percent at September 30, 1995 which is payable monthly. The line of
credit is collateralized by substantially all of the Company's assets and will
remain in effect for three years. The credit facility contains covenants
including the maintenance of certain levels of working capital, tangible net
worth and certain financial ratios. In addition, the Company is restricted as to
the incurrence of additional indebtedness and certain other payments.
As of September 30, 1995, borrowings under this credit agreement were
$3,248,000.
<PAGE>
5. LONG-TERM DEBT
Long-term debt consists of the following:
Thousands of dollars
(except payment amounts) 1995 1994
-----------------------------------------------------------
USA Subsidiary:
California Pollution Control
Revenue Bonds due in varying
annual principal amounts ranging
from $50,000 to $90,000 through
March 2011, with interest rates
ranging from 7.0% to 9.5% and
guaranteed by the Small Business
Administration $ 406 $456
United Kingdom Subsidiary:
Notes payable to an investor group
due in equal, annual principal
amounts of $99,166 due September
1999, with interest rates of 3%
above the bank base rate, currently
6.75%. The loan is collateralized
by the United Kingdom subsidiary's
assets 397
Notes payable to bank due in
equal, annual principal amounts
of $84,704 due September 1999,
with interest rates of 2% above
the bank base rate, currently
6.75%. The loan is collateralized
by the United Kingdom subsidiary's
assets 812
Capital lease obligations 7.6%
maturing at various dates
through 1997 28
----- -----
1,643 456
Less: current portion (363) (50)
------ -----
Net $1,280 $406
====== =====
The aggregate principal maturities are $363,000, $247,000, $254,000,
$160,000, and $165,000 in the years ending September 30, 1996 through 2000,
respectively, and $454,000 thereafter.
6. CONVERTIBLE SUBORDINATED DEBENTURES
In February 1987, the Company issued $32,000,000 of 5 1/2 percent Convertible
Subordinated Debentures due in 2012 (the "Debentures"). The Debentures are
convertible into shares of common stock at $39.50 per share, subject to
adjustment under certain conditions. The Debentures are redeemable by the
Company at declining premiums prior to March 1, 1997 and thereafter at 100
percent of the principal amount. The Debentures are also redeemable through the
operation of a sinking fund at 100 percent of the principal amount. Interest is
payable semi-annually on September 1 and March 1 of each year. Mandatory annual
sinking fund payments, sufficient to retire 5 percent of the aggregate principal
amount of the Debentures issued, were to be made on each March 1 commencing in
1997. As a result of the two exchanges of common stock for $20,000,000 of the
Debentures, as discussed in Note 13, the Company now has sinking fund credits
available to offset these obligations for twelve and one-half years. The revised
minimum annual sinking fund payments are $1,600,000, $1,600,000, $800,000 and
$8,000,000 for the years ending September 30, 2009, 2010, 2011 and 2012,
respectively. The Debentures are subordinated to all senior indebtedness of the
Company. At September 30, 1995, senior indebtedness aggregated $4,891,000.
7. OPERATING LEASES
The Company leases its principal office, several manufacturing facilities and
certain equipment under operating leases. As of September 30, 1995, these
obligations require aggregate minimum annual rental payments as follows:
Year ending September 30 (Thousands of dollars)
------------------------------------------------------
1996 $2,029
1997 1,746
1998 1,306
1999 1,040
2000 337
Thereafter 254
------
Total $6,712
======
<PAGE>
The Company has options to renew its facilities leases, except the Irvine,
California facility whose lease ends January 1999, for various periods up to ten
years at the then existing fair market rental. Management expects that, in the
normal course of business, the leases will be renewed. Rent expense charged to
operations for the years ended September 30, 1995, 1994 and 1993 was
approximately $1,757,000, $1,766,000 and $1,861,000, respectively.
8. INCOME TAXES
The provision for income taxes for 1995 consisted of the following (due to net
operating losses, there was no income tax expense in 1993 or 1994):
Thousands of dollars 1995
-----------------------------------------------------
Current
Federal $ 90
State 64
Foreign 66
-----
Total Current $ 220
=====
A reconciliation between the statutory federal income tax rate as a
percentage of income from continuing operations is as follows:
1995
-----------------------------------------------------
Federal statutory tax rate 35.0%
State and local taxes 1.2%
Foreign 1.2%
Benefit of utilization of tax net
operating loss carryforwards (31.2)%
Other (2.1)%
Effective tax rate 4.1%
Deferred income taxes reflect the net tax effects of (i) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes and (ii) net
operating loss and tax credit carryforwards. The tax effects of significant
items comprising the Company's income tax calculation as of September 30, 1995
are as follows:
(In thousands) 1995 1994
----------------------------------------------------------
Deferred tax liabilities:
Differences between book and
tax basis of property $ (835) $ (1,384)
Foreign operations (40)
Deferred tax assets:
Reserves not currently deductible 1,963 1,423
Net operating loss 12,466 14,402
Tax credit carryforwards 87 74
-------- --------
13,641 14,515
Valuation allowance (13,681) (14,515)
-------- --------
Net deferred tax asset/(liability) $ (40) $ 0
======== ========
Deferred income taxes include the tax impact of net operating loss
carryforwards. As of September 30, 1995, the Company had net operating loss
carryforwards for federal and state income tax purposes of $32,385,000 and
$23,706,000, respectively. These carryforwards, for which future benefit is not
assured, expire through 2008. In accordance with the provisions of SFAS No. 109,
a $13,681,000 valuation allowance is deemed adequate for these and other items
which may not be realized.
9. NET INCOME (LOSS) PER SHARE
For fiscal year 1995, primary and fully diluted earnings per share were computed
using the weighted average common and common equivalent shares (stock options)
outstanding during the year and excludes the assumed conversion of the principal
amount of the outstanding Debentures into common stock as such effect would have
been antidilutive.
For fiscal 1994, primary loss per share before extraordinary item was
computed using the weighted average common shares outstanding during the year
and primary net income per share was computed using the weighted average common
and common equivalent shares outstanding, excluding the assumed conversion of
the principal amount of the outstanding Debentures into common stock.
For fiscal 1994, fully diluted loss per share before extraordinary item
was computed using the weighted average common shares outstanding during the
year assuming the Debentures were converted into common shares as of the
beginning of the fiscal year and fully diluted net income per share was computed
using the weighted average common and common equivalent shares outstanding
assuming conversion of the Debentures as of the beginning of the fiscal year.
The losses per share for the year ended September 30, 1993 have been
computed based on average common shares outstanding as of their respective year
ends and do not include the effect of common stock equivalents as such effect
would have been antidilutive.
10. FOREIGN OPERATIONS
On April 28, 1995, the Company announced it had acquired substantially all the
assets of Technet Electronics Limited, a manufacturer of printed circuit boards
located in Great Britain, for approximately $3,300,000, which consisted of
$560,000 of cash and assumption of liabilities of approximately $2,740,000,
including its current lines of credit. To complete the transaction, the Company
borrowed $1,300,000 on its line of credit from an asset-based lender, of which
$740,000 was utilized as working capital.
The following is a summary of the financial position and results of
operations for five months of operation of the wholly-owned subsidiary located
in Great Britain.
SUMMARY FINANCIAL POSITION
(Thousands) September 30, 1995
-----------------------------------------------------
Current assets $1,641
Property, plant and equipment, net 2,030
-------
Total assets 3,671
Current liabilities (1,452)
Long term debt (1,981)
Other liabilities (40)
-------
Net assets $ 198
=======
SUMMARY STATEMENT OF INCOME
(Thousands) For the year ended September 30, 1995
-----------------------------------------------------
Net sales $2,695
Costs and expenses 2,431
Provision for income taxes 66
-------
Net income $ 198
=======
There were no dividends or foreign currency gains or losses from foreign
subsidiaries in 1995.
11. STOCK OPTIONS
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation," which requires adoption of the disclosure provisions no later
than fiscal years beginning after December 15, 1995 and adoption of the
recognition and measurement provisions for nonemployees transactions no later
than after December 15, 1995. The new standard defines a fair value method of
accounting for stock options and other equity instruments. Under the fair value
method, compensation cost is measured at the grant date based on the fair value
of the award and is recognized over the service period, which is usually the
vesting period.
Pursuant to the new accounting standard, companies are encouraged, but are
not required, to adopt the fair value method of accounting for employee stock
based transactions. Companies are also permitted to continue to account for such
transactions under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," but would be required to disclose in a note to the
financial statements pro forma net income and, if presented, earnings per share
as if the company had applied the new method of accounting.
The accounting requirements of the new method are effective for all
employee awards granted after the beginning of the fiscal year of adoption. The
Company has not yet determined if it will elect to change to the fair value
method, nor has it been determined the effect the new standard will have on net
income and earnings per share should it elect to make such a change. Adoption of
the new standard will have no effect on the Company's cash flows.
In August 1983, the Company adopted the 1983 Employee Stock Option Plan
("1983 Plan"). Under the terms of the 1983 Plan, which was amended in September
1984 and January 1988, 800,000 shares of the Company's common stock were
available for issuance under option grants to key employees, including officers,
at prices not less than the fair market value of the stock at the date of grant.
Options may have a term of up to ten years from the date of grant and vest at a
rate of 20 to 50 percent a year commencing one year from the date of grant.
In May 1984, the Company adopted the Elexsys International, Inc.
Non-Qualified Stock Option Plan ("1984 Plan"). Under the terms of the 1984 Plan,
200,000 shares of the Company's common stock were available for issuance under
option grants to key employees, including officers, who are not directors of the
Company. The terms and conditions of the 1984 Plan are similar to those of the
1983 Plan. During the year ended September 30, 1994 both plans expired.
Option activity for these plans is summarized as follows:
STOCK OPTION ACTIVITY
1983 Plan 1984 Plan
Number Price Number Price
of Shares per Share of Shares per Share
- - ----------------------------------------------------------------------
Sept. 30, 1992 655,750 $3.50 42,000 $3.50
Granted 193,350 $1.25-$3.50 60,000 $3.50
Cancelled (131,400) $3.50
------------------------- ----------------------
Sept. 30, 1993 717,700 $1.25-$3.50 102,000 $3.50
Granted 38,500 $1.25 60,000 $1.25
Cancelled (367,400) $1.25-$3.50
------------------------- ----------------------
Sept. 30, 1994 388,800 $1.25-$3.50 162,000 $1.25-$3.50
Granted $1.25 $1.25
Exercised (151,500) $1.25-$3.50 (33,600) $3.50
Cancelled (93,550) $1.25-$3.50 (118,400) $1.25-$3.50
------------------------- ------------------------
Sept. 30, 1995 143,750 $1.25-$3.50 10,000 $1.25-$3.50
========================= ========================
In June 1994, the Company adopted the Company's 1994 Incentive Stock
Option Plan ("the 1994 Plan"), authorizing the issuance of options to purchase a
maximum aggregate of 500,000 shares of common stock, the 1994 Plan was approved
by the stockholders' of the Company in February 1995. Options may have a term of
up to ten years from the date of grant and vest at a rate of 25 to 33.33 percent
per year.
1994 Non Qualified Options 1994 ISO Plan
Number Price Number Price
of Shares per Share of Shares per Share
- - -------------------------------------------------------------------------
Sept. 30, 1993
Granted 87,000 $1.25 235,000 $1.00
-------------------- -------------------------
Sept. 30, 1994 87,000 $1.25 235,000 $1.00
Granted 357,500 $2.88-$5.19
Exercised (30,500) $1.25
Cancelled (22,500) $1.25 (102,750) $1.00-$2.88
-------------------- -------------------------
Sept. 30, 1995 34,000 $1.25 489,750 $1.00-$5.19
==================== =========================
In March 1994, the Company granted to the Chief Financial Officer options
to purchase 10,000 shares of common stock at an option price of $1.25 per share
under the terms of the 1984 Plan. In addition, options to purchase 87,000 shares
of common stock at an option price of $1.25 per share, which were previously
intended to be granted to certain employees under the 1983 Plan that had expired
were instead granted as separate non-qualified stock options in April 1994. The
options vest at a rate of 50 percent per year commencing November 11, 1994.
In the third quarter of fiscal 1995, the Board of Directors adopted the
Company's 1995 Incentive Stock Option Plan ("the 1995 Plan"), authorizing the
issuance of options to purchase a maximum aggregate of 1,000,000 shares of
common stock, subject to approval by the Securities and Exchange Commission and
the stockholders of the Company. During the fiscal year, options to purchase an
aggregate of 82,000 shares had been granted under the 1995 Plan at an exercise
price of $8.88 to $11.25 per share (the market price on the date of grant).
Options may have a term of up to ten years from the date of grant and vest at a
rate of 25 percent a year commencing one year from the date of grant.
During the year ended September 30, 1991, the Company granted options to
purchase 30,000 shares to a then member of the Board of Directors at an option
price of $3.50 per share, and options to purchase 30,000 shares, at an option
price of $7.00 per share, granted to the same individual during the year ended
September 30, 1990, were cancelled. The options granted are exercisable as
follows: 10,000 shares during the year ended September 30, 1991 and 10,000
shares per year for the subsequent two years.
During the year ended September 30, 1993, the Company granted options to
purchase 10,000 shares to a then member of the Board of Directors at an option
price of $3.50 per share. The options granted are exercisable as follows: 3,000
shares during the year ended September 30, 1993 and 3,500 shares per year for
the subsequent two years.
In addition, during the year ended September 30, 1994, the Company granted
options to purchase 10,000 shares to a then member of the Board of Directors at
an option price of $1.25 per share and also granted options to purchase 10,000
shares to a member of the Board of Directors at an option price of $1.69 per
share. The options for 10,000 shares at $1.25 were subsequently amended to
provide that to the extent not previously vested, these options became fully
exercisable and were exercised during fiscal 1995. In addition, this person's
options granted during the year ended September 30, 1993 in the amount of 10,000
shares at the price of $3.50 per share also became fully exercisable. The new
options granted at $1.69 per share are exercisable as follows: 3,400 shares
during the year ended September 30, 1994, 3,300 shares during the year ending
September 30, 1995, and 3,300 shares during the year ending September 30, 1996.
At September 30, 1995, 1,737,750 shares of common stock are reserved for
the exercise of stock options granted or available for future grant. 122,500 of
these shares are exercisable under the 1983 or 1984 Plan or 1994 Non Qualified
Options.
12. ENVIRONMENTAL MATTERS
The Company's manufacturing processes utilize substantial quantities of
chemicals as well as substantial quantities of water. The Company is subject to
and believes it is in compliance with federal, state and local environmental
laws and regulations regarding air, water and land use, the generation, use,
storage and disposal of hazardous materials and wastes and the operation and
closure of manufacturing facilities at which hazardous materials are used or
hazardous wastes are generated. The Company is aware of contamination of soil
and ground water (principally by metals and solvents) at two of its former
facilities in Northern California. At one of these facilities, soil has been
remediated, but the likely future cost of ground water cleanup at that facility
is not yet reasonably estimable. Investigative costs of $30,000 have been
incurred. At the other former facility in Northern California, the Company
incurred costs of approximately $137,000 for cleanup of soil contamination and
the property was returned to its owner during the second quarter of fiscal 1995.
In addition, the facility is adjacent to an existing State of California
administered Superfund site and may become part of a related State of California
administered regional ground water investigation; the likely future cost to the
Company in connection with possible ground water cleanup is not yet reasonably
estimable. At another former facility in Southern California, the Company
conducted limited groundwater sampling in connection with a potential sale of
the property, and low concentrations of solvents were detected. Notification was
made to the proper agencies. At this time, it is not possible to determine
whether any response actions will need to be taken; and accordingly, the likely
future cost to the Company is not yet reasonably estimable.
The Company is further aware of soil and ground water contamination
(principally by metals and solvents) at two currently used facilities, one in
Northern California and one in Southern California. At its Northern California
facility, the Company is indemnified by the former property owner who has
acknowledged his obligation. At its Southern California facility, the Company's
preliminary estimate of remedial costs, expected to be incurred over five to
seven years, ranges from approximately $880,000 to $1,480,000 (including between
approximately $300,000 and $400,000 estimated capital expenditures for waste
treatment equipment acquisition and installation costs). At its Northern
California facility, the Company has also received notice that regulatory
authorities plan to reduce the discharge limits for industrial waste water
discharge containing heavy metals. New limits are expected to become effective
in October 1996. Based on proposed limits, the cost to the Company of additional
equipment and process modifications needed to comply with the reduced limits is
preliminarily estimated by the Company to be between $100,000 and $250,000. As
of September 30, 1995, the Company believes it has appropriately recorded all
known costs related to environmental matters, including the minimum amounts
where the estimated costs are within a range. Such known costs are primarily
accrued in other current liabilities. However, actual future environmental
related expenditures are subject to numerous uncertainties, including the
discovery of additional environmental concerns, further development of cost
estimates, new and changing environmental laws and requirements, or new
interpretations of existing laws and requirements. Accordingly, there can be no
assurance that future environmental related expenditures will not exceed the
Company's current estimates or that they will not have a materially adverse
effect on the Company.
13. EXTRAORDINARY ITEM
On June 30, 1994 and July 11, 1994, the Company exchanged for $16,000,000 of the
Debentures an aggregate of 3,200,000 newly issued shares of common stock, par
value $1.00 per share, with Mr. Milan Mandaric. The net gain of $10,167,000 was
recorded as an extraordinary item. The net gain included a reduction of debt
issuance costs related to the Debentures and additional professional fees
associated with the transaction. The transaction included a payment of $293,333
for accrued interest on Debentures exchanged and reimbursement of $50,000 for
Mr. Mandaric's professional expenses.
On March 31, 1995, the Company exchanged for $4,000,000 of its Debentures
an aggregate of 400,000 newly issued shares of common stock, par value $1.00 per
share, with Mr. Milan Mandaric. The net gain of $1,833,000 was recorded as an
extraordinary item. The net gain included a reduction of debt issuance costs
related to the Debentures and additional professional fees associated with the
transaction. The transaction included a payment of $18,333 for accrued interest
on the Debentures exchanged.
14. OTHER ITEMS
Major Customers -- For the years ended September 30, 1995, 1994 and 1993, one
customer accounted for approximately 24 percent, 22 percent, and 26 percent of
net sales, respectively, and for fiscal year 1995 two customers accounted for
12% and 10% of net sales, respectively.
Export Sales-- For the years ended September 30, 1995, 1994 and 1993, export
sales accounted for approximately $13,100,000, $8,500,000, $13,700,000 or 13
percent, 9 percent, and 14 percent of net sales, respectively.
Bonus Plan -- The Company has a discretionary profit sharing bonus plan which
provides for payment of bonuses to all eligible employees based on a formula
fixed annually by the Board of Directors. The bonus formula is applied
separately to each of the Company's profit centers. Bonus expense relating to
the plan amounted to $391,000 and $86,000 for the years ended September 30, 1995
and 1993, respectively. No bonuses were paid for the year ended September 30,
1994.
Treasury Stock -- On June 30, 1994, 709,100 shares of stock in treasury were
retired.
<TABLE>
<CAPTION>
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
First Second Third Fourth
Thousands of dollars except per share data Quarter Quarter Quarter Quarter Year
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
Net sales $22,753 $23,407 $27,298 $30,512 $103,970
Gross profit 2,870 1,866 4,288 6,809 15,833
Income (loss) before extraordinary item 250 (870) 901 3,018 3,299
Net income 250 963 901 3,018 5,132
Net income (loss) before extraordinary
item per share $ .03 $ (.10) $ .10 $ .32 $ .37
Net income per primary share $ .03 $ .11 $ .10 $ .32 $ .57
1994
Net sales $24,311 $26,153 $23,943 $21,273 $ 95,680
Gross profit 620 2,847 2,404 1,508 7,379
Loss before extraordinary item (3,353) (582) (992) (2,686) (7,613)
Net income (loss) (3,353)(1) (582) 9,175 (2,686)(2) 2,554
Loss before extraordinary item per share $ (.65) $ (.11) $ (.18) $ (.32) $ (1.28)
Net income (loss) per primary share $ (.65) $ (.11) $ 1.67 $ (.32) $ .54
----------- -------- -------- ----------- ---------
<FN>
(1) Includes estimated restructuring costs of $600,000.
(2) Includes estimated restructuring costs of $1,500,000.
</FN>
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
- - --------------------------------------------------------------------------------
Elexsys International, Inc.:
We have audited the consolidated balance sheets of Elexsys International, Inc.
(formerly Diceon Electronics, Inc.) and its subsidiaries as of September 30,
1995 and 1994, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended September 30, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Elexsys International, Inc. and
its subsidiaries at September 30, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1995, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP (sig)
Costa Mesa, California
October 16, 1995
<PAGE>
PRICE RANGE OF COMMON STOCK Elexsys International, Inc.
- - --------------------------------------------------------------------------------
The Company's common stock was traded in the Nasdaq National Market System under
the Nasdaq symbol DICN from the Company's initial public offering on December 1,
1983 until December 2, 1993. At that time the Company's common stock was
delisted from Nasdaq National Market trading because of its failure to meet
Nasdaq's requirements for capital and surplus and net tangible assets. The
Company's stock was traded on Nasdaq's Bulletin Board Market from December 3,
1993 to March 17, 1995. Since March 20, 1995, the Company`s common stock has
been traded on Nasdaq's SmallCap Market under the symbol ELEX. The table below
sets forth the reported closing prices for the quarter indicated. Prices
represent quotations between dealers without adjustments for retail markups,
markdowns or commissions.
The Company had approximately 668 stockholders of record as of September
30, 1995. The Company has not paid cash dividends on its common stock, and its
Board of Directors presently intends to continue this policy in order to retain
earnings for the development of the Company's business. Accordingly, it is
anticipated that no cash dividends will be paid in the foreseeable future.
Additionally, the Company's credit agreements with its asset-based lender
prohibit the payment of cash dividends without such person's consent.
Quarter ended Dec. 31 Mar. 31 June 30 Sept. 30
---------------------------------------------------------------
Fiscal 1995
High 4-1/4 5-5/8 7-1/8 15-1/14
Low 1-5/16 3-5/8 3-11/16 6-7/8
------ ----- ------- -------
Fiscal 1994
High 1-1/4 7/8 1-5/8 1-7/8
Low 1/8 3/8 3/4 1-1/4
------ ----- ------- -------
<PAGE>
CORPORATE INFORMATION
- - --------------------------------------------------------------------------------
BOARD OF DIRECTORS
Milan Mandaric
Chairman of the Board
and President, Elexsys
International, Inc.
Charles Handley
Private Investor
Peter S. Jonas
Private Investor and
Business Consultant
Roland G. Matthews
Private Investor
OFFICERS
Milan Mandaric
Chairman of the Board
and President
W. Barry Hegarty
Chief Operating Officer
Michael S. Shimada
Vice President Finance, Chief
Financial Officer and Secretary
CORPORATE OFFICE
Elexsys International, Inc.
1188 Bordeaux Drive
Sunnyvale, California 94089
(408) 743-5400
FAX (408) 743-5454
TRANSFER AGENT AND REGISTRAR
U. S. Stock Transfer Corporation
Glendale, California 91207
INDEPENDENT AUDITORS
Deloitte & Touche LLP
695 Town Center Drive
Costa Mesa, California 92626
LEGAL COUNSEL
Cooley Godward Castro
Huddleson & Tatum
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
FORM 10-K
A copy of Elexsys International, Inc.'s Form 10-K as filed with the Securities
and Exchange Commission for the fiscal year ended September 30, 1995 is
available without charge upon written request to: Investor Relations, Elexsys
International, Inc., 1188 Bordeaux Dr., Sunnyvale, California 94089.
COMMON STOCK
The Common Stock of Elexsys International, Inc. (symbol: ELEX) trades on
Nasdaq's SmallCap Market.
CONVERTIBLE DEBENTURES
The Convertible Debentures of Elexsys International, Inc. (symbol: DICNG) trades
over-the-counter on Nasdaq's Bulletin Board Market.
<PAGE>
ELEXSYS INTERNATIONAL, INC.
- - ---------------------------
1188 Bordeaux Drive
Sunnyvale, California 94089
(408) 743-5400
FAX (408) 743-5454
EXHIBIT 21
LIST OF SUBSIDIARIES
- - ------------------------------ ---------------- ------------------------------
NAME STATE, COUNTRY DOING BUSINESS AS
OF INCORPORATION
- - ------------------------------ ---------------- ------------------------------
SYMTRON CORPORATION California, USA Symtron Corporation
PRITEC CORPORATION (1) California, USA Pritec Corporation
ELEXSYS INTERNATIONAL (EUROPE) United Kingdom Elexsys International (Europe)
LIMITED Limited
- - ------------------------------ ---------------- ------------------------------
(1) Wholly-owned subsidiary of Symtron Corporation.
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Elexsys International, Inc. (formerly Diceon Electronics, Inc.) in Registration
Statement No. 33-21826, No. 33-02384 and No. 33-58033 on Form S-8 and
Registration Statement No. 33-22598 on Form S-3 of our reports dated October 16,
1995 appearing in the Annual Report on Form 10-K of Elexsys International, Inc.
for the year ended September 30, 1995.
Deloitte & Touche LLP
Costa Mesa, California
December 18, 1995
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