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, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission file number 0-11691
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.)
4405 Fortran Court, San Jose, CA 95134
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(Address of principal executive offices) (Zip Code)
(408) 935-6300
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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 17, 1996 based on the average bid
and asked prices of such stock on such date was $83,580,000. As of December 17,
1996, there were 9,349,195 outstanding shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of registrant's definitive proxy statement for its 1997 Annual Meeting
of Stockholders (the "1997 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, 1996 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 1997 Proxy Statement and annual
report are not deemed filed as part hereof.
<PAGE>
PART I
An investment in securities of Elexsys International, Inc. ("Elexsys"
or the "Company") 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. Except for the historical information
contained in this document, the discussions in this document contains
forward-looking statements that involve risks and uncertainties. The actual
future results of the Company could differ materially from these forward-looking
statements. An investor should carefully evaluate these forward-looking
statements before making an investment in the securities of Elexsys.
ITEM 1. BUSINESS
General
Elexsys International, Inc., 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 for 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 providing value added
manufacturing services and manufacturing multilayer, high density printed
circuit boards (including complex blind and buried via product, described below)
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, Tellabs, DSC Communications,
Digital Equipment, Tandem/UB Networks, Motorola Inc., Siemens 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 May 3, 1996, the Company acquired substantially all the assets of
Anetec Technologies, Inc., a company serving the small prototype and engineering
marketplace located in Fremont, California for $4.4 million, including $1.4
million in cash, a promissory note in the principal amount of $1.0 million,
assumption of a capital obligation of approximately $400,000 and 110,000 shares
of the Company's common stock valued at approximately $1.6 million. The total
purchase price of approximately $4.4 million was allocated between machinery and
equipment of approximately $2.4 million and goodwill of approximately $2.0
million.
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.
<PAGE>
Electronic Interconnect Industry Overview
Backpanels: According to Fleck Research, an industry data research
firm, the North American backpanel market was approximately $732.2 million in
1995 (the most recent year for which such information is available), an increase
of 11.4% over 1994. 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 $378.8 million.
Value Added Contract Manufacturing: According to the Institute for
Interconnecting and Packaging Electronic Circuits ("IPC"), the United States
value added contract manufacturing market, defined as printed circuit boards,
backpanel assemblies, printed circuit board assembly and subsystems, was
approximately $11.2 billion in 1995 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.
Multilayer, high density printed circuit boards including complex blind
and buried via products: According to the IPC, the United States printed circuit
board market was approximately $6.5 billion in 1995 (the most recent year for
which such information is available). Approximately $5.5 billion of this market
was available to independent manufacturers such as Elexsys. IPC's data indicates
that this market grew approximately 10% in 1995. Multilayer, high density
printed circuit boards, the fastest growing segment, accounted for approximately
66% of the 1995 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 85% since 1991. The
European printed circuit board market is approximately $4.5 billion and the
multilayer segment of the European market is approximately $2.1 billion.
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
pre-production and production phases, to achieve a product design that can be
manufactured 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.
<PAGE>
Business strategy
In response to the foregoing industry trends, Elexsys has structured
its business to supply sophisticated complex, press-fit and surface-mount
backpanel assemblies, value added electronic interconnect assemblies
("subsystems") including card cage, power supplies, fans, cables and harnesses,
and high technology printed circuit boards. 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. Recently, the Company had a quality audit on some
of its operations by Bell Laboratories. Early results of this audit indicate
that we are in compliance with Bell Laboratories requirements.
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 systems and
medical systems segments of the electronics industry. During fiscal 1996, the
Company manufactured and sold circuit boards and backpanel assemblies to
approximately 385 customers which are located primarily in North America and
Europe.
During fiscal 1996, 1995 and 1994, export sales were approximately $17,600,000,
$13,100,000, $8,500,000 or 14 percent, 13 percent, and 9 percent of net sales,
respectively. In aggregate, Elexsys' ten largest customers accounted for 59% of
the Company's net sales. During fiscal 1996, three customers, Northern Telecom
Corporation, DSC, and Tellabs, Inc. accounted for 17 percent, 10 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, 1997, 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.
<PAGE>
Products and services
Elexsys produces custom designed press-fit backpanels, surface mount
backpanels, subsystems, and multilayer high technology printed circuit boards
that are used in the manufacture of sophisticated electronic equipment. In
fiscal 1996, most of Elexsys' net sales were attributable to printed circuit
boards (including multilayers) and backpanels assemblies. However, the Company
continues to see an increase in demand for subsystem assemblies, and the Company
expects this business to continue to grow.
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 ("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 are power supplies and fans 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
<PAGE>
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, 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 8% of the Company's
printed circuit boards sales in fiscal 1996. After engineering of an
interconnect product is completed, Elexsys has the capability to manufacture
prototype or pre-production versions of such product on a quick-turnaround
basis. Elexsys believes that the demand for engineering and quick-turnaround
prototype and pre-production 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 1996 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 solder mask 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 boards 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.
<PAGE>
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".
ISO 9002 Registration: As of September 30, 1996, all plants have ISO 9002
certification. ISO 9002 certification, 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.
The current ISO 9002 certification for most plants expires November 30, 1997.
Raw materials
Elexsys' policy is to maintain more than one supply source when
practical, however, assembly components for major OEM contracts are sometimes
obtained from a single source. However, Elexsys believes it could obtain
assembly components from another source at competitive prices. The Company's
requirements for laminate and glass materials could be adversely affected if the
supplier experienced shortages or availability of certain raw materials which
has occurred from time to time in the past. While not material in the past, such
shortages, if they persisted long enough, could have a material 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. Recently, a
leveraged buy-out firm acquired three major, printed circuit board companies.
The impact on future results is unknown at this time; however, the Company
expects that pricing of circuit boards may be impacted negatively by these
acquisitions.
The Company believes the trend of outsourcing manufacturing of
backpanels and subsystem assemblies by OEMs will continue. However, the market
is very competitive with more printed circuit board operations establishing or
acquiring facilities to manufacture backpanels and subsystem assemblies. The
Company believes its engineering and manufacturing expertise will be sufficient
to counteract current competition.
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. Except for the
historical information contained in this document, the discussions in this
document contains forward-looking statements that involve risks and
uncertainties. The actual future results of the Company could differ materially
from these forward-looking statements. An investor should carefully evaluate
these forward-looking statements before making an investment in the securities
of Elexsys.
<PAGE>
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,
qualify, and commence production for new customers in 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 substantial 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 has had no new
environmental matters in the current fiscal year.
With respect to previously reported matters, 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 both of these facilities
the soil has been remediated and the properties have been returned to their
owners. One of the facilities is adjacent to an existing State of California
administered Superfund site; as a result, it could become part of a related
State of California administered regional ground water investigation, although,
the Company does not believe that it bears any responsibility for that matter.
At another former facility in Southern California, the Company conducted limited
ground water sampling in connection with potential sale of the property, and low
concentrations of solvents were detected. Notification was made to the
appropriate 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 acquisitions and installation costs). At its Northern
California facility, the Company has implemented and has been in compliance with
recently reduced discharge limits for industrial waste water discharge
containing heavy metals.
<PAGE>
As of September 30, 1996, 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, and 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 law 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.
Employees
At September 30, 1996, the Company had 1,190 full-time employees,
including 1,068 involved in manufacturing, quality control, product development
and testing. The remainder are in sales, marketing, 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, 1996, are as
follows:
Name Age Position with the Company
- ---- --- ---------------------------
Milan Mandaric 58 Chairman of the Board and
Chief Executive Officer
W. F. "Barry" Hegarty 45 President and
Chief Operating Officer
Michael S. Shimada 46 Vice President, Finance,
Chief Financial Officer and
Secretary
Michael J. Giggey 38 Vice President of Sales
and Marketing
Mr. Mandaric was appointed Chairman of the Board on June 30, 1994. Mr.
Mandaric became Chief Executive Officer 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 joined the Company in 1995 as Chief Operating Officer and
was appointed President of the Company in January 1996. 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.
<PAGE>
Mr. Giggey has been Vice President of Sales for the United States,
Canada and Europe since January 1996. He joined Elexsys in November 1985 and has
held a number of positions, including Vice President of Backpanel Assembly
Sales, Regional Sales Manager and National Account Manager. Previously, Mr.
Giggey worked for Hadco, where he held various sales positions.
Proprietary Techniques
The Company has developed expertise and techniques which it uses in the
manufacture of 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, 1996, the Company had a backlog of approximately
$28,267,000 as compared to approximately $26,414,000 at September 30, 1995.
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.
Subsequent events
On November 26, 1996, the Company completed a transaction to purchase
the property in Nashua, New Hampshire for approximately $2,350,000. The square
footage of the property is approximately 70,000 square feet. The Company has
received tentative approval for a tax exempt private activity bond financing, at
a substantially lower interest rate, from the State of New Hampshire to finance
this transaction.
On December 6, 1996, the Company reached an agreement, in principal,
with Sanwa Bank for a line of credit of $20 million consisting of a $13 million
working capital and a $7 million term loan line of credit. The Company has
informed the previous lender that it is terminating the current line of credit.
On December 7, 1996, Peter Jonas and Roland Matthews both resigned as
Directors, effective at the end of their current term. Both terms expire at the
1997 shareholder's meeting scheduled for January 29, 1997.
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.
<PAGE>
<TABLE>
The following table lists the production facilities of the Company:
<CAPTION>
Owned Lease
No. of Square Leased Lease Renewal
Location Locations Feet or Both Expiration Option
- ------------------------------- ------------ ------------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Irvine, California 1 50,000 Leased 1999 No
Chatsworth, California (1) 1 31,000 Owned
Mountain View, California 1 50,000 Leased 1999 Yes
San Jose, California 1 75,000 Leased 2003 Yes
Plano, Texas 1 31,000 Leased 2002 Yes
Peterborough, England 1 31,000 Leased 1998 Yes
Santa Ana, California (1) 1 30,000 Owned
Nashua, New Hampshire 1 70,000 Owned
Fremont, California 1 30,000 Leased 1997 Yes
<FN>
(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.
</FN>
</TABLE>
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 complaint has
been dismissed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None during the fiscal quarter ended September 30, 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information appearing under the caption "Price Range of Common
Stock" which appears on page 28 of the registrant's Annual Report to
Stockholders for the fiscal year ended September 30, 1996 (the "1996 Annual
Report"), is hereby incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information appearing under the caption "Selected Financial Data"
which appears on page 13 of the 1996 Annual Report, is hereby incorporated by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information appearing under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" which appears on
pages 8 through 12 of the 1996 Annual Report, is hereby incorporated by
reference.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information appearing on pages 14 through 28 of the 1996 Annual
Report, is hereby incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
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 1997 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 1997 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 1997 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 1997 Proxy Statement.
<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, 1996 and
1995;
-Consolidated statements of operations for each of the three
years in the period ended September 30, 1996;
-Consolidated statements of stockholders' equity for each of
the three years in the period ended September 30, 1996;
-Consolidated statements of cash flows for each of the three
years in the period ended September 30, 1996;
2. Financial statement schedules: Schedule II-Valuation and
Qualifying Accounts and Reserves.
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 (filed as
Exhibit 4.1 to the Registration Statement on Form S-2 of the
Registrant, Registration No. 33-11754 (the "Form S-2")).
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")).
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).
<PAGE>
10.4* Lease, dated November 28, 1986, between Kollmorgen Corporation
and Elexsys 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).
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")).
<PAGE>
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).
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).
<PAGE>
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.
10.42+ Form of Nonstatutory Stock Option Agreement under the 1995
Stock Option Plan.
10.43+ Employee Stock Purchase Plan.
10.44+ Non-Employee Directors' Stock Option Plan.
10.45 Lease for 4405 Fortran Court, San Jose, CA, dated March 11,
1996 between Elexsys International and SouthBay/Fortran, a
California Limited Partnership.
11 Computation of Earnings Per Common and Common Equivalent Share
for the Fiscal Years Ended September 30, 1996, 1995, and 1994.
13 Annual Report to Stockholders for the Fiscal Year Ended
September 30, 1996.
21 List of subsidiaries of the Registrant.
23 Consent of Deloitte & Touche LLP dated December 18, 1996 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
(b) Reports on Form 8-K
None
- --------------------------------------------------------------------------------
* Incorporated by reference.
+ Management or compensatory plan, contract or arrangement
<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 23, 1996
- -------------------------------------------------- -----------------
Milan Mandaric Date
Chairman of the Board 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 23, 1996
- -------------------------------------------------- -----------------
Milan Mandaric Date
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
/s/ Peter S Jonas December 23, 1996
- -------------------------------------------------- -----------------
Peter S. Jonas Date
Director
/s/ Roland G. Matthews December 23, 1996
- -------------------------------------------------- -----------------
Roland G. Matthews Date
Director
/s/ Alan Mendelson December 23, 1996
- -------------------------------------------------- -----------------
Alan Mendelson Date
Director
/s/ Brad Jeffries December 23, 1996
- -------------------------------------------------- -----------------
Bradford Jeffries Date
Director
/s/ Roger W. Johnson December 23, 1996
- -------------------------------------------------- -----------------
Roger W. Johnson Date
Director
/s/ Michael Shimada December 23, 1996
- -------------------------------------------------- -----------------
Michael S. Shimada Date
Vice President of Finance,
Chief Financial Officer and
Secretary (Principal Financial
and Accounting Officer)
<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,
1996 and 1995, and for each of the three years in the period ended September 30,
1996, and have issued our report thereon dated October 18, 1996 (November 26,
1996 as to the fifth paragraph of note 14); such consolidated financial
statements and report are included in your 1996 Annual Report to Stockholders
and are incorporated herein by reference. Our audits also included the financial
statement schedule of Elexsys International, Inc., listed in Item 14. These
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our opinion,
such a financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
Deloitte & Touche LLP (Sig)
Costa Mesa, California
October 18, 1996
EXHIBIT 10.40
ELEXSYS INTERNATIONAL, INC.
1995 STOCK OPTION PLAN
ADOPTED JULY 19, 1995
AMENDED AND RESTATED JANUARY 8, 1996
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which
selected Employees and Directors of and Consultants to the Company, and its
Affiliates, may be given an opportunity to purchase stock of the Company.
(b) The Company, by means of the Plan, seeks to retain the
services of persons who are now Employees or Directors of or Consultants to the
Company or its Affiliates, to secure and retain the services of new Employees,
Directors and Consultants, and to provide incentives for such persons to exert
maximum efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Options issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated pursuant to subsection 3(c),
be either Incentive Stock Options or Nonstatutory Stock Options. All Options
shall be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and in such form as issued pursuant to Section 6,
and a separate certificate or certificates will be issued for shares purchased
on exercise of each type of Option.
<PAGE>
2. DEFINITIONS.
(a) "Affiliate" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f) respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) "Committee" means a Committee appointed by the Board in
accordance with subsection 3(c) of the Plan.
(e) "Company" means Elexsys International, Inc., a Delaware
corporation.
(f) "Consultant" means any person, including an advisor,
engaged by the Company or an Affiliate to render consulting services and who is
compensated for such services, provided that the term "Consultant" shall not
include Directors who are paid only a director's fee by the Company or who are
not compensated by the Company for their services as Directors.
(g) "Continuous Status as an Employee, Director or Consultant"
means that the service of an individual to the Company, whether as an Employee,
Director or Consultant, is not interrupted or terminated. The Board, in its sole
discretion, may determine whether Continuous Status as an Employee, Director or
Consultant shall be considered interrupted in the case of: (i) any leave of
absence approved by the Board, including sick leave, military leave, or any
other personal leave; or (ii) transfers between the Company, Affiliates or their
successors.
(h) "Covered Employee" means the chief executive officer and
the four (4) other highest compensated officers of the Company for whom total
compensation is required to be
2.
<PAGE>
reported to stockholders under the Exchange Act, as determined for purposes of
Section 162(m) of the Code.
(i) "Director" means a member of the Board.
(j) "Disinterested Person" means a Director who either (i) was
not during the one year prior to service as an administrator of the Plan granted
or awarded equity securities pursuant to the Plan or any other plan of the
Company or any affiliate entitling the participants therein to acquire equity
securities of the Company or any affiliate except as permitted by Rule
16b-3(c)(2)(i); or (ii) is otherwise considered to be a "disinterested person"
in accordance with Rule 16b-3(c)(2)(i), or any other applicable rules,
regulations or interpretations of the Securities and Exchange Commission.
(k) "Employee" means any person, including Officers and
Directors, employed by the Company or any Affiliate of the Company. Neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(m) LESS FLEXIBILITY: "Fair Market Value" means, as of any
date, the value of the common stock of the Company determined as follows:
(1) If the common stock is listed on any established
stock exchange or a national market system, including without limitation the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, the Fair Market Value of a share of
common stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in common stock) on the last market
trading day prior to the
3.
<PAGE>
day of determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable;
(2) If the common stock is quoted on the NASDAQ
System (but not on the National Market System thereof) or is regularly quoted by
a recognized securities dealer but selling prices are not reported, the Fair
Market Value of a share of common stock shall be the mean between the bid and
asked prices for the common stock on the last market trading day prior to the
day of determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable;
(3) In the absence of an established market for the
common stock, the Fair Market Value shall be determined in good faith by the
Board.
(n) "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended
to qualify as an Incentive Stock Option.
(p) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(q) "Option" means a stock option granted pursuant to the
Plan.
(r) "Option Agreement" means a written agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. Each Option Agreement shall be subject to the terms and conditions
of the Plan.
4.
<PAGE>
(s) "Optionee" means a person who holds an outstanding Option.
(t) "Outside Director" means a Director who either (i) is not
a current employee of the Company or an "affiliated corporation" (within the
meaning of the Treasury regulations promulgated under Section 162(m) of the
Code), is not a former employee of the Company or an "affiliated corporation"
receiving compensation for prior services (other than benefits under a tax
qualified pension plan), was not an officer of the Company or an "affiliated
corporation" at any time, and is not currently receiving direct or indirect
remuneration from the Company or an "affiliated corporation" for services in any
capacity other than as a Director, or (ii) is otherwise considered an "outside
director" for purposes of Section 162(m) of the Code.
(u) "Plan" means this Elexsys International, Inc. 1995 Stock
Option Plan.
(v) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and
until the Board delegates administration to a Committee, as provided in
subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the
persons eligible under the Plan shall be granted Options; when and how each
Option shall be granted; whether an Option will be an Incentive Stock Option or
a Nonstatutory Stock Option; the provisions of each Option granted (which need
not be identical), including the time or times such Option may be exercised
5.
<PAGE>
in whole or in part; and the number of shares for which an Option shall be
granted to each such person.
(2) To construe and interpret the Plan and Options
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Option Agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
(3) To amend the Plan or an Option as provided in
Section 11.
(4) Generally, to exercise such powers and to perform
such acts as the Board deems necessary or expedient to promote the best
interests of the Company.
(c) The Board may delegate administration of the Plan to a
committee composed of not fewer than two (2) members (the "Committee"), all of
the members of which Committee shall be Disinterested Persons and may also be,
in the discretion of the Board, Outside Directors. If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board (and
references in this Plan to the Board shall thereafter be to the Committee),
subject, however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the administration of
the Plan. Notwithstanding anything in this Section 3 to the contrary, the Board
or the Committee may delegate to a committee of one or more members of the Board
the authority to grant Options to eligible persons who (1) are not then subject
to Section 16 of the Exchange Act and/or (2) are either (i) not then Covered
Employees and are not expected to be
6.
<PAGE>
Covered Employees at the time of recognition of income resulting from such
Option, or (ii) not persons with respect to whom the Company wishes to comply
with Section 162(m) of the Code.
(d) Any requirement that an administrator of the Plan be a
Disinterested Person shall not apply if the Board or the Committee expressly
declares that such requirement shall not apply. Any Disinterested Person shall
otherwise comply with the requirements of Rule 16b-3.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 10 relating to
adjustments upon changes in stock, the stock that may be sold pursuant to
Options shall not exceed in the aggregate One Million (1,000,000) shares of the
Company's common stock. If any Option shall for any reason expire or otherwise
terminate, in whole or in part, without having been exercised in full, the stock
not purchased under such Option shall revert to and again become available for
issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees.
Nonstatutory Stock Options may be granted only to Employees, Directors or
Consultants.
(b) A Director shall in no event be eligible for the benefits
of the Plan unless at the time discretion is exercised in the selection of the
Director as a person to whom Options may be granted, or in the determination of
the number of shares which may be covered by Options granted to the Director:
(i) the Board has delegated its discretionary authority over the Plan to a
Committee which consists solely of Disinterested Persons; or (ii) the Plan
otherwise complies
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with the requirements of Rule 16b-3. The Board shall otherwise comply with the
requirements of Rule 16b-3. This subsection 5(b) shall not apply if the Board or
Committee expressly declares that it shall not apply.
(c) No person shall be eligible for the grant of an Incentive
Stock Option if, at the time of grant, such person owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its Affiliates unless the exercise price of such Incentive Stock
Option is at least one hundred ten percent (110%) of the Fair Market Value of
such stock at the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant.
(d) Subject to the provisions of Section 10 relating to
adjustments upon changes in stock, no person shall be eligible to be granted
Options covering more than Four Hundred Fifty Thousand (450,000) shares of the
Company's common stock in any calendar year.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) Term. No Option shall be exercisable after the expiration
of ten (10) years from the date it was granted.
(b) Price. The exercise price of each Incentive Stock Option
shall be not less than one hundred percent (100%) of the Fair Market Value of
the stock subject to the Option on the
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date the Option is granted; the exercise price of each Nonstatutory Stock Option
shall be not less than eighty-five percent (85%) of the Fair Market Value of the
stock subject to the Option on the date the Option is granted. Notwithstanding
the foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory
Stock Option) may be granted with an exercise price lower than that set forth in
the preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(c) Consideration. The purchase price of stock acquired
pursuant to an Option shall be paid, to the extent permitted by applicable
statutes and regulations, either (i) in cash at the time the Option is
exercised, or (ii) at the discretion of the Board or the Committee, at the time
of the grant of the Option, (A) by delivery to the Company of other common stock
of the Company, (B) according to a deferred payment arrangement, except that
payment of the common stock's "par value" (as defined in the Delaware General
Corporation Law) shall not be made by deferred payment, or other arrangement
(which may include, without limiting the generality of the foregoing, the use of
other common stock of the Company) with the person to whom the Option is granted
or to whom the Option is transferred pursuant to subsection 6(d), or (C) in any
other form of legal consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions of
the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
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(d) Transferability. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person. A Nonstatutory Stock Option shall
not be transferable except by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order satisfying the requirements of
Rule 16b-3 and the rules thereunder (a "QDRO"), and shall be exercisable during
the lifetime of the person to whom the Option is granted only by such person or
any transferee pursuant to a QDRO. The person to whom the Option is granted may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the Optionee,
shall thereafter be entitled to exercise the Option.
(e) Vesting. The total number of shares of stock subject to an
Option may, but need not, be allotted in periodic installments (which may, but
need not, be equal). The Option Agreement may provide that from time to time
during each of such installment periods, the Option may become exercisable
("vest") with respect to some or all of the shares allotted to that period, and
may be exercised with respect to some or all of the shares allotted to such
period and/or any prior period as to which the Option became vested but was not
fully exercised. The Option may be subject to such other terms and conditions on
the time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The provisions of this
subsection 6(e) are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised.
(f) Securities Law Compliance. The Company may require any
Optionee, or any person to whom an Option is transferred under subsection 6(d),
as a condition of exercising any
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such Option, (1) to give written assurances satisfactory to the Company as to
the Optionee's knowledge and experience in financial and business matters and/or
to employ a purchaser representative reasonably satisfactory to the Company who
is knowledgeable and experienced in financial and business matters, and that he
or she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Option; and (2) to give
written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the Option for such person's own account and not
with any present intention of selling or otherwise distributing the stock. The
foregoing requirements, and any assurances given pursuant to such requirements,
shall be inoperative if (i) the issuance of the shares upon the exercise of the
Option has been registered under a then currently effective registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
or (ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may require the Optionee to provide
such other representations, written assurances or information which the Company
shall determine is necessary, desirable or appropriate to comply with applicable
securities and other laws as a condition of granting an Option to such Optionee
or permitting the Optionee to exercise such Option. The Company may, upon advice
of counsel to the Company, place legends on stock certificates issued under the
Plan as such counsel deems necessary or appropriate in order to comply with
applicable securities laws, including, but not limited to, legends restricting
the transfer of the stock.
(g) Termination of Employment or Relationship as a Director or
Consultant. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates
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(other than upon the Optionee's death or disability), the Optionee may exercise
his or her Option (to the extent that the Optionee was entitled to exercise it
as of the date of termination) but only within such period of time ending on the
earlier of (i) the date three (3) months after the termination of the Optionee's
Continuous Status as an Employee, Director or Consultant, or such longer or
shorter period specified in the Option Agreement, or (ii) the expiration of the
term of the Option as set forth in the Option Agreement. If, after termination,
the Optionee does not exercise his or her Option within the time specified in
the Option Agreement, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the Plan.
(h) Disability of Optionee. In the event an Optionee's
Continuous Status as an Employee, Director or Consultant terminates as a result
of the Optionee's disability, the Optionee may exercise his or her Option (to
the extent that the Optionee was entitled to exercise it as of the date of
termination), but only within such period of time ending on the earlier of (i)
the date twelve (12) months following such termination (or such longer or
shorter period specified in the Option Agreement), or (ii) the expiration of the
term of the Option as set forth in the Option Agreement. If, at the date of
termination, the Optionee is not entitled to exercise his or her entire Option,
the shares covered by the unexercisable portion of the Option shall revert to
and again become available for issuance under the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the shares covered by such Option shall
revert to and again become available for issuance under the Plan.
12.
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(i) Death of Optionee. In the event of the death of an Optionee during,
or within a period specified in the Option Agreement after the termination of,
the Optionee's Continuous Status as an Employee, Director or Consultant, the
Option may be exercised (to the extent the Optionee was entitled to exercise the
Option as of the date of death) by the Optionee's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the option upon the Optionee's death pursuant to
subsection 6(d), but only within the period ending on the earlier of (i) the
date eighteen (18) months following the date of death (or such longer or shorter
period specified in the Option Agreement), or (ii) the expiration of the term of
such Option as set forth in the Option Agreement. If, at the time of death, the
Optionee was not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available for issuance under the Plan. If, after death, the Option is not
exercised within the time specified herein, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
(j) Early Exercise. The Option may, but need not, include a
provision whereby the Optionee may elect at any time while an Employee, Director
or Consultant to exercise the Option as to any part or all of the shares subject
to the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate.
(k) Withholding. To the extent provided by the terms of an
Option Agreement, the Optionee may satisfy any federal, state or local tax
withholding obligation relating to the exercise of such Option by any of the
following means or by a combination of such means: (1) tendering
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a cash payment; (2) authorizing the Company to withhold shares from the shares
of the common stock otherwise issuable to the Optionee as a result of the
exercise of the Option; or (3) delivering to the Company owned and unencumbered
shares of the common stock of the Company.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the Options, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Options.
(b) The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may be
required to issue and sell shares of stock upon exercise of the Options;
provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any Option or any stock
issued or issuable pursuant to any such Option. If, after reasonable efforts,
the Company is unable to obtain from any such regulatory commission or agency
the authority which counsel for the Company deems necessary for the lawful
issuance and sale of stock under the Plan, the Company shall be relieved from
any liability for failure to issue and sell stock upon exercise of such Options
unless and until such authority is obtained.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
9. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at
which an Option may first be exercised or the time during which an Option or any
part thereof will vest pursuant to
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subsection 6(e), notwithstanding the provisions in the Option stating the time
at which it may first be exercised or the time during which it will vest.
(b) Neither an Optionee nor any person to whom an Option is
transferred under subsection 6(d) shall be deemed to be the holder of, or to
have any of the rights of a holder with respect to, any shares subject to such
Option unless and until such person has satisfied all requirements for exercise
of the Option pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Option
granted pursuant thereto shall confer upon any Employee, Director, Consultant or
Optionee any right to continue in the employ of the Company or any Affiliate
[(or to continue acting as a Director or Consultant) or shall affect the right
of the Company or any Affiliate to terminate the employment of any Employee,
with or without cause, to remove any Director as provided in the Company's
By-Laws and the provisions of the General Corporation Law of the State of
Delaware, or to terminate the relationship of any Consultant in accordance with
the terms of that Consultant's agreement with the Company or Affiliate to which
such Consultant is providing services.
(d) To the extent that the aggregate Fair Market Value
(determined at the time of grant) of stock with respect to which Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year under all plans of the Company and its Affiliates exceeds one hundred
thousand dollars ($100,000), the Options or portions thereof which exceed such
limit (according to the order in which they were granted) shall be treated as
Nonstatutory Stock Options.
(e) (1) The Board or the Committee shall have the authority to
effect, at any time and from time to time (i) the repricing of any outstanding
Options under the Plan and/or (ii) with
15.
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the consent of the affected holders of Options, the cancellation of any
outstanding Options and the grant in substitution therefor of new Options under
the Plan covering the same or different numbers of shares of common stock, but
having an exercise price per share not less than eighty-five percent (85%) of
the Fair Market Value (one hundred percent (100%) of the Fair Market Value in
the case of an Incentive Stock Option or, in the case an Incentive Stock Option
granted to a ten percent (10%) stockholder (as defined in subsection 5(c)), not
less than one hundred and ten percent (110%) of the Fair Market Value) per share
of common stock on the new grant date.
(1) Shares subject to an Option canceled under this
subsection 9(e) shall continue to be counted against the maximum award of
Options permitted to be granted pursuant to subsection 5(d) of the Plan. The
repricing of an Option under this subsection 9(e), resulting in a reduction of
the exercise price, shall be deemed to be a cancellation of the original Option
and the grant of a substitute Option; in the event of such repricing, both the
original and the substituted Options shall be counted against the maximum awards
of Options permitted to be granted pursuant to subsection 5(d) of the Plan. The
provisions of this subsection 9(e) shall be applicable only to the extent
required by Section 162(m) of the Code.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any Option (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
class(es) and maximum number of shares subject to the Plan pursuant to
subsection 4(a) and the maximum
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number of shares subject to award to any person during any calendar year
pursuant to subsection 5(d), and the outstanding Options will be appropriately
adjusted in the class(es) and number of shares and price per share of stock
subject to such outstanding Options. Such adjustments shall be made by the Board
or Committee, the determination of which shall be final, binding and conclusive.
(The conversion of any convertible securities of the Company shall not be
treated as a "transaction not involving the receipt of consideration by the
Company.")
(b) In the event of: (1) a dissolution, liquidation, or sale
of all or substantially all of the assets of the Company; (2) a merger or
consolidation in which the Company is not the surviving corporation; (3) a
reverse merger in which the Company is the surviving corporation but the shares
of the Company's common stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise; or (4) the acquisition by any person, entity or
group within the meaning of Section 13(d) or 14(d) of the Exchange Act, or any
comparable successor provisions (excluding any employee benefit plan, or related
trust, sponsored or maintained by the Company or any Affiliate of the Company)
of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Act, or comparable successor rule) of securities of the Company representing
at least fifty percent (50%) of the combined voting power entitled to vote in
the election of directors, then to the extent permitted by applicable law and,
with respect to Options held by persons then performing services as Employees,
Directors or Consultants, the time during which such Options may be exercised
shall be accelerated prior to such event and the Options terminated if not
exercised after such acceleration and at or prior to such event.
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11. AMENDMENT OF THE PLAN AND OPTIONS.
(a) The Board at any time, and from time to time, may amend
the Plan. However, except as provided in Section 10 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company within twelve (12) months before or after the
adoption of the amendment, where the amendment will:
(1) Increase the number of shares reserved for
Options under the Plan;
(2) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires stockholder
approval in order for the Plan to satisfy the requirements of Section 422 of the
Code); or
(3) Modify the Plan in any other way if such
modification requires stockholder approval in order for the Plan to satisfy the
requirements of Section 422 of the Code or to comply with the requirements of
Rule 16b-3.
(b) The Board may in its sole discretion submit any other
amendment to the Plan for stockholder approval, including, but not limited to,
amendments to the Plan intended to satisfy the requirements of Section 162(m) of
the Code and the regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the
Plan in any respect the Board deems necessary or advisable to provide Optionees
with the maximum benefits provided or to be provided under the provisions of the
Code and the regulations promulgated thereunder relating to Incentive Stock
Options and/or to bring the Plan and/or Incentive Stock Options granted under it
into compliance therewith.
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(d) Rights and obligations under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Option was
granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend
the terms of any one or more Options; provided, however, that the rights and
obligations under any Option shall not be impaired by any such amendment unless
(i) the Company requests the consent of the person to whom the Option was
granted and (ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on July 18, 2005, which shall
be within ten (10) years from the date the Plan is adopted by the Board or
approved by the stockholders of the Company, whichever is earlier. No Options
may be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) Rights and obligations under any Option granted while the
Plan is in effect shall not be impaired by suspension or termination of the
Plan, except with the written consent of the person to whom the Option was
granted.
13. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
Options granted under the Plan shall be exercised unless and until the Plan has
been approved by the stockholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board.
19.
EXHIBIT 10.41
INCENTIVE STOCK OPTION
_________________________, Optionee:
ELEXSYS INTERNATIONAL, INC. (the "Company"), pursuant to its 1995 Stock
Option Plan (the "Plan") has granted to you, the optionee named above, an option
to purchase shares of the common stock of the Company ("Common Stock"). This
option is 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").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's employees
(including officers), directors or consultants. Defined terms not explicitly
defined in this agreement but defined in the Plan shall have the same
definitions as in the Plan.
The details of your option are as follows:
1. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total
number of shares of Common Stock subject to this option is ____________________
(__________).
2. VESTING. Subject to the limitations contained herein, 25%
of the shares will vest (become exercisable) on ____________, 19__ and 25% of
the shares will then vest each year thereafter until either (i) you cease to
provide services to the Company for any reason, or (ii) this option becomes
fully vested.
3. EXERCISE PRICE AND METHOD OF PAYMENT.
(a) Exercise Price. The exercise price of this option
is ___________ ($___________) per share, being not less than the fair market
value of the Common Stock on the date of grant of this option.
(b) Method of Payment. Payment of the exercise price
per share is due in full upon exercise of all or any part of each installment
which has accrued to you. You may elect, to the extent permitted by applicable
statutes and regulations, to make payment of the exercise price under one of the
following alternatives:
(i) Payment of the exercise price per share in
cash (including check) at the time of exercise; or
(ii) Payment pursuant to a program developed
under Regulation T as promulgated by the Federal Reserve Board which, prior to
the issuance of Common Stock,
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results in either the receipt of cash (or check) by the Company or the receipt
of irrevocable instructions to pay the aggregate exercise price to the Company
from the sales proceeds;
(iii) Provided that at the time of exercise the
Company's Common Stock is publicly traded and quoted regularly in the Wall
Street Journal, payment by delivery of already-owned shares of Common Stock,
held for the period required to avoid a charge to the Company's reported
earnings, and owned free and clear of any liens, claims, encumbrances or
security interests, which Common Stock shall be valued at its fair market value
on the date of exercise; or
(iv) Payment by a combination of the methods of
payment permitted by subparagraph 3(b)(i) through 3(b)(iii) above.
4. WHOLE SHARES. This option may not be exercised for any
number of shares which would require the issuance of anything other than whole
shares.
5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the
contrary contained herein, this option may not be exercised unless the shares
issuable upon exercise of this option are then registered under the Act or, if
such shares are not then so registered, the Company has determined that such
exercise and issuance would be exempt from the registration requirements of the
Act.
6. TERM. The term of this option commences on __________,
19__, the date of grant, and expires on _____________________ (the "Expiration
Date," which date shall be no more than ten (10) years from the date this option
is granted), unless this option expires sooner as set forth below or in the
Plan. In no event may this option be exercised on or after the Expiration Date.
This option shall terminate prior to the Expiration Date as follows: thirty (30)
days after the termination of your Continuous Status as an Employee, Director or
Consultant with the Company or an Affiliate of the Company (as defined in the
Plan) unless one of the following circumstances exists:
(a) Your termination of Continuous Status as an
Employee, Director or Consultant is due to your permanent and total disability
(within the meaning of Section 422(c)(6) of the Code). This option will then
expire on the earlier of the Expiration Date set forth above or twelve (12)
months following such termination of Continuous Status as an Employee, Director
or Consultant.
(b) Your termination of Continuous Status as an
Employee, Director or Consultant is due to your death or your death occurs
within thirty (30) days following your termination of Continuous Status as an
Employee, Director or Consultant for any other reason. This option will then
expire on the earlier of the Expiration Date set forth above or twelve (12)
months after your death.
2.
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(c) If during any part of such thirty (30) day period
you may not exercise your option solely because of the condition set forth in
paragraph 5 above, then your option will not expire until the earlier of the
Expiration Date set forth above or until this option shall have been exercisable
for an aggregate period of thirty (30) days after your termination of Continuous
Status as an Employee, Director or Consultant.
(d) If your exercise of the option within thirty (30)
days after termination of your Continuous Status as an Employee, Director or
Consultant with the Company or with an Affiliate would result in liability under
section 16(b) of the Securities Exchange Act of 1934, then your option will
expire on the earlier of (i) the Expiration Date set forth above, (ii) the tenth
(10th) day after the last date upon which exercise would result in such
liability or (iii) six (6) months and ten (10) days after the termination of
your Continuous Status as an Employee, Director or Consultant with the Company
or an Affiliate.
However, this option may be exercised following termination of
Continuous Status of an Employee, Director or Consultant only as to that number
of shares as to which it was exercisable on the date of termination of
Continuous Status of an Employee, Director or Consultant under the provisions of
paragraph 2 of this option.
In order to obtain the federal income tax advantages associated with an
"incentive stock option," the Code requires that at all times beginning on the
date of grant of the option and ending on the day three (3) months before the
date of the option's exercise, you must be an employee of the Company or an
Affiliate, except in the event of your death or permanent and total disability.
The Company has provided for continued vesting or extended exercisability of
your option under certain circumstances for your benefit, but cannot guarantee
that your option will necessarily be treated as an "incentive stock option" if
you provide services to the Company or an Affiliate as a consultant or exercise
your option more than three (3) months after the date your employment with the
Company and all Affiliates terminates.
7. EXERCISE.
(a) This option may be exercised, to the extent
specified above, by delivering a notice of exercise (in a form designated by the
Company) together with the exercise price to the Secretary of the Company, or to
such other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require pursuant
to subsection 6(f) of the Plan.
(b) By exercising this option you agree that:
(i) as a precondition to the completion of any
exercise of this option, the Company may require you to enter an arrangement
providing for the payment by you to the Company of any tax withholding
obligation of the Company arising by reason of (A) the exercise
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of this option; (B) the lapse of any substantial risk of forfeiture to which the
shares are subject at the time of exercise; or (C) the disposition of shares
acquired upon such exercise;
(ii) you will notify the Company in writing
within fifteen (15) days after the date of any disposition of any of the shares
of the Common Stock issued upon exercise of this option that occurs within two
(2) years after the date of this option grant or within one (1) year after such
shares of Common Stock are transferred upon exercise of this option; and
(iii) the Company (or a representative of the
underwriters) may, in connection with the first underwritten registration of the
offering of any securities of the Company under the Act, require that you not
sell or otherwise transfer or dispose of any shares of Common Stock or other
securities of the Company during such period (not to exceed one hundred eighty
(180) days) following the effective date (the "Effective Date") of the
registration statement of the Company filed under the Act as may be requested by
the Company or the representative of the underwriters. You further agree that
the Company may impose stop-transfer instructions with respect to securities
subject to the foregoing restrictions until the end of such period.
8. TRANSFERABILITY. This option is not transferable, except by
will or by the laws of descent and distribution, and is exercisable during your
life only by you. Notwithstanding the foregoing, by delivering written notice to
the Company, in a form satisfactory to the Company, you may designate a third
party who, in the event of your death, shall thereafter be entitled to exercise
this option.
9. OPTION NOT A SERVICE CONTRACT. This option is not an
employment contract and nothing in this option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company, or of the Company to continue your employment with the Company. In
addition, nothing in this option shall obligate the Company or any Affiliate, or
their respective stockholders, Board of Directors, officers or employees to
continue any relationship which you might have as a Director or Consultant for
the Company or Affiliate.
10. NOTICES. Any notices provided for in this option or the
Plan shall be given in writing and shall be deemed effectively given upon
receipt or, in the case of notices delivered by the Company to you, five (5)
days after deposit in the United States mail, postage prepaid, addressed to you
at the address specified below or at such other address as you hereafter
designate by written notice to the Company.
4.
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11. GOVERNING PLAN DOCUMENT. This option is subject to all the
provisions of the Plan, a copy of which is attached hereto and its provisions
are hereby made a part of this option, including without limitation the
provisions of Section 6 of the Plan relating to option provisions, and is
further subject to all interpretations, amendments, rules and regulations which
may from time to time be promulgated and adopted pursuant to the Plan. In the
event of any conflict between the provisions of this option and those of the
Plan, the provisions of the Plan shall control.
Dated the ____ day of __________________, 19__.
Very truly yours,
-----------------------------------------
By
--------------------------------------
Duly authorized on behalf of the
Board of Directors
ATTACHMENTS:
Elexsys International, Inc. 1995 Stock Option Plan
Notice of Exercise
5.
<PAGE>
The undersigned:
(a) Acknowledges receipt of the foregoing option and the
attachments referenced therein and understands that all rights and liabilities
with respect to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option,
it sets forth the entire understanding between the undersigned optionee and the
Company and its affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the undersigned
under stock option plans of the Company, and (ii) the following agreements only:
NONE
----------------
(Initial)
OTHER
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---------------------------------------
OPTIONEE
Address:
------------------------------
------------------------------
6.
EXHIBIT 10.42
NONSTATUTORY STOCK OPTION
________________________, Optionee:
ELEXSYS INTERNATIONAL, INC. (the "Company"), pursuant to its 1995 Stock
Option Plan (the "Plan") has granted to you, the optionee named above, an option
to purchase shares of the common stock of the Company ("Common Stock"). This
option is not intended to qualify and will not be treated as an "incentive stock
option" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's employees
(including officers), directors or consultants. Defined terms not explicitly
defined in this agreement but defined in the Plan shall have the same
definitions as in the Plan.
The details of your option are as follows:
1. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total
number of shares of Common Stock subject to this option is ___________________
(_______).
2. VESTING. Subject to the limitations contained herein, 25%
of the shares will vest (become exercisable) on ____________, 19__ and 25% of
the shares will then vest each year thereafter until either (i) you cease to
provide services to the Company for any reason, or (ii) this option becomes
fully vested.
3. EXERCISE PRICE AND METHOD OF PAYMENT.
(a) Exercise Price. The exercise price of this option
is _________________ ($____________) per share, being not less than 85% of the
fair market value of the Common Stock on the date of grant of this option.
(b) Method of Payment. Payment of the exercise price
per share is due in full upon exercise of all or any part of each installment
which has accrued to you. You may elect, to the extent permitted by applicable
statutes and regulations, to make payment of the exercise price under one of the
following alternatives:
(i) Payment of the exercise price per share in
cash (including check) at the time of exercise; or
(ii) Payment pursuant to a program developed
under Regulation T as promulgated by the Federal Reserve Board which, prior to
the issuance of Common Stock,
1.
<PAGE>
results in either the receipt of cash (or check) by the Company or the receipt
of irrevocable instructions to pay the aggregate exercise price to the Company
from the sales proceeds;
(iii) Provided that at the time of exercise the
Company's Common Stock is publicly traded and quoted regularly in the Wall
Street Journal, payment by delivery of already-owned shares of Common Stock,
held for the period required to avoid a charge to the Company's reported
earnings, and owned free and clear of any liens, claims, encumbrances or
security interests, which Common Stock shall be valued at its fair market value
on the date of exercise; or
(iv) Payment by a combination of the methods of
payment permitted by subparagraph 3(b)(i) through 3(b)(iii) above.
4. WHOLE SHARES. This option may not be exercised for any
number of shares which would require the issuance of anything other than whole
shares.
5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the
contrary contained herein, this option may not be exercised unless the shares
issuable upon exercise of this option are then registered under the Act or, if
such shares are not then so registered, the Company has determined that such
exercise and issuance would be exempt from the registration requirements of the
Act.
6. TERM. The term of this option commences on ___________,
19__, the date of grant, and expires on ___________________ (which date shall be
no more than ten (10) years from the date this option is granted), unless this
option expires sooner as set forth below or in the Plan. In no event may this
option be exercised on or after the Expiration Date. This option shall terminate
prior to the Expiration Date as follows: thirty (30) days after the termination
of your Continuous Status as an Employee, Director or Consultant with the
Company or an Affiliate of the Company (as defined in the Plan) for any reason
or for no reason unless:
(a) such termination of Continuous Status as an
Employee, Director or Consultant is due to your permanent and total disability
(within the meaning of Section 422(c)(6) of the Code), in which event the option
shall expire on the earlier of the Expiration Date set forth above or twelve
(12) months following such termination of Continuous Status as an Employee,
Director or Consultant; or
(b) such termination of Continuous Status as an
Employee, Director or Consultant is due to your death or your death occurs
within thirty (30) days following your termination for any other reason, in
which event the option shall expire on the earlier of the Expiration Date set
forth above or twelve (12) months after your death; or
(c) during any part of such thirty (30) day period
the option is not
2.
<PAGE>
exercisable solely because of the condition set forth in paragraph 5 above, in
which event the option shall not expire until the earlier of the Expiration Date
set forth above or until it shall have been exercisable for an aggregate period
of thirty (30) days after the termination of Continuous Status as an Employee,
Director or Consultant; or
(d) exercise of the option within thirty (30) days
after termination of your Continuous Status as an Employee, Director or
Consultant with the Company or with an Affiliate would result in liability under
section 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), in
which case the option will expire on the earlier of (i) the Expiration Date set
forth above, (ii) the tenth (10th) day after the last date upon which exercise
would result in such liability or (iii) six (6) months and ten (10) days after
the termination of your Continuous Status as an Employee, Director or Consultant
with the Company or an Affiliate.
However, this option may be exercised following termination of
Continuous Status as an Employee, Director or Consultant only as to that number
of shares as to which it was exercisable on the date of termination of
Continuous Status as an Employee, Director or Consultant under the provisions of
paragraph 2 of this option.
7. EXERCISE.
(a) This option may be exercised, to the extent
specified above, by delivering a notice of exercise (in a form designated by the
Company) together with the exercise price to the Secretary of the Company, or to
such other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require pursuant
to subsection 6(f) of the Plan.
(b) By exercising this option you agree that:
(i) as a precondition to the completion of any
exercise of this option, the Company may require you to enter an arrangement
providing for the cash payment by you to the Company of any tax withholding
obligation of the Company arising by reason of: (1) the exercise of this option;
(2) the lapse of any substantial risk of forfeiture to which the shares are
subject at the time of exercise; or (3) the disposition of shares acquired upon
such exercise. You also agree that any exercise of this option has not been
completed and that the Company is under no obligation to issue any Common Stock
to you until such an arrangement is established or the Company's tax withholding
obligations are satisfied, as determined by the Company; and
(ii) the Company (or a representative of the
underwriters) may, in connection with the first underwritten registration of the
offering of any securities of the Company under the Act, require that you not
sell or otherwise transfer or dispose of any shares of Common Stock or other
securities of the Company during such period (not to exceed one hundred eighty
(180) days) following the effective date (the "Effective Date") of the
registration statement of the Company filed under the Act as may be requested by
the Company or the representative of the underwriters. You further agree that
the Company may impose stop-
3.
<PAGE>
transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such period.
8. TRANSFERABILITY. This option is not transferable, except by
will or by the laws of descent and distribution or pursuant to a qualified
domestic relations order satisfying the requirements of Rule 16b-3 of the
Exchange Act (a "QDRO"), and is exercisable during your life only by you or a
transferee pursuant to a QDRO. Notwithstanding the foregoing, by delivering
written notice to the Company, in a form satisfactory to the Company, you may
designate a third party who, in the event of your death, shall thereafter be
entitled to exercise this option.
9. OPTION NOT A SERVICE CONTRACT. This option is not an
employment contract and nothing in this option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company, or of the Company to continue your employment with the Company. In
addition, nothing in this option shall obligate the Company or any Affiliate, or
their respective stockholders, Board of Directors, officers, or employees to
continue any relationship which you might have as a Director or Consultant for
the Company or Affiliate.
10. NOTICES. Any notices provided for in this option or the
Plan shall be given in writing and shall be deemed effectively given upon
receipt or, in the case of notices delivered by the Company to you, five (5)
days after deposit in the United States mail, postage prepaid, addressed to you
at the address specified below or at such other address as you hereafter
designate by written notice to the Company.
4.
<PAGE>
11. GOVERNING PLAN DOCUMENT. This option is subject to all the
provisions of the Plan, a copy of which is attached hereto and its provisions
are hereby made a part of this option, including without limitation the
provisions of Section 6 of the Plan relating to option provisions, and is
further subject to all interpretations, amendments, rules and regulations which
may from time to time be promulgated and adopted pursuant to the Plan. In the
event of any conflict between the provisions of this option and those of the
Plan, the provisions of the Plan shall control.
Dated the ____ day of __________________, 19__.
Very truly yours,
------------------------------------
By
---------------------------------
Duly authorized on behalf
of the Board of Directors
ATTACHMENTS:
Elexsys International, Inc. 1995 Stock Option Plan
Notice of Exercise
The undersigned:
(a) Acknowledges receipt of the foregoing option and the
attachments referenced therein and understands that all rights and liabilities
with respect to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option,
it sets forth the entire understanding between the undersigned optionee and the
Company and its affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the undersigned
under stock option plans of the Company, and (ii) the following agreements only:
NONE
--------------
(Initial)
OTHER
----------------------------------
----------------------------------
----------------------------------
5.
<PAGE>
----------------------------------
OPTIONEE
Address:
------------------------
------------------------
6.
ELEXSYS INTERNATIONAL, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
Adopted January 8, 1996
Approved by Shareholders on January 30, 1996
1. PURPOSE.
(a) The purpose of the 1996 Employee Stock Purchase Plan (the "Plan")
is to provide a means by which employees of Elexsys International, Inc., a
Delaware corporation (the "Company"), and its Affiliates, as defined in
subparagraph 1(b), which are designated as provided in subparagraph 2(b), may be
given an opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
its employees, to secure and retain the services of new employees, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
(d) The Company intends that the rights to purchase stock of the
Company granted under the Plan be considered options issued under an "employee
stock purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of the
Company shall be granted and the provisions of each offering of such rights
(which need not be identical).
<PAGE>
(ii) To designate from time to time which Affiliates of the
Company shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and rights granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best interests of
the Company and its Affiliates and to carry out the intent that the Plan be
treated as an "employee stock purchase plan" within the meaning of Section 423
of the Code.
(c) The Board may delegate administration of the Plan to a Committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 12 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to rights granted
under the Plan shall not exceed in the aggregate two hundred fifty thousand
(250,000) shares of the Company's common stock (the "Common Stock"). If any
right granted under the Plan shall for any reason terminate without having been
exercised, the Common Stock not purchased under such right shall again become
available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING.
(a) The Board or the Committee may from time to time grant or provide
for the grant of rights to purchase Common Stock of the Company under the Plan
to eligible employees (an "Offering") on a date or dates (the "Offering
Date(s)") selected by the Board or the Committee. Each Offering shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate, which shall comply with the requirements of Section
423(b)(5) of the Code that all employees granted rights to purchase stock under
the Plan shall have the same rights and privileges. The terms and conditions of
an Offering shall be incorporated by reference into the Plan and treated as part
of the Plan. The provisions of
2.
<PAGE>
separate Offerings need not be identical, but each Offering shall include
(through incorporation of the provisions of this Plan by reference in the
memorandum documenting the Offering or otherwise) the period during which the
Offering shall be effective, which period shall not exceed twenty-seven (27)
months beginning with the Offering Date, the substance of the provisions
contained in paragraphs 5 through 8, inclusive.
(b) If an employee has more than one right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (1) each agreement or notice delivered by that employee will be
deemed to apply to all of his or her rights under the Plan, and (2) a right with
a lower exercise price (or an earlier-granted right, if two rights have
identical exercise prices), will be exercised to the fullest possible extent
before a right with a higher exercise price (or a later-granted right, if two
rights have identical exercise prices) will be exercised.
5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or, as the
Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any Affiliate shall not be eligible to be
granted rights under the Plan, unless, on the Offering Date, such employee has
been in the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no event
shall the required period of continuous employment be equal to or greater than
two (2) years. In addition, unless otherwise determined by the Board or the
Committee and set forth in the terms of the applicable Offering, no employee of
the Company or any Affiliate shall be eligible to be granted rights under the
Plan, unless, on the Offering Date, such employee's customary employment with
the Company or such Affiliate is at least twenty (20) hours per week and at
least five (5) months per calendar year.
(b) The Board or the Committee may provide that each person who, during
the course of an Offering, first becomes an eligible employee of the Company or
designated Affiliate will, on a date or dates specified in the Offering which
coincides with the day on which such person becomes an eligible employee or
occurs thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right shall have the
same characteristics as any rights originally granted under that Offering, as
described herein, except that:
(i) the date on which such right is granted shall be the
"Offering Date" of such right for all purposes, including determination of the
exercise price of such right;
(ii) the period of the Offering with respect to such right
shall begin on its Offering Date and end coincident with the end of such
Offering; and
3.
<PAGE>
(iii) the Board or the Committee may provide that if such
person first becomes an eligible employee within a specified period of time
before the end of the Offering, he or she will not receive any right under that
Offering.
(c) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such employee.
(d) An eligible employee may be granted rights under the Plan only if
such rights, together with any other rights granted under "employee stock
purchase plans" of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such employee's rights to purchase stock of
the Company or any Affiliate to accrue at a rate which exceeds twenty-five
thousand dollars ($25,000) of fair market value of such stock (determined at the
time such rights are granted) for each calendar year in which such rights are
outstanding at any time.
(e) Officers of the Company and any designated Affiliate shall be
eligible to participate in Offerings under the Plan, provided, however, that the
Board may provide in an Offering that certain employees who are highly
compensated employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an
Offering made under the Plan, shall be granted the right to purchase up to the
number of shares of Common Stock of the Company purchasable with a percentage
designated by the Board or the Committee not exceeding fifteen percent (15%) of
such employee's Earnings (as defined in subparagraph 7(a)) during the period
which begins on the Offering Date (or such later date as the Board or the
Committee determines for a particular Offering) and ends on the date stated in
the Offering, which date shall be no more than twenty-seven (27) months after
the Offering Date. The Board or the Committee shall establish one or more dates
during an Offering (the "Purchase Date(s)") on which rights granted under the
Plan shall be exercised and purchases of Common Stock carried out in accordance
with such Offering. In connection with each Offering made under this Plan, the
Board or the Committee may specify a maximum number of shares which may be
purchased by any employee as well as a maximum aggregate number of shares which
may be purchased by all eligible employees pursuant to such Offering. In
addition, in connection with each Offering which contains more than one Purchase
Date (as defined in the relevant Offering), the Board or the Committee may
specify a maximum aggregate number of shares which may be purchased by all
eligible employees on any given Purchase Date under the Offering. If the
aggregate purchase of shares upon exercise of rights granted under the Offering
would exceed any such maximum aggregate number, the Board or the Committee shall
make a pro rata
4.
<PAGE>
allocation of the shares available in as nearly a uniform manner as shall be
practicable and as it shall deem to be equitable.
(b) The purchase price of stock acquired pursuant to rights granted
under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair
market value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair
market value of the stock on the Purchase Date.
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in the Plan pursuant
to an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board or the Committee of such employee's Earnings during the
Offering. "Earnings" is defined as an employee's regular salary or wages
(including amounts thereof elected to be deferred by the employee, that would
otherwise have been paid, under any arrangement established by the Company
intended to comply with Section 401(k), Section 402(e)(3), Section 125, Section
402(h), or Section 403(b) of the Code, and also including any deferrals under a
non-qualified deferred compensation plan or arrangement established by the
Company), which shall include or exclude bonuses, commissions, overtime pay,
incentive pay, profit sharing, other remuneration paid directly to the employee,
the cost of employee benefits paid for by the Company or an Affiliate, education
or tuition reimbursements, imputed income arising under any group insurance or
benefit program, traveling expenses, business and moving expense reimbursements,
income received in connection with stock options, contributions made by the
Company or an Affiliate under any employee benefit plan, and similar items of
compensation, as determined by the Board or Committee. The payroll deductions
made for each participant shall be credited to an account for such participant
under the Plan and shall be deposited with the general funds of the Company. A
participant may reduce (including to zero) or increase or begin such payroll
deductions, and an eligible employee may begin such payroll deductions, after
the beginning of any Offering only as provided for in the Offering. A
participant may make additional payments into his or her account only if
specifically provided for in the Offering and only if the participant has not
had the maximum amount withheld during the Offering.
(b) At any time during an Offering, a participant may terminate his or
her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company
provides. Such withdrawal may be elected at any time prior to the end of the
Offering except as provided by the Board or the Committee in the Offering. Upon
such withdrawal from the Offering by a participant, the Company shall distribute
to such participant all of his or her accumulated payroll deductions (reduced to
the extent, if any, such deductions have been used to acquire stock for the
participant) under the
5.
<PAGE>
Offering, without interest, and such participant's interest in that Offering
shall be automatically terminated. A participant's withdrawal from an Offering
will have no effect upon such participant's eligibility to participate in any
other Offerings under the Plan but such participant will be required to deliver
a new participation agreement in order to participate in subsequent Offerings
under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating employee's employment
with the Company and any designated Affiliate, for any reason, and the Company
shall distribute to such terminated employee all of his or her accumulated
payroll deductions (reduced to the extent, if any, such deductions have been
used to acquire stock for the terminated employee), under the Offering, without
interest.
(d) Rights granted under the Plan shall not be transferable by a
participant otherwise than by will or the laws of descent and distribution, or
by beneficiary designation as provided in paragraph 14, and shall be exercisable
only by the person to whom such rights are granted.
8. EXERCISE.
(a) On each Purchase Date, each participant's accumulated payroll
deductions and other additional payments specifically provided for in the
Offering (without any increase for interest) will be applied to the purchase of
whole shares of stock of the Company, up to the maximum number of shares
permitted pursuant to the terms of the Plan and the applicable Offering, at the
purchase price specified in the Offering. No fractional shares shall be issued
upon the exercise of rights granted under the Plan. The amount, if any, of
accumulated payroll deductions remaining in each participant's account after the
purchase of shares which is less than the amount required to purchase one share
of stock on the final Purchase Date of an Offering shall be held in each such
participant's account for the purchase of shares under the next Offering under
the Plan, unless such participant withdraws from such next Offering, as provided
in subparagraph 7(b), or is no longer eligible to be granted rights under the
Plan, as provided in paragraph 5, in which case such amount shall be distributed
to the participant after the final Purchase Date of the Offering, without
interest. The amount, if any, of accumulated payroll deductions remaining in any
participant's account after the purchase of shares which is equal to the amount
required to purchase whole shares of stock on the final Purchase Date of an
Offering shall be distributed in full to the participant after such Purchase
Date, without interest.
(b) No rights granted under the Plan may be exercised to any extent
unless the shares to be issued upon such exercise under the Plan (including
rights granted thereunder) are covered by an effective registration statement
pursuant to the Securities Act of 1933, as amended (the "Securities Act") and
the Plan is in material compliance with all applicable state, foreign and other
securities and other laws applicable to the Plan. If on a Purchase Date in any
Offering hereunder the Plan is not so registered or in such compliance, no
rights granted under the Plan or any Offering shall be exercised on said
Purchase Date and the Purchase Date shall be delayed until the Plan is subject
to such an effective registration statement and such compliance, except that the
Purchase Date shall not be delayed more than two (2) months and the Purchase
Date
6.
<PAGE>
shall in no event be more than twenty-seven (27) months from the Offering Date.
If on the Purchase Date of any Offering hereunder, as delayed to the maximum
extent permissible, the Plan is not registered and in such compliance, no rights
granted under the Plan or any Offering shall be exercised and all payroll
deductions accumulated during the Offering (reduced to the extent, if any, such
deductions have been used to acquire stock) shall be distributed to the
participants, without interest.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such rights.
(b) The Company shall seek to obtain from each federal, state, foreign
or other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of stock upon exercise of
the rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such rights unless and until
such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to rights granted under the
Plan shall constitute general funds of the Company.
11. RIGHTS AS A SHAREHOLDER.
A participant shall not be deemed to be the holder of, or to have any
of the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's shareholdings acquired upon
exercise of rights hereunder are recorded in the books of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding rights will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding rights. Such adjustments shall be made by the Board or
Committee, the determination of which shall be final, binding and conclusive.
(The conversion of any convertible securities of the Company shall not be
treated as a "transaction not including the receipt of consideration by the
Company.")
7.
<PAGE>
(b) In the event of: (1) a dissolution or liquidation of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise; or (4) any other capital
reorganization in which more than fifty percent (50%) of the shares of the
Company entitled to vote are exchanged, then, as determined by the Board in its
sole discretion (i) any surviving corporation may assume outstanding rights or
substitute similar rights for those under the Plan, (ii) such rights may
continue in full force and effect, or (iii) participants' accumulated payroll
deductions may be used to purchase Common Stock immediately prior to the
transaction described above and the participants' rights under the ongoing
Offering terminated.
13. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the shareholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares reserved for rights under
the Plan;
(ii) Modify the provisions as to eligibility for participation
in the Plan (to the extent such modification requires shareholder approval in
order for the Plan to obtain employee stock purchase plan treatment under
Section 423 of the Code or to comply with the requirements of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended ("Rule 16b-
3")); or
(iii) Modify the Plan in any other way if such modification
requires shareholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code or to comply with the
requirements of Rule 16b-3.
It is expressly contemplated that the Board may amend the Plan in any respect
the Board deems necessary or advisable to provide eligible employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to employee stock purchase plans
and/or to bring the Plan and/or rights granted under it into compliance
therewith.
(b) Rights and obligations under any rights granted before amendment of
the Plan shall not be impaired by any amendment of the Plan, except with the
consent of the person to whom such rights were granted or except as necessary to
comply with any laws or governmental regulation.
8.
<PAGE>
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of an
Offering but prior to delivery to the participant of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death during an Offering.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. No rights
may be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) Rights and obligations under any rights granted while the Plan is
in effect shall not be altered or impaired by suspension or termination of the
Plan, except as expressly provided in the Plan or with the consent of the person
to whom such rights were granted or except as necessary to comply with any laws
or governmental regulation.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
rights granted under the Plan shall be exercised unless and until the Plan has
been approved by the shareholders of the Company.
9.
ELEXSYS INTERNATIONAL, INC.
1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ADOPTED ON JANUARY 8, 1996
APPROVED BY STOCKHOLDERS
ON January 30, 1996
1. PURPOSE.
(a) The purpose of the 1996 Non-Employee Directors' Stock Option Plan
(the "Plan") is to provide a means by which each director of Elexsys
International, Inc. (the "Company") who is not otherwise at the time of grant an
employee of or consultant to the Company or of any Affiliate of the Company
(each such person being hereafter referred to as a "Non-Employee Director") will
be given an opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended from time to time (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
persons now serving as Non-Employee Directors of the Company, to secure and
retain the services of persons capable of serving in such capacity, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board") unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(b).
1.
<PAGE>
(b) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan. 3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 10 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to options granted
under the Plan shall not exceed in the aggregate two hundred thousand (200,000)
shares of the Company's common stock. If any option granted under the Plan shall
for any reason expire or otherwise terminate without having been exercised in
full, the stock not purchased under such option shall again become available for
the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. ELIGIBILITY.
Options shall be granted only to Non-Employee Directors of the Company.
5. NON-DISCRETIONARY GRANTS.
(a) Each person who is, after September 30, 1995, elected for the first
time to be a Non-Employee Director automatically shall, upon the date of initial
election to be a NonEmployee Director by the Board or stockholders of the
Company, be granted an option to
2.
<PAGE>
purchase fifteen thousand (15,000) shares of common stock of the Company on the
terms and conditions set forth herein.
(b) Each year, commencing with calendar year 1997, on the day following
the day of the annual meeting of the stockholders of the Company, each person
who is then a NonEmployee Director and has been a Non-Employee Director for at
least four (4) months automatically shall be granted an option to purchase five
thousand (5,000) shares of common stock of the Company on the terms and
conditions set forth herein.
6. OPTION PROVISIONS.
Each option shall be subject to the following terms and conditions:
(a) The term of each option commences on the date it is granted and,
unless sooner terminated as set forth herein, expires on the date ("Expiration
Date") ten (10) years from the date of grant. If the optionee's service as a
Non-Employee Director or employee of or consultant to the Company or any
Affiliate terminates for any reason or for no reason, the option shall terminate
on the earlier of the Expiration Date or the date twelve (12) months following
the date of termination of all such service; provided, however, that if such
termination of service is due to the optionee's death, the option shall
terminate on the earlier of the Expiration Date or eighteen (18) months
following the date of the optionee's death. In any and all circumstances, an
option may be exercised following termination of the optionee's service as a
Non-Employee Director or employee of or consultant to the Company or any
Affiliate only as to that number of shares as to which it was exercisable as of
the date of termination of all such service under the provisions of subparagraph
6(e).
(b) The exercise price of each option shall be one hundred percent
(100%) of the fair market value of the stock subject to such option on the date
such option is granted.
3.
<PAGE>
(c) The optionee may elect to make payment of the exercise price under
one of the following alternatives:
(i) Payment of the exercise price per share in cash at the
time of exercise; or
(ii) Provided that at the time of the exercise the Company's
common stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of shares of common stock of the Company already owned by
the optionee, held for the period required to avoid a charge to the Company's
reported earnings, and owned free and clear of any liens, claims, encumbrances
or security interest, which common stock shall be valued at its fair market
value on the date preceding the date of exercise; or
(iii) Payment by a combination of the methods of payment
specified in subparagraph 6(c)(i) and 6(c)(ii) above.
Notwithstanding the foregoing, this option may be exercised pursuant to
a program developed under Regulation T as promulgated by the Federal Reserve
Board which results in the receipt of cash (or check) by the Company either
prior to the issuance of shares of the Company's common stock or pursuant to the
terms of irrevocable instructions issued by the optionee prior to the issuance
of shares of the Company's common stock.
(d) An option shall not be transferable except by will or by the laws
of descent and distribution, or pursuant to a qualified domestic relations order
satisfying the requirements of Rule 16b-3 under the Securities Exchange Act of
1934 ("Rule 16b-3") and shall be exercisable during the lifetime of the person
to whom the option is granted only by such person (or by his guardian or legal
representative) or transferee pursuant to such an order. Notwithstanding the
foregoing, the optionee may, by delivering written notice to the Company in a
form satisfactory
4.
<PAGE>
to the Company, designate a third party who, in the event of the death of the
optionee, shall thereafter be entitled to exercise the option.
(e) The option shall become exercisable in installments over a period
of four years from the date of grant as follows: one forty-eighth (1/48) of the
shares shall vest each month commencing on the date of grant of the option,
provided that the optionee has, during the entire period prior to such vesting
date, continuously served as a Non-Employee Director, employee or consultant to
the Company or any Affiliate of the Company, whereupon such option shall become
fully exercisable in accordance with its terms with respect to that portion of
the shares represented by that installment.
(f) The Company may require any optionee, or any person to whom an
option is transferred under subparagraph 6(d), as a condition of exercising any
such option: (i) to give written assurances satisfactory to the Company as to
the optionee's knowledge and experience in financial and business matters; and
(ii) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the option for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. These requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise of the option has been registered under a thencurrently-effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or (ii), as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may require
any optionee to provide such other representations, written assurances or
information which the Company shall determine is necessary, desirable or
appropriate to comply with applicable securities laws as a condition of
5.
<PAGE>
granting an option to the optionee or permitting the optionee to exercise the
option. The Company may, upon advice of counsel to the Company, place legends on
stock certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.
(g) Notwithstanding anything to the contrary contained herein, an
option may not be exercised unless the shares issuable upon exercise of such
option are then registered under the Securities Act or, if such shares are not
then so registered, the Company has determined that such exercise and issuance
would be exempt from the registration requirements of the Securities Act.
(h) The Company (or a representative of the underwriters) may, in
connection with the first underwritten registration of the offering of any
securities of the Company under the Securities Act, require that any optionee
not sell or otherwise transfer or dispose of any shares of common stock or other
securities of the Company during such period (not to exceed one hundred eighty
(180) days) following the effective date of the registration statement of the
Company filed under the Securities Act as may be requested by the Company or the
representative of the underwriters. 7. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of
6.
<PAGE>
stock upon exercise of the options granted under the Plan; provided, however,
that this undertaking shall not require the Company to register under the
Securities Act either the Plan, any option granted under the Plan, or any stock
issued or issuable pursuant to any such option. If, after reasonable efforts,
the Company is unable to obtain from any such regulatory commission or agency
the authority which counsel for the Company deems necessary for the lawful
issuance and sale of stock under the Plan, the Company shall be relieved from
any liability for failure to issue and sell stock upon exercise of such options.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.
9. MISCELLANEOUS.
(a) Neither an optionee nor any person to whom an option is transferred
under subparagraph 6(d) shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such option unless
and until such person has satisfied all requirements for exercise of the option
pursuant to its terms.
(b) Throughout the term of any option granted pursuant to the Plan, the
Company shall make available to the holder of such option, not later than one
hundred twenty (120) days after the close of each of the Company's fiscal years
during the option term, upon request, such financial and other information
regarding the Company as comprises the annual report to the stockholders of the
Company provided for in the Bylaws of the Company and such other information
regarding the Company as the holder of such option may reasonably request.
7.
<PAGE>
(c) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any Non-Employee Director any right to continue in the service
of the Company or any Affiliate in any capacity or shall affect any right of the
Company, its Board or stockholders or any Affiliate to remove any Non-Employee
Director pursuant to the Company's By-Laws and the provisions of the Delaware
General Corporation Law (or the laws of the Company's state of incorporation
should that change in the future).
(d) No Non-Employee Director, individually or as a member of a group,
and no beneficiary or other person claiming under or through him, shall have any
right, title or interest in or to any option reserved for the purposes of the
Plan except as to such shares of common stock, if any, as shall have been
reserved for him pursuant to an option granted to him.
(e) In connection with each option made pursuant to the Plan, it shall
be a condition precedent to the Company's obligation to issue or transfer shares
to a Non-Employee Director, or to evidence the removal of any restrictions on
transfer, that such Non-Employee Director make arrangements satisfactory to the
Company to insure that the amount of any federal or other withholding tax
required to be withheld with respect to such sale or transfer, or such removal
or lapse, is made available to the Company for timely payment of such tax.
(f) As used in this Plan, "fair market value" means, as of any date,
the value of the common stock of the Company determined as follows:
(i) If the common stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a share of common stock
shall be the closing sales price for such stock (or the
8.
<PAGE>
closing bid, if no sales were reported) as quoted on such system or exchange (or
the exchange with the greatest volume of trading in common stock) on the last
market trading day prior to the day of determination, as reported in the Wall
Street Journal or such other source as the Board deems reliable;
(ii) If the common stock is quoted on the NASDAQ System (but
not on the National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a share of common stock shall be the mean between the bid and
asked prices for the common stock on the last market trading day prior to the
day of determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable;
(iii) In the absence of an established market for the common
stock, the Fair Market Value shall be determined in good faith by the Board.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding options will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding options. Such adjustments shall be made by the Board, the
determination of which shall be final, binding, and conclusive.
9.
<PAGE>
(The conversion of any convertible securities of the Company shall not be
treated as a "transaction not involving the receipt of consideration by the
Company.")
(b) In the event of: (1) a dissolution, liquidation, or sale of all or
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise; or (4) the acquisition by any person, entity or groups within
the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any comparable successor provisions (excluding
any employee benefit plan, or related trust, approved or maintained by the
Company or any Affiliate of the Company) of the beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable
successor rule) of securities of the Company representing at least fifty percent
(50%) of the combined voting power entitled to vote in the election of
directors, then to the extent not prohibited by applicable law: the time during
which options outstanding under the Plan may be exercised shall be accelerated
prior to such event and the options terminated if not exercised after such
acceleration and at or prior to such event. 11. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan,
provided, however, that the Board shall not amend the plan more than once every
six (6) months, with respect to the provisions of the Plan which relate to the
amount, price and timing of grants, other than to comport with changes in the
Code, the Employee Retirement Income Security Act,
10.
<PAGE>
or the rules thereunder. Except as provided in paragraph 10 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company within twelve (12) months before or
after the adoption of the amendment, where the amendment will:
(i) Increase the number of shares which may be issued under
the Plan;
(ii) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires stockholder
approval in order for the Plan to comply with the requirements of Rule 16b-3);
or
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to comply with the
requirements of Rule 16b-3 or Section 162(m) of the Internal Revenue Code.
(b) Rights and obligations under any option granted before any
amendment of the Plan shall not be impaired by such amendment unless (i) the
Company requests the consent of the person to whom the option was granted and
(ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. No options
may be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) Rights and obligations under any option granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the option was granted.
(c) The Plan shall terminate upon the occurrence of any of the events
described in Section 10(b) above.
11.
<PAGE>
13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.
(a) The Plan shall become effective upon adoption by the Board of
Directors, subject to the condition subsequent that the Plan is approved by the
stockholders of the Company.
(b) No option granted under the Plan shall be exercised or exercisable
unless and until the condition of subparagraph 13(a) above has been met.
12.
LEASE AGREEMENT
1. Parties. This Lease, dated for reference purposes only, March 11, 1996, is
made by and between South Bay/Fortran, a California limited partnership,
("Landlord"), and Elexsys International, Inc., a California corporation
("Tenant").
2. Premises. Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord, upon the terms and conditions hereinafter set forth, those certain
premises (the "Premises") presently known, as of the date of this Lease, as 4405
Fortran Court, situated in the City of San Jose, County of Santa Clara, State of
California, described as follows: for purposes of this Lease, the rentable
square footage area of the Building shall be deemed to be approximately
sixty-six thousand three hundred sixty-eight (66,368) square feet (the
"Building"), as shown cross-hatched on the site plan (the "Site Plan") attached
hereto as Exhibit "A". The Building is located on a larger parcel (the "Parcel")
containing other buildings (the "Buildings") as shown on the Site Plan, which
Parcel is described in Exhibit "B" attached hereto. In the event Landlord
subdivides the Parcel in the future into two (2) or more legal parcels, the term
"Parcel" shall thereafter refer to the legal parcel on which the Premises are
located. Except as provided in Exhibit "C", Landlord shall not be required to
make any alterations, additions or improvements to the Premises and the Premises
shall be leased to Tenant in an "as-is" condition; provided, however, the
Premises will be delivered to Tenant in good condition and repair, including the
roof and structural integrity of the Building, and the Premises as they exist on
the date of execution of this Lease (exclusive of any Tenant Improvements
constructed pursuant to Exhibit "C"), will be in compliance with all
governmental codes, ordinances and statutes, including Americans With
Disabilities Act ("ADA").
3. Term. The term of this Lease ("Lease Term") shall be for seven (7) year,
commencing on July 1, 1996, (the "Commencement Date") and ending on June 30,
2003, unless sooner terminated pursuant to any provision hereof. Notwithstanding
said scheduled Commencement Date, if for any reason Landlord cannot deliver
possession of the Premises to Tenant on said date, Landlord shall not be subject
to any liability therefor, nor shall such failure affect the validity of this
Lease or the obligations of Tenant hereunder, but in such case Tenant shall not
be obligated to pay rent until possession of the Premises is tendered to Tenant
and the commencement and termination dates of this Lease shall be revised to
conform to the date of the Landlord's delivery of possession. In the event
Landlord shall permit Tenant to occupy the Premises prior to the Commencement
Date, such occupancy shall be subject to all the provisions of this Lease,
including the obligation to pay the Monthly Installment of rent, and Common Area
Charges.
4. Rent.
A. Time of Payment. Tenant shall pay to Landlord as rent for the Premises
the sum specified in paragraph 4.b below (the "Monthly Installment") each
month in advance on the first day of each calendar month, without deduction
or offset, prior notice or demand, commencing on the Commencement Date and
continuing through the term of this Lease, together with such additional
rents as are payable by Tenant to Landlord under the terms of this Lease.
The Monthly Installment for any period during the Lease Term which period
is less than one (1) full month shall be a prorata portion of the Monthly
installment based upon a thirty (30) day month.
B. Monthly Installment
(1) Initial Monthly Installment. The initial Monthly Installment of
rent payable each month during the first (1st) through the
twenty-fourth (24th) month of the Lease Term shall be the sum of
Forty-six Thousand Four hundred Fifty-eight and no/100ths Dollars per
month. ($46,458.00).
(2) Rent Adjustments.
(a) Commencing with the twenty-fifth (25th) month of the Lease
Term, the Monthly Installment of rent shall be increased to
Forty-nine Thousand Seven Hundred Seventy-six and no/100ths
Dollars ($49,776.00);
(b) Commencing with the forty-ninth (49th) month of the Lease
Term, the Monthly Installment of rent shall be increased to
Fifty-three Thousand Ninety-four and no/100ths Dollars
($53,094.00); and,
(c) Commencing with the seventy-third (73rd) month of the Lease
Term, the Monthly Installment of rent shall be increased to
Fifty-three Thousand Four Hundred Thirteen and no/100ths Dollars
($56,413.00).
C. Late Charge. Tenant acknowledges that late payment by Tenant to Landlord
of rent and other sums due hereunder will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any mortgage or deed of trust covering the
Premises. Accordingly, if any installment of rent or any other sum due from
Tenant shall not be received by Landlord within ten (10) days after such
amount shall be due, Tenant shall pay to Landlord, as additional rent, a
late charge equal to six percent (6%) of such overdue amount. The parties
hereby agree that such late charge represents a fair and reasonable
estimate of the costs Landlord will incur by reason of late payment by
Tenant. Acceptance of such late charge by Landlord shall in no event
constitute a waiver of Tenant's default with respect to such overdue
amount, nor prevent Landlord from exercising any of its other rights and
remedies granted hereunder.
D. Additional Rent. All taxes, insurance premiums, Common Area Charges,
late charges, costs and expenses which Tenant is required to pay hereunder,
together with all interest and penalties that may accrue thereon in the
event of Tenant's failure to pay such amounts, and all reasonable damages,
costs and attorneys' fees and expenses which Landlord may incur by reason
of any default of Tenant or failure on Tenant's part to comply with the
terms of this Lease, shall be deemed to be additional rent ("Additional
Rent") and shall be paid in additional to the Monthly Installment of rent,
and, in the event of nonpayment of the Monthly Installment of rent.
E. Place of Payment. Rent shall be payable in lawful money of the United
States of America to Landlord at 511 Division Street, Campbell, CA, or to
such other person(s) or at such other place(s) as Landlord may designate in
writing.
F. Advance Payment. Concurrently with the execution of this Lease, Tenant
shall pay to Landlord the sum of Forty-six Thousand four Hundred
Fifty-eight and no/100ths Dollars ($46,458.00) to be applied to the Monthly
Installment of rent first accruing under this Lease.
<PAGE>
5. Security Deposit. Tenant shall deposit the sum of Fifty-six Thousand Four
Hundred Thirteen and no/100ths Dollars ($56,413.00) (the "Security Deposit")
upon execution of this Lease, to secure the faithful performance by Tenant of
each term, convenient and condition of this Lease. If Tenant shall at any time
fail to may any payment or fail to keep or perform any term, covenant or
condition on its part to be made or performed or kept under this Lease, Landlord
may, but shall not be obligated to and without waiving or releasing tenant from
any obligation under this Lease, use, apply or retain the whole or any part of
the Security Deposit (A) to the extent of any sum due to Landlord; (B) to make
any required payment on Tenant's behalf; or (C) to compensate Landlord for any
loss, damages, attorneys' fees or expense sustained by Landlord due to Tenant's
default. In such event, Tenant shall, within five (5) days of written demand by
Landlord, remit to Landlord sufficient funds to restore the Security Deposit to
its original sum. No interest shall accrue on the Security Deposit. Landlord
shall not be required to keep the Security Deposit separate from its. general
funds. Should Tenant comply with all the terms, covenants and conditions of this
Lease and at the end of the term of this Lease leave the Premises in the
condition required by this Lease, then said Security Deposit, less any sums
owing to Landlord, shall be returned to Tenant within thirty (30) days after the
termination of this Lease and vacancy of the Premises by Tenant.
6. Use of Premises. Tenant shall use the Premises only in conformance with
applicable governmental laws, regulations, rules and ordinances for the purpose
of general office, research and development, light manufacturing, assembly,
warehousing and distribution of electronic products, and for no other purpose.
Tenant shall indemnify, protect, defend, and hold Landlord harmless against any
loss, expense, damage, attorney' fees or liability arising out of failure of
Tenant to comply with any applicable law. Tenant shall not commit or suffer to
be committed, any waster upon the Premises, or any nuisance, or other acts or
things which may disturb the quiet enjoyment of any other tenant in the
buildings adjacent to the Premises, or allow any sale by auction upon the
Premises, or allow the Premises to be used for any unlawful purpose, or place
any loads upon the floor, walls or ceiling which endanger the structure, or
place any harmful liquids in the drainage system of the Building. No waste
materials or refuse shall be dumped upon or permitted to remain upon any part of
the Premises outside of the Buildings proper, except in trash containers place
inside exterior enclosures designated for that purpose by Landlord. No material,
supplies, equipment, finished products or semi-finished products, raw materials
or articles of any nature shall be stored upon or permitted to remain on any
portion of the Premises outside the Building proper. Tenant shall strictly
comply with the provisions of Paragraph 39 below.
7. Taxes and Assessments
A. Tenant's Property. Tenant shall pay before delinquency any and all taxes
and assessments, license fees and public charges levied, assessed or
imposed upon or against Tenant's fixtures, equipment, furnishings,
furniture, appliances and personal property installed or located on or
within the Premises. Tenant shall cause said fixtures, equipment,
furnishings, furniture, appliances and personal property to be assessed and
billed separately from the real property of Landlord. If any of Tenant's
said personal property shall be assessed with Landlord's real property,
Tenant shall pay Landlord the taxes attributable to Tenant within ten (10)
days after receipt of a written statement from Landlord setting forth the
taxes applicable to Tenant's property.
<PAGE>
B. Property Taxes. Tenant shall pay, as additional rent, its Pro Rata Share
(as defined below) of all Property Taxes levied or assessed with respect to
the land comprising the Parcel with respect to all buildings and
improvements located on the Parcel which become due or accrue during the
term of this Lease. Tenant shall pay such Property Taxes to Landlord within
twenty (20) days after receipt of billing. Provided that Landlord bills
Tenant at least thirty (30) days prior to the delinquency date of such
Property Taxes, Tenant shall pay such Property Taxes to Landlord at least
ten (10) days prior to the delinquency date, and if Tenant fails to do so,
Tenant shall reimburse Landlord, on demand, for all interest, late fees and
penalties that the taxing authority charges Landlord. In the event
Landlord's mortgagee requires an impound for Property Taxes, then on the
first day of each month during the Lease Term, Tenant shall pay Landlord on
twelfth (1/12) of its annual share of such Property Taxes. Tenant's
liability hereunder shall be prorated to reflect the Commencement and
termination dates of this Lease. Tenant's share of the Property Taxes shall
be determined by Landlord from the respective valuation assigned in the
Assessor's worksheet or such other information as may be reasonably
available. Landlord's reasonable determination thereof, in good faith,
shall be conclusive. As used in this Lease, the term "Tenant's Pro Rata
Share" shall mean a fraction, expressed as a percentage, the numerator of
which is the number of square feet of floor space contained in all of the
Buildings located on the Parcel. As of the Commencement Date, Tenant's Pro
Rata Share is twenty-two and forty-eight hundredths percent (22.48%).
Notwithstanding the foregoing, in the event of a reassessment of the
Property Taxes due to the voluntary sale of the Premises which sale occurs
any time after the expiration of the second year of the Lease Term. Tenant
shall not be responsible to pay its Pro Rata Share of any increase in
Property Taxes due to such sale to the extent such increase exceeds
twenty-five percent (25%) of the Property Tax bill assessed immediately
prior to the sale of the Premises. This cap shall not apply to any sale
that occurs during the first two (2) years of the Lease Term or any time
after the initial Lease Term expires, and shall not apply for any other
reassessment of the property due to construction of tenant improvements or
any other increase in value of the property. Also, this cap shall no apply
to any increase in real property taxes that result from a foreclosure sale,
deed in lieu of foreclosure or other involuntary transfer of the Premises.
For the purpose of this Lease, "Property Taxes" means and includes all
taxes, assessments (including, but not limited to, assessments for public
improvements or benefits), taxes based on vehicles, utilizing parking
areas, taxes based or measured by the rent paid, payable or received under
this Lease, taxes on the value, use, or occupancy of the Premises, the
Buildings and/or the Parcel, Environmental Surcharges, and all other
governmental impositions and charges of every kind and nature whatsoever,
whether or not customary or within the contemplation of the parties hereto
and regardless of whether the same shall be extraordinary or ordinary,
general or special, unforeseen or foreseen, or similar or dissimilar to any
of the foregoing which, at any time during the Lease Term shall be
applicable to the Premises, the Buildings and/or the Parcel or assessed,
levied or imposed upon to the Premises, the Buildings and/or the Parcel, or
become due and payable and a lien or charge upon to the Premises, the
Buildings and/or the Parcel, or any part thereof, under or by virtue of any
present or future laws, statutes, ordinances, regulations or other
requirements of any governmental authority whatsoever. The term
"Environmental Surcharges" shall mean and include any and all expenses,
taxes, charges or penalties imposed by the Federal Department of Energy,
the Federal Environmental Protection Agency, the Federal Clean Air Act, or
any regulations promulgated thereunder or any other local, state or federal
governmental agency or entity now or hereafter vested with the power to
impose taxes, assessments, or other types of surcharges as a means of
controlling or abating environmental pollution or the use of energy. The
term "Property Taxes" shall not include any federal, state, or local net
income, estate, or inheritance tax imposed on Landlord.
C. Other Taxes. Tenant shall, as additional rent, pay or reimburse Landlord
for any tax based upon, allocable to, or measured by the area of the
Premises or the Buildings or the Parcel; or by the rent paid, payable or
received under this Lease; any tax upon or with respect to the possession,
leasing,
<PAGE>
operation, management, maintenance, alteration, repair, use or occupancy of
the Premises or any portion thereof; any privilege tax, excise tax,
business and occupation tax, gross receipts tax, sales and /or use tax,
water tax, sewer tax, employee tax, occupational license tax imposed upon
Landlord or Tenant with respect to the Premises; any tax upon this
transaction or any document to which Tenant is party creating or
transferring an interest or an estate in the Premises.
8. Insurance
A. Indemnity. Tenant agrees to indemnify, protect and defend Landlord
against and hold Landlord harmless from any and all claims, causes of
action, judgments, obligations or liabilities, and all reasonable expenses
incurred in investigating or resisting the same (including reasonable
attorneys' fees), on account of, or arising out of, the operation,
maintenance, use or occupancy of the Premises and all areas appurtenant
thereto. This Lease is made on the express understanding that Landlord
shall not be liable for, or suffer loss by reason of, injury to person or
property, from whatever cause (except fro active negligence or willful
misconduct of Landlord), which in any way may be connected with the
operation, use or occupancy of the Premises specifically including, without
limitation, any liability for injury to the person or property of Tenant,
its agents, officers, employees, licensees and invitees.
B. Liability Insurance. Tenant shall, at Tenant's expense, obtain and keep
in force during the term of this Lease a policy of comprehensive public
liability insurance insuring Landlord and tenant against claims and
liabilities arising out of the operation, use, or occupancy of the Premises
and all areas appurtenant thereto, including parking areas. Such insurance
shall be in an amount of not less than Three Million Dollars
($3,000,000.00) for bodily injury or death as a result of any one
occurrence and Five Hundred Thousand Dollars ($500,000.00) for damage to
property as a result of any one occurrence. The insurance shall be with
companies approved by Landlord, which approval Landlord agrees not to
withhold unreasonably. Tenant shall deliver to Landlord, which approval
Landlord agrees not to thirty (30) days prior to the expiration thereof, a
certificate of insurance evidencing the existence of the policy required
hereunder and such certificate shall certify that the policy (1) names
Landlord as an additional insured, (2) shall not be canceled or altered
without thirty (30) days prior written notice to Landlord, (3) insures
performance of the indemnity set forth in Paragraph 8.A above, (4) the
coverage is primary and any coverage by Landlord is in excess thereto and
(5) contains a cross-liability endorsement. Landlord may maintain a policy
or policies of comprehensive general liability insurance insuring Landlord
(and such others as are designation by Landlord), against liability for
personal injury, bodily injury, death and damage to property occurring or
resulting from an occurrence in, on or about the Premises or the Common
Area, with such limits of coverage as Landlord may from time to time
determine are reasonably necessary for its protection. The cost of such
liability insurance maintained by Landlord shall be a Common Area Charge
and Tenant shall pay, as additional rent, its share of such cost to
Landlord as provided in Paragraph 12 below.
<PAGE>
C. Property Insurance. Landlord shall obtain and keep in force during the
term of the Lease a policy or policies of insurance covering loss or damage
to the Premises and the Buildings, in the amount of the full replacement
value thereof, providing protection against those perils included within
the classification of "all risk" insurance, plus a policy of rental income
insurance in the amount of one hundred percent (100%) of twelve (12) months
rent (including, without limitation, sums payable as Additional Rent),
plus, at Landlord's option, flood insurance and earthquake insurance, and
any other coverages which may be required from time to time by Landlord's
mortgagee. Tenant shall have no interest in nor any right to the proceeds
of any insurance procured by Landlord on the Premises. Tenant shall, within
twenty (20) days after receipt of billing pay to the Landlord as additional
rent, the full cost of such insurance procured and maintained by Landlord.
Tenant acknowledges that such insurance procured by Landlord shall contain
a deductible which reduces Tenant's cost for such insurance and, in the
event of loss or damage, Tenant shall be required to pay the Landlord the
amount of such deductible.
D. Tenants Insurance. Release of Landlord. Tenant acknowledges that the
insurance to be maintained by Landlord on the Premises pursuant to
Subparagraph C above will not insure any of Tenant's property. Accordingly,
Tenant, at Tenant's own expense, shall maintain in full force and effect on
all of its fixtures, equipment, leasehold improvements and personal
property in the Premises, a policy of "All Risk" coverage insurance to the
extent of at least ninety percent (90%) of their insurable value. Tenant
hereby releases Landlord, and its partners, officers, agents, employees and
servants from any and all claims, demands, losses, expenses or injuries to
the Premises or to the furnishings, fixtures, equipment, inventory or other
personal property of Tenant in, about, or upon the Premises, which are
caused by perils, events or happenings where the same are covered by the
insurance required by this Lease or which are the subject of insurance
carried by Tenant and in force at the time of such loss.
9. Utilities. Tenant shall pay for all water, gas, light, heat, power,
electricity, telephone, trash pick-up, sewer charges and all other services
supplied to or consumed on the Premises, and all taxes and surcharges thereon.
In addition, the cost of any utility services supplied to the Common Area or not
separately metered to the Premises shall be a Common Area Charge and Tenant
shall pay its share of such costs to Landlord as provided in Paragraph 12 below.
10. Repairs and Maintenance
A. Landlord's Repairs. Subject to provisions of Paragraph 16, Landlord
shall keep and maintain the exterior roof, structural elements and exterior
walls of the Building in good order and repair. Landlord shall not,
however, be required to maintain, repair or replace the interior surface of
exterior walls, nor shall Landlord be required to maintain, repair or
replace windows, doors, skylights or plate glass. Landlord shall have no
obligation to make repairs under this Subparagraph until a reasonable time
after receipt of written notice from Tenant of the need for such repairs.
Tenant shall reimburse Landlord, as additional rent, within fifteen (15)
days after receipt of billing, for the cost of such repairs and maintenance
which are the obligation of the Landlord hereunder, provided however, that
Tenant shall not be required to reimburse Landlord for the cost of
maintenance and repairs of the structural elements of the Building unless
such maintenance or repair is required because of the negligence or willful
misconduct of Tenant or its employees, agents or invitees. As used herein,
the term "structural elements of the building" shall mean and be limited to
the foundation, footings, floor slab (but not flooring), structural walls,
and roof structure ( but not roofing or roof membrane). Notwithstanding
anything in the foregoing to the contrary, Tenant shall not be responsible
to reimburse Landlord for the cost of any roof replacement during the first
two (2) years of the Lease Term; however, if at any time after the
expiration of the second (2nd) year of the Lease Term, throughout the
balance of the term of this Lease or any extension thereof, the roof
membrane requires replacement, Landlord shall perform such replacement and
Tenant shall pay to Landlord, as Additional Rent, a fraction of the cost of
such replacement, which fraction shall have as its numerator the number of
calendar months remaining in
<PAGE>
the Lease Term at the time of if such replacement and shall have as its
denominator 240 months. If Tenant exercises any option to extend the term
of this Lease, then at the commencement of any such option term, Tenant
shall pay to Landlord an additional fraction of the cost of such
replacement, which fraction shall have as its denominator the number of
months in the option term in question, and shall have as its denominator
240 months. All payments required of Tenant under this Subparagraph 10.A
shall be made within thirty (30) days after receipt of billing.
B. Tenant's repairs. Except as expressing provided in Subparagraph A above,
Tenant shall, at its sole cost, keep and maintain the entire Premises and
every part thereof, including without limitation, the windows, window
frames, plate glass, glazing, skylights, truck doors, doors and all door
hardware, the walls and partitions, and the electrical, plumbing, lighting,
heating, ventilating and air conditioning systems and equipment in good
order, condition and repair. The term "repair" shall include replacements,
restorations and/or renewals when necessary as well as painting. Tenant's
obligation shall extend to all alterations, additions and improvements to
the Premises, and all fixtures and appurtenances therein and thereto.
Tenant shall, at all times during the Lease Term, have in effect a service
contract for the maintenance of the heating, ventilating and air
conditioning ("HVAC") equipment with an HVAC repair and maintenance
contractor approved by Landlord. The HVAC service contract shall provide
for periodic inspection and servicing at least once every three (3) months
during the term hereof, and Tenant shall provide Landlord with a copy of
such contract and all periodic service reports.
Should Tenant fail to make repairs required of Tenant hereunder forthwith
upon five (5) days notice from Landlord or should Tenant fail thereafter to
diligently complete the repairs, Landlord, in addition to all other
remedies, may make the same, and in that event, Tenant shall reimburse
Landlord as additional rent for the cost of such maintenance or repairs
within five (5) days of written demand by Landlord.
Landlord shall have no maintenance or repair obligations whatsoever with
respect to the Premises except as expressing provided in Paragraphs 10.A
and 11. Tenant hereby expressly waives the provisions of Subsection 1 of
Section 1932 and Sections 1941 and 1942 of the Civil Code of California and
all rights to make repairs at the expense of Landlord as provided in
Section 1942 of said Civil Code. There shall be no allowance to Tenant for
diminution of rental value, and no liability on the part of Landlord by
reason of inconvenience, annoyance or injury to business arising from the
making of or the failure to make, any repairs, alterations, decorations,
additions or improvements in or to any portion of the Premises or the
Building or Common Area (or any of the area used in connection with the
operation thereof, or in or to any fixtures, appurtenances or equipment),
or by reason of the negligence of tenant or any other tenant or occupant of
the Parcel. In no event shall Landlord be responsible for any consequential
damages arising or alleged to have arisen from any of the foregoing
matters. Tenant hereby agrees that Landlord shall not be liable for injury
to Tenant's business or any loss of income therefrom or for damage to the
goods, wares, merchandise or other property of Tenant, Tenant's employees,
invitees, customers, or any other person in or about the Premises, the
Building, or the Common Area, nor shall Landlord be liable for injury to
the person of Tenant, Tenant's employees, agents or contractors whether
such damage or injury is caused by or results from fire, steam,
electricity, gas, water or rain, or from breakage leakage,, obstruction or
other defects of wires, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures, or from any other cause, whether the
said damage or injury results from any other cause, whether the said damage
or injury results from conditions arising upon the Premises or upon other
portions of the Building, or from other sources or places and regardless of
whether the cause of such damage or injury or the means of repairing the
same is inaccessible to Tenant. Landlord shall not be liable for any
damages arising from any act of neglect of any other tenant, if any, of the
Building or the Parcel.
11. Common Area. Subject to the terms and conditions of this Lease and such
rules and regulations as Landlord may from time to time prescribe, Tenant and
Tenant's employees, invitees and customers shall, in common with other occupants
of the Parcel, and their respective employees, invitees and customers, and
<PAGE>
others entitled to the use thereof, have the nonexclusive right to use the
access roads, parking areas and facilities provided and designated by Landlord
for the general use and convenience of the occupants of the Parcel, which areas
and facilities are referred to herein as "Common Area". This right shall
terminate upon the termination of this Lease. Landlord reserves the right from
time to time to make changes in the shape, size, location , amount and extent of
the Common Area. Landlord further reserves the right to promulgate such
reasonable rules and regulations relating to the use of the Common Area, and any
part of parts thereof, as Landlord may deem appropriate for the best interest of
the occupants of the Parcel. the rules and regulations shall be binding upon
Tenant upon delivery of a copy of them to Tenant, and Tenant shall abide by them
and cooperate in their observance. Such rules and regulations may be amended by
Landlord from time to time, with or without advance notice, and all amendments
shall be effective upon delivery of a copy of them to Tenant. Tenant shall have
the non-exclusive use of no more than two hundred fifty (250) of the parking
spaces in the Common Area as designated from time to time by Landlord. Tenant
shall not at any time park or permit the parking of Tenant's trucks or other
vehicles, or the trucks or other vehicles of others, adjacent to loading areas
so as to interfere in any way with the use of such areas, nor shall Tenant at
any time park or permit the paring of Tenant's vehicles or trucks, or the
vehicles or trucks of Tenant's suppliers or others, in any portion of the Common
Area not designated by Landlord for such use by Tenant. Tenant shall not abandon
any inoperative vehicles or equipment on any portion of the Common Area. Tenant
shall make no alterations, improvements or additions to the Common Area.
Landlord shall operate, manage, insure, maintain and repair the Common Area in
good order condition and repair. The manner in which the Common Area shall be
maintained and the expenditures for such maintenance shall be a the discretion
of Landlord. The cost of such repair, maintenance, operation, insurance and
management, including without limitation, maintenance and repair of landscaping,
irrigation systems, paving, sidewalks, fences, and lighting, shall be a Common
Area Charge and Tenant shall pay to Landlord its share of such costs as provided
in Paragraph 12 below.
12. Common Area Charges. Tenant shall pay to landlord, ass additional rent, upon
demand but not more often than once each calendar month, an amount equal its Pro
Rata Share of the Common Area Charges as defined in Paragraphs 8C,9,11 of this
Lease. Tenant acknowledges and agrees that the Common Area Charges shall include
an additional five percent (5%) of the actual expenditures in order to
compensate Landlord for accounting, management and processing services.
13. Alterations. Tenant shall not make or suffer to be made, any alterations,
improvements or additions in , on, about or to the Premises or any part thereof,
without the prior written consent of Landlord and without a valid building
permit issued by the appropriate governmental authority. As a condition to
giving such consent, Landlord may require that Tenant agree to remove any such
alterations, improvements or additions at the termination of this Lease, and to
restore the Premises to their prior condition. unless Landlord requires that
Tenant remove any such alterations, improvement or additions, any alteration,
addition or improvement to the Premises, except movable furniture and trade
fixtures not affixed to the Premises, shall be come the property of Landlord
upon termination of the lease and shall remain upon and be surrendered with the
Premises at the termination of this Lease. Without limiting he generality of the
foregoing, all heating, lighting, electrical (including all wiring, conduit,
outlets, drops, buss ducts, main and subpanels), air conditioning, partitioning,
drapery, and carpet installations made by Tenant regardless of how affixed to
the Premises, together with all other additions, alterations that have become an
integral part of the Building, shall be and become the property of the Landlord
upon termination of the Lease, and shall not be deemed trade fixtures, and shall
remain upon and be surrendered with the Premises at the termination of this
Lease.
If, during the term hereof, any alteration, addition or change of any sort to
all or any portion of the Premises is required by law, regulation, ordinance or
order of any public agency, Tenant shall promptly make the same at its sole cost
and expense. If during the term hereof, any alteration, addition, or change to
the Common Area is required by law, regulation, ordinance or order of any public
agency, Landlord shall make the same and the cost of such alteration, addition
or change shall be a Common Area Charge and Tenant shall pay its share of said
cost to Landlord as provided in Paragraph 12 above.
<PAGE>
14. Acceptance of the Premises. By entry and taking possession of the Premises
pursuant to this Lease, Tenant accepts the Premises as being in good and
sanitary order, condition and repair and accepts the Premises in their condition
existing as of the date of such entry, and Tenant further accepts the tenant
improvements to be constructed by Landlord, if any, as being completed in
accordance with the plans and specifications for such improvements, except for
punch list items. Tenant shall be thirty (30) days after it has taken possession
of the Premises to notify Landlord of any problems needing correction with
respect to the HVAC, plumbing, and electrical, excluding any work done by Tenant
or its contractors, employees or agents in retrofitting the Premises to suit its
specific requirements. Tenant acknowledges that neither the Landlord nor
Landlord's agents has made any representation or warranty as to the suitability
of the Premises to the conduct of Tenant's business. Any agreements, warranties
or representations no expressly contained herein shall in no way bind either
Landlord or Tenant, and Landlord and Tenant expressly waive all claims for
damages by reason of any statement, representation, warranty, promise or
agreement, if any, not contained in this Lease. This Lease constitutes the
entire understanding between the parties hereto and no addition do, or
modification of, any term or provision of this Lease shall be effective until
set forth in a writing signed by both Landlord and Tenant.
15. Default
A. Events of Default. A breach of this Lease shall exist if any of the
following events (hereinafter referred to as "Event of Default") shall
occur:
1. Default in the payment when due of any installment of rent or other
payment required to be made by Tenant hereunder, where such default
shall not have been cured within three (3) days after a written notice
of such default is given to Tenant;
2. Tenant's failure to perform any other term, covenant or condition
contained in this Lease where such failure shall have continued for
twenty (20) days after written notice of such failure is given to
Tenant;
3. Tenant's vacating or abandonment of the Premises;
4. Tenant's assignment of its assets for the benefit of its creditors;
5. The sequestration of, attachment of, or execution on, any
substantial part of the property essential to the conduct of tenant's
business shall have occurred and Tenant shall have failed to obtain a
return or release of such property within thirty (30) days thereafter,
or prior to sale pursuant to such sequestration, attachment or levy,
whichever is earlier;
6. Tenant or any guarantor of tenant's obligations hereunder shall
commence any case, proceeding or other action seeking reorganization,
arrangement, adjustment, liquidation, dissolution or composition of it
or its debts under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, or seeking appointment of a
receiver, trustee, custodian, or other similar official for it or for
all or any substantial part of its property;
7. Tenant or any such guarantor shall take any corporate action to
authorize any of the actions set forth in Clause 6 above;
8. Any case, proceeding or other action against Tenant or any guarantor
of tenant's obligations hereunder shall be commences seeking to have an
order for relief entered against it as debtor, or seeking
reorganization, arrangement, adjustment, liquidation, dissolution or
composition of it or its debts under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors, or seeking appointment
of a receiver, trustee, custodian, or other similar official for it or
for all or any substantial part of its property, and such case,
proceeding or other action (i) results in the
<PAGE>
entry of an order for relief against it which is not fully stayed
within seven (7) business days after the entry thereof or (ii) remains
undismissed for a period of forty-five (45) days.
B. Remedies. Upon any Event of Default, Landlord shall have the
following remedies, in addition to all other rights and remedies
provided by law, to which Landlord may resort cumulatively, or in the
alternative.
1. Recovery of Rent. Landlord shall be entitled to keep this Lease in
full force and effect (whether or not Tenant shall have abandoned the
Premises) and to enforce all of its rights and remedies under this
Lease, including the right to recover rent and other sums as they
become due, plus interest at the Permitted Rate (as defined in
Paragraph 33 below) from the due date of each installment of rent or
other sum until paid.
2. Termination. Landlord may terminate this Lease by giving Tenant
written notice of termination. On the giving of the notice all of the
Tenant's rights in the Premises and the Building and Parcel shall
terminate. Upon the giving of the notice of termination, Tenant shall
surrender and vacate the Premises in the condition require by paragraph
34, and Landlord may re-enter and take possession of the Premises and
all the remaining improvements or property and eject Tenant or any of
Tenant's subtenants, assignees or other person or persons claiming any
right under or through Tenant or eject some and not others or eject
none. This Lease may also be terminated by a judgment specifically
providing for termination. Any termination under this paragraph shall
not release Tenant from the payment of any sum then due Landlord or
from any claim for damages or rent previously accrued or then accruing
against Tenant. In no event shall any one or more of the following
actions by landlord constitute a termination of this Lease:
a. maintenance and preservation of the Premises;
b. efforts to relet the Premises;
c. appointment of a receiver in order to protect Landlord's
interest hereunder;
d. consent to any subletting of the Premises or assignment of
this Lease by Tenant, whether pursuant to provisions hereof
concerning subletting and assignment or otherwise; or
e. any other action by Landlord or Landlord's agents intended
to mitigate the adverse effects from any breach of this Lease
by Tenant.
3. Damages. In the event this Lease is terminated pursuant to
Subparagraph 15.B.2 above, or otherwise, Landlord shall be entitled to
damages in the following sums:
a. the worth at the time of award of the unpaid rent which has
been earned at the time of termination: plus
b. the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination
until the time of award exceeds the amount of such rental loss
that Tenant proves could have been reasonably avoided; plus
c. the worth at the time of award of the amount by which the
unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Tenant
proves could be reasonably avoided; and
d. any other amount necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform
tenant's obligations under this Lease, or which in
<PAGE>
the ordinary course of things would be likely to result
therefrom including, without limitation, the following: (I)
expenses fro cleaning, repairing or restoring the Premises;
(ii) expenses for altering, remodeling or otherwise improving
the Premises for the purpose of reletting, including
installation of leasehold improvements (whether such
installation be funded by a reduction of rent, direct payment
or allowance to the succeeding lessee, or otherwise); (iii)
real estate broker's fees, advertising costs and other
expenses of reletting the Premises; (iv) costs of carrying the
Premises such as taxes and insurance premiums thereon,
utilities and security precautions; (v) expenses in retaking
possession of the Premises; (vi) attorneys' fees and court
costs; and (vii) any unamortized real estate brokerage
commission paid in connection with this Lease.
e. the "worth at the time of award" of the amounts referred to
in Subparagraphs (a) and (b) of this Paragraph, is computed by
allowing interest at the Permitted Rate. The "worth at the
time of award" of the amounts referred to in Subparagraph (c)
of this Paragraph is computed by discounting such amount at
the discount rat of the Federal reserve Board of San Francisco
at the time of award plus one percent (1%). The term "rent" as
used in the Paragraph shall include all sums required to be
paid by tenant to Landlord pursuant to the terms of this
Lease.
16. Destruction. In the event that any portion of the Premises are destroyed or
damaged by an uninsured peril, Landlord or Tenant may, upon written notice to
the other, given within thirty (30 days after the occurrence of such damage or
destruction, elect to terminate this Lease; provided however, that either party
may, within thirty (30) days after receipt of such notice, elect to make any
required repairs and/or restoration at such party's sole cost and expense, in
which event this Lease shall remain in full force and effect, and the party
having made such election to restore or repair shall thereafter diligently
proceed with such repairs and/or restorations.
In the event that any portion of the Premises are destroyed or damaged by an
uninsured peril to the extent of fifty percent (50%) or more of the then
replacement cost of the Premises, landlord may, upon written notice to Tenant,
given within thirty (30) days after the occurrence of such damage or
destruction, elect to terminate this Lease. If Landlord does not give such
notice in writing within such period, Landlord shall be deemed to have elected
to rebuild or restore the Premises, in which event, Landlord, shall at its
expense, promptly rebuild or restore the Premises to their condition prior to
the damage or destruction and Tenant shall pay to Landlord upon commencement of
reconstruction the amount of any deductible from the insurance policy.
<PAGE>
In the event that, pursuant to the foregoing provisions, Landlord is to rebuild
or restore the Premises, Landlord shall, within thirty (30) days after the
occurrence of such damage or destruction, provide Tenant with written notice of
the time required for such repair or restoration. If such period is longer than
two hundred seventy (270) days from the issuance of a building permit, tenant
may, within thirty (30) days after receipt of Landlord's notice, elect to
terminate the Lease by giving written notice to Landlord of such election,
whereupon the Lease shall immediately terminate. The period of time for Landlord
to complete the repair or restoration shall be extended for delays caused by the
fault or neglect of Tenant or because of acts of God, acts of publication, labor
disputes, strikes, fires, freight embargoes, rainy or stormy weather, inability
to obtain materials, supplies or fuels, acts of contractors or subcontractors,
or delay of contractors or subcontractors due to such causes, or other
contingencies beyond of Landlord. Landlord's obligation to repair or restore the
Premises shall not include restoration of Tenant's trade fixtures, equipment,
merchandise, or any improvements, alterations or additions made by Tenant to the
Premises.
17. Condemnation
A. Definition of Terms. For the purposes of this Lease, the term (1)
"Taking" means a taking of the Premises or damage to the Premises
related to the exercise of the power of eminent domain and includes a
voluntary conveyance, in lieu of court proceedings, to any agency,
authority, public utility, person or corporate entity empowered to
condemn property; (2) "Total Taking" means the taking of the entire
Premises or so much of the Premises as to prevent or substantially
impair the use thereof by Tenant for the uses herein specified;
provided, however, in no event shall a Taking of less than ten percent
(10%) of the Premises be deemed a Total Taking; (3) "partial Taking"
means the taking of only a portion of the Premises which does not
constitute a Total Taking; (4) "Date of Taking" means the date upon
which the title to the Premises, or a portion thereof, passes to and
vests in the condemnor or the effective date of any order for
possession if issued prior to the date title vests in the condemnor;
and (5) "Award" means the amount of any award made, consideration paid,
or damages ordered as a result of a Taking.
B. Rights. The parties agree that in the event of a taking all rights
between them or in and to an Award shall be as set forth herein and
Tenant shall have no right to any Award except as set forth herein.
C. Total Taking. In the event of a Total Taking during the term hereof
(1) the rights of Tenant under the Lease and the leasehold estate of
Tenant in and to the Premises shall cease and terminate as of the Date
of Taking; (2) Landlord shall refund to Tenant any prepaid rent; (3)
Tenant shall pay Landlord any rent or charges due Landlord under the
Lease, each prorated as of the Date of taking; (4) Tenant shall receive
from Landlord those portions of the Award attributable to trade
fixtures of Tenant and for moving expenses of Tenant; and (5) the
remainder of the Award shall be paid to and be the property of
Landlord.
D. Partial Taking. In the event of a Partial Taking during the term
hereof (1) the rights of Tenant under the Lease and leasehold estate of
Tenant in and to the portions of the Premises taken shall cease and
terminate as of the Date of Taking; (2) from and after the Date of
Taking the Monthly Installment of rent shall be an amount equal to the
product obtained by multiplying the Monthly Installment of rent
immediately prior to the Taking by a fraction, the numerator of which
is the number of square feet contained in the Premises after the Taking
and the denominator of which is the number of square feet contained the
Premises prior to the Taking; (3) Tenant shall receive from the Award
the portions of the award attributable to trade fixtures of Tenant; and
(4) the remainder of the Award shall be paid to and be the property of
Landlord.
<PAGE>
18. Mechanics' Lien. Tenant shall (A) pay for all labor and services performed
for, materials used by or furnished to, Tenant or any contractor employed by
Tenant with respect to the Premises: (B) indemnify, defend, protect, and hold
Landlord and the Premises harmless and free from any liens, claims, liabilities,
demand, encumbrances, or judgments created or suffered by reason of any labor or
services performed for, materials used by or furnished to, Tenant or any
contractor employed by Tenant with respect to the Premises; (C) give notice to
Landlord in writing five (5) days prior to employing any laborer or contractor
to perform service related to, or receiving materials for use upon the Premises;
and (D) permit Landlord to post a notice of nonresponsibility in accordance with
the statutory requirements of California Civil Code Section 3094 or any
amendment thereof. In the event Tenant is required to post an improvement bond
with a public agency in connection with the above, Tenant agrees to include
Landlord as an additional obligee.
19. Inspection of the Premises. Tenant shall permit Landlord and its agents to
enter the Premises at any reasonable time for the purpose of inspecting the
same, performing Landlord's maintenance and repair responsibilities, posting a
notice of non-responsibility for alterations, additions or repairs and at any
time within ninety (90) days prior to expiration of this Lease, to place upon
the Premises, ordinary "For Lease" or "For Sale" signs.
20. Compliance with Laws. Tenant shall, at its own cost, comply with all of the
requirements of all municipal, county, state and federal authorities now in
force, or which may hereafter be in force, pertaining to the use and occupancy
of the Premises, and shall faithfully observe all municipal, county, state and
federal law, statutes or ordinances no in force or which may hereafter be in
force. The judgment of any court of competent jurisdiction or the admission of
Tenant in any action or proceeding against tenant, whether Landlord be a party
thereto or not, that Tenant has violated any such ordinance or statute in the
use and occupancy of the Premises shall be conclusive of the fact that such
violation by Tenant has occurred.
21. Subordination. The following provisions shall govern the relationship of
this Lease to any underlying lease, mortgage or deed of trust which no or
hereafter affects the Premises, the Building and/or the Parcel, or Landlord's
interest or estate therein (the "Project") and any renewal, modification,
consolidation, replacement, or extension thereof (a "Security Instrument").
A. Priority. This Lease is subject and subordinate to Security
Instruments existing as of the commencement Date. However, if any
Lender so requires, this Lease shall become prior and superior to any
such Security Instrument.
B. Subsequent Security Instruments. At Landlord's election, this Lease
shall become subject and subordinate to any Security Instrument created
after the Commencement Date. Notwithstanding such subordination,
Tenant's right to quiet possession of the Premises shall not be
disturbed so long as Tenant is not in default and performs all of its
obligations under this Lease, unless this Lease is otherwise terminated
pursuant to its terms.
C. Documents. Tenant shall execute any document or instrument required
by Landlord or any Lender to make this lease wither prior or
subordinate to a Security Instrument, which may include such other
matters as the Lender customarily requires in connection with such
agreements, including provisions that the Lender not be liable for (1)
the return of the Security Deposit unless the Lender receives it from
Landlord, and (2) any defaults on the part of Landlord occurring prior
to the time that the Lender takes possession of the Project in
connection with the enforcement of its Security Instrument. Tenant's
failure to execute any such document or instrument within ten (10) days
after written demand therefor shall constitute a default by Tenant or,
at Landlord's option, landlord may execute such documents on behalf of
Tenant as tenant's attorney-in-fact. Tenant does hereby make,
constitute and irrevocably appoint Landlord as Tenant's
attorney-in-fact to execute such documents in accordance with this
paragraph.
<PAGE>
D. Tenant's Attornment. Tenant shall attorn (1) to any purchaser of the
Premises at any foreclosure sale or private sale conducted pursuant to
any Security Instrument encumbering the project; (2) to grantee or
transferee designated in any deed given in lieu of foreclosure; or (3)
to the lessor under any underlying ground lease should such ground
lease be terminated.
E. Lender. The term "Lender" shall mean (1) any beneficiary, mortgagee,
secured party, or other holder of any deed of trust, mortgagee, or
other written security device or agreement affecting the Project; and
(2) any lessor under any underlying lease under which Landlord holds
its interest in the Project.
22. Holding Over. This Lease shall terminate without further notice at the
expiration of the Lease Term. Any holding over by Tenant after expiration shall
not constitute a renewal or extension or give Tenant any rights in or to the
Premises except as expressly provided in this Lease. Any holding over after the
expiration with the consent of Landlord shall be construed to be a tenancy from
month to month, at one hundred fifty percent (150%) of the monthly rent for the
last month of the Lease Term, and shall otherwise be on the terms and conditions
herein specified insofar as applicable.
23. Notices. Any notice required or desired to be given under this Lease shall
be in writing with copies directed as indicated below and shall be personally
served or given by mail. Any notice given by mail shall be deemed to have been
given when forty-eight (48) hours have elapsed from the time such notice was
deposited in the United State mails, certified and postage prepaid, addressed to
the party to be served with a copy as indicated herein at the last address given
by that party to the other party under the provisions of this Paragraph. At this
date of execution of this Lease, the address of Landlord is:
511 Division Street
Campbell, CA 95008
and the address of Tenant is:
1188 Bordeaux Drive
Sunnyvale, CA 94089
Attn: Mr. Michael S. Shimada, CFO
After the Commencement Date, the address of the Tenant shall be at the Premises.
23. Attorneys' Fees. In the event either party shall bring any action or legal
proceeding for damages for any alleged breach of any provision of this Lease, to
recover rent or possession of the Premises, to terminate this Lease, or to
enforce, protect or establish any term or covenant of this Lease or right or
remedy of either party, the prevailing party shall be entitled to receive as a
part of such action or proceeding, reasonable attorneys' fees and court costs,
including attorneys' fees and costs for appeal, as may be fixed by the court or
jury. The term "prevailing party" shall mean the party who received
substantially the relief requested, whether by settlement, dismissal, summary
judgment, or otherwise.
<PAGE>
25. Nonassignment.
A. Landlord's Consent Required. Tenant's interest in this Lease is no
assignable, by operation of law or otherwise, nor shall Tenant have the
right to sublet the Premises, transfer of any interest of Tenant
therein or permit any use of the Premises by another party, without the
prior written consent of Landlord to such assignment, subletting,
transfer or use, which consent Landlord agrees not to withhold
unreasonably subject to the provisions of Subparagraph B below. A
consent to one assignment, subletting, occupancy or use by another
party shall not be deemed to be a consent to any subsequent assignment,
subletting, occupancy or use by another party. Any assignment or
subletting without such consent shall be void and shall, at the options
of landlord, terminate this Lease.
Landlord's waiver or consent to any assignment or subletting hereunder
shall not relieve Tenant from any obligation under this Lease unless
the consent shall so provide.
B. Transferee Information Required. If Tenant desires to assign its
interest in this Lease or sublet the Premise, or transfer any interest
of Tenant therein, or permit the use of the Premises by another party
(hereinafter collectively referred to as a "Transfer"), Tenant shall
give Landlord at lease thirty (30) days prior written notice of the
proposed Transfer and of the terms of such proposed Transfer,
including, but not limited to, the name and legal composition of the
proposed transferee, a financial statement of the proposed transferee,
the nature of the proposed transferee's business to be carried on in
the Premises, the payment to be made or other consideration to be given
to Tenant on account of the Transfer, and such pertinent information as
may be requested by Landlord, all in sufficient detail to enable
Landlord to evaluate the Proposed transfer and the prospective
transferee. It is the intent of the parties hereto that this Lease
shall confer upon Tenant only the right to use and occupy the Premises,
and to exercise such other rights as are conferred upon Tenant by this
Lease. The parties agree that this Lease is not intended to have a
bonus value nor to serve as a vehicle whereby Tenant may profit by a
future Transfer of this lease or the right to use or occupy the
Premises as a result of any favorable terms contained herein, or future
changes in the market for lease space. It is the intent of the parties
that any such bonus value that may attach to this Lease shall be and
remain the exclusive property of Landlord, except as provided for in
Subparagraph (2) below. Accordingly, in the event Tenant seeks to
Transfer its interest in this Lease or the Premises, Landlord shall
have the following options, which may be exercised at its sole choice
without limiting Landlord in the exercise of any other right or remedy
which Landlord may have by reason of such proposed Transfer:
1. Landlord may elect to terminate this Lease effective as of
the proposed effective date of the proposed Transfer and
release Tenant from any further liability hereunder accruing
after such termination date by giving Tenant written notice of
such termination within twenty (20) days after receipt by
Landlord of Tenant's notice of intent to transfer as provided
above. If Landlord makes such election to terminate this
Lease, Tenant shall surrender the Premises, in accordance with
Paragraph 34, on or before the effective termination date; or
2. Landlord may consent to the proposed Transfer on the
condition that tenant agrees to pay to Landlord, as additional
rent, fifty percent (50%) of any and all rents or other
consideration (including key money) received by Tenant from
the transferee by reason of such Transfer in excess of the
rent payable by Tenant to Landlord under this Lease (less any
brokerage commissions or advertising expenses incurred by
Tenant in connection with the Transfer). Tenant expressly
agrees that the foregoing is a reasonable condition for
obtaining Landlord's consent to any Transfer; or
3. Landlord may reasonably withhold its consent to the
proposed Transfer.
<PAGE>
26. Successors. The covenants and agreements contained in this Lease shall be
binding on the parties hereto and on their respective heirs, successors and
assigns (to the extent the Lease is assignable).
27. Mortgagee Protection. In the event of any default on the part of Landlord,
Tenant will give notice by registered or certified mail to any beneficiary of a
deed of trust or mortgagee of a mortgage encumbering the Premises, whose address
shall have been furnished to Tenant, and shall offer such beneficiary or
mortgagee a reasonable opportunity to cure the default, including time to obtain
possession of the Premises by power of sale or judicial foreclosure, if such
should prove necessary to effect a cure.
28. Landlord Loan or Sale. Tenant agrees promptly following request by Landlord
to (A) execute and deliver to Landlord any documents, including estoppel
certificates presented to Tenant by Landlord, (i) certifying that this Lease is
unmodified and in full Force and effect and the date to which the rent and other
charges are paid in advance, if any, and (ii) acknowledging that there are not,
to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder,
and (iii) evidencing the status of the Lease as may be required either by a
lender making a loan to Landlord to be secured by a deed of trust or mortgage
covering the Premises or a purchaser of the Premises from Landlord and (B) to
deliver to Landlord the financial statement of Tenant with an opinion of a
certified public accountant, including a balance sheet and profit and loss
statement, for the last completed fiscal year all prepared in accordance with
generally accepted accounting principles consistently applied. Tenant's failure
to deliver an estoppel certificate promptly following such request shall be an
Event of Default under this Lease.
29. Surrender of Lease Not Merger. The voluntary or other surrender of this
Lease by Tenant, or a mutual cancellation thereof, shall not work a merger and
shall, at the option of Landlord, terminate all or any existing subleases or
subtenants, or operate as an assignment to Landlord of any or all such subleases
or subtenants.
30. Waiver. The waiver by Landlord or Tenant of any breach of any term, covenant
or condition herein contained shall not be deemed to be a waiver of any
preceding or succeeding breach of the same or any other covenant or condition
herein contained.
31. General
A. Captions. The captions and paragraph headings used in this Lease are
for the purposes of convenience only. They shall not be construed to
limit or extend the meaning of any part of this Lease, or be used to
interpret specific sections. The work(s) enclosed in quotation marks
shall be construed as defined terms for purposed of this Lease. As used
in this Lease, the masculine, feminine and neuter and the singular or
plural number shall each be deemed to include the other whenever the
context so requires.
B. Definition of Landlord. The term "Landlord" as used in this Lease,
so far a the covenants or obligations on the part of Landlord are
concerned, shall be limited to mean and include only the owner at the
time in question of the fee title of the Premises, and in the event of
any transfer or transfers of the title of such fee, the Landlord herein
named (and in case of any subsequent transfers or conveyances, the then
grantor) shall be after the date of such transfer or conveyance be
automatically freed and relieved of all liability with respect to
performance of any covenants or obligations on the part of Landlord
contained in this Lease, thereafter to be performed; provided that any
funds in the hands of Landlord or the then grantor at the time of such
transfer, in which Tenant has an interest, shall be turned over to the
grantee. It is intended that the covenants and obligations contained in
this Lease on the part of Landlord shall, subject as aforesaid, be
binding upon each Landlord, its heirs, personal representatives,
successors and assigns only during its respective period of ownership.
<PAGE>
C. Time of Essence. Time is of the essence for the performance of each
term, covenant and condition of this Lease.
D. Severability. In case any one or more of the provisions contained
herein, except for the payment of rent, shall for any reason be held to
be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of
this Lease, but this Lease shall be construed and enforced in
accordance with the laws of the State of California.
E. Joint and Several Liability. If Tenant is more than one person or
entity, each such person or entity shall be jointly and severally
liable for the obligations of Tenant hereunder.
F. Law. The term "law" shall mean any judicial decision, statute,
constitution, ordinance, resolution, regulation, rule, administrative
order, or other requirement of any government agency or authority have
jurisdiction over the parties to this Lease or the Premises or both, in
effect at the Commencement Date of this Lease or any time during the
Lease Term, including , without limitation, any regulation, order, or
policy of any quasi-official entity or body (e.g., board of fire
examiners, public utility or special district).
G. Agent. As used herein the term "Agent" shall mean, with respect to
either Landlord or Tenant, its respective agents, employees,
contractors ( and their subcontractors), and invitees (and in the case
of Tenant, its subtenants).
H. WAIVER OF JURY TRIAL. LANDLORD AND TENANT HEREBY WAIVE THEIR
RESPECTIVE RIGHT TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM,
COUNTERCLAIM OR CROSS-COMPLAINT IN ANY ACTION, PROCEEDING, AND/OR
HEARING BROUGHT BY EITHER LANDLORD AGAINST TENANT OR TENANT AGAINST
LANDLORD ON ANY MATTER WHATSOEVER ARISING OUT OF, OR IN ANY WAY
CONNECTED WITH, THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT,
TENANT'S USE OR OCCUPANCY OF THE PREMISES OR ANY CLAIM OF INJURY OR
DAMAGE, OR THE ENFORCEMENT OF ANY REMEDY UNDER ANY LAW, STATUTE, OR
REGULATION, EMERGENCY OR OTHERWISE, NO OR HEREAFTER IN EFFECT.
INITIALS: LANDLORD
TENANT
32. Sign. Tenant shall not place or permit to be placed any sign or decoration
on the land or the exterior of the Building without the prior written consent of
Landlord. Tenant, upon written notice by Landlord, shall immediately remove any
sign or decoration that Tenant has placed or permitted to be placed on the land
or the exterior of the Building without the prior written consent of Landlord,
and if Tenant fails to so remove such sign or decoration within five (5) days
after Landlord's written notice, Landlord may enter upon the Premises and remove
said sign or decoration and Tenant agrees to pay Landlord, as additional rent
upon demand, the cost of such removal. At the termination of this Lease, Tenant
shall remove any sign which it has placed on the Parcel or Building and shall
repair any damage caused by the installation or removal of such sign.
<PAGE>
33. Interest on Past Due Obligations. Any Monthly Installment of rent or any
other sum due from Tenant under this Lease which is received by Landlord after
the date the same is due shall bear interest from said due date until paid, at
an annual rate equal to the lesser of (the "Permitted Rate"): (1) twelve percent
(12%); or (2) five percent (5%) plus the rate established by the Federal Reserve
Bank of San Francisco, as of the twenty-fifth (25th) day of the month
immediately preceding the due date, on advances to member banks under Section 13
and 13(a) of the Federal Reserve Act, as now in effect or hereafter from time to
time amended. Payment of such interest shall not excuse or cure any default by
Tenant. In addition, Tenant shall pay all costs and attorneys' fees incurred by
Landlord in collection of such amounts.
34. Surrender of the Premises. On the last day of the term hereof, or on the
sooner termination of this Lease, tenant shall surrender the Premises to
Landlord in their condition existing as of the Commencement Date of this Lease,
ordinary wear and tear excepted, with all originally painted interior walls
washed, and other interior walls cleaned, and repaired or replaced,, all carpets
shampooed and cleaned, the air conditioning and heating equipment serviced and
repaired by a reputable and licensed service firm, all floors cleaned and waxed,
all to the reasonable satisfaction of Landlord. Tenant shall remove all of
Tenant's personal property and trade fixtures from the Premises, and all
property not so removed shall be deemed abandoned by Tenant. Tenant, at its sole
cost, shall repair any damage to the Premises caused by the removal of Tenant's
personal property, machinery and equipment, which repair shall include, without
limitation, the patching and filling of holes and repair of structural damage.
If the Premises are not o surrendered at the termination of this Lease, Tenant
will indemnify, defend, protect and hold Landlord harmless from and against loss
or liability resulting from delay by Tenant in so surrendering the Premises
including without limitation, any claims made by any succeeding tenant or losses
to Landlord due to lost opportunities to lease to succeeding tenants.
35. Authority. The undersigned parties, hereby warrant that they have proper
authority and are empowered to execute this Lease on behalf of Landlord and
Tenant, respectively.
36. Public Record. This Lease is made subject to all matters of public record
affecting title to the property of which the Premises or a part.
37. Brokers. Tenant represents and warrants to Landlord that it has dealt only
with Jeff Duke of Equus Associates respecting this transaction and hereby agrees
to indemnify and hold Landlord harmless from and against any brokerage
commission or fee, obligation, claim or damage (including attorneys' fees) paid
or incurred respecting any other broker claiming through Tenant or with
which/whom Tenant has dealt. It is acknowledged that one or more of Landlord's
partners may be real estate brokers.
38. Limitation on Landlord's Liability. Tenant, for itself and its successors
and assigns (to the extent this Lease is assignable), hereby agrees that in the
event of any actual, alleged, breach or default by Landlord under this Lease
that:
A) Tenant's sole and exclusive remedy against Landlord shall be as
against Landlord's interest in the Building;
B) No partner or officer of any partner of Landlord shall be sued or
named as a party in a suit or action (except as may be necessary to
secure jurisdiction of the partnership);
C) No service of process shall be made against any partner of Landlord
(except as may be necessary to secure jurisdiction of the partnership);
D) No partner of Landlord shall be required to answer or otherwise
plead to any service of process;
E) No judgment will be taken against any partner of Landlord;
<PAGE>
F) Any judgment taken against any partner of Landlord maybe vacated and
set aside at any time nunc pro tunc;
G) No writ of execution will ever be levied against the assets of any
partner of Landlord;
H) The covenants and agreements of Tenant set forth in this section 38
shall be enforceable by Landlord and any partner of Landlord.
39. Hazardous Material
A. Definitions. As used herein, the term "Hazardous Material" shall
mean any substance; (i) the presence of which requires investigation or
remediation under any federal, state or local statutes, regulation,
ordinance, order, action, policy or common law; (ii) which is or
becomes defined "hazardous waste", "hazardous substance", pollutant or
contaminant under any federal, state or local statute, regulation, rule
or ordinance or amendments thereto including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Action
(42 U.S.C. Section 9601 et seq.) and/or the Resource Conservation and
Recovery Act (42 U.S.C. Section 6901 et seq.); (iii) which is toxic,
explosive, corrosive, flammable, infectious, radioactive, carcinogenic,
mutagenic, or otherwise hazardous and is or becomes regulated by any
governmental authority, agency, department, commission, board, agency,
or instrumentality of the United States, the State of California or any
political subdivision thereof; (iv) the presence of which on the
Premises causes or threatens to cause a nuisance upon the Premises or
to adjacent properties or poses or threatens to pose a hazard to the
health or safety of persons on or about the Premises; (v) the presence
of which on adjacent properties could constitute a trespass to Landlord
or Tenant; (vi) without limitation which contains gasoline, diesel
fuel, or other petroleum hydrocarbons; (vii) without limitation which
contains polychlorinated biphenyls (PCBs), asbestos, or urea
formaldehyde form insulation; or (viii) without limitation radon gas.
B. Landlord's Indemnity. Landlord shall indemnify, defend, protect and
hold Tenant harmless from and against all liabilities, claims,
penalties, fines, response costs and other expenses (including, but
limited to, reasonable attorneys' fees and consultants' fees and costs)
arising out of, resulting from, or caused by any Hazardous Material
used, generated, discharged, transported to or from, stored or disposed
of by Landlord or its Agents in, on, under, over, through or about the
Premises and/or the surrounding real property.
C. Permitted Use. Subject to the compliance by Tenant with the
provisions of Subparagraphs D, E, F, G, I, J and K below, Tenant shall
be permitted to use and store on the Premises those Hazardous Materials
listed in Exhibit "D" attached hereto in the quantities attached set
forth in Exhibit "D".
D. Hazardous Materials Management Plan. Prior to Tenant using,
handling, transporting or storing any Hazardous Materials at or about
the Premises (including, without limitation, those listed in Exhibit
"D"), Tenant shall submit to Landlord a Hazardous Materials Management
Plan ("HMMP") for Landlord's review and approval, which approval shall
not be unreasonably withheld. The HMMP shall describe: (i) the
quantities of each material to be used, (ii) the purpose for which each
material is to be used, (iii) the method of storage of each material,
(iv) the method of transporting each material to and from the Premises
and within the Premises, (v) the methods Tenant will employ to monitor
the use of the material and to detect any leaks or potential hazards,
and (vi) any other information any department of any governmental
entity (city, state or federal) requires prior to the issuance of any
required permit for the Premises or during Tenant's occupancy of the
Premises. Landlord may, but shall have no obligation to review and
approve the foregoing information and HMO, and such review and approval
or failure to review and approve shall not act as an estoppel or
otherwise waive Landlord's rights under this Lease or relieve
<PAGE>
Tenant of its obligations under this Lease. If Landlord determines in
good faith by inspection of the Premises or review of the HMMP that the
methods in use or described by Tenant are not adequate in Landlord's
food faith judgment to prevent or eliminate the existence of
environmental hazards, then Tenant shall not use, handle, transport, or
store such Hazardous Materials at or about the Premises unless and
until such methods are approved by landlord in good faith and added to
an approved HMMP. Once approved by landlord, Tenant shall strictly
comply with the HMMP and shall not change its use, operations or
procedures with respect to Hazardous Materials without submitting an
amended HMMP for Landlord's review and approval as provided above.
E. Use Restriction. Except as specifically allowed in Subparagraph C
above, Tenant shall not cause or permit any Hazardous Material to be
used, stored, generated, discharged, transported to or from, or
disposed of in or about the Premises, or any other land or improvements
in the vicinity of the Premises. Without limiting the generality of
foregoing, Tenant, at its sole cost, shall comply with all Laws
relating to the storage, use, generation, transport, discharge and
disposal by Tenant or its Agents of any Hazardous Material. If the
presence of any Hazardous Material on the Premises caused or permitted
by Tenant or its Agents results in contamination of the Premises or any
soil, air, ground or surface waters under, through, over, on, in or
about the Premises, Tenant, at it expense shall promptly take all
actions necessary to return the Premises and/or the surrounding real
property to the condition existing prior to the appearance of such
Hazardous Material.
F. Tenant Indemnity. Tenant shall defend, protect, hold harmless and
indemnify Landlord and its Agents and Lenders with respect to all
actions, claims, losses (including, diminution in value of the
Premises), fines, penalties, fees, (including, but not limited to,
reasonable attorneys' and consultants' fees and costs) costs, damages,
liabilities, remediation costs, investigation costs, response costs and
other expenses arising out of, resulting from, or caused by any
Hazardous Material used, generated, discharged, transported to or from,
stored or disposed of by Tenant or its Agents, in, on, under, over,
through or about the Premises and/or the surrounding real property.
Tenant shall not suffer any lien to be recorded against the Premises as
a consequence for the disposal of any Hazardous Material on the
Premises by Tenant or its Agents, including any so called state,
federal or local "super fund" lien related to the "lean up" of any
Hazardous Material in, over, on, under, through or about the Premises.
Landlord agrees that Tenant shall have no liability or obligation to
Landlord under this Lease with respect to any Hazardous Materials on or
about the Premises, which were not caused or contributed to by Tenant
or Tenant's Agents.
G. Compliance. Tenant shall immediately notify Landlord of any inquiry,
test, investigation, enforcement proceeding by or against Tenant or the
Premises concerning any Hazardous Material. Any remediation plan
prepared by or on behalf of Tenant must be submitted Landlord prior to
conducting any work pursuance to such plan and prior to submittal to
any applicable government authority and shall be subject to Landlord's
consent. Tenant acknowledges that Landlord, as the owner of the
Property, at its election, shall have the sole right to negotiate,
defend, approve and appeal any action taken or order issued with regard
to any Hazardous Material by any applicable governmental authority.
<PAGE>
H. Assignment and Subletting. It shall not be unreasonable for Landlord
to withhold its consent to any proposed assignment or subletting if (i)
the proposed assignee's or subtenant's anticipated use of the Premises
involves the storage, generation, discharge, transport, use or disposal
of any Hazardous Material not permitted under Subparagraph C above;
(ii) if the proposed assignee or subtenant has been required by any
prior landlord, lender, or government authority to "clean up" or
remediate any Hazardous Material and has failed to promptly do so;
(iii) if the proposed assignee or subtenant is subject to investigation
or enforcement order or proceeding by any governmental authority in
connection with the use, generation, discharged, transport, disposal or
storage of any material amount of Hazardous Material; provided that
(ii) and (iii) will not apply in the case of a Fortune 500 Company.
I. Surrender. Upon the expiration or earlier termination of the Lease,
Tenant, at its sole cost, shall remove all Hazardous Materials from the
Premises that Tenant or its Agents introduced to the Premises. If
Tenant fails to so surrender the Premises, Tenant shall indemnify,
protect, defend and hold Landlord harmless from and against all damages
resulting from Tenant's failure to surrender the Premises as required
by this Paragraph, including, without limitation, any actions, claims,
losses, liabilities, fees (including, but not limited to, reasonable
attorneys' fees and consultants' fees and costs), fines, costs,
penalties, or damages occasioned by the inability to relet the Premises
or a reduction in the fair market and/or rental value of the Premises
by reason of the existence of any Hazardous Materials in, on, over,
under, through or around the Premises.
J. Right to Appoint Consultant. Landlord shall have the right to
appoint a consultant to conduct an investigation to determine whether
any Hazardous Material is being used, generated, discharged,
transported to or from, stored or disposed of in, on, over, through, or
about the Premises, in an appropriate and lawful manner. If Tenant has
violated any Law or covenant in this Lease regarding the use, storage
or disposal of Hazardous Materials on or about the Premises, Tenant
shall reimburse Landlord for the cost of such investigation. Tenant, at
its expense, shall comply with all reasonable recommendations of the
consultant required to conform Tenant's use, storage or disposal of
Hazardous Materials to the requirements of applicable Law or to fulfill
the obligations of Tenant hereunder.
K. Holding over. If any action of any kind is required to be taken by
any governmental authority to clean-up, remove, remediate or monitor
Hazardous Material (the presence of which is the result of the acts or
omissions of Tenant or its Agents) and such action is not completed
prior to the expiration or earlier termination of the Lease, Tenant
shall be deemed to have impermissibly held over until such time as such
required action is completed, and Landlord shall be entitled to all
damages directly or indirectly incurred in connection with such holding
over, including with out limitation, damages occasioned by the
inability to re-let the Premises or a reduction of the fair market
and/or rental value of the Premises.
L. Existing Environmental Reports. Tenant hereby acknowledges that it
has received, read and reviewed the reports and test result described
in Exhibit "E" attached hereto and made a part of hereof (the "Existing
Environmental Reports").
M. Provisions Survive Termination. The provisions of this Paragraph 39
shall survive expiration or termination of this Lease.
N. Controlling Provisions. The provisions of this Paragraph 39 are
intended to govern the rights and liabilities of the Landlord and
Tenant hereunder respecting Hazardous Materials to the exclusion of any
other provisions in this Lease that might otherwise be deemed
applicable. The provisions of this Paragraph 39 shall be controlling
with respect to any provisions in the Lease that are inconsistent with
this Paragraph 39.
<PAGE>
40. Option to Extend.
A. Provided that Tenant is not in default under this Lease at the time
of exercise of the hereinafter described option or at the time of
termination of the then existing term of this Lease, as the case may
be, Tenant shall have one (1) option to extend the term of this Lease
for a period of five (5) years (the "Option Term"). Said option shall
be exercised only by written notice delivered to Landlord not later
than one hundred eighty (180) days prior to the expiration date of the
then existing term of this Lease. In all respects, the terms, covenants
and conditions of this Lease shall remain unchanged during the Option
Term, except that the Monthly Installment of rent payable during the
Option Term, which shall be determined in accordance with Subparagraph
B and C below, and except that there shall be no further option to
extend the term of this Lease at the end of the Option Term.
B. The Monthly Installment of rent payable during the Option Term shall
be ninety-five percent (95%) of the fair market rental for the Premises
as of the first day of the Option Term (the "Fair Market Rental"); but
in no event shall the Monthly Installment of rent payable during the
Option Term be less than the Monthly Installment of rent payable during
the last calendar month of the original Lease Term.
C. Promptly following exercise of the option to extend, the parties
shall meet and endeavor to agree on the Fair Market Rental of the
Premises as of the first day of the Option Term. In determining the
Fair Market Rental for the Premises, the Premises shall be compared
only to buildings of a similar quality and size. If within thirty (30)
days after exercise of the option, the parties cannot agree upon the
Fair Market Rental, the parties shall submit the matter to binding
appraisal in accordance with the following procedure: Within sixty (60)
days after exercise of the option, the parties shall either (a) jointly
appoint an appraiser for this purpose or (b) failing this joint action,
separately designate a disinterested appraiser. No person shall be
appointed or designated an appraiser unless he or she has at lease five
(5) years experience n appraising major commercial property in Santa
Clara County and is a member of a recognized society of real estate
appraisers. If, within thirty (30) days after the appointment, the two
appraisers reach agreement on the Fair Market Rental, that value shall
be binding and conclusive upon the parties. If the two appraisers this
appointed cannot reach agreement on the question presented within
thirty (30) days after their appointment, then the appraiser thus
appointed shall appoint a third disinterested appraiser having like
qualifications. If within thirty (30) days after the appointment of the
third appraiser, a majority of the appraiser agree on the Fair Market
Rental, that value shall be binding and conclusive upon the parties. If
within thirty (30) days after the appointment of the third appraiser, a
majority of the appraisers cannot reach agreement on the question
presented, then the appraisal farthest from the median of the three
appraisals shall be disregarded and the mean average of the remaining
two appraisals shall be deemed to be the Fair Market Rental of the
Premises as of the first day of the Option Term and shall be binding
and conclusive upon the parties. Each party shall pay the fees and
expenses of the appraiser appointed by it and shall share equally the
fees and expenses of the third appraiser. If the two appraisers
appointed by the parties cannot agree on the appointment of the third
appraiser, they or either of them shall give notice of such failure to
agree to the parties and if the parties fail to agree upon the
selection of such third appraiser within ten (10) days after the
appraisers appointed by the parties give such notice, then either of
the parties, upon notice to the other party may request such
appointment by the American Arbitration Association, or on it failure,
refusal or inability to act, may apply for such appointment to the
presiding judge of the Court of Santa Clara County, California.
41. Third Opportunity to Lease.
A. Definitions. As used in this Paragraph 41, the following terms shall
be the following meanings:
<PAGE>
1. "Third Opportunity Space" shall mean the space located in
Building C commonly known as 4415 Fortran Court and currently
lease to Novellus Systems, Inc. ("Novellus").
2. "Prior Right" or Prior Rights" shall mean (a) the option to
expand into the Third Opportunity Space which has been
previously granted to AG Associated, Inc. ("AG") and/or (b)
the right of the first refusal covering the Third Opportunity
Space which has been previously granted to Novellus Systems,
Inc.
3. "Novellus Lease" shall mean the existing lease between
Landlord and Novellus covering the Third Opportunity Space.
B. Third Opportunity Space. Provided that (i) Tenant is not in default
under this Lease; (ii) this Lease is in full force and effect; (iii)
Tenant has not assigned this Lease and is in physical occupancy of at
least fifty percent (50%) of the area of the Premises; and (iv) neither
AG nor Novellus has exercised its respective Prior Right and all Prior
Rights have expired; then, and only then, tenant shall have the right
to lease the Third Opportunity Space, as the Third Opportunity Space
becomes available upon the expiration of the Novellus Lease subject,
however, to the following terms and conditions.
C. Landlord's Notice. If Landlord proposes to lease the Third
Opportunity Space to a prospective tenant after the expiration of
Novellus Lease and all conditions set forth in Subparagraph B above are
satisfied, the Landlord shall notify Tenant in writing ("Landlord's
Notice") of the form of lease Landlord intends to use, and the
following basic business terms upon which Landlord is willing to lease
such space (collectively referred to herein as the "Basic Business
Terms"): (i) the description of the particular Third Opportunity Space
then available (the "Proposed Space"); (ii) the term of the lease;
(iii) the tenants improvements landlord is willing to construct or that
it will required to be constructed and the contribution Landlord is
willing to make to pay for such tenant improvements, if any; (iv) the
rent for the initial term or the formula to be used to determine such
rent (including, if applicable the rental commencement date, Tenant's
share of taxes, assessments, operating expenses, insurance costs and
the like; (v) any option or options to extend (including the rent to be
charged or the formula for such charges during the extension periods;
and (vi) any other material business term Landlord elects to specify.
D. Second Lease. If Tenant, within two (2) business days after receipt
of Landlord's Notice, indicated in writing its agreement to lease the
Proposed Space on the Basic Business Terms stated in Landlord's Notice
(the "Second Lease"), and within two (2) days after Tenant's receipt
thereof, Tenant executes and returns to Landlord the Second Lease,
Landlord shall lease to Tenant and Tenant shall lease from Landlord the
Proposed Space on the terms and conditions contained in the Second
Lease, provided, however, that this Lease shall be modified to include,
and the Second Lease shall include, a cross-default provision providing
that Tenant will be in default under both the Second Lease and this
Lease, if Tenant is in default under either Lease.
E. Failure to Exercise. If Tenant does not indicate in writing its
agreement to lease the Proposed Space on the terms contained in
Landlord's Notice within the two (2) business day time period, or if
Tenant does not execute and return to Landlord the Second Lease within
two (20) business days after Tenant's receipt thereof, then Landlord
shall thereafter have the unfettered right to lease the Proposed Space
to any third party on any terms and conditions.
F. Termination. The provisions of this Paragraph shall terminate upon
(i) the expiration of earlier termination of this Lease; or (ii) any
assignment by Tenant of its interest in this Lease or the subletting by
Tenant of substantially all of the Premises for substantially all of
the remainder of the Lease Term; or (iii) as to any particular Proposed
Space, Tenant's failure to exercise its right to lease granted herein
as to such Proposed Space as its first opportunity to do so, or (iv)
the exercise of any Prior right by any party then holding such Prior
Right.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the dates set
forth below.
TENANT LANDLORD
ELEXSYS INTERNATIONAL, INC. SOUTH BY/FORTRAN, a California limited
a California corporation partnership
By: By:
Printed: Printed:
Title: Title:
Dated: Dated:
<PAGE>
EXHIBIT A
Exhibit A is a map of the buildings on Fortan Court with square footage as well
as a map of the immediate vicinity.
<PAGE>
EXHIBIT B
LEGAL DESCRIPTION
All that read property situated in the City of San Jose, Counter of Santa Clara,
State of California, described as follows:
Beginning at the Southwesterly corner of that certain 31.74 acre tract of land
described in the deed from The First National Bank of San Jose, a corporation,
to F. W. Zanker and Curtner Zanker, date May 5, 1939, recorded Mary 8, 1939 in
Book 934 Official Records, page 16, Santa Clara County Records, in the Northerly
line Alviso-Milpitas Road, thence from said point of beginning N. 89 deg. 35' E.
630.30 feet to the Southeasterly corner thereof; thence along the Easterly line
of said 31.74 acre tract for the three following courses and distances: N. 1
deg. 13'E. 768.9 feet, N. 0 deg. 57' E. 597.96 feet and N. 0 deg. 31' E. 149.97
feet to the Southeasterly corner of that certain 9.316 acre tract of land
described in the deed from F. W. Zanker, et al, to B. S. Brazil, a single man,
dated October 25, 1943, recorded November 16, 1943 in Book 1176 Official
Records, page 21, Santa Clara County Records; thence S. 89 deg. 35' W, along the
Southerly line of said 9.316 acre tract 651.78 feet to the Southwesterly corner
thereof in the Westerly line of said 31.74 tract; thence S. 0 deg. 08' W. along
said last mentioned line 1512.88 feet to the point of beginning.
Excepting therefrom that portion thereof conveyed to the City of San Jose, a
municipal corporation, recorded September 2, 1985, in Book J828, page 1719,
Official Records, described as follows:
Beginning at the Southeasterly corner of that certain 31.74 acre tract of land
described in the deed from The First National Bank of San Jose, a corporation,
to F. W. Zanker and Curtner Zanker, dated May 5, 1939, recorded May 8, 1939 in
Book 934 Official Records, page 16, Santa Clara County Records, said point being
on the Northerly line of Alviso-Milpitas Road, thence leaving said point of
beginning alone the Easterly line of said 31.74 acre parcel N. 1 deg. 13' E.
30.00 feet to the true pint of beginning of the parcel herein being described:
thence leaving said true point of beginning and said Easterly line along the
following courses and distances; From a tangent bearing of N. 88 deg. 47'00" W.
along a curve to the right with a radius for 50.0 feet, through a central angle
of 36 deg. 52'12" for an arc length of 32.18 feet; N. 1 deg. 13.00' E. 361.13
feet; N. 0 deg. 57'00" E. 597.93 feet; N. 0 deg. 31'52" E. 18.69 feet; along a
tangent curve to the left with a radius of 40.00 feet, through a central angle
of 90 deg. 56'58" for an arc length of 63.50 feet to a point on a line parallel
with and distant 90.00 feet Southerly, measured at right angles from the
Southerly line of that certain 9.316 acre parcel of land described in the deed
from F. W. Zanker, et al, to B. S. Brazil, recorded November 16, 1943 in Book
1176 Official Records, at page 21, Santa Clara County Records; thence along said
parallel line, s. 89 deg. 34'54" W. 579.99 feet to a point on the Westerly line
of said 31.74 acre parcel of land; thence leaving said parallel line along said
Westerly line, N. 0 deg. 06'10" E. 90.00 feet to the Southwesterly corner of the
hereinabove described 9.316 acre parcel; thence leaving said Westerly line along
the Southerly line of said 9.316 acre parcel , N. 89 de. 34'54" E. 651.24 feet
to the Southeasterly corner thereof, said corner lying in said Easterly line of
the hereinabove described 31.74 acre parcel, thence along said Easterly line the
following course and distances: S. 0 deg. 31'52" W. 149.08 feet; S. 0 deg.
57'00" W. 598.11 feet and S. 1 deg. 13"00" W.471.20 feet to the true point of
beginning.
ALSO EXCEPTING THEREFROM all that portion conveyed to the State of California by
Grant Deed recorded August 31, 1994 in Book N 579, Page 2028, Official Records
described as follows: Being a portion of that certain parcel of land described
in the Deed from Ray H. Collishaw and Earlyn Collishaw, husband and wife to
William L. Marocco, a single man, recorded May 4, 1982 in Book G 762 of Official
Records at Page 218, Santa Clara County Records.
<PAGE>
Beginning at the southeast corner of said parcel conveyed to Marocco; thence
from said Point of Beginning, along the southerly line of said parcel conveyed
to Marocco N. 89 deg. 01'16" W. 626.45 feet to the southwest corner of said
parcel conveyed to Marocco; thence along the westerly line of said parcel
conveyed to Marocco N. 1 deg. 13'13" E. 227.77 feet; thence leaving said
westerly line, from a tangent bearing of S. 67 deg. 46'42" E., along a curve to
the right with a radius of 275.00 feet, through a central angle of 18 deg.
08'37" for an arc length of 87.08 feet; thence s. 49 deg. 38'05" E., 103.64
feet; thence along a tangent curve to the left with a radius of 275.00 feet,
through a central angle of 34 de. 57'21" for an arc length of 167.78 feet;
thence S. 84 deg. 35'26" E. 318.98 feet to a point in the easterly line of said
parcel conveyed to Marocco said easterly line S. 2 deg. 20'03" W., 31.97 feet to
the Point of Beginning.
<PAGE>
EXHIBIT "C"
IMPROVEMENT AGREEMENT
This Improvement Agreement is made part of that Lease dated March 11,
1996 (the "Lease") by and between SOUTH BAY/FORTRAN, a California limited
partnership, ("Landlord"), and ELEXSYS INTERNATIONAL, INC., a California
corporation ("Tenant"). Landlord and Tenant agree that the following terms are
part of the Lease:
1. Purpose of Improvement Agreement. The purpose of this Improvement
Agreement is to set forth the rights and obligations of Landlord and Tenant with
respect to the construction of the Tenant Improvements in the Premises.
2. Definitions. As used in this Improvement Agreement, the following
terms shall have the following meanings, and initially capitalized terms which
are not defined below, but which are defined in the lease and which are used in
this Improvement Agreement, shall have the meanings ascribed to them by the
Lease:
A. Final Tenant Improvement Plans. The term "Final Tenant
Improvement Plans" shall mean those plans and specifications for the Tenant is
to be constructed by Landlord which are to be designed and approved by Landlord
and Tenant.
B. Tenant Improvements. The term "Tenant Improvements" shall
mean the tenant improvements to be constructed by Landlord in accordance with
the Final Tenant Improvements Plans.
C. Landlord's Code Work. The term "Landlord's Code Work" shall
mean all work required to bring the Premises as they exist on the date of
execution of this Lease (prior to the construction of any Tenant Improvements)
into compliance with all governmental codes, ordinances and statutes, including
Americans With Disabilities Act ("ADA"). If the Tenant Improvements are going to
replace or substantially alter any existing improvement which are not now in
compliance with governmental codes, then Landlord shall not be required to bring
such existing improvements into compliance with governmental codes and such work
shall be excluded from the definitions "Landlord's Code Work". For example, if
any existing bathrooms which do not comply with ADA requirements are going to be
replaced or substantially altered by the Tenant Improvements then Landlord shall
not be required to make any alterations to such existing bathrooms.
D. Substantial Completion and Substantially Complete. The
terms "Substantial Completion" and "Substantially Complete" shall each mean the
date when all of the following have occurred with respect to the Tenant
Improvements: (i) the construction of the Tenant Improvements has been
substantially completed in accordance with the provisions of this Improvement
Agreement (except for minor punch list items which do not substantially
interfere with the Tenant's use of the Premises); and (ii) the Building
department of the City of San Jose has completed its final inspection of such
improvements and has "signed off" the building inspection card approving such
work as complete.
<PAGE>
E. TI Costs. The term "TI Costs" shall mean and include all
costs and expenses paid or incurred by Landlord for any and all of the
following: architectural and engineering fees and costs, all building permit
fees and taxes and other governmental fees and taxes required for the
construction and occupancy of the Tenant Improvements, all of Landlord's
contractors' and subcontractors' prices and fees for constructing the Tenant
Improvements, including the cost of all partitioning, utility systems, fire
sprinkler systems, heating, ventilating and air conditioning systems and
equipment, rook screens, electrical distribution facilities, wiring, lighting,
ceilings, installation of fixtures and equipment, restrooms, carpeting, and all
other improvements and alterations required to finish the existing Building for
occupancy by Tenant in accordance with the Final Tenant Improvement Plans;
provided, however, TI Costs shall not include any costs attributable Landlord's
Code Work. The Landlord's contractors' price for constructing the Tenant
Improvements shall include the cost of a job superintendent and project manager
plus a fee of five percent (5%) of all other TI Costs.
F. Maximum TI Allowance. The term "Maximum TI Allowance" shall
mean a sum equal to $11.90 multiplied by the number of square feet of floor
space contained within the Premises. The square footage of the Premises is 66,
638 sq. ft. Accordingly, the Maximum TI Allowance is Seven Hundred Eighty-Nine
Thousand Seven Hundred Seventy-Nine Dollars ($789,779.00).
G. Excess TI Costs. The term" Excess TI Costs" shall mean all
TI Costs in excess of the Maximum TI Allowance.
3. Design of Tenant Improvements
A. Preliminary Tenant Improvement Plans. Tenant shall, on or
before April 10 , 1996, prepare and deliver to Landlord for its review and
approval preliminary plans for the Tenant Improvements, which preliminary plans
shall show Tenant's desired floor plan, layout, electrical requirements, HVAC
requirements and general requirements in sufficient detail in order to permit
Landlord to prepare working drawings for the Tenant Improvements (the
"Preliminary Tenant Improvement Plans"). Within five (5) business days after
receipt of the Preliminary Tenant Improvement Plans, Landlord shall wither
approve such plans or notify Tenant in writing of any request for changes to the
Preliminary Tenant Improvement Plans. If Landlord submits any request for
changes, the parties shall meet and confer to develop Preliminary Tenant
Improvement Plans that are acceptable to both Landlord and Tenant within five
(5) business days after landlord has notifies Tenant of its request for changes.
B. Development and Approval of Tenant Improvement Plans. Once
the Preliminary Tenant Improvement Plans have been approved by Landlord and
Tenant, Landlord shall complete and submit to tenant for its approval final
working drawings for the Tenant Improvements. Tenant shall approve the final
working drawings for the Tenant Improvements or notify Landlord in writing of
its specific request for changes within five (5) business days after receipt of
the working drawings from Landlord. If tenant submits any request for changes,
the parties shall confer and reach agreement upon the final working drawings for
the Tenant Improvements within five (5) business days after Tenant has notified
Landlord of its request for changes. When Landlord and Tenant agree upon the
final working drawings for the Tenant Improvements, a representative of each
shall sign the same. The final working drawings so approved by Landlord and
Tenant are referred to herein as the "Final Tenant Improvement Plans".
4. Construction of Tenant Improvements. Landlord shall, at the expense
of Landlord and Tenant as specified in Paragraph 10 below, construct the Tenant
Improvements in accordance with the following:
A. Building Permit. As soon as the Final Tenant Improvement
Plans have been approved by Landlord and Tenant, Landlord shall apply for a
building permit for the Tenant Improvements, and shall diligently pursue the
obtaining of such building permit.
<PAGE>
B. Commencement of Tenant Improvements. As soon as the
building permit for the Tenant Improvements has been issued, Landlord shall
commence construction of the Tenant Improvements and shall diligently prosecute
such construction to completion.
5. Construction Contract. The following shall govern the manner in
which the construction contract shall be let by Landlord for the construction of
the Tenant Improvements:
A. Landlord shall engage South Bay Construction Company, a
California corporation ("SBCC") as the general contractor to construct the
Tenant Improvements. Tenant acknowledges that SBCC is an affiliate of the
Landlord.
B. All major subcontractors for the Tenant Improvements shall
be chosen by a competitive bid process where (i) tenant shall have the right to
approve subcontractors who bid on specific parts of the Job; (ii) the
subcontractor shall be awarded to the lowest responsible bidder unless Landlord
and Tenant otherwise agree (which decision may arise from concerns as to whether
the subcontractor will be able to complete it work in a timely manner; and (iii)
Tenant shall have the right to review and approve all subcontracts prior to
submission to subcontractors.
C. The construction contract with SBCC shall provide for SBCC
to be compensated or reimbursed as follows with respect to the construction of
the Tenant Improvements: (i) to be paid a general contractor's fee equal to five
percent (5%) of all TI Costs; (ii) to be reimburses for all payments to
subcontractors or material suppliers; (iii) to be reimbursed for the following
cost items (a) temporary electric power, (b) on-site office trailer, (c)
temporary on-site toilets, (d) trash removal and site clean up, (e) long
distance telephone charges, (f) messenger and air courier charges; and (vi) to
be reimbursed for the following hour rates for the cost of a job superintendent
($55.00/hr) and of a project manager ($68.00/hr).
6. Substitutions. In developing the Preliminary Tenant Improvement
Plans and Final Tenant Improvement Plans, Tenant shall designate and select
material and equipment which can be obtained with normal lead times. If at any
time during the plan development process or the course of construction, it
becomes apparent that a particular material or item of equipment is not or will
not be obtainable within a reasonable period of time, the parties shall meet and
confer to find a substitute therefor.
7. Changes to Approved Plan. Once the Final Tenant Improvement Plans
have been approved by Landlord and Tenant, neither shall have the right to order
extra work or change orders with respect to the construction of the Tenant
Improvements without the prior written consent of the other, which consent shall
not be unreasonably withheld or delayed, provided there is a reasonable basis
for such change or such change is required by any Law. All extra work or change
orders requested by either Landlord or Tenant shall be made in writing, shall
specify any added or reduced cost and/or construction time resulting therefrom,
and shall become effective and a part of the Final Tenant Improvement Plans once
approved in writing by both parties. If a change order requested by Tenant
results in a net increase in the TI Costs which causes the total TI Costs to
exceed the Maximum TI Allowance, Tenant shall pay to Landlord the amount of such
increase caused by the change order requested by Tenant in accordance with the
provisions of Paragraph 10 below.
<PAGE>
8. Delivery and Possession, Punch List and Acceptance Agreement. As
soon as the Tenant Improvements are Substantially Completed, Landlord and Tenant
shall together walk through the Premises and inspect all Tenant Improvements so
completed, using reasonable efforts to discover all uncompleted or defective
construction in the Tenant Improvements. Unless any uncompleted or defective
construction would materially affect Tenant's ability to conduct its business,
then when such inspection has been completed, tenant shall sign an acceptance
agreement which shall (i) include a list of all :punch List" items which the
parties agree are to be corrected by Landlord and (ii) state the Commencement
Date. As soon as such inspection has been completed and such acceptance
executed, Landlord shall deliver possession of the Premises to Tenant. Landlord
shall use reasonable efforts to complete and/ore repair such "punch list " items
within thirty (30) days after receiving the acceptance agreement and punch list.
Landlord shall have no obligation to deliver possession of the Premises to
Tenant until such procedures regarding the preparation of t a punch list and the
execution of the acceptance agreement have completed. Tenant's taking possession
of any part of the Premises shall be deemed to be an acceptance by Tenant of
Landlord's work of improvement in such part as complete and in accordance with
the terms of the Lease except for the punch list items noted and latent defects
that could not reasonable have been discovered by Tenant during its inspection
of the Tenant Improvements prior to completion of the acceptance agreement.
Notwithstanding anything contained herein, Tenant's obligation to pay the
Monthly Installment of rent and Additional Rent shall commence as provided in
the Lease, regardless of whether Tenant completes such inspection or executes
such acceptance agreement.
9. Standard of Construction and Warranty. Landlord warrants that the
Tenant Improvements shall be constructed in a good and workmanlike manner
substantially in accordance with the Final Tenant Improvement Plans (as modified
by change orders approved by landlord and Tenant). All materials and equipment
furnished shall be new, of good quality and installed in accordance with the
vendor's or manufacturer's specifications, instructions and requirements. The
foregoing warranty shall terminate one (1) year following the date of
Substantial Completion of the Tenant Improvements unless Tenant makes a written
claim against Landlord under the foregoing warranty within said one (1) year
period, in which case the warranty shall survive only a s to the specific matter
described in such claim.
10. Payment of TI Costs. The TI Costs for the Tenant Improvements shall
be paid by Landlord and Tenant as follows:
A. Landlord shall pay all TI Costs up to the Maximum TI
Allowance. In no event shall Landlord be required to pay any TI Costs in excess
of the Maximum TI Allowance.
B. If the TI Costs exceed the Maximum TI Allowance, then
Tenant shall pay to Landlord the full amount of all Excess TI Costs in
accordance with the procedure set forth in Subparagraph C below.
C. During the course of constructing the Tenant Improvements,
each progress payment due to Landlord's contractor or to any subcontractor or
material supplier shall be paid by Landlord and Tenant as follow: (i) Landlord
shall pay a fraction of each progress payment, which fraction shall have as its
numerator the Maximum TI Allowance and shall have as its denominator Landlord's
estimate of the total TI Costs to complete the construction of the Tenant
Improvements; and (ii) Tenant shall pay the balance of each progress payment
("Tenant's Share). Tenant shall pay Tenant's Share of each progress payment to
landlord within ten (10) days after receipt of billing. If, at any time during
the course of constructing the Tenant Improvements, Landlord revises its
estimate of the total TI Costs to complete the Tenant Improvements so that the
amount previously paid by Tenant is not sufficient to pay Tenant's Share of the
TI Costs paid to date, then Tenant shall pay to Landlord within ten (10) days
after receipt of billing, the amount necessary to increase Tenant's contribution
toward the TI Costs so that Landlord has paid only its fractional share of the
TI Costs and Tenant has paid the balance. Upon the completion of the Tenant
Improvements, landlord shall provide Tenant with a reconciliation of the
estimated TI Costs to the actual TI Costs and Tenant's payments on account
thereof, and Tenant shall pay to Landlord, or Landlord
<PAGE>
shall refund to Tenant, any net amount due or refundable, as the case may be,
within ten (10) days after Tenant's receipt of reconciliation. If Tenant shall
fail to comply with any demand for payment made pursuant to this Paragraph 10. C
within ten (10) days of receipt thereof, Landlord may (i) terminate, effective
immediately, this Lease by giving written notice of termination to Tenant, (ii)
cease construction of the Tenant Improvements, and/or (iii) exercise any and all
remedies available to Landlord at law or in equity, including those set forth in
Paragraph 12.b of the Lease.
11. Accounting. When the Tenant Improvements are Substantially
Completed and all TI Costs have been determined, Landlord shall submit to Tenant
a final and detailed accounting of all TI Costs paid by Landlord. Tenant shall
have the right to audit books, records and supporting documents of Landlord to
the extent necessary to determine the accuracy of such accounting during normal
business hours after giving Landlord at least five (5) business days prior
written notice. Any such audit must be conducted, if at all, within thirty (30)
days after Landlord delivers such accounting to Tenant.
12. Landlord's Code Work. Landlord shall perform all of the landlord's
Code Work at the Landlord's sole cost and expense.
13. Effect of Agreement. In the event of any inconsistency between this
Improvement Agreement and the Lease, the terms of this Improvement Agreement
shall prevail.
TENANT
ELEXSYS INTERNATIONAL, INC.
a California corporation
DATED: By:
Name:
Title:
LANDLORD
SOUTH BY/FORTRAN, a California limited partnership
DATED: By:
Name:
Title:
<PAGE>
EXHIBIT D
HAZARDOUS MATERIALS MANAGEMENT PLAN
(To be provided by Tenant prior to occupancy)
<PAGE>
EXHIBIT E
1. ATT report dated July 9, 1992: Preliminary (Phase I) Environmental Site
Assessment Update for the Property at 4405 - 4445 Fortran Court, San Jose,
CA (Project No. 929368).
2. SECOR International Incorporated report dated July 10, 1995: Phase I
Environmental Site Assessment Report - 4405,4415,4425,4435 and 4445 Fortran
Drive, San Jose, CA (Job No. 70076-001-01).
3. SECOR International Incorporated report dated July 24, 1995: Technical
Report Soil Sampling and Grab Groundwater Sampling - 4405 - 4445 Fortran
Drive, San Jose, CA
<TABLE>
EXHIBIT 11
ELEXSYS INTERNATIONAL, INC.
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
For The Years Ended September 30, 1996, 1995, 1994
(Thousands of dollars except per share amounts)
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income $8,470 $5,132 $2,554
Convertible debenture interest 880
Net income applicable to common and
dilutive common equivalent share $8,470 $5,132 $3,434
Earnings (loss) per common share and
common share equivalents, primary:
Loss before extraordinary gain $0.89 $0.37 ($1.28)
Extraordinary gain, net of expenses and taxes $0.20 $1.82
Net income $0.89 $0.57 $0.54
Earnings (loss) per common share and
common share equivalents, fully diluted:
Loss before extraordinary gain $0.89 $0.36 ($0.91)
Extraordinary gain, net of expenses and taxes $0.20 $1.30
Net income $0.89 $0.56 $0.39
Weighted average of common and dilutive common
equivalent shares outstanding:
Primary weighted average shares 9,157 8,623 5,953
Convertible debenture interest equivalent shares 405
Stock option equivalent shares 396 395 29
Primary common and common equivalent shares 9,553 9,018 6,387
Fully diluted weighted average shares: 9,157 8,623 8,335
Convertible debenture interest equivalent shares 405
Stock option equivalent shares 396 464 29
Fully diluted common and common equivalent shares 9,553 9,087 8,769
<FN>
Refer to Note 9 captioned "Net Income (Loss) Per Share" of Notes to
Consolidated Financial Statements in the Company's 1996 annual report on page 23
for additional discussion of earnings per share.
</FN>
</TABLE>
ELEXSYS INTERNATIONAL, INC.
[GRAPHIC OMITTED]
1996 ANNUAL REPORT
<PAGE>
Elexsys International, Inc. is one of the country's leading manufacturers of
high performance medium and high density backpanel assemblies & sophisticated
subsystem assemblies. In addition, the Company is one of the leading
manufacturers of high technology circuit boards. The Company offers advanced
inter-connect solutions for the telecommunications, datacommunications,
computer, industrial, medical and instrumentation markets.
As of September 30, 1996, Elexsys had 9,300,810 shares of common stock
outstanding. Elexsys is traded on the Nasdaq National Market System under the
symbol ELEX.
<PAGE>
<TABLE>
<CAPTION>
PRIMARY EARNINGS STOCKHOLDERS'
NET SALES GROSS MARGIN NET INCOME PER SHARE EQUITY TOTAL ASSETS
$000,000 % $000,000 $ $000,000 $000,000
[GRAPHIC OMITTED] [GRAPHIC OMITTED] [GRAPHIC OMITTED] [GRAPHIC OMITTED] [GRAPHIC OMITTED] [GRAPHIC OMITTED]
<S> <C> <C> <C> <C> <C>
94--95.7 94--7.7 94--2.6 94--.54 94--6.1 94--37.0
95--104.0 95--15.2 95--5.1 95--.57 95--13.9 95--45.1
96--126.9 96--18.3 96--8.5 96--.89 96--24.6 96--62.1
</TABLE>
<PAGE>
TO OUR SHAREHOLDERS
Fiscal 1996 -- our second year of renewed profitability from operations --
showed Elexsys International forging ahead soundly. Our strategy of expanding
the breadth and scope of the products and services we offer is being well
received by the markets we serve. IN RECENT YEARS, MAJOR ELECTRONICS OEMS -- OUR
TARGET CUSTOMERS -- HAVE BEEN OUTSOURCING INCREASING AMOUNTS OF THEIR
MANUFACTURING AND ASSEMBLY NEEDS. For the fiscal year ended September 30, 1996,
compared to fiscal 1995, net sales increased 22% to $127 million from $104
million. Net income grew 67% to $8.5 million from $5.1 million and primary
earnings per share were up 56% to $0.89 from $0.57. Our operating margin for the
year was 8.0% compared to 5.1% for fiscal 1995. Net income for fiscal 1995
included a gain of $1.8 million due to the early extinguishment of debt.
Excluding the gain, net income would have been $3.3 million and earnings per
share would have been $0.37.
For the fourth quarter of fiscal 1996 compared to the same period in
fiscal 1995, net sales grew 20% to $36.8 million while net income decreased 25%
to $2.3 million and earnings per share were down 25% to $0.24 (on 9.6 million
shares compared to 9.4 million shares for the prior period).
Compared to the third quarter of fiscal
2
<PAGE>
1996, fourth quarter net sales increased 19% while net income grew 15% and
earnings per share increased 20%.
The increase in orders from the third quarter of fiscal 1996, which
included a broad range of new customers, and heightened overall performance in
the fourth quarter resulted from an improved sales mix and higher capacity
utilization than earlier in the year when inventory adjustments and product
transitions combined to reduce orders on a temporary basis from some of our
largest customers.
------------------------------------
REVENUES BY
MARKET SEGMENT
53% TELECOM
[GRAPHIC OMITTED] 13% COMPUTER
22% DATACOM
12% INDUSTRIAL
------------------------------------
Overall, the revenue mix improved. Orders for higher-margin backpanel
and subsystem assembly products met our growth expectations as we continued to
focus on our goal of achieving more than 50% of revenues from our assembly
operations. We also worked successfully to requalify Elexsys with major
cus-tomers in the telecommunications, datacommunications, industrial and medical
market segments for business that had been lost previously due to the inability
to service these customers in past years. Today, Elexsys is again receiving
preferred supplier designations from several major customers. The expansion of
our customer base, including new and renewed relationships, is a clear indicator
of the vigor and effectiveness of our turnaround efforts for the Company begun
in October 1994. We
3
<PAGE>
have increased revenues from backpanel and subsystem assemblies as a percentage
of net sales during fiscal 1996. We also have improved product turnaround time
and yields significantly, placing Elexsys' quality among industry leaders.
We believe outsourcing by OEMs, particularly in the large and growing
telecommunications and datacom-munications markets, is a dynamic opportunity for
Elexsys both in the United States and overseas. OEMs utilize contract
manufacturing for several key reasons: design expertise, reduced capital
investment requirements, focused resources, access to leading manufacturing
technology, and improved inventory management and purchasing power. To capture
our fair share of this potential, we have made broad-spectrum "one-stop
outsourcing" the cornerstone of our strategy for growth.
We are using our proven, high-technology manufacturing and engineering
capabilities to further expand into the rapidly growing outsourcing market,
providing complex press-fit backpanels, surface-mount back-panel assemblies and
subsystems utilizing our internal high technology circuit board capability.
------------------------------------------------------
MAJOR CUSTOMERS BY
MARKET SEGMENT
TELECOMMUNICATIONS INDUSTRIAL/MEDICAL
Northern Telecom GE
Tellabs Seimens
Telco Rockwell
DSC Honeywell
Qualcom Fisher Controls
Reltec Picker
Lucent Technologies, Inc. Genrad
DATA COMMUNICATIONS COMPUTERS
DEC Tandem
Tandem/UB networks DEC
AT&T Paradyne Motorola
Cascade Harris
NET Silicon Graphics, Inc.
------------------------------------------------------
We are also seeking to diversify our customer base. During fiscal 1996,
the Company manufactured and sold its products to 385 customers, principally in
North America and Europe.
4
<PAGE>
To support our broad marketing thrust, late in the fiscal year we moved
our Sunnyvale headquarters office and back-panel operations to a much larger,
75,000-square-foot facility in San Jose, California. Midway through the fiscal
year, we acquired Anetec Technologies, a contract manufacturer supplying SMT
assembly services on a consignment basis. This acquisition enabled Elexsys to
seamlessly absorb a significant increase in orders in the active backpanel
market segment. Anetec will be absorbed into the backpanel assembly division
during 1997. We will continue to offer a prototype consignment service to our
major customers on a limited basis. WE ARE STRUCTURING ELEXSYS TO BE THE
PREMIER, ONE-STOP OUTSOURCING OPTION FOR ELECTRONICS OEMS REQUIRING SUBSYSTEM
ASSEMBLIES. Value-added contract manufacturing, which accounted for
approximately $41.5 billion in 1995, is estimated to be growing at an annual
rate of 21% and exceed $100 billion by the year 2000. Increasingly, OEMs -- our
blue-chip customers -- are relying on independent manufacturers such as Elexsys
rather than on captive production with many OEMs having discontinued their own
production since 1990.
------------------------------------------------------
THE VERTICALLY
INTEGRATED SOLUTION
[GRAPHIC OMITTED]
STATE OF THE ART SYSTEM ASSEMBLY CAPABILITY
o State of the Art Manufacturing SMT & Pressfit
Backpanel Assembly
o High Tech Printed Circuit Board Manufacturing Capability
o Materials Procurement Group
o Superior Design Services
o Subsystem Assembly Capability
o Advanced Test Capability
o System Integration Capability
------------------------------------------------------
The electronics industry is undergoing fundamental change with the
ability to innovate, and be first to market
5
<PAGE>
with a cost effective product both being critical to the success of OEMs today.
This puts an intensified demand on suppliers who are providing increasing design
and systems content to OEMs. We have configured a supply system with key
engineering and manufacturing resources at strategic locations in North America
and the United Kingdom focused on delivering quick-turn prototypes for new
products, which are subsequently followed with deliveries of high quality
products on a timely basis. All plants have ISO 9002 certification.
------------------------------------------------------
USA AND EUROPEAN OPERATIONS
New Hampshire
Nashua
U.K.
[GRAPHIC OMITTED] Peterborough
England
California
Fremont
Irvine Texas
Mountain View Plano
San Jose
------------------------------------------------------
The path we are following is wholly dependent upon the expertise and
wisdom of our management and employees and their ability to work together in
order to provide the timely response we promise to our customers. At Elexsys, we
have continued through fiscal 1996 to expand our infrastructure and to broaden
our management team. Recognizing his keen contribution to our building process,
the Board of Directors named W. F. "Barry" Hegarty in January 1996 as President
of the Company in addition to his role as Chief Operating Officer.
For the future, we believe Elexsys has bright prospects, particularly
with the strategy we have articulated and have now largely implemented.
Outsourcing presents a dynamic opportunity for the Company in the
6
<PAGE>
United States, Europe and Asia. OUR BUSINESS IS FOCUSED ON MAJOR GROWTH MARKETS,
PARTICULARLY TELECOMMUNICATIONS, DATACOMMUNICATIONS, INDUSTRIAL, MEDICAL AND
COMPUTER BOTH IN THE U.S. AND OVERSEAS. Elexsys enjoys world-class manufacturing
capabilities, sells into rapidly expanding markets, and has a growing
international presence. Our customer strategy is focused on timeliness, which is
a key component of value in our business, on premium service for all customers,
and on top quality that exceeds our customer expectations.
We intend to forge ahead in fiscal 1997 by continuing to enhance our
technology leadership, capitalize on our international presence, add even more
higher added-value products, and provide our customers with the best solutions
tailor made to their particular requirements.
------------------------------------------------------
MILAN MANDARIC
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
W. F. "BARRY" HEGARTY
------------------------------------------------------
We want to thank our customers and suppliers for their confidence in
our products, and our employees for their loyalty, commitment and performance.
We also thank our shareholders for their support through the years and look
forward to reporting continued progress and increased shareholder value in
fiscal 1997.
/s/ Milan Mandaric /s/ Barry Hegarty
MILAN MANDARIC W.F."BARRY" HEGARTY
Chairman of the Board and CEO President and COO
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSYS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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. Except for the historical
information contained herein, the following discussion contains forward-looking
statements that involve risks and uncertainties. The actual future results of
the Company could differ materially from those discussed here. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in this section and those discussed in the Company's Form 10-K
for the year ended September 30, 1996.
RESULTS OF OPERATIONS FISCAL 1996 TO FISCAL 1995
NET SALES
Net sales increased 22 percent from fiscal 1995. The increase in net sales
resulted from an increase in demand for the Company's subsystems (backpanels and
card cage) assemblies and circuit board products from new and recurring
customers, five months of sales from the Company's recent acquisition of the
assets of Anetec Technologies (Anetec) in Fremont, California and a full year's
sales from the United Kingdom circuit board operation. The increase in net sales
was partially offset by lower pricing for circuit boards due to previously
announced softness in the industry during the third quarter of fiscal 1996. The
Company had unused capacity in its circuit board and assembly operations of
approximately 35 and 50 percent respectively, allowing the Company to
substantially increase its sales in its existing facilities. Going forward,
management expects subsystems' sales to be approximately 50 to 60 percent of
sales by the end of fiscal year 1997.
GROSS MARGIN
Gross margin as a percentage of net sales increased from 15.2 percent for fiscal
1995 to 18.3 percent for fiscal 1996. The increase is attributable to lower
fixed and labor costs per unit shipped for circuit board products mainly due to
an increase in units shipped diluting fixed costs as well as improving operating
efficiencies. The increase in gross margin was also driven by reduced labor
costs as a percentage of net sales for assemblies due to improvement in
operating efficiencies. The increase in gross margin was partially offset by
start-up costs at our Plano, Texas operations and a softness in demand for
circuit boards at our Peterborough, England operations creating operating
inefficiencies. Going forward, further improvement in gross margins will depend
on product mix, capacity utilization mainly at our start-up operations, the
ability to continue to improve operating efficiencies as sales increase, and
further cost reductions.
OPERATING EXPENSES
Operating expenses increased 24.3 percent from fiscal 1995. As a percentage of
net sales, operating expenses increased slightly from 10.1 percent for fiscal
1995 to 10.3 percent for fiscal 1996. The increase in operating expenses in
absolute dollars is attributable to higher salary costs associated with new
additions to the executive staff and additional sales and administrative
personnel to support the growth, recruiting and relocation costs related to the
hiring of new executives, advertising costs, costs associated with improving
information systems, investor relations costs, a full year of United Kingdom
costs, and higher than expected legal fees, partially offset by lower
commissions and lower research and development costs.
8
<PAGE>
INTEREST EXPENSE
Interest expense decreased 18.3 percent from fiscal 1995 and was attributable to
the elimination of interest obligations from the exchange of certain of the
Company's 5 1/2 percent Convertible Subordinated Debentures due 2012 during the
second quarter of fiscal year 1995 (See Note 13 of Notes to Consolidated
Financial Statements) and to lower short term borrowings during the fiscal year.
The decrease in interest expense was partially offset by interest expense
incurred by the Company's United Kingdom subsidiary.
PROVISION FOR INCOME TAXES
In fiscal 1996, the Company provided $202,000 for income taxes. This tax
provision primarily relates to federal alternative minimum tax and state taxes,
partially offset by a tax benefit in the United Kingdom due to net operating
losses. As of September 30, 1996, the Company has a net operating loss
carryforward for federal income tax purposes of approximately $24,416,000
expiring in various amounts between 2006 and 2008, which net operating loss
carryforwards could offset 100 percent of taxable income for regular tax
purposes. However, the Internal Revenue Code of 1986 contains limitation 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 fiscal 1995, a modest change in ownership of the Company could trigger
such limitations. If such limitations were triggered, it is possible the net
operating loss carryforwards could expire prior to utilization. The United
Kingdom subsidiary is taxed at the prevailing corporate tax rates in that
country and has approximately $672,000 in net operating loss carryforwards. (See
Note 8 of Notes to Consolidated Financial Statements.)
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.
GROSS MARGIN
Gross margin as a percentage of net sales increased from 7.7 percent for fiscal
1994 to 15.2 percent for fiscal 1995. The increase 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 the 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.
OPERATING EXPENSES
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
9
<PAGE>
in fiscal 1994 related to matters associated with the credit-line agreement. 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 expenditures decreased 45 percent during
fiscal 1995 compared to fiscal 1994. The decrease in expenditures is directly
attributable to lower labor and benefit costs of engineers related to past
restructuring by the Company.
At the beginning of fiscal 1995, the Company's balance for
restructuring reserve was $861,000. For the fiscal year, the Company reduced its
restructuring reserve by $846,000 mainly through 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 as investments were liquidated to
fund purchase of capital equipment. Interest expense decreased 13.2 percent from
fiscal 1994 and 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.
PROVISION FOR INCOME TAXES
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 2006
and 2008. 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 AND TAXES
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.)
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, shortages of certain raw materials, the Company's ability to
develop, manufacture and sell its products profitably, the loss of one of its
primary customers and the cyclical nature of the business of some of the
Company's customers.
10
<PAGE>
The Company participates in a highly competitive industry. The circuit
board and assembly 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.
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
costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash flows from operating activities of $7.1 million during
fiscal 1996 compared to $4.4 million during fiscal 1995. Higher positive cash
flow provided by operating activities during fiscal 1996 was primarily due to
improved profitability.
Cash provided by operating activities of $7.1 million and cash provided
by financing activities of $2.3 million was offset by cash used by investing
activities of $9.2 million. Cash was provided by financing activities through
the increase in short-term borrowings and long-term debt, and amounts received
from the exercise of stock options by certain employees, less cash used for the
repayment of long-term debt. Cash from investing activities was used for the
purchase of capital equipment of $7.8 million and for a $1.4 million cash
payment for the assets of Anetec Technologies. The purchase of capital equipment
was for normal replacement, equipment for processes that the Company had
previously outsourced, and equipment to enhance our manufacturing capabilities.
On November 26, 1996, the Company purchased property which it had
previously leased at 41 Simon Street, Nashua, New Hampshire for approximately
$2.3 million. The Company has received tentative approval for a tax exempt
private activity bond financing, at a substantially lower interest rate, from
the State of New Hampshire to finance this transaction.
As of September 30, 1996, the Company has short-term borrowings of $6.2
million under a $15 million line of credit agreement that was established
December 17, 1993 and amended January 30, 1996. Under the terms of the
agreement, the Company's cash collections are applied to any outstanding
borrowings upon the receipts clearing the bank. As of September 30, 1996 the
lender was in possession of approximately $896,000 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 $5.3 million. The line of
credit is collateralized by substantially all of the Company's assets and will
remain in effect until December 17, 1997. The company was in compliance with all
of the covenants as defined within the agreement.
At September 30, 1996, the Company's current ratio of current assets to
current liabilities was 1.5 to 1. In addition, the Company had $1.1 million in
cash and cash equivalents which are available for current operations, capital
expenditures and other purposes. Management believes that the Company's existing
working capital, its remaining borrowing capacity, and funds generated from
operations will be sufficient to meet presently anticipated working capital
requirements.
11
<PAGE>
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 substantial 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 has had no new
environmental matters in the current fiscal year.
With respect to previously reported matters, 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 both of these facilities
the soil has been remediated and the properties have been returned to their
owners. One of the facilities is adjacent to an existing State of California
administered Superfund site; as a result, it could become part of a related
State of California administered regional ground water investigation, although,
the Company does not believe that it bears any responsibility for that matter.
At another former facility in Southern California, the Company conducted limited
groundwater sampling in connection with potential sale of the property, and low
concentrations of solvents were detected. Notification was made to the
appropriate agencies. At this time, it is not possible to determine whether any
response actions will be needed 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 acquisitions and installation costs). At its Northern
California facility, the Company has implemented and has been in compliance with
recently reduced discharge limits for industrial waste water discharge
containing heavy metals.
As of September 30, 1996, 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, and 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 law 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.
12
<PAGE>
<TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA
ELEXSYS INTERNATIONAL, INC.
<CAPTION>
YEARS ENDED SEPTEMBER 30 (IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
NET SALES $ 126,906 $ 103,970 $ 95,680 $ 99,272 $ 101,396
COST OF SALES 103,696 88,137 88,301 98,024 100,864
- ------------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 23,210 15,833 7,379 1,248 532
OPERATING EXPENSES:
SELLING, GENERAL AND ADMINISTRATIVE 12,852 10,154 10,167 10,838 9,593
RESEARCH AND DEVELOPMENT 258 395 718 2,302 2,868
PROVISION FOR RESTRUCTURING OF OPERATIONS 2,100 3,000
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 13,110 10,549 12,985 16,140 12,461
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 10,100 5,284 (5,606) (14,892) (11,929)
OTHER (INCOME) EXPENSE:
INTEREST EXPENSE 1,442 1,765 2,034 1,856 1,872
INTEREST INCOME (14) (27) (417) (1,127)
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 8,672 3,519 (7,613) (16,331) (12,674)
PROVISION FOR INCOME TAXES 202 220
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 8,470 3,299 (7,613) (16,331) (12,674)
EXTRAORDINARY ITEM:
GAIN FROM EXCHANGE OF CONVERTIBLE SUBORDINATED DEBENTURES
FOR COMMON STOCK, NET OF EXPENSES 1,833 10,167
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 8,470 $ 5,132 $ 2,554 $ (16,331) $ (12,674)
====================================================================================================================================
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE:
PRIMARY $ .89 $ .57 $ .54 $ (3.18) $ (2.46)
FULLY DILUTED $ .89 $ .56 $ .39 $ (3.18) $ (2.46)
====================================================================================================================================
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES:
PRIMARY 9,553 9,018 6,387 5,133 5,161
FULLY DILUTED 9,553 9,087 8,769 5,133 5,161
====================================================================================================================================
SEPTEMBER 30 (IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
WORKING CAPITAL $ 10,570 $ 7,174 $ 3,791 $ 7,172 $ 18,003
TOTAL ASSETS 62,105 45,139 36,983 48,040 65,013
LONG-TERM DEBT 2,448 1,280 406 456 501
CONVERTIBLE SUBORDINATED DEBENTURES 12,000 12,000 16,000 32,000 32,000
STOCKHOLDERS' EQUITY (DEFICIT) 24,552 13,908 6,085 (1,669) 14,639
====================================================================================================================================
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS
</FN>
</TABLE>
13
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
ELEXSYS INTERNATIONAL, INC.
<CAPTION>
YEARS ENDED SEPTEMBER 30 (IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 126,906 $ 103,970 $ 95,680
COST OF SALES 103,696 88,137 88,301
- ------------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 23,210 15,833 7,379
OPERATING EXPENSES:
SELLING, GENERAL AND ADMINISTRATIVE 12,852 10,154 10,167
RESEARCH AND DEVELOPMENT 258 395 718
PROVISION FOR RESTRUCTURING OF OPERATIONS 2,100
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 13,110 10,549 12,985
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 10,100 5,284 (5,606)
OTHER (INCOME) EXPENSE
INTEREST EXPENSE 1,442 1,765 2,034
INTEREST INCOME (14) (27)
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 8,672 3,519 (7,613)
PROVISION FOR INCOME TAXES 202 220
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 8,470 3,299 (7,613)
EXTRAORDINARY ITEM:
GAIN FROM EXCHANGE OF CONVERTIBLE SUBORDINATED DEBENTURES FOR
COMMON STOCK, NET OF EXPENSES 1,833 10,167
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 8,470 $ 5,132 $ 2,554
====================================================================================================================================
PRIMARY NET INCOME PER SHARE
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $ .89 $ .37 $ (1.28)
EXTRAORDINARY ITEM .20 1.82
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ .89 $ .57 $ .54
====================================================================================================================================
FULLY DILUTED NET INCOME PER SHARE
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $ .89 $ .36 $ (.91)
EXTRAORDINARY ITEM .20 1.30
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ .89 $ .56 $ .39
====================================================================================================================================
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS
</FN>
</TABLE>
14
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
ELEXSYS INTERNATIONAL, INC.
<CAPTION>
SEPTEMBER 30 (IN THOUSANDS, EXCEPT SHARE DATA) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 1,075 $ 903
ACCOUNTS RECEIVABLE, LESS ALLOWANCE FOR DOUBTFUL
ACCOUNTS OF $287 AT SEPTEMBER 30, 1996 AND $458
AT SEPTEMBER 30, 1995 20,463 15,653
INVENTORIES 10,690 7,860
PREPAID EXPENSES AND OTHER CURRENT ASSETS 1,447 709
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 33,675 25,125
- ------------------------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 24,818 18,980
OTHER ASSETS 3,612 1,034
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $62,105 $45,139
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $12,629 $ 9,854
ACCRUED PAYROLL AND RELATED COSTS 2,611 2,521
OTHER CURRENT LIABILITIES 1,321 1,965
SHORT-TERM BORROWINGS 5,310 3,248
CURRENT PORTION OF LONG-TERM DEBT 1,234 363
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 23,105 17,951
- ------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 2,448 1,280
CONVERTIBLE SUBORDINATED DEBENTURES 12,000 12,000
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, $1.00 PAR VALUE, 1,000,000 SHARES AUTHORIZED
NONE ISSUED AND OUTSTANDING AT SEPTEMBER 30, 1996 AND 1995
COMMON STOCK, $1.00 PAR VALUE, 20,000,000 SHARES AUTHORIZED, 9,300,810
SHARES ISSUED AND OUTSTANDING AT SEPTEMBER 30, 1996 AND 8,960,560
SHARES ISSUED AND OUTSTANDING AT SEPTEMBER 30, 1995 9,301 8,961
ADDITIONAL PAID-IN CAPITAL 7,294 5,460
CUMULATIVE FOREIGN CURRENCY TRANSLATION ADJUSTMENTS (22) (22)
RETAINED EARNINGS (DEFICIT) 7,979 (491)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 24,552 13,908
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $62,105 $45,139
====================================================================================================================================
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS
</FN>
</TABLE>
15
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ELEXSYS INTERNATIONAL, INC.
<CAPTION>
CUMULATIVE
RETAINED FOREIGN
COMMON STOCK ADDITIONAL EARNINGS CURRENCY TREASURY STOCK
---------------- PAID-IN (ACCUMU- TRANSLATION -----------------
(IN THOUSANDS) SHARES AMOUNT CAPITAL LATED DEFICIT) ADJUSTMENT SHARES AMOUNT TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
EMPLOYEE STOCK OPTIONS EXERCISED 230 230 377 607
COMMON STOCK ISSUED FOR PURCHASE OF
ANETEC TECHNOLOGIES 110 110 1,457 1,567
NET INCOME 8,470 8,470
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1996 9,301 $ 9,301 $ 7,294 $ 7,979 $ (22) $ 24,552
====================================================================================================================================
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS
</FN>
</TABLE>
16
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
ELEXSYS INTERNATIONAL, INC.
<CAPTION>
YEARS ENDED SEPTEMBER 30 (IN THOUSANDS) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 8,470 $ 5,132 $ 2,554
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
(USED) PROVIDED BY OPERATING ACTIVITIES NET OF
EFFECT OF BUSINESS ACQUIRED:
EXTRAORDINARY ITEM (1,833) (10,167)
DEPRECIATION AND AMORTIZATION 5,427 5,325 6,301
PROVISION FOR RESTRUCTURING OPERATIONS 2,100
(INCREASE) DECREASE IN ACCOUNTS RECEIVABLE (4,821) (5,726) 250
(INCREASE) DECREASE IN INVENTORIES (3,111) (143) 932
(INCREASE) DECREASE IN PREPAID EXPENSES
AND OTHER CURRENT ASSETS (827) (285) 107
INCREASE (DECREASE) IN ACCOUNTS PAYABLE 2,872 2,956 (5,297)
INCREASE (DECREASE) IN ACCRUED PAYROLL AND RELATED COSTS 92 429 (847)
DECREASE IN RESTRUCTURING RESERVE (861) (1,402)
DECREASE IN OTHER CURRENT LIABILITIES (580) (110) (440)
OTHER (421) (503) 226
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES 7,101 4,381 (5,683)
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF ANETEC TECHNOLOGIES (1,400)
PURCHASE OF TECHNET LIMITED (560)
PROCEEDS FROM MATURITY OF SHORT-TERM INVESTMENTS 4,000
PURCHASE OF PROPERTY, PLANT AND EQUIPMENT (7,848) (4,683) (2,660)
PROCEEDS FROM SALE OF PROPERTY, PLANT AND EQUIPMENT 27 79 79
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES (9,221) (5,164) 1,419
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
PROCEEDS FROM ISSUANCE OF DEBT 118
PRINCIPAL PAYMENTS ON DEBT (338) (356) (45)
PRINCIPAL PAYMENTS ON CAPITAL LEASE OBLIGATIONS (156)
PROCEEDS FROM EXERCISE OF STOCK OPTIONS 606 688
NET CHANGE IN SHORT-TERM BORROWINGS 2,062 (208) 3,456
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,292 124 3,411
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 172 (659) (853)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 903 1,562 2,415
- ------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,075 $ 903 $ 1,562
====================================================================================================================================
<FN>
SEE NOTES 1, 2 AND 10 FOR SUPPLEMENTAL INFORMATION.
SUPPLEMENT SCHDEULE OF NONCASH FINANCING ACTIVITY:
IN FISCAL 1995 AND 1994, 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 COMPANY PURCHASED $1,034,000 OF EQUIPMENT UNDER CAPITAL LEASES DURING FISCAL 1996.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS
</FN>
</TABLE>
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ELEXSYS INTERNATIONAL, INC.
1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Elexsys International, Inc., (the "Company"), is one of the country's leading
manufacturers of high performance medium and high density backpanel assemblies
and sophisticated subsystem assemblies. In addition, the Company is one of the
leading manufacturers of high technology circuit boards. The Company offers
advanced inter-connect solutions for the telecommunications, datacommunications,
computer, industrial, medical and instrumentation markets. The consolidated
financial statements include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany transactions and balances have been
eliminated in consolidation.
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 1996, 1995 and 1994, was September 28, September 30 and
October 1, respectively.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles necessarily requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting years. Actual results could differ from those estimates.
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes refunded for each of the three years in
the period ended September 30, 1996 was as follows:
THOUSANDS OF DOLLARS 1996 1995 1994
- ----------------------------------------------------------------------------
INTEREST $ 1,353 $ 2,201 $ 1,602
INCOME TAXES (REFUNDED) PAID $ 339 $ 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 credit insurance and 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 1996 1995
- ----------------------------------------------------------------------------
INVENTORIES:
RAW MATERIALS $ 5,434 $ 2,843
WORK IN PROGRESS 5,256 5,017
- ----------------------------------------------------------------------------
TOTALS $ 10,690 $ 7,860
- ----------------------------------------------------------------------------
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
18
<PAGE>
INCOME TAXES
The Company accounts for income taxes under the provision of Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
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 years ended
September 30, 1996 and 1995, transaction gains and losses were immaterial.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires
management to disclose the estimated fair value of certain assets and
liabilities defined by SFAS No. 107 as financial instruments. Financial
instruments are generally defined by SFAS No. 107 as cash or a contractual
obligation that both conveys to one entity a right to receive cash or other
financial instruments from another entity and imposes on the other entity the
obligation to deliver cash or other financial instruments to the first entity.
At September 30, 1996, management believes that the carrying amounts of cash,
receivables, trade payables, and long term debt approximate fair value. The
carrying amount of the 5 1/2 percent Convertible Subordinated Debentures due
2012 is $12 million and management believes that the fair value cannot be
determined as the instrument has not been traded during the past year.
NEW ACCOUNTING PRONOUNCEMENT
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-based Compensation, which requires adoption of the
disclosure provisions no later than years beginning after December 15, 1995 and
the adoption of the recognition and measurement provisions for nonemployee
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
not required, to adopt the fair value method of accounting for employee-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 present, earnings per share as
if the Company had applied the new method of accounting. The Company has
determined that it will not change to the fair value method and will continue to
use Accounting Principle Board Opinion No. 25 for measurement and recognition of
employee stock-based transactions.
19
<PAGE>
2
PROVISIONS FOR RESTRUCTURING 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 cleanup 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, all costs incurred, representing wages and
benefits for severance pay, mainly to executives, were paid.
3
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
THOUSANDS OF DOLLARS 1996 1995
- ----------------------------------------------------------------------------
LAND $ 2,357 $ 2,357
BUILDINGS AND IMPROVEMENTS 1,738 1,939
MACHINERY AND EQUIPMENT 70,572 62,790
LEASEHOLD IMPROVEMENTS 7,297 6,594
- ----------------------------------------------------------------------------
81,964 73,680
LESS ACCUMULATED DEPRECIATION
AND AMORTIZATION (57,146) (54,700)
- ----------------------------------------------------------------------------
$ 24,818 $ 18,980
- ----------------------------------------------------------------------------
The Company had $1,770,000 of equipment leased under capital leases with
accumulated amortization of $157,000 at September 30, 1996.
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.
On January 30, 1996, the agreement was amended to provide for borrowing up to
$15 million. Cash borrowings under the line of credit bear interest at prime
rate (8 1/4%) plus 3 percent at September 30, 1996 which is payable monthly. The
line of credit is collateralized by substantially all of the Company's assets
and expires December 17, 1997. 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, 1996, net borrowings under this credit agreement were $5,310,000
and the Company was in compliance with such covenants.
20
<PAGE>
5
LONG-TERM DEBT
Long-term debt consists of the following:
THOUSANDS OF DOLLARS
(EXCEPT PAYMENT AMOUNTS) 1996 1995
- ---------------------------------------------------------------------------
USA SUBSIDIARY:
CALIFORNIA POLLUTION CONTROL REVENUE
BONDS DUE IN VARYING ANNUAL PRINCIPAL
AMOUNTS RANGING FROM $45,000 TO $85,000
THROUGH MARCH 2001, WITH INTEREST
RATES RANGING FROM 7.0% TO 9.5% AND GUARANTEED
BY THE SMALL BUSINESS ADMINISTRATION $ 345 $ 406
PROMISSORY NOTE PAYABLE TO ANETEC
TECHNOLOGIES DUE IN TWO ANNUAL PRINCIPAL
AMOUNTS OF $500,000 IN MAY, 1997 AND
MAY, 1998, WITH AN INTEREST RATE OF 8% 1,000
UNITED KINGDOM SUBSIDIARY:
NOTES PAYABLE TO AN INVESTOR GROUP DUE IN
EQUAL, ANNUAL PRINCIPAL AMOUNTS OF
$97,573 DUE SEPTEMBER 1998, WITH INTEREST
RATES OF 3% ABOVE THE BANK BASE RATE,
CURRENTLY 5.75%. THE LOAN IS COLLATERALIZED
BY THE UNITED KINGDOM SUBSIDIARY'S ASSETS 196 397
NOTES PAYABLE TO BANK DUE IN VARYING ANNUAL
PRINCIPAL AMOUNTS RANGING FROM $37,000 TO
$76,000 THROUGH SEPTEMBER 2008, WITH
INTEREST RATES OF 2% ABOVE THE BANK BASE
RATE, CURRENTLY 5.75%. THE LOAN IS
COLLATERALIZED BY THE UNITED KINGDOM
SUBSIDIARY'S ASSETS 788 812
CAPITAL LEASE OBLIGATIONS (SEE NOTE 7) 1,353 28
- ---------------------------------------------------------------------------
3,682 1,643
LESS: CURRENT PORTION (1,234) (363)
- ---------------------------------------------------------------------------
NET $2,448 $1,280
- ---------------------------------------------------------------------------
The aggregate principal maturities are (excluding capital lease
obligations) $775,000, $687,000, $101,000, and $113,000 in the years ending
September 30, 1997 through 2000, respectively, and $653,000 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, 1996, senior indebtedness aggregated $8,992,000.
21
<PAGE>
7
LEASE COMMITMENTS
The Company leases its several manufacturing facilities and certain equipment
under capital and operating leases. As of September 30, 1996, the Company's
commitments under its capital and operating leases are as follows:
FISCAL YEAR CAPITAL OPERATING
(THOUSAND OF DOLLARS) LEASES LEASES
- ----------------------------------------------------------------------------
1997 $ 476 $2,326
1998 363 1,843
1999 262 1,520
2000 176 978
2001 176 807
THEREAFTER 175 1,470
- ----------------------------------------------------------------------------
TOTAL MINIMUM LEASE PAYMENTS 1,628 $8,944
- ----------------------------------------------------------------------------
LESS AMOUNTS REPRESENTING INTEREST (275)
- ----------------------------------------------------------------------------
PRESENT VALUE OF MINIMUM LEASE PAYMENTS 1,353
LESS CURRENT PORTION (459)
- ----------------------------------------------------------------------------
LONG-TERM PORTION $ 894
- ----------------------------------------------------------------------------
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, 1996, 1995 and 1994 was
approximately $2,215,000, $1,757,000, and $1,766,000, respectively.
8
INCOME TAXES
The provision for income taxes for 1996 and 1995 consisted of the following (due
to net operating losses, there was no income tax expense in 1994):
THOUSANDS OF DOLLARS 1996 1995
- ----------------------------------------------------------------------------
CURRENT
FEDERAL $ 94 $ 90
STATE 208 64
FOREIGN (BENEFIT) (100) 66
- ----------------------------------------------------------------------------
TOTAL CURRENT $ 202 $ 220
- ----------------------------------------------------------------------------
A reconciliation between the statutory federal income tax rate as a
percentage of income from continuing operations is as follows:
1996 1995
- -------------------------------------------------------------------------------
FEDERAL STATUTORY TAX RATE 35.0% 35.0%
STATE AND LOCAL TAXES 1.6% 1.2%
LOSS ON FOREIGN SUBSIDIARY 3.4% 1.2%
CHANGE IN VALUATION ALLOWANCE (35.9)% (31.2)%
OTHER (1.8)% (2.1)%
- -------------------------------------------------------------------------------
EFFECTIVE TAX RATE 2.3% 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, 1996
and 1995 are as follows:
22
<PAGE>
THOUSANDS OF DOLLARS 1996 1995
- ----------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
DIFFERENCES BETWEEN BOOK AND
TAX BASIS OF PROPERTY $ (781) $ (835)
FOREIGN OPERATIONS 0 (40)
DEFERRED TAX ASSETS:
RESERVES NOT CURRENTLY DEDUCTIBLE 1,904 1,963
NET OPERATING LOSS 10,048 12,466
ALTERNATIVE MINIMUM TAX CREDIT
CARRYFORWARDS 330 87
- ----------------------------------------------------------------------------
11,501 13,641
VALUATION ALLOWANCE (11,501) (13,681)
- ----------------------------------------------------------------------------
NET DEFERRED TAX ASSET/(LIABILITY) $ 0 $ (40)
- ----------------------------------------------------------------------------
Deferred income taxes include the tax impact of net operating loss
carryforwards. As of September 30, 1996, the Company had net operating loss
carryforwards for federal, state, and foreign income tax purposes of
approximately $24,416,000, $19,402,000, and $672,000, respectively. These
carryforwards, for which future benefit is not assured, expire through 2008. In
accordance with the provisions of SFAS No. 109, a $11,501,000 valuation
allowance is deemed adequate for these and other items which may not be
realized.
9
NET INCOME (LOSS) PER SHARE
For fiscal year 1996 and 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.
10
ACQUISITIONS
The Company entered into an Asset Purchase Agreement dated as of May 3, 1996 to
acquire the assets on Anetec Technologies, Inc., a company serving the small
prototype and engineering marketplace located in Fremont, California for $4.4
million, including $1.4 million in cash, a promissory note in the principal
amount of $1.0 million, assumption of capital lease obligation of approximately
$400,000, and 110,000 shares of the Company's common stock valued at
approximately $1.6 million. The total purchase price of approximately $4.4
million was allocated to assets acquired representing machinery and equipment of
approximately $2.4 million and goodwill of approximately $2.0 million.
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.
23
<PAGE>
11
STOCK OPTIONS
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, 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
GRANTED -- -- --
EXERCISED (100,500) $1.25-$3.50 --
CANCELLED (1,000) $3.50 --
- ----------------------------------------------------------------------------
SEPT. 30, 1996 42,250 $1,25-$3.50 10,000 $1.25-$3.50
- ----------------------------------------------------------------------------
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 ("1994 Nonqualified Options"). The options vest at a rate of 50
percent per year commencing November 11, 1994.
In June 1994, the Company adopted the Company's 1994 Incentive Stock
Option Plan ("1994 ISO 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.
Option activity for these plans is summarized as follows:
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
GRANTED -- --
EXERCISED (33,000) $1.25 (82,560) $1.25-5.19
CANCELLED -- (105,390) $1.00-4.75
- ----------------------------------------------------------------------------
SEPT. 30, 1996 1,000 $1.25 301,800 $1.00-5.19
- ----------------------------------------------------------------------------
24
<PAGE>
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 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 ending September 30, 1994, 3,300 shares during the year ending
September 30, 1995, and 3,300 shares during the year ending September 30, 1996.
In July 1995, the Board of Directors adopted the Company's 1995 Stock
Option Plan ("1995 Plan"), authorizing the issuance of 1,000,000 shares of the
Company's Common Stock. Options 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. On January 30, 1996, the company's stockholders approved an amendment
and restatement of the 1995 Plan to reflect current applicable tax and
securities requirements and for administrative ease.
Option activity for this plan is summarized as follows:
1995 PLAN
NUMBER PRICE
OF SHARES PER SHARE
- -----------------------------------------------------------------------------
SEPT. 30, 1994 --
GRANTED 82,000 $8.88-$11.25
EXERCISED --
CANCELLED --
- -----------------------------------------------------------------------------
SEPT. 30, 1995 82,000 $8.88-$11.25
GRANTED 733,100 $9.50-$12.75
EXERCISED --
CANCELLED (317,700) $9.50-12.75
- -----------------------------------------------------------------------------
SEPT. 30. 1996 497,400 $8.88-12.50
- -----------------------------------------------------------------------------
In January 1996, the Board of Directors adopted the Company's 1996
Non-Employee Director's Stock Option Plan (the "Directors Plan"). The Director's
Plan provides for automatic, non-discretionary grants of options to purchase an
aggregate of 200,000 shares of the Company's common Stock. During the year ended
September 30, 1996, options covering an aggregate of 30,000 shares with a per
share option price between $15.625 and $16.00 of the Company's Common Stock had
been granted under the Director's Plan. Options may have a term of up to ten
years from the date of grant and vest at a rate of 25 percent per year.
On January 30, 1996, the Company adopted its 1996 Employee Stock
Purchase Plan ("Purchase Plan") authorizing the issuance of 250,000 shares of
the Company's Common Stock. The Company's employees may purchase shares of
Common Stock at a price per share that is 85% of the lesser of the fair market
value as of the beginning or the end of the semi-annual option period.
At September 30, 1996, 1,855,300 shares of common stock are reserved
for the employee stock purchase plan and the exercise of stock options granted
or available for future grant. 57,250 of these shares are exercisable under the
1983 or 1984 Plan or 1994 Non Qualified Options.
25
<PAGE>
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 substantial 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 has had no new
environmental matters in the current fiscal year.
With respect to previously reported matters, 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 both of these facilities
the soil has been remediated and the properties have been returned to their
owners. One of the facilities is adjacent to an existing State of California
administered Superfund site; as a result, it could become part of a related
State of California administered regional ground water investigation, although,
the Company does not believe that it bears any responsibility for that matter.
At another former facility in Southern California, the Company conducted limited
groundwater sampling in connection with potential sale of the property, and low
concentrations of solvents were detected. Notification was made to the
appropriate agencies. At this time, it is not possible to determine whether any
response actions will be needed 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 acquisitions and installation costs). At its Northern
California facility, the Company has implemented and has been in compliance with
recently reduced discharge limits for industrial waste water discharge
containing heavy metals.
As of September 30, 1996, 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, and 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 law 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
26
<PAGE>
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
CUSTOMER CONCENTRATION
For the year ended September 30, 1996, three customers accounted for
approximately 17 percent, 10 percent and 10 percent of net sales. For the year
ended September 30, 1995, three customers accounted for approximately 24
percent, 12 percent, and 10 percent of net sales. For the year ended September
30, 1994, one customer accounted for 22 percent of net sales.
EXPORT SALES
For the years ended September 30, 1996, 1995 and 1994, export sales accounted
for approximately $17,617,000, $13,100,000, and $8,500,000 or approximately 14
percent, 13 percent, and 9 percent of net sales, respectively.
BONUS AND RETIREMENT 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
$219,000 and $391,000 for the years ended September 30, 1996 and 1995,
respectively. No bonuses were paid for the year ended September 30, 1994.
In February 1995, the Company established a savings plan qualified
under Section 401(k) of the Internal Revenue Code. Employees who have completed
90 days of service are eligible to participate in the Plan. The Company can make
discretionary contributions based on employee pre-tax contributions. All
contributions to each employee's account vest immediately. No contributions were
made to the Plan by the Company during the years ended September 30, 1996 and
1995.
SUBSEQUENT EVENT
On November 26, 1996, the Company purchased property which it had previously
leased at 21 Simon Street, Nashua, New Hampshire for approximately $2.3 million.
The Company has received tentative approval for a tax exempt private activity
bond financing, at a substantially lower interest rate, from the State of New
Hampshire to finance this transaction.
15
QUARTERLY FINANCIAL DATA (UNAUDITED)
THOUSANDS OF DOLLARS FIRST SECOND THIRD FOURTH
EXCEPT PER SHARE DATA QUARTER QUARTER QUARTER QUARTER YEAR
- --------------------------------------------------------------------------------
1996
Net sales $ 28,910 $ 30,388 $ 30,841 $ 36,766 $126,906
Gross profit 5,378 5,706 5,529 6,597 23,210
Net income 2,010 2,229 1,964 2,267 8,470
Net income per
primary share $ .21 $ .23 $ .20 $ .24 $ .89
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
27
<PAGE>
INDEPENDENT AUDITOR'S 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,
1996 and 1995, 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, 1996. These 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1996 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Costa Mesa, California
October 18, 1996
(November 26, 1996 as to the fifth paragraph of note 14)
PRICE RANGE OF COMMON STOCK
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'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. Between March 20, 1995,and January 24, 1996
the Company's common stock has been traded on Nasdaq's SmallCap Market under the
symbol ELEX. Effective January 25, 1996, the NASDAQ Stock Market, Inc. approved
the company's common stock for listing on the NASDAQ National Market. 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 549 stockholders of record as of
September 30, 1996. 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
prohibits the payment of cash dividends without such person's consent.
QUARTER ENDED DEC. 31 MAR. 31 JUNE 30 SEPT. 30
- --------------------------------------------------------------------------------
FISCAL 1996
HIGH 18 1/2 16 3/4 15 3/4 11 22/32
LOW 14 11 5/8 8 1/2 9
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
28
<PAGE>
CORPORATE INFORMATION
BOARD OF DIRECTORS
Milan Mandaric
Chairman of the Board
Elexsys, International, Inc.
Peter S. Jonas
Private Investor and Business Consultant
Roland G. Matthews
Private Investor
Alan Mendelson
Cooley, Godward, Castro, Huddleson and Tatum
Bradford Jeffries
Cooley, Godward, Castro, Huddleson and Tatum
Roger W. Johnson
Private Investor and Business Consultant
OFFICERS
Milan Mandaric
Chairman of the Board
and Chief Executive Officer
W. F. "Barry" Hegarty
President and Chief Operating Officer
Michael S. Shimada
Vice President Finance, Chief Financial Officer
and Corporate Secretary
Michael J. Giggey
Vice President, Sale & Marketing
CORPORATE OFFICE
Elexsys International, Inc.
4405 Fortran Court
San Jose, California 95134
(408) 935-6300
fax (408) 942-0249
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, California 94306-2155
FORM 10-K
A copy of Elexsys International, Inc.'s 10-K as filed with the Securities and
Exchange Commission for the fiscal year ended September 30, 1996 is available
without charge upon written request to:
Investor Relations
Elexsys International, Inc.
4405 Fortran Court
San Jose, California 95134
COMMON STOCK
The Common Stock of Elexsys International, Inc.
(symbol: ELEX) trades on the Nasdaq Market
CONVERTIBLE DEBENTURES
The Convertible Debentures of Elexsys International, Inc.
(symbol: DICNG) trades over-the-counter on Nasdaq's Bulletin Board Market.
<PAGE>
Corporate Logo [GRAPHIC OMITTED]
ELEXSYS
INTERNATIONAL INC.
<TABLE>
EXHIBIT 21
LIST OF SUBSIDIARIES
<CAPTION>
- --------------------------------------- -------------------------------------- --------------------------------------
Name State, Country of Incorporation Doing Business As
- --------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
Symtron Corporation California, USA Symtron Corporation
Pritec Corporation (1) California, USA Pritec Corporation
Elexsys International (Europe) United Kingdom Elexsys International (Europe)
Limited Limited
Anetec Technology, Inc. California, USA Anetec Technology, Inc.
ELXI Acquisition, Inc. California, USA ELXI Acquisition, Inc.
- --------------------------------------- -------------------------------------- --------------------------------------
<FN>
(1) Wholly-owned subsidiary of Symtron Corporation.
</FN>
</TABLE>
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 18,
1996 (November 26, 1996 as to the fifth paragraph of note 14) appearing in the
Annual Report on Form 10-K of Elexsys International, Inc. for the year ended
September 30, 1996.
Deloitte & Touche LLP
Costa Mesa, California
December 18, 1996
<PAGE>
<TABLE>
ELEXSYS INTERNATIONAL, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For The Years Ended September 30, 1996, 1995, and 1994
(Thousands of Dollars)
<CAPTION>
Description Balance at Additions Deductions Balance at End
Beginning of Charged to Cost of Year
Year and Expenses
<S> <C> <C> <C> <C>
1996
Allowance for doubtful accounts $ 458 $ 5 $ (176)(1) $ 287
Inventory reserves 233 88 (84)(2) 237
========== ================ ================ ================
Total $ 691 $ 93 $ (260) $ 524
========== ================ ================ ================
1995
Allowance for doubtful accounts $ 450 $ 93 $ (85)(1) $ 458
Inventory reserves 495 235 (497)(2) 233
========== ================ ================ ================
Total $ 945 $328 $(582) $ 691
========== ================ ================ ================
1994
Allowance for doubtful accounts $ 450 $ 53 $ (53)(1) $ 450
Inventory reserves 282 550 (337)(2) 495
========== ================ ================ ================
Total $ 732 $ 603 $(390) $ 945
========== ================ ================ ================
<FN>
(1) Relates primarily to the write-off of uncollectible accounts receivable, net of recoveries.
(2) Relates primarily to the write-off of obsolete inventory.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,075
<SECURITIES> 0
<RECEIVABLES> 20,750
<ALLOWANCES> 287
<INVENTORY> 10,690
<CURRENT-ASSETS> 33,675
<PP&E> 81,964
<DEPRECIATION> 57,146
<TOTAL-ASSETS> 62,105
<CURRENT-LIABILITIES> 23,105
<BONDS> 14,448
<COMMON> 0
0
0
<OTHER-SE> 15,251
<TOTAL-LIABILITY-AND-EQUITY> 62,105
<SALES> 126,906
<TOTAL-REVENUES> 126,906
<CGS> 103,696
<TOTAL-COSTS> 103,696
<OTHER-EXPENSES> 258
<LOSS-PROVISION> 5
<INTEREST-EXPENSE> 1,442
<INCOME-PRETAX> 8,672
<INCOME-TAX> 202
<INCOME-CONTINUING> 8,470
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,470
<EPS-PRIMARY> 0.89
<EPS-DILUTED> 0.89
</TABLE>
