SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
FORM 10-Q
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to ________________
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.)
1188 Bordeaux Drive, Sunnyvale, California 94089
------------------------------------------------
(Address of principal executive offices) (Zip Code)
(408) 743-5400
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(Registrant's telephone number, including area code)
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
--- ---
At January 8, 1996, there were 9,093,070 outstanding
shares of common stock.
This report consists of 11 pages
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<TABLE>
ELEXSYS INTERNATIONAL, INC.
FORM 10-Q
INDEX
<CAPTION>
PAGE
PART I. Financial Information:
<S> <C>
Item 1.
Consolidated Balance Sheets as of December 30, 1995 and September 30, 1995....... 2
Consolidated Statements of Operations for the Three Months
Ended December 30, 1995 and December 31, 1994.................................... 3
Consolidated Statements of Cash Flows for the Three Months
Ended December 30, 1995 and December 31, 1994.................................... 4
Notes to the Consolidated Financial Statements................................... 5
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................... 7
PART II. Other Information............................................................... 10
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1
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<TABLE>
ELEXSYS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<CAPTION>
December 30, September 30,
1995 1995
---------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,422 $ 903
Accounts receivable, net 12,567 15,653
Inventories 7,611 7,860
Prepaid expenses and other current assets 729 709
---------------- ----------------
Total current assets 23,329 25,125
---------------- ----------------
Property, plant and equipment, net 19,853 18,980
Other assets 980 1,034
---------------- ----------------
Total assets $ 44,162 $ 45,139
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,986 $ 9,854
Accrued payroll and related costs 2,310 2,521
Other current liabilities 1,793 1,965
Short-term borrowings 144 3,248
Current portion of long-term debt 252 363
---------------- ----------------
Total current liabilities 14,485 17,951
---------------- ----------------
Long term debt 1,485 1,280
Convertible subordinated debentures 12,000 12,000
Stockholders' equity:
Common stock, $1.00 par value, 20,000,000 shares
authorized, 9,079,830 and 8,960,560 shares issued and
outstanding at December 30, 1995 and at September 30, 1995 9,080 8,961
Additional paid-in capital 5,640 5,460
Retained earnings (deficit) 1,519 (491)
Cumulative foreign currency translation adjustment (47) (22)
---------------- ----------------
Net stockholders' equity 16,192 13,908
---------------- ----------------
Total liabilities and stockholders' equity $ 44,162 $ 45,139
================ ================
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</FN>
</TABLE>
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<TABLE>
ELEXSYS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended
December 30, December 31,
1995 1994
---------------- ---------------
<S> <C> <C>
Net sales $ 28,911 $ 22,753
Cost of sales 23,533 19,883
---------------- ---------------
Gross profit 5,378 2,870
Operating expenses:
Selling, general and administrative 2,941 2,066
Research and development 43 123
---------------- ---------------
Total operating expenses 2,984 2,189
---------------- ---------------
Income from operations 2,394 681
Other expenses:
Interest expense, net 365 431
---------------- ---------------
Income before income taxes 2,029 250
Provision for income taxes 19 -
---------------- ---------------
Net income $ 2,010 $ 250
================ ===============
Earnings per share (Note 3) $ 0.21 $ 0.03
================ ===============
Weighted average common shares and common equivalent shares
outstanding 9,474 8,335
================ ===============
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</FN>
</TABLE>
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<TABLE>
ELEXSYS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Three months ended
December 30, December 31,
1995 1994
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,010 $ 250
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,070 1,525
(Increase) decrease in accounts receivable 3,086 (955)
Decrease in inventories 248 1,235
Increase in prepaid expenses and other current assets (20) (178)
Increase (decrease) in accounts payable 131 (753)
Decrease in accrued payroll and related taxes (211) (126)
Decrease in restructuring reserve - (151)
Increase (decrease) in other current liabilities (171) 149
Other 64 (24)
---------------- ----------------
Net cash provided by operating activities 6,207 972
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (1,952) (594)
---------------- ----------------
Net cash used by investing activities (1,952) (594)
---------------- ----------------
CASH FLOWS USED BY FINANCING ACTIVITIES
Principal payments on debt (30) (11)
Proceeds from exercise of stock options 300 -
Net change in short-term borrowings (2,981) (629)
---------------- ----------------
Net cash used by financing activities (2,711) (640)
---------------- ----------------
Effects of exchange rate changes on cash (25) -
Net increase (decrease) in cash and cash equivalents 1,519 (262)
Cash and cash equivalents, beginning of period 903 1,562
---------------- ----------------
Cash and cash equivalents, end of period $ 2,422 $ 1,300
================ ================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest payments $ 62 $ 16
================ ================
Income tax payments $ 40 $ 20
================ ================
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</FN>
</TABLE>
4
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ELEXSYS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Elexsys
International, Inc. and its subsidiaries (the "Company") contain all
adjustments, consisting of only normal recurring adjustments, which, in
the opinion of management, are necessary to present fairly the
financial position of the Company as of December 30, 1995 and September
30, 1995, the results of its operations for the three months ended
December 30, 1995 and December 31, 1994 and its cash flows for the
three months ended December 30, 1995 and December 31, 1994. Certain
information and footnote disclosures normally included in the financial
statements have been condensed or omitted pursuant to rules and
regulations of the Securities and Exchange Commission, although the
Company believes that the disclosures in the consolidated financial
statements are adequate to make the information presented not
misleading.
The consolidated financial statements included herein should be read in
conjunction with the consolidated financial statements of the Company
for the year ended September 30, 1995, included in the Company's Annual
Report on Form 10-K for that fiscal year.
NOTE 2 - INVENTORIES
Inventories consist of the following (in thousands):
December 30, September 30,
1995 1995
---------------- ----------------
(Unaudited)
Raw materials $2,945 $2,843
Work in progress 4,666 5,017
---------------- ----------------
Totals $7,611 $7,860
================ ================
NOTE 3 - EARNINGS PER SHARE
Earnings per common share for the three months ended December 30, 1995
and December 31, 1994 has been computed based on weighted average
common shares outstanding and common stock equivalents as of the above
dates and does not include the assumed conversion of the 5 1/2 percent
Convertible Subordinated Debentures due 2012 as such effect would have
been anti-dilutive.
NOTE 4 - INCOME TAXES
As of September 30, 1995, the Company had net operating loss
carryforwards for federal and state income tax purposes of $32,385,000
and $23,706,000, respectively. In the first quarter of 1996, the
Company recorded a provision of $19,000 for income taxes. This related
to a provision for federal alternative minimum taxes of $67,000 offset
by a foreign income tax benefit of $48,000 based on the Company's
United Kingdom subsidiary net operating loss for the first quarter of
1996. The remaining carryforwards, for which future benefit is not
assured, expire in various amounts through 2008.
5
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ELEXSYS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - TRANSLATION OF FOREIGN CURRENCIES
Assets and liabilities of the Company's United Kingdom subsidiary are
translated into US 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 pound sterling to
US 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
three months ended December 30, 1995, there were no material
transaction gains or losses.
NOTE 6 - STOCK PLANS
On January 30, 1996, the Company adopted its 1996 Employee Stock
Purchase Plan (the "Purchase Plan"), authorizing the issuance of
250,000 shares of the Company's Common Stock. Under the Purchase Plan,
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. No shares had
been issued under the Purchase Plan to date.
In July 1995, the Board of Directors adopted the Company's 1995 Stock
Option Plan (the "1995 Plan"), authorizing the issuance of 1,000,000
shares of the Company's Common Stock. At December 11, 1995, options
(net of canceled or expired options) covering an aggregate of 82,000
shares of the Company's Common Stock had been granted under the 1995
Plan, and 918,000 shares (plus any shares that might in the future be
returned to the plan as a result of cancellations or expiration of
options) remain available for future grant under the 1995 Plan. 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.
In January 1996, the Board of Directors adopted the Company's 1996
Non-Employee Director's Stock Option Plan (the "Director's Plan"). The
Director's Plan provides for automatic, non-discretionary grants of
options to purchase an aggregate on 200,000 shares of the Company's
Common Stock. At February 1, 1996, options covering an aggregate of
30,000 shares of the Company's Common Stock had been granted under the
Director's Plan.
NOTE 7 - NASDAQ STOCK LISTING
Effective January 25, 1996, the NASDAQ Stock Market, Inc. approved the
Company's common stock for listing on the NASDAQ National Market.
6
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ELEXSYS INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto contained elsewhere within this Report on
Form 10-Q.
RESULTS OF OPERATIONS
Net sales
Net sales for the three months ended December 30, 1995 increased 27
percent compared to the first quarter of fiscal year 1995. The increase
in net sales resulted from an increased demand from the Company's
recurring customer base, new customers and the April 1995 acquisition
in the United Kingdom.
Cost of sales
Cost of sales as a percentage of net sales improved from 87 percent in
the first quarter of fiscal year 1995 to 81 percent for the first
quarter of fiscal year 1996. The improvement in cost of sales for the
three months ended December 30, 1995 was attributable to a favorable
change in product mix, cost reductions, increased in-house capabilities
and operating efficiencies from the printed circuit board operations.
The improvement in cost of sales at the printed circuit board
operations was partially offset by increased material costs per unit
shipped at the Company's backpanel product line due to changes in
product mix.
Selling, General and Administrative
Selling, general and administrative (SG&A) expense for the three months
ended December 30, 1995 increased 42 percent compared to the first
quarter of fiscal 1995. As a percentage of net sales, SG&A increased
from 9.1 percent for the first quarter of fiscal year 1995 to 10.2
percent for the first quarter of fiscal 1996. The increase in SG&A was
due to the inclusion of the SG&A expense of the Company's new United
Kingdom subsidiary, and an increase in employee costs resulting
primarily from the replacement of manufacturing representatives with
direct inside sales employees.
Research and development
Research and development expenditures decreased 65 percent during the
three months ended December 30, 1995 compared to the first quarter of
fiscal 1995. The decrease was due to reduced engineering labor and
benefit costs as a consequence of past restructurings by the Company.
Interest expense, net
Interest expense, net of interest income, decreased 15 percent for the
three months ended December 30, 1995, as compared to the first quarter
of 1995. The decrease is attributable to a reduction in the number of
outstanding convertible subordinated debentures and a decrease in
borrowings from an asset-based lender. On March 31, 1995, Mr. Milan
Mandaric, Chairman and Chief Executive Officer of the Company,
exchanged $4,000,000 of convertible subordinated debentures for 400,000
shares of common stock of the Company. This decrease in interest
expense was partially offset by an increase in interest expense
incurred by the Company's subsidiary in the United Kingdom.
7
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ELEXSYS INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company recorded cash flows from operating activities of $6.2
million during the first quarter of fiscal 1996 compared to $972,000
during the same period of the previous year. Higher positive cash flow
provided by operating activities during the first quarter of fiscal
1996 was generated primarily due to improved profitability and strong
cash collections. Strong cash collections activities, together with a
higher than normal beginning balance in accounts receivable
(attributable to a the timing of shipments during the last quarter of
fiscal 1995) caused the accounts receivable balance to decrease by
$3,086,000 during the first quarter of fiscal 1996.
The cash provided by operating activities was offset by investing
activities of $1,952,000 (used for the purchase of capital equipment)
and by financing activities of $2,711,000 (primarily used for the
repayment of short term borrowings, reported net of amounts received
from the exercise of stock options by certain employees). Capital
equipment was purchased for normal replacement, for processes that the
Company had previously outsourced, and for the enhancement of
manufacturing capabilities.
As of December 30, 1995, the Company had brought its gross short-term
borrowing down to $144,000 under a $10 million line of credit agreement
that was established December 17, 1993 with an asset-based lender.
Under the terms of the agreement, the Company's cash collections are
applied to any outstanding borrowings upon the receipts clearing the
bank. At December 30, 1995, the asset-based lender was in possession of
$350,000 of the Company's cash collections; accordingly, such funds are
owed to the Company upon clearing the bank. On January 30, 1996, the
Company line of credit agreement was amended to increase the line of
credit to $15 million from $10 million, and to decrease the annual
interest rate to prime plus 1 percent from prime plus 3 percent. The
line of credit is collateralized by substantially all of the Company's
assets and its will remain in effect until December 17, 1997. The
Company was in compliance with all of the covenants as defined within
the agreement.
At December 30, 1995, the Company had cash and cash equivalents of
$2,422,000, an increase of $1,519,000 from September 30, 1995, and
working capital of $8,844,000, an increase of $1,670,000 from September
30, 1995.
During the first quarter, the Company's ratio of current assets to
current liabilities increased from 1.4 to 1 to 1.6 to 1. Management
believes that the Company's existing working capital, its remaining
borrowing capacity and funds generated from operations will be
sufficient to meet projected working capital requirements and other
cash requirements through fiscal 1996.
At December 30, 1995 the Company had outstanding commitments to
purchase or lease approximately $1.6 million of electrical test
equipment to support expanded capacity.
8
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ELEXSYS INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Environmental
The Company's manufacturing processes utilize substantial quantities of
chemicals as well as substantial quantities of water. The Company is
subject to and believes it is in compliance with federal, state and
local environmental laws and regulations regarding air, water and land
use, the generation, use, storage and disposal of hazardous materials
and wastes and the operation and closure of manufacturing facilities at
which hazardous materials are used or hazardous wastes are generated.
The Company is aware of contamination of soil and ground water
(principally by metals and solvents) at two of its former facilities in
Northern California. At one of these facilities, soil has been
remediated, but the likely future cost of ground water cleanup at that
facility is not yet reasonably estimable. Investigative costs of
$30,000 have been incurred. At the other former facility in Northern
California, the Company incurred costs of approximately $137,000 for
cleanup of soil contamination and the property was returned to its
owner during the second quarter of fiscal 1995. In addition, the
facility is adjacent to an existing State of California administered
Superfund site and may become part of a related State of California
administered regional ground water investigation; the likely future
cost to the Company in connection with possible ground water cleanup is
not yet reasonably estimable. At another former facility in Southern
California, the Company conducted limited ground water sampling in
connection with a potential sale of the property, and low
concentrations of solvents were detected. Notification was made to the
proper agencies. At this time, it is not possible to determine whether
any response actions will need to be taken; and accordingly, the likely
future cost to the Company is not yet reasonably estimable.
The Company is further aware of soil and ground water contamination
(principally by metals and solvents) at two currently used facilities,
one in Northern California and one in Southern California. At its
Northern California facility, the Company is indemnified by the former
property owner who has acknowledged his obligation. At its Southern
California facility, the Company's preliminary estimate of remedial
costs, expected to be incurred over five to seven years, ranges from
approximately $880,000 to $1,480,000 (including between approximately
$300,000 and $400,000 estimated capital expenditures for waste
treatment equipment acquisition and installation costs). At its
Northern California facility, the Company has also received notice that
regulatory authorities plan to reduce the discharge limits for
industrial waste water discharge containing heavy metals. New limits
are expected to become effective in October 1996. Based on proposed
limits, the cost to the Company of additional equipment and process
modifications needed to comply with the reduced limits is preliminarily
estimated by the Company to be between $50,000 and $100,000. As of
December 30, 1995, the Company believes it has appropriately recorded
all known costs related to environmental matters, including the minimum
amounts where the estimated costs are within a range. Such known costs
are primarily accrued in other current liabilities. However, actual
future environmental related expenditures are subject to numerous
uncertainties, including the discovery of additional environmental
concerns, further development of cost estimates, new and changing
environmental laws and requirements, or new interpretations of existing
laws and requirements. Accordingly, there can be no assurance that
future environmental related expenditures will not exceed the Company's
current estimates or that they will not have a materially adverse
effect on the Company.
RECENT EVENT
On January 30, 1996, the Board of Directors of the Company named W.
Barry Hegarty, the Company's Chief Operating Officer, the President of
the Company. Milan Mandaric continues to be the Chairman of the Board
and Chief Executive Officer of the Company.
9
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PART II. OTHER INFORMATION
Item 6 a. EXHIBITS
10.1 Amendment to Loan and Security Agreement dated January 30, 1996 between
Elexsys International and Foothill Capital Corporation.
b. CURRENT REPORTS ON FORM 8-K
None
10
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ELEXSYS INTERNATIONAL, INC.
----------------------------
(Registrant)
Date: February 13, 1996 By: /s/ Michael S. Shimada
------------------ ----------------------
Michael S. Shimada
Chief Financial Officer
(Principal Financial Officer
and Duly Authorized Officer)
11
Exhibit 10.1
AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Amendment to Loan and Security Agreement is entered into
this 30th day of January, 1996 between Elexsys International, Inc. ("Borrower")
and Foothill Capital Corporation ("Foothill") with respect to the following:
A. Borrower and Foothill have previously entered into that
certain Loan and Security Agreement dated December 17, 1993 ("Agreement"), as
amended from time to time. Capitalized terms are used in this Amendment as
defined in the Agreement, unless otherwise noted.
B. Borrower has requested certain revisions to its Agreement
with Foothill as more fully set forth below. Foothill is willing to amend the
Agreement on the terms and subject to the conditions set forth in this
Amendment. Borrower is entering into this Amendment with the understanding that,
except as specifically provided herein, none of Foothill's rights or remedies as
set forth in the Agreement is being waived or modified by this Amendment.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the
terms and conditions hereof, the parties hereto agree as follows:
1. The definitions set forth in Section 1.1 of the Agreement
are hereby amended and supplemented as set forth herein in their respective
alphabetical order:
"Advances" - "Equipment Purchase Advances" is
deleted therefrom.
"Average Unused Portion of Maximum Revolving Loan Amount" is
amended to add the following:
"less (c) L/C's and L/C Guaranties"
"Eligible Accounts" (i) is hereby amended by deleting
"twenty-five percent (25%)" (with respect to Northern Telecom) and substituting
"thirty percent (30%) in lieu thereof.
"Eligible Accounts" is further amended by adding the following
in the seventh line thereof following the words "Symtron Eligible Accounts;" the
following:
2
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Accounts on which Tellabs is the Account Debtor, to the extent
its total obligations to Borrower and Symtron exceed twenty-five percent (25%)
of the aggregate amount of all Eligible Accounts and Symtron Eligible Accounts;"
"Equipment Purchase Advance" is deleted.
"Equipment Purchase Line Amount" is deleted.
"Equipment Purchase Note" is deleted.
"L/C" has the meaning set forth in Section 2.1 (d).
"L/C Guaranty" has the meaning set forth in Section 2.1 (d).
"Maximum Revolving Loan Amount" is amended by deleting "Seven
Million Five Hundred Thousand Dollars ($7,500,000)" therefrom and substituting
"Fifteen Million Dollars ($15,000,000)" in lieu thereof.
3
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"Obligations" is amended to add the following after "lease
payments" in the fifth line thereof:
"L/C's and L/C Guaranties"
"Periodic Payments" - "Equipment Purchase Notes" is deleted
therefrom.
"Symtron Equipment Purchase Advances" is deleted.
The definition of "Obligations" is hereby amended to add the
following after "lease payments" in the fifth line thereof:
"L/C's and L/C Guaranties"
2. Section 2.1 of the Agreement is hereby deleted and the
following substituted in lieu thereof:
"2.1 Revolving Advances. (a) Subject to the terms and
conditions of this Agreement, Foothill agrees to make revolving
advances to Borrower in an amount at any one time outstanding not to
exceed the Borrowing Base less the undrawn or unreimbursed amount of
L/Cs and L/C Guarantees
4
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outstanding hereunder. For purposes of this Agreement, "Borrowing Base,
as of any date of determination, shall mean the sum of (i) an amount
equal to the lesser of: (y) eighty percent (80%) of the amount of
Eligible Accounts, and (z) an amount equal to one-half of Borrower's
cash collections with respect to accounts for the immediately preceding
ninety (90) day period; (ii) the amount of credit availability created
by Section 2.1(a)(i) above, and (z) Fifteen Million Dollars
($15,000,000).
(b) Anything to the contrary in Section 2.1(a) above
notwithstanding, Foothill may reduce its advance rates based upon
Eligible Accounts without declaring an Event of Default if it
determines, in its reasonable discretion, that there is a material
impairment of the prospect of repayment of all or any portion of the
Obligations or a material impairment of the value or priority of
Foothill's security interests in the Collateral.
(c) Foothill shall have no obligation to make advances
hereunder to the extent they would cause the outstanding
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Obligations to exceed the lesser of: (i) Fifteen Million Dollars
($15,000,000) ("Maximum Amount").
(d) Subject to the terms and conditions of this Agreement,
Foothill agrees to issue commercial or standby letters of credit for
the account of Borrower (each, an "L/C") or to issue standby letters of
credit or guarantees of payment (each such letter of credit or
guaranty, an "L/C Guaranty) with respect to commercial or standby
letters of credit issued by another Person for the account of Borrower
in an aggregate face amount not to exceed the lesser of: (i) the
Borrowing Base less the amount of advances outstanding pursuant to this
Section 2.1 and (ii) One Million Dollars ($1,000,000). Borrower
expressly understands and agrees that Foothill shall have no obligation
to arrange for the issuance by other financial institutions of letters
of credit that are to be the subject of L/C Guarantees. Each L/C and
each letter of credit that is the subject of an L/C Guaranty shall have
an expiry date no later than sixty (60) days prior to the date on which
this Agreement is scheduled to terminate under Section 3.2 (without
regard to any potential renewal term) and all such
6
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L/Cs and letters of credit (and the applicable L/C Guarantees) shall be
in form and substance acceptable to Foothill in its sole discretion.
Foothill shall not have any obligation to issue L/Cs or L/C Guarantees
to the extent that the face amount of all outstanding L/Cs and L/C
Guarantees, plus the amount of advances outstanding pursuant to this
Section 2.1, would exceed the Maximum Amount. The L/Cs and the L/C
Guarantees issued under this Section 2.1(d) shall be used by Borrower,
consistent with this Agreement, for its general working capital
purposes or to support its obligations with respect to workers'
compensation premiums or other similar obligations. If Foothill is
obligated to advance funds under an L/C or L/C Guaranty, the amount so
advanced immediately shall be deemed to be an advance made by Foothill
to Borrower pursuant to this Section 2.1 and, thereafter, shall bear
interest at the rates then applicable under Section 2.5.
(e) Borrower hereby agrees to indemnify, save, defend, and
hold Foothill harmless from any loss, cost, expense, or liability,
including payments made by Foothill, expenses, and reasonable attorneys
fees incurred by Foothill arising
7
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out of or in connection with any L/Cs or L/C Guarantees. Borrower
agrees to be bound by the issuing bank's regulations and
interpretations of any letters of credit guarantied by Foothill and
opened to or for Borrower's account or by Foothill's interpretations of
any L/C issued by Foothill to or for Borrower's account, even though
this interpretation may be different from Borrower's own, and Borrower
understands and agrees that Foothill shall not be liable for any error,
negligence, or mistakes, whether of omission or commission, in
following Borrower's instructions or those contained in the L/Cs or any
modifications, amendment, or supplements thereto. Borrower understands
that the L/C Guarantees may require Foothill to indemnify the issuing
bank for certain costs or liabilities arising out of claims by Borrower
against such issuing bank. Borrower hereby agrees to indemnify, save,
defend, and hold Foothill harmless with respect to any loss, cost,
expense (including attorneys' fees), or liability incurred by Foothill
under any L/C Guaranty as a result of Foothill's indemnification of any
such issuing bank.
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(f) Borrower hereby authorizes and directs any bank that
issues a letter of credit guaranteed by Foothill to deliver to Foothill
all instruments, documents, and other writings and property received by
the issuing bank pursuant to such letter of credit, and to accept and
rely upon Foothill's instructions and agreements with respect to all
matters arising in connection with such letter of credit and the
related application. Borrower may or may not be the "applicant" or
"account party" with respect to such letter of credit.
(g) Any and all service charges, commissions, fees, and costs
incurred by Foothill relating to the letters of credit guaranteed by
Foothill shall be considered Foothill Expenses for purposes of this
Agreement and immediately shall be reimbursable by Borrower to
Foothill. On the first day of each month, Borrower will pay Foothill a
fee equal to one percent (1%) per annum times the average Daily Balance
of the L/Cs and L/C Guarantees that were outstanding during the
immediately preceding month. Service charges, commissions, fees, and
costs may be charged to Borrower's
9
<PAGE>
loan account at the time the service is rendered or the cost is
incurred.
(h) Immediately upon the termination of this Agreement,
Borrower agrees to either: (i) provide cash collateral to be held by
Foothill in an amount equal to the maximum amount of Foothill's
obligations under L/Cs plus the maximum amount of Foothill's
obligations to any Person under outstanding L/C Guarantees, or (ii)
cause to be delivered to Foothill releases of all of Foothill's
obligations under its outstanding L/Cs and L/C Guarantees. At
Foothill's discretion, any proceeds of Collateral received by Foothill
after the occurrence and during the continuation of an Event of Default
may be held as the cash collateral required by this Section 2.1(h).
3. Section 2.2 (a) - "Equipment Purchase Advances" is hereby
deleted.
4. Section 2.2 (b) - "Equipment Purchase Notes" is hereby
deleted.
10
<PAGE>
5. Section 2.5 (a) - "Interest Rate" is amended by deleting
"three (3.00) percentage points" and substituting "one (1.00) percentage point"
in lieu thereof.
6. Section 2.5(b) is hereby deleted and the following
substituted in lieu thereof:
"(b) Default Rate. (i) All Obligations, except for undrawn
L/Cs and L/C Guarantees shall bear interest, from and after the
occurrence and during the continuation of an Event of Default, at a per
annum rate equal to four (4) percentage points above the Reference
Rate. (ii) From and after the occurrence and during the continuation of
an Event of Default, the fee provided in Section 2.1(g) shall be
increased to a fee equal to four percent (4%) per annum times the
average Daily Balance of the undrawn L/Cs and L/C Guarantees that were
outstanding during the immediately preceding month."
7. Section 2.6 is hereby amended by deleting "four (4)
Business Days" and substituting "two (2) Business Days in lieu thereof.
11
<PAGE>
8. Section 2.8 (b) - "Unused Line Fee" is hereby deleted.
9. Section 2.8 (c) - "Annual Facility Fee" is hereby deleted
and the following substituted in lieu thereof:
"As of December 17, 1995, an Annual Facility Fee of
Twenty Five Thousand Dollars ($25,000) has been charged and fully earned.
Thereafter, an Annual Facility Fee in the amount of Fifty Six Thousand Two
Hundred fifty Dollars ($56,250) shall be paid and fully earned on each
subsequent anniversary date.
10. Section 2.8 (e) - "Servicing Fee" is hereby deleted.
11. Section 3.1 is hereby amended to add a new Section 3.1(a)
to read as follows:
"3.1(a) Conditions Precedent to All L/Cs, or L/C Guarantees.
The following shall be conditions precedent to all L/Cs, or L/C
Guarantees hereunder.
12
<PAGE>
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in all
respects on and as of the date of such L/C, or L/C Guaranty, as though
made on and as of such date (except to the extent that such
representations and warranties relate solely to an earlier date);
(b) no Event of Default or event which with the giving of
notice or passage of time would constitute an Event of Default shall
have occurred and be continuing on the date of such L/C, or L/C
Guaranty, nor shall either result from the issuance thereof; and
(c) no injunction, writ, restraining order, or other order of
any nature prohibiting, directly or indirectly, the issuance of such
L/C or L/C Guaranty shall have been issued and remain in force by any
governmental authority against Borrower, Foothill, or any of their
Affiliates."
Section 3.2 -"Term; Automatic Renewal" is hereby amended by
deleting "...three (3) years from the Closing Date and
13
<PAGE>
shall be automatically renewed for successive two (2) year periods
thereafter..." and substituting "...four (4) years from the Closing Date and
shall be automatically renewed for successive one (1) year periods
thereafter..."
12. Section 3.3 is hereby deleted and the following
substituted in lieu thereof:
"3.3 Effect of Termination. On the date of termination, all
Obligations (including contingent reimbursement obligations under any
outstanding L/Cs or L/C Guarantees) immediately shall become due and
payable without notice or demand. No termination of this Agreement,
however, shall relieve or discharge Borrower of Borrower's duties,
Obligations, or covenants hereunder, and Foothill's continuing security
interests in the Collateral shall remain in effect until all
Obligations have been fully and finally discharged and Foothill's
obligations to provide advances hereunder is terminated. If Borrower
has sent a notice of termination pursuant to the provisions of Section
3.4, but fails to pay all Obligations on the date set forth in said
notice, then Foothill may, but shall not be required to,
14
<PAGE>
renew this Agreement for an additional term of one (1) year."
13. Section 3.4 is hereby deleted and the following
substituted in lieu thereof:
"3.4 Early Termination by Borrower. The provisions of Section
3.3 that allow termination of this Agreement by Borrower only on the
Renewal Date and certain anniversaries thereof notwithstanding,
Borrower has the option, at any time upon sixty (60) days prior written
notice to Foothill, to terminate this Agreement by paying to Foothill,
in cash, the Obligations (including an amount equal to the full amount
of the L/Cs or L/C Guarantees), together with a premium (the "Early
Termination Premium") of Two Hundred Thousand Dollars ($200,000)."
14. Section 7.11 - "Capital Expenditures" is amended by
deleting therefrom the words "Including, without duplication, expenditures
financed with the proceeds of Equipment Line Advances..." and adding "(M)ake".
15
<PAGE>
15. In consideration of all of the foregoing, including but
not limited to, the increase in Maximum Amount, Borrower shall pay the sum of
$50,000 to Foothill concurrently with the execution of this Amendment.
16. Except as amended by the terms hereof, the Agreement
remains in full force and effect. If there is any conflict between the terms and
provisions of the Agreement and this Amendment, the terms and provisions of this
Amendment shall govern.
17. This Amendment may be executed in counter-parts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
16
<PAGE>
18. This Amendment shall be governed by and construed in
accordance with the laws of the State of California.
ELEXSYS INTERNATIONAL, INC.
By: /s/ Michael S. Shimada
-----------------------------
Its CFO
-----------------------
FOOTHILL CAPITAL CORPORATION
By: /s/ Kevin Coyle
-----------------------------
Its Vice President
-----------------------
All of the foregoing is hereby
consented to by Guarantor
30th day of January, 1996.
SYMTRON ELECTRONICS, INC
By: /s/ Michael S. Shimada
- -----------------------------
Its CFO
-----------------------
17
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000727010
<NAME> Elexsys International Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-END> DEC-30-1995
<CASH> 2,422
<SECURITIES> 0
<RECEIVABLES> 13,020
<ALLOWANCES> 453
<INVENTORY> 7,611
<CURRENT-ASSETS> 23,329
<PP&E> 73,052
<DEPRECIATION> 53,199
<TOTAL-ASSETS> 44,162
<CURRENT-LIABILITIES> 14,485
<BONDS> 13,485
<COMMON> 9,080
0
0
<OTHER-SE> 7,112
<TOTAL-LIABILITY-AND-EQUITY> 44,162
<SALES> 28,911
<TOTAL-REVENUES> 28,911
<CGS> 23,533
<TOTAL-COSTS> 23,533
<OTHER-EXPENSES> 43
<LOSS-PROVISION> (5)
<INTEREST-EXPENSE> 367
<INCOME-PRETAX> 2,029
<INCOME-TAX> 19
<INCOME-CONTINUING> 2,010
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,010
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
