<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 13, 1997
FILE NO. 333-38433
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
EFTC CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<C> <C>
COLORADO 84-0854616
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
STUART W. FUHLENDORF
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
9351 GRANT STREET EFTC CORPORATION
DENVER, COLORADO 80229 9351 GRANT STREET
(303) 451-8200 DENVER, COLORADO 80229
(Address, including zip code, and telephone number, (303) 451-8200
including area code, of registrant's principal (Address, including zip code, and telephone number,
executive offices) including area code, of agent for service)
</TABLE>
Copies to:
<TABLE>
<C> <C>
FRANCIS R. WHEELER, ESQ. ALLAN G. SPERLING, ESQ.
HOLME ROBERTS & OWEN LLP CLEARY, GOTTLIEB, STEEN & HAMILTON
1700 LINCOLN, STE. 4100 ONE LIBERTY PLAZA
DENVER, COLORADO 80203 NEW YORK, NEW YORK 10006
(303) 861-7000 (212) 225-2000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BY ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
NOVEMBER 13, 1997
PROSPECTUS
3,000,000 SHARES
EFTC CORPORATION EFTC CORPORATION LOGO
COMMON STOCK
($0.01 PAR VALUE)
All of the 3,000,000 shares of Common Stock, $0.01 par value per share (the
"Common Stock"), of EFTC Corporation (the "Company" or "EFTC") offered hereby
are being offered by the Company.
The Common Stock is quoted on the Nasdaq National Market under the symbol
"EFTC." The last reported sale price of the Common Stock on November 12, 1997,
as reported by the Nasdaq National Market, was $13.25 per share. See "Price
Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO
PUBLIC DISCOUNT COMPANY(1) SELLING SHAREHOLDERS
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $--
Total(2)...................... $ $ $ $--
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Before deducting offering expenses estimated to be $ , all of which
will be payable by the Company.
(2) Certain shareholders of the Company (the "Selling Shareholders") have
granted the Underwriters a 30-day option to purchase up to 450,000
additional shares of Common Stock at the Price to Public, less the
Underwriting Discount, solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discount, Proceeds to Company and Proceeds to Selling Shareholders will be
$ , $ , $ and $ , respectively. See "Underwriting." The
Company will not receive any of the proceeds from the sale of shares by the
Selling Shareholders. See "Selling Shareholders."
The shares of Common Stock are offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel, or modify the offer without notice.
It is expected that delivery of the shares will be made at the office of Salomon
Brothers Inc, Seven World Trade Center, New York, New York, or through the
facilities of The Depository Trust Company, on or about , 1997.
SALOMON BROTHERS INC
J.C. BRADFORD & CO.
PACIFIC CREST SECURITIES INC.
The date of this Prospectus is , 1997.
<PAGE> 3
At the Company's annual meeting held on May 28, 1997, the shareholders voted to
change the name of the Company from "Electronic Fab Technology Corp." to "EFTC
Corporation." The principal executive offices of the Company are located at 9351
Grant Street, Sixth Floor, Denver, Colorado 80229.
------------------------
THIS PROSPECTUS CONTAINS FORWARD LOOKING STATEMENTS, AS DEFINED IN THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 (THE "PSLRA"), THAT INVOLVE KNOWN AND
UNKNOWN RISKS, INCLUDING, WITHOUT LIMITATION, STATEMENTS CONTAINING THE WORDS
"BELIEVES," "ANTICIPATES," "ESTIMATES," "EXPECTS," "MAY" AND WORDS OF SIMILAR
IMPORT OR STATEMENTS OF MANAGEMENT'S OPINION. IN ADDITION, THIS PROSPECTUS
CONTAINS, ON PAGES 3, 27 AND 28, FORECASTS OF FUTURE GROWTH IN MARKETS SERVED BY
THE COMPANY. THESE FORECASTS WERE PREPARED BY ENTITIES THAT ARE NOT AFFILIATED
WITH THE COMPANY OR THE UNDERWRITERS AND ARE BASED ON ASSUMPTIONS FORMULATED BY
SUCH ENTITIES WITHOUT CONSULTATION WITH THE COMPANY OR THE UNDERWRITERS. SEE
"CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND FORECASTS" FOR A
DISCUSSION OF CERTAIN RISKS AND THEIR POTENTIAL IMPACT ON THE FORWARD LOOKING
STATEMENTS AND FORECASTS CONTAINED HEREIN.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MADE HEREBY MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK, INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET
PRICE, PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN
THE COMMON STOCK MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN OF THE UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and Consolidated Financial
Statements (including the notes thereto) appearing elsewhere in this Prospectus.
The term "Company" refers to EFTC Corporation and its wholly-owned
subsidiaries--Current Electronics, Inc. ("CEI"), Circuit Test, Inc. ("CTI"),
Airhub Service Group L.C. ("Airhub") and CTI International, L.C. ("CTI LLC") and
CTLLC Acquisition Corp. ("Acquisition Corp." ). CEI's affiliate, Current
Electronics (Washington) Inc. ("CEWI"), has recently been merged into CEI. CEI
and, with respect to any period prior to its merger into CEI, CEWI are
hereinafter referred to as the "CE Companies." CTI, Airhub, CTI LLC and
Acquisition Corp. are hereinafter referred to as the "CTI Companies." Unless
otherwise indicated, the information in this Prospectus assumes that the
Underwriters' over-allotment option will not be exercised. Investors should
carefully consider the information set forth in "Risk Factors," beginning at
page 8.
THE COMPANY
GENERAL
The Company is a leading independent provider of "high-mix" electronic
manufacturing services and repair and warranty services to original equipment
manufacturers ("OEMs"). The Company's manufacturing services focus on a market
niche of "high-mix" electronic products--products that are characterized by
small lot sizes with differences in configuration from each lot size to the
next--with an emphasis on high-speed production. Following its recent
acquisition of the CTI Companies, the Company now also provides "hub-based"
repair and warranty services that are marketed as part of the logistics service
offerings of the two largest transportation companies that specialize in
overnight delivery services in the United States. These "hub-based" services are
provided principally through facilities located inside such transportation
companies' national sorting, warehouse and logistics hub facilities (the
"Overnight Delivery Hubs") in Memphis, Tennessee and Louisville, Kentucky. The
Company's ten largest customers on a pro forma revenue basis for the first nine
months of 1997, taking into account the Company's recently completed
acquisitions, would have been: Exabyte Corporation, AlliedSignal Inc., Apple
Computer, Inc., Hewlett-Packard Company, Ohmeda Inc., ADC Telecommunications,
International Business Machines Corporation, Gateway 2000, Inc., Sony Corp of
America, Inc. and ESI Automation Inc.
INDUSTRY OVERVIEW
Outsourcing of electronic manufacturing services continues to grow as OEMs
increasingly focus on their core competencies of designing and marketing their
products. According to Technology Forecasters, an independent market research
firm, the worldwide market for electronic manufacturing services is expected to
grow from $60 billion in 1996 to $140 billion in 2000, representing a compound
annual growth rate of 24%. The Company believes that the growth of outsourcing
combined with the increasing number of types of electronic products that have
emerged over the last decade is fundamentally changing the nature of the
electronic manufacturing industry. In particular, the Company believes that OEMs
are offering, and in the future will increasingly offer, electronic products
that are customized to the diverse specifications of end users and therefore
OEMs will require more services from electronic manufacturing service providers.
The Company believes that such additional services will include high-mix
manufacturing capability, "box-build" and "build-to-order" ("BTO") capabilities,
inventory and logistics management, and integrated repair and warranty services.
STRATEGY
The Company's objective is to be a leading provider of electronic
manufacturing services exclusively focused on the needs of high-mix OEM
customers in its targeted markets. The Company believes its customers are
increasingly focused on improved inventory management, reduced time to market,
BTO
3
<PAGE> 5
production, access to leading-edge manufacturing technology and reduced capital
investment. The Company's strategy is to provide a unique set of capabilities
derived from its two key core competencies:
"High-mix" manufacturing competence. The Company's high-mix
manufacturing competence is based on the Company's capabilities in
small-lot processing at high production speeds, and allows the Company
to produce high-mix products with high levels of responsiveness and
flexibility to changes in customers' needs. The nature of high-mix
products historically makes them difficult to manufacture at high
production speeds or with a high level of responsiveness.
"Hub-based" repair and warranty services. The Company provides its
customers with enhanced services through the integration of the
Company's repair and warranty services with the facilities of the
overnight delivery service providers located at the Overnight Delivery
Hubs. This integration enables the Company to simplify inventory and
logistics management for its customers and to provide high-speed
fulfillment of repair and warranty service orders. The two overnight
delivery service providers market the Company's repair and warranty
services as part of their own logistics services offerings. The
Company is developing plans to use the high-speed order fulfillment
advantages of the hub-based facilities to provide a platform from
which the Company can provide BTO services.
ACQUISITIONS
Through the Acquisitions (as defined below) completed in 1997, the Company
has expanded its operations from one manufacturing facility in Colorado at the
beginning of 1997 to seven facilities throughout the United States at September
30, 1997. The Acquisitions, described below, have strategically expanded the
Company's breadth of high-mix service offerings to include concurrent
engineering, subassembly manufacturing, next-day delivery of assemblies and
warranty and post-warranty repair services.
<TABLE>
<CAPTION>
DATE OF COMPANY / ASSETS
ACQUISITION ACQUIRED DESCRIPTION
- ----------- ---------------- -----------
<S> <C> <C>
September 1997......... CTI Companies The Company acquired three repair and warranty
(the "CTI Merger") services sites, including two located at the
Overnight Delivery Hubs.
August and
September 1997....... AlliedSignal Assets (the The Company subleased a production facility,
"AlliedSignal Asset acquired related equipment and inventory and hired
Purchase") personnel located in Ft. Lauderdale, Florida. The
Company has agreed to acquire, subject to certain
contingencies, the inventory and equipment, and
has hired personnel located in Tucson, Arizona.
February 1997.......... CE Companies The Company acquired two manufacturing facilities
(the "CE Merger") located in Newberg, Oregon and Moses Lake,
Washington.
</TABLE>
For further descriptions of the CTI Merger, the AlliedSignal Asset Purchase
and the CE Merger (collectively, the "Acquisitions"), see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- The
Company -- Recent Developments."
The Company operates manufacturing facilities in four plants located in
Colorado, Oregon, Washington and Florida and has one new and one replacement
plant under construction. For further descriptions of the Company's properties,
see "Business and Properties -- Description of Property." The Company's repair
and warranty services are carried out in three locations: Memphis, Tennessee,
Louisville, Kentucky and Tampa, Florida. At September 30, 1997, the Company had
1,779 employees.
4
<PAGE> 6
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following tables present for the Company (i) summary consolidated
historical financial data as of and for each of the three years ended December
31, 1996, as of and for the nine months ended September 30, 1997 and for the
nine months ended September 30, 1996; (ii) unaudited pro forma financial data
for the year ended December 31, 1996 and the nine months ended September 30,
1997 reflecting the consummation of the CTI Merger and the CE Merger, as
described elsewhere herein; and (iii) unaudited pro forma adjusted financial
data for the year ended December 31, 1996 and the nine months ended September
30, 1997 and unaudited adjusted financial data as of September 30, 1997 adjusted
for the issuance of Common Stock being offered hereby and the related use of
proceeds from such offering. The summary consolidated historical financial data
set forth below as of September 30, 1997, and December 31, 1996 and 1995 and for
the three years ended December 31, 1996 and the nine months ended September 30,
1997 have been derived from the Company's financial statements audited by KPMG
Peat Marwick LLP included elsewhere in this Prospectus. The summary consolidated
historical financial data as of December 31, 1994 is derived from financial
statements not included or incorporated by reference herein. The summary
historical financial data set forth below for the nine months ended September
30, 1996 have been derived from unaudited financial statements of the Company
that have been prepared on the same basis as the audited financial statements
and, in the opinion of the Company, reflect all adjustments necessary
(consisting only of normal recurring adjustments) for the fair presentation of
the Company's results of operations for the period. All of the financial data
set forth below is qualified in its entirety by and should be read in
conjunction with such financial statements and the notes thereto and the
Company's "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus. The results of
operations of the Company for the interim period ended September 30, 1997 are
not necessarily indicative of the results to be expected for the entire year.
5
<PAGE> 7
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------------------------------- ----------------------------------------------------
PRO FORMA PRO PRO FORMA PRO
AS ADJUSTED FORMA AS ADJUSTED FORMA
1997(3) 1997(2) 1997 1996 1996(3) 1996(2) 1996(1) 1995 1994
----------- -------- ------- ------- ----------- -------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............ $98,020 $98,020 $64,973 $44,576 $115,910 $115,910 $56,880 $49,220 $52,542
Cost of sales........ 81,766 81,766 56,740 42,676 100,590 100,590 53,980 45,325 47,123
------- ------- ------- ------- -------- -------- ------- ------- -------
Gross profit....... 16,254 16,254 8,233 1,900 15,320 15,320 2,900 3,895 5,419
Selling, general and
administrative
expense............ 14,110 14,110 5,126 3,403 13,240 13,240 4,196 3,094 2,396
Amortization of
goodwill........... 1,012 1,012 157 -- 1,349 1,349 -- -- --
Impairment of fixed
assets............. -- -- -- 726 726 726 726 -- --
------- ------- ------- ------- -------- -------- ------- ------- -------
Operating income
(loss)........... 1,132 1,132 2,950 (2,229) 5 5 (2,022) 801 3,023
------- ------- ------- ------- -------- -------- ------- ------- -------
Other income
(expense):
Interest expense... (848) (2,873) (1,054) (384) (575) (3,275) (526) (399) (175)
Other income,
net.............. 1,197(4) 1,197(4) 1,206(4) 17 83 83 83 79 110
------- ------- ------- ------- -------- -------- ------- ------- -------
349 (1,676) 152 (367) (492) (3,192) (443) (320) (65)
------- ------- ------- ------- -------- -------- ------- ------- -------
Income (loss)
before income
taxes............ 1,481 (544) 3,102 (2,596) (487) (3,187) (2,465) 481 2,958
Income tax expense
(benefit).......... 563 (207) 1,133 (920) (52) (1,078) (872) 127 1,041
------- ------- ------- ------- -------- -------- ------- ------- -------
Net income (loss).. $ 918 $ (337) $ 1,969 $(1,676) $ (435) $ (2,109) $(1,593) $ 354 $ 1,917
======= ======= ======= ======= ======== ======== ======= ======= =======
Income (loss) per
common share, fully
diluted............ $ .08 $ (.04) $ .32 $ (.42) $ (.04) $ (.27) $ (.40) $ .09 $ .53
======= ======= ======= ======= ======== ======== ======= ======= =======
Weighted average
common and common
equivalent shares
outstanding........ 11,078 8,078 6,219 3,968 10,781 7,781 3,942 3,962 3,627
======= ======= ======= ======= ======== ======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------- DECEMBER 31,
AS -------------------------
ADJUSTED(7) ACTUAL(6) 1996 1995 1994(5)
----------- --------- ------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 13,451 $ 411 $8,508 $9,868 $6,744
Goodwill.................................................... 46,360 40,360 -- -- --
Total assets................................................ 123,646 117,646 22,870 24,984 23,479
Total debt.................................................. 26,699 57,514 4,860 3,230 3,400
Stockholder's equity........................................ 67,001 30,186 13,922 15,509 14,989
</TABLE>
- ---------------
(1) As part of a corporate restructuring, the Company expensed $2.1 million for
restructuring costs in the third quarter of 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(2) Pro forma for the acquisitions of the CE Companies and the CTI Companies as
if these acquisitions had occurred on January 1, 1996 for pro forma
statement of operations data purposes. See "Unaudited Pro Forma Condensed
Combined Financial Statements."
(3) Pro forma assuming the offering made hereby and the Acquisitions had
occurred on January 1, 1996, and a portion of the proceeds were used to
repay certain debt on that date, resulting in a decrease in interest expense
of $2.0 million and $2.7 million for the nine months ended September 30,
1997 and the year ended December 31, 1996, respectively.
(4) Includes gain on the sale of a building used in the Company's manufacturing
operations of approximately $1.2 million.
(5) The Company received net proceeds of $9.3 million from its initial public
offering in March 1994.
(6) The Company acquired the CE Companies in February 1997 for total
consideration of approximately $10.9 million consisting of 1,980,000 shares
of the Company's Common Stock and $5.5 million in cash, including
approximately $0.6 million of transaction costs, and the CTI Companies on
September 30, 1997 for $29.3 million consisting of 1,858,975 shares of the
Company's Common Stock and $20.5 million in cash, including approximately
$1.0 million of transaction costs. In addition, the Company acquired certain
net assets of AlliedSignal in August and September 1997. See "Management's
Discussion and Analysis -- Recent Developments."
(7) Adjusted to reflect the issuance of shares in the offering made hereby, net
of related expenses, and the application of the proceeds as described in
"Use of Proceeds."
6
<PAGE> 8
THE OFFERING
Common Stock Offered by the
Company............................. 3,000,000 Shares
Common Stock to be Outstanding After
the Offering(1)..................... 11,321,635 Shares
Use of Proceeds..................... (i) to make a $6 million contingent
payment to the previous owners of
certain of the CTI Companies; (ii) to
retire a term loan of approximately $20
million; and (iii) to pay a portion of
a revolving loan which, as of September
30, 1997, had outstanding borrowings of
$22.5 million. See "Use of Proceeds."
Nasdaq National Market Symbol....... "EFTC"
- ---------------
(1) Includes 7,812,135 shares outstanding as of September 30, 1997, 9,500 shares
issued pursuant to the exercise of options from September 30, 1997 to the
date of this Prospectus, 500,000 shares issued on October 9, 1997 upon the
exercise of certain warrants. Does not include 1,849,000 shares of Common
Stock issuable upon exercise of additional outstanding options, 36,000
shares of Common Stock issuable upon exercise of options that are expected
to be exercised by certain Selling Shareholders if the Underwriters'
over-allotment option is exercised in full and 80,000 shares of Common Stock
issuable upon exercise of outstanding warrants. See "Description of Capital
Stock and Other Securities."
7
<PAGE> 9
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS AND FORECASTS
Certain statements in this Prospectus, including statements contained in
the Summary, and under the captions "Business and Properties," "Managements'
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Prospectus constitute "forward-looking statements" within the
meaning of the PSLRA, that involve known and unknown risks, including, without
limitation, statements containing the words "believes," "anticipates,"
"estimates," "expects," "may" and words of similar import or statements of
management's opinion. In addition, this Prospectus contains, on pages 3, 27 and
28, forecasts of future growth in markets served by the Company. These forecasts
were prepared by entities that are not affiliated with the Company or the
Underwriters and are based on assumptions formulated by such entities without
consultation with the Company or the Underwriters. The aforementioned
forward-looking statements, forecasts and assumptions involve known and unknown
risks, uncertainties and other factors that may cause the actual results, market
performance or achievements of the Company, growth of the electronic
manufacturing services industry, or growth of the electronic hardware
maintenance market to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements or
forecasts. Important factors that could cause such differences include, but are
not limited to, changes in economic or business conditions in general or
affecting the electronic products industry in particular, changes in the use of
outsourcing by OEMs, increased material prices and service competition within
the electronic component contract manufacturing and repair industries, changes
in the competitive environment in which the Company operates, the continued
growth of the industries targeted by the Company or its competitors, or changes
in the Company's management information needs, changes in customer needs and
expectations and the Company's ability to keep pace with technological
developments and governmental actions.
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the following information before
making an investment in the Common Stock offered hereby.
MANAGEMENT OF GROWTH; GEOGRAPHIC EXPANSION
The Company has experienced rapid growth since February 1997 and intends to
pursue continued growth through internal expansion and acquisitions. The
Company's rapid growth has placed, and could continue to place, a significant
strain on the Company's management information, operating and financial systems.
In order to maintain and improve results of operations, the Company's management
will be required to manage growth and expansion effectively. The Company's need
to manage growth effectively will require it to continue to implement and
improve its management information, operating and financial systems and internal
controls, to develop the management skills of its managers and supervisors and
to train, motivate and manage its employees. There can be no assurance that the
Company's historical revenue growth will continue. The Company's failure to
effectively manage growth could adversely affect the Company's results of
operations. See "-- Acquisition Strategy" and "-- Uncertainties Relating to the
Integration of CTI Companies."
In 1997, the Company has acquired, and undertaken the construction of,
facilities in several locations and the Company may acquire or build additional
facilities from time to time in the future. The Company's results of operations
could be adversely affected if its new facilities do not achieve growth
sufficient to offset increased expenditures associated with growth of operations
and geographic expansion. Should the Company increase its expenditures in
anticipation of a future level of sales which does not materialize, its results
of operations would be adversely affected. As the Company continues to expand,
it may become more difficult to manage geographically-dispersed operations.
There can be no assurance that the Company will successfully manage other plants
it may acquire or build in the future.
8
<PAGE> 10
ACQUISITION STRATEGY
The Company has actively pursued in the past, and expects to actively
pursue in the future, acquisitions in furtherance of its strategy of
aggressively expanding its operations, geographic markets, service offerings,
customer base and revenue base. Acquisitions, including the CTI Merger, the
AlliedSignal Asset Purchase and the CE Merger, involve numerous risks, including
difficulties in the integration of the operations, technologies and products and
services of the acquired companies and assets, the diversion of management's
attention and the Company's financial resources from other business activities,
the potential to enter markets in which the Company has no or limited prior
experience and where competitors in such markets have stronger market positions
and the potential loss of key employees and customers of the acquired companies.
In addition, during the integration of an acquired company, the financial
performance of the Company will be subject to the risks commonly associated with
an acquisition, including the financial impact of expenses necessary to realize
benefits from the acquisition and the potential for disruption of operations.
Acquisitions by the Company have in the past been financed with substantial
borrowings. Although the Company intends to use the net proceeds of the offering
made hereby to retire a significant portion of its outstanding indebtedness, the
Company may incur significant amounts of indebtedness in connection with future
acquisitions, other transactions or funding expansions of the Company's
operations. Future acquisitions may also involve potentially dilutive issuances
of equity securities.
There can be no assurance that the Company will be able to identify
suitable acquisition opportunities, to consummate acquisitions successfully or,
with respect to recent or future acquisitions, integrate acquired personnel and
operations into the Company successfully. The Company currently has no
understandings or commitments with respect to any future acquisition
transactions.
UNCERTAINTIES RELATING TO THE INTEGRATION OF THE CTI COMPANIES
In addition to the general risks described under "-- Acquisition Strategy,"
the acquisition of the CTI Companies presents other specific risks. The
acquisition of the CTI Companies represents a significant expansion of the
Company's operations into markets in which, prior to the CTI Merger, the
Company's management team had limited prior experience. The Company's management
team now includes management personnel and employees of the CTI Companies who
have not previously worked with the Company. The Company's effort to
successfully enter the electronics repair and warranty business will depend on
the ability of this new, combined management team to work together effectively
and on the Company's ability to retain key personnel of the CTI Companies.
The Company's future success is also dependent upon its ability to
effectively integrate the CTI Companies into the Company. There can be no
assurance as to the timing or amount of any marketing opportunities or revenue
increases that may be realized as the result of the acquisition of the CTI
Companies. Further, there can be no assurance that the CTI Merger will enhance
the Company's competitive position and business prospects.
The diversion of management attention, the inability to satisfy the
foregoing needs and any other difficulties encountered in the integration
process could have an adverse effect on the Company's business, results of
operations and financial condition.
DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS; RELATIONSHIPS WITH TRANSPORTATION
PROVIDERS
The Company has historically relied on a small number of customers to
generate a significant percentage of its revenue. On a pro forma basis taking
into account the Acquisitions, in the first nine months of 1997, three of the
Company's customers each accounted for more than 10% of the Company's net
revenues and the Company's ten largest customers accounted for 80.5% of the
Company's net revenue. In 1996, two of the Company's customers each accounted
for more than 10% of the Company's net revenues and the Company's ten largest
manufacturing customers represented 77.6% of net revenue. The Company expects
that AlliedSignal Inc. ("AlliedSignal"), which is one of the Company's
9
<PAGE> 11
ten largest customers, will account in 1998 for a significantly larger portion
of the Company's net revenue than it has historically. The loss of AlliedSignal
as a customer would, and the loss of any other significant customer could, have
a material adverse effect on the Company's financial condition and results of
operations.
If the Company's efforts to expand its customer base are not successful,
the Company will continue to depend upon a relatively small number of customers
for a significant percentage of its net sales. There can be no assurance that
current customers, including AlliedSignal, or future customers of the Company
will not terminate their manufacturing arrangements with the Company or
significantly change, reduce or delay the amount of manufacturing services
ordered from the Company. Ohmeda, Inc. ("Ohmeda")which has been one of the
Company's ten largest customers, has announced future plans to consolidate its
outside manufacturing arrangements with another electronic contract
manufacturer. See "-- Absence of Long-Term Manufacturing Contacts." In addition,
the Company may from time to time hold significant accounts receivable from
sales to certain customers. The insolvency or other inability of a significant
customer to pay outstanding receivables could have a material adverse effect on
the Company's results of operations and financial condition.
The Company's repair and warranty operations are built around their
principal locations at the Overnight Delivery Hubs of the two largest
transportation companies that specialize in overnight delivery services in the
United States and are integrated with the logistics operations of these
overnight delivery service providers and participate in joint marketing programs
to customers of these overnight delivery service providers. See
"-- Competition." The Company believes that the location of its repair
facilities at the Overnight Delivery Hubs is a significant competitive advantage
for the Company's repair and warranty service offerings and a majority of the
Company's repair and warranty service customers come from joint marketing
efforts with such transportation providers. The Company does not, however, have
any long-term contracts or other arrangements with these overnight delivery
service providers, each of which could elect to cancel the Company's lease, to
cease providing scheduling accommodations or to cease joint marketing efforts
with the Company at any time. If the Company ceased to be allowed to share
facilities and marketing arrangements with either or both of these overnight
delivery service providers, there can be no assurance that alternate
arrangements could be made by the Company to preserve such advantages and the
Company could lose significant numbers of repair customers. In addition, work
stoppages or other disruptions in the transportation network may occur from time
to time which may affect these transportation providers. Such events could have
a material adverse effect on the Company's business and results of operations.
ABSENCE OF LONG-TERM MANUFACTURING CONTRACTS
As is typical in the electronic manufacturing services industry, the
Company frequently does not obtain long-term purchase orders or commitments from
its customers, but instead works with them to develop nonbinding forecasts of
the future volume of orders. Based on such nonbinding forecasts, the Company
makes commitments regarding the level of business that it will seek and accept,
the timing of production schedules and the levels and utilization of personnel
and other resources. A variety of conditions, both specific to each individual
customer and generally affecting each customer's industry, may cause customers
to cancel, reduce or delay orders that were either previously made or
anticipated. Generally, customers may cancel, reduce or delay purchase orders
and commitments without penalty, except, in some cases, for payment for services
rendered, materials purchased and, in limited circumstances, charges associated
with such cancellation, reduction or delay. Significant or numerous
cancellations, reductions or delays in orders by customers would have a material
adverse effect on the Company's business, financial condition and results of
operations.
IMPLEMENTATION OF NEW INFORMATION SYSTEM
The Company is implementing a new management information system (the "MIS
System"), based on commercially available Oracle software products, that is
designed to track and control all aspects of its manufacturing services. Among
other things, the implementation of the MIS System includes the conversion of
the Company's Automated Execution System ("AES"), which is a customized software
package designed to meet the needs of the Company's "Asynchronous Processing
Manufacturing"
10
<PAGE> 12
("APM") process, into software compatible with the MIS System. The Company
currently expects to complete the implementation of the MIS System by December
1997 at the Company's Rocky Mountain facility. Thereafter, the Company intends
to implement the MIS System at its other facilities as soon as practicable.
There can be no assurance, however, that the MIS System can be properly
installed at the Rocky Mountain facility or any other facility of the Company.
Furthermore, there can be no assurance that, if installed, the MIS System will
operate as designed or provide the Company's operations any additional
efficiency. If the MIS System fails to operate as designed, the Company's
operations could be disrupted by lost orders resulting in lost customers or by
inventory shortfalls and overages and the Company could be compelled to
write-off the development costs of such software. Such disruptions or events
could adversely affect results of operations and the implementation of the
Company's strategy. See "Business and Properties -- Strategy" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
PROTECTION OF KNOW-HOW AND TRADE SECRETS
APM and the supporting AES software represent and, are expected to continue
to represent, a critical part of the Company's high-mix manufacturing strategy.
The use, by third parties, of the concepts or processes, developed by the
Company, that comprise APM is not legally restricted. In addition, the Company
has a non-exclusive license to use the AES software that, in conjunction with
other commercially available software programs and databases, coordinates the
APM process. The APM process is therefore subject to replication by a competitor
willing to invest the resources to do so and the AES software is therefore
available from third parties having rights thereto. To protect its know-how and
processes related to APM, the Company primarily relies upon a combination of
nondisclosure agreements and other contractual provisions, as well as the
confidentiality and loyalty of its employees. However, there can be no assurance
that these steps will be adequate to prevent a competitor from replicating the
APM process or that a competitor will not independently develop know-how or
processes similar or superior to the Company's APM process. The adoption by its
competitors of a process that is similar to, or superior to, the Company's APM
process would likely result in a material increase in competition faced by the
Company for its targeted market of high-mix OEMs.
DEVELOPMENT OF PLAN FOR BUILD-TO-ORDER
The Company's strategy includes the development of a business plan to
integrate its existing and newly-acquired businesses in order to offer BTO
services, oriented around a hub-based distribution system, to its customers.
This plan represents an expansion into a new line of business with which the
Company has no operating experience and will require capital expenditures,
certain operational changes and integration of the AES software throughout all
of the Company's facilities. There can be no assurance that the Company will
successfully implement this plan or market these services and the failure to do
so could change the Company's business and growth strategies and adversely
affect the Company's long-term business prospects. See "Business and
Properties -- Strategy" and "Business and Properties -- Services."
VARIABILITY OF QUARTERLY RESULTS OF OPERATIONS
The Company's quarterly results of operations are affected by several
factors, primarily the level and timing of customer orders and the mix of
turnkey and consignment orders. The level and timing of orders placed by a
customer vary due to the customer's attempts to balance its inventory, changes
in the customer's manufacturing strategy and variation in demand for its
products due to, among other things, product life cycles, competitive conditions
and general economic conditions. In the past, changes in orders from customers
have had a significant effect on the Company's quarterly results of operations.
Other factors affecting the Company's quarterly results of operations may
include, among other things, the Company's success in integrating the businesses
of the CTI Companies and the CE Companies and the operations acquired in the
AlliedSignal Asset Purchase, costs relating to the expansion of operations
including development of the Company's plan to develop a BTO business, price
competition, the
11
<PAGE> 13
Company's level of experience in manufacturing a particular product, the degree
of automation used in the assembly process, the efficiencies achieved by the
Company in managing inventories and other assets, the timing of expenditures in
anticipation of increased sales and fluctuations in the cost of components or
labor. Any of these factors could adversely affect the Company's quarterly
results of operations. See "-- Acquisition Strategy," "-- Uncertainties Relating
to the Integration of the CTI Companies" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
COMPETITION
Contract Manufacturing. Competition in the electronic manufacturing
services industry is intense. The Company competes against numerous domestic and
foreign manufacturers, including SCI Systems, Inc., Solectron Corporation,
Benchmark Electronics, Inc., DII Group, Inc., Plexus Corp., Reptron Electronics,
Inc., and others, many of which are substantially larger or have greater
financial or operating resources than the Company. Many of the Company's
competitors are more established in the industry and have substantially greater
manufacturing, financial, engineering and marketing resources than the Company.
The Company also faces competition from the manufacturing operations of its
current and potential customers, which are continually evaluating the relative
merits of internal manufacturing versus outsourcing. Certain of the Company's
competitors have broader geographic breadth than the Company. In addition,
several contract manufacturers have established manufacturing facilities in
foreign countries. The Company believes that foreign manufacturing facilities
are more important for contract manufacturers that focus on high-volume consumer
electronic products, and do not afford a significant competitive advantage in
the Company's targeted market for complex, mid-volume products for which greater
flexibility in specifications and lead times is required. The Company believes
that the principal competitive factors in its targeted market are quality,
reliability, ability to meet delivery schedules, technological sophistication,
geographic location and price.
Repair and Warranty Services. The Company also has a number of competitors
in the repair and warranty services industry, including Cerplex Group, Inc.,
Aurora Electronics, Inc., Logistics Management, Inc., Sequel, Inc., Data
Exchange Corp., DecisionOne Holdings Corp., and others. In addition, the Company
competes with certain OEMs that provide repair and warranty services for their
own products. Some of the Company's competitors in the repair and warranty
services industry are more established in the industry and have substantially
greater financial, engineering and marketing resources than the Company. The
Company believes that its location within the Overnight Delivery Hubs gives it a
significant competitive advantage. However, a competitor can, and in some cases
has, gained similar advantages by locating a repair facility in close proximity
to the Overnight Delivery Hubs. The Company also faces competition from its
current and potential customers, which are continually evaluating the relative
merits of providing repair and warranty services internally versus outsourcing.
The Company believes that the principal competitive factors in its targeted
repair and warranty services market are quality, reliability, ability to meet
delivery schedules and price.
TECHNOLOGICAL CHANGE
The electronic manufacturing services industry is characterized by rapidly
changing technology. The Company believes that its future success will depend on
its ability to keep pace with technological changes in order to meet customer
needs. The Company could be required to make substantial capital expenditures to
acquire equipment embodying any new technology necessary to serve the needs of
its customers. See "Business and Properties -- Industry Overview," "Business and
Properties -- Strategy" and "Business and Properties -- Services."
INVENTORY RISK; LIMITED AVAILABILITY OF COMPONENTS AND MANUFACTURING EQUIPMENT
In the first nine months of 1997, substantially all of the Company's net
sales were derived from turnkey sales. In turnkey manufacturing, the Company
provides materials as well as manufacturing
12
<PAGE> 14
services and often bears the risk of fluctuations in materials costs, scrap and
excess inventory, which could adversely affect the Company's gross profit
margins. In addition, some materials used by the Company have been subject to
industry-wide shortages and suppliers have been forced to allocate available
quantities among their customers. In addition, work stoppages or other
disruptions in transportation services may occur from time to time which may
affect availability of materials. The Company's inability to obtain any needed
materials during periods of allocations, work stoppages or disruptions in
transportation services could cause delays in shipments to the Company's
customers, and could also adversely affect results of operations.
Significant lead times also are involved in acquiring certain equipment
used in the Company's manufacturing process. Although the Company has increased
its manufacturing capacity in response to the expansion of its customer base,
there can be no assurance that the Company will have sufficient capacity at any
given time to meet its customers' demands if such demands exceed anticipated
levels.
ENVIRONMENTAL COMPLIANCE
The Company's operations and properties are subject to certain federal,
state and local regulatory requirements relating to environmental, waste
management, health and safety matters. Some risk of costs and liabilities
related to these matters is inherent in the Company's business, as with many
other businesses. In the event of violation, these regulations provide for civil
and criminal fines, injunctions and other sanctions and, in certain instances,
allow third parties to sue to enforce compliance. In addition, new, modified or
more stringent requirements or enforcement policies could be adopted that may
adversely affect the Company. In certain cases, the Company could be liable for
environmental clean-up and other costs resulting from actions of others
occurring on or near the Company's properties or, even if not liable, the
Company could find itself forced to defend against assertions of potential
liability for the actions of others. There can be no assurance that material
costs and liabilities will not be incurred in complying with those regulations
or in defending against any such liability, or that past or future operations
will not result in exposure to injury or claims of injury by employees or the
public.
CONCENTRATION OF OWNERSHIP
Upon completion of this offering and including shares issuable upon
exercise of vested options, the officers and directors of the Company will
continue to own (assuming the exercise of all currently vested options held by
them) approximately 54.1% of the Company's Common Stock then outstanding.
Consequently, the officers and directors will continue to be able to exercise
substantial control over the election of the Company's directors, the outcome of
corporate actions requiring shareholder approval, the business and affairs of
the Company and future direction of the Company. The concentration of the
ownership of the Common Stock among the Company's directors is likely to delay
or prevent a change of control of the Company without the consent of such
directors. See "Principal Shareholders" and "Selling Shareholders."
SHARES ELIGIBLE FOR FUTURE SALES
Sales of a substantial number of shares of Common Stock in the public
market after this offering could adversely affect the market price of the Common
Stock. Without consideration of the contractual rights and prohibitions
described below, there is also a substantial number of shares of Common Stock
that are eligible for sale in public markets pursuant to Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), or will become so
eligible, in the near future. In addition, substantial numbers of shares of
Common Stock are issuable upon exercise of outstanding options issued by the
Company and the Company has registered, under the Securities Act, the resale of
1,155,000 shares of Common Stock issuable upon exercise of options granted to
employees under the Company's 1989 Stock Option Plan, 1993 Incentive Stock
Option Plan, Equity Incentive Plan and Stock Option Plan for Non-Employee
Directors (collectively, the "Stock Option Plans"). Shortly after completion of
the offering made hereby, the Company intends to file a registration statement
on Form S-8 to register under the Securities Act the resale of an additional
1,140,000 shares of Common Stock reserved for issuance under
13
<PAGE> 15
the Stock Option Plans. Moreover, certain of the Company's shareholders have
certain contractual rights to cause the Company to register their shares for
resale or to require the inclusion of their shares in registration statements
otherwise filed by the Company.
The Company, the Company's directors and executive officers and the Selling
Shareholders have agreed with the Underwriters not to make certain sales or
dispositions of shares of Common Stock or securities convertible or exercisable
for Common Stock for a period of 180 days after the date of this Prospectus
without the prior written consent of Salomon Brothers Inc. Salomon Brothers Inc
may, in its sole discretion at anytime without notice, consent to an early
termination of such agreements. See "Shares Eligible for Future Sales."
VOLATILITY RISK FACTOR
The Company's Common Stock has experienced significant price volatility
historically, and such volatility may continue to occur in the future. Factors
such as announcements of large customer orders, order cancellations, new product
introductions by the Company or competitors or general conditions in the
electronics industry, as well as variations in the Company's actual or
anticipated results of operations, may cause the market price of the Company's
Common Stock to fluctuate significantly. Furthermore, the stock market has
experienced extreme price and volume fluctuations in recent years, often for
reasons unrelated to the operating performance of the specific companies. These
broad market fluctuations may materially adversely affect the price of the
Company's Common Stock. There can be no assurance that the market price of the
Company's Common Stock will not experience significant fluctuations in the
future, including fluctuations that are unrelated to the Company's performance.
ANTI-TAKEOVER PROVISIONS
Several provisions of the Company's Articles of Incorporation and Bylaws
could deter or delay unsolicited takeovers or delay or prevent changes in
control or management of the Company, including transactions in which
shareholders might otherwise receive a premium for their shares over then
current market prices. In addition, such provisions could limit the ability of
shareholders to approve transactions that they may deem to be in their best
interests. See "Description of Capital Stock and Other Securities."
14
<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
being offered hereby, after deducting underwriting discounts and estimated
offering expenses, are estimated to be approximately $36.8 million assuming a
public offering price of $13.25 (the last reported sales price of the Common
Stock on the Nasdaq National Market on November 12, 1997). Such proceeds will be
used by the Company as follows: (i) to make a $6.0 million contingent payment to
the previous owners of certain of the CTI Companies that becomes due upon
completion of the offering made hereby; (ii) to retire a term loan of
approximately $20 million; and (iii) to pay down a portion of the Company's
revolving credit facility, which as of September 30, 1997, had outstanding
borrowings of approximately $22.5 million. The term loan and the revolving loan
(collectively, the "Bank One Loan") were incurred pursuant to a Credit
Agreement, dated as of September 30, 1997, among the Company and Bank One,
Colorado, N.A. ("Bank One").The Bank One Loan was incurred in connection with
the CTI Merger and the AlliedSignal Asset Purchase. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- The
Company -- Liquidity and Capital Resources," for a description of the terms,
including interest rates, of the Bank One Loan.
PRICE RANGE OF COMMON STOCK
The Common Stock is quoted on the Nasdaq National Market under the symbol
"EFTC." The following table sets forth, for the periods indicated, the high and
low closing sales prices of the Common Stock as reported on the Nasdaq National
Market.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
YEAR ENDING DECEMBER 31, 1997:
Fourth Quarter (through November 12, 1997).................. $16 $13 1/4
Third Quarter............................................... 14 5/16 8 5/8
Second Quarter.............................................. 8 1/2 4 5/8
First Quarter............................................... 6 3/4 4 3/4
YEAR ENDED DECEMBER 31, 1996:
Fourth Quarter.............................................. 4 7/8 2 3/4
Third Quarter............................................... 4 1/4 3 1/2
Second Quarter.............................................. 4 7/8 3 5/8
First Quarter............................................... 5 1/8 3 3/4
YEAR ENDED DECEMBER 31, 1995:
Fourth Quarter.............................................. 5 7/8 3 1/2
Third Quarter............................................... 7 7/8 5 3/8
Second Quarter.............................................. 8 1/4 5
First Quarter............................................... 7 5/8 5 1/4
</TABLE>
On November 12, 1997, the last reported closing sale price for the Common
Stock on the Nasdaq National Market was $13.25. As of October 9, 1997, there
were approximately 247 shareholders of record of the Common Stock.
DIVIDEND POLICY
The Company does not intend to pay cash dividends on the Common Stock in
the foreseeable future. The Company instead intends to retain its earnings for
use in the operation and expansion of its business. Any future cash dividends
would depend on future earnings, capital requirements, the Company's financial
condition and other factors deemed relevant by the Board of Directors. Under the
terms of the Bank One Loan, the Company may not pay dividends without the
consent of Bank One. See the description of the Bank One Loan in "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- The
Company -- Liquidity and Capital Resources."
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of September 30, 1997, and as adjusted to reflect (i) the sale of
3,000,000 shares of Common Stock offered by the Company hereby and (ii) the
application of the estimated net proceeds to the Company therefrom, as described
under "Use of Proceeds." The following table should be read in conjunction with
the Consolidated Financial Statements of the Company and the related notes and
other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Debt:
Revolving credit facility................................. $22,514 $11,699
Current portion of long term debt......................... 2,275 50
------- -------
Total current debt................................ 24,789 11,749
Long term debt, less current portion...................... 32,725 14,950
------- -------
Total debt........................................ 57,514 26,699
------- -------
Shareholders' equity:
Preferred Stock, $0.01 par value, 5,000,000 shares
authorized, none issued and outstanding................ -- --
Common Stock, $0.01 par value, 45,000,000 shares
authorized; 7,812,135 shares issued and outstanding and
10,812,135 shares as adjusted(1)....................... 78 108
Additional paid-in-capital................................ 24,443 61,228
Retained earnings......................................... 5,665 5,665
------- -------
Total shareholders' equity........................ 30,186 67,001
------- -------
Total capitalization.............................. $87,700 $93,700
======= =======
</TABLE>
- ---------------
(1) Does not include 1,849,000 shares of Common Stock issuable upon exercise of
outstanding options, 9,500 shares issued pursuant to the exercise of options
from September 30, 1997 to the date of this Prospectus, 80,000 shares
issuable upon exercise of outstanding warrants, 36,000 shares issuable upon
exercise of additional options that are expected to be exercised by certain
Selling Shareholders if the Underwriters' over-allotment option is exercised
in full, or 500,000 shares issued on October 9, 1997 upon the exercise of
certain warrants for total proceeds to the Company of $4 million.
16
<PAGE> 18
SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following tables present for the Company (i) selected consolidated
historical financial data as of and for each of the five years ended December
31, 1996, as of and for the nine months ended September 30, 1997 and for the
nine months ended September 30, 1996; (ii) unaudited pro forma financial data
for the year ended December 31, 1996 and the nine months ended September 30,
1997 reflecting the consummation of the CTI Merger and the CE Merger, as
described elsewhere herein; and (iii) unaudited pro forma adjusted financial
data for the year ended December 31, 1996 and the nine months ended September
30, 1997 and unaudited adjusted financial data as of September 30, 1997 adjusted
for the issuance of Common Stock being offered hereby and the related use of
proceeds from such offering. The selected consolidated historical financial data
set forth below as of September 30, 1997 and December 31, 1996 and 1995 and for
the three years ended December 31, 1996 and the nine months ended September 30,
1997 have been derived from the Company's financial statements audited by KPMG
Peat Marwick LLP included elsewhere in this Prospectus. The selected
consolidated historical financial data as of December 31, 1994, 1993 and 1992
and for the two years ended December 31, 1993 is derived from financial
statements not included or incorporated by reference herein. The selected
historical financial data set forth below for the nine months ended September
30, 1996 have been derived from unaudited financial statements of the Company
that have been prepared on the same basis as the audited financial statements
and, in the opinion of the Company, reflect all adjustments necessary
(consisting only of normal recurring adjustments) for the fair presentation of
the Company's results of operations for the period. All of the financial data
set forth below is qualified in its entirety by and should be read in
conjunction with such financial statements and the notes thereto and the
Company's "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus. The results of
operations of the Company for the interim period ended September 30, 1997 are
not necessarily indicative of the results to be expected for the entire year.
17
<PAGE> 19
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31
------------------------------------------- ----------------------
PRO FORMA PRO PRO FORMA PRO
AS ADJUSTED FORMA AS ADJUSTED FORMA
1997(3) 1997(2) 1997 1996 1996(3) 1996(2)
----------- -------- ------- ------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................. $98,020 $98,020 $64,973 $44,576 $115,910 $115,910
Cost of sales.............. 81,766 81,766 56,740 42,676 100,590 100,590
------- ------- ------- ------- -------- --------
Gross profit............. 16,254 16,254 8,233 1,900 15,320 15,320
Selling, general and
administrative
expense.................. 14,110 14,110 5,126 3,403 13,240 13,240
Amortization of goodwill... 1,012 1,012 157 -- 1,349 1,349
Impairment of fixed
assets................... -- -- -- 726 726 726
------- ------- ------- ------- -------- --------
Operating income
(loss)................. 1,132 1,132 2,950 (2,229) 5 5
------- ------- ------- ------- -------- --------
Other income (expense):
Interest expense......... (848) (2,873) (1,054) (384) (575) (3,275)
Other income, net........ 1,197(4) 1,197(4) 1,206(4) 17 83 83
------- ------- ------- ------- -------- --------
349 (1,676) 152 (367) (492) (3,192)
------- ------- ------- ------- -------- --------
Income (loss) before
income taxes........... 1,481 (544) 3,102 (2,596) (487) (3,187)
Income tax expense
(benefit)................ 563 (207) 1,133 (920) (52) (1,078)
------- ------- ------- ------- -------- --------
Net income (loss)........ $ 918 $ (337) $ 1,969 $(1,676) $ (435) $ (2,109)
======= ======= ======= ======= ======== ========
Income (loss) per common
share, fully diluted..... $ .08 $ (.04) $ .32 $ (.42) $ .(04) $ (.27)
======= ======= ======= ======= ======== ========
Weighted average common and
common equivalent shares
outstanding.............. 11,078 8,078 6,219 3,968 10,781 7,781
======= ======= ======= ======= ======== ========
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996(1) 1995 1994 1993 1992
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................. $56,880 $49,220 $52,542 $29,817 $17,294
Cost of sales.............. 53,980 45,325 47,123 25,688 15,129
------- ------- ------- ------- -------
Gross profit............. 2,900 3,895 5,419 4,129 2,165
Selling, general and
administrative
expense.................. 4,196 3,094 2,396 1,843 1,452
Amortization of goodwill... -- -- -- -- --
Impairment of fixed
assets................... 726 -- -- -- --
------- ------- ------- ------- -------
Operating income
(loss)................. (2,022) 801 3,023 2,286 713
------- ------- ------- ------- -------
Other income (expense):
Interest expense......... (526) (399) (175) (237) (227)
Other income, net........ 83 79 110 (12) 8
------- ------- ------- ------- -------
(443) (320) (65) (249) (219)
------- ------- ------- ------- -------
Income (loss) before
income taxes........... (2,465) 481 2,958 2,037 494
Income tax expense
(benefit)................ (872) 127 1,041 736 174
------- ------- ------- ------- -------
Net income (loss)........ $(1,593) $ 354 $ 1,917 $ 1,301 $ 320
======= ======= ======= ======= =======
Income (loss) per common
share, fully diluted..... $ (.40) $ .09 $ .53 $ .52 $ .13
======= ======= ======= ======= =======
Weighted average common and
common equivalent shares
outstanding.............. 3,942 3,962 3,627 2,483 2,417
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------- DECEMBER 31,
AS -------------------------------------------
ADJUSTED(7) ACTUAL(6) 1996 1995 1994(5) 1993 1992
----------- --------- ------ ------ ------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 13,451 $ 411 $8,508 $9,868 $6,744 $2,404 $1,423
Goodwill.................................................. 46,360 40,360 -- -- -- -- --
Total assets.............................................. 123,646 117,646 22,870 24,984 23,479 11,172 6,703
Total debt................................................ 26,699 57,514 4,860 3,230 3,400 3,084 3,180
Stockholder's equity...................................... 67,001 30,186 13,922 15,509 14,989 3,547 2,090
</TABLE>
- ---------------
(1) As part of a corporate restructuring, the Company expensed $2.1 million for
restructuring costs in the third quarter of 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(2) Pro forma for the acquisitions of the CE Companies and the CTI Companies as
if these acquisitions had occurred on January 1, 1996 for pro forma
statement of operations data purposes. See "Unaudited Pro Forma Condensed
Combined Financial Statements."
(3) Pro forma assuming the offering made hereby and the Acquisitions had
occurred on January 1, 1996, and a portion of the proceeds were used to
repay certain debt on that date, resulting in a decrease in interest expense
of $2.0 million and $2.7 million for the nine months ended September 30,
1997 and the year ended December 31, 1996, respectively.
(4) Includes gain on the sale of a building used in the Company's manufacturing
operations of approximately $1.2 million.
(5) The Company received net proceeds of $9.3 million from its initial public
offering in March 1994.
(6) The Company acquired the CE Companies in February 1997 for total
consideration of approximately $10.9 million consisting of 1,980,000 shares
of the Company's Common Stock and $5.5 million in cash, including
approximately $0.6 million of transaction costs, and the CTI Companies on
September 30, 1997 for $29.3 million consisting of 1,858,975 shares of the
Company's Common Stock and $20.5 million in cash, including approximately
$1.0 million of transaction costs. In addition, the Company acquired certain
net assets of AlliedSignal in August and September 1997. See "Management's
Discussion and Analysis -- Recent Developments."
(7) Adjusted to reflect the issuance of shares in the offering made hereby, net
of related expenses, and the application of the proceeds as described in
"Use of Proceeds."
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<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information set forth below contains "forward looking statements"
within the meaning of the PSLRA. Such statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
expressed in the statements. See "Cautionary Statement Regarding Forward-Looking
Statements and Forecasts."
THE COMPANY
GENERAL
The Company is a leading independent provider of high-mix electronic
manufacturing services to OEMs in the aerospace and avionics, medical,
communications, industrial instruments and controls and computer-related
products industries. The Company's manufacturing services consist of assembling
complex printed circuit boards, cables, electro-mechanical devices and finished
products. The CTI Companies provide repair and warranty services to OEMs in the
communications and computer industries.
The Company's quarterly results of operations are affected by several
factors, primarily the level and timing of customer orders and the mix of
turnkey and consignment orders. The level and timing of orders placed by a
customer vary due to the customer's attempts to balance its inventory, changes
in the customer's manufacturing strategy and variation in demand for its
products due to, among other things, product life cycles, competitive conditions
and general economic conditions. In the past, changes in orders from customers
have had a significant effect on the Company's quarterly results of operations.
Other factors affecting the Company's quarterly results of operations may
include, among other things, the Company's success in integrating the businesses
of the CTI Companies and the CE Companies and the operations acquired in the
AlliedSignal Asset Purchase, costs relating to the expansion of operations
including development of the Company's plan to develop a BTO business, price
competition, the Company's level of experience in manufacturing a particular
product, the degree of automation used in the assembly process, the efficiencies
achieved by the Company in managing inventories and other assets, the timing of
expenditures in anticipation of increased sales and fluctuations in the cost of
components or labor.
In the third quarter of 1996, the Company introduced Asynchronous Process
Manufacturing, a new manufacturing methodology, at its Rocky Mountain facility.
APM is an innovative combination of high-speed manufacturing equipment,
sophisticated information systems and standardized process teams designed to
manufacture mixtures of small quantities of products more flexibly and faster.
APM allows for the building of small lots in very short cycle times and
increases throughput by decreasing setup time, standardizing work centers and
processing smaller lot sizes. The Company has done this by designating teams to
set up off-line feeders and standardizing loading methods regardless of product
complexity. APM has allowed the Company to increase productivity by producing
product with fewer people which ultimately reduces costs and increases gross
profit. The Company completed implementing APM at its Rocky Mountain facility in
October 1996 and has begun implementing APM at its existing Newberg, Oregon
facility, but will not complete that implementation until after its new
manufacturing facility under construction in Newberg, Oregon is completed. The
Company also plans to implement APM at its other facilities, at appropriate
times.
RECENT DEVELOPMENTS
During the first nine months of 1997, the Company has completed the CE
Merger, the AlliedSignal Asset Purchase and the CTI Merger, all of which have
effected the Company's results of operations and financial condition in 1997.
CE Merger. On February 24, 1997, the Company acquired two companies, CEI
and its affiliate CEWI, for approximately $10.9 million consisting of 1,980,000
shares of Common Stock and approximately
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<PAGE> 21
$5.5 million in cash, which included approximately $0.6 million of transaction
costs. The Company recorded goodwill of approximately $8.0 million, which will
be amortized over 30 years. The combined revenues for the CE Companies for the
fiscal year ended September 30, 1996 was approximately $32.5 million. In
connection with this transaction, the Company renegotiated its line of credit
and obtained a 90-day bridge loan in the amount of $4.9 million (which was
subsequently repaid), the proceeds from which were used to pay the cash
consideration related to the CE Merger, as discussed above. See "-- Liquidity
and Capital Resources."
AlliedSignal Asset Purchase. In August and September 1997, the Company
completed the initial elements of two transactions with AlliedSignal pursuant to
which the Company acquired certain inventory and equipment located in Ft.
Lauderdale, Florida, subleased the portion of AlliedSignal's facility where such
inventory and equipment was located and employed certain persons formerly
employed by AlliedSignal at that location. The Company also hired certain
persons formerly employed by AlliedSignal in Tucson, Arizona and agreed with
AlliedSignal to provide the personnel and management services necessary to
operate a related facility on behalf of AlliedSignal on a temporary basis.
Subject to the satisfaction of the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, the Company has agreed to acquire
AlliedSignal's inventory and equipment located at AlliedSignal's Tucson, Arizona
facility. The Company has agreed to purchase from a third party a production
facility in Tucson, Arizona that is currently being renovated. Upon completion
of such renovations (expected for the first quarter of 1998), the Company will
move that inventory and equipment and related employees to its own facility and
will begin its own production there. The aggregate purchase price of all the
assets to be acquired by the Company from AlliedSignal is expected to
approximate $15 million, of which $10.9 million had been paid through September
30, 1997. The Florida facility is currently used, and the Arizona facility will
initially be used, to produce electronic assemblies for AlliedSignal. The
Company is also seeking to use the Florida and Arizona facilities to provide
services for customers other than AlliedSignal. The Company has agreed to pay
AlliedSignal one percent of gross revenue for all electronic assemblies and
parts made for a customer other than AlliedSignal at the Arizona or Florida
facilities through December 31, 2001.
CTI Merger. On September 30, 1997, the Company acquired the CTI Companies
for approximately $29.3 million in cash and debt assumption, 1,858,975 shares of
the Company's Common Stock and a $6 million contingent payment payable upon
closing of this offering. The Company recorded goodwill of approximately $32.4
million, which will be amortized over 30 years. In connection with this
acquisition, the Company entered into the Bank One Loan and issued the
Subordinated Notes in an aggregate principal amount of $15 million. See
"-- Liquidity and Capital Resources."
In many respects, the CTI Companies and the Company are financially and
operationally complementary businesses. This tends to give management at the CTI
Companies more alternatives when making decisions that affect profit margins and
overall operations. The CTI Companies have historically turned receivables at a
slower rate and inventories at approximately the same rate as the Company. In
1996, the CTI Companies turned receivables at an approximate rate of 57 days or
6 times a year and turned inventories every 79 days or approximately 5 times a
year. In 1996, the Company turned receivables at an approximate rate of 25 days
or approximately 14 times a year and turned inventories every 62 days or
approximately 6 times a year. The Company, after the CTI Merger, expects its
receivables and inventory to turn over at a slower rate due to the inclusion of
the CTI Companies.
The Company is involved in the front end of many OEMs' new-product
introductions and is subject to production fluctuations relating to the OEMs'
product demands. The CTI Companies' repair and warranty service is dependent on
the size of the products installed base. Thus, the Company's production of a
particular product is related to overall product life cycle and length of demand
for such product. The CTI Companies' repair and warranty service is dependent on
the size of the installed base and extent of use of such product.
The CTI Companies have generated gross profit percentages which have ranged
from 26% to 33% from 1994 to 1996. This is significantly higher than the
Company's historic gross profit percentages
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<PAGE> 22
which have ranged from approximately 5% to 10% from 1994 to 1996. This is due to
the high value-added content of the CTI Companies' operations. The Company
expects the overall impact of combining operations of the CTI Companies with the
Company to be higher overall gross, operational and net profit percentages due
to the CTI Companies' overall higher profitability levels as a percentage of
sales. This is based on historic results, and there is no guarantee that these
trends will continue.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
net sales:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------- -------------------------
1997 1996 1996 1995 1994
------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales........................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit........................ 12.7 4.3 5.1 7.9 10.3
Selling, general and administrative
expenses.......................... 7.9 7.7 7.4 6.3 4.6
Goodwill............................ 0.3 -- -- -- --
Impairment of fixed assets.......... -- 1.6 1.3 -- --
----- ----- ----- ----- -----
Operating income (loss)............. 4.5 (5.0) (3.6) 1.6 5.7
Interest expense.................... (1.6) (0.9) (0.9) (0.8) (0.3)
Other, net.......................... 1.9 0.1 0.2 0.2 0.2
----- ----- ----- ----- -----
Income (loss) before income taxes... 4.8 (5.8) (4.3) 1.0 5.6
Income tax expense (benefit)........ 1.8 (2.0) (1.5) 0.3 2.0
----- ----- ----- ----- -----
Net Income (loss)................... 3.0 (3.8) (2.8) 0.7 3.6
===== ===== ===== ===== =====
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended
September 30, 1996
Net Sales. The Company's net sales increased by 45.8% to $65.0 million
during the first nine months of 1997, from $44.6 million for the first nine
months of 1996. The increase in net sales is due primarily to the inclusion of
the operations from the CE Companies, acquired on February 24, 1997, the
inclusion of the operations of the Company's Fort Lauderdale facility, acquired
from AlliedSignal on August 11, 1997, and increased orders from existing
customers.
Gross Profit. Gross profit increased by 333.3% to $8.2 million during the
first nine months of 1997, from $1.9 million during the first nine months of
1996. The gross profit margin for the first nine months of 1997 was 12.7%
compared to 4.3% for the first nine months of 1996. The increase in gross profit
percentage is related to (i) the operations of the CE Companies, which have
historically had a higher gross profit percentage and (ii) the adoption of APM
in the later part of 1996 in the Rocky Mountain facility which has resulted in
greater operating efficiencies. In addition, as revenues have increased, fixed
overhead costs such as labor costs and depreciation have been absorbed in cost
of goods resulting in higher margins. Finally, the Company incurred a
restructuring charge in cost of goods of $0.5 million in the third quarter of
fiscal 1996, primarily related to severance pay and the write-off of inventory
associated with the restructuring of the Company's customer base, which
accentuated the difference in gross profit between the first nine months of 1996
and 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SGA") expenses increased by 50.6% to $5.1 million for the first
nine months of 1997 compared with $3.4 million for the same period for the first
nine months of 1996. As a percentage of net sales, SGA expense increased to 7.9%
in the first nine months of 1997 from 7.7% in the same period of 1996. The
Company incurred a restructuring charge of $0.9 million in the third quarter of
1996, primarily from severance pay for terminated employees at the Rocky
Mountain facility. Without the restructuring charge, SGA expense for the first
nine months of 1996 would have been 5.6% of sales. The increase in SGA expenses
is primarily
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<PAGE> 23
due to the inclusion of the CE Companies' SGA expenses, SGA expenses related to
the Company's Fort Lauderdale, Florida facility, and increased investment in
information technology and marketing.
Impairment of Fixed Assets. During the third quarter of 1996, the Company
incurred a write down associated with impaired assets in the amount of $725,869.
See "-- 1996 Compared to 1995 -- Impairment of Fixed Assets."
Operating Income. Operating income increased to $3.0 million for the first
nine months of 1997 from a loss of $2.2 million for the first nine months of
1996. Operating income as a percentage of net sales increased to 4.5% in the
first nine months of 1997 from negative 5.0% in the same period of 1996. The
increase in operating income is attributable to the CE Merger, increased
efficiencies associated with APM, and the acquisition and operation of the Fort
Lauderdale, Florida facility. Without the $2.1 million write down in the third
quarter of 1996, the nine-month 1996 operating loss would have been $0.1
million, and the operating profit margin would have been approximately
breakeven.
Interest Expense. Interest expense was $1.1 million for the first nine
months of 1997 as compared to $0.4 million for the same period in 1996. The
increase in interest is primarily the result of the incurrence of debt
associated with the CE Merger and the AlliedSignal Asset Purchase in Arizona and
Florida, and increased operating debt used to finance both inventories and
receivables for the Company in the first nine months of fiscal 1997.
Income Tax Expense. The effective income tax rate for the first nine months
of fiscal 1997 was 36.5% compared to 35.4% from the same period a year earlier.
This percentage can fluctuate because relatively small dollar amounts tend to
move the rate significantly as estimates change. The Company expects that the
rate will be higher in the upcoming quarters. This higher anticipated effective
tax rate is due to the impact of the nondeductible goodwill component of the CTI
Merger and CE Merger.
1996 Compared to 1995
Net Sales. Net sales in 1996 increased 15.6% to $56.9 million from $49.2
million in 1995. The increase in net sales is due primarily to increased
material sales associated with a box-build project for one customer. The top ten
customers in 1996 accounted for 77.6% of total sales volume, as compared to
80.4% in 1995.
Gross Profit. Gross profit in 1996 decreased 25.5% from 1995 to $2.9
million. Gross profit as a percentage of net sales for 1996 was 5.1% compared to
7.9% in 1995. One reason for the decline in gross profit is related to
restructuring charges of $0.5 million that were included in cost of goods sold
in the third quarter of 1996. Without the restructuring, gross profit would have
been $3.4 million or 5.9% of net sales. These restructuring charges were
severance expenses related to a decrease in workforce, write down of inventory
related to changes in the Company's customer mix, and expenses related to the
reorganization of the manufacturing floor and manufacturing process in
connection with the implementation of APM.
Selling, General and Administrative Expenses. SGA expense for 1996
increased by 35.6% over 1995 to $4.2 million. The increase is due to
restructuring charges for severance expenses related to reduction in workforce
and other expenses related to organizational changes in the amount of $0.9
million in the third quarter of 1996. Excluding the restructuring charges, the
SGA expense would have been $3.3 million which is an increase of $179,980 or
5.8% over 1995. This increase was due primarily to increased sales commissions
and related expenses associated with the sales growth from 1995 to 1996 levels
as noted above. As a percentage of net sales, SGA expense increased to 7.4% in
1996 from 6.3% in 1995. Without the restructuring changes, SGA expenses would
have been 5.8% of net sales for the year ended 1996.
Impairment of Fixed Assets. During the third quarter of 1996, the Company
incurred a write down associated with impaired assets in the amount of $0.7
million. Statement of Financial Accounting Standards No. 121 "Accounting for the
impairment of long-lived assets and for long-lived assets to be disposed of,"
requires that long-lived assets and certain identifiable intangibles to be held
and used by
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<PAGE> 24
an entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Long-lived
assets and certain identifiable intangibles to be disposed of should be reported
at the lower of carrying amount of fair value less cost to sell. The Company
went through a corporate restructuring in the third quarter of 1996 which
included a workforce reduction and the implementation of APM which resulted in
certain assets no longer being used in operations. Certain software that will no
longer be used, as well as excess equipment that was sold, were written down to
fair value in accordance with Statement No. 121.
Operating Income. Operating income in 1996 decreased 352.3% to a loss of
$2.0 million from income of $801,321 in 1995. Operating income as a percent of
sales decreased to negative 3.6% in 1996 from 1.6% in 1995. The decrease in
operating income was primarily attributable to the restructuring charges and
impairment of fixed assets noted above in the amount of $2.1 million. Excluding
the restructuring charges, the Company would have had operating income of $0.1
million or 0.2% of net sales for 1996. The decrease, excluding the restructuring
charges, was related to product mix changes and related overhead expenses to put
new programs in place as well as increased variable selling costs associated
with higher sales volumes in the first two quarters of 1996.
Interest Expense. Interest expense in 1996 increased 31.7% from 1995 to
$0.5 million. Borrowing due to increases in inventory and accounts receivable
levels is the primary reason for the increase in interest expense.
Income Tax Expense. The Company's effective income tax rate for 1996 was
35.4% compared to 26.3% for 1995. Tax expense for 1995 was lower due to certain
research expenditures incurred in 1992, 1993, 1994 and 1995 for which the
Company claimed federal tax credits. The Company's Rocky Mountain facility is
also located in a State of Colorado enterprise zone. The Company receives state
tax credits for capital expenditures and increases in the number of Company
employees but, as sales increase, these state tax credits will have a relatively
smaller effect on the Company's effective income tax rate.
1995 Compared to 1994
Net Sales. Net sales in 1995 decreased 6.3% to $49.2 million from $52.5
million in 1994. In 1995, revenues generated from sales to three of the
Company's largest customers decreased by approximately $13.5 million when
compared to 1994 levels. One customer moved into a larger facility and decided
to decrease its outsourced manufacturing requirements. The decrease in orders
from the other two customers was due to the Company's inability to be
competitive on material pricing because of the Company's inability to take
advantage of volume buying. In 1994, these three customers accounted for
approximately $23.6 million of revenues compared to approximately $10 million in
1995. The top ten customers in 1995 accounted for 80.4% of total sales volume,
as compared to 91.3% in 1994. The Company replaced a significant portion of the
lost revenues attributable to the decrease in orders with new sources of revenue
during 1995.
Gross Profit. Gross profit in 1995 decreased 28.1% from 1994 to $3.9
million. Gross profit as a percentage of net sales for 1995 was 7.9%, compared
to 10.3% in 1994. These decreases are attributable to several factors. First,
the overall number of different assemblies ordered annually by customers
increased by 200 assemblies from 703 assemblies at December 31, 1994 to 903
assemblies at December 31, 1995. At December 31, 1993, the Company had
approximately 619 assemblies. The increase in the number of assemblies resulted
in a decrease in efficiency manifested in increased costs related to the
start-up of manufacturing of such new assemblies and other costs. Such start-up
costs primarily consisted of increased labor costs due to difficulties in
scheduling large numbers of assemblies, including costs for new personnel,
training, overtime and increased rework costs. The Company also experienced
increases in other manufacturing costs, including increased costs of production
planning, documentation, engineering and scrap costs. Second, the Company made
investments in equipment and facilities at the end of 1994 and the beginning of
1995. Due to such investments, depreciation expense increased by $0.7 million to
$1.7 million in 1995 from $1.0 million in 1994. Third, during 1995, periodic
material shortages created upward pressure on material prices and affected
manufacturing schedules which had a negative impact on gross margins.
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<PAGE> 25
Selling, General and Administrative Expenses. SGA expense for 1995
increased by 29.2% over 1994 to $3.1 million. The increase is primarily the
result of non-recurring costs related to corporate re-structuring in the third
quarter, consulting fees related to corporate reengineering processes, increased
selling expenses related to a new sales office in Texas and a new sales
representative in California, and increased administrative expenses related to
being a publicly-held company. As a percentage of net sales, SGA expense
increased to 6.3% in 1995 from 4.6% in 1994.
Operating Income. As a result of the factors described above, operating
income in 1995 decreased 73.5% in 1994 to $0.8 million. Operating income as a
percentage of net sales decreased from 5.7% in 1994 to 1.6% in 1995.
Interest Expense. Interest expense in 1995 increased 127.7% from 1994 to
$399,389. The increase was attributable the Company's use of bank debt to fund
increases in inventory growth and accounts receivable which were related to the
previously mentioned change in product mix. Also, the Company acquired
approximately $2.5 million in property and equipment in 1995, which was financed
with short term debt. As discussed below under "Liquidity and Capital
Resources," the Company received cash from a sale-leaseback transaction in
December 1995 of $3.7 million. In addition, the Company retired approximately
$3.3 million of short-term debt, in December 1995.
Income Tax Expense. The Company's effective income tax rate for 1995 was
26.3% compared to 35.2% for 1994. The decrease in the effective tax rate is
primarily attributable to certain research expenditures incurred in 1992, 1993,
1994 and 1995 for which the Company will claim federal tax credits. Also, the
Company's facilities are located in a state enterprise zone. The Company
receives state tax credits for capital expenditures and increases in the number
of Company employees. As sales and earnings increase, these state tax credits
will have a relatively smaller effect on the Company's effective income tax
rate.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, working capital totaled $411,296. Working capital at
December 31, 1996 was $8.5 million compared to $9.9 million at December 31, 1995
and $6.7 million at December 31, 1994. The increase in working capital from 1994
to 1995 is attributable primarily to a sale-leaseback transaction which closed
in December 1995. The Company sold equipment at a sales price of $3.7 million
and retired short-term debt in the amount of $3.3 million in December 1995. The
subsequent decrease in working capital in 1996 is attributable primarily to the
purchase of fixed assets and long-term debt retirement. The decrease in working
capital in the first nine months of 1997 is attributable to the increased
borrowings under the Company's line of credit associated with the CTI Merger.
Cash used in operations for the first nine months of 1997 was $12.3 million
compared to $0.5 million in the same period last year. Cash provided by
operations in 1996 was $35,667 compared to cash used in operations of $0.9
million in 1995 and $0.7 million in 1994. The AlliedSignal Asset Purchase in
Florida and Arizona and the CTI Merger resulted in a significant use of funds,
particularly in the purchase of inventory and equipment in the third quarter of
1997. The increase in cash used in operations in 1995 is attributable primarily
to increases in accounts receivable and inventories. Accounts receivable
increased 434.9% to $18.3 million at September 30, 1997 from $3.4 million at
September 30, 1996. Accounts receivable decreased 22.4% to $3.9 million at
December 31,1996 from $5.0 million at December 31, 1995, and increased 29.1% at
December 31, 1995 from $3.9 million at December 31, 1994. A comparison of
receivable turns (i.e., annualized sales divided by current accounts receivable)
for the first nine months of 1997 and the first nine months of 1996 is 4.7 and
17.4 turns, respectively. The 1997 receivable turn is distorted because the
sales for the first quarter of 1997 includes only one month and four days of the
CE Companies' revenues. The balance sheet of the Company as of September 30,
1997, includes the consolidation of the CTI Companies and the AlliedSignal Asset
Purchase, but there has been no corresponding revenue recognition from the CTI
Merger and only one month and 20 days of the revenues from the operations in
Fort Lauderdale, Florida and Tucson, Arizona. Receivable turns for 1996, 1995
and 1994 were 14.7, 9.9 and 13.6, respectively. Inventories increased 258.1% to
$32.8 million at
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September 30, 1997 from $10.1 million at September 30, 1996. Inventories
decreased 7.2% to $9.1 million on December 31, 1996 from $9.9 million on
December 31, 1995 and increased 31.8% on December 31, 1995 from $7.5 million on
December 31, 1994. A comparison of inventory turns (i.e., annualized cost of
sales divided by current inventory) for the first nine months of fiscal 1997 and
1996 shows a decrease to 2.3 from 5.6, respectively. The 1997 inventory turns
are distorted because the cost of sales for the first quarter includes only one
month and four days of the CE Companies' costs. Also the 1997 third quarter
ending balance sheet includes the consolidation of the CTI Companies and the
AlliedSignal Asset Purchase, but there has been no corresponding revenue
recognition from the CTI Companies and only one month and 20 days of costs of
running the Fort Lauderdale, Florida and Tuscon, Arizona operations. Inventory
turns for 1996, 1995 and 1994 were 5.9, 4.6 and 6.3, respectively. Inventory
increases in the early stages of new turnkey business may create delays and
decrease the turning of inventory until the new assemblies are in full
production.
The Company used cash to purchase capital equipment totaling $6.4 million
in the first nine months of 1997, compared with $2.1 million in the same period
last year. The Company also used cash to purchase the CE Companies and CTI
Companies, as explained earlier, in the amount of $24.6 million. Proceeds from
long-term borrowings of $35.0 million were used to help fund the purchase of the
CE Companies and CTI Companies. The Company used cash from investing activities
of $2.0 million in 1996, compared to providing cash of $1.3 million in 1995 and
using cash of $9.0 million in 1994. The Company used cash to purchase capital
equipment totaling $2.4 million in 1996, compared with $2.5 million in 1995. In
1995, the Company received cash from the sale of equipment primarily from the
sale-leaseback transaction mentioned above of $3.7 million. In 1994, capital
equipment consisting primarily of manufacturing and computer equipment in the
amount of $5.3 million was purchased. In addition, $3.7 million was spent for
the construction of a new manufacturing facility and the purchase of an
additional parcel of land to allow for future expansion. The capital equipment
was purchased with proceeds from the Company's initial public offering in 1994.
In connection with the CTI Merger and the AlliedSignal Asset Purchase, the
Company entered into the Bank One Loan comprised of a $25 million revolving line
of credit, maturing on September 30, 2000 and a $20 million term loan maturing
on September 30, 2002. The proceeds of the Bank One Loan were used for (i)
funding the CTI Merger and (ii) repayment of the then-existing Bank One line of
credit, bridge facility and equipment loan. The Bank One Loan bears interest at
a rate based on either the LIBOR or Bank One prime rate plus applicable margins
ranging from 3.25% to 0.50% for the term facility and 2.75% to 0.00% for the
revolving facility. Borrowings on the revolving facility are subject to
limitation based on the value of the available collateral. The Bank One Loan is
collateralized by substantially all of the Company's assets, including real
estate and all of the outstanding capital stock and memberships of the Company's
subsidiaries, whether now owned or later acquired. The agreement for the Bank
One Loan contains covenants restricting liens, capital expenditures,
investments, borrowings, payment of dividends, mergers and acquisitions and sale
of assets. In addition, the loan agreement contains financial covenants
restricting maximum annual capital expenditures, recapturing excess cash flow
and requiring maintenance of the following ratios: (i) maximum senior debt to
EBITDA (as defined in the agreement for the Bank One Loan); (ii) maximum total
debt to EBITDA; (iii) minimum fixed charge coverage; (iv) minimum EBITDA to
interest; and (v) minimum tangible net worth requirement with periodic step-up.
As of September 30, 1997, the borrowing availability under the Bank One Loan was
approximately $2.5 million.
In addition to the Bank One Loan, the Company issued $15 million in
aggregate principal amount of floating rate subordinated notes (the
"Subordinated Notes"), with a maturity date of December 31, 2002 and bearing a
rate of the London Inter-Bank Offered Rate, adjusted monthly ("LIBOR"), plus
2.00% in order to fund the AlliedSignal Asset Purchase. The Subordinated Notes
are payable in four annual installments of $50,000 and one final payment of
$14.8 million at maturity, but may be prepaid in whole or in part at the option
of the Company at any time. All payments and prepayments in respect of the
Subordinated Notes are fully subordinated to all payments in respect of the Bank
One Loan. The Subordinated Notes are accompanied by warrants for 500,000 shares
of the Company's Common Stock
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at an exercise price of $8.00 (the "Warrants"). The Warrants were exercised on
October 9, 1997. The holder of the Subordinated Notes is Richard L. Monfort, a
director of the Company. See "Certain Relationships and Related Transactions."
The Company has begun construction of a new manufacturing facility in
Oregon to replace its present facility located in Oregon at an approximate cost
of $5.8 million. The Company will fund this from operational cash flow and, to
the extent necessary, available lines of credit.
The Company intends to use the proceeds from the offering made hereby to
make a $6 million contingent payment to the previous owners of certain of the
CTI Companies and to repay all or part of the Bank One Loan. See "Use of
Proceeds."
The Company may require additional capital to finance enhancements to, or
expansions of, its manufacturing capacity in accordance with its business
strategy. Management believes that the need for working capital will continue to
grow at a rate generally consistent with the growth of the Company's operations.
The Company may seek additional funds, from time to time, through public or
private debt or equity offerings, bank borrowing or leasing arrangements;
however, no assurance can be given that financing will be available on terms
acceptable to the Company.
New Accounting Standard. In February 1997, the Financial Accounting
Standards Board issued Statement No. 128, "Earnings Per Share" ("SFAS 128")
which revised the calculation and presentation provisions of Accounting
Principles Board Opinion 15 and related interpretations. SFAS 128 is effective
for the Company's fiscal year ending December 31, 1997 and retroactive
application is required. The Company believes the adoption of SFAS 128 will not
have a material effect on its determination of earnings per share.
26
<PAGE> 28
BUSINESS AND PROPERTIES
GENERAL
The Company is a leading independent provider of high-mix electronic
manufacturing services ("EMS") and repair and warranty services to OEMs. The
Company's manufacturing services focus on a market niche of high-mix electronic
products -- products that are characterized by small lot sizes with differences
in configuration from each lot size to the next -- with an emphasis on
high-speed production. Following its recent acquisition of the CTI Companies,
the Company now also provides hub-based repair and warranty services that are
marketed as part of the logistics service offerings of the two largest companies
that specialize in overnight delivery services in the United States. These
hub-based services are provided principally through facilities located inside
the Overnight Delivery Hubs in Memphis, Tennessee and Louisville, Kentucky.
Through a series of acquisitions completed in 1997, the Company has
expanded its operations from one manufacturing facility in Colorado at the
beginning of 1997 to seven facilities throughout the United States at September
30, 1997. Additionally, these Acquisitions have strategically expanded the
Company's breadth of high-mix service offerings to include concurrent
engineering, subassembly manufacturing, next-day delivery of assemblies and
warranty and post-warranty repair services. The Acquisitions are expected to
provide the Company with new opportunities to develop programs to help its
existing customers reduce inventory, and allow the Company to cross-market its
services to the CTI Companies' existing customer base. See "Prospectus
Summary -- Acquisitions" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- The Company -- Recent Developments."
INDUSTRY OVERVIEW
Electronics Manufacturing Services. The electronic manufacturing services
industry emerged in the United States in the 1970s and began to grow rapidly in
the 1980s. By subcontracting their manufacturing operations, OEMs realized
productivity gains by reducing manufacturing capacity and the number of in-house
employees needed to manufacture products. As a result, capital that such OEMs
would have otherwise devoted to manufacturing operations became available for
other activities, such as product development and marketing. Over time, OEMs
have determined that manufacturing is not one of their core competencies,
leading them to outsource an increasing percentage, and in some cases all, of
their manufacturing to EMS providers. The Company believes that many OEMs now
view EMS providers as an integral part of their business and manufacturing
strategy rather than as a back-up source to in-house manufacturing capacity
during peak periods. The types of services now being outsourced have also grown.
The Company believes that OEMs are outsourcing more design engineering,
distribution and after-sale support, in addition to material procurement,
manufacturing and testing. Technology Forecasters, an independent market
research firm, has forecasted that the worldwide market for electronic contract
manufacturing services is expected to grow from $60 billion in 1996 to $140
billion in 2000, representing a compound annual growth rate of 24%.
Repair and Warranty Services. OEMs are also under pressure to control their
warranty and service costs without allowing customer service to suffer. This
pressure has increased as warranty periods have grown longer and product
life-cycles have grown shorter. As with manufacturing services, many OEMs have
determined that handling repair and warranty service and providing repair
services after warranty expiration are not within their core competencies.
Outsourcing allows the OEMs to focus their efforts on product research, design,
development and marketing. OEMs can also obtain other benefits from the use of
outside repair service providers, including reduced spares inventory, faster
turns on inventory and improved customer service for products during the
warranty period as well as after expiration of the warranty period. The
Company's hub-based service centers allow OEMs and their customers accelerated
repair cycles by eliminating transportation legs to and from the shipper to the
repair facilities. Dataquest, an independent market research firm, forecasts
that worldwide electronic hardware maintenance market revenues will increase
from $87.4 billion in 1995 to $106 billion in 2000. In addition, Dataquest
estimates that the three segments that the Company's repair and warranty
services are focused on -- personal
27
<PAGE> 29
computers, workstations and data communications equipment -- will grow from
$17.4 billion in 1995 to $28 billion in 2000.
Industry Trends. The Company believes that the growth of outsourcing
combined with the increasing number of types of electronic products that have
emerged over the last decade have significantly increased the variety of
electronic manufacturing services required by OEMs. Management also believes
that more OEMs from diverse industries are outsourcing manufacturing. The
proliferation of electronic products in such diverse fields as digital avionics,
electronic medical diagnostics and treatment, communications, industrial
controls and instrumentation and computers has placed increasing demands on EMS
providers to adapt to new requirements specific to different product types.
Similarly, the increasing diversity of the industries served by their OEM
customers is placing increased demands on EMS providers to expand their
value-added capabilities or more narrowly focus on a particular set of OEMs from
particular industry groups. These demands include unique time to market models,
manufacturing methods, technologies, quality criteria, and logistic needs,
resulting in an increasing need for EMS providers to specialize their services.
The Company believes that the key competitive trends in the industry may be
summarized as follows:
COMPETITIVE TRENDS
<TABLE>
<CAPTION>
YESTERDAY TODAY AND TOMORROW
--------- ------------------
<S> <C>
Contract manufacturers as generalists Contract manufacturers as specialists
Quality (key differentiator) Quality (prerequisite)
Manufacturing (only competency) Integrated value added services (in
addition to manufacturing)
Just-in-time (parts procurement) Just-in-time (complete process)
Manufacture printed circuit boards Manufacture complete products
Build-to-forecast Build-to-order
Typical warranty periods (90 days to Typical warranty periods (three to five
one year) years)
</TABLE>
The Company believes that OEMs are offering, and in the future will
increasingly offer, electronic products that are customized to specifications of
OEMs on a "box-build" basis and to the specifications of end users on a BTO
basis. In "box-build" services, the manufacturer assembles parts and components,
some of which may be purchased from other manufacturers, into a finished product
that meets the OEM's specifications. BTO services are box-build services in
which the lot size may frequently consist of a single unit and is customized to
the specifications of an end user. Typically, these products have some basic,
mass-produced parts and special parts that are combined in numerous
configurations to form highly customized products. The Company believes EMS
providers seeking to participate in this BTO market niche will be required to
build these products as orders are received from OEMs to permit such OEMs to
reduce their inventory costs and to meet end-users' desires for fast order
fulfillment. The Company is pursuing a specialization strategy within the EMS
industry that focuses on providing a broad range of high-mix manufacturing and
repair and warranty services with an emphasis on high-speed production and
repair. The Company believes that OEMs that have historically been volume
producers, but who are now shifting to BTO business models, will also be
attracted to EFTC's integrated assembly, logistic, and repair capabilities at
the Overnight Delivery Hubs.
Management believes that the Company's exclusive focus on high-mix
production techniques will serve the needs of traditional OEMs and is also
well-suited for the BTO market. All of the Company's systems are oriented toward
small-lot processing from cable assembly, to card assembly, to box-build, to
repair and warranty services. It is the Company's strategy to enter the BTO
market at the box-build level. The Company will outsource all mass-produced
items to commodity suppliers and manufacture the complex high-mix items at one
of the Company's regional facilities. Final BTO assembly will be done
28
<PAGE> 30
within the Overnight Delivery Hubs in Memphis and Louisville where the Company
currently offers repair and warranty services. This strategy positions the
Company to offer OEMs a simplified, more cost effective logistic solution to the
delivery of their products. By locating its repair and warranty services within
the Overnight Delivery Hubs, the Company believes it can reduce inventory
pipelines, minimize transportation legs and gain more time to respond to
customer needs.
STRATEGY
The Company's objective is to be a leading provider of electronic
manufacturing services exclusively focused on the needs of high-mix OEM
customers in its targeted markets. The Company believes its customers are
increasingly focused on improved inventory management, reduced time to market,
BTO production, access to leading-edge manufacturing technology and reduced
capital investment. The Company's strategy is to offer customers select service
offerings which utilize the Company's core competency of small-lot processing
and logistics benefits arising from the unique positioning of its repair and
warranty services and, in the future, BTO services within the Overnight Delivery
Hubs. The Company believes that this strategy will offer OEMs the most efficient
model to deliver BTO products. The Company's strategy is to create a broad
geographic presence, to provide innovative manufacturing solutions, to provide a
broad range of manufacturing services including, in the future, BTO services and
to help OEMs simplify inventory and logistics management.
Broad Geographic Presence. Electronic component manufacturing requires
close coordination of design and manufacturing efforts. The Company's strategy
to achieve that coordination is to provide front-end design in
manufacturability, engineering services, design for test engineering services,
prototypes, and complex high-mix production through regional facilities located
close to OEM engineering centers. This proximity allows for faster product
introduction and greater use of concurrent engineering. In pursuit of its
manufacturing strategy, the Company has made acquisitions in Oregon, Washington,
Arizona and Florida. To pursue its integrated repair and warranty strategy, the
Company has acquired the CTI Companies, a repair and warranty services
organization located within the Overnight Delivery Hubs in Memphis, Tennessee,
Louisville, Kentucky and Tampa, Florida. The Company believes that this
configuration of sites allows the Company to provide flexible, time-critical
services to its customers. See "-- Description of Property."
Innovative Manufacturing Solutions. The Company has designed APM to improve
cycle times in the manufacture of high-mix products. APM allows for the building
of small lots in very short cycle times by moving products asynchronously across
standardized processes. The Company is continuing to refine APM with the goal of
reducing average manufacturing cycle time to two days. See "-- Services --
Asynchronous Process Manufacturing." The Company has also innovated additional
services customized to meet the specialized needs of high-mix OEMs such as its
Total Solution Prototype Services ("TSPS"), the industry's first fixed-price
turnkey prototype service, its Component Obsolescence Program ("COP") and its
"Point-of-Use Stocking Program" ("PUP").
Broad Range of Manufacturing Services. The Company's regional plants are
actively involved in customer's new product introductions. As each newly built
or acquired facility is integrated into the Company's operations, each is
expected to have "design for manufacturability" ("DFM"), "design for test"
("DFT"), prototype, circuit card and cable assembly capabilities and to
incorporate APM for the manufacture of high-mix products. See
"-- Services -- Design and Testing Services." The CTI Companies' facilities
based at the Overnight Delivery Hubs now enable the Company to provide "design
for serviceability" capabilities and to market the CTI Companies' repair and
warranty services as complements to the Company's broad range of manufacturing
services. See "--Services--Repair and Warranty Services."
Provide Build-To-Order Services. The Company believes it has the necessary
skills and processes and is developing the integration plan necessary to
establish BTO capability for completed computers and instruments and systems at
its facilities based in the Overnight Delivery Hubs. Locating this activity at
the Overnight Delivery Hubs is intended to allow the Company's OEM customers to
effect delivery of
29
<PAGE> 31
products to their customers with the fewest legs of transportation and the
simplest logistic channel, thereby reducing the OEMs' inventory investments. The
Company expects to manufacture complex high-mix circuit cards at its regional
sites, out-source high-volume commodities to mass producers and conduct final
assembly and test at its Overnight Delivery Hubs. See
"-- Services -- Build-to-Order Services."
Simplified Logistics and Inventory Management. The Company seeks to
differentiate itself from its competitors by offering the customer service
offerings that utilize logistic benefits resulting from the positioning of the
Overnight Delivery Hubs. By taking advantage of the movement of goods through
the Overnight Delivery Hubs and the timing of the arrival and departure of
planes from the Overnight Delivery Hubs, the Company believes it will be
well-positioned within the industry to minimize: (1) the number of
transportation legs incurred in the overall movement of goods; (2) the total
inventory pipelines required for final build of goods in a BTO model; and (3)
the inventory pipeline required to support a rapid repair and warranty service.
See "-- Services -- Repair and Warranty Services."
SERVICES
Manufacturing Services Overview. The Company's turnkey manufacturing
services consist of assembling complex printed circuit boards (using both
surface mount and pin-through-hole interconnection technologies), cables,
electromechanical devices and finished products. The Company also provides
computer-aided testing of printed circuit boards, subsystems and final
assemblies. In certain instances, the Company completes the assembly of its
customers' products at the Company's facilities by integrating printed circuit
boards and electro-mechanical devices into other components of the customer's
products. The Company obtained, from the International Organization of
Standards, ISO 9002 certification in 1994.
The Company offers customer-select service offerings which utilize the
Company's core competency of small-lot processing and logistic benefits due to
the position of its repair and warranty service operations within the Overnight
Delivery Hubs. The Company is developing plans to offer BTO services in the
future which would be based at the Overnight Delivery Hubs. In addition, the
Company has also innovated additional services customized to meet the needs of
OEMs that develop and sell high-mix products. These include APM, TSPS, PUP and
COP.
Asynchronous Process Manufacturing. In the third quarter of 1996, the
Company introduced Asynchronous Process Manufacturing, a new manufacturing
methodology, at its Rocky Mountain facility. APM is an innovative combination of
high-speed manufacturing equipment, sophisticated information systems and
standardized process teams designed to manufacture mixtures of small quantities
of products faster and with more flexibility. APM allows for the building of
small lots in very short cycle times. The Company is continuing to refine APM
with the goal of reducing manufacturing cycle time for high-mix circuit cards to
two days. The Company plans to implement APM at all of its facilities and for
all of its customers as part of a strategy to focus the Company exclusively on
manufacturing high-mix products. APM implementation requires a complete redesign
of the Company's manufacturing operations, reorganizing personnel into process
teams and revising documentation. At the Company's Rocky Mountain facility, the
physical moves were completed in September 1996 and by the end of October 1996
APM was fully implemented. The Company has begun implementing APM at its
existing Newberg, Oregon facility, but will not complete that implementation
until after its new manufacturing facility under construction in Newberg, Oregon
is completed. The Company also plans to implement APM at its other facilities,
at appropriate times.
APM improves throughput of certain assembly processes over traditional
continuous (synchronous) flow processing ("CFM"), which is the predominant
method used in high-volume manufacturing. With APM, the Company is able to
process products rapidly using a combination of new discontinuous flow methods
for differing product quantities, fast surface mount assembly systems, test
equipment and high-volume, high-speed production lines. In the APM model,
materials are moved through the production queue at high-speed and not in a
continuous or linear order as under CFM. Instead, materials are moved
30
<PAGE> 32
though the assembly procedure in the most efficient manner, using a computer
algorithm developed for the Company's operations, with all sequences controlled
by a computerized information system.
High-mix manufacturing using APM involves a discontinuous series of
products fed through assembly in a start-stop manner, heretofore incompatible
with high-speed techniques. APM is an alternative to both CFM and batch
processing often used in smaller scale manufacturing. Until now, the combination
of small lots with numerous differences in configuration from each lot to the
next and high-speed manufacturing has been viewed as difficult, if not
impossible, by many high-mix manufacturers. The Company believes that CFM
techniques used by high-volume, high-speed ECMs cannot accommodate high-mix
product assembly without sacrificing speed, while smaller ECMs, capable of
producing a wide variety of products, often find it difficult to afford
high-quality, high-speed manufacturing assets or to keep up with OEMs' growing
product demand. Under CFM, all assembly occurs on the same line, thereby slowing
down the process with non-value-added operations. Under APM, all non-value-added
operations are performed in the most efficient manner, off-line, thereby keeping
the assembly process moving. A hybrid of CFM and batch production techniques,
APM sets optimal process parameters and maximizes velocity in producing smaller
lot quantities. By designating teams to set up off-line feeders, standardizing
loading methods regardless of product complexity, and most importantly,
improving employee motivation, the Company's application of APM has decreased
set-up and cycle times, standardized work centers, allowed processing of smaller
lot sizes and increased the Company's productivity.
[APM VS. CFM FLOW CHART]
Design and Testing Services. The Company also participates in product
design by providing its customers "concurrent engineering" or "design for
manufacturability" services. The Company's applications engineering group
interacts with the customer's engineers early in the design process to reduce
variation and complexity in new designs and to increase the Company's ability to
use automated
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<PAGE> 33
production technologies. Application engineers are also responsible for assuring
that a new design can be properly tested at a reasonable cost. Engineering input
in component selection is also essential to assure that a minimum number of
components are used, that components can be used in automated assembly and that
components are readily available and cost efficient. The Company also offers
customers a quick-turnaround, turnkey prototype service.
The Company has the capability to perform in-circuit and functional
testing, as well as environmental stress screening. In-circuit tests verify that
components have been properly inserted and that the electrical circuits are
complete. Functional tests determine if a board or system assembly is performing
to customer specifications. Environmental tests determine how a component will
respond to varying environmental factors such as different temperatures and
power surges. These tests are usually conducted on a sample of finished
components although some customers may require testing of all products to be
purchased by that customer. Usually, the Company designs or procures test
fixtures and then develops its own test software. The change from
pin-through-hole technology to surface mount technology is leading to further
changes in test technology. The Company seeks to provide customers with highly
sophisticated testing services that are at the forefront of current test
technology. Because the density and complexity of electronic circuitry
constantly are increasing, the Company seeks to utilize developing test
technology in its automated test equipment and inspection systems in order to
provide superior services to its customers.
Repair and Warranty Services. The Company has recently acquired the CTI
Companies, a hub-based, component-level repair organization focused on the
personal computer and communications industries. The CTI Companies pioneered the
"end-of-runway" or "airport-hub-based" repair strategy and are the only
providers with operations inside and integrated with the operations of the
Overnight Delivery Hubs. The Company believes that through the CTI Companies'
long tenure in the industry, high-quality technical capabilities, logistically
advantageous site locations, and strong relationships with transportation
industry leaders, the CTI Companies have developed an optimized "service spares
pipeline," allowing lower OEM costs and improving end-user service levels.
The Company's repair service offering complements the transportation
logistics services marketing efforts of the two principal transportation
providers at the Overnight Delivery Hubs, who work with the Company in providing
access to large OEM accounts. The Company has exercised tight cost control on
costs by using a flexible, part-time labor pool and leveraging the sales and
marketing efforts of these transportation and logistics service providers.
Additionally, beyond the requisite piece-part inventory for repairs, the Company
carries minimal OEM inventory and is thus less exposed to inventory obsolescence
than many competitors.
The Company's repair and warranty division has developed superior brand
equity with high levels of service achievable through product and vendor repair
specialization. The Company believes that, through its experience of perfecting
an integrated service and logistics model, it has erected a barrier to entry for
potential competitors who might also seek to locate repair and warranty service
centers at the Overnight Delivery Hubs. Moreover, the Company believes the CTI
Companies have succeeded in increasing certain customers' service spare part
inventory turnover rates significantly. The experiences of the CTI Companies
with those customers provide evidence to demonstrate to potential OEM customers
the cost savings associated with significant increases in service spare
inventory turnover.
The Company's repair and warranty services handle various types of
equipment, including monitors, PC boards, routers, laptops, printers, scanners,
fax machines, pen-based products, PDAs, and keyboards. The Company works with
its customers on "advance exchange" programs, whereby end users receive
overnight replacement of their broken components, which are in turn repaired by
the Company and replaced into the OEMs' "service spares inventory pipeline" for
future redistribution. The Company thus assists OEM customers in increasing
inventory turns, reducing spares inventory, lowering overall costs, accelerating
repair cycles, and improving customer service. Customer service is improved
through both quicker turnaround time for in-warranty claims, as well as having
the Company support end-customers with out-of-warranty claims and end-of-life
products.
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<PAGE> 34
Build-to-Order Services. The Company believes OEMs are shifting their focus
to increase demand for customized products. In the past, electronic products
were typically mass produced, sold through distributors to retailers who, in
turn, sell to the mass market. Currently, the Company believes there will be an
increased need for custom producers who build to a custom order received
directly from an end user through telephone or Internet ordering systems. For
example, several computer manufacturers have begun to market computers directly
to, and to receive orders directly from, end-users. The products are then
rapidly custom-built and delivered to the end-user.
Custom products are by definition high-mix in that they are built in small
lots and produced in a wide variety of configurations. Management believes that
the Company's core competency of small-lot processing using its APM model will
permit the Company to begin providing BTO services. The Company is developing a
plan to begin BTO manufacturing, which includes these elements:
- high-mix circuit cards and subassemblies will be manufactured at one of
its regional sites,
- commodity high-volume cards and subassemblies will be outsourced to
volume commodity producers,
- the Company's high-mix products and outsourced commodities will be
delivered to its BTO facilities located within Overnight Delivery Hubs,
- orders will be received at the Overnight Delivery Hubs, and
- final product will be assembled at facilities currently used for
repair/service utilizing the APM model and delivered to the end user.
Management believes that this infrastructure, combined with its APM model, will
provide OEMs a cost-advantageous model to serve their BTO needs. The Company can
give no assurance, however, that it will begin BTO service or that the Company
will successfully attract customers to utilize this new offering.
CUSTOMERS AND MARKETING
The Company seeks to serve traditional high-mix OEMs and OEMs that produce
high-volume products and need high-mix repair and warranty services, which by
their nature are high-mix services, or plan to implement high-mix BTO
strategies. The Company has recently reorganized its manufacturing marketing
efforts to focus on the following markets: (1) aerospace and avionics; (2)
medical devices; (3) communications; (4) industrial controls and
instrumentation; and (5) computer-related products.
Each segment has or will have a marketing manager located at the corporate
center in Denver. The marketing manager's responsibility is to understand their
market, to know which companies are the market share leaders, to know which are
the emerging growth companies within the sector, and to know what new products
and technologies are being introduced into that sector. From that data, the
marketing manager develops a target account list and appropriate strategies and
tactics for pursuing those accounts. Regional sales managers located at each of
the Company's regional sites will assist the marketing managers. The regional
sales managers are responsible for identifying and pursuing accounts within
their region that fit the Company's targeted outlets. This interlocked or
"webbed" sales and marketing organization positions the Company to pursue
accounts on both a national and regional basis.
In addition, a key part of the Company's repair and warranty services
marketing strategy is to continue to utilize the sales force of the two
transportation providers located in the Overnight Delivery Hubs to sell the
Company's repair and warranty services as an integral part of the logistics
service offerings of these transporation providers.
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<PAGE> 35
The following table represents the Company's net sales for manufacturing
services by industry segment:
<TABLE>
<CAPTION>
NINE MONTHS
1997 1996 1995
----------- ----- -----
<S> <C> <C> <C>
Aerospace and Avionics............................ 17.0% 0.0% 0.0%
Medical........................................... 17.9% 29.3% 31.0%
Communications.................................... 10.7% 1.5% 9.1%
Industrial Controls and Instrumentation........... 23.7% 12.6% 9.1%
Computer-Related.................................. 29.5% 54.4% 49.0%
Other............................................. 1.2% 2.2% 1.8%
----- ----- -----
100.0% 100.0% 100.0%
</TABLE>
The Company's customer base for manufacturing services includes Exabyte
Corporation, Ohmeda, AlliedSignal, Hewlett-Packard Company ("HP"), ADC
Telecommunications, and Sony Corp of America, Inc. ("Sony"). The relationships
are typically long-term with most over five years old. A small number of
customers has historically represented a substantial percentage of the Company's
net manufacturing sales. As a result, the success of the Company's manufacturing
services operations depends to some degree on the success of its largest
customers. See "Risk Factors -- Dependence on a Limited Number of Customers;
Relationships With Transportation Providers."
The Company's customer base for repair and warranty services includes 25 of
the largest PC and electronics OEMs, including International Business Machines
Corporation, Dell Computer Corporation, Gateway 2000, Inc., HP, Bay Networks,
Inc. Ascend Communications Inc., Cisco Systems Inc. and Sony. The relationships
are typically long-term with most over five years old. The relationships span
OEM component suppliers, OEM component customers, and system, desktop and
network vendors, as well as direct marketers and channel players. As with the
Company's manufacturing services, a small number of customers historically has
represented a substantial percentage of the Company's net repair and warranty
services sales. As a result, the success of the Company's repair and warranty
services operations depends to some degree on the success of its largest
customers. See "Risk Factors -- Dependence on a Limited Number of Customers;
Relationships With Transportation Providers."
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<PAGE> 36
DESCRIPTION OF PROPERTY
As part of the Company's strategy to have a broad geographic presence and
locate its facilities in regions with a substantial or growing number of OEMs'
design and engineering facilities, the Company has made several acquisitions and
made significant capital investments in its manufacturing facilities.
<TABLE>
<CAPTION>
YEAR
LOCATION ACQUIRED SIZE OWNED/LEASED(1) SERVICES
-------- -------- ---- --------------- --------
<S> <C> <C> <C> <C>
Denver, Colorado 1997 10,000 square feet Leased(2) Executive Offices
Rocky Mountains 1991 52,000 square feet Owned(3) Manufacturing
Greeley, Colorado (84,000 square feet,
(being expanded) as expanded)
Newberg, Oregon 1997 47,000 square feet Leased(4) Manufacturing
(existing)
Newberg, Oregon 1998 65,000 square feet Owned(5) Manufacturing
(under construction) (expected)
Moses Lake, Washington 1997 20,000 square feet Leased(6) Manufacturing
Ft. Lauderdale, Florida 1997 95,000 square feet Subleased(7) Manufacturing
Tucson, Arizona 1998 65,000 square feet Owned(8) Manufacturing
(being remodeled) (expected)
Memphis, Tennessee 1997 155,000 square feet Leased(9) Offices, repair
and warranty
Louisville, Kentucky 1997 130,000 square feet Subleased and Repair and
Leased(10) warranty
Tampa, Florida 1997 55,000 square feet Owned and Repair and
Leased(11) warranty
</TABLE>
The Company believes its facilities are in good condition.
- ---------------
(1) Pursuant to the terms of the Bank One Loan, substantially all of the
Company's owned and leased property is subject to liens and other security
interests in favor of Bank One, and any other lenders from time to time
under the Bank One Loan.
(2) This lease will expire on December 31, 1999.
(3) This facility is located on approximately 10 acres of land owned by the
Company in Greeley, Colorado. The Company plans to remodel and to expand
this facility by adding approximately 32,000 square feet at an aggregate
cost of approximately $1.8 million. This construction is expected to be
completed by January 30, 1998. The Company has recently sold the other
building that had been located on its campus in Greeley, Colorado for
approximately $2.4 million.
(4) This facility includes several buildings on a campus, all of which are
leased from Mr. Charles Hewitson, Mr. Gregory Hewitson and Mr. Matthew
Hewitson, each of whom is a director of the Company. See "Certain
Relationships and Related Transactions -- Leases." These leases are on a
month-to-month basis and will be terminated when the Company moves to its
new facility. See footnote 5 below.
(5) The Company has purchased approximately 12 acres of land from an
unaffiliated third party and is building a 65,000 square foot facility in
Newberg, Oregon at an aggregate cost of approximately $5.8 million. The
Company expects this new facility to be completed by March 31, 1998. Upon
completion of this new facility, the Company will relocate its Newberg
operations from the leased facility.
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<PAGE> 37
(6) This facility is leased from Mr. Charles Hewitson, Mr. Gregory Hewitson and
Mr. Matthew Hewitson, each of whom is a director of the Company. See
"Certain Relationships and Related Transactions -- Leases." This lease
expires on November 30, 1997, but the Company expects to continue such
arrangement.
(7) In connection with the Florida portion of the AlliedSignal Asset Purchase,
the Company has entered into a subleasing arrangement with AlliedSignal for
a 95,000 square foot portion of a building in turn leased by AlliedSignal.
(8) In connection with the Tucson portion of the AlliedSignal Asset Purchase,
the Company, through a qualified intermediary as part of a tax-free
like-kind exchange, has agreed to purchase from an unaffiliated third party
approximately 20 acres of land and a 65,000 square foot building in Tucson,
Arizona for $1.8 million. The Company is remodeling the existing building
at an expected cost of $1.0 million. The Company expects the remodeling to
be completed in January 1998. Title to the land and building will pass to
the Company once the remodeling is substantially completed.
(9) The Company leases a 75,000 square foot facility and an 80,000 square foot
facility, both used for office space, warehouse space and repair services,
from unaffiliated third parties. The leases will expire on February 28,
2001 and June 30, 2001, respectively.
(10) The Company subleases an 80,000 square foot facility from one of the
transportation providers that operates one of the Overnight Delivery Hubs,
and this lease is terminable upon 90 days notice by either party. The
Company also leases a 50,000 square foot facility from an unaffiliated
third party and this lease will expire on May 31, 2000.
(11) The Company leases a 15,000 square foot facility from Allen S. Braswell,
Sr., who is a director of the Company. This lease is a month-to-month
arrangement. See "Certain Relationships and Related
Transactions -- Leases." The Company expects this arrangement to end in
March 1998. The Company also owns a 30,000 square foot building, and the
Company has leased a 10,000 square foot facility from an unaffiliated third
party.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SMI. Sales Management International, Inc. ("SMI") was formed in 1987 by Mr.
Jack Calderon, President, Chief Executive Officer and a director of the Company,
Mr. Allen S. Braswell, Sr., the Chairman of CTI and Mr. Allen S. Braswell, Jr.,
the President and Chief Executive Officer of CTI. SMI, acting as sales agent for
CTI, secured a large contract from IBM to repair computer monitors and received
a commission of 2% of revenues derived from such contract. In November 1990,
CTI's Board of Directors passed a resolution stating that in the event of a
change of control of CTI, SMI would receive 2% of the purchase price or $0.5
million, whichever is less. The total proceeds received by SMI as the result of
the consummation of the CTI Merger was $0.5 million, of which Mr. Calderon
received $166,667, representing his 33.3% interest. Since his employment with
the Company, Mr. Calderon has not received any other compensation from SMI.
Leases. CTI leases a portion of its repair facilities in Tampa, Florida
from Allen S. Braswell, Sr. a director of the Company. The Company leases
approximately 15,000 square feet and the monthly lease cost is $3.44 per square
foot and $300 per month for taxes. The building is used for repair operations
and storage. The Company expects such arrangement to end in March 1998.
The Company currently leases a manufacturing facility in Newberg, Oregon
from Mr. Charles Hewitson, Mr. Gregory Hewitson and Mr. Matthew Hewitson, each
of whom is a director of the Company. The Company expects, upon completion of
its new facility which is currently under construction, to relocate its Newberg
operations from the leased facility to the new facility and to terminate such
lease. The Company also leases a manufacturing facility in Moses Lake,
Washington from the Hewitsons and the Company expects to continue such
arrangement.
Contingent Payment. In connection with the CTI Merger, the Company agreed
to pay Allen S. Braswell, Sr., Allen S. Braswell, Jr. (each a director of the
Company) and other members of their families,
36
<PAGE> 38
who were the indirect owners of the membership interests in Airhub and CTI LLC,
on a pro rata basis, up to $6.0 million in three annual installments, subject to
the achievement by the CTI Companies of certain goals relating to earnings
before interest and taxes and subject to certain other conditions. Such
agreement also provides for payment to the members of Airhub and CTI LLC of $6.0
million minus any earnout payments made or due and payable, in the event of
either (i) a change in control of the Company; (ii) a public offering of the
Company's Common Stock; or (iii) a private offering of the Company's Common
Stock with aggregate net proceeds to the Company of not less than $40 million.
Accordingly such $6.0 million contingent payment will become payable upon
completion of the offering made hereby. See "Use of Proceeds."
Director Representation of the CTI Companies. Mr. Robert K. McNamara, a
director of the Company, is a Managing Director of Broadview, an investment
banking firm, and in such capacity represented the CTI Companies in connection
with the CTI Merger. Broadview is an investment bank that has represented
numerous companies in connection with mergers and acquisitions in the technology
sector. Broadview received a fee of approximately $900,000 in connection with
the consummation of the CTI Merger. The previous owners of certain of the CTI
Companies have agreed to pay Broadview an additional fee of $60,000 upon receipt
of the $6.0 million contingent payment referred to above. See "-- Contingent
Payment."
Issuance of Subordinated Notes. Mr. Richard L. Monfort, a member of the
Company's Board of Directors, purchased $15 million in aggregate principal
amount of Subordinated Notes issued by the Company on September 9, 1997. The
Subordinated Notes have a five-year maturity and bear interest at a variable
rate (adjusted monthly) equal to 2.00% over the applicable LIBOR rate. The
principal amount of the Subordinated Notes mature in four annual installments of
$50,000 (commencing on the first anniversary of their issuance) and a final
payment for the balance at maturity. In connection with the issuance of the
Subordinated Notes, on October 6, 1997, the Company issued Warrants to purchase
500,000 shares of the Company's Common Stock at an exercise price of $8.00 per
share to Mr. Monfort. The Warrants were exercised on October 9, 1997.
The foregoing information supplements the information appearing under the
caption "Certain Relationships and Related Transactions" in the Company's Proxy
Statement for its Annual Meeting, dated April 29, 1997, which is incorporated by
reference into the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
UNAUDITED PRO FORMA CONDENSED
FINANCIAL INFORMATION
The following unaudited pro forma condensed financial information is based
upon the historical financial statements of the Company, the historical combined
financial statements of the CE Companies and the historical combined financial
statements of the CTI Companies.
The unaudited condensed combined pro forma statements of operations for the
nine months ended September 30, 1997 and the year ended December 31, 1996 assume
the CE Companies and CTI Companies business combinations occurred on January 1,
1996 and include the historical operations of the Company and the CTI Companies
for those periods and the CE Companies for the period from January 1, 1997 to
February 24, 1997 and the year ended September 30, 1996, adjusted for the pro
forma effects of the business combinations.
The following unaudited condensed pro forma financial information has been
prepared based upon assumptions deemed appropriate by the Company and are not
necessarily indicative of the consolidated financial position or results of
operations if the business combination had been consummated on the assumed dates
and are not necessarily indicative of the actual results of the future
operations of the combined companies.
37
<PAGE> 39
EFTC CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
CE COMPANIES PRO FORMA CTI COMPANIES
CE PRO FORMA COMBINED WITH CTI PRO FORMA PRO FORMA
EFTC COMPANIES ADJUSTMENTS CE COMPANIES COMPANIES ADJUSTMENTS COMBINED
----------- ---------- ------------ ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.................. $64,973,220 $4,475,732 $ $69,448,952 $28,571,264 $ -- $98,020,216
Cost of goods sold......... 56,739,734 4,025,431 (7,604)(3) 60,757,561 21,008,847 -- 81,766,408
----------- ---------- --------- ----------- ----------- ----------- -----------
Gross profit............. 8,233,486 450,301 7,604 8,691,391 7,562,417 -- 16,253,808
Selling, general and
administrative
expenses................. 5,126,226 1,368,366 -- 6,494,592 11,515,139 (3,900,000)(6) 14,109,731
Amortization of goodwill... 156,716 -- 44,645(1) 201,361 -- 810,651(1) 1,012,012
----------- ---------- --------- ----------- ----------- ----------- -----------
Operating income
(loss)................. 2,950,544 (918,065) (37,041) 1,995,438 (3,952,722) 3,089,349 1,132,065
----------- ---------- --------- ----------- ----------- ----------- -----------
Other income (expense):
Interest expense......... (1,054,448) (30,889) (77,901)(2) (1,163,238) (400,604) (1,309,640)(2) (2,873,482)
Other income, net........ 1,205,756 (17,273) -- 1,188,483 8,825 -- 1,197,308
----------- ---------- --------- ----------- ----------- ----------- -----------
151,308 (48,162) (77,901) 25,245 (391,779) (1,309,640) (1,676,174)
----------- ---------- --------- ----------- ----------- ----------- -----------
Income (loss) before
income taxes........... 3,101,852 (966,227) (114,942) 2,020,683 (4,344,501) 1,779,709 (544,109)
Income tax expense
(benefit)................ 1,132,824 (362,354) (38,189)(4) 732,281 -- (939,042)(5) (206,761)
----------- ---------- --------- ----------- ----------- ----------- -----------
Net income
(loss)........... $ 1,969,028 $(603,873) $ (76,753) $ 1,288,402 $(4,344,501) $ 2,718,751 $ (337,348)
=========== ========== ========= =========== =========== =========== ===========
Income per common share,
fully diluted............ $ 0.32 $ (0.04)
=========== ===========
Weighted average common and
common equivalent shares
outstanding.............. 6,218,528 1,858,975 8,077,503
=========== =========== ===========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Information.
38
<PAGE> 40
EFTC CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
CE COMBINED
COMPANIES WITH
CE PRO FORMA CE CTI PRO FORMA
EFTC COMPANIES ADJUSTMENTS COMPANIES COMPANIES ADJUSTMENTS
----------- ----------- ------------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................... $56,880,067 $32,520,438 $ -- $89,400,505 $26,509,725 $ --
Cost of goods sold........... 53,980,067 27,075,305 (45,626)(3) 81,009,746 19,580,340 --
----------- ----------- --------- ----------- ----------- -----------
Gross profit............... 2,900,000 5,445,133 45,626 8,390,759 6,929,385 --
Selling, general and
administrative expenses.... 4,195,784 2,792,814 -- 6,988,598 6,251,364 --
Amortization of goodwill... -- -- 267,869(1) 267,869 -- 1,080,868(1)
Impairment of fixed assets... 725,869 -- -- 725,869 -- --
----------- ----------- --------- ----------- ----------- -----------
Operating income
(loss)................... (2,021,653) 2,652,319 (222,243) 408,423 678,021 (1,080,868)
----------- ----------- --------- ----------- ----------- -----------
Other income (expense):
Interest expense........... (525,854) (101,192) (467,407)(2) (1,094,453) (434,345) (1,746,187)(2)
Other income, net.......... 82,428 9,345 -- 91,773 (9,112) --
----------- ----------- --------- ----------- ----------- -----------
(443,426) (91,847) (467,407) (1,002,680) (443,457) (1,746,187)
----------- ----------- --------- ----------- ----------- -----------
Income (loss) before income
taxes.................... (2,465,079) 2,560,472 (689,650) (594,257) 234,564 (2,827,055)
Income tax expense
(benefit).................. (872,114) 754,000 (68,284)(4) (186,398) -- (891,074)
----------- ----------- --------- ----------- ----------- -----------
Net income (loss).......... $(1,592,965) $ 1,806,472 $(621,366) $ (407,859) $ 234,564 $(1,935,981)
=========== =========== ========= =========== =========== ===========
Income (loss) per common
share, fully diluted....... $ (0.40)
===========
Weighted average common and
common equivalent shares
outstanding................ 3,942,139 1,980,000 1,858,975
=========== =========== ===========
<CAPTION>
PRO FORMA
COMBINED
------------
<S> <C>
Net sales.................... $115,910,230
Cost of goods sold........... 100,590,086
------------
Gross profit............... 15,320,144
Selling, general and
administrative expenses.... 13,239,962
Amortization of goodwill... 1,348,737
Impairment of fixed assets... 725,869
------------
Operating income
(loss)................... 5,576
------------
Other income (expense):
Interest expense........... (3,274,985)
Other income, net.......... 82,661
------------
(3,192,324)
------------
Income (loss) before income
taxes.................... (3,186,748)
Income tax expense
(benefit).................. (1,077,472)
------------
Net income (loss).......... $ (2,109,276)
============
Income (loss) per common
share, fully diluted....... $ (0.27)
============
Weighted average common and
common equivalent shares
outstanding................ 7,781,114
============
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Information.
39
<PAGE> 41
EFTC CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(A) BASIS OF PRESENTATION
On February 24, 1997, the Company acquired two affiliated entities, Current
Electronics, Inc., an Oregon Corporation, and Current Electronics (Washington),
Inc., a Washington Corporation, for total consideration of approximately $10.9
million, consisting of 1,980,000 shares of Company common stock and
approximately $5.5 million in cash which included approximately $600,000 of
transaction costs. The Company recorded goodwill of approximately $8.0 million
in connection with the acquisition, which is being amortized over 30 years.
On September 30, 1997, the Company acquired three affiliated companies,
Circuit Test, Inc., Airhub Service Group L.C. and CTI International, L.C. for
approximately $29.3 million consisting of 1,858,975 shares of the Company's
common stock and approximately $20.5 million in cash. In addition, the Company
will make a $6 million contingent payment payable upon closing of a public
offering of securities. The Company recorded goodwill of approximately $32.4
million, which will be amortized over 30 years.
The acquisitions were accounted for using the purchase method of accounting
for business combinations. Actual adjustments may differ from those presented
herein upon finalization of the purchase accounting.
(B) PRO FORMA ADJUSTMENTS
The following pro forma adjustments have been made to the accompanying pro
forma condensed financial information:
1. To record amortization of goodwill resulting from the acquisitions
over a 30-year period.
2. To record interest expense on additional borrowings for the
acquisitions at an assumed interest rate of 8.5% per annum.
3. Elimination of depreciation expense relating to certain leasehold
improvements that were abandoned after consummation of the CE Companies
acquisition.
4. To record income tax expense for the taxable income of CEWI, an S
Corporation, net of the effect of the pro forma adjustments.
5. To record income tax expense for taxable income of CTI, an S
Corporation, and CTI LLC and Airhub, net of the income tax effect of the
pro forma adjustments.
6. To eliminate nonrecurring bonuses and commissions paid by the CTI
Companies in connection with the CTI Merger in the amount of approximately
$3.9 million.
40
<PAGE> 42
MANAGEMENT
The following are the members of the Company's Board of Directors and the
Company's executive officers:
<TABLE>
<CAPTION>
NAME AGE TITLE(S)
---- --- --------
<S> <C> <C>
Gerald J. Reid(1)............... 56 Director and Chairman of the Board
Jack Calderon................... 44 Director, President and Chief Executive
Officer of the Company
Stuart W. Fuhlendorf............ 35 Director and Chief Financial Officer of
the Company
Lloyd A. McConnell.............. 45 Director and Director of Engineering
Allen S. Braswell, Sr........... 60 Director
Allen S. Braswell, Jr........... 39 Director
Darrayl E. Cannon(2)............ 50 Director
James A. Doran(3)............... 42 Director
Charles E. Hewitson............. 48 Director
Gregory C. Hewitson............. 50 Director
Matthew J. Hewitson............. 46 Director
Robert K. McNamara(2)(3)........ 43 Director
Richard L. Monfort(1)(2)........ 43 Director
Lucille A. Reid................. 57 Director
Masoud S. Shirazi(2)(3)......... 46 Director
David W. Van Wert(1)(2)(3)...... 59 Director
August P. Bruehlman............. 42 Chief Administrative Officer
</TABLE>
- ---------------
(1) Member of committee to reduce number of directors
(2) Member of Compensation Committee
(3) Member of Audit Committee
The number of members of the Company's Board of Directors is currently
fixed at 16. The Company's Amended and Restated Articles of Incorporation
provide for a classified Board of Directors. For purposes of determining the
directors' terms of office, directors are divided into three classes. The Class
I directors, whose terms expire at the 1998 annual meeting of shareholders,
except as described below, include Lucille A. Reid, James A. Doran, Richard L.
Monfort, Gregory C. Hewitson and Allen S. Braswell, Jr. The Class II directors,
whose terms expire at the 1999 annual meeting of shareholders, except as
described below, include Jack Calderon, Darrayl E. Cannon, Lloyd A. McConnell,
David W. Van Wert, Matthew J. Hewitson and Allen S. Braswell, Sr. The Class III
directors whose terms expire at the 2000 annual meeting of shareholders include
Gerald J. Reid, Masoud S. Shirazi, Stuart W. Fuhlendorf, Robert K. McNamara and
Charles E. Hewitson.
On September 2, 1997, the Board of Directors determined that the proper
number of directors for the Company is nine or fewer and voted to create a
committee to study the current composition of the Board and to develop a plan to
reduce the number of members on the Board of Directors to nine by February 1998.
Acting pursuant to the Company's Articles of Incorporation and Bylaws, the
Board elected Allen S. Braswell, Sr. and Allen S. Braswell, Jr. as Class II and
Class I directors, respectively, on September 30, 1997. In connection with the
consummation of the Company's acquisition of CTI Companies, which were owned by
the Braswells, the Company agreed to take such action as may be necessary to
cause the Braswells to be elected to serve as directors upon the effectiveness
of the CTI Merger. The Company's Bylaws provide that each of the Braswells shall
hold office until the 1998 annual meeting of shareholders and until his
successor shall have been elected and qualified.
41
<PAGE> 43
Following are brief descriptions of the business experience of the
Company's directors and executive officers:
Gerald J. Reid, 56, a founder of the Company, has been Chairman of the
Board since October 1990. Mr. Reid also periodically served as the Company's
Manufacturing Manager since that time and has served as President of the Company
from August 1995 until August 1996 when he retired as an executive of the
Company. From August 1981 until October 1990, Mr. Reid was President and Chief
Executive Officer of the Company. Before founding the Company in 1981, he held a
number of manufacturing-related managerial positions over a 19-year career with
HP, including Future Information Systems Task Force Manager, Production Control
Manager, Production Section Manager and Technical Supervisor. At the time Mr.
Reid left HP to found the Company, he held the position of Division Materials
Manager. Mr. Reid has been a director of the Company since its inception.
Jack Calderon, 44, has been the Company's President and Chief Executive
Officer since August 1996. From January 1996 to August 1996, Mr. Calderon was
President of SMI, a private consulting firm through which Mr. Calderon provided
strategic consulting to executive officers of various high-technology companies.
From 1989 to 1996, Mr. Calderon worked for Group Technologies, an electronic
contract manufacturing company. Mr. Calderon held several management positions
at Group Technologies, most recently as its Vice President and General Manager
of International Operations. Mr. Calderon currently authors a column on
electronic contract manufacturing for Circuitree Magazine and is on the Board of
Directors of Interconnecting and Packaging Electronic Circuits, a trade
association for electronic manufacturing services companies. Mr. Calderon
received a B.A. in economics from Case Western Reserve University and his Juris
Doctorate from The American University. Mr. Calderon has been a director of the
Company since August 1996.
Stuart W. Fuhlendorf, 35, has been the Company's Chief Financial Officer
since January 1993. Prior to joining the Company, Mr. Fuhlendorf held a number
of financial management positions in the aerospace and gaming industries. Mr.
Fuhlendorf holds an M.B.A. from the University of San Diego and a B.A. from the
University of Northern Colorado. Mr. Fuhlendorf has been a director of the
Company since October 1995.
Lloyd A. McConnell, 45, is the Company's Director of Engineering and has
been the Company's Secretary and a Vice President since May 1994. Mr. McConnell
served as the Company's Applications Engineering Coordinator from March 1993 to
July 1995 and as Manager of the Engineering Department from July 1995 to October
1995. From March 1991 to March 1993, Mr. McConnell was the Company's Quality
Assurance Manager. Mr. McConnell served as the Company's Engineering Manager
from 1987 to 1991 and from 1982 to 1987 as Sales Manager. Prior to 1982, Mr.
McConnell was employed in a variety of manufacturing engineering positions with
Eisenman Enterprises, Raincat Irrigation Systems and the U.S. Navy. Mr.
McConnell has been a director of the Company since 1984.
Allen S. Braswell, Sr., 60, was Chairman of the Board of Directors of CTI
until the consummation of the CTI Merger in September 1997, and had served on
the Board of Directors of CTI since founding the Company in 1981. Mr. Braswell
served as Chief Executive Officer of CTI from 1981 until October 1996. Prior to
founding CTI in 1981, Mr. Braswell was Director of Engineering at Honeywell's
Tampa, Florida division for five years and, prior to that, had held a variety of
management positions with Honeywell. Mr. Braswell began his employment with
Honeywell in 1963 as an engineer on the Saturn Space program. Mr. Braswell
received his B.S.E.E. from Georgia Institute of Technology in June 1962. Mr.
Braswell has been director of the Company since September 1997.
Allen S. Braswell, Jr., 39, is currently Vice President and Secretary of
CTI. Mr. Braswell had been President of CTI since October 1993 and Chief
Executive Officer of CTI since October 1996 until the consummation of the CTI
Merger in September 1997. Prior to that time, Mr. Braswell had been Executive
Vice President of CTI from August 1985 until October 1993 focusing primarily on
the Company's Sales and Marketing activities. Mr. Braswell has served on CTI's
Board of Directors since its founding in 1981. From May 1982 until August 1985
Mr. Braswell practiced with the law firm of Tanney, Forde, Donahey, and Eno L.P.
Mr. Braswell received his B.S. in business administration with a concentration
in finance
42
<PAGE> 44
from the University of Florida in March of 1980, and his Juris Doctorate from
the University of Florida College of Law in May 1982. Mr. Braswell has been
director of the Company since September 1997.
Darrayl E. Cannon, 50, has served as Vice President of Operations for
Dialogic Corporation, a leading computer telephony company, since September
1995. Mr. Cannon has a total of 28 years experience in the computer industry.
Mr. Cannon served from 1989 to 1995 in several positions at McDATA Corporation,
a data communications company and subsidiary of EMC Corporation, including, Vice
President Quality Assurance & Manufacturing, Vice President Development &
Production and Business Unit Manager. From 1975 to 1989, Mr. Cannon held a
variety of positions at NCR Corporation, including Director of NCR Power
Systems, Director of Operations and Director of Manufacturing. Prior to 1975,
Mr. Cannon was a design and manufacturing engineer for Magnavox Corporation. Mr.
Cannon has been a director of the Company since May 1996.
James A. Doran, 42, has been a senior audit manager with Hein & Associates,
LLP, a public accounting firm, since July 1994. From 1993 to 1994, Mr. Doran was
Senior Vice President and Chief Financial Officer and a director of Gerrity Oil
& Gas Corporation, an independent oil and gas operator in Denver, Colorado,
whose stock was listed on the New York Stock Exchange. Prior to joining Gerrity,
Mr. Doran was a shareholder of Williams, Richey & Co., P.C., an accounting and
consulting firm in Denver, Colorado, and before that was a Senior Manager with
Coopers & Lybrand. Mr. Doran has been a director of the Company since 1993.
Charles E. Hewitson, 48, currently serves as President of OnCourse, Inc., a
private consulting firm through which Mr. Hewitson provides certain consulting
services to the Company, and is a director of the Company. From 1984 to February
1997, Mr. Hewitson served as Vice President and director, and was a principal
shareholder, of CEI, with responsibility for human resources, finance,
accounting and manufacturing. In addition, Mr. Hewitson served as Vice President
of CEWI, from 1994 to February 1997. CEI and its affiliate CEWI were acquired by
the Company in February 1997, at which time Mr. Hewitson was appointed to the
Board of Directors of the Company.
Gregory C. Hewitson, 49, currently serves as President of Corporate
Solutions, Inc., a private consulting firm through which Mr. Hewitson provides
certain consulting services to the Company and is a director of the Company.
From 1984 to February 1997, Mr. Hewitson served as President of CEI and CEWI,
and was a principal shareholder of CEI, with responsibility for developing and
leading a sales and marketing team, directing a leadership team which dealt with
daily operational issues and developing strategic plans for the growth of CEI.
CEI and its affiliate CEWI were acquired by the Company in February 1997, at
which time Mr. Hewitson was appointed to the Board of Directors of the Company.
Matthew J. Hewitson, 46, currently serves as President of Matt Hewitson
Consulting, Inc., a private consulting firm through which Mr. Hewitson provides
certain consulting services to the Company, and is a director of the Company.
From 1984 to February 1997, Mr. Hewitson served as Secretary and Treasurer, and
was a principal shareholder, of CEI, with responsibility for engineering,
facilities, manufacturing and equipment. CEI and its affiliate CEWI were
acquired by the Company in February 1997, at which time Mr. Hewitson was
appointed to the Board of Directors of the Company.
Robert K. McNamara, 43, has served since August 1995 as a Managing Director
for Broadview, a merger and acquisition advisor serving the global information
technology industry. Before joining Broadview, Mr. McNamara spent 10 years with
Salomon Brothers Inc, most recently as vice president and head of its technology
group. From September 1981 to June 1985 Mr. McNamara worked at Smith Barney,
Harris Upham & Co., Inc. as vice president, focusing on the telecommunications
equipment, computer peripherals and computer retailing market segments. From
September 1976 to June 1979, Mr. McNamara served in the International Banking
Group of Chemical Bank, Brussels, Belgium. Mr. McNamara has been a director of
the Company since February 1996.
Richard L. Monfort, 43, served as President and Chief Operating Officer of
ConAgra Red Meat Companies from July 1989 to June 1995. From 1983 until 1989, he
was President of Monfort, Inc., which was subsequently acquired by ConAgra, Inc.
Mr. Monfort recently joined the board of directors of the
43
<PAGE> 45
University of Colorado Hospital Authority. Mr. Monfort has been a director of
Famous Dave's of America, Inc., an owner and operator of restaurants, since
March 1997. Mr. Monfort has been a director of the Company since 1993.
Lucille A. Reid, 57, a founder of the Company, served as the Company's
Customer Support/Manufacturing Specifications Manager from October 1990 to
August 1995 when she became Director of Manufacturing. Mrs. Reid served as
Director of Manufacturing until August 1996, when she retired from day-to-day
operations of the Company. From 1982 to 1990 Mrs. Reid served as the Company's
Manufacturing Manager. Before founding the Company in 1981, Mrs. Reid held
various positions for 14 years at HP, her last position being Manufacturing
Specifications Supervisor. Mrs. Reid's other positions at HP included Project
Coordinator, Production Control Supervisor and Production Supervisor. Mrs. Reid
has been a director of the Company since its inception.
Masoud S. Shirazi, 46, is an entrepreneur and President of Shirazi and
Associates, Inc., a benefit and consulting firm in Greeley, Colorado,
specializing in benefit and estate planning since 1976. Mr. Shirazi serves as a
director of Union Colony Bank. Mr. Shirazi has been a director of the Company
since 1992.
David W. Van Wert, 59, is President and Chief Executive Officer of Van Wert
Associates Consulting, Inc., a management consulting firm he founded. From June
1993 to August 1995, Mr. Van Wert was President and Chief Operating Officer of
Townsends, Inc., an agribusiness company in Millsboro, Delaware. In addition to
founding and running his management consulting firm, Mr. Van Wert has held a
variety of management and executive positions for 32 years in the meat and
poultry processing industries. Mr. Van Wert has been a director of the Company
since 1989.
Gerald J. Reid and Lucille A. Reid are married. Charles E. Hewitson,
Gregory C. Hewitson and Matthew J. Hewitson are brothers. Allen S. Braswell, Sr.
and Allen S. Braswell, Jr. are father and son. There are no other family
relationships among the Company's Directors.
OTHER EXECUTIVE OFFICER
August P. Bruehlman, 42, has been the Company's Chief Administrative
Officer since August 1996. Mr. Bruehlman joined the Company in 1988 and has held
several management positions, most recently as Director of Human Resources. Mr.
Bruehlman's current responsibilities at the Company include corporate
facilities, human resources and information systems. Prior to 1988, subsequent
to pursuing advanced degrees, he managed electronics and computer training in
the private and public sectors.
44
<PAGE> 46
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of October 9, 1997,
as to the beneficial ownership of Common Stock by beneficial owners of more than
five percent of the Company's Common Stock, each director, certain executive
officers and by all directors and executive officers as a group:
<TABLE>
<CAPTION>
PERCENT OF
NAME OF BENEFICIAL OWNER, NUMBER OF SHARES PERCENT OF COMMON
DIRECTOR OR COMMON STOCK COMMON STOCK
EXECUTIVE OFFICER BENEFICIALLY OWNED STOCK AFTER OFFERING(1)
------------------------- ------------------ ---------------- -----------------
<S> <C> <C> <C>
Gerald J. Reid(2).................... 520,000 5.6% 4.3%
Lucille A. Reid(2)................... 580,000 6.3% 4.8%
Jack Calderon(3)..................... 262,500(15) 2.9% 2.2%
Lloyd A. McConnell(3)................ 582,250(16) 6.3% 4.8%
Stuart W. Fuhlendorf(3).............. 90,000(17) * *
James A. Doran(4).................... 9,034(18) * *
Richard L. Monfort(5)................ 655,834(18)(19) 7.1% 5.4%
David W. Van Wert(6)................. 63,054(18)(20) * *
Darrayl Cannon(7).................... 3,750(23) * *
Robert K. McNamara(8)................ 3,750(23) * *
Masoud S. Shirazi(9)................. 31,634(18) * *
Charles E. Hewitson(10).............. 660,000 7.2% 5.4%
Gregory C. Hewitson(11).............. 660,000 7.2% 5.4%
Matthew J. Hewitson(12).............. 660,000 7.2% 5.4%
Allen S. Braswell, Sr.(13)........... 1,374,939(24) 14.9% 11.3%
Allen S. Braswell, Jr.(14)........... 369,442(25) 4.0% 3.0%
August P. Bruehlman(3)............... 64,500(21) * *
All directors and executive officers
as a group, including persons named
above (17 persons)................. 6,590,687(22) 71.7% 54.1%
</TABLE>
- ---------------
* Less than one percent.
(1) After giving effect to the issuance of 3,000,000 shares of the Company's
Common Stock in the offering made hereby.
(2) Mr. and Mrs. Reid's address is 2150 Reservoir Road, Greeley, CO 80631.
(3) Messrs. Calderon, McConnell, Fuhlendorf and Bruehlman's address is EFTC
Corporation, 9351 Grant Street, Sixth Floor, Denver, CO 80229.
(4) Mr. Doran's address is Hein & Associates, LLP, 717 17th Street, Denver, CO
80202-3330.
(5) Mr. Monfort's address is 3519 Holman Court, Greeley, CO 80632.
(6) Mr. Van Wert's address is 14227 West Dusty Trail Blvd., Sun City West, AZ
85375.
(7) Mr. Cannon's address is Dialogic Corp., 1515 Route 10, Parsippany, NJ
07054.
(8) Mr. McNamara's address is Broadview Associates, One Bridge Plaza, Fort Lee,
NJ 07024.
(9) Mr. Shirazi's address is Shirazi & Associates, P.O. Box 5315, Greeley, CO
80632.
(10) Mr. Charles Hewitson's address is 2513 NE 136th Street, Vancouver, WA
98683.
(11) Mr. Gregory Hewitson's address is 15905 Oswego Shore Court, Lake Oswego, OR
97034.
(12) Mr. Matthew Hewitson's address is 13801 SE 35th Street, Vancouver, WA
98683.
(13) Mr. Allen Braswell, Sr.'s address is 1 Willow Road, Unit B, Waynesville, NC
28786
(14) Mr. Allen Braswell, Jr.'s address is Circuit Test, Inc., 4601 Cromwell
Ave., Memphis, TN 38118.
45
<PAGE> 47
(15) Includes 200,000 shares of Common Stock issuable upon exercise of currently
exercisable, non-qualified options granted in connection with the
commencement of Mr. Calderon's employment and 60,000 shares of Common Stock
subject to currently exercisable options granted pursuant to the Company's
Equity Incentive Plan.
(16) Includes 12,000 shares of Common Stock issuable upon exercise of currently
exercisable options granted pursuant to the Company's Equity Incentive
Plan, 70,000 shares of Common Stock that are beneficially owned by Mr.
McConnell and are held in the August 1994 McConnell Charitable Remainder
Trust and 250 shares of Common Stock owned by Mr. McConnell's wife.
(17) Includes 82,700 shares of Common Stock issuable upon exercise of currently
exercisable options granted under the Employee Plan and 7,200 shares of
Common Stock subject to options that are exercisable under the Company's
1993 Stock Option Plan.
(18) Includes 8,334 shares of Common Stock issuable upon exercise of currently
exercisable options under the Company's Stock Option Plan for Non-Employee
Directors.
(19) Includes 100,000 shares of Common Stock owned by a partnership in which Mr.
Monfort is the principal investor, 1,000 shares of Common Stock owned by
Christine Monfort, Mr. Monfort's wife, and 27,000 shares of Common Stock
owned by three of Mr. Monfort's minor children.
(20) Includes 17,720 shares of Common Stock owned jointly with Sally B. Van
Wert, Mr. Van Wert's wife.
(21) Includes 52,000 shares issuable upon exercise of currently exercisable
options granted under the Company's Equity Incentive Plan and 12,000 shares
subject to currently exercisable options granted under the Company's 1993
Stock Option Plan.
(22) Of such 6,590,687 shares, as of October 9, 1997, an aggregate of 6,123,951
shares were outstanding and held of record by directors and officers of the
Company and the remaining 446,736 represent shares of Common Stock issuable
upon exercise of options or warrants that are currently exercisable or,
within 60 days of October 9, 1997, will become exercisable.
(23) Includes 3,750 shares of Common Stock issuable upon exercise of currently
exercisable options under the Company's Stock Option Plan for Non-Employee
Directors.
(24) Includes 1,374,939 shares of Common Stock that are owned by the Allen S.
Braswell, Sr. Grantor Retained Income Trust of which Mr. Braswell, Sr. is
the beneficiary of the income generated by the trust and Mr. Braswell, Jr.
is the beneficiary of a portion of the principal of the trust.
(25) Includes 331,092 shares of Common Stock owned by the Allen S. Braswell,
Jr./Alma L. Braswell JTWROS. Does not include 1,374,939 shares of Common
Stock owned by the Allen S. Braswell, Sr. Grantor Retained Income Trust of
which Mr. Braswell, Jr. is the beneficiary of a portion of the principal of
the trust.
46
<PAGE> 48
SELLING SHAREHOLDERS
The following table sets forth certain information as of October 9, 1997
regarding the Selling Shareholders and the beneficial ownership of shares of
Common Stock offered by the Selling Shareholders pursuant to this Prospectus.
<TABLE>
<CAPTION>
PERCENT OF
COMMON
STOCK
SHARES OF NUMBER OF SHARES ASSUMING
COMMON STOCK BENEFICIALLY OWNED EXERCISE
NUMBER OF SHARES OF SUBJECT TO ASSUMING EXERCISE OF OVER-
COMMON STOCK OVER-ALLOTMENT OF OVER-ALLOTMENT ALLOTMENT
NAME OF SELLING SHAREHOLDER BENEFICIALLY OWNED OPTION(1) OPTION(1) OPTION(1)
--------------------------- ------------------- -------------- ------------------ ----------
<S> <C> <C> <C> <C>
Gerald J. Reid(2).............. 520,000(6) 90,000 430,000 3.2%
Lucille A. Reid(2)............. 580,000(6) 90,000 490,000 3.6%
Lloyd A. McConnell(2).......... 582,250(6) 72,000 510,250 3.7%
Charles E. Hewitson(2)......... 660,000(6) 54,000 606,000 4.4%
Gregory C. Hewitson(2)......... 660,000(6) 54,000 606,000 4.4%
Matthew J. Hewitson(2)......... 660,000(6) 54,000 606,000 4.4%
Jack Calderon(2)............... 262,500(6) 6,750 255,750 1.9%
August P. Bruehlman(2)......... 64,500(6) 6,750 57,750 *
Robert Child(3)................ 35,000(7) 6,750 28,250 *
Brian Tracey(4)................ 44,200(8) 6,750 37,450 *
Stuart W. Fuhlendorf(2)........ 90,000(6) 4,500 85,500 *
Brent L. Hofmeister(5)......... 22,350(9) 4,500 17,850 *
</TABLE>
- ---------------
* Less than one percent.
(1) If the Underwriters over-allotment option is exercised in full, each Selling
Shareholder has agreed to sell the number of shares of Common Stock
indicated as being subject to the over-allotment option. If such option is
not exercised, the Selling Shareholders will not offer or sell any shares of
Common Stock pursuant hereto.
(2) For a description of positions held with the Company, see "Management."
(3) Mr. Child is the Company's Vice President of Materials.
(4) Mr. Tracey is the Company's Vice President of Sales and Marketing.
(5) Mr. Hofmeister is the Company's Corporate Controller.
(6) For a description of the beneficial ownership of these shares of Common
Stock, see "Principal Shareholders." For the number of shares of Common
Stock beneficially owned and percent of Common Stock owned after giving
effect to the issuance of 3,000,000 shares of the Company's Common Stock and
the sale of shares by the Selling Shareholder, see "Principal Shareholders".
(7) Includes 35,000 shares subject to currently exercisable options granted
under the Company's Equity Incentive Plan.
(8) Includes 44,000 shares subject to currently exercisable options granted
under the Company's Equity Incentive Plan.
(9) Includes 22,250 shares subject to currently exercisable options granted
under the Company's Equity Incentive Plan.
47
<PAGE> 49
DESCRIPTION OF CAPITAL STOCK AND OTHER SECURITIES
The Company's authorized capital stock consists of 45,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock, each with a par value of
$0.01 per share. As of October 9, 1997, there were 8,313,135 shares of Common
Stock outstanding, held of record by 247 persons, and no Preferred Stock was
outstanding. Upon completion of this offering, and after the exercise of certain
options before the closing of this offering, there will be 11,321,635 shares of
Common Stock (exclusive of shares subject to outstanding options and warrants)
and no shares of Preferred Stock outstanding.
The following summary description of the Company's capital stock does not
purport to be complete and is qualified in its entirety by reference to the
Company's Articles of Incorporation and Bylaws and to Colorado law. See
"Available Information."
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share of Common
Stock held of record on all matters submitted to a vote of shareholders.
Accordingly, holders of a majority of the shares of Common Stock entitled to
vote in any election of directors may elect all of the directors standing for
election. Subject to preferences for any outstanding Preferred Stock, holders of
Common Stock are entitled to receive ratably such dividends as the Board of
Directors may declare out of funds legally available for that purpose. In the
event of a liquidation, dissolution, or winding up of the Company, holders of
Common Stock are entitled to share ratably all assets remaining after payment of
liabilities and the liquidation preference of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive rights. All of the outstanding
shares of Common Stock are, and the Common Stock to be sold in this Offering
will be, duly authorized, validly issued, fully paid and nonassessable.
American Securities Transfer, Inc., is the transfer agent and registrar for
the Common Stock.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of Preferred Stock.
Subject to the limitations prescribed by law, the Board of Directors is
authorized to divide the Preferred Stock into series and to fix and determine
the relative rights and preferences of the shares of any series so established.
The authority of the Board with respect to each series shall, to the extent
allowed by the Colorado Corporate Code or any successor statute include, without
limitation, the express authority to establish and fix the following: the number
of shares and designation of any series of Preferred Stock and the dividend
rights and terms, dividend rate, conversion rights and terms, voting rights,
redemption rights and terms, liquidation preferences and sinking fund or reserve
account terms of any series of Preferred Stock. Any such Preferred Stock could
have economic and other rights senior to the Common Stock, so that the issuance
of such Preferred Stock could adversely affect the market value of the Common
Stock. The issuance of Preferred Stock may also have the effect of delaying,
deferring or preventing a change in control of the Company without any action by
the shareholders. The Company has no current plans to issue any such shares of
Preferred Stock.
CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS
Certain provisions of the Company's Articles of Incorporation and Bylaws
summarized below may have an anti-takeover effect and may delay, defer or
prevent a tender offer or takeover attempt that a shareholder might consider in
his or her best interest, including attempts that might result in a premium over
the market price for the shares held by shareholders. See "Risk
Factors -- Anti-Takeover Provisions."
The Company's Articles of Incorporation provide for a classified Board of
Directors. For purposes of determining their terms, directors are divided as
evenly as possible into three classes, with elections for each class every three
years on a staggered basis. See "Management."
48
<PAGE> 50
In addition to the provisions described above, the Company's Articles of
Incorporation and Bylaws provide (i) that vacancies on the Board of Directors
may be filled only by the remaining directors (unless the Board approves the
filling of such vacancies by the shareholders or there are no directors
remaining, in which case the shareholders shall fill any such vacancies), (ii)
that any action required or permitted to be taken by the shareholders of the
Company may be taken only at a duly called annual or special meeting of the
shareholders of the Company, and may not be taken by consent in writing or
otherwise except upon the unanimous consent of all shareholders entitled to vote
thereon, (iii) that special meetings of the Company's shareholders may be called
only by the Company's Chairman of the Board, President or Board of Directors
pursuant to a resolution approved by the affirmative vote of a majority of the
directors then in office, (iv) that the Company may not engage in certain
business combinations with, in general, a person who is the beneficial owner of
10% or more of the Company's outstanding voting stock (with certain exceptions
relating to persons who held Common Stock on December 9, 1993) without the
authorization or approval, or the affirmative vote of holders of at least 80% of
the outstanding shares and a majority of the shares not beneficially owned by
the interested shareholder in each case voting together as a single class or the
satisfaction of certain price, consideration and procedural requirements, (v)
that the shareholders or the Company may adopt, amend, or repeal Bylaws only
with the approval of holders of at least 80% of the shares, (vi) removal of any
director requires the affirmative vote of the holders of at least 80% of the
outstanding shares, (vii) for an advance notice procedure for the nomination,
other than by or at the direction of the Board of Directors or a committee of
the Board of Directors, of candidates for election as directors as well as for
other shareholder proposals to be considered at annual meetings of shareholders,
and (viii) that, except as otherwise required by law, no shareholder may
nominate a person for election to the Board of Directors at a special meeting
unless the special meeting is called for the election of directors and the
shareholder satisfies the requirements for nominating directors. In general,
notice of intent to nominate a director or raise business at such meetings must
be received by the Company not less than 60 nor more than 90 days before the
meeting, and must contain certain information concerning the person to be
nominated or the matters to be brought before the meeting and concerning the
shareholder submitting the proposal. The affirmative vote of the holders of at
least 80% of the outstanding shares is generally required to amend or repeal, or
adopt any provision inconsistent with, the provisions described in this
paragraph or to provide for cumulative voting.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering made hereby, there will be 11,321,635
shares of Common Stock outstanding (exclusive of shares subject to outstanding
options and warrants). Of these shares, all of the 3,000,000 shares to be sold
in this offering and an additional 1,870,310 previously issued shares will be
freely tradable without restriction under the Securities Act, by persons who are
not "affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act. The remaining 6,451,325 shares are "restricted securities" as
that term is defined under the Securities Act or are held by affiliates of the
Company and may not be sold in the absence of registration under the Securities
Act or an exemption therefrom, including the exemptions contained in Rule 144
and Rule 701 under the Securities Act, and may not be sold except in accordance
with the lockup agreement described below.
The Company, its directors and executive officers and the Selling
Shareholders have agreed (the "Lockup Agreement") with the Underwriters not to
make certain sales or dispositions of shares of Common Stock or securities
convertible or exercisable for Common Stock for a period of 180 days after the
date of this Prospectus without the prior written consent of Salomon Brothers
Inc, subject to certain exceptions. See "Underwriting." Salomon Brothers Inc
may, in its sole discretion at any time without notice, consent to an early
termination of the Lockup Agreement with respect to some or all of the shares
subject thereto.
Upon termination of the 180-day lockup period, approximately 3,879,570
shares of Common Stock will be eligible for sale, subject to the requirements of
Rule 144. An additional 2,244,381 shares of Common Stock will become eligible
for sale, subject to the requirements of Rule 144, during the third and fourth
quarters of 1998. In addition, the directors, officers and Selling Shareholders
who have agreed to
49
<PAGE> 51
180-day lockup periods hold currently exercisable options to purchase 367,986
shares of Common Stock, which may be sold following the expiration of the lockup
period under the registration statements on Form S-8 described below.
In general, under Rule 144 as currently in effect, if at least one year has
elapsed since the later of the date of acquisition of "restricted securities"
from the Company or from an "affiliate" of the Company, the acquiror or
subsequent holder thereof will be entitled to sell, within any three-month
period, a number of shares that does not exceed the greater of one percent of
the shares of Common Stock then outstanding or the average weekly trading volume
of the Common Stock during the four calendar weeks preceding the sale of such
shares. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. If (i) at least two years have elapsed since the
later of the date of acquisition of any "restricted securities" from the Company
or from an "affiliate" of the Company and (ii) the acquiror or subsequent holder
thereof is deemed not to have been an "affiliate" of the Company at any time
during the preceding three months, such person will be entitled to sell such
shares under Rule 144 immediately without regard to the volume limitations,
manner of sale provisions, public information requirements or notice
requirements described above.
The Company also has reserved 2,295,000 shares of Common Stock for issuance
under its Equity Incentive Plan and its Stock Option Plan for Non-Employee
Directors (collectively, the "Plans"). Options to purchase 1,152,700 of such
shares have been issued under the Plans and 879,776 of such options have vested.
The resale of 1,155,000 shares of Common Stock issuable upon exercise of such
options has been registered on Form S-8 and, shortly after the offering made
hereby, the Company intends to file registration statements on Form S-8 to
register the resale of the remaining 1,140,000 shares of Common Stock reserved
for issuance under the Company's Stock Option Plans. In addition, 43,800 shares
are reserved for issuance upon the exercise of the options issued and
outstanding under the Company's 1993 Stock Option Plan, which is now closed. The
resale of such shares has also been registered by the Company on Form S-8.
Under the terms and subject to the conditions of certain registration
rights agreements, certain of the Company's shareholders, including certain
Selling Shareholders, and certain of their transferees, are entitled to rights
with respect to registration under the Securities Act of their shares of Common
Stock not sold in the offering made hereby. If the Company proposes to register
any of its securities under the Securities Act, either for its account or for
the account of other security holders, the Company is required, subject to
certain conditions, to use its best efforts to include in such registration the
registrable securities held by those shareholders entitled to registration
rights. In addition, subject to certain conditions, such shareholders may
require the Company to file registration statements under the Securities Act
with respect to the registrable securities of the Company held by them. The
Company's directors, officers, Selling Shareholders and certain other
shareholders holding registration rights have waived such rights with respect to
the registration of the Common Stock being offered hereby. Furthermore, each of
the Company's directors officers and Selling Shareholders who have entered into
Lockup Agreements have also effectively waived the ability to exercise any such
registration rights until the expiration of the applicable lockup period.
No assurances can be given with respect to the effect, if any, of future
public sales of restricted shares of Common Stock or the availability of
restricted shares of Common Stock for sale in the public market. Sales of
substantial amounts of Common Stock in the public market could adversely affect
prevailing market prices.
50
<PAGE> 52
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company and the Selling Shareholders have agreed to sell to each
of the Underwriters named below (the "Underwriters"), and each of the
Underwriters, for whom Salomon Brothers Inc, J.C. Bradford & Co. and Pacific
Crest Securities Inc. are acting as representatives (the "Representatives"), has
severally agreed to purchase from the Company and the Selling Shareholders the
respective number of shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Salomon Brothers Inc .......................................
J.C. Bradford & Co. ........................................
Pacific Crest Securities Inc. ..............................
---------
Total............................................. 3,000,000
=========
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
above-listed shares of Common Stock if any such shares are purchased. In the
event of a default by any Underwriter, the Underwriting Agreement provides that,
in certain circumstances, the purchase commitments of the nondefaulting
Underwriters may be increased or the Underwriting Agreement may be terminated.
The Company has been advised by the Representatives that the several
Underwriters propose initially to offer the above-listed shares to the public at
the price to public set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to other dealers. After the initial public
offering, the public offering price and such concession may be changed.
The Selling Shareholders have granted the Underwriters an option,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to 450,000 additional shares of Common Stock at the same price per
share as the initial 3,000,000 shares of Common Stock to be purchased by the
several Underwriters. The Underwriters may exercise such option only to cover
over-allotments, if any, incurred in connection with the sale of the shares of
Common Stock made hereby. To the extent that the Underwriters exercise such
option, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase the same proportion of the additional shares as the
number of shares of Common Stock set forth opposite such Underwriter's name in
the table above bears to the total number of shares of Common Stock initially
offered by the Underwriters.
The Company has agreed with the Underwriters not to offer, sell or contract
to sell, or otherwise directly or indirectly dispose of (whether by actual
disposition or effective economic disposition due to cash settlement or
otherwise), or announce the offering of, any other shares of Common Stock or any
securities convertible into, or exchangeable for, shares of Common Stock, for a
period of 180 days following the date of this Prospectus. The Company may,
however, issue Common Stock upon the exercise of options outstanding on the date
of this Prospectus.
The directors and executive officers of the Company and the Selling
Shareholders of the Company have agreed with the Underwriters not to offer,
sell, contract to sell, pledge or otherwise dispose of, or file a registration
statement with the Commission in respect of, or establish or increase a put
equivalent position or liquidate or decrease a call equivalent position within
the meaning of Section 16 of the Securities Exchange Act of 1934 (the "Exchange
Act") with respect to, any shares of capital stock of the Company or any
securities convertible into or exercisable or exchangeable for such capital
stock, or publicly announce an intention to effect any such transaction, for a
period of 180 days following the date of this Prospectus without the prior
written consent of Salomon Brothers Inc, other than (i) any shares of Common
Stock offered hereby, (ii) any option or warrant or the conversion of a security
outstanding on
51
<PAGE> 53
the date of, and described in, this Prospectus and (iii) shares of Common Stock
disposed of as bona fide gifts approved by Salomon Brothers Inc.
In connection with the offering made hereby, certain Underwriters and
selling group members and their respective affiliates may engage in transactions
that stabilize, maintain or otherwise affect the market price of the Common
Stock. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M under the Exchange Act, pursuant to
which such persons may bid for or purchase Common Stock for the purpose of
stabilizing its market price. The Underwriters may also engage in passive market
making transactions in the Common Stock in accordance with Rule 103 of
Regulation M. The Underwriters also may create a short position for the account
of the Underwriters by selling more Common Stock in connection with the offering
made hereby than they are committed to purchase from the Company and the Selling
Shareholders, and in such case may purchase Common Stock in the open market
following completion of the offering made hereby to cover all or a portion of
such short position. The Underwriters may also cover all or a portion of such
short position, up to 450,000 shares of Common Stock, by exercising the
Underwriters' over-allotment option referred to above. In addition, Salomon
Brothers Inc, on behalf of the Underwriters, may impose "penalty bids" under
contractual arrangements with the Underwriters whereby it may reclaim from an
Underwriter (or dealer participating in the offering made hereby), for the
account of other Underwriters, the selling concession with respect to Common
Stock that is distributed in the offering made hereby but subsequently purchased
for the account of the Underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
Common Stock at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph is required, and,
if they are undertaken, they may be discontinued at any time.
As permitted by Rule 103 under Regulation M, the Underwriters (and selling
group members) that are market makers ("passive market makers") in the Common
Stock may make bids for or purchases of Common Stock in the Nasdaq National
Market until such time, if any, when a stabilizing bid for such securities has
been made. Rule 103 generally provides that a passive market maker (i) may not
make net daily purchases of the Common Stock in excess of the greater of (1) 200
shares and (2) 30% of its average daily trading volume in such securities for
the two full consecutive calendar months immediately preceding the filing date
of the registration statement of which this Prospectus forms a part, (ii) may
not effect transactions or display bids for the Common Stock at a price that
exceeds the highest independent bid for the Common Stock by persons who are not
passive market makers, (iii) may not display bids of a size that exceed the
lesser of (1) the minimum quotation size for the Common Stock and (2) the
remaining purchase capacity under clause (i) above and (iv) must identify its
bids as such.
Each Underwriter will represent and agree in the Underwriting Agreement
that (i) it has not offered or sold, and, prior to the expiration of the period
ending six months after the date of this Prospectus, will not offer or sell any
of the shares offered hereby to persons in the United Kingdom, except to persons
whose ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or as agent) for the purposes of their
businesses or otherwise in circumstances which have not resulted and will not
result in an offer to the public in the United Kingdom, within the meaning of
the Public Offers of Securities Regulations 1995 (the "Regulations"), (ii) it
has complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by it in relation to the shares
offered hereby in, from or otherwise involving the United Kingdom, and (iii) it
has only issued or passed on and will only issue or pass on in the United
Kingdom any document received by it in connection with the issue of the shares
offered hereby to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996
or is a person to whom such document may otherwise lawfully be issued or passed
on.
The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the several Underwriters against certain liabilities
and expenses, including liabilities under the Securities Act, or contribute to
payments that the Underwriters may be required to make in respect thereof.
52
<PAGE> 54
LEGAL MATTERS
The legality of the securities offered hereby will be passed on for the
Company by Holme Roberts & Owen LLP, Denver, Colorado. Certain legal matters in
connection with the sale of such securities will be passed on for the
Underwriters by Cleary, Gottlieb, Steen & Hamilton, New York, New York.
EXPERTS
The consolidated financial statements of EFTC Corporation as of September
30, 1997 and December 31, 1996 and 1995 and for the nine months ended September
30, 1997 and each of the three years in the period ended December 31, 1996 have
been included and incorporated by reference herein and in the registration
statement in reliance on the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere and incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
The combined financial statements of Circuit Test, Inc. and affiliates as
of December 31, 1996 and 1995 and for each of the three years in the period
ended December 31, 1996 have been included herein and in the registration
statement in reliance on the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
The combined financial statements of Current Electronics, Inc. and Current
Electronics Washington, Inc. as of September 30, 1996 and 1995 and for each of
the three years in the periods ended September 30, 1996, 1995 and 1994, included
in this prospectus and elsewhere in this form S-2 Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
S-2 (the "Registration Statement," which term encompasses all amendments,
exhibits, annexes and schedules thereto) under the Securities Act with respect
to the Common Stock offered hereby. This Prospectus, which constitutes a part of
the Registration Statement, does not contain all the information set forth in
the Registration Statement, to which reference is hereby made. Statements made
in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement and the exhibits thereto, reference is hereby made to the exhibit for
a more complete description of the matter involved, and each statement made
herein shall be deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files periodic reports, proxy and information
statements and other information filed with the Commission. The Registration
Statement filed by the Company with the Commission, as well as such reports,
proxy and information statements and other information filed by the Company with
the Commission, are available at the web site that the Commission maintains at
http:\\www.sec.gov and can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at 7 World Trade Center, New York, New York 10048, and the
Chicago Regional Office, Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material, when filed, may
also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Common Stock
is quoted on the Nasdaq National Market and such reports, proxy and information
statements and other information concerning the Company are available at the
offices of the Nasdaq National Market located at 1735 K Street, N.W.,
Washington, D.C. 20006.
53
<PAGE> 55
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated by reference in this Prospectus are (i) the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996, (ii) the
Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997
and June 30, 1997 (as amended by Quarterly Reports on Form 10-Q/A for the
quarters ended March 31, 1997 and June 30, 1997) and (iii) the Company's Current
Reports on Form 8-K dated March 5, 1997 (as amended by a Current Report on Form
8-K/A dated May 2, 1997), dated August 26, 1997 and dated October 15, 1997,
filed previously with the Commission pursuant to Section 13 of the Exchange Act.
Any statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner of Common Stock, to whom a copy of this Prospectus has been
delivered, on the written or oral request of such person, a copy of any or all
of the foregoing documents incorporated by reference in this Prospectus, other
than exhibits to such documents unless such exhibits are specifically
incorporated by reference into the information that this Prospectus
incorporates. Written or oral requests for such copies should be directed to
EFTC Corporation, 9351 Grant Street, Sixth Floor, Denver, Colorado 80229
(telephone: (303) 451-8200).
54
<PAGE> 56
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
EFTC CORPORATION AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT.............................. F-2
CONSOLIDATED BALANCE SHEETS -- September 30, 1997 and
December 31, 1996 and 1995............................. F-3
CONSOLIDATED STATEMENTS OF OPERATIONS -- Nine Months Ended
September 30, 1997 and 1996 (Unaudited) and Years Ended
December 31, 1996, 1995 and 1994....................... F-4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY -- Nine
Months Ended September 30, 1997 and Years Ended
December 31, 1996, 1995 and 1994....................... F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS -- Nine Months Ended
September 30, 1997 and 1996 (Unaudited) and Years Ended
December 31, 1996, 1995 and 1994....................... F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................ F-7
CIRCUIT TEST, INC. AND AFFILIATES
INDEPENDENT AUDITORS' REPORT.............................. F-18
COMBINED BALANCE SHEETS -- June 30, 1997 (Unaudited),
December 31, 1996 and 1995............................. F-19
COMBINED STATEMENTS OF OPERATIONS -- Six Months Ended June
30, 1997 and 1996 (Unaudited) and Years Ended December
31, 1996, 1995 and 1994................................ F-20
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY -- Six Months
Ended June 30, 1997 (Unaudited) and Years Ended
December 31, 1996, 1995 and 1994....................... F-21
COMBINED STATEMENTS OF CASH FLOWS -- Six Months Ended June
30, 1997 and 1996 (Unaudited) and Years Ended December
31, 1996, 1995 and 1994................................ F-22
NOTES TO COMBINED FINANCIAL STATEMENTS.................... F-23
CURRENT ELECTRONICS, INC. AND CURRENT ELECTRONICS
(WASHINGTON), INC.
REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS................. F-36
COMBINED BALANCE SHEETS -- December 31, 1996 (unaudited)
and September 30, 1996 and 1995........................ F-38
COMBINED STATEMENTS OF INCOME AND RETAINED
EARNINGS -- Three Months Ended December 31, 1996
(unaudited) and Years Ended September 30, 1996, 1995
and 1994............................................... F-39
COMBINED STATEMENTS OF CASH FLOWS -- Three Months Ended
December 31, 1996 (unaudited) and Years Ended September
30, 1996, 1995 and 1994................................ F-40
NOTES TO COMBINED FINANCIAL STATEMENTS.................... F-41
</TABLE>
F-1
<PAGE> 57
INDEPENDENT AUDITORS' REPORT
The Board of Directors
EFTC Corporation:
We have audited the accompanying consolidated balance sheets of EFTC
Corporation and subsidiaries as of September 30, 1997 and December 31, 1996 and
1995, and the related consolidated statements of operations, shareholders'
equity and cash flows for the nine months ended September 30, 1997 and for each
of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of EFTC
Corporation and subsidiaries as of September 30, 1997 and December 31, 1996 and
1995, and the results of their operations and their cash flows for the nine
months ended September 30, 1997 and for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Denver, Colorado
October 17, 1997
F-2
<PAGE> 58
EFTC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 AND 1995
ASSETS (Note 4)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------------
1997 1996 1995
------------- ----------- -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 2,226,217 $ 123,882 $ 481,086
Trade receivables (less allowance for doubtful
accounts of $194,480 in 1997 and $20,000 in 1996
and 1995)........................................ 18,296,809 3,866,991 4,982,450
Inventories (note 3)............................... 32,754,622 9,146,505 9,859,414
Income taxes receivable............................ -- 616,411 74,922
Deferred income taxes (note 6)..................... 492,037 427,059 145,538
Prepaid expenses and other......................... 701,841 69,196 382,928
------------ ----------- -----------
Total current assets........................ 54,471,526 14,250,044 15,926,338
------------ ----------- -----------
Property, plant and equipment:
Land............................................... 590,195 662,098 662,098
Buildings and improvements......................... 4,646,183 4,889,467 4,874,571
Machinery and equipment............................ 14,694,330 5,084,114 5,870,194
Furniture and fixtures............................. 2,638,107 1,756,588 1,433,113
Construction in progress........................... 1,735,280 -- --
------------ ----------- -----------
24,304,095 12,392,267 12,839,976
Less accumulated depreciation...................... (6,451,618) (3,872,443) (3,949,163)
------------ ----------- -----------
Net property, plant and equipment........... 17,852,477 8,519,824 8,890,813
Goodwill net of accumulated amortization of
$156,807........................................... 40,359,749 -- --
Other assets, net.................................... 4,962,140 99,773 167,148
------------ ----------- -----------
Total Assets................................ $117,645,892 $22,869,641 $24,984,299
============ =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit with bank (note 4).................. $ 22,513,915 $ 1,800,000 $ --
Accounts payable................................... 21,125,734 2,320,871 4,986,757
Acquisition costs payable.......................... -- -- --
Income taxes payable............................... 491,930 -- --
Accrued compensation............................... 6,282,244 682,881 529,636
Other accrued liabilities.......................... 1,371,407 767,803 372,102
Current portion of long-term debt (note 4)......... 2,275,000 170,000 170,000
------------ ----------- -----------
Total current liabilities................... 54,060,230 5,741,555 6,058,495
------------ ----------- -----------
Long-term debt, net of current portion (note 4):
Related party...................................... 14,950,000 -- --
Others............................................. 17,775,000 2,890,000 3,060,000
------------ ----------- -----------
Total long-term debt, net of current
portion................................... 32,725,000 2,890,000 3,060,000
Deferred income taxes (note 6)....................... 674,264 315,859 356,606
------------ ----------- -----------
Total liabilities.................................... 87,459,494 8,947,414 9,475,101
------------ ----------- -----------
Shareholders' equity (note 7):
Preferred stock, $.01 par value. Authorized
5,000,000 shares; none issued or outstanding..... -- -- --
Common stock, $.01 par value. Authorized 45,000,000
shares; issued and outstanding 7,812,135,
3,942,660 and 3,940,860 shares, respectively..... 78,121 39,427 39,409
Additional paid-in capital......................... 24,443,629 10,187,180 10,181,204
Retained earnings.................................. 5,664,648 3,695,620 5,288,585
------------ ----------- -----------
Total shareholders' equity.................. 30,186,398 13,922,227 15,509,198
------------ ----------- -----------
Commitments and contingencies (notes 4 and 9)........
Total liabilities and stockholders'
equity.................................... $117,645,892 $22,869,641 $24,984,299
============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 59
EFTC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
AND YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------------------------- -----------------------------------------------------------
1997 1996 1996 1995 1994
---------------------- ------------------ ----------------- ------------------ ------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... $64,973,220 $44,576,291 $56,880,067 $49,220,070 $52,541,842
Cost of goods sold (note
11)................... 56,739,734 42,676,203 53,980,067 45,325,349 47,123,066
----------- ----------- ----------- ----------- -----------
Gross profit.......... 8,233,486 1,900,088 2,900,000 3,894,721 5,418,776
Selling, general and
administrative
expenses (note 11).... 5,126,226 3,403,090 4,195,784 3,093,400 2,395,164
Amortization of
goodwill.............. 156,716 -- -- -- --
Impairment of fixed
assets (note 11)...... -- 725,869 725,869 -- --
----------- ----------- ----------- ----------- -----------
Operating income
(loss)............. 2,950,544 (2,228,871) (2,021,653) 801,321 3,023,612
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest expense...... (1,054,448) (384,511) (525,854) (399,389) (175,400)
Interest income....... -- -- 5,624 3,700 78,933
Gain (loss) on sale of
assets............. 1,152,430 (12,723) 50,012 49,533 --
Other, net............ 53,326 29,812 26,792 25,491 31,187
----------- ----------- ----------- ----------- -----------
151,308 (367,422) (443,426) (320,665) (65,280)
----------- ----------- ----------- ----------- -----------
Income (loss) before
income taxes....... 3,101,852 (2,596,293) (2,465,079) 480,656 2,958,332
Income tax expense
(benefit)
(note 6).............. 1,132,824 (920,203) (872,114) 126,518 1,041,415
----------- ----------- ----------- ----------- -----------
Net income (loss)..... $ 1,969,028 $(1,676,090) $(1,592,965) $ 354,138 $ 1,916,917
=========== =========== =========== =========== ===========
Income (loss) per common
and common equivalent
share:
Primary............... $ .34 $ (.42) $ (.40) $ .09 $ .53
=========== =========== =========== =========== ===========
Fully diluted......... $ .32 $ (.42) $ (.40) $ .09 $ .53
=========== =========== =========== =========== ===========
Weighted average common
and common equivalent
shares outstanding:
Primary............... 5,854,460 3,968,417 3,942,139 3,962,261 3,626,845
=========== =========== =========== =========== ===========
Fully diluted......... 6,218,528 3,968,417 3,942,139 3,962,261 3,626,845
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 60
EFTC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1997
AND YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------- ADDITIONAL PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------- ------------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1994..... 2,368,500 $23,685 505,316 3,017,530 3,546,531
Initial public offering, net of
offering costs of
$1,320,749.................... 1,419,660 14,197 9,312,700 -- 9,326,897
Stock options exercised......... 102,950 1,029 198,019 -- 199,048
Net income...................... -- -- -- 1,916,917 1,916,917
--------- ------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1994...... 3,891,110 38,911 10,016,035 4,934,447 14,989,393
Stock options exercised......... 49,750 498 165,169 -- 165,667
Net income...................... -- -- -- 354,138 354,138
--------- ------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1995...... 3,940,860 $39,409 10,181,204 5,288,585 15,509,198
Stock options exercised......... 1,800 18 5,976 -- 5,994
Net loss........................ -- -- -- (1,592,965) (1,592,965)
--------- ------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1996...... 3,942,660 $39,427 10,187,180 3,695,620 13,922,227
Issuance of common stock in
business combinations......... 3,838,975 38,389 14,143,793 -- 14,182,182
Stock options exercised......... 30,500 305 112,656 -- 112,961
Net income...................... -- -- -- 1,969,028 1,969,028
--------- ------- ---------- ---------- ----------
BALANCE, SEPTEMBER 30, 1997..... 7,812,135 $78,121 24,443,629 5,664,648 30,186,398
========= ======= ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 61
EFTC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 AND
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30 YEAR ENDED DECEMBER 31,
-------------------------- ---------------------------------------
1997 1996 1996 1995 1994
------------ ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................. $ 1,969,028 $(1,676,090) $(1,592,965) $ 354,138 $ 1,916,917
Adjustments to reconcile net income (loss) to
net cash provided, (used) by operating
activities:
Depreciation and amortization................ 1,417,407 999,454 1,281,628 1,716,841 973,262
Deferred income tax expense (benefit)........ 554,958 (10,103) (322,268) (15,745) 121,385
Loss (gain) on sale and impairment of
property, plant and equipment, net......... (1,149,638) 1,181,000 1,101,475 (49,533) --
Other, net................................... -- -- 16,751 (106,088) --
Changes in operating assets and liabilities
net of the effects of acquisitions:
Trade receivables.......................... (9,774,725) 1,561,968 1,115,459 (1,123,927) (1,378,102)
Inventories................................ (15,535,734) (287,678) 712,909 (2,380,040) (2,839,405)
Income taxes receivable.................... 616,411 (909,753) (541,489) (10,267) (64,655)
Income taxes payable....................... 491,930 -- -- -- --
Prepaid expenses and other current
assets.................................. (358,147) 250,848 313,732 (333,461) (302)
Other assets............................... (3,871,536) 121,824 67,375 (96,971) 147,640
Accounts payable and other accrued
liabilities............................. 13,291,195 (1,692,182) (2,116,940) 1,111,464 426,084
------------ ----------- ----------- ----------- -----------
Net cash provided (used) by operating
activities............................ (12,348,851) (460,712) 35,667 (933,589) (697,176)
------------ ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment...... (6,418,212) (2,135,969) (2,374,403) (2,473,819) (9,035,395)
Proceeds from sale of property, plant and
equipment.................................... 2,419,820 10,157 345,538 3,739,344 --
Payments for business combinations, net of cash
acquired of $1.6 million..................... (24,595,172) -- -- -- --
------------ ----------- ----------- ----------- -----------
Net cash provided (used) by investing
activities............................ (28,593,564) (2,125,812) (2,028,865) 1,265,525 (9,035,395)
------------ ----------- ----------- ----------- -----------
Cash flows from financing activities:
Stock options exercised........................ 112,960 5,994 5,994 165,667 199,048
Issuance of common stock for cash.............. -- -- -- -- 9,326,897
Borrowings (payments) on lines of credit and
short-term notes payable, net................ 20,713,915 2,300,000 1,800,000 -- (300,000)
Proceeds from long-term debt................... 41,700,000 -- -- -- 3,400,000
Principal payments on long-term debt........... (18,644,625) (170,000) (170,000) (170,000) (2,783,770)
Payment of financing costs..................... (837,500) -- -- -- --
------------ ----------- ----------- ----------- -----------
Net cash provided (used) by financing
activities............................ 43,044,750 2,135,994 1,635,994 (4,333) 9,842,175
------------ ----------- ----------- ----------- -----------
Increase (decrease) in cash and cash
equivalents........................... 2,102,335 (450,530) (357,204) 327,603 109,604
Cash and cash equivalents:
Beginning of period............................ 123,882 481,086 481,086 153,483 43,879
------------ ----------- ----------- ----------- -----------
End of period.................................. $ 2,226,217 $ 30,556 $ 123,882 $ 481,086 $ 153,483
============ =========== =========== =========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest..................................... $ 1,054,448 $ 374,960 $ 517,502 $ 387,045 $ 238,884
============ =========== =========== =========== ===========
Income taxes paid (refunded), net............ $ (402,392) $ 12,728 $ (8,010) $ 152,530 $ 1,596,475
============ =========== =========== =========== ===========
Common stock issued in business combinations... $ 14,182,182 $ -- $ -- $ -- $ --
============ =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 62
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 AND 1995
(1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business
EFTC Corporation (the "Company"), is an independent provider of electronic
manufacturing services to original equipment manufacturers in the computer
peripherals, medical equipment, industrial controls, telecommunications
equipment and electronic instrumentation industries. The Company's manufacturing
services consist of assembling complex printed circuit boards (using both
surface mount and pin-through-hole technologies), cables, electro-mechanical
devices and finished products. The Company also provides computer aided testing
of printed circuit boards, subsystems and final assemblies and "hub based"
repair and warranty services.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
EFTC Corporation and its wholly-owned subsidiaries since their date of formation
or acquisition, as described in note 2. All intercompany balances and
transactions have been eliminated in consolidation.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles 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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
The financial statements for the nine months ended September 30, 1996 are
unaudited but, in the opinion of management, include all adjustments, consisting
only of normal recurring adjustments, which are necessary for a fair
presentation of the financial condition, results of operations and cash flows.
Information recorded in the notes to financial statements that relate to the
interim unaudited financial statements is also unaudited. The operating results
for the nine months ended September 30, 1997 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1997.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with original
maturities of six months or less.
Inventories
Inventories are stated at the lower of weighted average cost or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Maintenance and repairs
are charged to expense as incurred. Depreciation is computed using straight-line
and accelerated methods over estimated useful lives ranging from 31 to 39 years
for buildings, and 5 to 10 years for furniture and fixtures and machinery and
equipment.
Intangible Assets
Intangible assets consist of goodwill and acquired intellectual property
which are amortized using the straight-line method over the estimated useful
lives of 30 and 10 years, respectively. Acquired intellectual property consists
of circuit board assembly designs and specifications in the amount of $1.1
million, net of accumulated amortization of $7,000, and is included in other
noncurrent assets.
F-7
<PAGE> 63
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 AND 1995
Impairment of Long-Lived Assets
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS No. 121), effective January 1, 1996. SFAS 121 requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is
generally measured by a comparison of the carrying amount of an asset to future
net cash flows to be expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amounts of the assets exceed the fair values of the
assets. Adoption of this statement effective January 1, 1996 did not have a
material impact on the Company's consolidated financial position, results of
operations or liquidity. In connection with the Company's restructuring in
August 1996, the Company recorded a provision for impairment of certain fixed
assets of $725,869.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Revenue Recognition
The Company recognizes revenue upon shipment to customers.
Income (Loss) Per Share
Income per share is computed based on the weighted average number of shares
and common equivalent shares outstanding during the year. Common equivalent
shares totaling 414,068 are included in the computation for the nine months
ended September 30, 1997 and consist of stock options, determined using the
treasury stock method. Common equivalent shares were not significant or
antidilutive for all other periods included in the accompanying consolidated
financial statements.
Stock-based Compensation
The Company accounts for its employee stock compensation plans as
prescribed under Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees." Pro forma disclosures of net income and earnings
per share required by Statement of Financial Accounting Standards No. 123 (SFAS
123), "Accounting for Stock-based Compensation," are included in note 7 to the
financial statements.
(2) BUSINESS COMBINATIONS AND ASSET ACQUISITIONS
On September 30, 1997, the Company acquired three affiliated companies,
Circuit Test, Inc., Airhub Service Group L.C. and CTI International, L.C. (the
CTI Companies) for approximately $29.3 million consisting of 1,858,975 shares of
the Company's common stock and approximately $20.5 million in cash which
includes approximately $1 million of transaction costs. In addition, the Company
will make a $6 million contingent payment payable upon closing of a public
offering of securities. The Company recorded goodwill of approximately $32.4
million, which will be amortized over 30 years. The acquisition
F-8
<PAGE> 64
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 AND 1995
was accounted for using the purchase method of accounting for business
combinations and, accordingly, the accompanying consolidated financial
statements include the results of operations of the acquired businesses since
the date of acquisition.
In August and September 1997, the Company completed the initial elements of
two transactions with AlliedSignal Inc. (AlliedSignal) pursuant to which the
Company acquired certain inventory and equipment located in Ft. Lauderdale,
Florida, subleased the facility where such inventory and equipment was located
and employed certain persons formerly employed by AlliedSignal at that location.
The Company also hired certain persons formerly employed by AlliedSignal in
Arizona and agreed with AlliedSignal to provide the personnel and management
services necessary to operate a related facility on behalf of AlliedSignal on a
temporary basis. Subject to the satisfaction of the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, the Company will acquire
AlliedSignal's inventory and equipment located at the Arizona facility. The
aggregate purchase price of all the assets to be acquired by the Company from
AlliedSignal is expected to approximate $15.0 million, of which $10.9 million
had been paid through September 30, 1997. The Company has also agreed to pay
AlliedSignal one percent of gross revenue for all electronic assemblies and
parts made for customers other than AlliedSignal at the Arizona or Florida
facilities through December 31, 2006.
On February 24, 1997, the Company acquired two affiliated entities, Current
Electronics, Inc., an Oregon Corporation, and Current Electronics (Washington),
Inc., a Washington Corporation (the CE Companies), for total consideration of
approximately $10.9 million, consisting of 1,980,000 shares of Company common
stock and approximately $5.5 million in cash which included approximately
$600,000 of transaction costs. The Company recorded goodwill of approximately
$8.0 million in connection with the acquisition, which is being amortized over
30 years. The acquisition was accounted for using the purchase method of
accounting for business combinations and, accordingly, the accompanying
consolidated financial statements include the results of operations of the
acquired businesses since the date of acquisition.
The following unaudited pro forma information assumes that the acquisitions
of the CTI Companies and the CE Companies had occurred on January 1, 1996 (in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Revenue................................................. $ 98,020 $115,910
Net loss................................................ (337) (2,109)
Loss per share, fully diluted........................... (.04) (.27)
</TABLE>
The above pro forma information is not necessarily indicative of future
results.
F-9
<PAGE> 65
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 AND 1995
(3) INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------------
1997 1996 1995
------------- ---------- ----------
<S> <C> <C> <C>
Finished goods............................ $ 408,648 $ 249,223 $ --
Purchased parts and completed
subassemblies........................... 13,263,807 7,640,712 8,051,648
Work-in-process........................... 19,082,167 1,256,570 1,807,766
----------- ---------- ----------
$32,754,622 $9,146,505 $9,859,414
=========== ========== ==========
</TABLE>
(4) DEBT
During September 1997, the Company issued $15 million of subordinated notes
to a director and stockholder of the Company. The subordinated notes bear
interest at LIBOR plus 2% (7.63% at September 30, 1997) and are payable in four
annual installments of $50,000 and one final payment of $14.8 million in
September 2002. Payments on the notes are subordinate to the Company's senior
bank debt. The subordinated notes also include warrants to acquire 500,000
shares of the Company's common stock at $8.00 per share. The warrants were
issued in October 1997, were valued at approximately $500,000 using the
Black-Scholes pricing model, and such amount has been recorded as debt discount
and is being amortized to interest expense over the term of the notes. The
warrants were exercised on October 9, 1997 for total proceeds of $4 million.
Long-term debt to others consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------------
1997 1996 1995
------------- ---------- ----------
<S> <C> <C> <C>
Notes payable to banks(a)................. $20,000,000 $ -- $ --
Note payable to a bank with interest at 1%
above Citibank's prime rate adjusted
annually (initial rate of 7.25% through
September 15, 1996, and a rate of 9.25%
at December 31, 1996). Interest is
payable monthly with semi-annual
principal payments of $85,000, maturing
September 15, 2001, collateralized by a
first deed of trust on buildings and
land, paid in 1997...................... -- 3,060,000 3,230,000
Less current portion...................... (2,225,000) (170,000) (170,000)
----------- ---------- ----------
Long-term debt to others, net of current
portion................................. $17,775,000 $2,890,000 $3,060,000
=========== ========== ==========
</TABLE>
- ---------------
(a) In connection with the CTI Companies business combination and the
AlliedSignal asset acquisition, the Company entered into a new loan
agreement comprised of a $25 million revolving line of credit, renewable on
an annual basis until September 30, 2000, and a $20 million term loan
maturing on September 30, 2002. The proceeds of the new loan agreement were
used for (i) funding the CTI merger and (ii) repayment of the existing line
of credit and bridge facility and equipment loan. Borrowings under the
agreement bear interest at a rate based on either LIBOR or the prime rate
plus
F-10
<PAGE> 66
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 AND 1995
applicable margins ranging from 0.50% to 3.25% for the term facility (8.5%
at September 30, 1997) and 0% to 2.75% for the revolving facility (8.5% at
September 30, 1997). Borrowings on the revolving facility are subject to
limitation based on the value of the available collateral and are included
in current liabilities in the accompanying consolidated balance sheet. The
loan agreement is collateralized by substantially all of the Company's
assets. The loan agreement contains restrictive covenants relating to
capital expenditures, limitation on investments, borrowings, payment of
dividends, mergers and acquisitions, as well as the maintenance of certain
financial ratios. The revolving facility requires a commitment fee of 0.5%
per annum on any unused portion. As of September 30, 1997, the borrowing
availability under the agreement was approximately $2.5 million. This credit
facility may be also withdrawn or canceled at the bank's option under
certain conditions such as default or in the event the Company experiences a
material negative change in its financial condition.
Annual maturities of long-term debt, including the subordinated notes, are
as follows at September 30, 1997:
<TABLE>
<S> <C>
1998........................................................ $ 2,275,000
1999........................................................ 3,745,000
2000........................................................ 4,330,000
2001........................................................ 4,850,000
2002........................................................ 19,800,000
-----------
$35,000,000
===========
</TABLE>
(5) LEASES
The Company has noncancelable operating leases for equipment that expire in
various years through 2002. Lease expense on these operating leases amounted to
$1,283,673, $993,400, $1,215,623, $578,958, and $736,153 for the nine months
ended September 30, 1997 and 1996 and years ended December 31, 1996, 1995 and
1994, respectively.
At September 30, 1997, future minimum lease payments for operating leases
are as follows:
<TABLE>
<S> <C>
1998........................................................ $2,078,708
1999........................................................ 1,866,227
2000........................................................ 1,388,774
2001........................................................ 1,036,511
2002........................................................ 577,079
----------
Total future minimum lease payments.................... $6,947,299
==========
</TABLE>
In December 1995, the Company entered into a sale-leaseback transaction for
equipment of approximately $3.6 million. The gain on this transaction totaled
$106,088 which was deferred and is being amortized over the remaining life of
the lease, which is approximately 6 years.
F-11
<PAGE> 67
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 AND 1995
(6) INCOME TAXES
The current and deferred components of income tax expense (benefit) are as
follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------- ---------------------------------
1997 1996 1996 1995 1994
---------- ----------- --------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal............. $ 491,218 $(580,165) $(549,846) $142,263 $ 880,392
State............... 86,648 -- -- -- 39,638
---------- --------- --------- -------- ----------
577,866 (580,165) (549,846) 142,263 920,030
Deferred:
Federal............. 511,064 (207,272) (196,440) (13,635) 105,115
State............... 43,894 (132,766) (125,828) (2,110) 16,270
---------- --------- --------- -------- ----------
554,958 (340,038) (322,268) (15,745) 121,385
---------- --------- --------- -------- ----------
$1,132,824 $(920,203) $(872,114) $126,518 $1,041,415
========== ========= ========= ======== ==========
</TABLE>
Actual income tax expense (benefit) differs from the amounts computed using
the statutory tax rate of 34% as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------ ---------------------------------
1997 1996 1996 1995 1994
---------- ----------- --------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Computed tax at the
expected statutory
rate.................... $1,054,630 $(882,740) $(838,126) $163,423 $1,005,833
Increase (reduction) in
income taxes resulting
from:
Research and development
tax credits.......... -- -- -- (40,000) --
State tax, net of
federal benefit and
state tax credits.... 57,188 (87,625) (83,046) (1,392) 36,900
Amortization of
nondeductible
goodwill............. 48,293 -- -- -- --
Other, net.............. (27,287) 50,162 49,058 4,487 (1,318)
---------- --------- --------- -------- ----------
Income tax expense
(benefit).......... $1,132,824 $(920,203) $(872,114) $126,518 $1,041,415
========== ========= ========= ======== ==========
</TABLE>
F-12
<PAGE> 68
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 AND 1995
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ---------------------
1997 1996 1995
------------- --------- ---------
<S> <C> <C> <C>
Deferred tax assets -- current:
Accrued vacation.......................... $ 142,343 $ 76,064 $ 83,375
Restructuring charges..................... 95,000 186,434 --
Deferred gain on sale leaseback........... 31,991 36,088 39,571
State net operating loss carryforward,
expires 2011........................... 94,553 95,420 --
Allowance for doubtful accounts........... 74,662 7,600 7,600
Other..................................... 53,488 25,453 14,992
--------- --------- ---------
Total deferred tax
assets -- current............... $ 492,037 $ 427,059 $ 145,538
========= ========= =========
Deferred tax liability -- noncurrent:
Accelerated depreciation of property,
plant and equipment.................... $(237,404) $(315,859) $(356,606)
Like-kind exchange of building for income
tax purposes........................... (436,860) -- --
--------- --------- ---------
Total deferred tax liability --
noncurrent...................... $(674,264) $(315,859) $(356,606)
========= ========= =========
</TABLE>
Management believes that it is more likely than not that future operations
will generate sufficient taxable income to realize the deferred tax assets.
(7) STOCK OPTIONS AND WARRANTS
The Company has three stock option or equity incentive plans: the 1993
Incentive Stock Options Plan (the "1993 Plan"), the Electronic Fab Technology
Corp. Equity Incentive Plan (the "Equity Incentive Plan") and the Electronic Fab
Technology Corp. Stock Option Plan for Non-employee Directors (the "Non-employee
Directors Plan"). Options to purchase 180,000 shares of common stock at an
exercise price of $3.33 have been granted under the 1993 Plan. These options
generally vest over a five-year period and expire April 22, 2003. The Equity
Incentive Plan provides for the grant of non-qualified stock options, incentive
stock options, stock appreciation rights, restricted stock and stock units.
Substantially all employees are eligible for the grant of awards. This plan was
amended to increase the maximum number of shares of common stock that can be
granted under this Plan to 1,995,000. The Non-Employee Directors Plan provides
for options to acquire shares of common stock to members of the Board of
Directors who are not also employees. A total of 300,000 shares are available
for grant under this plan. The Company has also issued 692,500 nonqualified
options to officers and employees. Options generally vest over 7 years and
vesting may accelerate based on increases in the market price of the Company's
stock.
F-13
<PAGE> 69
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 AND 1995
The following summarizes activity of the plans for the three years and nine
months ended September 30, 1997.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE EXERCISE
NUMBER OF PRICE
OPTIONS PER SHARE
--------- ----------------
<S> <C> <C>
Balance, January 1, 1994................................. 247,500 $2.75
Granted................................................ 169,000 7.74
Exercised.............................................. (102,950) 1.93
---------
Balance, December 31, 1994............................... 313,550 5.11
Granted................................................ 69,500 5.30
Exercised.............................................. (49,750) 3.33
Canceled............................................... (70,600) 6.37
---------
Balance, December 31, 1995............................... 262,700 5.87
Granted................................................ 375,200 4.04
Exercised.............................................. (1,800) 3.33
Canceled............................................... (75,600) 6.64
---------
Balance, December 31, 1996............................... 560,500 4.55
Granted................................................ 1,435,000 9.94
Exercised.............................................. (30,150) 3.71
Canceled............................................... (76,350) 5.28
---------
Balance, September 30, 1997.............................. 1,889,000 8.63
=========
At September 30, 1997:
Options exercisable.................................... 658,000
=========
Shares available for future grants..................... 1,142,300
=========
</TABLE>
The Company applies the provisions of APB Opinion 25 and related
interpretations in accounting for its plans. Accordingly, because the Company
grants options at fair value, no compensation cost has been recognized for its
fixed stock option plans in 1997, 1996, 1995 and 1994.
The weighted average fair value of options granted during the nine months
ended September 30, 1997 and the years ended December 31, 1996 and 1995 were
$4.97, $4.15 and $4.92, respectively. In estimating the fair value of options,
the Company used the Black-Scholes option-pricing model with the following
assumptions.
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, --------------
1997 1996 1995
------------- ----- -----
<S> <C> <C> <C>
Dividend yield........................................ 0.00% 0.00% 0.00%
Expected volatility................................... 70.00% 60.00% 60.00%
Risk-free interest rates.............................. 6.40% 6.00% 6.00%
Expected lives (years)................................ 3.00 4.00 3.00
</TABLE>
F-14
<PAGE> 70
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 AND 1995
If compensation cost for the Company's three stock-based compensation plans
had been determined using the fair values at the grant dates for awards under
those plans consistent with SFAS 123, the Company's pro forma net income (loss)
and income (loss) per share would have been as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ------------------------
1997 1996 1995
------------- ------------ ---------
<S> <C> <C> <C>
Net income (loss):
As reported.................................. $1,969,028 $(1,592,965) $354,138
Pro forma.................................... (162,478) (1,731,259) 329,963
Primary income (loss) per share:
As reported.................................. $ 0.34 $ (0.40) $ 0.09
Pro forma.................................... (0.03) (0.44) 0.08
Fully diluted income (loss) per share:
As reported.................................. $ 0.32 $ (0.40) $ 0.09
Pro forma.................................... (0.03) (0.44) 0.08
</TABLE>
The above pro forma disclosures are not necessarily representative of the
effect on the historical net income for future periods because options vest over
several years, and additional awards are made each year. In addition,
compensation cost for options granted prior to January 1, 1995 has not been
considered.
The following table summarizes information regarding fixed stock options
outstanding at September 30, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
--------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$3.33 to 5.00.................... 410,500 8.44 $3.98 408,136 $3.98
$5.25 to 9.50.................... 681,000 9.18 5.97 345,390 5.97
$9.50 to 11.00................... 165,000 9.81 9.60 63,000 9.60
$11.75 to 14.31.................. 632,500 10.00 14.22 63,250 14.22
--------- -------
1,889,000 9.35 8.62 879,776 8.62
========= =======
</TABLE>
The Company also has 80,000 warrants outstanding which were issued to the
underwriter in connection with the Company's initial public offering in 1994.
The warrants are exercisable at $9.00 per share and expire in 1999. None of the
warrants have been exercised as of September 30, 1997.
(8) FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments at September
30, 1997 and December 31, 1996 and 1995 are deemed to approximate estimated fair
values. The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties.
The carrying amounts of cash and cash equivalents, trade receivables, accounts
payable and accrued liabilities approximate fair value because of the short
maturity of these instruments. The carrying amounts of notes payable and
long-term debt approximate fair value because of the variable nature of the
interest rates of these instruments.
F-15
<PAGE> 71
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 AND 1995
(9) EMPLOYEE BENEFIT PLANS
The Company has a 401(k) Savings Plan covering substantially all employees,
whereby the Company matches 50% of an employee's contributions to a maximum of
2% of the employee's compensation. Additional profit sharing contributions to
the plan are at the discretion of the Board of Directors. During the nine months
ended September 30, 1997 and 1996 and the years ended December 31, 1996, 1995
and 1994, contributions from the Company to the Plan were approximately $92,000,
$85,000, $108,000, $106,000 and $90,000, respectively.
The Company also had a Profit and Gain Sharing Plan by which a percentage
of net income before taxes was allocated to the plan. During the years ended
1995 and 1994, contributions from the Company to the plan were approximately
$97,150 and $487,000, respectively. No contributions were made during the nine
months ended September 30, 1997 and 1996 and the year ended December 31, 1996 as
the plan was discontinued.
During 1996, the Company established an employee incentive plan based upon
employee productivity, transaction accuracy and profitability and contributed
approximately $210,000 to the plan in 1996 and $125,000 during the nine months
ended September 30, 1997.
(10) TRANSACTIONS WITH RELATED PARTIES
Included in accrued compensation as of September 30, 1997, is $500,000 of
commissions payable to an entity in which individuals who are stockholders,
officers and directors of the Company have a majority ownership interest.
The Company purchased approximately 10 acres of land for aggregate
consideration of $500,000 from Tech Center Properties, a general partnership, in
March 1994. The Company constructed an additional facility on the land. A
director of the Company is related to a 50% partner of Tech Center Properties.
(11) RESTRUCTURING
In the third quarter of 1996, management initiated a plan to restructure
the Company's manufacturing operations and various administrative functions,
including a change in the manufacturing process and a reorganization of the
sales department. Restructuring charges of $2,127,000 were charged to operations
for the year ended December 31, 1996. The restructuring plan involved the
termination of 142 employees consisting of approximately 90 direct manufacturing
employees and 52 indirect overhead positions. The total severance related costs
approximated $615,000. The Company changed its manufacturing strategy to focus
on high-mix production and developed its Asynchronous Process Manufacturing
(APM) concept. Software development costs unrelated to the Company's new
manufacturing strategy but related to previous manufacturing processes developed
by consultants were written off in the approximate amount of $442,000. As part
of the Company's 1996 restructuring, inventory allowances, totaling
approximately $344,000, were recorded to provide for future losses to be
incurred related to the separation of certain customers who did not meet the
Company's new manufacturing strategy. In addition, due to changes in the
manufacturing process which eliminated the use of various equipment, property,
plant and equipment was written off in the amount of $726,000 in accordance with
SFAS No. 121. The restructuring charge was allocated to cost of goods sold,
selling, general and administrative expenses and impairment of fixed assets in
the amounts of approximately $479,000, $922,000 and $726,000, respectively. The
restructuring has been completed and no liabilities associated with the
restructuring remain at September 30, 1997.
F-16
<PAGE> 72
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 AND 1995
(12) BUSINESS AND CREDIT CONCENTRATIONS
The Company operates in the electronic manufacturing services segment of
the electronics industry. The Company's customers are primarily located in the
United States and sales and accounts receivable are concentrated with customers
principally in the computer peripherals and medical equipment industries. The
Company has a policy to regularly monitor the credit worthiness of its customers
and provides for uncollectible amounts if credit problems arise. Customers may
experience adverse financial difficulties, including those that may result from
industry developments, which may increase bad debt exposure to the Company. In
addition, the electronics manufacturing services industry has experienced
component supply shortages in the past. Should future component shortages occur,
the Company may experience reduced net sales and profitability.
Sales to significant customers as a percentage of total net sales were as
follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------------ ------------------
1997 1996 1996 1995 1994
---- ----------- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Exabyte................................... 19.0% 17.6% 20.8% -- --
Ohmeda (BOC Group)........................ 10.4% 15.1% 15.7% 15.3% 16.5%
Hewlett Packard Company................... 9.0% 27.3% 26.4% 37.8% 43.3%
Kentrox................................... 8.61% -- -- -- --
Allied Signal............................. 16.6% -- -- -- --
</TABLE>
The businesses acquired in the CTI Companies business combination focus on
repair and warranty operations which are located at the principal locations of
the overnight delivery hubs of two overnight package transportation providers
and are integrated with the logistics operations of these transportation
providers and participate in joint marketing programs to customers of these
transportation providers. If the Company ceased to be allowed to share
facilities and marketing arrangements with either or both of these major
transportation providers, there can be no assurance that alternate arrangements
could be made by the Company to preserve such advantages and the Company could
lose significant numbers of repair customers. In addition, work stoppages or
other disruptions in the transportation network may occur from time to time
which may affect these transportation providers.
F-17
<PAGE> 73
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Circuit Test, Inc. and Affiliates:
We have audited the accompanying combined balance sheets of Circuit Test,
Inc. and affiliates as of December 31, 1996 and 1995, and the related combined
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1996. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined 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, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Circuit Test, Inc.
and affiliates as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
As discussed in note 1(a), the companies included in the combined financial
statements changed in 1996.
Our audits were made for the purpose of forming an opinion on the combined
financial statements taken as a whole. The combining information in the
accompanying schedules is presented for purposes of additional analysis of the
combined financial statements rather than to present the financial position,
results of operations and cash flows of the individual companies. The combining
information has been subjected to the auditing procedures applied in the audits
of the combined financial statements and, in our opinion, is fairly stated in
all material respects in relation to the combined financial statements taken as
a whole.
KPMG PEAT MARWICK LLP
Memphis, Tennessee
July 11, 1997
F-18
<PAGE> 74
CIRCUIT TEST, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
ASSETS (NOTE 2)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------------
1997 1996 1995
------------ ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 367,350 $ 1,490,336 $ 758,087
Accounts receivable, net of allowance for doubtful
accounts of $544,830 in 1997, $544,830 in 1996 and
$181,675 in 1995 (note 6)............................... 5,050,110 4,110,743 3,750,733
Inventory................................................. 3,704,089 4,242,152 2,467,679
Prepaid expenses and other current assets................. 391,814 8,847 21,599
----------- ----------- ----------
TOTAL CURRENT ASSETS................................ 9,513,363 9,852,078 6,998,098
----------- ----------- ----------
Property and equipment, at cost:
Land, buildings and improvements.......................... 605,409 605,409 685,134
Leasehold improvements.................................... 686,071 655,029 626,226
Machinery and equipment................................... 3,459,098 2,845,745 1,731,370
Furniture and fixtures.................................... 425,946 382,440 280,011
Vehicles.................................................. 137,074 137,074 157,817
----------- ----------- ----------
5,313,598 4,625,697 3,480,558
Less accumulated depreciation and amortization.......... 1,639,285 1,400,285 1,293,583
----------- ----------- ----------
NET PROPERTY AND EQUIPMENT.......................... 3,674,313 3,225,412 2,186,975
Other assets, net........................................... 112,830 96,245 60,079
----------- ----------- ----------
TOTAL ASSETS........................................ $13,300,506 $13,173,735 $9,245,152
=========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of notes payable (note 2).............. $ 4,728,752 $ 4,256,293 $2,869,360
Accounts payable.......................................... 1,447,489 3,935,078 1,755,099
Accrued expenses.......................................... 2,599,119 1,069,762 949,866
Due to related parties.................................... (137,391) 260,377 397,813
Shareholder loans (note 3)................................ 943,000 1,135,871 975,871
----------- ----------- ----------
TOTAL CURRENT LIABILITIES........................... 9,580,969 10,657,381 6,948,009
Long-term portion of notes payable (note 2)................. 148,229 594,509 239,882
----------- ----------- ----------
TOTAL LIABILITIES................................... $ 9,729,198 $11,251,890 $7,187,891
----------- ----------- ----------
STOCKHOLDERS' EQUITY:
Circuit Test, Inc. common stock, $.01 par value; 50,000
shares authorized; 5 shares issued and outstanding...... $ 1 $ 1 $ 1
Circuit Test, Inc. non-voting common stock, $.01 par
value; 50,000 shares authorized; 12,162 and 9,995 shares
issued and outstanding at 1996 and 1995, respectively... 121 121 99
Airhub Service Group, L.C. members' deficit:
Allen S. Braswell, Jr................................... (70,800) (70,800) --
Circuit Test International Limited Partnership.......... (70,800) (70,800) --
Circuit Test International L.C. members' equity:
Allen S. Braswell, Jr................................... 4,330 4,330 4,330
Circuit Test International Limited Partnership.......... 4,330 4,330 4,330
Additional paid-in capital................................ 147,498 147,498 17,500
Retained earnings......................................... 3,556,628 1,907,165 2,031,001
----------- ----------- ----------
TOTAL STOCKHOLDERS' EQUITY.......................... 3,571,308 1,921,845 2,057,261
Commitments, contingencies and related party transactions
(notes 3, 4 and 5)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......... $13,300,506 $13,173,735 $9,245,152
=========== =========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-19
<PAGE> 75
CIRCUIT TEST, INC. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
-------------------------- --------------------------------------
1997 1996 1996 1995 1994
------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
) (UNAUDITED
Net revenues (note 6)....... $19,895,878 $9,754,621 $26,509,725 $16,183,590 $9,028,587
Costs of revenues........... 13,288,642 7,495,668 19,580,340 10,799,490 6,310,630
----------- ---------- ----------- ----------- ----------
GROSS PROFIT...... 6,607,236 2,258,953 6,929,385 5,384,100 2,717,957
Selling, general and
administrative expenses... 3,946,054 2,834,812 6,251,364 3,793,320 2,524,796
Interest expense, net....... 262,152 191,871 434,345 291,061 111,250
Other expense............... 11,565 -- 9,112 -- --
----------- ---------- ----------- ----------- ----------
NET INCOME........ $ 2,387,465 $ (767,730) $ 234,564 $ 1,299,719 $ 81,911
=========== ========== =========== =========== ==========
</TABLE>
See accompanying notes to combined financial statements
F-20
<PAGE> 76
CIRCUIT TEST, INC. AND AFFILIATES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
CIRCUIT TEST
CIRCUIT TEST, INC. AIRHUB SERVICE GROUP, L.C. INTERNATIONAL, L.C.
---------------------------- ----------------------------- -----------------------------
NON- CIRCUIT TEST CIRCUIT TEST
VOTING VOTING ADDITIONAL INTERNATIONAL INTERNATIONAL
COMMON COMMON PAID-IN ALLEN S. LIMITED ALLEN S. LIMITED
STOCK STOCK CAPITAL BRASWELL, JR. PARTNERSHIP BRASWELL, JR. PARTNERSHIP
------ ------ ---------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1993.................. $ 1 $ 99 $ 17,500 $ -- $ -- $4,300 $4,300
Distributions to
stockholders.......... -- -- -- -- -- -- --
Net income (loss)....... -- -- -- -- -- -- --
--- ---- -------- -------- -------- ------ ------
Balances at December 31,
1994.................. 1 99 17,500 -- -- 4,300 4,300
Net income (loss)....... -- -- -- -- -- -- --
--- ---- -------- -------- -------- ------ ------
Balances at December 31,
1995.................. 1 99 17,500 -- -- 4,330 4,330
Sale of stock........... -- 22 129,998 -- -- -- --
Allocation of net
deficit to members at
date of transfer...... -- -- -- (70,800) (70,800) -- --
Distributions to
stockholders.......... -- -- -- -- -- -- --
Net income (loss)....... -- -- -- -- -- -- --
--- ---- -------- -------- -------- ------ ------
Balances at December 31,
1996.................. 1 121 147,498 (70,800) (70,800) 4,330 4,330
Distributions to
stockholders.......... -- -- -- -- -- -- --
Net income (loss)....... -- -- -- -- -- -- --
--- ---- -------- -------- -------- ------ ------
Balances at June 30,
1997.................. $ 1 $122 $147,498 $(70,800) $(70,800) $4,330 $4,330
=== ==== ======== ======== ======== ====== ======
<CAPTION>
RELATED EARNINGS
------------------------------------------------------------------------
AIRHUB CIRCUIT TEST TOTAL
CIRCUIT SERVICE INTERNATIONAL, STOCKHOLDERS'
TEST, INC. GROUP, L.C. L.C. TOTAL EQUITY
----------- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31,
1993.................. $ 2,227,684 $ -- $ (505,291) $ 1,772,393 $ 1,748,653
Distributions to
stockholders.......... (1,073,022) -- -- (1,073,022) (1,073,022)
Net income (loss)....... 372,735 -- (290,824) 81,911 81,911
----------- --------- ---------- ----------- -----------
Balances at December 31,
1994.................. 1,527,397 -- (796,115) 731,282 757,542
Net income (loss)....... 355,566 (141,600) 1,085,753 1,299,719 1,299,719
----------- --------- ---------- ----------- -----------
Balances at December 31,
1995.................. 1,882,963 (141,600) 289,638 2,031,001 2,057,261
Sale of stock........... -- -- -- -- 130,020
Allocation of net
deficit to members at
date of transfer...... -- 141,600 -- 141,600 --
Distributions to
stockholders.......... -- -- (500,000) (500,000) (500,000)
Net income (loss)....... (189,383) (107,545) 531,492 234,564 234,564
----------- --------- ---------- ----------- -----------
Balances at December 31,
1996.................. 1,693,580 (107,545) 321,130 1,907,165 1,921,845
Distributions to
stockholders.......... -- (31,000) (707,000) (738,000) (738,000)
Net income (loss)....... 935,079 665,943 786,443 2,387,465 2,387,465
----------- --------- ---------- ----------- -----------
Balances at June 30,
1997.................. $ 2,628,658 $ 385,798 $ 400,572 $ 3,415,028 $ 3,571,308
=========== ========= ========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-21
<PAGE> 77
CIRCUIT TEST, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------------ ------------------------------------
1997 1996 1996 1995 1994
----------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $ 2,387,465 $ (767,730) $ 234,564 $1,299,719 $ 81,911
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization................... 234,999 185,815 344,203 296,669 252,579
Increase in accounts receivable, net............ (939,367) (568,323) (360,010) (2,381,058) (430,908)
(Increase) decrease in inventory................ 538,063 361,836 (1,774,473) (1,073,683) (560,235)
Decrease (increase) in prepaid expenses and
other assets.................................. (399,552) (291,280) (23,414) (15,620) 102,603
(Decrease) increase in accounts payable......... (2,487,589) (412,555) 2,179,979 1,327,841 265,409
(Decrease) increase in accrued expenses......... 1,529,357 429,501 119,896 482,517 133,998
Change in due to (from) related parties......... (397,768) -- (137,436) (114,321) 242,458
----------- ---------- ---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES................................ 465,608 (1,063,735) 583,309 (177,936) 87,815
----------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net......................... (683,902) (629,041) (1,382,640) (621,754) (368,538)
----------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from notes payable and other
obligations..................................... (166,692) 702,851 1,901,560 1,434,578 1,257,802
Proceeds from sale of stock....................... -- -- 130,020 -- --
Distributions to stockholders..................... (738,000) (500,000) (500,000) -- (1,073,022)
----------- ---------- ---------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES... (904,692) 202,851 1,531,580 1,434,578 184,780
----------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................... (1,122,986) (1,551,925) 732,249 634,888 (95,943)
Cash and cash equivalents at beginning of period.... 1,490,336 691,856 758,087 123,199 219,142
----------- ---------- ---------- ---------- ----------
Cash and cash equivalents at end of period.......... $ 367,350 $ (860,068) $1,490,336 $ 758,087 $ 123,199
=========== ========== ========== ========== ==========
Supplemental disclosure of cash flow information --
Interest paid..................................... $ 262,152 $ 191,871 $ 418,000 $ 291,000 $ 164,000
=========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements
F-22
<PAGE> 78
CIRCUIT TEST, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994 AND SIX MONTHS
ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business and Principles of Combination
Circuit Test, Inc. and affiliates (the Company) are primarily engaged in
the business of repairing computer components and related peripherals.
The combined financial statements include the financial statements of
Circuit Test, Inc., located in Tampa, Florida, and affiliates Circuit Test
International, L.C., located in Memphis, Tennessee and Airhub Service Group,
L.C., located in Louisville, Kentucky. The financial statements are combined
because of common ownership. All significant intercompany accounts and
transactions have been eliminated in combination.
On February 28, 1996, Airhub Service Group, L.C., a Kentucky limited
liability company, was formed with two 50%/50% members. In a tax-free transfer,
the net liabilities of Circuit Test International, L.C.'s Kentucky division were
transferred to Airhub Service Group, L.C. on March 1, 1996. Management has
elected to include Airhub Service Group, L.C. in its 1996 combined financial
statements. The 1995 Airhub Service Group, L.C. financial statements represent
the Kentucky division balances.
The members of a limited liability company have no personal liability
related to the company other than to the extent of their equity balances. Both
members have equal economic and voting interests. Unless previously terminated,
Airhub Services Group, L.C. will continue in existence until February 28, 2026
and Circuit Test International, L.C. will continue in existence until August 13,
2022.
During November 1995, the Company decided to close one of its two Tampa
facilities. This facility was closed in early 1996 upon the expiration of the
Company's facility lease. The Company's affiliate near Boston, Massachusetts,
Disk Maintenance, Inc., was closed in August 1996 subsequent to the expiration
of the facility lease. During 1996, owners of the Company opened a facility in
Brazil.
In connection with the closing of the Tampa facility, the Company incurred
costs of approximately $490,000 and $223,000 in 1996 and 1995, respectively.
In prior years, the financial statements of Disk Maintenance, Inc. were
included in the combined financial statements. Management has elected to omit
Disk Maintenance, Inc. from the 1996 combination due to its closure. The
accompanying 1995 and 1994 combined financial statements have been restated to
reflect the change in reporting entity. Net income (loss) for 1996, 1995 and
1994 would have been $(439,357), $1,124,608 and $468,993, respectively, had Disk
Maintenance, Inc. been included in the combination.
(b) Revenue Recognition
Revenues are recognized when products are shipped.
(c) Accounting Estimates
Management is required to make estimates and assumptions during the
preparation of the combined financial statements in conformity with generally
accepted accounting principles. These estimates and assumptions affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the dates of the combined financial statements. They
also affect the reported amounts of net income. Actual results could differ from
these estimates and assumptions.
F-23
<PAGE> 79
CIRCUIT TEST, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(d) Cash and Cash Equivalent
The Company considers all highly liquid investments with original
maturities of six months or less to be cash equivalents.
(e) Inventory
Inventory consists primarily of computer parts and components and is valued
at the lower of cost or market. Cost is determined using the weighted average
method. In October 1996, the Company entered into an agreement with a third
party which included the purchase of inventory in the amount of $1,188,000, with
payments to be made according to a predetermined schedule during 1997. Such
purchased inventory remaining on hand was approximately $1,028,000 at December
31, 1996 (note 7).
(f) Property and Equipment
Property and equipment are stated at cost. Equipment under capital leases
is stated at the present value of minimum lease payments.
Depreciation on property and equipment is calculated on the straight-line
method over the estimated useful lives of the assets. Equipment held under
capital leases and leasehold improvements are amortized straight line over the
shorter of the lease term or estimated useful life of the assets.
(g) Pre-Opening Expenses
Circuit Test International, L.C. began operations in January 1993 and is
amortizing pre-opening expenses, which are included in other assets (net balance
of approximately $8,510 at June 30, 1997, $17,600 at December 31, 1996 and
$36,900 at December 31, 1995) using the straight-line method over 60 months.
(h) Income Taxes
Circuit Test, Inc. has elected to be treated as an "S" Corporation under
provisions of the Internal Revenue Code. Circuit Test International, L.C. and
Airhub Service Group, L.C. have each elected to be treated as a limited
liability company. Under these elections, the stockholders or partners are
individually responsible for reporting their share of taxable income or loss.
Accordingly, no provision for federal or state income taxes has been reflected
in the accompanying combined financial statements.
(i) Gain-Sharing Bonuses
The Company has a gain-sharing bonus plan whereby employees are rewarded
for attaining quality and profit goals. Gain-sharing bonuses paid for the six
months ended June 30, 1997 and years ended December 31, 1996, 1995 and 1994 were
$321,026, $309,174, $220,431 and $81,932, respectively.
(j) Reclassifications
Certain 1995 and 1994 amounts have been reclassified to conform with the
1996 presentation.
F-24
<PAGE> 80
CIRCUIT TEST, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(2) NOTES PAYABLE
Notes payable at June 30, 1997 and December 31, 1996 and 1995 consist of
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------
1997 1996 1995
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
$4,000,000 revolving bank line of credit;
borrowings bear interest at the lender's
prime rate (8.5% at June 30, 1997),
interest payable monthly with principal
due on demand; collateralized by
substantially all assets of the Company
and guaranteed by certain of the
Company's stockholders................... $3,693,900 $3,747,418 $2,545,129
$1,000,000 nonrevolving bank line of
credit; advances bear interest at either
the lender's prime rate or a prevalent
fixed rate at the time of the advance
(8.5% at June 30, 1997); master note
payable on demand with individual
advances payable in three years
consisting of monthly principal and
interest payments; collateralized by
substantially all of the Company's
machinery, equipment, fixtures and
furniture and guaranteed by certain of
the Company's stockholders............... 1,024,857 861,790 138,241
$525,000 bank term loan; bears interest at
the lender's prime rate (8.5% at June 30,
1997); monthly principal and interest
payments through June 1, 1998;
collateralized by substantially all of
the Company's machinery, equipment,
fixtures and furniture and guaranteed by
certain of the Company's stockholders.... 151,267 233,333 408,303
Other...................................... 6,957 8,261 17,569
---------- ---------- ----------
Total notes payable........................ 4,876,981 4,850,802 3,109,242
Less current maturities of notes payable... 4,728,752 4,256,293 2,869,360
---------- ---------- ----------
Long-term portion of notes payable......... $ 148,229 $ 594,509 $ 239,882
========== ========== ==========
</TABLE>
The various loan agreements limit borrowings based on eligible collateral
and subject the Company to certain covenants regarding financial maintenance and
ratios. At December 31, 1996, the Company was not in compliance with certain of
the covenants. On July 9, 1997 the lender waived the instances of
non-compliance.
(3) SHAREHOLDER LOANS AND OBLIGATIONS
At June 30, 1997, the Company has loans payable to a stockholder of
$160,000, at 8.5% and $783,000 at 6.5%. At December 31, 1996, the Company has
loans payable to a stockholder of $352,871 at 8.5% and $783,000 at 6.5%. At
December 31, 1995, balances on these loans were $192,871 and $783,000.
F-25
<PAGE> 81
CIRCUIT TEST, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Stockholders of the Company have personal revolving lines of credit
totaling $975,000, with $157,000, $779,500 and $107,600 outstanding at June 30,
1997 and December 31, 1996 and 1995, respectively. The credit lines are payable
on demand and are guaranteed by the Company.
(4) LEASES
The Company is obligated for two capital leases that will expire in 1998.
The Company leases one of its Tampa facilities from a stockholder at a rate
of $5,080 per month under an operating lease. Rent expense for the six months
ended June 30, 1997 and 1996 and the years ended December 31, 1996, 1995 and
1994 was $30,480, $0, $25,520, $65,232 and $62,701, respectively.
The Company has a noncancelable operating lease with a third party for
facility rental. The Company is charged $1.06 per square foot per month for
office space and warehouse space occupied by certain equipment. Rent expense was
$264,454 and $36,000 for the six months ended June 30, 1997 and 1996,
respectively, and $206,776 and $28,800 for the years ended December 31, 1996 and
1995, respectively.
The Company also has several noncancelable operating leases with third
parties, primarily for facility rental, that expire over the next three years.
Rent expense for these facilities for the six months ended June 30, 1997 and
1996 and the years ended December 31, 1996, 1995 and 1994 was $176,969,
$108,252, $384,181, $296,810 and $147,350, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of June 30, 1997 are
as follows:
<TABLE>
<S> <C>
1997........................................................ $ 511,219
1998........................................................ 291,685
1999........................................................ 283,865
2000........................................................ 282,432
2001........................................................ 141,216
----------
$1,510,417
</TABLE>
(5) COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
The Company pays sales commissions to a company in which certain Company
stockholders have a majority ownership interest. Commissions paid for the six
months ended June 30, 1997 and 1996 and the years ended December 31, 1996, 1995
and 1994 were $12,600, $16,680, $27,240, $29,517 and $68,681, respectively.
Certain corporate charges paid by Circuit Test, Inc. are allocated, based
on a percentage of net revenues, to affiliates included in the combined
financial statements and another related party which is not included in the
combination. The amounts charged to the related party for 1996, 1995 and 1994
were approximately $162,000, $247,000 and $287,000, respectively.
In the normal course of business, the Company is party to certain
litigation. Management of the Company is of the opinion that the ultimate
outcome of such matters will not have a material adverse impact on the Company's
combined financial statements.
F-26
<PAGE> 82
CIRCUIT TEST, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(6) SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company's customers are primarily manufacturers of computers and
related peripherals and integrated transportation and logistics companies.
Certain customers of the Company comprise a significant portion of accounts
receivable and net revenues as of and for the years ended December 31, 1996,
1995 and 1994. These customers are summarized as follows:
<TABLE>
<CAPTION>
PERCENTAGE
CUSTOMERS OF TOTAL
--------- ----------
<S> <C> <C>
Accounts receivable:
December 31, 1996......................................... 4 65%
December 31, 1995......................................... 4 57%
December 31, 1994......................................... 4 72%
Net revenues:
Year ended December 31, 1996.............................. 4 81%
Year ended December 31, 1995.............................. 4 71%
Year ended December 31, 1994.............................. 4 79%
</TABLE>
The net revenues concentration numbers include one customer which accounted
for 46% of net revenues during 1996, 36% during 1995 and 39% during 1994.
(7) SUBSEQUENT EVENT
In May 1997, a third party requested to terminate an agreement that the
Company had entered into to purchase certain assets and other rights. A new
agreement was reached that resulted in a reduction in purchase price for the
assets previously purchased. In June 1997, the Company reduced the assets which
are included in inventory and the corresponding payable to the third party by
approximately $1,000,000.
On July 9, 1997, the Company entered into an Agreement and Plan of Merger
(Agreement) with EFTC Corporation (EFTC). The Agreement provides that EFTC will
acquired the Company through the merger of the Company with and into EFTC
(Merger). In the Merger, subject to adjustment and certain exceptions,
stockholders of Circuit Test, Inc. will have the right to receive 1,858,974
shares of EFTC common stock and the members of Airhub Service Group, L.C. and
Circuit Test International, L.C. will receive approximately $19,500,000 and have
certain liabilities assumed by EFTC. Stockholders and members of the Company
will also participate in an earnout based on future earnings. The obligations of
the Company and EFTC to consummate the Merger are subject to various conditions,
including the condition that the holders of a majority of the outstanding shares
of common stock of EFTC vote to approve the Agreement. If the necessary
stockholder vote is obtained and all other conditions to the Merger are
satisfied, the Merger is expected to be completed on or before October 30, 1997.
F-27
<PAGE> 83
CIRCUIT TEST, INC. AND AFFILIATES
COMBINING SCHEDULE -- BALANCE SHEET INFORMATION
DECEMBER 31, 1996
ASSETS
<TABLE>
<CAPTION>
AIRHUB
CIRCUIT SERVICE CIRCUIT TEST
TEST, INC. GROUP, L.C. INTERNATIONAL, L.C. COMBINED
---------- ----------- ------------------- -----------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............. $ (169,421) $ 634,756 $1,025,001 $ 1,490,336
Accounts receivable, net.............. 1,074,345 1,268,588 1,767,810 4,110,743
Inventory............................. 223,380 2,706,234 1,312,538 4,242,152
Prepaid expenses and other current
assets............................. 2,843 -- 6,004 8,847
Intercompany accounts................. 533,288 (400,846) (132,442) --
---------- ---------- ---------- -----------
TOTAL CURRENT ASSETS.......... 1,664,435 4,208,732 3,978,911 9,852,078
---------- ---------- ---------- -----------
PROPERTY AND EQUIPMENT, AT COST:
Land, buildings and improvements...... 605,409 -- -- 605,409
Leasehold improvements................ -- -- 655,029 655,029
Machinery and equipment............... 1,030,977 680,431 1,134,337 2,845,745
Furniture and fixtures................ 121,255 111,680 149,505 382,440
Vehicles.............................. 137,074 -- -- 137,074
---------- ---------- ---------- -----------
1,894,715 792,111 1,938,871 4,625,697
Less accumulated depreciation and
amortization....................... 1,026,834 65,590 307,861 1,400,285
---------- ---------- ---------- -----------
NET PROPERTY AND EQUIPMENT.... 867,881 726,521 1,631,010 3,225,412
Other assets, net....................... 24,553 -- 71,692 96,245
---------- ---------- ---------- -----------
$2,556,869 $4,935,253 $5,681,613 $13,173,735
========== ========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of notes payable... $ 121,498 $1,943,867 $2,190,928 $ 4,256,293
Accounts payable...................... 243,389 2,575,667 1,116,022 3,935,078
Accrued expenses...................... 260,647 454,507 354,608 1,069,762
Due to (from) related parties......... (306,765) (12,455) 579,597 260,377
Shareholder loans..................... 352,871 -- 783,000 1,135,871
---------- ---------- ---------- -----------
TOTAL CURRENT LIABILITIES..... 671,640 4,961,586 5,024,155 10,657,381
Long-term portion of notes payable...... 44,029 222,812 327,668 594,509
---------- ---------- ---------- -----------
TOTAL LIABILITIES............. 715,669 5,184,398 5,351,823 11,251,890
---------- ---------- ---------- -----------
STOCKHOLDERS' EQUITY:
Common stock.......................... 122 -- -- 122
Members' equity....................... -- (141,600) 8,600 (132,940)
Additional paid-in capital............ 147,498 -- -- 147,498
Retained earnings (deficit)........... 1,693,580 (107,545) 321,130 1,907,165
---------- ---------- ---------- -----------
TOTAL STOCKHOLDERS' EQUITY.... 1,841,200 (249,145) 329,790 1,921,845
---------- ---------- ---------- -----------
$2,556,869 $4,935,253 $5,681,613 $13,173,735
========== ========== ========== ===========
</TABLE>
See accompanying independent auditors' report.
F-28
<PAGE> 84
CIRCUIT TEST, INC. AND AFFILIATES
COMBINING SCHEDULE -- BALANCE SHEET INFORMATION
DECEMBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
AIRHUB
CIRCUIT SERVICE CIRCUIT TEST
TEST, INC. GROUP, L.C. INTERNATIONAL, L.C. COMBINED
---------- ----------- ------------------- ----------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............... $ 210,987 $ 38,372 $ 508,728 $ 758,087
Accounts receivable, net................ 1,332,405 449,172 1,969,156 3,750,733
Inventory............................... 1,034,222 97,280 1,336,177 2,467,679
Prepaid expenses and other current
assets............................... 2,843 -- 18,756 21,599
Intercompany accounts................... 112,463 -- (112,463) --
---------- --------- ---------- ----------
TOTAL CURRENT ASSETS............ 2,692,920 584,824 3,720,354 6,998,098
---------- --------- ---------- ----------
PROPERTY AND EQUIPMENT, AT COST:
Land, buildings and improvements........ 685,134 -- -- 685,134
Leasehold improvements.................. 208,505 29,378 388,343 626,226
Machinery and equipment................. 998,188 89,710 643,472 1,731,370
Furniture and fixtures.................. 170,160 28,022 81,829 280,011
Vehicles................................ 157,817 -- -- 157,817
---------- --------- ---------- ----------
2,219,804 147,110 1,113,644 3,480,558
Less accumulated depreciation and
amortization......................... 1,140,678 4,268 148,637 1,293,583
---------- --------- ---------- ----------
NET PROPERTY AND EQUIPMENT...... 1,079,126 142,842 965,007 2,186,975
Other assets, net............... 24,553 -- 35,526 60,079
---------- --------- ---------- ----------
$3,796,599 $ 727,666 $4,720,887 $9,245,152
========== ========= ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of notes payable..... $ 925,306 $ 448,241 $1,495,813 $2,869,360
Accounts payable........................ 340,298 379,400 1,035,401 1,755,099
Accrued expenses........................ 299,316 43,832 606,718 949,866
Due to (from) related parties........... (25,011) (2,207) 425,031 397,813
Shareholder loans....................... 192,871 -- 783,000 975,871
---------- --------- ---------- ----------
TOTAL CURRENT LIABILITIES....... 1,732,780 869,266 4,345,963 6,948,009
Long-term portion of notes
payable....................... 163,256 -- 76,626 239,882
---------- --------- ---------- ----------
TOTAL LIABILITIES............... 1,896,036 869,266 4,422,589 7,187,891
---------- --------- ---------- ----------
STOCKHOLDERS' EQUITY:
Common stock............................ 100 -- -- 100
Members' equity......................... -- -- 8,660 8,660
Additional paid-in capital.............. 17,500 -- -- 17,500
Retained earnings (deficit)............. 1,882,963 (141,600) 289,638 2,031,001
---------- --------- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY...... 1,900,563 (141,600) 298,298 2,057,261
---------- --------- ---------- ----------
$3,796,599 $ 727,666 $4,720,887 $9,245,152
========== ========= ========== ==========
</TABLE>
See accompanying independent auditors' report.
F-29
<PAGE> 85
CIRCUIT TEST, INC. AND AFFILIATES
COMBINING SCHEDULE -- OPERATIONS INFORMATION
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
AIRHUB CIRCUIT TEST
CIRCUIT SERVICE INTERNATIONAL, ELIMINATING
TEST, INC. GROUP, L.C. L.C. ENTRIES COMBINED
---------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues................. $4,590,711 $8,211,422 $13,854,357 $(146,765) $26,509,725
Costs of revenues............ 3,348,588 6,421,699 9,956,818 (146,765) 19,580,340
---------- ---------- ----------- --------- -----------
GROSS PROFIT....... 1,242,123 1,789,723 3,897,539 -- 6,929,385
Selling, general and
administrative expenses.... 1,348,581 1,799,830 3,102,953 -- 6,251,364
Interest expense, net........ 100,587 70,664 263,094 -- 434,345
Other (income) expense....... (17,662) 26,774 -- -- 9,112
---------- ---------- ----------- --------- -----------
NET INCOME (LOSS).. $ (189,383) $ (107,545) $ 531,492 $ -- $ 234,564
========== ========== =========== ========= ===========
</TABLE>
See accompanying independent auditors' report.
F-30
<PAGE> 86
CIRCUIT TEST, INC. AND AFFILIATES
COMBINING SCHEDULE -- OPERATIONS INFORMATION
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
AIRHUB CIRCUIT TEST
CIRCUIT SERVICE INTERNATIONAL, ELIMINATING
TEST, INC. GROUP, L.C. L.C. ENTRIES COMBINED
---------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues................... $7,668,419 $ 302,531 $8,356,249 $(143,609) $16,183,590
Costs of revenues.............. 5,593,172 238,617 5,111,310 (143,609) 10,799,490
---------- --------- ---------- --------- -----------
GROSS PROFIT......... 2,075,247 63,914 3,244,939 -- 5,384,100
Selling, general and
administrative expenses...... 1,591,408 198,810 2,003,102 -- 3,793,320
Interest expense, net.......... 128,273 6,704 156,084 -- 291,061
---------- --------- ---------- --------- -----------
NET INCOME (LOSS).... $ 355,566 $(141,600) $1,085,753 $ -- $ 1,299,719
========== ========= ========== ========= ===========
</TABLE>
See accompanying independent auditors' report.
F-31
<PAGE> 87
CIRCUIT TEST, INC. AND AFFILIATES
COMBINING SCHEDULE -- OPERATIONS INFORMATION
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
CIRCUIT TEST
CIRCUIT INTERNATIONAL, ELIMINATING
TEST, INC. L.C. ENTRIESE COMBINED
---------- -------------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenues............................. $7,032,786 $2,069,931 $(74,130) $9,028,587
Costs of revenues........................ 4,891,004 1,493,756 (74,130) 6,310,630
---------- ---------- -------- ----------
GROSS PROFIT................... 2,141,782 576,175 -- 2,717,957
Selling, general and administrative
expenses............................... 1,721,680 803,116 -- 2,524,796
Interest expense, net.................... 47,367 63,883 -- 111,250
---------- ---------- -------- ----------
NET INCOME (LOSS).............. $ 372,735 $ (290,824) $ -- $ 81,911
========== ========== ======== ==========
</TABLE>
See accompanying independent auditors' report.
F-32
<PAGE> 88
CIRCUIT TEST, INC. AND AFFILIATES
COMBINING SCHEDULE -- CASH FLOWS INFORMATION
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
AIRHUB CIRCUIT TEST
CIRCUIT SERVICE INTERNATIONAL
TEST, INC. GROUP, L.C. L.C. COMBINED
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:.... $ (189,383) $ (107,545) $ 531,492 $ 234,564
Net income (loss)
Adjustments to reconcile net income
(loss) to net cash flows provided by
(used in) operating activities:
Depreciation and amortization........ 162,822 59,287 122,094 344,203
(Increase) decrease in accounts
receivables, net.................. 258,060 (819,416) 201,346 (360,010)
(Increase) decrease in inventory..... 810,842 (2,608,954) 23,639 (1,774,473)
Increase in prepaids and other
assets............................ -- -- (23,414) (23,414)
Increase (decrease) in accounts
payable........................... (96,909) 2,196,267 80,621 2,179,979
Increase (decrease) in accrued
expenses.......................... (38,669) 410,675 (252,110) 119,896
Change in due to (from) related
parties........................... (281,754) (10,248) 154,566 (137,436)
Change in intercompany account....... (1,017,309) 1,019,433 (2,124) --
----------- ----------- ---------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES.......... (392,300) 139,499 836,110 583,309
----------- ----------- ---------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES -- capital expenditures,
net.................................... 48,423 (642,966) (788,097) (1,382,640)
----------- ----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from notes payable and
other obligations.................... (166,551) 1,099,851 968,260 1,901,560
Proceeds from sale of stock............ 130,020 -- -- 130,020
Distributions to stockholders.......... -- -- (500,000) (500,000)
----------- ----------- ---------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES.......... (36,531) 1,099,851 468,260 1,531,580
----------- ----------- ---------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS.......... (380,408) 596,384 516,273 732,249
----------- ----------- ---------- -----------
Cash and cash equivalents at beginning of
year................................... 210,987 38,372 508,728 758,087
----------- ----------- ---------- -----------
Cash and cash equivalents at end of
year................................... (169,421) 634,756 1,025,001 1,490,336
=========== =========== ========== ===========
Supplemental disclosure of cash
information -- Interest paid........... $ 98,000 $ 71,000 $ 249,000 $ 418,000
=========== =========== ========== ===========
</TABLE>
See accompanying independent auditors' report.
F-33
<PAGE> 89
CIRCUIT TEST, INC. AND AFFILIATES
COMBINING SCHEDULE -- CASH FLOWS INFORMATION
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
AIRHUB
CIRCUIT SERVICE CIRCUIT TEST
TEST, INC. GROUP, L.C. INTERNATIONAL, L.C. COMBINED
---------- ----------- ------------------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................... $ 355,566 (141,600) 1,085,753 1,299,719
Adjustments to reconcile net income
(loss) to net cash flows provided
by (used in) operating activities:
Depreciation and amortization...... 203,597 8,368 84,704 296,669
Increase in accounts receivables,
net.............................. (370,082) (449,172) (1,561,804) (2,381,058)
(Increase) decrease in inventory... 242,180 (97,280) (1,218,583) (1,073,683)
(Increase) decrease in prepaids and
other assets..................... (17,798) -- 2,178 (15,620)
Increase in accounts payable....... 36,453 379,400 911,988 1,327,841
Increase in accrued expenses....... 49,573 43,832 389,112 482,517
Change in due to (from) related
parties.......................... (255,947) (2,207) 143,833 (114,321)
Change in intercompany account..... (11,439) -- 11,439 --
--------- --------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES........ 232,103 (258,659) (151,380) (177,936)
--------- --------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES --
capital expenditures, net............. 42,130 (151,210) (512,674) (621,754)
--------- --------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
net proceeds from notes payable and
other obligations.................. (219,440) 448,241 1,205,777 1,434,578
--------- --------- ----------- -----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS................. 54,793 38,372 541,723 634,888
Cash and cash equivalents at beginning
of year............................... 156,194 -- (32,995) 123,199
--------- --------- ----------- -----------
Cash and cash equivalents at end of
year.................................. $ 210,987 38,372 508,728 758,087
========= ========= =========== ===========
Supplemental disclosure of cash
information -- Interest paid.......... $ 128,000 7,000 156,000 291,000
========= ========= =========== ===========
</TABLE>
See accompanying independent auditors' report.
F-34
<PAGE> 90
CIRCUIT TEST, INC. AND AFFILIATES
COMBINING SCHEDULE -- CASH FLOWS INFORMATION
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
CIRCUIT TEST
CIRCUIT INTERNATIONAL,
TEST, INC. L.C. COMBINED
----------- -------------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................. $ 372,735 $(290,824) $ 81,911
Adjustments to reconcile net income (loss) to
net cash flows provided by (used in)
operating activities:
Depreciation and amortization............... 195,200 57,739 252,579
Increase in accounts receivables, net....... (211,334) (219,574) (430,908)
Increase in inventory....................... (511,571) 48,664 (560,235)
(Increase) decrease in prepaids and other
assets.................................... 106,122 (3,519) 102,603
Increase in accounts payable................ 165,421 99,988 265,409
Increase (decrease) in accrued expenses..... (20,694) 154,692 133,998
Change in due to (from) related parties..... 239,655 2,803 242,458
Change in intercompany account.............. (101,024) 101,024 --
----------- --------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES................. 234,510 (146,695) 87,815
----------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES -- capital
expenditures, net.............................. (37,560) (330,978) (368,538)
----------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from notes payable and other
obligations................................. 871,140 386,662 1,257,802
Distributions to stockholders.................. (1,073,022) -- (1,073,022)
----------- --------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES................. (201,882) 386,662 184,780
----------- --------- -----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS.......................... (4,932) (91,011) (95,943)
Cash and cash equivalents at beginning of year... 161,126 58,016 219,142
----------- --------- -----------
Cash and cash equivalents at end of year......... $ 156,194 $ (32,995) $ 123,199
=========== ========= ===========
Supplemental disclosure of cash information --
Interest paid.................................. $ 54,000 $ 110,000 $ 164,000
=========== ========= ===========
</TABLE>
See accompanying independent auditors' report.
F-35
<PAGE> 91
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Current Electronics, Inc. and
Current Electronics Washington, Inc.:
We have audited the accompanying combined statements of income and retained
earnings and cash flows of Current Electronics, Inc. (an Oregon Corporation) and
Current Electronics Washington, Inc. (a Washington S Corporation) for the year
ended September 30, 1994. These combined financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Current
Electronics, Inc. and Current Electronics Washington, Inc. for the year ended
September 30, 1994, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Portland, Oregon,
April 4, 1997
F-36
<PAGE> 92
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Current Electronics, Inc. and Current Electronics Washington, Inc.:
We have audited the accompanying combined balance sheets of Current
Electronics, Inc. (an Oregon Corporation) and Current Electronics Washington,
Inc. (a Washington S Corporation) as of September 30, 1996 and 1995, and the
related combined statements of income and retained earnings and cash flows for
the years then ended. These combined financial statements are the responsibility
of the companies management. Our responsibility is to express an opinion on
these combined 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, the financial statements referred to above present fairly,
in all material respects, the financial position of Current Electronics, Inc.
and Current Electronics Washington, Inc. as of September 30, 1996 and 1995, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Portland, Oregon,
November 25, 1996
F-37
<PAGE> 93
CURRENT ELECTRONICS, INC. AND
CURRENT ELECTRONICS WASHINGTON, INC.
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, ------------------------
1996 1996 1995
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................ $ 645,262 $ 580,839 $ 252,323
Accounts receivable, net of allowance for
doubtful accounts of $34,000 and $6,774 and
$22,222....................................... 1,542,819 1,929,142 1,506,049
Inventories...................................... 4,098,178 3,826,074 1,860,951
Prepaid expenses................................. 167,436 109,077 24,809
---------- ---------- ----------
Total current assets..................... 6,453,695 6,445,132 3,644,132
---------- ---------- ----------
PROPERTY, PLANT AND EQUIPMENT, net................. 2,430,218 2,337,317 2,171,347
OTHER ASSETS....................................... 11,783 140,201 73,197
---------- ---------- ----------
Total assets............................. $8,895,696 $8,922,650 $5,888,676
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................. $1,268,678 $1,386,274 $ 636,264
Accrued liabilities.............................. 588,784 766,020 643,863
Income taxes payable............................. 191,331 99,953 247,764
Notes payable.................................... 1,326,384 650,000 --
Current portion of long-term debt................ 306,045 599,019 500,948
---------- ---------- ----------
Total current liabilities................ 3,681,222 3,501,266 2,028,839
---------- ---------- ----------
DEFERRED INCOME TAXES.............................. 122,000 122,000 289,000
LONG-TERM DEBT..................................... 881,371 977,826 815,751
---------- ---------- ----------
Total liabilities........................ 4,684,593 4,601,092 3,133,590
---------- ---------- ----------
SHAREHOLDERS' EQUITY:
Preferred stock.................................. -- -- --
Common stock..................................... 33,000 33,000 33,000
Retained earnings................................ 4,178,103 4,288,558 2,722,086
---------- ---------- ----------
Total shareholders' equity............... 4,211,103 4,321,558 2,755,086
---------- ---------- ----------
Total liabilities and shareholders'
equity................................. $8,895,696 $8,922,650 $5,888,676
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
F-38
<PAGE> 94
CURRENT ELECTRONICS, INC. AND
CURRENT ELECTRONICS WASHINGTON, INC.
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, YEARS ENDED SEPTEMBER 30,
------------------------- ---------------------------------------
1996 1995 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES................. $ 6,361,713 $ 6,114,044 $32,520,438 $17,169,805 $11,066,863
COST OF SALES............. 5,310,833 5,180,965 27,075,305 13,471,626 8,611,474
----------- ----------- ----------- ----------- -----------
Gross profit............ 1,050,880 933,079 5,445,133 3,698,179 2,455,389
----------- ----------- ----------- ----------- -----------
SELLING, GENERAL
ADMINISTRATIVE
EXPENSES................ 747,790 624,860 2,792,814 1,976,702 1,796,962
----------- ----------- ----------- ----------- -----------
Income from
operations........... 303,090 308,219 2,652,319 1,721,477 658,427
OTHER INCOME (EXPENSE):
Other income, net....... 28,695 17,310 9,345 34,603 9,218
Interest expense, net... (50,240) (26,981) (101,192) (129,315) (63,121)
----------- ----------- ----------- ----------- -----------
Total other
income
(expense)..... (21,545) (9,671) (91,847) (94,712) (53,903)
----------- ----------- ----------- ----------- -----------
Income before
income
taxes......... 281,545 298,548 2,560,472 1,626,765 604,524
----------- ----------- ----------- ----------- -----------
PROVISION (BENEFIT) FOR
INCOME TAXES:
Current................. 92,000 70,167 921,000 438,435 100,000
Deferred................ -- -- (167,000) 42,000 104,000
----------- ----------- ----------- ----------- -----------
92,000 70,167 754,000 480,435 204,000
----------- ----------- ----------- ----------- -----------
NET INCOME................ 189,545 228,381 1,806,472 1,146,330 400,524
RETAINED EARNINGS,
beginning of year....... 4,288,558 2,649,184 2,722,086 1,650,756 1,250,232
DIVIDENDS................. (300,000) (150,000) (240,000) (75,000) --
----------- ----------- ----------- ----------- -----------
RETAINED EARNINGS, end of
year.................... $ 4,178,103 $ 2,727,565 $ 4,288,558 $ 2,722,086 $ 1,650,756
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-39
<PAGE> 95
CURRENT ELECTRONICS, INC. AND
CURRENT ELECTRONICS WASHINGTON, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, YEARS ENDED SEPTEMBER 30,
----------------------- -------------------------------------
1996 1995 1996 1995 1994
--------- ----------- ----------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income....................... $ 189,545 $ 228,381 $ 1,806,472 $ 1,146,330 $ 400,524
Adjustments to reconcile net
income to cash provided by
operating activities --
Depreciation and
amortization................. 165,720 183,809 576,378 475,944 350,874
Loss on sale of property....... -- -- 2,491 -- 4,533
Deferred income taxes.......... -- -- (167,000) 42,000 104,569
Changes in operating accounts:
Accounts receivable.......... 386,323 13,835 (423,093) (673,973) (100,461)
Inventories.................. (272,104) (2,955,557) (1,717,929) (902,338) (38,628)
Prepaid expenses............. (69,007) (25,710) (84,268) (13,042) 2,117
Accounts payable............. (117,596) 1,020,877 750,010 458,679 11,889
Accrued liabilities.......... (177,236) (62,863) 122,157 295,885 (56,053)
Income taxes payable......... 91,378 (162,962) (147,811) 264,339 (199,826)
--------- ----------- ----------- ----------- ---------
Net cash provided by
operating activities.... 197,023 (1,760,190) 717,407 1,093,824 479,538
--------- ----------- ----------- ----------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and
equipment...................... (258,621) (178,326) (768,867) (1,061,820) (777,128)
Proceeds from disposal of
property and equipment......... -- -- 24,028 -- --
Key Man Insurance................ 139,066 (20,141) (67,004) (24,269) (48,928)
--------- ----------- ----------- ----------- ---------
Net cash used in investing
activities.............. (119,555) (198,467) (811,843) (1,086,089) (826,056)
--------- ----------- ----------- ----------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net borrowings under lines of
credit......................... -- -- 650,000 -- --
Proceeds from new long-term
borrowings..................... 429,190 2,197,047 1,285,344 551,539 691,496
Repayments of long-term debt..... (142,235) (132,482) (1,272,392) (389,881) (409,334)
Dividends paid................... (300,000) (150,000) (240,000) (75,000) --
Issuance of common stock......... -- -- -- -- 3,000
--------- ----------- ----------- ----------- ---------
Net cash provided by
financing activities.... (13,045) 1,914,565 422,952 86,658 285,162
--------- ----------- ----------- ----------- ---------
Net increase (decrease) in
cash and cash
equivalents............. 64,423 (44,092) 328,516 94,393 (61,356)
CASH AND CASH EQUIVALENTS,
beginning of period.............. 580,839 252,323 252,323 157,930 219,286
--------- ----------- ----------- ----------- ---------
CASH AND CASH EQUIVALENTS, end of
period........................... $ 645,262 $ 208,231 $ 580,839 $ 252,323 $ 157,930
========= =========== =========== =========== =========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest........... $ 50,240 $ 26,981 $ 143,109 $ 129,239 $ 63,121
Cash paid for taxes.............. -- 233,129 1,073,489 158,000 381,809
Issuance of note in exchange for
inventories (noncash operating
activity)...................... 429,190 2,585,974 247,194 -- --
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-40
<PAGE> 96
CURRENT ELECTRONICS, INC.
CURRENT ELECTRONICS WASHINGTON, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
1. DESCRIPTION OF BUSINESS:
Current Electronics, Inc. (CEI) was incorporated on December 29, 1983 in
the State of Oregon. CEI's primary business is contract manufacturing of
electronic circuit boards and other components for its customers, who are
located primarily in the Portland metropolitan area.
Current Electronics Washington, Inc. (CEWI) was incorporated as an S
Corporation in the State of Washington in 1994 and is also a contract
manufacturer of electronic circuit boards. CEWI's primary customer is in
Redmond, Washington.
CEI and CEWI (the Companies) provide contract manufacturing on both a
consigned basis (customer retains title to the raw materials) and turnkey basis
(the Companies own the raw materials).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF COMBINATION
The financial statements combine the accounts of the Companies, after
elimination of intercompany items and transactions. These companies are being
combined as they are under common ownership and management. The accounting
policies referred to below represent the policies of both companies, unless
otherwise specified.
CASH EQUIVALENTS
Cash equivalents consists of short-term, highly liquid investments with
maturities at the date of purchase of 90 days or less.
INVENTORIES
Inventories are valued at standard cost which approximates lower of cost
(first-in, first-out) or market, and include materials, labor and manufacturing
overhead.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
are provided using the straight-line method over the estimated useful lives of
the assets: Machinery and production equipment--5 to 15 years and furniture,
fixtures and computer equipment--5 to 7 years. Leasehold improvements are
amortized over the estimated useful life of the asset.
ADVERTISING
Advertising costs are expensed as incurred. For the fiscal years ended
September 30, 1996, 1995 and 1994, advertising costs were $48,266, $24,642 and
$33,357, respectively.
REVENUE RECOGNITION
Revenues are recognized when the product is shipped to the customer.
CONCENTRATIONS OF CREDIT RISK
The Companies' revenues are principally generated from a small number of
electronics companies based in Oregon and Washington. During 1996, four of the
Companies' customers accounted for 74% of combined net sales. For the year ended
September 30, 1995, three customers accounted for 52% of
F-41
<PAGE> 97
CURRENT ELECTRONICS, INC.
CURRENT ELECTRONICS WASHINGTON, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
combined net sales. For the year ended September 30, 1994, four customers
accounted for 63% of combined net sales. Historically, the Companies have not
incurred significant losses related to its accounts receivable. However, the
loss of any one customer could have a significant impact on the future results
of the Companies' operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of expenses during the
reporting period. Actual results may differ from those estimates and such
differences could be material to the financial statements.
RECENT PRONOUNCEMENT
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
SFAS 121 requires an assessment of impairment of long-lived assets under certain
conditions and recognition of loss in the event the net book value of such
assets exceeds the future undiscounted cash flows attributable to such assets.
In such instances a loss would be recorded based on the fair market value of the
applicable asset. SFAS 121 is effective for the Companies' fiscal year ending
September 30, 1997. Adoption of SFAS 121 is not expected to have a material
impact on the Company's financial position or results of operations.
RECLASSIFICATIONS
Certain balances for prior periods have been reclassified to be consistent
with the September 30, 1996 presentation.
INTERIM FINANCIAL INFORMATION
The interim consolidated financial statements included herein have been
prepared, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the management of the Company believes that the
disclosures are adequate to make the information presented not misleading.
Interim financial statements are by necessity somewhat tentative; judgments are
used to estimate interim amounts for items that are normally determinable only
on an annual basis. For example, the effective income tax rate is based on
estimates of annual amounts of taxable income, tax credits and other factors.
The interim period information included herein reflects all adjustments
which are, in the opinion of the management of the Company, necessary for a fair
statement of the results of the respective interim periods. Results of
operations for interim periods are not necessarily indicative of results to be
expected for an entire year.
3. RELATED PARTY TRANSACTIONS:
CEI and CEWI lease office and factory space from Hewitson, Hewitson and
Hewitson (HHH), a partnership which is comprised of the majority shareholders of
CEI. Lease rates between the Companies and these shareholders are based on
estimated fair market values. Rents paid to the partnership for the
F-42
<PAGE> 98
CURRENT ELECTRONICS, INC.
CURRENT ELECTRONICS WASHINGTON, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
years ended September 30, 1996, 1995 and 1994 were $428,402, $259,720 and
$182,520, respectively.
CEI provides selling, general and administrative services to CEWI. Services
totaling $150,000, $60,000 and $0 were allocated to CEWI for the years ended
September 30, 1996, 1995 and 1994, respectively.
CEI owes HHH a combined total of $59,066 under a note (see Note 9) as of
September 30, 1996. CEI owed the partnership $113,055 under two notes at
September 30, 1995. CEI owed HHH a total of $39,190 under a note as of September
30, 1994.
4. OPERATING LEASES:
Total rental expense under operating leases was $472,212, $362,241 and
$232,516 during fiscal 1996, 1995 and 1994, respectively. Future minimum lease
payments under noncancelable operating leases as of September 30, 1996 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30 CEI CEWI
----------------------- -------- --------
<S> <C> <C>
1997.............................................. $266,778 $ 96,000
1998.............................................. 73,408 16,000
1999.............................................. 3,186 --
-------- --------
$343,372 $112,000
======== ========
</TABLE>
The Companies' lease payments principally represent commitments under the
related party facility lease agreement described in Note 3.
5. INVENTORIES:
Inventories consisted of the following at September 30:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Raw materials........................................... $2,892,338 $1,163,165
Work in process......................................... 827,437 484,555
Finished goods.......................................... 106,299 213,231
---------- ----------
$3,826,074 $1,860,951
========== ==========
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consisted of the following at September 30:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Machinery and equipment................................. $2,897,719 $2,771,774
Leasehold improvements.................................. 705,557 575,149
Computer equipment...................................... 626,032 279,188
Furniture and fixtures.................................. 138,184 121,414
---------- ----------
4,367,492 3,747,525
Less -- Accumulated depreciation and amortization....... 2,030,175 1,576,178
---------- ----------
$2,337,317 $2,171,347
========== ==========
</TABLE>
F-43
<PAGE> 99
CURRENT ELECTRONICS, INC.
CURRENT ELECTRONICS WASHINGTON, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. OTHER ASSETS:
Other assets include the cash surrender value of key man life insurance
policies where the Company is the beneficiary. At September 30, 1996, the face
amounts of these policies total $5,019,005.
8. NOTES PAYABLE:
CEI has a revolving line of credit arrangement with Wells Fargo Bank which
allows for borrowings up to $900,000 with interest payable at 1.25% above the
existing prime rate at the date of draw down. The line expired September 30,
1996. Upon expiration, this line of credit arrangement was converted to term
debt bearing interest at 7.75%, payable in monthly installments of $5,583
including interest through September 2001, secured by machinery and equipment
and personally guaranteed by the shareholders of CEI.
CEI has an additional revolving line of credit arrangement with Wells Fargo
Bank which allows for borrowings up to $1,200,000 with interest payable at 1.00%
above the existing prime rate at the date of draw down. The line expires March
31, 1997. The line of credit is personally guaranteed by the shareholders of
CEI. There was $650,000 outstanding at September 30, 1996 under the line of
credit.
The loan agreements contain restrictive covenants for certain items, such
as borrowings and dividends. As of September 30, 1996, CEI was in compliance
with such covenants.
F-44
<PAGE> 100
CURRENT ELECTRONICS, INC.
CURRENT ELECTRONICS WASHINGTON, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. LONG-TERM DEBT:
Long-term debt at September 30, 1996 and 1995 is comprised of the
following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Note payable to Wells Fargo Bank, converted upon expiration
of line of credit at September 30, 1996 (see Note 8)...... $ 335,000 $ --
Note payable to Hewitson, Hewitson, Hewitson and Hewitson, a
related party, payable on demand, with interest at
10% per annum............................................. 59,066 106,171
Note payable to Wells Fargo Bank, maturing April 2001,
payable in monthly installments of $2,157 including
interest at 7.75% per annum; secured by machinery and
equipment................................................. 99,590 --
Note payable to Wells Fargo Bank, maturing June 2000,
payable in monthly installments of $14,841 including
interest at 8.75% per annum; secured by machinery and
equipment................................................. 567,597 675,451
Note payable to Wells Fargo Bank, maturing September 1999,
payable in monthly installments of $7,430 including
interest at 9.5% per annum; secured by machinery and
equipment................................................. 231,960 290,680
Note payable to Wells Fargo Bank, maturing November 1997,
payable in monthly installments of $2,289, including
interest at 9.0% per annum; secured by machinery and
equipment................................................. 30,288 51,998
Note payable to Wells Fargo Bank, maturing November 1997,
payable in monthly installments of $350 including interest
at 7.0% per annum......................................... 4,683 8,108
Unsecured noninterest-bearing note payable to customer,
maturing May 1997, payable in monthly installments of
$41,199................................................... 247,194 --
Note payable to Hewitson, Hewitson and Hewitson, repaid in
1996...................................................... -- 6,884
Note payable to Wells Fargo Bank, maturing October 1996,
payable in monthly installments of $1,496 including
interest at 7.75% per annum; secured by machinery and
equipment................................................. 1,467 17,210
Note payable to Wells Fargo Bank, repaid in 1996....... -- 57,718
Note payable to Wells Fargo Bank, repaid in 1996....... -- 72,588
Note payable to customer, repaid in 1996............... -- 21,523
Note payable to Wells Fargo Bank, repaid in 1996....... -- 8,368
---------- ----------
1,576,845 1,316,699
Less -- Current portion................................ 599,019 500,948
---------- ----------
Long-term debt......................................... $ 977,826 $ 815,751
========== ==========
</TABLE>
Future payments under long-term debt arrangements, by year, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
<S> <C>
1997................................................... $ 599,019
1998................................................... 294,141
1999................................................... 315,208
2000................................................... 205,840
2001................................................... 72,282
Thereafter............................................. 90,355
----------
$1,576,845
==========
</TABLE>
F-45
<PAGE> 101
CURRENT ELECTRONICS, INC.
CURRENT ELECTRONICS WASHINGTON, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
10. PROFIT SHARING PLAN:
The Companies maintain a contributory employees' profit sharing plan which
covers all eligible employees of the Company. The plan provides for annual
contributions in an amount to be determined by the Companies' Board of Directors
at its discretion. CEI's contribution for the years ended September 30, 1996,
1995 and 1994 was approximately $285,000, $125,000 and $92,000, respectively.
11. INCOME TAXES:
CEI accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). Under
the liability method specified by SFAS 109, the deferred tax assets and
liabilities are determined based on the temporary differences between the
financial statement and tax bases of assets and liabilities as measured by the
enacted tax rates for the years in which the taxes are expected to be paid. At
September 30, 1996 and 1995, total deferred tax liabilities were $122,000 and
$289,000, respectively. In 1995, deferred tax liabilities primarily represent
tax depreciation differences and utilization of cash method for tax purposes on
consigned sales. In 1996, these deferred tax liabilities primarily represent
book/tax depreciation differences. There were no significant deferred tax assets
at September 30, 1996 and 1995.
CEWI has elected to be taxed as an S corporation. Earnings and losses for
federal tax purposes will be included in the personal income tax returns of the
shareholders. Accordingly, there is no provision for income taxes or deferred
taxes reflected in the accompanying combined financial statements related to
CEWI.
CEI's effective tax rate of 33%, 39% and 48% for fiscal 1996, 1995 and
1994, respectively, differs from the federal statutory rate primarily due to
state taxes and nondeductible officer life insurance premiums. The 1996
effective rate is lower than the 1995 effective rate principally due to a
one-time credit allowed by the State of Oregon and corrections of prior year
estimates.
12. SHAREHOLDERS' EQUITY:
Both CEI and CEWI have 2,000,000 shares common stock authorized and
1,000,000 shares preferred stock authorized, with a par value of $.01 per share.
At September 30, 1996 and 1995, 300 shares of common stock were issued and
outstanding for both Companies. Subsequent to September 30, 1996, the Board of
Directors approved a 100-for-one stock split for CEI. CEWI paid $240,000,
$75,000 and $0 of dividends for the years ended September 30, 1996, 1995 and
1994, respectively.
CEI and CEWI maintain shareholder agreements which restrict the nature in
which shares can be disposed. In accordance with these agreements, the Company
and/or its shareholders have right of first refusal as to the purchase of any
shares being disposed. The purchase price of such shares is based on the
estimated fair market due at date of disposition, as determined by the
Companies' Board of Directors or independent appraiser.
F-46
<PAGE> 102
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
SHAREHOLDERS OR ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Cautionary Statement Regarding
Forward-Looking Statements and
Forecasts........................... 8
Risk Factors.......................... 8
Use of Proceeds....................... 15
Price Range of Common Stock........... 15
Dividend Policy....................... 15
Capitalization........................ 16
Selected Consolidated Historical and
Pro Forma Financial Data............ 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business and Properties............... 27
Certain Relationships and Related
Transactions........................ 36
Unaudited Pro Forma Condensed
Financial Information............... 37
Management............................ 41
Principal Shareholders................ 45
Selling Shareholders.................. 47
Description of Capital Stock and Other
Securities.......................... 48
Shares Eligible for Future Sale....... 49
Underwriting.......................... 51
Legal Matters......................... 53
Experts............................... 53
Available Information................. 53
Incorporation of Certain Documents by
Reference........................... 54
Index to Financial Statements......... F-1
</TABLE>
3,000,000 SHARES
EFTC CORPORATION
COMMON STOCK
($0.01 PAR VALUE)
EFTC CORPORATION LOGO
SALOMON BROTHERS INC
J.C. BRADFORD & CO.
PACIFIC CREST SECURITIES INC.
PROSPECTUS
DATED , 1997
<PAGE> 103
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered (all amounts are estimated except
the SEC Registration Fee, the NASD Filing Fee and the Nasdaq Listing Fee).
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 21,430
National Association of Securities Dealers, Inc. Fee........ 7,572
Nasdaq Listing Fee.......................................... 17,500
Blue Sky Qualification Fees and Expenses (including legal
fees)..................................................... 3,500
Printing Expenses........................................... 175,000
Legal Fees and Expenses..................................... 125,000
Auditors' Fees and Expenses................................. 175,000
Transfer Agent and Registrar Fees........................... 3,500
Miscellaneous Expenses...................................... 20,498
--------
Total............................................. $550,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Five of the Company's Articles of Incorporation and Article VI of
the Company's Bylaws require the Company to indemnify, to the fullest extent
authorized by applicable law, any person who is or is threatened to be made a
party to any civil, criminal, administrative, arbitrative or investigative
proceeding instituted or threatened by reason of the fact that he is or was a
director or officer of the Company or is or was serving at the request of the
Company as a director or officer of another corporation, partnership, joint
venture, trust, other enterprise or employee benefit plan.
Article Four of the Company's Articles of Incorporation provides that, to
the fullest extent permitted by the Colorado Corporation Code or any successor
statute, directors of the Company shall not be liable to the Company or any of
its shareholders for monetary damages caused by a breach of a fiduciary duty by
such director.
Sections 7-109-102 and 103 of the Colorado Business Corporation Act
("CBCA") authorize the indemnification of directors and officers against
liability incurred by reason of being a director or officer and against expenses
(including attorney's fees) judgments, fines and amounts paid in settlement and
reasonably incurred in connection with any action seeking to establish such
liability, in the case of third-party claims, if the officer or director acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best Interests of the corporation, and in the case of actions by or in the
right of the corporation, if the officer or director acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best Interest of
the corporation and if such officer or director shall not have been adjudged
liable to the corporation, unless a court otherwise determines. Indemnification
is also authorized with respect to any criminal action or proceeding where the
officer or director also had no reasonable cause to believe his conduct was
unlawful.
The above discussion of the Company's Articles of Incorporation, Bylaws and
the CBCA is only a summary and is qualified in its entirety by the full text of
each of the foregoing.
Reference is made to the Underwriting Agreement, the proposed form of which
is filed as Exhibit 1.1, in which each Underwriter agrees, under certain
circumstances, to indemnify the directors and officers of the Company and
certain other persons against certain civil liabilities.
II-1
<PAGE> 104
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S>
*1.1 -- Form of Underwriting Agreement between the Company and
the Underwriters.
5.1 -- Form of Opinion of Holme Roberts & Owen LLP as to the
legality of issuance of the Company's Common Stock.(6)
MATERIAL CONTRACTS
10.1 -- Form of Registration Rights Agreement dated January 1994
between the Company and the parties thereto.(1)
10.2 -- Agreement and Plan of Merger among the Company, Current
Merger Corp., and Current Electronics, Inc., dated as of
January 15, 1997.(2)
10.3 -- Share Purchase Agreement among the Company and the
Shareholders of Current Electronics (Washington), Inc.
dated as of January 15, 1997.(2)
10.4 -- Registration Rights Agreement dated as of February 24,
1997, among the Company, Charles E. Hewitson, Matthew J.
Hewitson and Gregory Hewitson and certain other
parties.(2)
10.5 -- Indemnification Agreement dated as of February 24, 1997,
among the Company, the shareholders of Current
Electronics, Inc., and the shareholders of Current
Electronics (Washington), Inc.(2)
10.6 -- Agreement and Plan of Reorganization among the Company,
Acquisition Corp., and Circuit Test, Inc., dated as of
July 9, 1997.(4)
10.7 -- Limited Liability Company Unit Purchase Agreement among
the Company, CTLLC Acquisition Corp., Airhub Service
Group, L.C., and CTI International, L.C., dated as of
July 9, 1997.(4)
10.8 -- Registration Rights Agreement dated as of September 30,
1997 among the Company and CTI Shareholders.(4)
10.9 -- Indemnification Agreement dated as of September 30, 1997
among the Company, CTI Shareholders and the LLC
Members.(4)
10.10 -- Earnout Agreement dated as of September 30, 1997 among
the Company and the LLC Members.(4)
10.11.1 -- Master Agreement Regarding Asset Purchase and Related
Transactions among the Company, AlliedSignal Avionics,
Inc., a Kansas corporation ("Avionics"), and
AlliedSignal, Inc., operating through its Aerospace
Equipment Systems Unit ("AES"), dated as of July 15,
1997, as amended by the First Amendment to Master
Agreement dated as of July 31, 1997, and as further
amended by the Second Amendment to Master Agreement dated
as of August 11, 1997.(3)
10.11.2 -- Third Amendment to Master Agreement dated as of September
5, 1997.(6)
10.12 -- Supplier Partnering Agreement between the Company and
AlliedSignal, Inc., dated as of August 4, 1997.(3)
10.13.1 -- License Agreement between the Company and AlliedSignal
Technologies, Inc., dated as of July 15, 1997.(3)
10.13.2 -- Amended and Restated License Agreement between the
Company and AlliedSignal Technologies, Inc., dated as of
September 5, 1997.(6)
10.14 -- Premises License Agreement between the Company and AES
dated as of August 4, 1997.(3)
</TABLE>
II-2
<PAGE> 105
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S>
10.15 -- Facilities Management and Transition Services Agreement
dated as of July 31, 1997 between the Company and AES as
amended by a First Amendment to Facilities Management and
Transition Services Agreement dated as of August 4,
1997.(3)
10.16 -- Sublease Agreement dated as of August 11, 1997 between
the Company and AlliedSignal, Inc.(3)
10.17 -- Transition Services Agreement dated as of August 11, 1997
between the Company and Avionics.(3)
10.18.1 -- Agreement to Extend Avionics Personal Property Asset
Transfer Date dated August 15, 1997, by and between the
Company, Avionics and AES.(3)
10.18.2 -- Agreement to Extend Avionics Personal Property Asset
Transfer Date dated August 29, 1997, by and between the
Company, Avionics and AES.(6)
10.19 -- Accounts Payable Service Agreement dated as of August 11,
1997 between the Company and Avionics.(6)
10.20 -- Credit Agreement dated September 30, 1997 between the
Company and Bank One, Colorado, N.A. ("Bank One").(4)
10.20.1 -- Amendment No. 1 to Credit Agreement dated as of November
6, 1997 between the Company and Bank One.(6)
10.21 -- Pledge and Security Agreement dated as of September 30,
1997 by the Company to Bank One.(4)
10.22 -- Security Agreement and Assignment dated as of September
30, 1997 between the Company and Bank One.(4)
10.23 -- Deed of Trust and Security Agreement dated as of
September 30, 1997, among the Company as Grantor, Bank
One, as Agent and Beneficiary, and Northwest Title
Company as Trustee.(4)
10.24 -- Deed of Trust and Security Agreement and Financing
Statement dated as of September 30, 1997 from the Company
to The Public Trustee of Weld County for Bank One, as
Beneficiary.(4)
10.25 -- Note Agreement between the Company and Richard L. Monfort
dated as of September 5, 1997, including the form of
Floating Rate Subordinated Note attached as Exhibit A
thereto.(4)
10.26 -- Warrant to Purchase 500,000 shares of Common Stock of the
Company, dated as of October 6, 1997, issued by the
Company to Richard L. Monfort.(4)
10.27 -- Form of Warrants to Purchase an aggregate of 80,000
shares of Common Stock of the Company, dated as of March
11, 1994, issued to Dain Bosworth Incorporated and
Stephens Inc., underwriters, in connection with the
Company's initial public offering.(6)
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10.28 -- 1989 Stock Option Plan.(1)
10.29 -- 1993 Incentive Stock Option Plan.(1)
10.30 -- EFTC Corporation Equity Incentive Plan, amended and
restated as of July 9, 1997.(6)
10.31 -- EFTC Corporation Stock Option Plan for Non-Employee
Directors, amended and restated as of July 9, 1997.(6)
10.32 -- Employment Agreement with Jack Calderon dated as of
August 1996.(5)
</TABLE>
II-3
<PAGE> 106
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S>
10.33 -- Form of Consulting Agreement entered into by the Company
with each of OnCourse Inc., Matt Hewitson Consulting,
Inc. and Corporate Solutions, Inc., dated as of February
24, 1997.(5)
10.34 -- Form of the separate Employment Agreements, each dated as
of September 30, 1997, entered into by the Company, CTI
and Allen S. Braswell, Jr., Richard Strott, Andrew Hatch
and Dennis Ayo.(4)
10.35 -- 1997 Management Bonus Plan.(6)
CONSENTS
23.1 -- Consent of KPMG Peat Marwick LLP(6)
23.2 -- Consent of KPMG Peat Marwick LLP(6)
23.3 -- Consent of Arthur Andersen LLP(6)
23.4 -- Consent of Holme Roberts & Owen LLP (See Exhibit 5.1)
OTHER EXHIBITS
24.1 -- Powers of Attorney(6)
27.1 -- Financial Data Schedule(6)
</TABLE>
- ---------------
* Filed herewith.
(1) Incorporated by reference from the Company's Registration Statement on Form
SB-2 under the Securities Act of 1933, File No. 33-73392-D.
(2) Incorporated by reference from EFTC Corporation Form 8-K filed on March 5,
1997.
(3) Incorporated by reference from EFTC Corporation Form 8-K filed on August 26,
1997.
(4) Incorporated by reference from EFTC Corporation Form 8-K filed on October
15, 1997.
(5) Incorporated by reference from EFTC Corporation Form 10-K filed on March 27,
1997.
(6) Previously filed.
(b) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable and therefore have been omitted or the
information required by the applicable schedule is included in the notes to the
financial statements.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-4
<PAGE> 107
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 108
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Denver, Colorado, on this 13 day of
November 1997.
EFTC CORPORATION
By: /s/ STUART W. FUHLENDORF
----------------------------------
Stuart W. Fuhlendorf
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board and Director November 13, 1997
- -----------------------------------------------------
Gerald J. Reid
* Director, President and Chief November 13, 1997
- ----------------------------------------------------- Executive Officer (Principal
Jack Calderon Executive Officer)
/s/ STUART W. FUHLENDORF Director and Chief Financial November 13, 1997
- ----------------------------------------------------- Officer (Principal Financial
Stuart W. Fuhlendorf Officer)
/s/ BRENT L. HOFMEISTER Controller (Principal Accounting November 13, 1997
- ----------------------------------------------------- Officer)
Brent L. Hofmeister
* Director November 13, 1997
- -----------------------------------------------------
Allen S. Braswell, Sr.
* Director November 13, 1997
- -----------------------------------------------------
Allen S. Braswell, Jr.
* Director November 13, 1997
- -----------------------------------------------------
Darrayl E. Cannon
* Director November 13, 1997
- -----------------------------------------------------
James A. Doran
* Director November 13, 1997
- -----------------------------------------------------
Charles E. Hewitson
* Director November 13, 1997
- -----------------------------------------------------
Gregory C. Hewitson
* Director November 13, 1997
- -----------------------------------------------------
Matthew J. Hewitson
</TABLE>
II-6
<PAGE> 109
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director November 13, 1997
- -----------------------------------------------------
Lloyd A. McConnell
* Director November 13, 1997
- -----------------------------------------------------
Robert K. McNamara
* Director November 13, 1997
- -----------------------------------------------------
Richard L. Monfort
* Director November 13, 1997
- -----------------------------------------------------
Lucille A. Reid
* Director November 13, 1997
- -----------------------------------------------------
Masoud S. Shirazi
* Director November 13, 1997
- -----------------------------------------------------
David W. Van Wert
*By: /s/ STUART W. FUHLENDORF
- -----------------------------------------------------
Stuart W. Fuhlendorf, as attorney-in-fact
</TABLE>
II-7
<PAGE> 110
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S>
*1.1 -- Form of Underwriting Agreement between the Company and
the Underwriters.
5.1 -- Form of Opinion of Holme Roberts & Owen LLP as to the
legality of issuance of the Company's Common Stock.(6)
MATERIAL CONTRACTS
10.1 -- Form of Registration Rights Agreement dated January 1994
between the Company and the parties thereto.(1)
10.2 -- Agreement and Plan of Merger among the Company, Current
Merger Corp., and Current Electronics, Inc., dated as of
January 15, 1997.(2)
10.3 -- Share Purchase Agreement among the Company and the
Shareholders of Current Electronics (Washington), Inc.
dated as of January 15, 1997.(2)
10.4 -- Registration Rights Agreement dated as of February 24,
1997, among the Company, Charles E. Hewitson, Matthew J.
Hewitson and Gregory Hewitson and certain other
parties.(2)
10.5 -- Indemnification Agreement dated as of February 24, 1997,
among the Company, the shareholders of Current
Electronics, Inc., and the shareholders of Current
Electronics (Washington), Inc.(2)
10.6 -- Agreement and Plan of Reorganization among the Company,
Acquisition Corp., and Circuit Test, Inc., dated as of
July 9, 1997.(4)
10.7 -- Limited Liability Company Unit Purchase Agreement among
the Company, CTLLC Acquisition Corp., Airhub Service
Group, L.C., and CTI International, L.C., dated as of
July 9, 1997.(4)
10.8 -- Registration Rights Agreement dated as of September 30,
1997 among the Company and CTI Shareholders.(4)
10.9 -- Indemnification Agreement dated as of September 30, 1997
among the Company, CTI Shareholders and the LLC
Members.(4)
10.10 -- Earnout Agreement dated as of September 30, 1997 among
the Company and the LLC Members.(4)
10.11.1 -- Master Agreement Regarding Asset Purchase and Related
Transactions among the Company, AlliedSignal Avionics,
Inc., a Kansas corporation ("Avionics"), and
AlliedSignal, Inc., operating through its Aerospace
Equipment Systems Unit ("AES"), dated as of July 15,
1997, as amended by the First Amendment to Master
Agreement dated as of July 31, 1997, and as further
amended by the Second Amendment to Master Agreement dated
as of August 11, 1997.(3)
10.11.2 -- Third Amendment to Master Agreement dated as of September
5, 1997.(6)
10.12 -- Supplier Partnering Agreement between the Company and
AlliedSignal, Inc., dated as of August 4, 1997.(3)
10.13.1 -- License Agreement between the Company and AlliedSignal
Technologies, Inc., dated as of July 15, 1997.(3)
10.13.2 -- Amended and Restated License Agreement between the
Company and AlliedSignal Technologies, Inc., dated as of
September 5, 1997.(6)
10.14 -- Premises License Agreement between the Company and AES
dated as of August 4, 1997.(3)
</TABLE>
<PAGE> 111
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S>
10.15 -- Facilities Management and Transition Services Agreement
dated as of July 31, 1997 between the Company and AES as
amended by a First Amendment to Facilities Management and
Transition Services Agreement dated as of August 4,
1997.(3)
10.16 -- Sublease Agreement dated as of August 11, 1997 between
the Company and AlliedSignal, Inc.(3)
10.17 -- Transition Services Agreement dated as of August 11, 1997
between the Company and Avionics.(3)
10.18.1 -- Agreement to Extend Avionics Personal Property Asset
Transfer Date dated August 15, 1997, by and between the
Company, Avionics and AES.(3)
10.18.2 -- Agreement to Extend Avionics Personal Property Asset
Transfer Date dated August 29, 1997, by and between the
Company, Avionics and AES.(6)
10.19 -- Accounts Payable Service Agreement dated as of August 11,
1997 between the Company and Avionics.(6)
10.20 -- Credit Agreement dated September 30, 1997 between the
Company and Bank One, Colorado, N.A. ("Bank One").(4)
10.20.1 -- Amendment No. 1 to Credit Agreement dated as of November
6, 1997 between the Company and Bank One.(6)
10.21 -- Pledge and Security Agreement dated as of September 30,
1997 by the Company to Bank One.(4)
10.22 -- Security Agreement and Assignment dated as of September
30, 1997 between the Company and Bank One.(4)
10.23 -- Deed of Trust and Security Agreement dated as of
September 30, 1997, among the Company as Grantor, Bank
One, as Agent and Beneficiary, and Northwest Title
Company as Trustee.(4)
10.24 -- Deed of Trust and Security Agreement and Financing
Statement dated as of September 30, 1997 from the Company
to The Public Trustee of Weld County for Bank One, as
Beneficiary.(4)
10.25 -- Note Agreement between the Company and Richard L. Monfort
dated as of September 5, 1997, including the form of
Floating Rate Subordinated Note attached as Exhibit A
thereto.(4)
10.26 -- Warrant to Purchase 500,000 shares of Common Stock of the
Company, dated as of October 6, 1997, issued by the
Company to Richard L. Monfort.(4)
10.27 -- Form of Warrants to Purchase an aggregate of 80,000
shares of Common Stock of the Company, dated as of March
11, 1994, issued to Dain Bosworth Incorporated and
Stephens Inc., underwriters, in connection with the
Company's initial public offering.(6)
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10.28 -- 1989 Stock Option Plan.(1)
10.29 -- 1993 Incentive Stock Option Plan.(1)
10.30 -- EFTC Corporation Equity Incentive Plan, amended and
restated as of July 9, 1997.(6)
10.31 -- EFTC Corporation Stock Option Plan for Non-Employee
Directors, amended and restated as of July 9, 1997.(6)
</TABLE>
<PAGE> 112
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S>
10.32 -- Employment Agreement with Jack Calderon dated as of
August 1996.(5)
10.33 -- Form of Consulting Agreement entered into by the Company
with each of OnCourse Inc., Matt Hewitson Consulting,
Inc. and Corporate Solutions, Inc., dated as of February
24, 1997.(5)
10.34 -- Form of the separate Employment Agreements, each dated as
of September 30, 1997, entered into by the Company, CTI
and Allen S. Braswell, Jr., Richard Strott, Andrew Hatch
and Dennis Ayo.(4)
10.35 -- 1997 Management Bonus Plan.(6)
CONSENTS
23.1 -- Consent of KPMG Peat Marwick LLP(6)
23.2 -- Consent of KPMG Peat Marwick LLP(6)
23.3 -- Consent of Arthur Andersen LLP(6)
23.4 -- Consent of Holme Roberts & Owen LLP (See Exhibit 5.1)
OTHER EXHIBITS
24.1 -- Powers of Attorney(6)
27.1 -- Financial Data Schedule(6)
</TABLE>
- ---------------
* Filed herewith.
(1) Incorporated by reference from the Company's Registration Statement on Form
SB-2 under the Securities Act of 1933, File No. 33-73392-D.
(2) Incorporated by reference from EFTC Corporation Form 8-K filed on March 5,
1997.
(3) Incorporated by reference from EFTC Corporation Form 8-K filed on August 26,
1997.
(4) Incorporated by reference from EFTC Corporation Form 8-K filed on October
15, 1997.
(5) Incorporated by reference from EFTC Corporation Form 10-K filed on March 27,
1997.
(6) Previously filed.
<PAGE> 1
EXHIBIT 1.1
EFTC Corporation
3,000,000 Shares(a)
Common Stock
($0.01 par value)
Underwriting Agreement
New York, New York
November 13, 1997
Salomon Brothers Inc
J.C. Bradford & Co.
Pacific Crest Securities Inc.
As Representatives of the several Underwriters,
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
EFTC Corporation, a Colorado corporation (the "Company"), proposes to sell
to the underwriters named in Schedule I hereto (the "Underwriters"), for whom
you (the "Representatives") are acting as representatives, 3,000,000 shares of
Common Stock, $0.01 par value ("Common Stock"), of the Company (said shares to
be issued and sold by the Company collectively being hereinafter called the
"Underwritten Securities"). The persons named in Schedule II hereto (the
"Selling Shareholders") also propose to grant to the Underwriters an option to
purchase up to 450,000 additional shares of Common Stock (the "Option
Securities"; the Option Securities, together with the Underwritten Securities,
being hereinafter called the "Securities"). To the extent there are no
additional Underwriters listed on Schedule I other than you, the term
Representatives as used herein shall mean you, as Underwriters, and the terms
Representatives and Underwriters shall mean either the singular or plural as the
context requires. Any reference herein to the Registration Statement, a
Preliminary Prospectus or the Prospectus shall be deemed to refer to and include
the documents incorporated by reference therein pursuant to Item 12 of Form S-2
which were filed under the Exchange Act.
- -------------------------------
(a) Plus an option to purchase from the persons named in Schedule II
hereto up to 450,000 additional shares to cover over-allotments.
<PAGE> 2
It is understood that a form of prospectus is to be used in
connection with the offering and sale of the Securities to United States and
Canadian Persons (as defined herein) which, for purposes of distribution to
Canadian Persons, shall have a Canadian "wrap-around" (the "Canadian Offering
Memorandum"). Insofar as they relate to offers or sales of Securities in
Canada, all references herein to the Preliminary Prospectus and the Prospectus
shall include the Canadian Offering Memorandum.
I. Representations and Warranties.
A. The Company and the Joint Selling Shareholders jointly and
severally represent and warrant to, and agree with, each Underwriter
as set forth below in this Section I. Certain terms used in this
Section I are defined in Section XVII hereof.
1. The Company meets the requirements for use of
Form S-2 under the Act and has filed with the Securities
and Exchange Commission (the "Commission") a registration
statement (file number 333-38433) on such Form, including a
related preliminary prospectus, for the registration under
the Act of the offering and sale of the Securities. The
Company may have filed one or more amendments thereto,
including a related preliminary prospectus, each of which
has previously been furnished to you. The Company will
next file with the Commission either (A) prior to the
Effective Date of such registration statement, a further
amendment to such registration statement (including the
form of final prospectus) or (B) after the Effective Date
of such registration statement, a final prospectus in
accordance with Rules 430A and 424(b)(1) or (4). In the
case of clause (B), the Company has included in such
registration statement, as amended at the Effective Date,
all information (other than Rule 430A Information) required
by the Act and the rules thereunder to be included in such
registration statement and the Prospectus. As filed, such
amendment and form of final prospectus, or such final
prospectus, shall contain all Rule 430A Information,
together with all other such required information, and,
except to the extent the Representatives shall agree in
writing to a modification, shall be in all substantive
respects in the form furnished to you prior to the
Execution Time or, to the extent not completed at the
Execution Time, shall contain only such specific additional
information and other changes (beyond that contained in the
latest Preliminary Prospectus) as the Company has advised
you, prior to the Execution Time, will be included or made
therein.
2. On the Effective Date, the Registration
Statement did or will, and when the Prospectus is first
filed (if required) in accordance with Rule 424(b) and on
the Closing Date (as defined herein) and on any date on
which shares sold in respect of the Underwriters'
over-allotment option are purchased, if such date is not
the Closing Date (a "settlement date"), the Prospectus (and
any supplements thereto) will, comply in all material
respects with the applicable requirements of the Act and
the Exchange Act and the respective rules
2
<PAGE> 3
thereunder; on the Effective Date and at the Execution
Time, the Registration Statement did not or will not
contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary in order to make the statements therein not
misleading; and, on the Effective Date, the Prospectus, if
not filed pursuant to Rule 424(b), will not, and on the
date of any filing pursuant to Rule 424(b) and on the
Closing Date and any settlement date, the Prospectus
(together with any supplement thereto) will not, include
any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements
therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the
Company and the Joint Selling Shareholders make no
representations or warranties as to the information
contained in or omitted from the Registration Statement, or
the Prospectus (or any supplement thereto) in reliance upon
and in conformity with information furnished herein or in
writing to the Company by or on behalf of any Underwriter
through the Representatives specifically for inclusion in
the Registration Statement or the Prospectus (or any
supplement thereto).
3. The subsidiaries listed on Schedule III hereto
are the only subsidiaries of the Company.
4. Each of the Company and its subsidiaries has
been duly organized and is validly existing as a
corporation or limited liability company, as the case may
be, in good standing under the laws of the jurisdiction in
which it is organized with full corporate power and
authority to own its properties and conduct its business as
described in the prospectus, and is duly qualified to do
business as a foreign corporation and is in good standing
under the laws of each jurisdiction which requires such
qualification.
5. All the outstanding shares of capital stock
of each subsidiary have been duly and validly authorized
and issued and are fully paid and nonassessable, and,
except as otherwise set forth in the Prospectus, all
outstanding shares of capital stock of the subsidiaries are
owned by the Company either directly or through wholly
owned subsidiaries free and clear of any security
interests, claims, liens or encumbrances.
6. The Company's authorized equity
capitalization is as set forth in the Prospectus; the
capital stock of the Company conforms in all material
respects to the description thereof contained in the
Prospectus; the outstanding shares of Common Stock have
been duly and validly authorized and issued and are fully
paid and nonassessable; the Securities being sold hereunder
have been duly and validly authorized, and, when issued and
delivered to and paid for by the Underwriters pursuant to
this Agreement, will be fully paid and nonassessable; the
Company has taken the actions required by the published
rules of the Nasdaq Stock Market to qualify the Securities
for inclusion in the Nasdaq
3
<PAGE> 4
Stock Market; the certificates for the Securities are in
valid and sufficient form; the holders of outstanding
shares of capital stock of the Company are not entitled to
preemptive or other rights to subscribe for the Securities
and, except as set forth in the Prospectus, no options,
warrants or other rights to purchase, agreements or other
obligations to issue, or rights to convert any obligations
into or exchange any securities for, shares of capital
stock of or ownership interests in the Company are
outstanding.
7. There is no franchise, contract or other
document of a character required to be described in the
Registration Statement or Prospectus, or to be filed as an
exhibit thereto, which is not described or filed as
required; and the statements in each of (a) the Prospectus
under the headings "Risk Factors -- Protection of Know-how
and Trade Secrets; -- Environmental Compliance; -- Shares
Eligible for Future Sale; and -- Anti-Takeover Provisions"
and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Recent
Developments", (b) the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, under the
headings "Item 1. Business -- Patents and Trademarks",
"Item 2. Description of Property" and "Item 3. Legal
Proceedings" and (c) the Company's Proxy Statement dated
April 29, 1997, under the heading "Certain Relationships
and Related Transactions", fairly summarize the matters
therein described.
8. This Agreement has been duly authorized,
executed and delivered by the Company and constitutes a
valid and binding obligation of the Company enforceable in
accordance with its terms.
9. The Company is not and, after giving effect
to the offering and sale of the Securities and the
application of the proceeds thereof as described in the
Prospectus, will not be an "investment company" as defined
in the Investment Company Act of 1940, as amended.
10. No consent, approval, authorization, filing
with or order of any court or governmental agency or body
is required in connection with the transactions
contemplated herein, except such as have been obtained
under the Act and such as may be required under the blue
sky laws of any jurisdiction in connection with the
purchase and distribution of the Securities by the
Underwriters in the manner contemplated herein and in the
Prospectus.
11. Neither the issue and sale of the Securities
nor the consummation of any other of the transactions
herein contemplated nor the fulfillment of the terms hereof
will conflict with, result in a breach or violation or
imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its
subsidiaries pursuant to, (i) the charter or by-laws of the
Company or any of its subsidiaries, (ii) the terms of any
indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement,
4
<PAGE> 5
obligation, condition, covenant or instrument to which the
Company or any of its subsidiaries is a party or bound or
to which its or their property is subject or (iii) any
statute, law, rule, regulation, judgment, order or decree
applicable to the Company or any of its subsidiaries of any
court, regulatory body, administrative agency, governmental
body, arbitrator or other authority having jurisdiction
over the Company or any of its subsidiaries or any of its
or their properties.
12. No holders of securities of the Company have
rights to the registration of such securities under the
Registration Statement except for such rights of the
persons and entities listed on Schedule IV hereto (the
"Registration Rights Shareholders") as have been
effectively waived.
13. The consolidated financial statements and
schedules of the Company and its consolidated subsidiaries
included in the Prospectus and the Registration Statement
present fairly in all material respects the financial
condition, results of operations and cash flows of the
Company as of the dates and for the periods indicated,
comply as to form with the applicable accounting
requirements of the Act, the Exchange Act and the
respective rules and regulations thereunder and have been
prepared in conformity with generally accepted accounting
principles applied on a consistent basis throughout the
periods involved (except as otherwise noted therein). The
selected financial data set forth under the captions
"Selected Consolidated Historical and Pro Forma Financial
Data" and "Prospectus Summary -- Summary Consolidated
Historical and Pro Forma Financial Information" in the
Prospectus and the Registration Statement, fairly present,
on the basis stated in the Prospectus and the Registration
Statement the information included therein. The unaudited
pro forma financial statements included in or incorporated
by reference in the Prospectus and the Registration
Statement comply as to form in all material respects with
the requirements of the Act, the Exchange Act and the
respective rules and regulations thereunder; the pro forma
adjustments have been properly applied to the historical
amounts in the compilation of such pro forma statements;
the assumptions described in the notes to such pro forma
statements provide a reasonable basis for presenting the
significant direct effects of the transactions contemplated
therein and such pro forma adjustments give appropriate
effect to those adjustments, in each case, in accordance
with Regulation S-X.
14. No action, suit or proceeding by or before
any court or governmental agency, authority or body or any
arbitrator involving the Company or any of its subsidiaries
or its or their property is pending or, to the best
knowledge of the Company, threatened that (i) could
reasonably be expected to have a material adverse effect on
the performance of this Agreement or the consummation of
any of the transactions contemplated hereby or (ii) could
reasonably be expected to have a material adverse effect on
the condition (financial or
5
<PAGE> 6
otherwise), prospects, earnings, business or properties of
the Company and its subsidiaries, taken as a whole, whether
or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the
Prospectus (exclusive of any supplement thereto).
15. Each of the Company and each of its
subsidiaries, owns or leases all such properties as are
necessary to the conduct of its operations as presently
conducted; neither the Company nor any subsidiary is in
violation of any law, rule or regulation of any Federal,
state or local governmental or regulatory authority
applicable to it or is not in non-compliance with any term
or condition of, or has failed to obtain and maintain in
effect, any license, certificate, permit or other
governmental authorization required for the ownership or
lease of its property or the conduct of its business, which
violation, non-compliance or failure would individually or
in the aggregate have a material adverse effect on the
condition (financial or otherwise), prospects, earnings,
business or properties of the Company and its subsidiaries,
taken as a whole, whether or not arising from transactions
in the ordinary course of business, except as set forth in
or contemplated in the Prospectus (exclusive of any
supplement thereto); and the Company has not received
notice of any proceedings relating to the revocation or
material modification of any such license, certificate,
permit or other authorization.
16. Neither the Company nor any subsidiary is in
violation or default of (i) any provision of its charter or
bylaws, (ii) the terms of any indenture, contract, lease,
mortgage, deed of trust, note agreement, loan agreement or
other agreement, obligation, condition, covenant or
instrument to which it is a party or bound or to which its
property is subject or (iii) any statute, law, rule,
regulation, judgment, order or decree of any court,
regulatory body, administrative agency, governmental body,
arbitrator or other authority having jurisdiction over the
Company or such subsidiary or any of its properties, as
applicable, except any such violation or default which
would not, singly or in the aggregate, result in a material
adverse change in the condition (financial or otherwise),
prospects, earnings, business or properties of the Company
and its subsidiaries, taken as a whole, whether or not
arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the
Prospectus (exclusive of any supplement thereto).
17. KPMG Peat Marwick LLP and Arthur Andersen
LLP, each of which has certified certain financial
statements of the Company or its subsidiaries and delivered
their report with respect to the audited consolidated
financial statements and schedules included in the
Prospectus, are independent public accountants with respect
to the Company within the meaning of the Act and the
applicable published rules and regulations thereunder.
6
<PAGE> 7
18. There are no transfer taxes or other similar
fees or charges under Federal law or the laws of any state,
or any political subdivision thereof, required to be paid
in connection with the execution and delivery of this
Agreement or the issuance by the Company, the sale by the
Company or the resale by the Joint Selling Shareholders of
the Securities.
19. The Company has filed all foreign, federal,
state and local tax returns that are required to be filed
or has requested extensions thereof (except in any case in
which the failure so to file would not have a material
adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company
and its subsidiaries, taken as a whole, whether or not
arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the
Prospectus (exclusive of any supplement thereto) and has
paid all taxes required to be paid by it and any other
assessment, fine or penalty levied against it, to the
extent that any of the foregoing is due and payable, except
for any such assessment, fine or penalty that is currently
being contested in good faith or as would not have a
material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of
the Company and its subsidiaries, taken as a whole, whether
or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the
Prospectus (exclusive of any supplement thereto).
20. No labor disturbance by or dispute with the
employees of the Company or any of its subsidiaries exists
or is threatened or imminent that could reasonably be
expected to have a material adverse change in the condition
(financial or otherwise), prospects, earnings, business or
properties of the Company and its subsidiaries, taken as a
whole, whether or not arising from transactions in the
ordinary course of business, except as set forth in or
contemplated in the Prospectus (exclusive of any supplement
thereto).
21. The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as are
prudent and customary in the businesses in which the
Company and its subsidiaries are engaged; neither the
Company nor any such subsidiary has been refused any
insurance coverage sought or applied for; and neither the
Company nor any such subsidiary has any reason to believe
that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary
to continue its business at a currently anticipated cost
that would not have a material adverse effect on the
condition (financial or otherwise), prospects, earnings,
business or properties of the Company and its subsidiaries,
taken as a whole, whether or not arising from transactions
in the ordinary course of business, except as set forth in
or contemplated in the Prospectus (exclusive of any
supplement thereto).
7
<PAGE> 8
22. No subsidiary of the Company is currently
prohibited, directly or indirectly, from paying any
dividends to the Company, from making any other
distribution on such subsidiary's capital stock, from
repaying to the Company any loans or advances to such
subsidiary from the Company or from transferring any of
such subsidiary's property or assets to the Company or any
other subsidiary of the Company, except as described in or
contemplated by the Prospectus (exclusive of any amendment
thereto).
23. Except as set forth in or contemplated in the
Prospectus (exclusive of any supplement thereto), the
Company and its subsidiaries (i) possess all certificates,
authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary
to conduct their respective businesses, except where the
failure to possess such certificates, authorizations and
permits would not, singly or in the aggregate, result in a
material adverse change in the condition (financial or
otherwise), prospects, earnings, business or properties of
the Company and its subsidiaries, taken as a whole, whether
or not arising from transactions in the ordinary course of
business and (ii) have not received any notice of
proceedings relating to the revocation or modification of
any such certificate, authorization or permit which, singly
or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would result in a material
adverse change in the condition (financial or otherwise),
prospects, earnings, business or properties of the Company
and its subsidiaries, taken as a whole, whether or not
arising from transactions in the ordinary course of
business.
24. The Company and each of its subsidiaries
maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's
general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with
management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
25. The Company owns or has obtained licenses or
other rights for the patents, patent applications, trade
and service marks, trade secrets and other intellectual
properties referenced or described in the Prospectus as
being owned or used by or licensed to it, including without
limitation the rights to the AES software (collectively,
the "Intellectual Property"). Except as set forth in the
Prospectus under the caption "Risk Factors -- Protection of
Know-how and Trade Secrets", (a) there are no rights of
third parties to any such Intellectual Property that would
materially impair the rights of the Company therein; (b) to
the Company's knowledge there is no material infringement
by
8
<PAGE> 9
third parties of any such Intellectual Property; (c) there
is no pending or to the Company's knowledge threatened
action, suit, proceeding or claim by others challenging the
Company's rights in or to any such Intellectual Property,
and the Company is unaware of any facts which would form a
reasonable basis for any such claim; (d) there is no
pending or to the Company's knowledge threatened action,
suit, proceeding or claim by others challenging the
validity or scope of any such Intellectual Property, and
the Company is unaware of any facts which would form a
reasonable basis for any such claim; (e) there is no
pending or to the Company's knowledge threatened action,
suit, proceeding or claim by others that the Company
infringes or otherwise violates any patent, trademark,
copyright, trade secret or other proprietary rights of
others, and the Company is unaware of any other fact which
would form a reasonable basis for any such claim; (f) there
is no U.S. patent or published U.S. patent application
which contains claims that dominate or may dominate any
Intellectual Property described in the Prospectus as being
owned or used by or licensed to the Company or that
interferes with the issued or pending claims of any such
Intellectual Property; and (g) there is no prior art of
which the Company is aware that may render any U.S. patent
held by the Company invalid or any U.S. patent application
held by the Company unpatentable which has not been
disclosed to the U.S. Patent and Trademark Office. The
Company and each of its subsidiaries owns the Intellectual
Property or has rights to use the Intellectual Property
that is necessary to conduct its business as described in
the Prospectus.
26. Except as disclosed in the Registered
Statement and the Prospectus, the Company (i) does not have
any material lending or other relationship with any bank
affiliate or lending affiliate of Salomon Brothers Inc,
J.C. Bradford & Co. or Pacific Crest Securities Inc., and
(ii) does not intend to use any of the proceeds from the
sale of the Securities hereunder to repay any outstanding
debt owed to any affiliate of any of the Underwriters.
27. The Indemnification Agreement, dated February
24, 1997, among Charles E. Hewitson, Matthew J. Hewitson,
Greg Hewitson, Christie Hewitson, Marsha Hewitson and Linda
Hewitson (collectively, the "Current Electronics
Indemnitors") and the Company, has been duly authorized,
executed and delivered by the Company, has been duly
executed and delivered by the Current Electronics
Indemnitors and constitutes a valid and binding obligation
of the Company and the Current Electronics Indemnitors
enforceable in accordance with its terms.
28. The Indemnification Agreement, dated
September 30, 1997, among Allen S. Braswell, Sr. Grantor
Retained Income Trust u/a/d 12/31/89, Allen S. Braswell,
Jr., Alma L. Braswell, Allen S. Braswell, Jr. Revocable
Living Trust and Circuit Test International Limited
Partnership, a Florida limited partnership (collectively,
the "Circuit Test Indemnitors"; and Allen S. Braswell
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<PAGE> 10
Jr. and Alma L. Braswell, together, are the "Circuit Test
Individual Indemnitors") and the Company, has been duly
authorized, executed and delivered by the Company and the
Circuit Test Indemnitors (other than the Circuit Test
Individual Indemnitors), has been duly executed and
delivered by the Circuit Test Individual Indemnitors and
constitutes a valid and binding obligation of the Company
and the Circuit Test Indemnitors enforceable in accordance
with its terms.
Any certificate signed by any officer of the Company and
delivered to the Representatives or counsel for the Underwriters in connection
with the offering of the Securities shall be deemed a representation and
warranty by the Company, as to matters covered thereby, to each Underwriter.
B. Each Selling Shareholder represents and warrants to, and agrees
with, each Underwriter that:
1. Such Selling Shareholder is the lawful owner
of the Securities to be sold by such Selling Shareholder
hereunder and upon sale and delivery of, and payment for,
such Securities, as provided herein, such Selling
Shareholder will convey good and marketable title to such
Securities, free and clear of all liens, encumbrances,
equities and claims whatsoever.
2. Such Selling Shareholder has not taken and
will not take, directly or indirectly, any action designed
to or which has constituted or which might reasonably be
expected to cause or result, under the Exchange Act or
otherwise, in stabilization or manipulation of the price of
any security of the Company to facilitate the sale or
resale of the Securities and has not effected any sales of
shares of Common Stock which, if effected by the issuer,
would be required to be disclosed in response to Item 701
of Regulation S-K.
3. Certificates in negotiable form for such
Selling Shareholder's Option Securities (other than, in the
case of an Exercising Selling Shareholder, the Exercise
Securities) have been placed in custody (or, in the case of
Exercise Securities, will be placed in custody no later than
the first business day following the receipt of notice by
the Company from the Representatives of the exercise of the
over-allotment option provided for in paragraph B of Section
II hereto (the "Over-Allotment Option"), for delivery
pursuant to the terms of this Agreement, under a Custody
Agreement executed and delivered by such Selling
Shareholders, in the form heretofore furnished to you (the
"Custody Agreement"), with American Securities Transfer &
Trust, Inc., as Custodian (the "Custodian"); the Securities
represented by the certificates to be held in custody for
each Selling Shareholder are subject to the interests
hereunder of the Underwriters, the Company and the other
Selling Shareholders; the arrangements for custody and
delivery of such certificates (including certificates
representing Exercise Securities), made by such Selling
Shareholder hereunder and under the
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<PAGE> 11
Custody Agreement, are not subject to termination or
modification by any acts of such Selling Shareholder, or by
operation of law, whether by the death or incapacity of
such Selling Shareholder or the occurrence of any other
event; and if any such death, incapacity or any other such
event shall occur before the delivery of such Securities
hereunder, certificates for the Securities will be
delivered by the Custodian in accordance with the terms and
conditions of this Agreement and the Custody Agreement as
if such death, incapacity or other event had not occurred,
regardless of whether or not the Custodian shall have
received notice of such death, incapacity or other event.
4. No consent, approval, authorization or order
of any court or governmental agency or body is required for
the consummation by such Selling Shareholder of the
transactions contemplated herein, except such as may have
been obtained under the Act and such as may be required
under the federal and provincial securities laws of Canada
or the blue sky laws of any jurisdiction in connection with
the purchase and distribution of the Securities by the
Underwriters and such other approvals as have been
obtained.
5. Neither the sale of the Securities being sold
by such Selling Shareholder nor the consummation of any
other of the transactions herein contemplated by such
Selling Shareholder or the fulfillment of the terms hereof
by such Selling Shareholder will conflict with, result in a
breach or violation of, or constitute a default under any
law or the terms of any indenture or other agreement or
instrument to which such Selling Shareholder is a party or
bound, or any judgment, order or decree applicable to such
Selling Shareholder of any court, regulatory body,
administrative agency, governmental body or arbitrator
having jurisdiction over such Selling Shareholder.
Any certificate signed by any Selling Shareholder or a
representative of a Selling Shareholder and delivered to the
Representatives or counsel for the Underwriters in connection with the
offering of the Securities shall be deemed a representation and
warranty by such Selling Shareholder, as to the matters covered
thereby, to each Underwriter.
C. Each Several Selling Shareholder represents and warrants to, and
agrees with, each Underwriter that such Several Selling Shareholder
has no reason to believe that the representations and warranties of
the Company and the Joint Selling Shareholders contained in Section
I.A. are not true and correct, is familiar with the Registration
Statement and has no knowledge of any material fact, condition or
information not disclosed in the Prospectus or any supplement thereto
which has adversely affected or may adversely affect the business of
the Company or any of its subsidiaries; and the sale of Securities by
such Several Selling Shareholder pursuant hereto is not prompted by
any information concerning the Company or any of its subsidiaries
which is not set forth in the Prospectus or any supplement thereto.
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<PAGE> 12
D. Each Exercising Selling Shareholder represents and warrants to, and
agrees with, each Underwriter that it has delivered to the Company (i)
notice in the form attached hereto as Exhibit C of an irrevocable
election, effective upon receipt of notice from the Representatives to
the Company of the exercise of the Over-Allotment Option, to exercise
options for the purchase of the number of Common Stock shown opposite
its name on Schedule VI hereto and (ii) irrevocable instructions to
deliver the Exercise Securities to the Custodian to be held by the
Custodian pursuant to the Custody Agreement; each such election and
each such set of instructions is irrevocable and is not subject to
termination or modification by any acts of such Exercising Selling
Shareholder, or by operation of law, whether by the death or incapacity
of such Exercising Selling Shareholder or the occurrence of any other
event; and if any such death, incapacity or any other such event shall
occur before the delivery of such Exercise Securities pursuant to such
instructions, certificates for the Exercise Securities will be
delivered by the Company to the Custodian in accordance with the terms
and conditions of such election and such instructions as if such death,
incapacity or other event had not occurred, regardless of whether or
not the Company shall have received notice of such death, incapacity or
other event.
In respect of any statements in or omissions from the Registration
Statement or the Prospectus or any supplements thereto made in
reliance upon and in conformity with information furnished in writing
to the Company by any Several Selling Shareholder specifically for use
in connection with the preparation thereof, such Several Selling
Shareholder hereby makes the same representations and warranties to
each Underwriter as the Company makes to such Underwriter under
paragraph A.3. of this Section.
II. Purchase and Sale.
A. Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company agrees to
sell to each Underwriter, and each Underwriter agrees, severally and
not jointly, to purchase from the Company, at a purchase price of
$_________ per share, the amount of the Underwritten Securities set
forth opposite such Underwriter's name in Schedule I hereto.
B. Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Selling
Shareholders named in Schedule II hereto hereby grant an option to the
several Underwriters to purchase, severally and not jointly, up to
450,000 shares of the Option Securities at the same purchase price per
share as the Underwriters shall pay for the Underwritten Securities.
Said option may be exercised only to cover over-allotments in the sale
of the Underwritten Securities by the Underwriters. Said option may be
exercised in whole or in part at any time (but not more than once) on
or before the 30th day after the date of the Prospectus upon written or
telegraphic notice by the Representatives to the Company and such
Selling Shareholders setting forth the number of shares of the Option
Securities as to which the several Underwriters are exercising the
option and the settlement date. Delivery of certificates for the
shares of Option Securities by such Selling Shareholders (and by the
Company in the case of Exercise Securities), and payment therefor to
such Selling Shareholders (and to the Company in the case of Exercise
Securities to the extent of the aggregate exercise price of the options
pursuant to which such Exercise Securities relate), shall be made as
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<PAGE> 13
provided in Section II hereof. The maximum number of shares of the
Option Securities to be sold by each of such Selling Shareholders is
set forth in Schedule II hereto. In the event that the Underwriters
exercise less than their full over-allotment option, the number of
shares of the Option Securities to be sold by each party listed on
Schedule II shall be, as nearly as practicable, in the same proportion
to each other as are the number of shares of the Option Securities
listed opposite their respective names on said Schedule II. The number
of shares of the Option Securities to be purchased by each Underwriter
shall be the same percentage of the total number of shares of the
Option Securities to be purchased by the several Underwriters as such
Underwriter is purchasing of the Underwritten Securities, subject to
such adjustments as you in your absolute discretion shall make to
eliminate any fractional shares.
III. Delivery and Payment.
Delivery of and payment for the Underwritten Securities and the
Option Securities (if the option provided for in Section II.B hereof shall have
been exercised on or before the third Business Day prior to the Closing Date)
shall be made at 10:00 AM, New York City time, on____________________, 1997, or
at such time on such later date not more than three Business Days after the
foregoing date as the Representatives shall designate, which date and time may
be postponed by agreement among the Representatives, the Company and, with
respect to the Option Securities only, the Selling Shareholders or as provided
in Section IX hereof (such date and time of delivery and payment for the
Securities being herein called the "Closing Date"). Except as provided in the
immediately following paragraph, delivery of the Securities shall be made to the
Representatives for the respective accounts of the several Underwriters against
payment by the several Underwriters through the Representatives of the
respective aggregate purchase prices of the Underwritten Securities being sold
by the Company and any Option Securities being sold by each of the Selling
Shareholders to or upon the order of the Company and such Selling Shareholders,
as the case may be, by wire transfer payable in same-day funds to an account
specified by the Company. Delivery of the Underwritten Securities to be sold by
the Company shall be made through the facilities of The Depository Trust Company
unless the Representatives shall otherwise instruct.
Delivery of the Exercise Securities shall be made to the
Representatives for the respective accounts of the several Underwriters against
payment by the several Underwriters through the Representatives (i) to the
Company of the aggregate exercise price of the options described in Schedule VI
hereto as to which such Exercise Securities relate and (ii) to each of the
Exercising Selling Shareholders of the excess, if any, of the aggregate purchase
price of the Exercise Securities being sold by such Exercising Selling
Shareholder over the amount paid with respect to such Exercise Securities
pursuant to clause (i) of this sentence, in each case, by wire transfer payable
in same day funds to the account specified pursuant to the preceding paragraph.
Delivery of the Option Securities to be sold by the Selling
Shareholders shall be made at such location as the Representatives shall
reasonably designate at least one Business Day in advance of the Closing Date
and payment for the Securities shall be made at the office of
_____________________________, New York, New York; certificates for such
Securities shall be registered in such names and in such denominations as the
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<PAGE> 14
Representatives may request not less than two full Business Days in advance of
the Closing Date. The Company agrees to have the certificates for such
Securities available for inspection, checking and packaging by the
Representatives in New York, New York, not later than 1:00 PM on the Business
Day prior to the Closing Date.
Each Selling Shareholder will pay all applicable state
transfer taxes, if any, involved in the transfer to the several Underwriters of
the Securities to be purchased by them from such Selling Shareholder and the
respective Underwriters will pay any additional stock transfer taxes involved
in further transfers.
Except as provided in the immediately following paragraph, if
the option provided for in Section II.B hereof is exercised after the third
business day prior to the Closing Date, the Selling Shareholders named in
Schedule II hereto will deliver the Option Securities (at the expense of the
Company) to the Representatives on the date specified by the Representatives
(which shall be within three Business Days after exercise of said option) for
the respective accounts of the several Underwriters, against payment by the
several Underwriters through the Representatives of the purchase price thereof
to or upon the order of the Selling Shareholders identified in Schedule II by
wire transfer payable in same-day funds to an account specified by the Selling
Shareholders named in Schedule II hereto. If settlement for the Option
Securities occurs after the Closing Date, the Company and such Selling
Shareholders will deliver to the Representatives on the settlement date for the
Option Securities, and the obligation of the Underwriters to purchase the Option
Securities shall be conditioned upon receipt of, supplemental opinions,
certificates and letters confirming as of such date the opinions, certificates
and letters delivered on the Closing Date pursuant to Section VI hereof.
In the event that any of the shares are delivered pursuant to
the exercise of options, delivery of such shares shall be made to the
Representatives for the respective accounts of the several Underwriters against
payment by the several Underwriters through the Representatives (i) to the
Company of the aggregate exercise price of such options and (ii) to each of the
Selling Shareholders of the excess, if any, of the aggregate purchase price of
such shares being sold by such Selling Shareholder over the amount paid with
respect to such shares pursuant to clause (i) of this sentence, in each case,
by wire transfer payable in same day funds to the account specified pursuant to
the preceding paragraph.
IV. Offering by Underwriters.
It is understood that the several Underwriters propose to
offer the Securities for sale to the public as set forth in the Prospectus.
V. Agreements.
A. The Company agrees with the several Underwriters that:
1. The Company will use its best efforts to
cause the Registration Statement, if not effective at the
Execution Time, and any amendment thereof,
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<PAGE> 15
to become effective. Prior to the termination of the
offering of the Securities, the Company will not file any
amendment of the Registration Statement or supplement to
the Prospectus or any Rule 462(b) Registration Statement
unless the Company has furnished you a copy for your review
prior to filing and will not file any such proposed
amendment or supplement to which you reasonably object.
Subject to the foregoing sentence, if the Registration
Statement has become or becomes effective pursuant to Rule
430A, or filing of the Prospectus is otherwise required
under Rule 424(b), the Company will cause the Prospectus,
properly completed, and any supplement thereto to be filed
with the Commission pursuant to the applicable paragraph of
Rule 424(b) within the time period prescribed and will
provide evidence satisfactory to the Representatives of
such timely filing. The Company will promptly advise the
Representatives (A) when the Registration Statement, if not
effective at the Execution Time, shall have become
effective, (B) when the Prospectus, and any supplement
thereto, shall have been filed (if required) with the
Commission pursuant to Rule 424(b) or when any Rule 462(b)
Registration Statement shall have been filed with the
Commission, (C) when, prior to termination of the offering
of the Securities, any amendment to the Registration
Statement shall have been filed or become effective, (D) of
any request by the Commission or its staff for any
amendment of the Registration Statement, or any Rule 462(b)
Registration Statement, or for any supplement to the
Prospectus or of any additional information, (E) of the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that
purpose and (F) of the receipt by the Company of any
notification with respect to the suspension of the
qualification of the Securities for sale in any
jurisdiction or the initiation or threatening of any
proceeding for such purpose. The Company will use its best
efforts to prevent the issuance of any such stop order or
the suspension of any such qualification and, if issued, to
obtain as soon as possible the withdrawal thereof.
2. If, at any time when a prospectus relating to
the Securities is required to be delivered under the Act,
any event occurs as a result of which the Prospectus as
then supplemented would include any untrue statement of a
material fact or omit to state any material fact necessary
to make the statements therein in the light of the
circumstances under which they were made not misleading, or
if it shall be necessary to amend the Registration
Statement or supplement the Prospectus to comply with the
Act or the Exchange Act or the respective rules thereunder,
the Company promptly will (i) prepare and file with the
Commission, subject to the second sentence of paragraph A
of this Section V, an amendment or supplement which will
correct such statement or omission or effect such
compliance and (ii) supply any supplemented Prospectus to
you in such quantities as you may reasonably request.
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<PAGE> 16
3. As soon as practicable, the Company will make
generally available to its security holders and to the
Representatives an earnings statement or statements of the
Company and its subsidiaries which will satisfy the
provisions of Section 11(a) of the Act and Rule 158 under
the Act.
4. The Company will furnish to the
Representatives and counsel for the Underwriters, without
charge, signed copies of the Registration Statement
(including exhibits thereto) and to each other Underwriter
a copy of the Registration Statement (without exhibits
thereto) and, so long as delivery of a prospectus by an
Underwriter or dealer may be required by the Act, as many
copies of each Preliminary Prospectus and the Prospectus
and any supplement thereto as the Representatives may
reasonably request. The Company will pay the expenses of
printing or other production of all documents relating to
the offering.
5. The Company will in good faith seek to
arrange, if necessary and with the cooperation of the
Underwriters, for the qualification of the Securities for
sale under the laws of such jurisdictions as the
Representatives may designate, will maintain such
qualifications in effect so long as required for the
distribution of the Securities (provided that neither the
Company nor its Subsidiaries will be required to qualify as
a foreign corporation or consent to service of process in
any such jurisdiction) and will pay any fee of the National
Association of Securities Dealers, Inc. (the "NASD"), in
connection with its review of the offering.
6. The Company will not, for a period of 180
days following the Execution Time, without the prior
written consent of Salomon Brothers Inc, offer, sell or
contract to sell, or otherwise dispose of (or enter into
any transaction which is designed to, or could be expected
to, result in the disposition (whether by actual
disposition or effective economic disposition due to cash
settlement or otherwise) by the Company or any affiliate of
the Company or any person in privity with the Company or
any affiliate of the Company) directly or indirectly, or
announce the offering of, any other shares of Common Stock
or any securities convertible into, or exchangeable for,
shares of Common Stock; provided, however, that the Company
may issue and sell Common Stock pursuant to any director or
employee stock option plan, stock ownership plan or
dividend reinvestment plan of the Company in effect at the
Execution Time and the Company may issue Common Stock
issuable upon the conversion of securities or the exercise
of warrants outstanding at the Execution Time.
B. Each Selling Shareholder agrees with the several Underwriters
that it will, at the Execution Time, furnish to the Representatives
through the Company the letter specified in paragraph I. of Section VI
hereof.
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<PAGE> 17
VI. Conditions to the Obligations of the Underwriters.
The obligations of the Underwriters to purchase the
Underwritten Securities and the Option Securities, as the case may be, shall be
subject to the accuracy of the representations and warranties on the part of
the Company and the Selling Shareholders contained herein as of the Execution
Time, the Closing Date and any settlement date pursuant to Section III hereof,
to the accuracy of the statements of the Company and the Selling Shareholders
made in any certificates pursuant to the provisions hereof, to the performance
by the Company and the Selling Shareholders of their respective obligations
hereunder and to the following additional conditions:
A. If the Registration Statement has not become effective prior to the
Execution Time, unless the Representatives agree in writing to a later
time, the Registration Statement will become effective not later than
(i) 6:00 PM New York City time on the date of determination of the
public offering price, if such determination occurred at or prior to
3:00 PM New York City time on such date or (ii) 9:30 AM on the
Business Day following the day on which the public offering price was
determined, if such determination occurred after 3:00 PM New York City
time on such date; if filing of the Prospectus, or any supplement
thereto, is required pursuant to Rule 424(b), the Prospectus, and any
such supplement, will be filed in the manner and within the time
period required by Rule 424(b); and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and
no proceedings for that purpose shall have been instituted or
threatened.
B. The Company shall have furnished to the Representatives the opinion
of Holme Roberts & Owen LLP, counsel for the Company, dated the
Closing Date, to the effect that:
1. each of the Company and its subsidiaries has
been duly incorporated and is validly existing as a
corporation in good standing under the laws of the
jurisdiction in which it is chartered or organized, with
full corporate power and authority to own its properties
and conduct its business as described in the Prospectus;
2. all the outstanding shares of capital stock
of each subsidiary have been duly and validly authorized
and issued and are fully paid and nonassessable, and,
except as otherwise set forth in the Prospectus, all
outstanding shares of capital stock of the subsidiaries are
owned by the Company either directly or through wholly
owned subsidiaries free and clear of any perfected security
interest and, to the knowledge of such counsel, after due
inquiry, any other security interests, claims, liens or
encumbrances;
3. the Company's authorized equity capitalization
is as set forth in the Prospectus; the capital stock of the
Company conforms in all material respects to the description
thereof contained in the Prospectus; the outstanding shares
of Common Stock (including the Option Securities being sold
hereunder by the Selling Shareholders) have been duly and
validly authorized and issued and are fully
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<PAGE> 18
paid and nonassessable; the Underwritten Securities being
sold hereunder by the Company have been duly and validly
authorized, and, when issued and delivered to and paid for
by the Underwriters pursuant to this Agreement, will be
fully paid and nonassessable; the Company has taken the
actions required by the published rules of the Nasdaq Stock
Market to qualify the Securities for inclusion in the Nasdaq
Stock Market; the certificates for the Securities are in
valid and sufficient form; and the holders of outstanding
shares of capital stock of the Company are not entitled to
preemptive or other rights to subscribe for the Securities;
and, except as set forth in the Prospectus, no options,
warrants or other rights to purchase, agreements or other
obligations to issue, or rights to convert any obligations
into or exchange any securities for, shares of capital stock
of or ownership interests in the Company are outstanding;
4. to the knowledge of such counsel, there is no
pending or threatened action, suit or proceeding by or
before any court or governmental agency, authority or body
or any arbitrator involving the Company or any of its
subsidiaries of a character required to be disclosed in the
Registration Statement that is not adequately described in
the Prospectus, and there is no franchise, contract or
other document of a character required to be described in
the Registration Statement or Prospectus, or to be filed as
an exhibit thereto, that is not described or filed as
required; and the statements in each of (a) the Prospectus
under the headings "Risk Factors -- Protection of Know-how
and Trade Secrets; -- Environmental Compliance; -- Shares
Eligible for Future Sale; and -- Anti-Takeover Provisions"
and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Recent
Developments", (b) the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, under the
headings "Item 1. Business --Patents and Trademarks",
"Item 2. Description of Property" and "Item 3. Legal
Proceedings" and (c) the Company's Proxy Statement dated
April 29, 1997, under the heading "Certain Relationships
and Related Transactions", to the extent that such
statements purport to describe certain provisions of
federal laws, laws of the State of Colorado, rules or
regulations, the Company's charter and by-laws, and
contracts to which the Company is a party, have been
reviewed by such counsel and fairly summarize the matters
therein described;
5. the Registration Statement has become
effective under the Act; any required filing of the
Prospectus, and any supplements thereto, pursuant to Rule
424(b) has been made in the manner and within the time
period required by Rule 424(b); to the knowledge of such
counsel, no stop order suspending the effectiveness of the
Registration Statement has been issued, no proceedings for
that purpose have been instituted or threatened and the
Registration Statement and the Prospectus (other than the
financial statements and other financial information
contained therein, as to which such counsel need express no
opinion) comply as to form in all material respects with
the applicable
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<PAGE> 19
requirements of the Act and the Exchange Act and the
respective rules thereunder;
6. this Agreement has been duly authorized,
executed and delivered by the Company;
7. the Company is not and, after giving effect
to the offering and sale of the Securities and the
application of the proceeds thereof as described in the
Prospectus, will not be an "investment company" as defined
in the Investment Company Act of 1940, as amended;
8. no consent, approval, authorization, filing
with or order of any court or governmental agency or body
is required for the consummation by the Company of the
transactions contemplated herein, except such as have been
obtained under the Act and such as may be required under
the blue sky laws of any jurisdiction in connection with
the purchase and distribution of the Securities by the
Underwriters in the manner contemplated in this Agreement
and in the Prospectus;
9. neither the issue and sale of the Securities,
nor the consummation by the Company of any other of the
transactions herein contemplated nor the fulfillment of the
terms hereof will conflict with, result in a breach or
violation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or its
subsidiaries pursuant to, (i) the charter or by-laws of
the Company or its subsidiaries or (ii) the terms of any
indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation,
condition, covenant or instrument known to such counsel
after due inquiry to which the Company or its subsidiaries
is a party or bound or to which its property is subject, or
(iii) any statute, law, rule, regulation, judgment, order
or decree known to such counsel after due inquiry to be
applicable to the Company or its subsidiaries of any court,
regulatory body, administrative agency, governmental body,
arbitrator or other authority having jurisdiction over the
Company or its subsidiaries or any of its or their
properties; and
10. to such Counsel's knowledge after due inquiry
no holders of securities of the Company have rights to the
registration of such securities under the Registration
Statement except for such rights of the Registration Rights
Shareholders as have been effectively waived.
In addition, such counsel shall state that nothing has come to such counsel's
attention that leads such counsel to believe that on the Effective Date or at
the Execution Time the Registration Statement (other than the financial
statements, including the notes thereto, and supporting schedules or other
financial data contained therein, as to which such counsel need not comment)
contains or contained any untrue statement of a material fact or omitted or
omits to state any material fact required to be stated therein or necessary in
order to make the statements therein not
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<PAGE> 20
misleading, or that the Prospectus (other than the financial statements,
including the notes thereto, and supporting schedules or other financial data
contained therein, as to which such counsel need not comment) contained or
contains, as of its date or as of the Closing Date, any untrue statement of a
material fact or omitted or omits, as of such dates, to state a material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may rely (a) as to matters involving
the application of laws of any jurisdiction other than the State of Colorado,
the State of New York or the Federal laws of the United States, to the extent
they deem proper and specified in such opinion, upon the opinion of other
counsel of good standing whom they believe to be reliable and who are
satisfactory to counsel for the Underwriters and (b) as to matters of fact, to
the extent they deem proper, on certificates of responsible officers of the
Company and public officials. References to the Prospectus in this paragraph B
include any supplements thereto at the Closing Date.
C. The Selling Shareholders shall have furnished to the
Representatives the opinion of Holme Roberts & Owen LLP, counsel for
the Selling Shareholders, dated the Closing Date, to the effect that:
1. this Agreement, the Custody Agreement and the
Power-of-Attorney have been duly executed and delivered by
the Selling Shareholders, the Custody Agreement is valid and
binding on the Selling Shareholders and each Selling
Shareholder has full legal right and authority to sell,
transfer and deliver in the manner provided in this
Agreement and the Custody Agreement the Option Securities
being sold by such Selling Shareholder hereunder;
2. the delivery by each Selling Shareholder to
the several Underwriters of certificates for the Option
Securities being sold hereunder by such Selling Shareholder
against payment therefor as provided herein, will pass good
and marketable title to such Option Securities to the
several Underwriters, free and clear of all liens,
encumbrances, equities and claims whatsoever;
3. no consent, approval, authorization or order
of any court or governmental agency or body is required for
the consummation by any Selling Shareholder of the
transactions contemplated herein, except such as may have
been obtained under the Act and such as may be required
under the blue sky laws of any jurisdiction in connection
with the purchase and distribution of the Securities by the
Underwriters and such other approvals (specified in such
opinion) as have been obtained; and
4. neither the sale of the Option Securities
being sold by any Selling Shareholder nor the consummation
of any other of the transactions herein contemplated by any
Selling Shareholder or the fulfillment of the terms hereof
by any Selling Shareholder will conflict with, result in a
breach or violation of, or constitute a default under (i)
any law or the terms of any indenture or other agreement or
instrument known to such counsel and to which any Selling
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<PAGE> 21
Shareholder is a party or bound, or any judgment, order or
decree known to such counsel to be applicable to any
Selling Shareholder of any court, regulatory body,
administrative agency, governmental body or arbitrator
having jurisdiction over any Selling Shareholder or (ii) in
the case of a Selling Shareholder that is a partnership or
trust, the partnership agreement, trust agreement or other
organizational documents of such Selling Shareholder.
In rendering such opinion, such counsel may rely (a) as to matters involving
the application of laws of any jurisdiction other than the State of Colorado,
the State of New York or the Federal laws of the United States, to the extent
they deem proper and specified in such opinion, upon the opinion of other
counsel of good standing whom they believe to be reliable and who are
satisfactory to counsel for the Underwriters, and (b) as to matters of fact, to
the extent they deem proper, on certificates of the Selling Shareholders and
public officials.
D. The Representatives shall have received from Cleary, Gottlieb,
Steen & Hamilton, counsel for the Underwriters, such opinion or
opinions, dated the Closing Date, with respect to the issuance and
sale of the Securities, the Registration Statement, the Prospectus
(together with any supplement thereto) and other related matters as
the Representatives may reasonably require, and the Company and each
Selling Shareholder shall have furnished to such counsel such
documents as they request for the purpose of enabling them to pass
upon such matters.
E. The Company shall have furnished to the Representatives a
certificate of the Company, signed by the Chairman of the Board or the
President and the principal financial or accounting officer of the
Company, dated the Closing Date, to the effect that the signers of
such certificate have carefully examined the Registration Statement,
the Prospectus, any supplements to the Prospectus and this Agreement
and that:
1. the representations and warranties of the
Company in this Agreement are true and correct in all
material respects on and as of the Closing Date with the
same effect as if made on the Closing Date and the Company
has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or
prior to the Closing Date;
2. no stop order suspending the effectiveness of
the Registration Statement has been issued and no
proceedings for that purpose have been instituted or, to
the Company's knowledge, threatened; and
3. since the date of the most recent financial
statements included in the Prospectus (exclusive of any
supplement thereto), there has been no material adverse
change in the condition (financial or otherwise),
prospects, earnings, business or properties of the Company
and its subsidiaries, taken as a whole, whether or not
arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the
Prospectus (exclusive of any supplement thereto).
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<PAGE> 22
F. Each Selling Shareholder shall have furnished to the
Representatives a certificate, signed, in the case of a Selling
Shareholder that is other than a natural person, by a representative
of such Selling Shareholder satisfactory to the Representatives and,
in any other case, by such Selling Shareholder, dated the Closing
Date, to the effect that the signer of such certificate has carefully
examined the Registration Statement, the Prospectus, any supplement to
the Prospectus and this Agreement and that the representations and
warranties of such Selling Shareholder in this Agreement are true and
correct in all material respects on and as of the Closing Date to the
same effect as if made on the Closing Date.
G. At the Execution Time and at the Closing Date, KPMG Peat Marwick
LLP shall have furnished to the Representatives letters, dated
respectively as of the Execution Time and as of the Closing Date, in
form and substance satisfactory to the Representatives, confirming
that they are independent accountants within the meaning of the Act
and the Exchange Act and the respective applicable published rules and
regulations thereunder and stating in effect that:
1. in their opinion the audited financial
statements and financial statement schedules and pro forma
financial statements included or incorporated in the
Registration Statement and the Prospectus and reported on
by them comply in form in all material respects with the
applicable accounting requirements of the Act and the
Exchange Act and the related published rules and
regulations;
2. on the basis of a reading of the latest
unaudited financial statements made available by the
Company and its subsidiaries; carrying out certain
specified procedures (but not an examination in accordance
with generally accepted auditing standards) which would not
necessarily reveal matters of significance with respect to
the comments set forth in such letter; a reading of the
minutes of the meetings of the Shareholders, directors and
compensation and audit committees of the Company and the
subsidiaries; and inquiries of certain officials of the
Company who have responsibility for financial and
accounting matters of the Company and its subsidiaries as
to transactions and events subsequent to September 30,
1997, nothing came to their attention which caused them to
believe that:
a. with respect to the period subsequent to September 30,
1997, there were any changes, at a specified date not more
than three days prior to the date of the letter, in the
long-term debt of the Company and its subsidiaries or
capital stock of the Company or decreases in the
Shareholders' equity of the Company or decreases in working
capital of the Company and its subsidiaries as compared
with the amounts shown on the September 30, 1997,
consolidated balance sheet included or incorporated in the
Registration Statement and the Prospectus, or for the
period from October 1, 1997 to such specified date there
were any decreases, as compared with the corresponding
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<PAGE> 23
period in the preceding quarter in net revenues or income
before income taxes or in total or per share amounts of net
income of the Company and its subsidiaries and operating
income, except in all instances for changes or decreases set
forth in such letter, in which case the letter shall be
accompanied by an explanation by the Company as to the
significance thereof unless said explanation is not deemed
necessary by the Representatives; or
b. the information included in the Registration Statement
and Prospectus in response to Regulation S-K, Item 301
(Selected Financial Data), Item 302 (Supplementary Financial
Information) and Item 402 (Executive Compensation) is not in
conformity with the applicable disclosure requirements of
Regulation S-K.
3. they have performed certain other specified
procedures as a result of which they determined that certain
information of an accounting, financial or statistical
nature (which is limited to accounting, financial or
statistical information derived from the general accounting
records of the Company and its subsidiaries) set forth in
the Registration Statement and the Prospectus, including the
information set forth under the captions "Summary Financial
Data", "Capitalization", "Selected Consolidated Financial
Data" and "Management's Discussion and Analysis of Financial
Conditions and Results of Operations" in the Prospectus, the
information included or incorporated from Items 1, 2, 6, 7
and 11 of the Company's Annual Report on Form 10-K,
incorporated in the Registration Statement and the
Prospectus, the information included in the "Management's
Discussion and Analysis of Results of Operations and
Financial Condition" included or incorporated in the
Company's Quarterly Reports on Form 10-Q (as amended by the
Company's Quarterly Reports on Form 10-Q/A) incorporated in
the Registration Statement and the Prospectus and the
financial statements included or incorporated in the Form
8-K and Form 8-K/A incorporated in the Registration
Statement and the Prospectus, agrees with the accounting
records of the Company and its subsidiaries, excluding any
questions of legal interpretation.
4. on the basis of a reading of the unaudited
pro forma financial statements included or incorporated in
the Registration Statement and the Prospectus (the "pro
forma financial statements"); carrying out certain
specified procedures; inquiries of certain officials of the
Company and its subsidiaries, who have responsibility for
financial and accounting matters; and proving the
arithmetic accuracy of the application of the pro forma
adjustments to the historical amounts in the pro forma
financial statements, nothing came to their attention which
caused them to believe that the pro forma financial
statements do not comply in form in all material respects
with the applicable accounting requirements of Rule 11-02
of Regulation S-X or that the pro forma adjustments have
not been properly applied to the historical amounts in the
compilation of such statements.
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<PAGE> 24
References to the Prospectus in this paragraph G includes any
supplement thereto at the date of the letter.
H. Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of
any amendment thereof) and the Prospectus (exclusive of any supplement
thereto), there shall not have been (i) any change or decrease
specified in the letter or letters referred to in paragraph G of this
Section VI or (ii) any change, or any development involving a
prospective change, in or affecting the condition (financial or
otherwise), earnings, business or properties of the Company and its
subsidiaries taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth
in or contemplated in the Prospectus (exclusive of any supplement
thereto) the effect of which, in any case referred to in clause (i) or
(ii) above, is, in the sole judgment of the Representatives, so
material and adverse as to make it impractical or inadvisable to
proceed with the offering or delivery of the Securities as
contemplated by the Registration Statement (exclusive of any amendment
thereof) and the Prospectus (exclusive of any supplement thereto).
I. At the Execution Time, the Company shall have furnished to the
Representatives a letter substantially in the form of Exhibit A hereto
from each officer and director of the Company, from each Selling
Shareholder and from each other shareholder listed in Schedule V
hereto, in any case, addressed to the Representatives, in which each
such person agrees not to offer, sell, contract to sell, pledge or
otherwise dispose of, or file a registration statement with the
Commission in respect of, or establish or increase a put equivalent
position or liquidate or decrease a call equivalent position within the
meaning of Section 16 of the Exchange Act with respect to, any shares
of capital stock of the Company or any securities convertible into or
exercisable or exchangeable for such capital stock, or publicly
announce an intention to effect any such transaction, for a period of
180 days, in each case as specified in Schedule V hereto, after the
date of this Agreement, other than (i) any shares of Common Stock to be
sold hereunder, (ii) any option or warrant or the conversion of a
security outstanding on the date hereof and referred to in the
Prospectus to which this Agreement relates and (iii) other than shares
of Common Stock disposed of as bona fide gifts approved by Salomon
Brothers Inc.
J. The Securities shall be qualified for inclusion on the Nasdaq
Stock Market upon issuance.
K. Prior to the Closing Date, the Company shall have furnished to the
Representatives such further information, certificates and documents
as the Representatives may reasonably request.
If any of the conditions specified in this Section VI shall
not have been fulfilled in all material respects when and as provided in this
Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all material respects reasonably
satisfactory in form and substance to the Representatives and counsel for the
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<PAGE> 25
Underwriters, this Agreement and all obligations of the Underwriters hereunder
may be canceled at, or at any time prior to, the Closing Date by the
Representatives. Notice of such cancellation shall be given to the Company and
each Selling Shareholder in writing or by telephone or facsimile confirmed in
writing.
The documents required to be delivered by this Section VI
shall be delivered at the office of Cleary, Gottlieb, Steen & Hamilton, counsel
for the Underwriters, One Liberty Plaza, New York, New York 10006, on the
Closing Date.
VII. Reimbursement of Underwriters' Expenses.
If the sale of the Securities provided for herein is not
consummated because any condition to the obligations of the Underwriters set
forth in Section VI hereof is not satisfied, because of any termination pursuant
to Section X hereof or because of any refusal, inability or failure on the part
of the Company or any Selling Shareholder to perform any agreement herein or
comply with any provision hereof other than by reason of a default by any of the
Underwriters, the Company will reimburse the Underwriters severally through
Salomon Brothers Inc on demand for all out-of-pocket expenses (including
reasonable fees and disbursements of counsel) that shall have been incurred by
them in connection with the proposed purchase and sale of the Securities. If
the Company is required to make any payments to the Underwriters under this
Section VII because of any Selling Shareholder's refusal, inability or failure
to satisfy any condition to the obligations of the Underwriters set forth in
Section VI, the Selling Shareholders pro rata in proportion to the percentage of
Option Securities to be sold by each shall reimburse the Company on demand for
all amounts so paid.
VIII. Indemnification and Contribution.
A. 1. The Company and the Joint Selling Shareholders jointly and
severally agree to indemnify and hold harmless each Underwriter, the
directors, officers, employees and agents of each Underwriter and each
person who controls any Underwriter within the meaning of either the
Act or the Exchange Act against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become
subject under the Act, the Exchange Act or other Federal or state
statutory law or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the
registration statement for the registration of the Securities as
originally filed or in any amendment thereof, or in any Preliminary
Prospectus or the Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and agrees to reimburse each such indemnified party, as
incurred, for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company and
the Joint Selling Shareholders will not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out
of or is based upon any
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<PAGE> 26
such untrue statement or alleged untrue statement or omission or
alleged omission made therein in reliance upon and in conformity with
written information furnished to the Company by or on behalf of any
Underwriter through the Representatives specifically for inclusion
therein. This indemnity agreement will be in addition to any
liability which the Company or the Joint Selling Shareholders may
otherwise have.
2. Each Several Selling Shareholder severally agrees to
indemnify and hold harmless the Company, each of its directors, each
of its officers who signs the Registration Statement, each
Underwriter, the directors, officers, employees and agents of each
Underwriter and each person who controls the Company or any
Underwriter within the meaning of either the Act or the Exchange Act
to the same extent as the foregoing indemnity from the Company and the
Joint Selling Shareholders to each Underwriter, but only with
reference to written information furnished to the Company by or on
behalf of such Several Selling Shareholder specifically for inclusion
in the documents referred to in the foregoing indemnity. This
indemnity agreement will be in addition to any liability which any
Several Selling Shareholder may otherwise have.
B. Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its directors, each of its officers who signs the
Registration Statement, and each person who controls the Company
within the meaning of either the Act or the Exchange Act and each
Selling Shareholder, to the same extent as the foregoing indemnity to
each Underwriter, but only with reference to written information
relating to such Underwriter furnished to the Company by or on behalf
of such Underwriter through the Representatives specifically for
inclusion in the documents referred to in the foregoing indemnity.
This indemnity agreement will be in addition to any liability which
any Underwriter may otherwise have. The Company and each Selling
Shareholder acknowledge that the statements set forth in the last
paragraph of the cover page regarding delivery of the Securities, the
stabilization legend in block capital letters on page 2 and, under the
heading "Underwriting" (i) the sentences related to concessions and
reallowances and (ii) the paragraph related to stabilization in any
Preliminary Prospectus and the Prospectus constitute the only
information furnished in writing by or on behalf of the several
Underwriters for inclusion in any Preliminary Prospectus or the
Prospectus.
C. Promptly after receipt by an indemnified party under this Section
VIII of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section VIII, notify the indemnifying
party in writing of the commencement thereof; but the failure so to
notify the indemnifying party (i) will not relieve it from liability
under paragraph A or B above unless and to the extent it did not
otherwise learn of such action and such failure results in the
forfeiture by the indemnifying party of substantial rights and
defenses and (ii) will not, in any event, relieve the indemnifying
party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraph A or B above. The
indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to
represent the indemnified party in any action for which
indemnification is sought (in which case the indemnifying party shall
not
26
<PAGE> 27
thereafter be responsible for the fees and expenses of any separate
counsel retained by the indemnified party or parties except as set
forth below); provided, however, that such counsel shall be
satisfactory to the indemnified party. Notwithstanding the
indemnifying party's election to appoint counsel to represent the
indemnified party in an action, the indemnified party shall have the
right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees, costs and expenses
of such separate counsel, if (i) the use of counsel chosen by the
indemnifying party to represent the indemnified party would present
such counsel with a conflict of interest, (ii) the actual or potential
defendants in, or targets of, any such action include both the
indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be legal defenses
available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii)
the indemnifying party shall not have employed counsel satisfactory to
the indemnified party to represent the indemnified party within a
reasonable time after notice of the institution of such action or (iv)
the indemnifying party shall authorize the indemnified party to employ
separate counsel at the expense of the indemnifying party. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of
any judgment with respect to any pending or threatened claim, action,
suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified parties are
actual or potential parties to such claim or action) unless such
settlement, compromise or consent includes an unconditional release of
each indemnified party from all liability arising out of such claim,
action, suit or proceeding.
D. In the event that the indemnity provided in paragraph A or B of
this Section VIII is unavailable to or insufficient to hold harmless
an indemnified party for any reason, the Company and the Selling
Shareholders, jointly and severally, and the Underwriters agree to
contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection
with investigating or defending same) (collectively "Losses") to which
the Company, one or more of the Selling Shareholders and one or more
of the Underwriters may be subject in such proportion as is
appropriate to reflect the relative benefits received by the Company
and the Selling Shareholders on the one hand and by the Underwriters
on the other from the offering of the Securities; provided, however,
that in no case shall any Underwriter (except as may be provided in
any agreement among underwriters relating to the offering of the
Securities) be responsible for any amount in excess of the
underwriting discount or commission applicable to the Securities
purchased by such Underwriter hereunder. If the allocation provided
by the immediately preceding sentence is unavailable for any reason,
the Company and the Selling Shareholders, jointly and severally, and
the Underwriters shall contribute in such proportion as is appropriate
to reflect not only such relative benefits but also the relative fault
of the Company and the Selling Shareholders on the one hand and of the
Underwriters on the other in connection with the statements or
omissions which resulted in such Losses as well as any other relevant
equitable considerations. Benefits received by the Company and the
Selling Shareholders shall be deemed to be equal to the total net
proceeds from the offering (before deducting expenses) received by
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<PAGE> 28
it, and benefits received by the Underwriters shall be deemed to be
equal to the total underwriting discounts and commissions, in each
case as set forth on the cover page of the Prospectus. Relative fault
shall be determined by reference to, among other things, whether any
untrue or any alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information provided by the Company or the Selling Shareholders on the
one hand or the Underwriters on the other, the intent of the parties
and their relative knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The Company,
the Selling Shareholders and the Underwriters agree that it would not
be just and equitable if contribution were determined by pro rata
allocation or any other method of allocation which does not take
account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph D, no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f)
of the Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. For purposes of this
Section VIII, each person who controls an Underwriter within the
meaning of either the Act or the Exchange Act and each director,
officer, employee and agent of an Underwriter shall have the same
rights to contribution as such Underwriter, and each person who
controls the Company within the meaning of either the Act or the
Exchange Act, each officer of the Company who shall have signed the
Registration Statement and each director of the Company shall have the
same rights to contribution as the Company, subject in each case to
the applicable terms and conditions of this paragraph D.
E. Notwithstanding any other provision of this agreement to the
contrary:
1. the liability of each Selling Shareholder
under such Selling Shareholder's representations and
warranties contained in Section I hereof and under the
indemnity and contribution agreements contained in this
Section VIII shall be limited to an amount equal to the
initial public offering price of the Option Securities sold
by such Selling Shareholder to the Underwriters;
2. none of the Selling Shareholders shall have
any liability with respect to the representations and
warranties contained in Section I hereof, except to the
extent that an Underwriter, or a director, officer or agent
of an Underwriter or any person who controls any
Underwriter within the meaning of either the Act or the
Exchange Act is unable to satisfy a claim against the
Company in respect of a breach or alleged breach of such
representations and warranties; and
3. none of the Selling Shareholders shall have
any liability under the indemnity and contribution
agreements contained in this Section VIII, except to the
extent that the indemnification and contribution
obligations of the Company provided for in this Section
VIII are unavailable or insufficient by reason of a Payment
Default to hold an Underwriter, or a director, officer or
agent of an Underwriter or any person who controls any
Underwriter within the meaning of either the Act or the
Exchange Act harmless in respect of any
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<PAGE> 29
losses, claims, damages or liabilities (or actions in
respect thereof) referred to in such sections to which such
Underwriter or such other person may be subject;
provided, however, that nothing in this paragraph E shall prohibit the
Underwriters from joining any Selling Shareholder as a party in any claim
(including without limitation any counterclaim or cross-claim) against the
Company for breach of the representations and warranties contained in Section I
hereof or for payment under the indemnity and contribution agreements contained
in this Section VIII. The Company and the Selling Shareholders may agree, as
among themselves and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which they each
shall be responsible.
IX. Default by an Underwriter.
If any one or more Underwriters shall fail to purchase and pay
for any of the Securities agreed to be purchased by such Underwriter or
Underwriters hereunder and such failure to purchase shall constitute a default
in the performance of its or their obligations under this Agreement, the
remaining Underwriters shall be obligated severally to take up and pay for (in
the respective proportions which the amount of Securities set forth opposite
their names in Schedule I hereto bears to the aggregate amount of Securities
set forth opposite the names of all the remaining Underwriters) the Securities
which the defaulting Underwriter or Underwriters agreed but failed to purchase;
provided, however, that in the event that the aggregate amount of Securities
which the defaulting Underwriter or Underwriters agreed but failed to purchase
shall exceed 10% of the aggregate amount of Securities set forth in Schedule I
hereto, the remaining Underwriters shall have the right to purchase all, but
shall not be under any obligation to purchase any, of the Securities, and if
such nondefaulting Underwriters do not purchase all the Securities, this
Agreement will terminate without liability to any nondefaulting Underwriter,
the Selling Shareholders or the Company. In the event of a default by any
Underwriter as set forth in this Section IX, the Closing Date shall be
postponed for such period, not exceeding five Business Days, as the
Representatives shall determine in order that the required changes in the
Registration Statement and the Prospectus or in any other documents or
arrangements may be effected. Nothing contained in this Agreement shall
relieve any defaulting Underwriter of its liability, if any, to the Company,
the Selling Shareholders and any nondefaulting Underwriter for damages
occasioned by its default hereunder.
X. Termination.
This Agreement shall be subject to termination in the absolute
discretion of the Representatives, by notice given to the Company prior to
delivery of and payment for the Securities, if at any time prior to such time
(i) trading in the Company's Common Stock shall have been suspended by the
Commission or the Nasdaq National Market or trading in securities generally on
the New York Stock Exchange or the Nasdaq National Market shall have been
suspended or limited or minimum prices shall have been established on such
Exchange or National Market, (ii) a banking moratorium shall have been declared
either by Federal or New York State authorities or (iii) there shall have
occurred any outbreak or escalation of hostilities,
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<PAGE> 30
declaration by the United States of a national emergency or war or other
calamity or crisis the effect of which on financial markets is such as to make
it, in the sole judgment of the Representatives, impractical or inadvisable to
proceed with the offering or delivery of the Securities as contemplated by the
Prospectus (exclusive of any supplement thereto).
XI. Representations and Indemnities to Survive.
The respective agreements, representations, warranties,
indemnities and other statements of the Company or its officers, of each
Selling Shareholder and of the Underwriters set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter, any Selling Shareholder
or the Company or any of the officers, directors or controlling persons
referred to in Section VIII hereof, and will survive delivery of and payment
for the Securities. The provisions of Sections VII and VIII hereof shall
survive the termination or cancellation of this Agreement.
XII. Notices.
All communications hereunder will be in writing and effective
only on receipt, and, if sent to the Representatives, will be mailed, delivered
or telefaxed with confirmation to the Salomon Brothers Inc General Counsel (fax
no.: (212) 783-1752) and confirmed to the General Counsel, care of Salomon
Brothers Inc, at Seven World Trade Center, New York, New York 10048,
Attention: General Counsel; or, if sent to the Company, will be mailed,
delivered or telefaxed with confirmation to EFTC Corporation (fax no.: (303)
451-8210) and confirmed to it at EFTC Corporation, 9351 Grant Street, Suite
600, Denver, Colorado 80229, Attention: Stuart W. Fuhlendorf, Chief Financial
Officer, or if sent to the Selling Shareholders, will be mailed, delivered or
telefaxed with confirmation to _____________________________ [facsimile number]
and confirmed to them at the addresses set forth in Schedule II hereto.
XIII. Successors.
This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers and
directors and controlling persons referred to in Section VIII hereof, and no
other person will have any right or obligation hereunder.
XIV. Applicable Law.
This Agreement will be governed by and construed in accordance
with the laws of the State of New York.
XV. Counterparts.
This Agreement may be signed in one or more counterparts, each
of which shall constitute an original and all of which together shall
constitute one and the same agreement.
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XVI. Headings.
The section headings used herein are for convenience only and
shall not affect the construction hereof.
XVII. Definitions.
The terms which follow, when used in this Agreement, shall
have the meanings indicated.
"Act" shall mean the Securities Act of 1933, as amended.
"Business Day" shall mean any day other than a Saturday, a
Sunday or a legal holiday or a day on which banking institutions or
trust companies are authorized or obligated by law to close in New
York City.
"Effective Date" shall mean each date and time that the
Registration Statement, any post-effective amendment or amendments
thereto and any Rule 462(b) Registration Statement became or become
effective.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Execution Time" shall mean the date and time that this
Agreement is executed and delivered by the parties hereto.
"Exercise Securities" shall mean the numbers of shares listed
on Schedule VI to be issued upon exercise of outstanding options listed
in Schedule VI and to be delivered by the Exercising Shareholders to
the several Underwriters on the settlement date for the option provided
in Section II.B. of this Agreement.
"Exercising Selling Shareholders" shall mean the Selling
Shareholders appearing on Schedule VI hereto.
"Joint Selling Shareholders" shall mean the Selling
Shareholders other than Robert Child, Brian Tracey and August P.
Bruehlman.
"Payment Default" means the occurrence of each of the
following events:
(1) the Underwriters have given written notice (in accordance
with Section XII hereof) to the Company of a claim under the
indemnification or contribution provisions contained in
Section VIII hereof; and
(2) the Company shall have failed to satisfy such claim
within 30 days of receipt of such notice.
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"Preliminary Prospectus" shall mean any preliminary prospectus
referred to in paragraph I.A. above and any preliminary prospectus
included in the Registration Statement at the Effective Date that
omits Rule 430A Information.
"Prospectus" shall mean the prospectus relating to the
Securities that is first filed pursuant to Rule 424(b) after the
Execution Time or, if no filing pursuant to Rule 424(b) is required,
shall mean the form of final prospectus relating to the Securities
included in the Registration Statement at the Effective Date.
"Registration Statement" shall mean the registration statement
referred to in paragraph I.A. above, including incorporated documents,
exhibits and financial statements, as amended at the Execution Time
(or, if not effective at the Execution Time, in the form in which it
shall become effective) and, in the event any post-effective amendment
thereto or any Rule 462(b) Registration Statement becomes effective
prior to the Closing Date (as hereinafter defined), shall also mean
such registration statement as so amended or such Rule 462(b)
Registration Statement, as the case may be. Such term shall include
any Rule 430A Information deemed to be included therein at the
Effective Date as provided by Rule 430A.
"Rule 424," "Rule 430A" and "Rule 462" refer to such rules
under the Act.
"Rule 430A Information" shall mean information with respect to
the Securities and the offering thereof permitted to be omitted from
the Registration Statement when it becomes effective pursuant to Rule
430A.
"Rule 462(b) Registration Statement" shall mean a registration
statement and any amendments thereto filed pursuant to Rule 462(b)
relating to the offering covered by the initial registration
statement.
"Several Selling Shareholders" shall mean the Selling
Shareholders other than the Joint Shareholders.
"United States or Canadian Person" shall mean any person who
is a national or resident of the United States or Canada, any
corporation, partnership, or other entity created or organized in or
under the laws of the United States or Canada or of any political
subdivision thereof, or any estate or trust the income of which is
subject to United States or Canadian Federal income taxation,
regardless of its source (other than any non-United States or
non-Canadian branch of any United States or Canadian Person), and
shall include any United States or Canadian branch of a person other
than a United States or Canadian Person.
"U.S." or "United States" shall mean the United States of
America (including the states thereof and the District of Columbia),
its territories, its possessions and other areas subject to its
jurisdiction.
32
<PAGE> 33
XVIII. Canada.
Each of the Underwriters hereby covenants and agrees that it
will not distribute the Securities in such a manner as to require the
filing of a prospectus or similar document (excluding a private
placement offering memorandum) with respect to the Securities under
the laws of any Province or Territory in Canada.
33
<PAGE> 34
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicate hereof,
whereupon this letter and your acceptance shall represent a binding agreement
among the Company, the Selling Shareholders and the several Underwriters.
Very truly yours,
EFTC Corporation
By:
-------------------------------------
Name:
Title:
Gerald J. Reid
Lucille A. Reid
Lloyd A. McConnell
Charles E. Hewitson
Gregory Hewitson
Matthew J. Hewitson
Jack Calderon
August P. Bruehlman
Robert Child
Brian Tracey
Stuart W. Fuhlendorf
Brent L. Hofmeister
By:
-------------------------------------
Name:
Title: Attorney-in-Fact
for each of the Selling
Shareholders
34
<PAGE> 35
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Salomon Brothers Inc
J.C. Bradford & Co.
Pacific Crest Securities
By: Salomon Brothers Inc
By:
---------------------------
Name:
Title:
For themselves and the other
several Underwriters named in
Schedule I to the foregoing
Agreement.
35
<PAGE> 36
SCHEDULE I
Underwriters
<TABLE>
<CAPTION>
NUMBER OF SHARES
TO BE
UNDERWRITERS PURCHASED
- --------------------------------------------------------------------------------------------------
<S> <C>
Salomon Brothers Inc . . . . . . . . . . . . . . . . . . . . . . .
J.C. Bradford & Co. . . . . . . . . . . . . . . . . . . . . . . . .
Pacific Crest Securities Inc. . . . . . . . . . . . . . . . . . . .
---------
Total . . . . . . . . . . . . . . . . . . . . . . 3,000,000
=========
</TABLE>
<PAGE> 37
SCHEDULE II
Over-Allotment Option
<TABLE>
<CAPTION>
MAXIMUM NUMBER OF
SHARES SUBJECT TO
NAME AND ADDRESS OVER-ALLOTMENT OPTION
- -----------------------------------------------------------------------------------------------------
<S> <C>
Gerald J. Reid . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000
EFTC Corporation,
9351 Grant Street, Suite 600
Denver, Colorado 80229
Lucille A. Reid . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000
EFTC Corporation,
9351 Grant Street, Suite 600
Denver, Colorado 80229
Lloyd A. McConnell . . . . . . . . . . . . . . . . . . . . . . . . 72,000
EFTC Corporation,
9351 Grant Street, Suite 600
Denver, Colorado 80229
Charles E. Hewitson . . . . . . . . . . . . . . . . . . . . . . . . 54,000
EFTC Corporation,
9351 Grant Street, Suite 600
Denver, Colorado 80229
Gregory Hewitson . . . . . . . . . . . . . . . . . . . . . . . . . 54,000
EFTC Corporation,
9351 Grant Street, Suite 600
Denver, Colorado 80229
Matthew J. Hewitson . . . . . . . . . . . . . . . . . . . . . . . . 54,000
EFTC Corporation,
9351 Grant Street, Suite 600
Denver, Colorado 80229
Jack Calderon . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,750
EFTC Corporation,
9351 Grant Street, Suite 600
Denver, Colorado 80229
</TABLE>
<PAGE> 38
<TABLE>
<S> <C>
August P. Bruehlman . . . . . . . . . . . . . . . . . . . . . . . . 6,750
EFTC Corporation,
9351 Grant Street, Suite 600
Denver, Colorado 80229
Robert Child . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,750
EFTC Corporation,
9351 Grant Street, Suite 600
Denver, Colorado 80229
Brian Tracey . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,750
EFTC Corporation,
9351 Grant Street, Suite 600
Denver, Colorado 80229
Stuart W. Fuhlendorf . . . . . . . . . . . . . . . . . . . . . . . 4,500
EFTC Corporation,
9351 Grant Street, Suite 600
Denver, Colorado 80229
Brent L. Hofmaster . . . . . . . . . . . . . . . . . . . . . . . . 4,500
EFTC Corporation,
9351 Grant Street, Suite 600
Denver, Colorado 80229
-------
Total . . . . . . . . . . . . . . . . . . . . . . 450,000
=======
</TABLE>
2
<PAGE> 39
SCHEDULE III
Subsidiaries
Current Electronics, Inc.
Circuit Test, Inc.
Circuit Test International, L.C.
Airhub Services Group, L.C.
<PAGE> 40
SCHEDULE IV
Registration Rights Shareholders
Gerald J. Reid
Lucille A. Reid
Lloyd A. McConnell
Ken Shultz
Gary E. Long
Judith A. Long
Harry Asmus
Sara R. Asmus
Helen R. Asmus
David W. Van Wert
Victor R. Nottingham
Larry R. Vosmera
Leonard R. Prothe
Mason S. Shirozi
Charles E. Hewitson
Matthew J. Hewitson
Greg Hewitzon
Richard Monfort
Allen S. Braswell Jr.
Alma L. Braswell
Bruce A. Braswell
Amy A. Braswell
Anita B. Murman
Allen S. Braswell, Sr. Grantor Retained
Income Trust u/a/d 12/31/89.
Dain Bosworth
Stephens Inc.
<PAGE> 41
SCHEDULE V
Shareholders Providing Letter Set Forth
in Exhibit A
<TABLE>
<CAPTION>
Name Lock-up period
- ---- --------------
<S> <C>
Allen S. Braswell, Jr. 180 days
Allen S. Braswell, Sr. 180 days
August P. Bruehlman 180 days
Jack Calderon 180 days
Darrayl E. Cannon 180 days
Robert Child 180 days
James A. Doran 180 days
Stuart W. Fuhlendorf 180 days
Charles E. Hewitson 180 days
Gregory C. Hewitson 180 days
Matthew J. Hewitson 180 days
Brent L. Hofmeister 180 days
Lloyd A. McConnell 180 days
Robert K. McNamara 180 days
Richard L. Monfort 180 days
Gerald J. Reid 180 days
Lucille A. Reid 180 days
Masoud S. Shirazi 180 days
Brian Tracey 180 days
David W. Van Wert 180 days
</TABLE>
<PAGE> 42
SCHEDULE VI
Exercising Selling Shareholders
<TABLE>
<CAPTION>
NAME OF EXERCISING SELLING DATE OF TYPE OF NUMBER OF EXERCISE
SHAREHOLDER GRANT GRANT SHARES PRICE
- -------------------------- ------- ------- --------- --------
<S> <C> <C> <C> <C>
</TABLE>
[TO BE PROVIDED]
<PAGE> 43
EXHIBIT A
[Letterhead of officer, director or major shareholder of
EFTC Corporation]
EFTC Corporation
Public Offering of Common Stock
, 1997
Salomon Brothers Inc
J.C. Bradford & Co.
Pacific Crest Securities Inc.
As Representatives of the several Underwriters,
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
This letter is being delivered to you in connection with the
proposed Underwriting Agreement (the "Underwriting Agreement"), between EFTC
Corporation, a Colorado corporation (the "Company"), the Selling Shareholders
(as specified in the Underwriting Agreement) and each of you as representatives
of a group of Underwriters named therein, relating to an underwritten public
offering of Common Stock, $0.01 par value (the "Common Stock"), of the Company.
In order to induce you and the other Underwriters to enter
into the Underwriting Agreement, the undersigned will not, without the prior
written consent of Salomon Brothers Inc, offer, sell, contract to sell, pledge
or otherwise dispose of, or file a registration statement with the Commission
in respect of, or establish or increase a put equivalent position or liquidate
or decrease a call equivalent position within the meaning of Section 16 of the
Securities Exchange Act of 1934, as amended, with respect to, any shares of
capital stock of the Company or any securities convertible into or exercisable
or exchangeable for such capital stock, or publicly announce an intention to
effect any such transaction, for a period of 180 days after the date of this
Agreement, other than (i) any shares of Common Stock to be sold pursuant to
the Underwriting Agreement, (ii) any option or warrant or the conversion of
a security outstanding on the date hereof and referred to in the prospectus to
which the Underwriting Agreement relates and (iii) shares of Common Stock
disposed of as bona fide gifts approved by Salomon Brothers Inc.
<PAGE> 44
If for any reason the Underwriting Agreement shall be
terminated prior to the Closing Date (as defined in the Underwriting
Agreement), the agreement set forth above shall likewise be terminated.
Yours very truly,
[Signature of officer, director or
major shareholder]
[Name and address of officer, director
or major shareholder]
2
<PAGE> 45
EXHIBIT B
---------------------------------
(Name of Selling Stockholder)
CUSTODY AGREEMENT AND POWER OF ATTORNEY
for Sale of Common Stock of
EFTC CORPORATION
Stuart W. Fuhlendorf
August P. Bruehlman
____________________________________
(each as Attorney-in-Fact as provided hereunder)
c/o
American Securities Transfer
& Trust, Inc.
____________________________________
(as Custodian as provided hereunder)
Ladies and Gentlemen:
The undersigned (a "Selling Stockholder"; one of the several
"Selling Shareholders" named in the Underwriting Agreement referred to below)
proposes to sell certain shares of common stock, $.01 par value per share (the
"Common Stock"), of EFTC Corporation, a Colorado corporation (the "Company"),
to the Underwriters (the "Underwriters") for whom Salomon Brothers Inc, J.C.
Bradford & Co. and Pacific Crest Securities Inc. will act as representatives
(the "Representatives") for distribution under a Registration Statement on Form
S-2 (the "Registration Statement") to the public at a price and on terms to be
hereafter determined. It is understood that at this time there is no
commitment on the part of the Underwriters to purchase any shares of Common
Stock and no assurance that an offering of Common Stock will take place.
1. Appointment and Powers of Attorney-in-Fact.
A. The undersigned hereby irrevocably constitutes and
appoints Stuart W. Fuhlendorf and August P. Bruehlman as the undersigned's agent
and attorney-in-fact (each, the "Attorney-in-Fact"), each with full power and
authority to act without the other and with full power of substitution to each,
with respect to all matters arising in connection with the public offering and
sale of the Option Securities (as defined in the Underwriting Agreement),
including, but not limited to, the power and authority on behalf of the
undersigned to do or cause to be done any of the following things:
<PAGE> 46
(i) execute and deliver on behalf of the undersigned an
underwriting agreement (the "Underwriting Agreement"), substantially in the form
of the draft dated November ____, 1997, delivered to the undersigned herewith,
receipt of which is acknowledged, but with such insertions, changes, additions
(including the price at which the Option Securities will be initially offered to
the public by the Underwriters and the underwriting discount to be received by
the Underwriters) or deletions as the Attorney-in-Fact, acting in his sole
discretion, shall approve, which approval shall be conclusively evidenced by his
execution of the Underwriting Agreement, including the exercise of all authority
thereunder vested in the undersigned;
(ii) sell, assign, transfer and deliver the Option
Securities to the Underwriters pursuant to the Underwriting Agreement and
deliver to the Underwriters certificates for the Option Securities so sold (the
price for such shares to be the price specified in Section 2 of the Underwriting
Agreement);
(iii) endorse (in blank or otherwise) on behalf of the
undersigned the certificate or certificates for the Option Securities to be sold
by the undersigned pursuant to the Underwriting Agreement or to execute and
deliver a stock power or powers with respect to such certificates;
(iv) take any and all steps deemed necessary or
desirable by the Attorney-in-Fact in connection with the registration of the
Option Securities under the Securities Act of 1933, as amended (the "Securities
Act" ), the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and under the securities or "blue sky" laws of various states and jurisdictions,
including, without limitation, the giving or making of such undertakings,
representations and agreements and the taking of such other steps as the
Attorney-in-Fact may deem necessary or advisable;
(v) instruct the Company and the Custodian, as
hereinafter defined, on all matters pertaining to the sale of the Option
Securities and delivery of certificates therefor;
(vi) make any assurances, communications and reports
(including in the form of a signed certificate pursuant to Section VI.F. of the
Underwriting Agreement) for and on behalf of the undersigned to the
Underwriters, which may be necessary or advisable for facilitating the sale of
the Option Securities, or to appropriate state or governmental authorities,
which may be necessary or advisable for effecting the registration of the Option
Securities under the state securities or blue sky laws;
(vii) provide, in accordance with the Underwriting
Agreement, for the payment of certain expenses of the offering and sale of the
Common Stock covered by the Registration Statement;
(viii) to exercise any power conferred upon, and to
take any action authorized to be taken by, the undersigned pursuant to the
Underwriting Agreement, in the sole discretion of the Attorney-in-Fact;
2
<PAGE> 47
(ix) certify on behalf of the undersigned to any
transfer agent or registrar such instruction and such assurance of the
genuineness of any document as may be reasonably required in connection with
the consummation of the proposed sale of the Option Securities; and
(x) otherwise take all actions and do all things
necessary or proper, required, contemplated or deemed advisable or desirable by
the Attorney-in-Fact in his discretion, including the execution and delivery of
any documents, and generally act for and in the name of the undersigned with
respect to the sale of the Option Securities to the Underwriters and the
reoffering of the Option Securities by the Underwriters as fully as could the
undersigned if then personally present and acting.
B. Each Attorney-in-Fact may act alone in exercising the rights
and powers conferred on the Attorney-in-Fact by this Custody Agreement and
Power of Attorney (the "Agreement"). Each Attorney-in-Fact is hereby empowered
to determine individually, in his sole and absolute discretion, the time or
times when, the purposes for which, and the manner in which, any power herein
conferred upon the Attorney-in-Fact shall be exercised.
C. The Custodian (as defined below), the Underwriters, the
Company and all other persons dealing with the Attorney-in-Fact as such may
rely and act upon any writing believed in good faith to be signed by the
Attorney-in-Fact.
D. The Attorney-in-Fact shall not receive any compensation for
his services rendered hereunder, except that he shall be entitled to cause the
Custodian to pay, from the proceeds payable to the undersigned, the
undersigned's proportionate share of any out-of-pocket expenses incurred under
this Agreement.
2. Appointment of Custodian; Deposit of Shares.
A. In connection with and to facilitate the sale of the Option
Securities to the Underwriters, the undersigned hereby appoints American
Securities Transfer & Trust, Inc. as custodian (the "Custodian") and herewith
deposits with the Custodian one or more certificates for Common Stock that in
the aggregate represent not less than the excess, if any, of (a) the total
number of Option Securities to be sold by the undersigned to the Underwriters,
the number of such securities being set forth on Schedule II to the Underwriting
Agreement over (b) the total number of Option Securities to be delivered by the
Company to the Custodian pursuant to the Irrevocable Instructions (as defined
below). Each such certificate so deposited on the date hereof is in negotiable
and proper deliverable form, endorsed in blank with the signature of the
undersigned or the Attorney-in-Fact thereon guaranteed by a commercial bank or
trust company in the United States or by a member firm of the New York Stock
Exchange, or is accompanied by a duly executed stock power or powers in blank,
bearing the signature of the undersigned or the Attorney-in-Fact so guaranteed.
The undersigned irrevocably exercises, effective at such time (if any) as
Salomon Brothers Inc exercises its option to purchase Option Securities, the
option to purchase the Exercise Securities (as defined in the Underwriting
Agreement) and will deliver irrevocable instructions to the Company directing
the Company, upon effectiveness of the undersigned's election, to promptly issue
the undersigned's Exercise Securities and deposit the same with the Custodian
(the "Irrevocable Instructions"). Each such certificate to be deposited by the
Company pursuant to the Irrevocable Instructions will be, at the time of deposit
with the
3
<PAGE> 48
Custodian, in negotiable and proper deliverable form, endorsed in blank with the
signature of the undersigned or the Attorney-in-Fact thereon guaranteed by a
commercial bank or trust company in the United States or by a member firm of the
New York Stock Exchange, or will be accompanied by a duly executed stock power
or powers in blank, bearing the signature of the undersigned or the
Attorney-in-Fact so guaranteed. Upon reasonable request of the Custodian, the
undersigned agrees to furnish, or cause to be furnished, any other documentation
reasonably necessary to assure the sale and transfer of deposited Option
Securities to the Underwriters pursuant to the Underwriting Agreement. The
Custodian is hereby authorized and directed, subject to the instructions of the
Attorney-in-Fact, (a) to hold in custody the certificate or certificates
deposited herewith (or deposited hereafter by the Company pursuant to the
Irrevocable Instructions), (b) to deliver (or to authorize the Company's
transfer agent to deliver) the certificate or certificates deposited hereunder
(or deposited hereafter by the Company pursuant to the Irrevocable Instructions)
(or replacement certificate(s) for the Shares) to or at the direction of the
Attorney-in-Fact in accordance with the terms of the Underwriting Agreement and
(c) to return (or cause the Company's transfer agent to return) to the
undersigned new certificate(s) for the shares of Common Stock represented by any
certificate deposited hereunder (or deposited hereafter by the Company pursuant
to the Irrevocable Instructions) which are not sold pursuant to the Underwriting
Agreement. The Custodian shall be entitled to customary compensation for the
services to be rendered hereunder as set forth in Schedule II attached hereto.
Such compensation shall be paid to the Custodian by the Company.
B. Until the Option Securities have been delivered to the
Underwriters against payment therefor in accordance with the Underwriting
Agreement, the undersigned shall retain all rights of ownership with respect to
the Option Securities deposited hereunder, including the right to vote and to
receive all dividends and payment thereon, except the right to retain custody of
or dispose of such Option Securities, which right is subject to this Agreement,
a lock-up agreement among the undersigned and the Underwriters, the Irrevocable
Instructions and the Underwriting Agreement.
3. Sale of Shares; Remitting Net Proceeds.
A. The Attorney-in-Fact is hereby authorized and directed to
deliver or cause the Custodian or the Company's transfer agent to deliver
certificates for the Option Securities to the Representatives, as provided in
the Underwriting Agreement, against delivery to the Attorney-in-Fact for the
accounts of the undersigned of the purchase price of the Option Securities (or,
in the case of the delivery of the Exercise Securities, the excess, if any, of
the aggregate purchase price of the Exercise Securities being sold by the
undersigned over the aggregate exercise price of the related options listed in
Schedule VI to the Underwriting Agreement), at the time and in the funds
specified in the Underwriting Agreement. The Attorney-in-Fact is authorized, on
behalf of the undersigned, to accept and acknowledge receipt of the payment of
the purchase price for the Option Securities (or, in the case of Exercise
Securities, the excess, if any, of the aggregate purchase price of the Exercise
Securities being sold by the undersigned over the aggregate exercise price of
the related options listed in Schedule VI to the Underwriting Agreement) and
shall promptly deposit such proceeds with the Custodian. After reserving an
amount of such proceeds as provided below, the Custodian shall promptly remit to
the undersigned the undersigned's proportionate share of the proceeds.
4
<PAGE> 49
B. Before any proceeds of the sale of the Option Securities are
remitted to the undersigned, the Attorney-in-Fact is authorized and empowered to
direct the Custodian to reserve from the proceeds an amount determined by the
Attorney-in-Fact to be sufficient to pay the expenses of the Selling
Stockholder, including those items of expense of the offering and sale of the
Common Stock to be borne by it as provided in the Underwriting Agreement. The
Custodian is authorized to pay such amount to discharge in full such expenses
from the amount reserved for that purpose pursuant to the written direction of
the Attorney-in-Fact. After payment of expenses from this reserve, the
Custodian will remit to the undersigned any balance. To the extent expenses
exceed the amount reserved, the Selling Stockholder shall remain liable for such
expenses. In no event will the Custodian be liable for any payments in excess
of the proceeds from the sale of the Option Securities.
4. Representations, Warranties and Agreements. The undersigned
represents and warrants to, and agrees with, the Company, the Attorney-in-Fact,
the Custodian, and the Underwriters as follows:
A. The undersigned has full legal right, capacity, power and
authority to enter into and perform this Agreement and the Underwriting
Agreement and to give the Irrevocable Instructions, and to sell, transfer,
assign and deliver the Option Securities to be sold by it pursuant to the
Underwriting Agreement, free and clear of all liens, encumbrances, equities and
claims whatsoever. If the undersigned is acting as a fiduciary, officer,
partner, or agent of a Selling Stockholder, the undersigned is enclosing with
this Agreement certified copies of the appropriate instruments pursuant to which
the undersigned is authorized to act hereunder.
B. The undersigned has reviewed the representations and
warranties to be made by the undersigned as a Selling Stockholder contained in
the Underwriting Agreement, and hereby represents, warrants and covenants that
each of such representations and warranties is true and correct as of the date
hereof and, except as the undersigned shall have notified the Attorney-in-Fact
and Salomon Brothers Inc pursuant to paragraph F of the attached instructions,
will be true and correct at all times from the date hereof through and
including the time of the closing of the sale of the Option Securities to the
Underwriters pursuant to the exercise by the Underwriters of the over-allotment
option described in the Underwriting Agreement. The undersigned will promptly
notify the Attorney-in-Fact of any development that would make any such
representation or warranty untrue.
C. The undersigned has no reason to believe that the
representations and warranties of the Company contained in the Underwriting
Agreement are not true and correct, is familiar with the Registration Statement
and has no knowledge of any material fact, condition or information not
disclosed in the Prospectus or any supplement thereto which has adversely
affected or may adversely affect the business of the Company or any of its
subsidiaries; and the sale of the Option Securities by the Selling Stockholder
pursuant to the Underwriting Agreement is not prompted by any information
concerning the Company or any of its subsidiaries that is not set forth in the
Prospectus or any supplement thereto.
5
<PAGE> 50
D. The undersigned is not directly or indirectly an affiliate
of or associated with any member of the National Association of Securities
Dealers, Inc.
E. Upon execution and delivery of the Underwriting Agreement by
the undersigned, the undersigned agrees to indemnify and hold harmless the
Company, each of its directors, each of its officers who signs the Registration
Statement, each Underwriter and each person who controls the Company or any
Underwriter, and to contribute to amounts paid as a result of losses, claims,
damages, liabilities and expenses, as provided in Section VIII. of the
Underwriting Agreement.
F. Upon execution and delivery of the Underwriting Agreement by
the undersigned, (or the Attorney-in-Fact), the undersigned agrees that it
will be bound by, and will perform each of the covenants and agreements made by
the undersigned as a Selling Stockholder in the Underwriting Agreement.
G. The undersigned agrees to deliver to the Attorney-in-Fact
such documentation as the Attorney-in-Fact, the Company or the Underwriters or
any of their respective counsel may reasonably request in order to effectuate
any of the provisions hereof or of the Underwriting Agreement, all of the
foregoing to be in form and substance satisfactory in all respects to the
requesting party.
The foregoing representations, warranties and agreements are made for the
benefit of, and may be relied upon by, the Attorney-in-Fact, the Company, the
Custodian, the Underwriters and their respective representatives, agents and
counsel and are in addition to, and not in limitation of, the representations,
warranties and agreements of the Selling Stockholder in the Underwriting
Agreement.
5. Irrevocability of Instruments; Termination of this Agreement.
A. This Agreement, the deposit of the Option Securities pursuant
hereto and all authority hereby conferred, is granted, made and conferred
subject to and in consideration of (i) the interests of the Attorney-in-Fact,
the Underwriters and the Company in and for the purpose of completing the
transactions contemplated hereunder and by the Irrevocable Instructions and the
Underwriting Agreement and (ii) the completion of the registration of Common
Stock pursuant to the Registration Statement and the other acts of the
above-mentioned parties from the date hereof to and including the execution and
delivery of the Underwriting Agreement in anticipation of the sale of Common
Stock, including the Option Securities, to the Underwriters; and the
Attorney-in-Fact is hereby further vested with an estate, right, title and
interest in and to the Option Securities deposited herewith for the purpose of
irrevocably empowering and securing to him authority sufficient to consummate
said transactions. Accordingly, this Agreement shall be irrevocable prior to the
Closing Date (as defined in the Underwriting Agreement), and shall remain in
full force and effect until that date. The undersigned further agrees that this
Agreement shall not be terminated by operation of law or upon the occurrence of
any event whatsoever, including the death, disability or incompetence of any of
the undersigned; or if this Agreement is executed on behalf of a trust,
corporation, partnership or other entity, it shall not be terminated by
liquidation,
6
<PAGE> 51
dissolution, winding-up, or any other event affecting the legal life of such
entity, or by the occurrence of any other event or events. If any event
referred to in the preceding sentence shall occur, whether with or without
notice thereof to the Attorney-in-Fact, the Company, the Custodian, the
Underwriters or any other person, the Attorney-in-Fact and the Custodian shall
nevertheless be authorized and empowered to deliver and deal with the Option
Securities deposited under the Agreement by the undersigned in accordance with
the terms and provisions of the Underwriting Agreement and this Agreement as if
such event had not occurred.
B. If the sale of the Option Securities contemplated by this
Agreement is not completed by the 30th day after the date of the Prospectus,
this Agreement shall terminate (without affecting any lawful action of the
Attorney-in-Fact or the Custodian prior to such termination or the agreement
hereunder of the undersigned to indemnify the Attorney-in-Fact and the
Custodian), and the Attorney-in-Fact shall cause the Custodian to return to the
undersigned all certificates for the Option Securities deposited hereunder, but
only after having received payment of any expenses to be paid or borne by the
Selling Stockholder. The undersigned hereby covenants with the Attorney-in-Fact
that if for any reason the sale of the Option Securities contemplated hereby
shall not be consummated, the undersigned shall pay all expenses payable by such
Selling Stockholder hereunder or under the Underwriting Agreement.
6. Liability and Indemnification of the Attorney-in-Fact and Custodian.
The Attorney-in-Fact and the Custodian assume no responsibility or liability to
the undersigned or to any other person, other than to deal with the Option
Securities, the proceeds from the sale of the Option Securities and any other
shares of Common Stock deposited with the Custodian pursuant to the terms of
this Agreement in accordance with the provisions hereof. The duties and
obligations of the Custodian shall be limited to and determined solely by the
express provisions of this Agreement, and no implied duties or obligations shall
be read into this Agreement against the Custodian. The undersigned hereby
agrees to indemnify and hold harmless the Attorney-in-Fact and the Custodian,
and their respective officers, agents, successors, assigns and personal
representatives with respect to any act or omission of or by any of them in good
faith in connection with any and all matters within the scope of this Agreement
or the Underwriting Agreement; provided, however, that the Attorney-in-Fact and
the Custodian may be liable to the undersigned for any such act or omission to
the extent attributable to gross negligence or fraud. The Custodian may consult
with counsel of its own choice and shall have full and complete authorization
and protection for any action taken or suffered by it hereunder in good faith
and in accordance with the opinion of such counsel.
7. Interpretation.
A. The representations, warranties and agreements of the
undersigned contained herein and in the Underwriting Agreement shall survive the
sale and delivery of the Option Securities and the termination of this
Agreement.
B. The validity, enforceability, interpretation and
construction of this Agreement shall be determined in accordance with the laws
of the State of New York applicable to contracts
7
<PAGE> 52
made and to be performed within the State of New York, and this Agreement shall
inure to the benefit of, and be binding upon, the undersigned and the
undersigned's heirs, executors, administrators, successors and assigns, as the
case may be.
C. Wherever possible each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any such provision shall be prohibited by or invalid under applicable
law, it shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
D. The use of the masculine gender in this Agreement includes
the feminine and neuter, and the use of the singular includes the plural,
wherever appropriate.
E. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered, shall constitute an
original and all together shall constitute one instrument.
F. This Agreement shall be binding upon, inure to the benefit
of, and be enforceable by and against, the respective successors, heirs,
personal representatives and assigns of the parties hereto.
8
<PAGE> 53
IN WITNESS WHEREOF, the undersigned has executed this Custody Agreement
and Power of Attorney this ___ day of ________, 1997.
<TABLE>
<S> <C>
[Selling Stockholder] Guaranteed by:*
- ---------------------------------------------------- ---------------------------------------------------
Name: Name:
(Please sign exactly as your Stockholder name appear
on your stock certificate(s).)
Name and address to which notices and funds shall be
sent.
- ----------------------------------------------------
(NAME)
- ----------------------------------------------------
(STREET)
- ----------------------------------------------------
(CITY) (STATE) (ZIP)
* (NOTE: The signature of the Selling Stockholder must be guaranteed by a commercial bank or trust company in the United
States or by a member of the New York Stock Exchange.)
ACCEPTED by the Attorney-in-Fact ACCEPTED by the Custodian
as of the date above set forth: as of the date above set forth:
- ------------------------------ ----------------------------------
By:
- ------------------------------ -------------------------------
</TABLE>
SEE THE ATTACHED INSTRUCTIONS
<PAGE> 54
INSTRUCTIONS
(For completing the Custody Agreement and Power of Attorney)
A. You have been sent five copies of the Custody Agreement and Power
of Attorney (the "Agreement"). Please complete and return four copies of the
Agreement and stock certificate(s) as set forth in paragraph D below. A fully
executed copy of the Agreement will be returned to you; a fully executed copy
of the Agreement and your stock certificate(s) will be retained by the
Custodian; and a fully executed copy of the Agreement will be delivered to the
Attorney-in-Fact and to counsel for the Underwriters.
B. Complete Schedule I attached hereto.
C. Unless such stock certificate(s) are endorsed or the stock
power(s) attached thereto are executed by the Attorney-in-Fact as provided in
the Agreement, each stock certificate or stock power deposited hereunder must
be executed by you with your signature on the stock certificate(s) or the
accompanying stock power(s) guaranteed by a commercial bank or trust company in
the United States or by any member of the New York Stock Exchange. Please sign
the stock certificate(s) or stock power(s) and the Agreement exactly as your
name appears on your stock certificate(s).
D. Endorsed stock certificate(s) or stock certificate(s) with stock
powers attached along with all four executed copies of the completed Agreement
should be promptly returned by you (or the Attorney-in-Fact as provided in the
Agreement) by hand delivery or by certified mail appropriately insured to:
American Securities Transfer & Trust, Inc.
[address of custodian
Attn: ]
If sent through the mail, it is recommended that the certificate(s) not be
endorsed, but an executed stock power be sent under separate cover from the
certificate(s).
E. If any certificate that you submit represents a greater number of
Option Securities than the aggregate number of Option Securities that you agree
to sell pursuant to the Underwriting Agreement, the Custodian will cause to be
delivered to you in due course, but not earlier than ten days after the final
closing for the purchase of Option Securities by the Underwriters pursuant to
the exercise by the Underwriters of the over-allotment option described in the
Underwriting Agreement, a certificate for the excess number of shares.
F. For purposes of discharging your obligations under Section VI.F. of
the Underwriting Agreement and Section 4B of the Custody Agreement and Power of
Attorney please contact James McVeigh of Salomon Brothers Inc by phone at (212)
783-1451 or by facsimile at (212) 783-3453 if any information or representation
included in the foregoing Agreement or the Underwriting Agreement should
change, or if you become aware of any new information, at any time prior to
termination of the period applicable to you referred to in Section VI.I. of the
Underwriting Agreement.
<PAGE> 55
---------------------------------
(Name of Selling Stockholder)
SCHEDULE I
Certificate(s) for Shares of Common Stock of
EFTC CORPORATION
deposited under the
Custody Agreement and Power of Attorney
and by the Company pursuant to the Irrevocable Instructions
<TABLE>
<CAPTION>
Number of Shares of Number of Shares of
Common Stock Common Stock Deposited
Number of Shares of Deposited under the by the Company
Common Stock Custody Agreement and Pursuant to the Number of Shares of
Represented by Power of Irrevocable Common Stock from This
Certificate Number Certificate Attorney Instructions Certificate To Be Sold
- ------------------ ------------------- --------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
</TABLE>
* If fewer than all shares represented by a certificate are to be sold,
indicate below, if desired for income tax purposes, the date of purchase
or purchase price of the particular shares to be sold.
<PAGE> 56
SCHEDULE II
Fees of Custodian
<TABLE>
<S> <C>
Custodial Fees ....................................
Wire Transfer Fees ................................
</TABLE>
2
<PAGE> 57
EXHIBIT C
Irrevocable Stock Option Exercise Notice
EFTC Corporation
9351 Grant Street
Denver, CO 80229
Salomon Brothers Inc
Seven World Trade Center
New York, NY 10048
With respect to the options described on Exhibit A hereto, the
undersigned hereby irrevocably exercises, effective at such time (if any) as
Salomon Brothers Inc exercises its option to purchase the Option Securities (as
defined in the Underwriting Agreement mentioned below), the option to purchase
an aggregate of ____ shares of EFTC Corporation ("EFTC") common stock, $0.01 par
value and irrevocably instructs EFTC, upon effectiveness of the undersigned's
election, to promptly issue such shares and to deliver such shares to American
Securities Transfer & Trust, Inc. ("AST"), acting as Custodian pursuant to the
Custody Agreement and Power of Attorney dated November ___, 1997 (the "Custody
Agreement"). Such shares shall be held by AST, as Custodian, pursuant to the
Custody Agreement. I hereby irrevocably authorize Salomon Brothers Inc
("Salomon") at the settlement date (as defined in the Underwriting Agreement) of
the Option Securities to tender payment to EFTC of $________ which consists of
the exercise price of these options and all applicable taxes due. I hereby
acknowledge that Salomon has an interest in the exercise of these options and
delivery of the shares issued thereunder to AST, acting as Custodian, and is
relying on such exercise and delivery in executing the Underwriting Agreement
dated November ___, 1997 between EFTC and the Underwriters (as defined therein).
Date: November , 1997
--
----------------------------------
Signature
Please print:
----------------------------------
Name
----------------------------------
----------------------------------
Address
----------------------------------
Social Security Number
<PAGE> 58
Exhibit A
<TABLE>
<CAPTION>
Date of Grant Type of Grant Number of Shares Exercise Price
- ------------- ------------- ---------------- --------------
<S> <C> <C> <C>
</TABLE>
2
