<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1998
FILE NO. 333-52137
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
EFTC CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
COLORADO
(State or other jurisdiction of incorporation 84-0854616
or organization) (I.R.S. Employer Identification No.)
STUART W. FUHLENDORF
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
EFTC CORPORATION
9351 GRANT STREET 9351 GRANT STREET
DENVER, COLORADO 80229 DENVER, COLORADO 80229
(303) 451-8200 (303) 451-8200
(Address, including zip code, and telephone (Name, address, including zip code, and
number, including area code, of registrant's telephone including area code, of agent for
principal executive offices) service)
Copies to:
FRANCIS R. WHEELER, ESQ. DAVID LOPEZ, 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.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
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 BE 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, DATED MAY 28, 1998
PROSPECTUS
5,000,000 SHARES
EFTC CORPORATION LOGO
EFTC CORPORATION
COMMON STOCK
------------------
Of the 5,000,000 shares of Common Stock, $0.01 par value per share (the
"Common Stock"), of EFTC Corporation (the "Company" or "EFTC") offered hereby,
3,200,000 shares are being offered by the Company and 1,800,000 shares are being
offered by the Selling Shareholders (as defined herein). The Company will not
receive any of the proceeds from the sale of shares by the Selling Shareholders.
The Common Stock is quoted on the Nasdaq National Market under the symbol
"EFTC." The reported last sale price of the Common Stock as reported by the
Nasdaq National Market on May 28, 1998 was $15 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
------------------
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>
==================================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS(2)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share......................... $ $ $ $
- ------------------------------------------------------------------------------------------------------------------
Total(3).......................... $ $ $ $
==================================================================================================================
</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting offering expenses estimated at $ , all of which
will be payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up
to 750,000 additional shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised
in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to Selling Shareholders
will be $ , $ , $ and $ , respectively. See
"Underwriting."
------------------
The shares of Common Stock are being offered by the several Underwriters
named herein subject to prior sale, when, as and if accepted by them and subject
to certain conditions. It is expected that certificates for the shares of Common
Stock offered hereby will be available for delivery on or about ,
1998 at the office of Smith Barney Inc., 333 West 34th Street, New York, New
York, 10001 or through the facilities of The Depository Trust Company.
------------------
SALOMON SMITH BARNEY
J.C. BRADFORD & CO.
BANCAMERICA ROBERTSON STEPHENS
NEEDHAM & COMPANY, INC.
June , 1998
<PAGE> 3
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, 26 AND 27, 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" AND "RISK FACTORS" 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"), CTI International, L.C. ("CTI LLC"), CTLLC
Acquisition Corp. ("CAC" ) and RM Electronics, Inc., doing business as Personal
Electronics ("Personal Electronics"). CEI's affiliate, Current Electronics
(Washington) Inc. ("CEWI"), was merged into CEI in September 1997. 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 CAC 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, including quick-turn manufacturing, prototype services,
high-mix production, and aftermarket repair and warranty services, to original
equipment manufacturers ("OEMs") and is initiating "build-to-order" services
("BTO"). The Company's manufacturing services focus on high-speed production of
high-mix electronic products -- products that are characterized by small lot
sizes with differences in configuration in each lot. The Company 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. Since acquiring the CTI Companies, the Company has invested in
creating a BTO manufacturing capability at the Memphis, Tennessee Overnight
Delivery Hub. In May 1998, the Company signed its first BTO contract with
Fujitsu PCCorporation ("Fujitsu") to provide BTO services for a line of notebook
computers. The Company believes it is well positioned to capitalize on the
industry shift away from mass production to mass customization because it
specializes in small-lot processing associated with high-mix manufacturing and
because of the logistics advantages associated with its hub-based BTO and repair
and warranty services. The Company's ten largest customers on a revenue basis
for the first quarter of 1998, taking into account the Acquisitions (as defined
below), were: AlliedSignal, Inc. ("AlliedSignal"), Apple Corporation, Inc.,
Credence Systems Corporation, Electro Scientific Industries, Inc., Exabyte
Corporation, Gateway 2000, Inc., Hewlett-Packard Company ("HP"), Honeywell Inc.,
Kentrox Industries, Inc. and Ohmeda 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 $178 billion in 2001, 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 mass customized -- that is, 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 full product design, sophisticated quick-turn
manufacturing and prototype services, high-mix manufacturing capability,
"box-build" and BTO capabilities, inventory and logistics management, and
integrated repair and warranty services.
3
<PAGE> 5
STRATEGY
The Company's objective is to emerge as a premier mass customizer of
electronic products. The Company has assembled a full range of electronic
manufacturing services that focus on small lot processing. The Company believes
its customers are increasingly focused on strategic supply chain management,
reduced time to market, BTO production, access to leading-edge manufacturing
technology and reduced capital investment. The Company is differentiating itself
by creating specific manufacturing techniques and service offerings solely
focused on small-lot processing and creating integrated partnerships with
logistics providers, component suppliers and customers to integrate its
partners' core competencies through all levels of the Company's operations. The
Company is also differentiating itself by integrating state-of-the-art
information technology into its operations including an internal Oracle ERP
(Enterprise Resource Planning) system and external service offerings through the
Internet. These attributes allow the Company to provide customized solutions to
customers' product needs. 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. This allows the Company to
produce high-mix products with increased responsiveness and flexibility to
changes in customers' needs. The nature of high-mix products 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 planning 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 1998 and 1997, the
Company has expanded its operations from one facility in Colorado at the
beginning of 1997 to nine facilities throughout the United States as of the date
of this Prospectus. The Acquisitions, described below, have strategically
expanded the Company's breadth of high-mix service offerings to include
quick-turn manufacturing, prototype services, concurrent engineering,
subassembly manufacturing, next-day delivery of assemblies and warranty and
post-warranty repair services.
<TABLE>
<CAPTION>
DATE OF ACQUISITION COMPANY/ASSETS ACQUIRED DESCRIPTION
- ------------------- ----------------------- -----------
<S> <C> <C>
March 1998....................... Personal Electronics The Company acquired a quick-turn
(the "PE Merger") manufacturing and prototype
services company located in
Manchester, New Hampshire.
September 1997................... CTI Companies The Company acquired repair and
(the "CTI Merger") warranty services companies with
three sites, including two
located at the Overnight Delivery
Hubs.
</TABLE>
4
<PAGE> 6
<TABLE>
<CAPTION>
DATE OF ACQUISITION COMPANY/ASSETS ACQUIRED DESCRIPTION
- ------------------- ----------------------- -----------
<S> <C> <C>
August and September 1997........ AlliedSignal Assets The Company subleased a
(the "AlliedSignal production facility, acquired
Asset Purchase") related equipment and inventory
and hired personnel located in
Ft. Lauderdale, Florida. The
Company acquired the inventory
and equipment and has hired
personnel located in Tucson,
Arizona.
February 1997.................... CE Companies The Company acquired manufactur-
(the "CE Merger") ing companies with two sites
located in Newberg, Oregon and
Moses Lake, Washington.
</TABLE>
For further descriptions of the PE Merger, 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 -- Acquisitions."
The Company operates high-mix manufacturing facilities in five plants
located in Arizona, Colorado, Florida, Oregon and Washington and has one
replacement plant under construction. Personal Electronics is an EFTC Express
location, specializing in quick-turn manufacturing and prototype services and is
located in Manchester, New Hampshire. The Company's repair and warranty services
are carried out in three locations: Memphis, Tennessee, Louisville, Kentucky and
Tampa, Florida. For further descriptions of the Company's properties, see
"Business and Properties -- Description of Property." The principal executive
offices of the Company are located at 9351 Grant Street, Denver, Colorado 80229
and the telephone number is (303) 451-8200.
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
The following tables present for the Company summary consolidated
historical financial data as of and for each of the three years ended December
31, 1997, as of and for the three months ended March 31, 1998 and 1997. All
financial data has been restated for the PE Merger, as described elsewhere
herein, as if the PE Merger had occurred on January 1, 1995. The summary
consolidated historical financial data set forth below as of December 31, 1997
and 1996 and for the three years ended December 31, 1997 have been derived from
the Company's financial statements audited by KPMG Peat Marwick LLP included
elsewhere in this Prospectus. The summary historical financial data set forth
below as of March 31, 1998 and for the three months ended March 31, 1998 and
1997 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
5
<PAGE> 7
Operations" included elsewhere in this Prospectus. The results of operations of
the Company for the interim period ended March 31, 1998 are not necessarily
indicative of the results to be expected for the entire year.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------ ------------------------------
1998 1997 1997 1996(1) 1995
------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................................... $54,200 $16,041 $122,079 $60,910 $51,580
Cost of goods sold.......................................... 44,297 13,941 102,166 56,277 46,437
------- ------- -------- ------- -------
Gross profit.............................................. 9,903 2,100 19,913 4,633 5,143
Impairment of fixed assets.................................. -- -- -- 726 --
Goodwill amortization....................................... 391 23 547 -- --
Merger costs................................................ 1,048(2) -- -- -- --
Selling, general and administrative expenses................ 5,321 1,213 12,712 5,916 4,324
------- ------- -------- ------- -------
Operating income (loss)................................... 3,143 864 6,654 (2,009) 819
Other income (expense):
Interest expense.......................................... (908) (212) (2,411) (576) (432)
Other, net................................................ 39 20 1,296(3) 100 92
------- ------- -------- ------- -------
(869) (192) (1,115) (476) (340)
Income (loss) before income taxes........................... 2,274 672 5,539 (2,485) 479
Income tax expense (benefit)................................ 935 73 2,118 (867) 130
------- ------- -------- ------- -------
Net income (loss)......................................... $ 1,339 $ 599 $ 3,421 $(1,618) $ 349
======= ======= ======== ======= =======
Pro forma information(4):
Historical net income..................................... 1,339 599 3,421 (1,618) 349
Pro forma adjustment to income tax expense (benefit)...... 317 179 41 (10) (2)
------- ------- -------- ------- -------
Pro forma net income...................................... $ 1,022 $ 420 $ 3,380 $(1,608) $ 351
======= ======= ======== ======= =======
Pro forma income (loss) per share:
Basic..................................................... $ 0.07 $ 0.06 $ 0.40 $(0.28) $ 0.06
======= ======= ======== ======= =======
Diluted................................................... $ 0.07 $ 0.06 $ 0.38 $(0.28) $ 0.06
======= ======= ======== ======= =======
Pro forma weighted average shares outstanding:............
Basic..................................................... 13,645 6,658 8,502 5,742 5,762
======= ======= ======== ======= =======
Diluted................................................... 14,400 6,658 8,954 5,742 5,762
======= ======= ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31,
-------------------------- ------------------------------
AS ADJUSTED(5) ACTUAL 1997(6) 1996 1995
-------------- -------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................................... $ 51,887 $ 43,537 $ 43,634 $ 9,284 $ 9,878
Goodwill................................................ 46,018 46,018 46,372 -- --
Total assets............................................ 171,633 171,633 148,825 24,037 25,724
Notes payable and current portion of long-term debt..... -- 8,350 3,150 1,970 196
Long-term debt, net of current portion.................. 9,441 45,836 41,809 3,947 3,081
Shareholders' equity.................................... 122,708 77,963 75,221 13,850 15,462
</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) Merger costs related to the PE Merger which was accounted for as a pooling
of interests.
(3) Includes gain of approximately $1.2 million on the sale of a building used
in the Company's manufacturing operations.
(4) The net income of Personal Electronics, which was not subject to income
taxes due to its S corporation status, has been tax effected and included as
a pro forma adjustment to income tax expense. See Note 1 to the Consolidated
Financial Statements of the Company.
(5) 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) Includes the effects of the CE Merger, the AlliedSignal Asset Purchase, the
CTI Merger and a public offering of the Common Stock completed in 1997.
6
<PAGE> 8
THE OFFERING
Common Stock Offered by the Company... 3,200,000 Shares
Common Stock Offered by the Selling
Shareholders.......................... 1,800,000 Shares
Common Stock to be Outstanding After
the Offering(1)....................... 17,029,476 Shares
Use of Proceeds....................... (i) to pay down a revolving loan
which, as of March 31, 1998, had
outstanding borrowings of
approximately $25.0 million; (ii) to
repay subordinated debt of
approximately $5.0 million and (iii)
to repay a portion of a term loan of
approximately $14.7 million. See "Use
of Proceeds."
Nasdaq National Market Symbol......... "EFTC"
- ---------------
(1) Includes 13,649,676 shares outstanding as of March 31, 1998, as well as
9,800 shares issued pursuant to the exercise of options from March 31, 1998
to the date of this Prospectus and 170,000 shares expected to be issued upon
the exercise of outstanding options by certain Selling Shareholders in
connection with this Offering. Does not include 2,588,020 shares of Common
Stock issuable upon exercise of other outstanding options 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, 26 and
27, 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, forecasts
and assumptions. 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, difficulties in implementing the
Company's new management information system, difficulties in managing the
Company's growth or in integrating new businesses, 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. Moreover, the Company will be required to augment its management team,
to develop the management skills of its operations 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."
Beginning 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 to expand its operations, geographic markets,
service offerings, customer base and revenue base. Acquisitions, including the
PE Merger, 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. For instance, during
the Company's integration of assets purchased pursuant to the AlliedSignal Asset
Purchase, the Company experienced significant shortages of materials that have
adversely affected operations at its Tucson facility. Such shortages resulted
primarily from the Company's lack of familiarity with the procurement procedures
applicable to the Tucson facility. Although the effects of such shortages have
not had a significant adverse impact on the Company's operations as a whole,
there can be no assurance that the Company will not experience other
difficulties integrating operations that have been or may be acquired in the
future, or that any such shortages or difficulties will not have a material
adverse effect on the Company's business or results of operations in the future.
Acquisitions by the Company have in some cases 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.
DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS
The Company has historically relied on a small number of customers to
generate a significant percentage of its revenue. In the first quarter of 1998,
AlliedSignal accounted for 38.6% of the Company's net revenues and was the only
customer that accounted for more than 10% of the Company's net revenues. The
Company's ten largest customers accounted for 69.9% of the Company's net
revenues in the first quarter of 1998 and 70.8% of the Company's net revenues in
1997. 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, is consolidating its outside manufacturing
arrangements with another electronic contract manufacturer and will cease using
the Company's services in 1998. See "-- Absence of Long-Term Manufacturing
Contracts." 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.
RELATIONSHIPS WITH TRANSPORTATION PROVIDERS
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
9
<PAGE> 11
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. For example, on March
11, 1998, the union pilots employed by Federal Express Corporation ("FedEx")
rejected a contract offer from management. According to press reports, the
pilot's union is seeking to resume negotiations. A work action by FedEx pilots
would disrupt the Company's operations. Such a work action or other similar
events could have a material adverse effect on the Company's business and
results of operations.
INITIATION OF BUILD-TO-ORDER
The Company is integrating its existing and newly-acquired businesses in
order to offer BTO services, oriented around a hub-based distribution system, to
its customers. The Company has incurred expenses in the establishment of the
infrastructure to provide BTO services to its customers in advance of customer
orders. This 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 Company's Automated Execution
System ("AES") software throughout all of the Company's facilities. There can be
no assurance that the Company will successfully integrate its services or market
BTO services to its customers 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."
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 AES software which is a customized software package designed to
meet the needs of the Company's "Asynchronous Processing Manufacturing" ("APM")
process, into software compatible with the MIS System. The Company has installed
and is continuing to integrate the MIS System at the Company's Rocky Mountain
and Tucson facilities. The Company intends to implement the MIS System at its
other facilities as soon as practicable. Although the implementation of the MIS
System to date has not presented any unmanageable difficulties, there can be no
assurance that the MIS System can be properly installed at any of the Company's
remaining facilities. 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."
INVENTORY RISK; LIMITED AVAILABILITY OF COMPONENTS AND MANUFACTURING EQUIPMENT
In 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 services and often bears the risk of
10
<PAGE> 12
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.
Moreover, 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 or the
Company's inability to forecast demand accurately 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 be able to meet customers' demands if such demands exceed
anticipated levels.
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.
COMPETITION
Contract Manufacturing. Competition in the electronic manufacturing
services industry is intense. The Company competes against numerous domestic and
foreign manufacturers, including Benchmark Electronics, Inc., DII Group, Inc.,
Plexus Corp., Reptron Electronics, Inc., Solectron Corporation, 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 Aurora Electronics,
Inc., Data Exchange Corp., DecisionOne Holdings Corp., Logistics Management,
Inc., Sequel, Inc., 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,
11
<PAGE> 13
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.
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.
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.
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, costs relating to the expansion of operations
including development of the Company's 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. Any of these factors could adversely affect the Company's quarterly
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
12
<PAGE> 14
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 36.5% 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 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
2,965,441 shares of Common Stock issuable upon exercise of options granted to
employees under the Company's 1989 Stock Option Plan, Equity Incentive Plan and
Stock Option Plan for Non-Employee Directors (collectively, the "Stock Option
Plans") and options granted to certain employees not under the Stock Option
Plans. The Board of Directors of the Company has adopted an amendment to the
Company's Equity Incentive Plan to increase the number of shares of Common Stock
reserved for issuance by 2,500,000. This amendment will be voted on by the
Company's shareholders at the annual meeting of shareholders to be held on June
4, 1998. If such amendment is approved by the shareholders, the Company intends
to register the resale of these 2,500,000 shares of Common Stock on Form S-8.
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 120 days after the date of this Prospectus
without the prior written consent of Smith Barney Inc. Smith Barney Inc. may, in
its sole discretion at anytime without notice, consent to an early termination
of such agreements. See "Shares Eligible for Future Sales."
STOCK PRICE VOLATILITY
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 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 Common
Stock. There can be no assurance that the market price of the 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
13
<PAGE> 15
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."
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 $44.7 million based upon
the estimated public offering price of $15 per share. Such proceeds will be used
by the Company as follows: (i) to pay down the Company's revolving credit
facility, which as of March 31, 1998, had outstanding borrowings of
approximately $25.0 million; (ii) to repay the Subordinated Notes (described
below), which as of March 31, 1998, were outstanding in the principal amount of
approximately $5.0 million; and (iii) to repay a portion of term loan of
approximately $14.7 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, as amended, among the Company and Bank One, Colorado, N.A.
("Bank One"). The Bank One Loan was originally incurred in connection with the
CTI Merger and the AlliedSignal Asset Purchase. The Company issued subordinated
notes (the "Subordinated Notes") to a director of the Company in order to fund a
portion of 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 and the Subordinated Notes.
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 ENDED DECEMBER 31, 1998:
Second Quarter (through May 28, 1998)....................... $19 $12 9/16
First Quarter............................................... 17 12 13/16
YEAR ENDED DECEMBER 31, 1997:
Fourth Quarter.............................................. 18 1/4 12 1/16
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
</TABLE>
On May 28, 1998, the last reported closing sale price for the Common Stock
on the Nasdaq National Market was $15 per share. As of May 27, 1998, there were
approximately 235 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."
14
<PAGE> 16
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of March 31, 1998, and as adjusted to reflect (i) the sale of
3,200,000 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."
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------
ACTUAL AS ADJUSTED
------------ ------------
<S> <C> <C>
Debt:
Note payable -- Bank.................................. $ 5,000,000 $ --
Current portion of long term debt..................... 3,350,000 --
------------ ------------
Total current debt............................ 8,350,000 --
Long term debt, less current portion.................. 45,836,227 9,441,227
------------ ------------
Total debt.................................... 54,186,227 9,441,227
Shareholders' equity:
Preferred Stock, $0.01 par value, 5,000,000 shares
authorized, none issued and outstanding............ -0- -0-
Common Stock, $0.01 par value, 45,000,000 shares
authorized; 13,649,676 shares issued and
outstanding and 16,849,676 shares as adjusted(1)... 136,497 168,497
Additional paid-in-capital.............................. 69,475,544 114,188,544
Retained earnings....................................... 8,350,774 8,350,774
------------ ------------
Total shareholders' equity.................... 77,962,815 122,707,815
------------ ------------
Total capitalization.......................... $132,149,042 $132,149,042
============ ============
</TABLE>
- ---------------
(1) Does not include 170,000 shares of Common Stock issuable upon exercise of
other outstanding options expected to be exercised by certain Selling
Shareholders in connection with the Offering, 2,588,020 shares of Common
Stock issuable upon exercise of other outstanding options, 9,800 shares
issued pursuant to the exercise of options from March 31, 1998 to the date
of this Prospectus and 80,000 shares issuable upon exercise of outstanding
warrants.
15
<PAGE> 17
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following tables present for the Company selected consolidated
historical financial data as of and for each of the five years ended December
31, 1997, as of and for the three months ended March 31, 1998 and 1997. All
financial data has been restated for the PE Merger, as described elsewhere
herein, as if the PE Merger had occurred on January 1, 1993. The selected
consolidated historical financial data set forth below as of December 31, 1997
and 1996 and for the three years ended December 31, 1997 have been derived from
the Company's financial statements audited by KPMG Peat Marwick LLP included
elsewhere in this Prospectus. The selected historical financial data set forth
below as of December 31, 1994 and 1993 and for each of the two years ended
December 31, 1994 and as of March 31, 1998 and for the three months ended March
31, 1998 and 1997 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 March 31, 1998 are not
necessarily indicative of the results to be expected for the entire year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- ------------------------------------------------
1998 1997 1997 1996(1) 1995 1994 1993
-------- -------- -------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.......................... $54,200 $16,041 $122,079 $60,910 $51,580 $53,828 $30,870
Cost of goods sold................. 44,297 13,941 102,166 56,277 46,437 47,631 26,181
------- ------- -------- ------- ------- ------- -------
Gross profit..................... 9,903 2,100 19,913 4,633 5,143 6,197 4,689
Impairment of fixed assets......... -- -- -- 726 -- -- --
Goodwill amortization.............. 391 23 547 -- -- -- --
Merger costs....................... 1,048(2) -- -- -- -- -- --
Selling, general and administrative
expenses......................... 5,321 1,213 12,712 5,916 4,324 3,065 2,216
------- ------- -------- ------- ------- ------- -------
Operating income (loss).......... 3,143 864 6,654 (2,009) 819 3,132 2,473
Other income (expense):
Interest expense................. (908) (212) (2,411) (576) (432) (268) (250)
Other, net....................... 39 20 1,296(3) 100 92 110 (12)
------- ------- -------- ------- ------- ------- -------
(869) (192) (1,115) (476) (340) (158) (262)
Income (loss) before income
taxes............................ 2,274 672 5,539 (2,485) 479 2,974 2,211
Income tax expense (benefit)....... 935 73 2,118 (867) 130 1,041 736
------- ------- -------- ------- ------- ------- -------
Net income (loss)......... $ 1,339 $ 599 $ 3,421 $(1,618) $ 349 1,933 1,475
======= ======= ======== ======= ======= ======= =======
Pro forma information(4):
Historical net income............ 1,339 599 3,421 (1,618) 349 1,933 1,475
Pro forma adjustment to income
tax expense (benefit).......... 317 179 41 (10) (2) 6 68
------- ------- -------- ------- ------- ------- -------
Pro forma net income............. $ 1,022 $ 420 $ 3,380 $(1,608) $ 351 1,927 1,407
======= ======= ======== ======= ======= ======= =======
Pro forma income (loss) per
share:
Basic............................ $ 0.07 $ 0.06 $ 0.40 $ (0.28) $ 0.06 $ 0.36 $ 0.33
======= ======= ======== ======= ======= ======= =======
Diluted.......................... $ 0.07 $ 0.06 $ 0.38 $ (0.28) $ 0.06 $ 0.36 $ 0.33
======= ======= ======== ======= ======= ======= =======
Pro forma weighted average shares
outstanding:
Basic............................ 13,645 6,658 8,502 5,742 5,762 5,427 4,283
======= ======= ======== ======= ======= ======= =======
Diluted.......................... 14,400 6,658 8,954 5,742 5,762 5,427 4,283
======= ======= ======== ======= ======= ======= =======
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31,
------------------------ ------------------------------------------------
AS ADJUSTED(5) ACTUAL 1997(6) 1996 1995 1994(7) 1993
-------------- ------- -------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............... $ 51,887 $43,537 $ 43,634 $ 9,284 $ 9,878 $ 7,015 $ 2,568
Goodwill...................... 46,018 46,018 46,372 -- -- -- --
Total assets.................. 171,633 171,633 148,825 24,037 25,724 23,883 11,532
Notes payable and current
portion of long-term debt... -- 8,350 3,150 1,970 196 170 170
Long-term debt, net of current
portion..................... 9,441 45,836 41,809 3,947 3,081 3,613 3,280
Shareholders' equity.......... 122,708 77,963 75,221 13,850 15,462 14,984 3,525
</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) Merger costs related to the PE Merger which was accounted for as a pooling
of interests.
(3) Includes gain of approximately $1.2 million on the sale of a building used
in the Company's manu-
facturing operations.
(4) The net income of Personal Electronics, which was not subject to income
taxes due to its S corporation status, has been tax effected and included as
a pro-forma adjustment to income tax expense. See Note 1 to the Consolidated
Financial Statements of the Company.
(5) 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) Includes the effects of the CE Merger, the AlliedSignal Asset Purchase, the
CTI Merger and a public offering of the Common Stock completed in 1997.
(7) The Company received $9.3 million from its initial public offering in March
1994.
17
<PAGE> 19
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."
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 Personal Electronics and the assets and operations acquired in the
AlliedSignal Asset Purchase, costs relating to the expansion of operations
including establishment of the infrastructure to provide BTO services, 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 ("APM"), 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 implementation of 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.
ACQUISITIONS
In March 1998, the Company completed the PE Merger and during 1997, the
Company completed the CE Merger, the AlliedSignal Asset Purchase and the CTI
Merger, all of which have affected the Company's results of operations and
financial condition. All financial information has been restated for the effects
of the PE Merger, which was accounted for as a pooling of interests.
PE Merger. On March 31, 1998, the Company acquired RM Electronics, Inc., a
New Hampshire corporation doing business as Personal Electronics, for 1,800,000
shares of its Common Stock issued to the former shareholders of Personal
Electronics. The acquisition of Personal Electronics has been accounted for
using the pooling of interests method of accounting. Personal Electronics'
revenues in 1997, 1996 and 1995
18
<PAGE> 20
were $8.8 million, $4.0 million and $2.4 million, respectively. Prior to its
acquisition by the Company, Personal Electronics was an independent provider of
rapid, low-volume, high-mix electronic manufacturing services to OEMs in the
greater Boston area and New Hampshire. Personal Electronics focuses on providing
high levels of personalized customer service to geographically proximate
customers.
CTI Merger. On September 30, 1997, the Company acquired the CTI Companies
for approximately $29.7 million in cash and debt assumption, 1,858,975 shares of
the Company's Common Stock and a $6 million contingent payment paid upon closing
of a public offering in November of 1997. The Company recorded goodwill of
approximately $38.9 million, which is being amortized over 30 years. In
connection with this acquisition, the Company entered into the Bank One Loan and
issued the Subordinated Notes. 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. Consequently, since the CTI Merger, the Company's
receivables have turned 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. 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 ranging from 26%
to 33% from 1994 to 1996. This is significantly higher than the Company's
historic gross profit percentages, 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 impact of combining operations of the CTI Companies
with the Company has been to increase the Company's 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.
AlliedSignal Asset Purchase. In February 1998, the Company completed 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. The Company purchased from a third
party and renovated a production facility in Tucson, Arizona. The Company moved
AlliedSignal's inventory and equipment and related employees to its own facility
and began production in early February 1998. The aggregate purchase price of the
assets acquired by the Company from AlliedSignal approximated $19 million, of
which approximately $16 million was paid by March 31, 1998. The Florida and
Arizona facilities are currently 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 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.
CE Merger. On February 24, 1997, the Company acquired the CE Companies for
approximately $10.9 million consisting of 1,980,000 shares of Common Stock and
approximately $5.5 million in cash, which included approximately $0.6 million of
transaction costs. The Company recorded goodwill of approximately $8.0 million,
which is being amortized over 30 years. The combined revenues for the CE
Companies for the
19
<PAGE> 21
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."
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
net sales:
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------- -----------------------
1998 1997 1997 1996 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales........................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit........................................ 18.3 13.1 16.3 7.6 10.0
Merger costs........................................ 2.0 -- -- -- --
Selling, general and administrative expenses........ 9.8 7.6 10.4 9.7 8.4
Goodwill............................................ 0.7 0.1 0.4 -- --
Impairment of fixed assets.......................... -- -- -- 1.2 --
----- ----- ----- ----- -----
Operating income (loss)............................. 5.8 5.4 5.5 (3.3) 1.6
Interest expense.................................... (1.7) (1.3) (2.0) (0.9) (0.9)
Other, net.......................................... 0.1 0.1 1.0 0.1 0.2
----- ----- ----- ----- -----
Income (loss) before income taxes................... 4.2 4.2 4.5 (4.1) 0.9
Income tax expense (benefit)........................ 1.7 0.5 1.7 (1.5) 0.2
Pro forma tax expense (benefit)..................... 0.6 1.1 -- -- --
----- ----- ----- ----- -----
Pro forma net income (loss)......................... 1.9 2.6 2.8 (2.6) 0.7
===== ===== ===== ===== =====
</TABLE>
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
Net Sales. The Company's net sales increased by 238.8% to $54.2 million for
the first quarter of 1998 compared to $16.0 million in the first quarter of
1997. 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 Ft. Lauderdale and Arizona facilities,
acquired from AlliedSignal in August 1997, the inclusion of the CTI Companies,
acquired on September 30, 1997, the growth in revenues of Personal Electronics
and increased orders from existing customers.
Gross Profit. Gross profit increased by 371.4% to $9.9 million for the
quarter ended March 31, 1998 compared to $2.1 million for the same period last
year. The gross profit margin increased to 18.3% for the quarter ended March 31,
1998 from 13.1% for the quarter ended March 31, 1997. The increase in gross
profit margin is related to (i) the operations of the CE Companies, which have
historically had a higher gross profit margin, (ii) the adoption of APM in the
later part of 1996 in the Rocky Mountain facility which has resulted in greater
operating efficiencies, and (iii) the operations of the CTI Companies, which
have historically had a higher gross profit percentage. In addition, as revenues
have increased, fixed overhead costs such as labor costs and depreciation have
been absorbed in costs of goods sold resulting in higher margins.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SGA") expenses increased by 341.7% to $5.3 million for the
first quarter ended March 31, 1998, compared with $1.2 million for the same
period in 1997. As a percentage of net sales, SGA expense increased to 9.8% for
the quarter ended March 31, 1998 from 7.6% from the quarter ended March 31,
1997. The increase in SGA expenses is primarily due to the inclusion of the CE
Companies', the CTI Companies' and the Company's Ft. Lauderdale and Arizona
facilities' SGA expenses and increased investment in information technology and
marketing.
Operating Income. Operating income increased to $3.1 million for the
quarter ended March 31, 1998 from $0.9 million for the quarter ended March 31,
1997. Operating income as a percentage of net sales increased to 5.8% for the
quarter ended March 31, 1998 from 5.4% for the quarter ended March 31, 1997.
Excluding the one-time merger costs of $1.0 million in the first quarter of
1998, operating income would have
20
<PAGE> 22
been $4.2 million or 7.7% of net sales. The increase in operating income is
attributable to the CE Merger, the CTI Merger, the increase in operating income
of Personal Electronics, increased efficiencies associated with APM, and the
acquisition and operation of the Ft. Lauderdale facility.
Interest Expense. Interest expense was $0.9 million for the quarter ended
March 31, 1998 compared to $0.2 million for the same period in 1997. The
increase in interest is primarily the result of the incurrence of debt
associated with the CE Merger, the AlliedSignal Asset Purchase in Arizona and
Florida, the CTI Merger, and increased operating debt used to finance the growth
of inventories and receivables.
Income Tax Expense. The effective income tax rate for the quarter ended
March 31, 1998 was 55.0% including pro forma income taxes compared to 37.5% for
the same period in 1997, due to the impact of nondeductible goodwill and the
nondeductible portion of the one-time merger costs of approximately $875,000 in
the first quarter of 1998 which significantly increases the effective tax rate.
1997 Compared to 1996
Net Sales. The Company's net sales increased by 100.5% to $122.1 million
during the year ended December 31, 1997, from $60.9 million for the year ended
December 31, 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 Ft. Lauderdale and Arizona
facilities, acquired from AlliedSignal in August 1997, the inclusion of the CTI
Companies, acquired on September 30, 1997, the growth in revenues of Personal
Electronics and increased orders from existing customers.
Gross Profit. Gross profit increased by 332.6% to $19.9 million during the
year ended December 31, 1997, from $4.6 million during the year ended December
31,1996. The gross profit margin for the year ended December 31, 1997 was 16.3%
compared to 7.6% for the year ended December 31, 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 margin, (ii) the adoption of APM in
the later part of 1996 in the Rocky Mountain facility which has resulted in
greater operating efficiencies, and (iii) the operations of the CTI Companies,
which also have historically had a higher gross profit percentage. 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 sold of
$0.5 million in the third quarter of fiscal 1996, primarily related to severance
costs and the write-off of inventory associated with the restructuring of the
Company's customer base, which accentuated the difference in gross profit
margins between 1997 and 1996.
Selling, General and Administrative Expenses. SGA expenses increased by
115.3% to $12.7 million for the year ended December 31, 1997, compared with $5.9
million for the same period of 1996. As a percentage of net sales, SGA expense
increased to 10.4% for the year ended December 31, 1997, from 9.7% 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 1996 would have been 8.2% of sales. The increase in SGA expenses is
primarily due to the inclusion of the CE Companies', the CTI Companies' and the
Company's Fort Lauderdale and Arizona facilities' SGA expenses and increased
investment in information technology and marketing.
Operating Income. Operating income increased to $6.7 million for the year
ended December 31, 1997, from a loss of $2.0 million for the same period in
1996. Operating income as a percentage of net sales increased to 5.5% in the
year ending December 31, 1997 from negative 3.3% in the same period of 1996. The
increase in operating income is attributable to the CE Merger, the CTI Merger,
the increase in operating income of Personal Electronics, increased efficiencies
associated with APM, and the acquisition and operation of the Fort Lauderdale
and Tucson facilities. Without the $2.1 million write down in the third quarter
of 1996, the 1996 operating profit margin would have been approximately
breakeven.
Interest Expense. Interest expense was $2.4 million for the year ended
December 31, 1997 as compared to $0.6 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, the AlliedSignal Asset Purchase in Arizona and
Florida, the CTI
21
<PAGE> 23
Merger, and increased operating debt used to finance both inventories and
receivables for the Company in fiscal 1997.
Income Tax Expense. The effective income tax rate for the year ended
December 31, 1997 was 38.9% including pro forma income taxes compared to 35.2%
for the same period a year earlier. The Company anticipates higher income tax
rates due to the impact of nondeductible goodwill relating to the CTI Merger and
CE Merger.
1996 Compared to 1995
Net Sales. Net sales in 1996 increased 18.0% to $60.9 million from $51.6
million in 1995. The increase in net sales is due primarily to increased
material sales associated with the box-build project for one customer and the
growth in revenues of Personal Electronics.
Gross Profit. Gross profit in 1996 decreased 9.8% from 1995 to $4.6
million. Gross profit as a percentage of net sales for 1996 was 7.6% compared to
10.0% 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 $5.1 million or 8.4% of net sales. These restructuring charges were
severance costs 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 37.2% over 1995 to $5.9 million. The increase is due to
restructuring charges for severance costs 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 $5.0 million which is an increase of $0.7 million or
16.3% 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 9.7% in
1996 from 8.4% in 1995. Without the restructuring charges, SGA expenses would
have been 8.2% of net sales for 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. 12 "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 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 implementation
of APM, resulting 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 350.0% to a loss of
$2.0 million from income of $0.8 million in 1995. Operating income as a percent
of sales decreased to negative 3.3% 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 50.0% from 1995 to
$0.6 million. Borrowing necessitated by 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
35.2%, including pro forma income taxes, compared to 26.7% for 1995. Tax expense
for 1995 was lower due to certain research
22
<PAGE> 24
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.
Quarterly results. The following table presents unaudited quarterly
operating data for the most recent five quarters of the period ended March 31,
1998. The information includes all adjustments, consisting only of normal
recurring adjustments, that the Company considers necessary for a fair
presentation thereof.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------
MARCH 31, DEC. 31, SEP. 30, JUNE 30, MARCH 31,
1998 1997 1997 1997 1997
--------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net sales(1)........................ $54,200 $50,938 $30,483 $24,617 $16,041
Cost of goods sold.................. 44,297 41,613 25,750 20,863 13,941
------- ------- ------- ------- -------
Gross profit........................ 9,903 9,325 4,733 3,754 2,100
Merger costs........................ 1,048(2) -- -- -- --
Impairment of fixed assets.......... -- -- -- -- --
Goodwill amortization............... 391 390 67 67 23
Selling, general and administrative
expenses.......................... 5,321 7,214(3) 2,288 1,995 1,213
------- ------- ------- ------- -------
Operating income.................... 3,143 1,721 2,378 1,692 864
Interest expense and other, net..... (869) (1,220) 641(4) (346) (192)
------- ------- ------- ------- -------
Income before income taxes.......... 2,274 501 3,019 1,346 672
Income tax expense (benefit)
including pro forma adjustment.... 1,252 269 1,122 516 252
------- ------- ------- ------- -------
Pro forma net income(5)............. $ 1,022 $ 232 $ 1,897 $ 830 $ 420
======= ======= ======= ======= =======
Pro forma income per
share -- diluted.................. $ 0.07 $ 0.02 $ 0.22 $ 0.11 $ 0.06
======= ======= ======= ======= =======
Weighted average shares
outstanding -- diluted............ 14,400 12,438 8,476 7,921 6,658
</TABLE>
- ---------------
(1) The restatement of the Company's financial statements resulting from the
treatment of the PE Merger as a pooling of interests resulted in increases
to net sales of $3.2 million in the quarter ended March 31, 1998 and of $2.7
million in the fourth quarter, $2.3 million in the third quarter, $1.9
million in the second quarter and $2.0 million in the first quarter of 1997.
(2) Merger costs related to the PE Merger which was accounted for as a pooling
of interests.
(3) Reflects bonuses paid to the shareholders of Personal Electronics of $2.6
million in the quarter ended December 31, 1997.
(4) Includes gain of approximately $1.2 million on sale of building used in the
Company's manufacturing operations.
(5) The restatement of the Company's financial statements resulting from the
treatment of the PE Merger as a pooling of interests resulted in increases
to the pro forma net income (loss) of $0.5 million in the quarter ended
March 31, 1998 and of ($1.1) million in the fourth quarter, $0.5 million in
the third quarter, $0.4 million in the second quarter and $0.3 million in
the first quarter of 1997.
Although management does not believe that the Company's business is
materially affected by seasonal factors, the Company's sales and earnings may
vary from quarter to quarter, 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. Therefore, the Company's
operating results for any particular quarter may
23
<PAGE> 25
not be indicative of the results for any future quarter or year. See "Risk
Factors -- Variability of Quarterly Results of Operations."
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, working capital totaled $43.5 million. Working capital
at December 31, 1997 was $43.6 million compared to $9.3 million at December 31,
1996. The increase in working capital in 1997 is primarily attributable to a
public offering that was completed in November 1997 with net proceeds to the
Company of approximately $39.5 million, the proceeds of which were used to pay a
portion of the acquisition price for the CTI Companies and to repay a portion of
the Bank One Loan. In November 1997, the Company reborrowed approximately $20
million of the Bank One Loan that had been repaid in order to fund increases in
inventory and accounts receivable related to increased business associated with
the CE Merger, the CTI Merger and the AlliedSignal Asset Purchase and to repay
$10 million of the Subordinated Notes.
Cash used in operations for the quarter ended March 31, 1998, was $2.4
million compared to $0.2 million for the same period in 1997. Cash used in
operations for the year ended December 31, 1997, was $29.4 million compared to
cash used in operations of $0.5 million for the same period in 1996. 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. Accounts receivable increased 464.4% to
$25.4 million at December 31, 1997 from $4.5 at December 31, 1996. A comparison
of receivable turns (e.g., annualized sales divided by current accounts
receivable) for 1997 compared to 1996 is 4.8 and 13.7, respectively. Inventories
increased 401.1% to $46.1 million at December 31, 1997 from $9.2 million at
December 31, 1996. A comparison of inventory turns (i.e., annualized cost of
sales divided by current inventory) for the years ended 1997 and 1996 shows a
decrease to 2.2 from 6.1, respectively. The Company believes that the 1997
receivable turns and inventory turns are not representative of actual operations
because the cost of sales for the year includes only ten months from the CE
Companies, three months of cost of sales from the CTI Companies, and only four
and one-half months from the AlliedSignal Asset Purchase in Arizona and Florida,
while the balance sheet includes the receivables and inventories from these
operations.
The Company used cash to purchase capital equipment totaling $9.5 million
for the quarter ended March 31, 1998, $13.5 million for the year ended 1997 and
$2.2 million for the year ended 1996. The Company also used cash to pay part of
the purchase price of the CE Companies and CTI Companies, as explained earlier
in the amount of $31.0 million. Proceeds from long-term borrowings of $35
million were used to help fund the purchase of the CE Companies and CTI
Companies.
In connection with the CTI Merger and the AlliedSignal Asset Purchase, the
Company entered into a Credit Agreement, dated as of September 30, 1997, as
amended (the "Bank One Loan"), provided by Bank One, Colorado, N.A. The Bank One
Loan initially provided for a $25 million revolving line of credit, maturing on
September 30, 2000 and a $20 million term Loan maturing on September 30, 2002.
The Bank One Loan currently bears interest at a rate based on either the London
Inter-Bank Offering Rate ("LIBOR") or Bank One prime rate plus applicable
margins ranging from 2.50% to 0.00% for both the term and revolving facilities.
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 membership interests 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, as amended, contains financial
covenants restricting maximum annual capital expenditures, recapturing excess
cash flow and requiring maintenance of the following ratios: (i) maximum total
debt to EBITDA (as defined in the agreement for the Bank One Loan); (ii) minimum
fixed charge coverage; (iii) minimum EBITDA to interest; and (iv) minimum
tangible net worth requirement with periodic step-up.
In addition to the Bank One Loan, the Company issued a director of the
Company $15 million in aggregate principal amount of Subordinated Notes, with a
maturity date of December 31, 2002 and bearing interest at LIBOR plus 2.0%, in
order to fund the acquisition of certain assets from AlliedSignal. The Company
issued a warrant (the "Warrant") to purchase 500,000 shares of common stock at a
price of $8.00
24
<PAGE> 26
per share in connection with the Subordinated Notes. The Warrant was exercised
in October 1997, resulting in net proceeds to the Company of $4 million. In
December 1997, the Company repaid approximately $10 million of the Subordinated
Notes from the proceeds of additional borrowings under the Bank One Loan.
In November 1997, the Company completed a public offering of approximately
3,500,000 shares of common stock. The Company used the proceeds of such offering
to make a $6.0 million payment to the previous owners of the CTI Companies and
to repay approximately $32 million of the Bank One Loan. In November 1997, the
Company reborrowed approximately $20 million of the Bank One Loan that had been
repaid in order to fund increases in inventory and accounts receivable related
to increased business associated with the CE Merger, the CTI Merger and the
AlliedSignal Asset Purchase and to repay $10 million in aggregate principal
amount of the Subordinated Notes. In March 1998, the Company issued Bank One a
15-day note in the principal amount of $5 million (the "Bank One Note") the
proceeds of which were used to make payments to AlliedSignal in connection with
the AlliedSignal Asset Purchase and for normal operating expenses. The Bank One
Loan was then amended in April 1998 to increase the revolving line of credit to
$40 million from $25 million. The Bank One Note was repaid in April 1998 after
the amendment to the Bank One Loan was completed. As of March 31, 1998, the
total outstanding principal amount under the Bank One Loan was $44.3 million,
comprised of a term loan of $19.3 million and an outstanding balance on the
revolving loan of $25 million. $15 million remained available for borrowing
under the Bank One Loan.
The Company intends to use the proceeds of the offering made hereby to
retire substantially all of the outstanding Bank One Loan and the outstanding
Subordinated Notes. This early payment will create an extraordinary non-cash
expense of approximately $0.2 million from the early extinguishment of debt
related to write off of loan fees associated with the retirement 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.
The Company is implementing a new management information system (the "MIS
System") throughout all of its facilities, including those it has recently
acquired. The MIS System is designed to be "Year 2000 Compliant." Therefore, in
the absence of unanticipated difficulties in implementing the MIS System, the
Company does not anticipate that year 2000 problems will have a material adverse
effect on the Company's operations. The Company is evaluating the impact of the
year 2000 issue on vendors with a goal of completion during 1998.
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<PAGE> 27
BUSINESS AND PROPERTIES
GENERAL
The Company is a leading independent provider of "high-mix" electronic
manufacturing services ("EMS"), including quick-turn manufacturing, prototype
services, high-mix production, and aftermarket repair and warranty services, to
OEMs and is initiating BTO services. The Company's manufacturing services focus
on high-speed production of high-mix electronic products -- products that are
characterized by small lot sizes with differences in configuration in each lot.
The Company 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. Since acquiring the CTI Companies, the Company has
invested in creating a BTO manufacturing capability at the Memphis, Tennessee
Overnight Delivery Hub. In May 1988, the Company signed its first BTO contract
with Fujitsu to provide BTO services for a line of notebook computers. The
Company believes it is well positioned to capitalize on the industry shift away
from mass production to mass customization because it specializes in small-lot
processing associated with high-mix manufacturing and because of the logistics
advantages associated with its hub-based BTO and repair and warranty services.
Through the Acquisitions completed in 1998 and 1997, the Company has
expanded its operations from one facility in Colorado at the beginning of 1997
to nine facilities throughout the United States at March 31, 1998. The
Acquisitions have strategically expanded the Company's breadth of high-mix
service offerings to include quick-turn manufacturing, prototype services,
concurrent engineering, subassembly manufacturing, next-day delivery of
assemblies and warranty and post-warranty repair services. The Acquisitions
provide the Company with new opportunities to develop programs to help its
existing customers reduce inventory, and allow the Company to cross-market its
other services to the CTI Companies' and Personal Electronics' existing customer
bases. See "Prospectus Summary -- Acquisitions" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- The
Company -- Acquisitions."
INDUSTRY OVERVIEW
Electronic 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, many
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 $178
billion in 2001, 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
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<PAGE> 28
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
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 computers, workstations and data communications equipment -- will
grow from $17 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 aerospace and
avionics, medical, 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 OEMs are offering, and in the future will
increasingly offer, electronic products that are customized to their
specifications on a "box-build" basis and electronic products that are
customized 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 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 emerge as a premier mass customizer of
electronic products. The Company has assembled a full range of electronic
manufacturing services that focus on small lot processing. The Company believes
its customers are increasingly focused on strategic supply chain management,
reduced time to market, BTO production, access to leading-edge manufacturing
technology and reduced capital investment. The Company is differentiating itself
by creating specific manufacturing techniques and service offerings solely
focused on small-lot processing and creating integrated partnerships with
logistics providers,
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<PAGE> 29
component suppliers and customers to integrate its partners' core competencies
through all levels of the Company's operations. The Company is also
differentiating itself by integrating state-of-the-art information technology
into its operations including an internal Oracle ERP (Enterprise Resource
Planning) system and external service offerings through the Internet. These
attributes allow the Company to provide customized solutions to customers'
product needs. 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 for
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. 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 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. Personal Electronics, an EFTC Express location, provides quick-turn
manufacturing and prototype services. See "-- Services -- Repair and Warranty
Services." The Company is seeking to add product design services to its existing
design capabilities.
Provide Build-To-Order Services. The Company believes it has the necessary
skills and processes and is integrating its services in order 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 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 is
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
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<PAGE> 30
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 provides a variety of
"high-mix" electronic manufacturing services, including quick-turn
manufacturing, prototype services, high-mix production, and aftermarket repair
and warranty services, to OEMs and is initiating BTO services. 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 starting to offer BTO services based at the
Overnight Delivery Hubs. In addition, the Company is considering adding product
design services to its existing design capabilities. 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.
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 through
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, previously incompatible
with high-speed techniques. APM is an alternative to both CFM and batch
processing often used in smaller scale manufacturing. The combination of small
lots with numerous differences in configuration from one 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 EMS providers cannot accommodate high-mix product
assembly without sacrificing speed, while smaller EMS providers, 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
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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]
Prototype Manufacturing Services. Personal Electronics is an EFTC Express
location, specializing in quick-turn manufacturing and prototype services with a
high degree of personalized customer service. As customer orders grow, EFTC
Express is intended to provide customers with an easy transition to the
Company's larger regional manufacturing facilities.
Design and Testing Services. The Company also assists in customers' product
design by providing "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
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 is seeking to
add full product design services to its existing capabilities.
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<PAGE> 32
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 CTI Companies are 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 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 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.
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, personal digital assistants, 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.
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, sold 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
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using its APM model will permit the Company to begin providing BTO services. The
Company is beginning 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. Since acquiring
the CTI Companies, the Company has invested in creating a BTO manufacturing
capability at the Memphis, Tennessee Overnight Delivery Hub. In May 1998, the
Company signed its first BTO contract with Fujitsu to provide BTO services for a
line of notebook computers.
CUSTOMERS AND MARKETING
The Company seeks to serve traditional high-mix OEMs and OEMs that produce
high-volume products and need repair and warranty services, which by their
nature are high-mix services, or plan to implement BTO strategies. The Company
has recently reorganized its manufacturing marketing efforts to focus on the
following markets: (1) aerospace and avionics; (2) medical; (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 two transportation service providers.
The following table represents the Company's net sales by industry segment,
taking into account the Acquisitions:
<TABLE>
<CAPTION>
FIRST QUARTER
1998 1997 1996 1995
------------- ----- ----- -----
<S> <C> <C> <C> <C>
Aerospace and Avionics...................... 42.5% 27.3% 0.0% 0.0%
Medical..................................... 5.5% 13.1% 29.3% 31.0%
Communications.............................. 5.0% 8.1% 1.5% 9.1%
Industrial Controls and Instrumentation..... 17.3% 21.6% 12.6% 9.1%
Computer-Related............................ 29.1% 28.8% 54.4% 49.0%
Other....................................... 0.6% 1.1% 2.2% 1.8%
100.0% 100.0% 100.0% 100.0%
</TABLE>
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The Company's customer base for manufacturing services includes
AlliedSignal, Credence Systems Corporation, Electro Scientific Industries, Inc.,
Exabyte Corporation, and Honeywell Inc. 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.
The Company's customer base for repair and warranty services includes 29 of
the largest PC and electronics OEMs, including Apple Corporation, Inc., Bay
Networks, Inc., Cisco Systems Inc., Dell Computer Corporation, Gateway 2000,
Inc., HP, International Business Machines Corporation and Sony Corp. of America,
Inc. 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 Limited
Number of Customers."
DESCRIPTION OF PROPERTIES
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. The
following table describes the Company's material properties.
<TABLE>
<CAPTION>
YEAR
LOCATION ACQUIRED/OPENED SIZE(1) OWNED/LEASED(2) SERVICES
- -------- --------------- ------- --------------- --------
<S> <C> <C> <C> <C>
Denver, Colorado 1997 10,000 square feet Leased(3) Executive Offices
Rocky Mountain 1991 84,000 square feet Owned(4) Manufacturing
Greeley, Colorado
Newberg, Oregon 1997 47,000 square feet Leased(5) Manufacturing
(existing)
Newberg, Oregon 1998 65,000 square feet Owned(6) Manufacturing
(under construction) (expected)
Moses Lake, Washington 1997 20,000 square feet Leased(7) Manufacturing
Ft. Lauderdale, Florida 1997 95,000 square feet Subleased(8) Manufacturing
Tucson, Arizona 1998 65,000 square feet Owned(9) Manufacturing
Memphis, Tennessee 1997 155,000 square feet Leased(10) Offices, repair
and warranty
Louisville, Kentucky 1997 90,000 square feet Subleased and Repair and
(169,000 square Leased(11) Warranty
feet, as expanded)
Tampa, Florida 1997 40,000 square feet Owned and Repair and
(48,000 square Leased(12) warranty
feet, as expanded)
Manchester, New Hampshire 1998 11,000 square feet Leased(13) Manufacturing
(expected expansion) (19,000 square
feet, as expanded)
</TABLE>
The Company believes its facilities are in good condition.
- ---------------
(1) Square footage numbers are approximate.
(2) 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.
(3) This lease will expire on December 31, 1999.
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<PAGE> 35
(4) This facility is located on approximately 10 acres of land owned by the
Company in Greeley, Colorado. The Company has recently remodeled and
expanded this facility by adding approximately 32,000 square feet at an
aggregate cost of approximately $1.8 million. This construction was
completed in the first quarter of 1998. In 1997, the Company sold the other
building that had been located on its campus in Greeley, Colorado for
approximately $2.4 million.
(5) 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. These leases are on a
month-to-month basis and will be terminated when the Company moves to its
new facility.
(6) 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 $6.5 million. The
Company expects this new facility to be completed in June 1998. Upon
completion of this new facility, the Company will relocate its Newberg
operations from the leased facility.
(7) The Company is renting this facility on a month-to-month basis and is
negotiating a new lease with the new owner of the facility.
(8) The Company subleased from AlliedSignal a 95,000 square foot portion of a
building.
(9) The Company purchased approximately 20 acres of land and a 65,000 square
foot building in Tucson, Arizona, for $1.8 million. The Company remodeled
and moved into the facility in February 1998.
(10) 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.
(11) The Company subleases a 40,000 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. The Company has
leased a new 129,000 square foot facility from an unaffiliated third party
and expects to move in May 1998. This lease expires April 14, 2003. After
this move, the Company plans to sublease the 50,000 square foot facility it
currently occupies and will continue to occupy the 40,000 square foot
facility that it currently leases from the transportation provider.
(12) The Company owns a 30,000 square foot building, and the Company has leased
a 10,000 square foot facility from an unaffiliated third party. The Company
has leased and will consolidate its Tampa operations in a new 45,000 square
foot facility during the second quarter of 1998. This new facility is
leased from an unaffiliated third party and the lease will expire in July
2003. After this move, the Company plans to sell the building that it
currently owns.
(13) The Company leases a 11,000 square foot facility from an unrelated third
party. This lease expires August 14, 2001. The Company anticipates leasing
an additional 8,000 square feet at this facility in the third quarter of
1998.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Director Representation of Personal Electronics. Mr. Robert K. McNamara, a
director of the Company, is a Managing Director of Broadview, an investment
banking firm, and in such capacity represented Personal Electronics in
connection with the PE 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 $640,000 in
connection with the consummation of the PE Merger.
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 21, 1998, which is incorporated by
reference into the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
34
<PAGE> 36
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............ 57 Director and Chairman of the Board
Jack Calderon............. 45 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
Allen S. Braswell, Sr..... 60 Director
Allen S. Braswell, Jr..... 39 Director
Darrayl E. Cannon(2)...... 50 Director
James A. Doran(2)......... 43 Director
Charles E. Hewitson....... 48 Director
Gregory C. Hewitson....... 50 Director
Matthew J. Hewitson....... 46 Director
Robert K. 44 Director
McNamara(2)(3)..........
Richard L. Monfort(1)..... 44 Director
Lucille A. Reid........... 57 Director
Masoud S. Shirazi(2)(3)... 47 Director
David W. Van Wert(1)(2)... 59 Director
August P. Bruehlman....... 42 Chief Administrative Officer
</TABLE>
- ---------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
The number of members of the Company's Board of Directors is currently
fixed at 16, but will be reduced to 10 following the Company's annual meeting to
be held on June 4, 1998 (the "Meeting"). In connection with two acquisitions
completed in 1997 and one acquisition completed in 1998, the Company agreed to
nominate six individuals to the Board of Directors. As a result, the number of
directors of the Company had grown to 16 as of December 31, 1997. The directors
became concerned that the size of the Board of Directors had grown larger than
appropriate for the Company's operations. Accordingly, at its February 27, 1998
meeting, the Board of Directors approved a plan (the "Board Reduction Plan") to
reduce the number of directors to a more appropriate size. Pursuant to the Board
Reduction Plan, two Class I directors have not been nominated for reelection,
five Class II directors will resign prior to the Meeting and two Class III
directors will resign prior to the Meeting and will stand for election as Class
II directors.
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. Each director serves until
the end of the three-year term of the class to which he or she is elected, or
until his or her earlier resignation or removal.
The Class I directors, whose terms expire at the Meeting, include Allen S.
Braswell, Jr., James A. Doran, Gregory C. Hewitson, Richard L. Monfort and
Lucille A. Reid. Pursuant to the Board Reduction Plan, Lucille A. Reid and
Gregory C. Hewitson have not been nominated by the Company for reelection at the
Meeting.
The Class II directors, whose terms expire at the 1999 annual meeting of
shareholders, include Allen S. Braswell, Sr., Jack Calderon, Darrayl E. Cannon,
Matthew J. Hewitson, Lloyd A. McConnell and David W. Van Wert. Pursuant to the
Board Reduction Plan, Allen S. Braswell, Sr., Darrayl E. Cannon, Lloyd A.
McConnell, David W. Van Wert and Matthew J. Hewitson will resign from the Board
of Directors effective prior to the Meeting.
35
<PAGE> 37
The Class III directors, whose terms expire at the 2000 annual meeting of
shareholders, include Stuart W. Fuhlendorf, Charles E. Hewitson, Robert K.
McNamara, Gerald J. Reid and Masoud S. Shirazi. Pursuant to the Board Reduction
Plan, Charles E. Hewitson and Robert K. McNamara will resign from their
positions as Class III directors effective prior to the Meeting and have been
nominated by the Company for election at the Meeting to serve as Class II
directors with terms expiring at the 1999 annual meeting of shareholders.
Acting pursuant to the Bylaws of the Company, the Board of Directors
elected Allen S. Braswell, Jr. and Allen S. Braswell, Sr. as Class I and Class
II directors, respectively, on September 30, 1997. In connection with the
consummation of the Company's acquisition of the CTI Companies, which were
controlled by the family of Allen S. Braswell, Sr., the Company agreed to use
its best efforts to cause Allen S. Braswell, Sr. and Allen S. Braswell, Jr. to
be elected to serve as directors until the Meeting and to take the actions
necessary to nominate them for election to the Company's Board of Directors at
the Meeting. The Company's Bylaws provide that the initial terms of Allen S.
Braswell, Jr. and Allen S. Braswell, Sr. expire at the Meeting.
In connection with the consummation of the Company's acquisition of
Personal Electronics, which was 50% owned by Mr. Robert Monaco, the Company
agreed to take the actions necessary to nominate Mr. Monaco for election to the
Company's Board of Directors at the Meeting. The Company's Bylaws provide that,
if the number of directors is not evenly divisible by three, the additional
directors will be first assigned to Class III. Accordingly, Mr. Monaco has been
nominated by the Company for election as a Class III director to serve until the
2000 annual meeting of shareholders.
Gerald J. Reid and Lucille A. Reid are married. Charles, Gregory and
Matthew Hewitson are brothers. Allen S. Braswell, Sr. and Allen S. Braswell, Jr.
are father and son. Otherwise, there are no family relationships among any of
the directors and executive officers of the Company.
Following are brief descriptions of the business experience of the
Company's directors and executive officers:
Gerald J. Reid, 57, 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. 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 EFTC, he held the
position of Division Materials Manager. Mr. Reid has been a director of the
Company since its inception.
Jack Calderon, 45, has been the Company's President and Chief Executive
Officer since August 1996. From January 1996 to August 1996, Mr. Calderon was
President of Sales Management International, a private consulting firm through
which Mr. Calderon provided strategic consulting to executive officers of
various high-technology companies. From 1992 to 1995, 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, before leaving
to form his own consulting firm. 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 contract manufacturing companies. 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 EFTC, Mr. Fuhlendorf held a number of
financial management positions in the aerospace and gaming industries. Mr.
Fuhlendorf has been a director of the Company since October 1995.
Lloyd A. McConnell, 45, was the Company's Director of Engineering until
February 1998 and was the Company's Secretary and a Vice President from May 1994
to February 1998. 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 from
1987 to 1991 as the Company's Engineering Manager and from 1982 to 1987 as Sales
Manager. Prior to 1982, Mr. McConnell was employed
36
<PAGE> 38
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.
Allen S. Braswell, Jr., 39, is currently Sr. Vice President of EFTC
Corporation and President of the Company's EFTC Services group. Mr. Braswell had
been President of CTI since October 1993 and Chief Executive Officer of CTI
since October 1996 until the acquisition by the Company of the CTI Companies 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 CTI's
Sales and Marketing activities. Mr. Braswell served on CTI's Board of Directors
since its founding in 1981. 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, 43, 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 EFTC, and is a director of EFTC. 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 EFTC in
February 1997, at which time Mr. Hewitson was appointed to the Board of
Directors.
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 EFTC, and is a director of EFTC. From 1984 to
February 1997, Mr. Hewitson served as President, 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 EFTC in February 1997, at which time Mr.
Hewitson was appointed to the Board.
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 EFTC, and is a director of EFTC. 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
37
<PAGE> 39
affiliate CEWI were acquired by EFTC in February 1997, at which time Mr.
Hewitson was appointed to the Board.
Robert K. McNamara, 44, has served since August 1995 as a Managing Director
for Broadview Associates, LLC, a merger and acquisition advisor serving the
global information technology industry. Before joining Broadview, Mr. McNamara
spent 10 years with Salomon Brothers Inc, an investment banking firm, 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., an
investment banking firm, as vice president, focusing on the telecommunications
equipment, computer peripherals and computer retailing market segments. McNamara
has been a director of Nam Tai Electronics, Inc., a contract manufacturer that
makes consumer electronics products with operations in Shenzhen, China since
1996. Mr. McNamara has been a director of the Company since February 1996.
Richard L. Monfort, 44, served as President and Chief Operating Officer of
ConAgra Red Meat Companies from July 1989 to June 1995. From June 1995 to March
1997, Mr. Monfort was engaged in private investing activities. From 1983 until
1989, he was President of Monfort, Inc., which was subsequently acquired by
ConAgra, Inc. Mr. Monfort recently joined the board of the 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. Ms. 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, 47, has been the owner of Shirazi & Associates, P.C., a
benefit and consulting firm in Greeley, Colorado, that specializes 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 based 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.
OTHER EXECUTIVE OFFICER
August P. Bruehlman, 42, has been the Company's Chief Administrative
Officer since August 1996 and Secretary of the Company since February 1998. 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.
NOMINEE TO BOARD OF DIRECTORS
Robert Monaco, 36, currently serves as Vice President, General Manager and
Assistant Secretary of Personal Electronics. Mr. Monaco co-founded Personal
Electronics in 1991 and served as its Vice President until the Company acquired
Personal Electronics in March 1998. Prior to 1991, Mr. Monaco was employed by
Cabletron Systems in various capacities, most recently as its Director of
Operations. In connection with the consummation of the Company's acquisition of
Personal Electronics, which was 50% owned by Mr. Monaco,
38
<PAGE> 40
the Company agreed to take the actions necessary to nominate Mr. Monaco for
election to the Company's Board of Directors at the Meeting. The Company's
Bylaws provide that, if the number of directors is not evenly divisible by
three, the additional directors will be first assigned to Class III.
Accordingly, Mr. Monaco has been nominated for election as a Class III director
to serve until the 2000 annual meeting of shareholders.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of April 30, 1998, 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 group:
<TABLE>
<CAPTION>
AFTER OFFERING(1)
--------------------------------
NUMBER OF SHARES OF PERCENT OF NUMBER OF SHARES OF PERCENT OF
NAME OF BENEFICIAL OWNER, COMMON STOCK COMMON COMMON STOCK COMMON
DIRECTOR OR EXECUTIVE OFFICER BENEFICIALLY OWNED STOCK(2) BENEFICIALLY OWNED STOCK
----------------------------- ------------------- ---------- ------------------- ----------
<S> <C> <C> <C> <C>
Gerald J. Reid.................... 489,426(3) 3.4% 189,426 1.1%
Lucille A. Reid................... 541,426(3) 3.7% 241,426 1.4%
Jack Calderon..................... 300,441(4) 2.1% 220,441 1.3%
Lloyd A. McConnell................ 583,291(5) 4.0% 363,291 2.1%
Stuart W. Fuhlendorf.............. 118,728(6) * 83,728 *
James A. Doran.................... 11,554(7) * 11,554 *
Richard L. Monfort................ 659,354(7)(8) 4.6% 659,354 3.8%
David W. Van Wert................. 58,574(7)(9) * 58,574 *
Darrayl Cannon.................... 7,000(10) * 7,000 *
Robert K. McNamara................ 17,000(10)(11) * 17,000 *
Masoud S. Shirazi................. 34,154(7) * 34,154 *
Charles E. Hewitson............... 555,406(3) 3.8% 530,406 3.0%
Gregory C. Hewitson............... 555,406(3) 3.8% 530,406 3.0%
Matthew J. Hewitson............... 555,406(3) 3.8% 530,406 3.0%
August P. Bruehlman............... 88,441(12) * 68,441 *
Allen S. Braswell, Sr............. 1,385,939(13) 9.6% 1,385,939 7.9%
Allen S. Braswell, Jr............. 384,442(14) 2.7% 384,442 2.2%
Raymond Marshall.................. 900,000(15) 6.2% 522,500 3.0%
Robert Monaco..................... 900,000(15) 6.2% 522,500 3.0%
All directors and executive
officers as a group, including
persons named above (19
persons)........................ 8,145,988(16) 57.2% 6,360,988 36.5%
</TABLE>
- ---------------
* Less than one percent.
(1) After giving effect to the issuance of 3,200,000 shares of the Company's
Common Stock in the offering made hereby and the sale of shares of Common
Stock by the Selling Shareholders. For a description of the Selling
Shareholders and the number of shares offered by each Selling Shareholder,
see "Selling Shareholders."
(2) Based solely upon reports of beneficial ownership required filed with the
Securities and Exchange Commission pursuant to Rule 13d-1 under the
Securities and Exchange Act of 1934, the Company does not believe that any
other person beneficially owned, as of April 13, 1998, greater than five
percent of the outstanding Common Stock of the Company.
(3) Includes 1,875 shares of Common Stock that are subject to currently
exercisable options under the Company's Stock Option Plan for Non-Employee
Directors. Options held by such director for an additional 125 shares vest
each month until March 2001 under such plan.
(4) Includes 197,941 shares of Common Stock subject to currently exercisable,
non-qualified options granted in connection with the commencement of Mr.
Calderon's employment and 100,000 shares of
39
<PAGE> 41
Common Stock subject to currently exercisable options granted pursuant to
the Company's Equity Incentive Plan.
(5) Includes 20,000 shares of Common Stock subject to currently exercisable
options granted under 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.
(6) Includes 109,200 shares of Common Stock subject to currently exercisable
options granted under the Company's Equity Incentive Plan and 9,428 shares
of Common Stock subject to options that are exercisable under the Company's
1993 Stock Option Plan.
(7) Includes 10,854 shares of Common Stock that are subject to currently
exercisable options under the Company's Stock Option Plan for Non-Employee
Directors. Options held by such director for an additional 229 shares vest
each month until May 1999 under such plan. Thereafter options for an
additional 125 shares vest until March 2001 under such plan.
(8) Includes 100,000 shares of Common Stock owned by a partnership in which Mr.
Monfort is the principal investor and 27,000 shares of Common Stock owned
by two of Mr. Monfort's minor children.
(9) Includes 15,720 shares of Common Stock owned jointly with Sally B. Van
Wert, Mr. Van Wert's wife.
(10) Includes 7,000 shares of Common Stock that are subject to currently
exercisable options under the Company's Stock Option Plan for Non-Employee
Directors. Options held by such director for an additional 333 shares vest
each month until May 2000 under such plan. Thereafter options for an
additional 125 shares vest until March 2001 under such plan.
(11) Includes 10,000 shares of Common Stock owned jointly with Irene Z.
McNamara, Mr. McNamara's wife.
(12) Includes 75,000 shares subject to currently exercisable options granted
under the Company's Equity Incentive Plan and 12,941 shares subject to
currently exercisable options granted under the Company's 1993 Stock Option
Plan.
(13) Includes 1,374,939 shares held in the Allen S. Braswell, Sr. Grantor
Retained Income Trust and 11,000 shares held in the Allen S. Braswell, Sr.
Family Limited Partnership, of which Allen S. Braswell, Sr. is the general
partner. Allen S. Braswell, Sr.'s address is 1 Willow Road, Unit B,
Waynesville, NC 28786.
(14) Includes 374,442 shares held by the Allen S. Braswell, Jr. EFTC Family
Limited Partnership, of which Allen S. Braswell Jr. and his spouse, Alma L.
Braswell, are the general partners, and 10,000 shares subject to currently
exercisable, non-qualified stock options granted in connection with the
Company's acquisition of the CTI Companies and does not include 1,374,939
shares held in the Allen S. Braswell, Sr. Grantor Retained Income Trust, of
which Allen S. Braswell, Jr. and his brother, Bruce Braswell, are
co-trustees. Allen S. Braswell, Jr.'s address is Circuit Test, Inc., 4601
Cromwell Avenue, Memphis, TN 38118.
(15) Mr. Marshall's and Mr. Monaco's address is Personal Electronics, Inc., 1
Perimeter Road, Manchester, NH 03130.
(16) Of such 8,145,988 shares, as of April 13, 1998, 591,301 represent shares of
Common Stock subject to options that are currently exercisable or, within
60 days of April 13, 1998, will become exercisable.
40
<PAGE> 42
SELLING SHAREHOLDERS
The following table sets forth certain information as of April 30, 1998
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
NUMBER OF SHARES OF NUMBER OF SHARES OF NUMBER OF SHARES BENEFICIALLY
COMMON STOCK COMMON STOCK TO BE BENEFICIALLY OWNED OWNED AFTER
NAME OF SELLING SHAREHOLDER BENEFICIALLY OWNED SOLD IN THE OFFERING AFTER THE OFFERING THE OFFERING
--------------------------- ------------------- -------------------- ------------------ ------------
<S> <C> <C> <C> <C>
Robert Monaco(1)............... 900,000(4) 377,500 522,500 3.0%
Raymond Marshall(2)............ 900,000(4) 377,500 522,500 3.0%
Gerald J. Reid(1).............. 489,426(4) 300,000 189,426 1.1%
Lucille A. Reid(1)............. 541,426(4) 300,000 241,426 1.4%
Lloyd A. McConnell(1).......... 583,291(4) 220,000 363,291 2.1%
Charles E. Hewitson(1)......... 555,406(4) 25,000 530,406 3.0%
Gregory C. Hewitson(1)......... 555,406(4) 25,000 530,406 3.0%
Matthew J. Hewitson(1)......... 555,406(4) 25,000 530,406 3.0%
Jack Calderon(1)............... 300,441(4) 80,000 220,441 1.3%
August P. Bruehlman(1)......... 88,441(4) 20,000 68,441 *
Stuart W. Fuhlendorf(1)........ 118,728(4) 35,000 83,728 *
Brent L. Hofmeister(3)......... 24,628(5) 15,000 9,628 *
</TABLE>
- ---------------
* Less than one percent.
(1) For a description of positions held with the Company, see "Management."
(2) Mr. Marshall is a founder and Co-Manager of Personal Electronics.
(3) Mr. Hofmeister is the Company's Corporate Controller.
(4) For a description of the beneficial ownership of these shares of Common
Stock and percent of Common Stock beneficially owned prior to the offering,
see "Principal Shareholders."
(5) Includes 24,528 shares subject to currently exercisable options granted
under the Company's Equity Incentive Plan.
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
$.01 per share. As of May 27, 1998, there were 13,659,476 shares of Common Stock
outstanding, held of record by 235 persons, and no Preferred Stock was
outstanding. Upon completion of this offering, there will be 17,029,476 shares
of Common Stock (including 170,000 shares expected to be issued upon the
exercise of outstanding options by certain Selling Shareholders in connection
with this Offering and excluding shares subject to other 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
41
<PAGE> 43
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."
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
42
<PAGE> 44
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 17,029,476
shares of Common Stock outstanding (including 170,000 shares expected to be
issued upon the exercise of outstanding options by certain Selling Shareholders
in connection with this Offering and excluding shares subject to outstanding
options and warrants). Of these shares, all of the 5,000,000 shares to be sold
in this offering and an additional 6,089,789 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 5,939,687 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 120 days after the
date of this Prospectus without the prior written consent of Smith Barney Inc.
subject to certain exceptions. See "Underwriting." Smith Barney 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 120-day lockup period, approximately 4,894,687
shares of Common Stock will be eligible for sale, subject to the requirements of
Rule 144. An additional 1,045,000 shares of Common Stock will become eligible
for sale, subject to the requirements of Rule 144, after March 31, 1999. In
addition, the directors, officers and Selling Shareholders who have agreed to
120-day lockup periods hold currently exercisable options to purchase 445,829
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 the Stock Option Plans. Options to purchase 1,827,579 of such shares have
been issued and are outstanding under the Stock Option Plans and 921,513 of such
options have vested. The resale of 2,295,000 shares of Common Stock issuable
upon exercise of such options has been registered on Form S-8. The Board of
Directors of the Company has adopted an amendment to the Company's Equity
Incentive Plan to increase the number of shares of Common Stock reserved for
issuance by 2,500,000. This amendment will be voted on by the
43
<PAGE> 45
Company's shareholders at the Meeting. If such amendment is approved by the
shareholders, the Company intends to register the resale of these 2,500,000
shares of Common Stock on Form S-8. 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. Another 80,000 shares are
reserved for issuance upon the release of outstanding warrants that the Company
issued to certain underwriters in connection with the initial public offering of
the Company's Common Stock.
In connection with the CTI Merger and the PE Merger, the Company issued an
aggregate of 732,500 of non-qualified stock options, not under the Plans.
Pursuant to the Employment Agreement between the Company and Jack Calderon, the
Company's Chief Executive Officer, the Company issued Mr. Calderon 200,000
non-qualified stock options not under the Plans (of which 197,941 remain
outstanding and 80,000 are expected to be issued upon the exercise of
outstanding options in connection with this Offering). 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.
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 Smith Barney Inc., J.C. Bradford & Co., BancAmerica
Robertson Stephens, and Needham & Company, Inc., are acting as representatives
(the "Representatives"), has severally agreed to purchase from the Company the
respective number of shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Smith Barney Inc............................................
J.C. Bradford & Co..........................................
BancAmerica Robertson Stephens..............................
Needham & Company, Inc......................................
---------
Total............................................. 5,000,000
=========
</TABLE>
44
<PAGE> 46
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 Company has granted the Underwriters an option, exercisable during the
30-day period after the date of this Prospectus, to purchase up to 750,000
additional shares of Common Stock at the same price per share as the initial
5,000,000 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 120 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 120 days following the date of this Prospectus without the prior
written consent of Smith Barney Inc., other than (i) any shares of Common Stock
offered hereby, (ii) any option or warrant or the conversion of a security
outstanding on the date of, and described in, this Prospectus and (iii) shares
of Common Stock disposed of as bona fide gifts approved by Smith Barney 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 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
750,000 shares of Common Stock, by exercising the Underwriters' over-allotment
option referred to above. In addition, Smith Barney 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
45
<PAGE> 47
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.
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.
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 December
31, 1997 and 1996 and for each of the years in the three-year period ended
December 31, 1997 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 years in the three-year 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.
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
S-3 (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,
46
<PAGE> 48
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.
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, 1997 (as amended by
the Company's Amendment to Annual Report on Form 10-K/A for the fiscal year
ended December 31, 1997), (ii) the Company's Current Reports on Form 8-K dated
April 15, 1998 and May 15, 1998 filed previously with the Commission pursuant to
Section 13 of the Exchange Act, (iii) the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1998 and (iv) all filings by the Company
with the Commission pursuant to the Exchange Act after the date of Amendment No.
1 to the Registration Statement and prior to the effectiveness of the
Registration Statement. 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).
47
<PAGE> 49
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
EFTC CORPORATION AND SUBSIDIARIES
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets -- December 31, 1997 and 1996
and March 31, 1998 (Unaudited)......................... F-3
Consolidated Statements of Operations -- Years Ended
December 31, 1997, 1996 and 1995 and Three Months Ended
March 31, 1998 and 1997 (Unaudited).................... F-4
Consolidated Statements of Shareholders' Equity -- Years
Ended December 31, 1997, 1996 and 1995 and Three Months
Ended March 31, 1998 and 1997 (Unaudited).............. F-5
Consolidated Statements of Cash Flows -- Years Ended
December 31, 1997, 1996 and 1995 and Three Months Ended
March 31, 1998 and 1997 (Unaudited).................... F-6
Notes to Consolidated Financial Statements................ F-7
CIRCUIT TEST, INC. AND AFFILIATES
Independent Auditors' Report.............................. F-19
Combined Balance Sheets -- June 30, 1997 (Unaudited),
December 31, 1996 and 1995............................. F-20
Combined Statements of Operations -- Six Months Ended June
30, 1997 and 1996 (Unaudited) and Years Ended December
31, 1996, 1995 and 1994................................ F-21
Combined Statements of Stockholders' Equity -- Six Months
Ended June 30, 1997 (Unaudited) and Years Ended
December 31, 1996, 1995 and 1994....................... F-22
Combined Statements of Cash Flows -- Six Months Ended June
30, 1997 and 1996 (Unaudited) and Years Ended December
31, 1996, 1995 and 1994................................ F-23
Notes to Combined Financial Statements.................... F-24
</TABLE>
F-1
<PAGE> 50
INDEPENDENT AUDITORS' REPORT
The Board of Directors
EFTC Corporation:
We have audited the accompanying consolidated balance sheets of EFTC
Corporation and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1997. 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 December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
Denver, Colorado
May 1, 1998
F-2
<PAGE> 51
EFTC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996 AND MARCH 31, 1998 (UNAUDITED)
ASSETS (Note 4)
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31 ---------------------------
1998 1997(1) 1996(1)
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents....................... $ 592,576 $ 1,877,010 $ 406,903
Trade receivables, less allowance for doubtful
accounts of $466,000 in 1998, $474,000 in
1997 and $20,000 in 1996..................... 28,866,890 25,412,340 4,460,249
Inventories (note 3)............................ 59,154,326 46,066,650 9,195,202
Income taxes receivable......................... -- -- 616,411
Deferred income taxes (note 6).................. 491,152 494,290 427,059
Prepaid expenses and other...................... 1,403,298 759,668 102,425
------------ ------------ -----------
Total current assets.................... 90,508,242 74,609,958 15,208,249
------------ ------------ -----------
Property, plant and equipment:
Land, building and improvements................. 9,561,863 7,062,881 5,551,565
Machinery and equipment......................... 19,673,740 14,354,997 5,657,104
Furniture and fixtures.......................... 6,490,255 4,105,731 1,756,588
Construction in progress........................ 7,326,080 4,791,288 --
------------ ------------ -----------
43,051,938 30,314,897 12,965,257
Less accumulated depreciation................... (10,205,943) (5,957,233) (4,235,894)
------------ ------------ -----------
Net property, plant and equipment....... 32,845,995 24,357,664 8,729,363
------------ ------------ -----------
Goodwill, net of accumulated amortization of
$937,737 and $546,747 (note 2).................. 46,017,691 46,372,060 --
Other assets, net................................. 2,260,634 3,484,897 99,773
------------ ------------ -----------
$171,632,562 $148,824,579 $24,037,385
============ ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 33,198,077 $ 23,579,663 $ 2,498,113
Accrued compensation............................ 3,279,971 2,365,034 682,881
Income taxes payable............................ 666,024 608,585 5,453
Other accrued liabilities....................... 1,477,291 1,272,544 767,803
Current portion of long-term debt and notes
payable (note 4)............................. 8,350,000 3,150,000 1,970,000
------------ ------------ -----------
Total current liabilities............... 46,971,363 30,975,826 5,924,250
------------ ------------ -----------
Long-term debt, less current portion (note 4):
Related party................................... 4,811,227 7,513,703 1,057,085
Others.......................................... 41,025,000 34,295,000 2,890,000
------------ ------------ -----------
Total long-term debt, net of current
portion............................... 45,836,227 41,808,703 3,947,085
Deferred income taxes (note 6).................... 862,157 818,686 315,859
------------ ------------ -----------
Total liabilities....................... 93,669,747 73,603,215 10,187,194
------------ ------------ -----------
Shareholders' equity (notes 4 and 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
13,649,676, 13,641,776 and 5,742,660 shares,
respectively................................. 136,497 136,418 57,427
Additional paid-in capital...................... 69,475,544 68,040,433 10,169,180
Retained earnings............................... 8,350,774 7,044,513 3,623,584
------------ ------------ -----------
Total shareholders' equity.............. 77,962,815 75,221,364 13,850,191
------------ ------------ -----------
Commitments and contingencies (notes 2, 5 and 8)
$171,632,562 $148,824,579 $24,037,385
============ ============ ===========
</TABLE>
- ---------------
(1) Restated for pooling of interests -- See Note 1.
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 52
EFTC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------- ----------------------------------------
1998 1997(1) 1997(1) 1996(1) 1995(1)
----------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................... $54,199,607 $16,041,342 $122,079,117 $60,910,316 $51,579,746
Cost of goods sold (note 11)............ 44,296,692 13,941,282 102,166,332 56,276,756 46,436,719
----------- ----------- ------------ ----------- -----------
Gross profit.................. 9,902,915 2,100,060 19,912,785 4,633,560 5,143,027
Operating costs and expenses:
Selling, general and administrative
expenses (note 11)................. 5,320,978 1,213,281 12,711,431 5,917,034 4,324,390
Amortization of goodwill.............. 390,990 22,808 546,747 -- --
Impairment of fixed assets (note
11)................................ -- -- -- 725,869 --
Merger costs (note 2)................. 1,048,308 -- -- -- --
----------- ----------- ------------ ----------- -----------
Operating income (loss)....... 3,142,639 863,971 6,654,607 (2,009,343) 818,637
----------- ----------- ------------ ----------- -----------
Other income (expense):
Interest expense...................... (908,407) (212,327) (2,410,860) (575,673) (432,269)
Gain on sale of assets................ 4,188 4,188 1,156,618 50,012 49,533
Other, net............................ 35,041 16,641 138,959 50,436 43,461
----------- ----------- ------------ ----------- -----------
(869,178) (191,498) (1,115,283) (475,225) (339,275)
----------- ----------- ------------ ----------- -----------
Income (loss) before income taxes... 2,273,461 672,473 5,539,324 (2,484,568) 479,362
Income tax expense (benefit) (note 6)... 934,630 73,119 2,118,395 (866,661) 130,284
----------- ----------- ------------ ----------- -----------
Net income (loss)............. $ 1,338,831 $ 599,354 $ 3,420,929 $(1,617,907) $ 349,078
=========== =========== ============ =========== ===========
Pro
forma information (unaudited) (note 1):
Historical net income (loss).......... $ 1,338,831 $ 599,354 $ 3,420,929 $(1,617,907) $ 349,078
Pro forma adjustment to income tax
expense (benefit).................. 316,636 179,368 40,797 (9,727) (1,975)
----------- ----------- ------------ ----------- -----------
Pro forma net income (loss)... $ 1,022,195 $ 419,986 $ 3,380,132 $(1,608,180) $ 351,053
=========== =========== ============ =========== ===========
Pro forma income (loss) per share:
Basic.............................. $ 0.07 0.06 0.40 (0.28) 0.06
=========== =========== ============ =========== ===========
Diluted............................ $ 0.07 0.06 0.38 (0.28) 0.06
=========== =========== ============ =========== ===========
Weighted average shares outstanding:
Basic.............................. 13,644,587 6,657,667 8,502,160 5,742,139 5,762,261
=========== =========== ============ =========== ===========
Diluted............................ 14,399,804 6,657,667 8,954,525 5,742,139 5,762,261
=========== =========== ============ =========== ===========
</TABLE>
- ---------------
(1) Restated for pooling of interests -- See Note 1.
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 53
EFTC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND
THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1995(1)..... 5,691,110 $ 56,911 $ 9,998,035 $ 4,892,413 $14,947,359
Stock options exercised............ 49,750 498 165,169 -- 165,667
Net income......................... -- -- -- 349,078 349,078
---------- -------- ----------- ----------- -----------
BALANCES AT DECEMBER 31, 1995(1)... 5,740,860 57,409 10,163,204 5,241,491 15,462,104
Stock options exercised............ 1,800 18 5,976 -- 5,994
Net income......................... -- -- -- (1,617,907) (1,617,907)
---------- -------- ----------- ----------- -----------
BALANCES AT DECEMBER 31, 1996(1)... 5,742,660 57,427 10,169,180 3,623,584 13,850,191
Issuance of common stock in
business combination (note 2).... 3,838,975 38,389 14,143,793 -- 14,182,182
Issuance of common stock in
secondary offering, net of costs
(note 7)......................... 3,506,841 35,069 38,917,065 -- 38,952,134
Warrants issued in connection with
subordinated debt (note 7)....... -- -- 489,786 -- 489,786
Stock options and warrants
exercised, including tax benefit
of $95,478
(note 4)......................... 553,300 5,533 4,320,609 -- 4,326,142
Net income......................... -- -- -- 3,420,929 3,420,929
---------- -------- ----------- ----------- -----------
BALANCES AT DECEMBER 31, 1997(1)... 13,641,776 136,418 68,040,433 7,044,513 75,221,364
Conversion of notes payable to
shareholders to equity (note
2)............................... -- -- 1,397,922 -- 1,397,922
Secondary offering costs........... -- -- (40,676) -- (40,676)
Stock options and warrants
exercised (note 4)............... 7,900 79 45,295 -- 45,374
Termination of S Corporation tax
status of Personal Electronics... -- -- 32,570 (32,570) --
Net income......................... -- -- -- 1,338,831 1,338,831
---------- -------- ----------- ----------- -----------
BALANCES AT MARCH 31, 1998
(UNAUDITED)...................... 13,649,676 $136,497 $69,475,544 $ 8,350,774 $77,962,815
========== ======== =========== =========== ===========
</TABLE>
- ---------------
(1) Restated for pooling of interests -- See Note 1.
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 54
EFTC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------------- ----------------------------------------
1998 1997(1) 1997(1) 1996(1) 1995(1)
------------ ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................... $ 1,338,833 $ 599,354 $ 3,420,929 $(1,617,907) $ 349,074
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Depreciation and amortization............. 1,358,070 375,729 2,676,267 1,358,314 1,786,076
Deferred income tax expense (benefit)..... 46,079 164,534 755,650 (322,268) (15,745)
Loss (gain) on sale and impairment of
property, plant and equipment, net...... (4,188) (4,188) (1,149,638) 709,359 (155,621)
Changes in operating assets and
liabilities net of the effects of
acquisitions:
Trade receivables....................... (3,454,550) (1,032,324) (16,444,265) 858,283 (1,267,306)
Inventories............................. (13,087,676) (1,038,472) (28,799,065) 694,730 (2,400,883)
Income taxes receivable................. -- -- 616,411 (541,489) (10,267)
Income taxes payable.................... 61,924 (19,415) 604,100 -- --
Prepaid expenses and other current assets... (643,629) (98,608) (235,478) 295,079 (347,137)
Other assets............................ 1,224,263 28,795 (2,409,343) 67,375 (96,971)
Accounts payable and accrued liabilities... 10,733,612 851,010 11,550,845 (2,009,079) 1,160,180
------------ ----------- ------------ ----------- -----------
Net cash used by operating
activities......................... (2,427,262) (173,585) (29,413,587) (507,603) (998,600)
------------ ----------- ------------ ----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment... (9,450,693) (616,982) (13,496,255) (2,184,114) (2,492,693)
Proceeds from sale of property, plant and
equipment................................. -- 239,706 2,419,820 345,538 3,739,344
Payments for business combinations, net of
cash acquired............................. (36,621) (7,279,601) (30,997,426) -- --
------------ ----------- ------------ ----------- -----------
Net cash provided (used) by investing
activities......................... (9,487,314) (7,656,877) (42,073,861) (1,838,576) 1,246,651
------------ ----------- ------------ ----------- -----------
Cash flows from financing activities:
Stock options and warrants exercised........ 45,374 17,982 4,326,142 5,994 165,667
Issuance of common stock for cash, net of
costs..................................... (40,676) -- 38,952,134 -- --
Borrowings (payments) on lines of credit and
short-term notes payable, net............. 5,000,000 1,810,377 15,595,000 1,800,000 --
Proceeds from long-term debt................ 7,605,000 6,700,000 83,345,391 459,566 249,913
Principal payments on long-term debt........ (1,979,556) (85,000) (68,283,612) (217,033) (207,126)
Deferred debt issuance costs................ -- -- (977,500) -- --
------------ ----------- ------------ ----------- -----------
Net cash provided (used) by financing
activities......................... 10,630,142 8,443,359 72,957,555 2,048,527 208,454
------------ ----------- ------------ ----------- -----------
Increase (decrease) in cash and cash
equivalents........................ (1,284,434) 612,897 1,470,107 (297,652) 456,505
Cash and cash equivalents:
Beginning of year........................... 1,877,010 406,903 406,903 704,555 248,050
------------ ----------- ------------ ----------- -----------
End of year................................. $ 592,576 $ 1,019,800 $ 1,877,010 $ 406,903 $ 704,555
============ =========== ============ =========== ===========
Supplemental disclosures of cash flow
information --
Cash paid during the period for:
Interest.................................. $ 977,670 $ 124,963 $ 2,022,881 $ 567,321 $ 419,927
============ =========== ============ =========== ===========
Income taxes, net......................... $ 858,695 $ -- $ 118,608 $ -- $ 152,530
============ =========== ============ =========== ===========
Common stock issued in business
combinations.............................. $ -- $ 5,445,000 $ 14,182,182 $ -- $ --
============ =========== ============ =========== ===========
Conversion of notes payable to shareholders
to equity................................. $ 1,397,922 $ -- $ -- $ -- $ --
============ =========== ============ =========== ===========
</TABLE>
- ---------------
(1) Restated for pooling of interests -- See Note 1.
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 55
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
MARCH 31, 1998
(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 aerospace and
avionics, computer related, medical, industrial controls, communications
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, "hub based" repair
and warranty services and quick turn prototype services.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
EFTC Corporation and its wholly-owned subsidiaries since the date of formation
or acquisition, as described in note 2. All intercompany balances and
transactions have been eliminated in consolidation.
On March 31, 1998, EFTC Corporation acquired, through a merger, RM
Electronics, Inc., doing business as Personal Electronics (Personal), in a
business combination accounted for as a pooling of interests. EFTC issued
1,800,000 shares of common stock in exchange for all of the outstanding common
stock of Personal. Accordingly, the Company's consolidated financial statements
have been restated for all periods presented to combine the financial position,
results of operations and cash flows of Personal with those of the Company.
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 revenue and expenses during the
reporting period. Actual results could differ from those estimates.
The consolidated financial statements, and related notes, as of March 31,
1998 and for the three months ended March 31, 1998 and 1997 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
consolidated financial condition, results of operations and cash flows. The
operating results for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with original
maturities of three months or less.
Inventories
Inventories are stated at the lower of standard costs, which approximates
weighted average cost, or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Maintenance and repairs
are charged to operations 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.
F-7
<PAGE> 56
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Goodwill and Other Assets
Goodwill is amortized using the straight-line method over 30 years. At
December 31, 1997, other assets include acquired intellectual property
consisting of circuit board assembly designs and specifications of $1.1 million
which are being amortized over 10 years using the straight-line method, deferred
financing costs of $926,000 which are being amortized over 5 years, and
restricted cash of $653,000.
Impairment of Long-Lived Assets
The Company accounts for long-lived assets under 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). 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 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. In connection with the Company's restructuring in August 1996, the
Company recorded a provision for impairment of certain fixed assets of $726,000.
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 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 of products to customers.
Income (Loss) Per Share
Income (loss) per share is presented in accordance with the provisions of
Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS
128). SFAS 128 replaced the presentation of primary and fully diluted earnings
(loss) per share (EPS), with a presentation of basic EPS and diluted EPS. Under
SFAS 128, basic EPS excludes dilution for potential common shares and is
computed by dividing income or loss available to common shareholders by the
weighted average number common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock
and resulted in the issuance of common stock. In 1997, diluted weighted average
shares outstanding includes 452,365 potential shares, consisting of stock
options and warrants, determined using the treasury stock method. Basic and
diluted EPS are the same in 1996 and 1995 as all potential common shares were
antidilutive. In addition, all share and per share amounts have been restated
for the effects of a business combination accounted for as a pooling of
interests, as discussed in note 2.
Pro Forma Net Income
To properly reflect the Company's pro forma net income, the net income of
Personal, which was not subject to income taxes due to their S corporation
status, has been tax effected and included as a pro forma adjustment to income
tax expense in the accompanying consolidated statements of operations. This
F-8
<PAGE> 57
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
adjustment was computed as if the merged company had been a taxable entity
subject to federal and state income taxes for all periods presented at the
marginal tax rates applicable in such periods.
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 income
per share, as required by Statement of Financial Accounting Standards No. 123
(SFAS 123), Accounting for Stock-based Compensation, are included in note 7 to
the consolidated financial statements.
Reclassifications
Certain prior year amounts have been reclassified to conform with current
year presentation.
(2) BUSINESS COMBINATIONS AND ASSET ACQUISITIONS
As discussed in note 1, on March 31, 1998, the Company merged with Personal
in a business combination accounted for as a pooling of interests.
Revenue, net income (loss) and pro forma net income (loss) of EFTC and
Personal and the combined companies for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31: EFTC CORPORATION PERSONAL COMBINED
----------------------- ---------------- ---------- ------------
<S> <C> <C> <C>
1997:
Revenue................................ $113,243,983 $8,835,134 $122,079,117
Net income............................. 3,316,321 104,608 3,420,929
Pro forma net income................... 3,316,321 63,811 3,380,132
1996:
Revenue................................ 56,880,067 4,030,249 60,910,316
Net loss............................... (1,592,965) (24,942) (1,617,907)
Pro forma net loss..................... (1,592,965) (15,215) (1,608,180)
1995:
Revenue................................ 49,220,070 2,359,676 51,579,746
Net income (loss)...................... 354,138 (5,060) 349,078
Pro forma net income (loss)............ 354,138 (3,085) 351,053
</TABLE>
The Company incurred merger costs of $1,048,308, which were charged to
operations in March 1998. Notes payable to shareholders of Personal in the
amount of $1,397,922 were converted to equity upon consummation of the merger.
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 $35.7 million consisting of 1,858,975 shares
of the Company's common stock and approximately $26.5 million in cash, which
includes approximately $1.4 million of transaction costs and a $6 million
payment made in November 1997 following a common stock offering (described in
note 7). The Company recorded goodwill of approximately $38.9 million, in
connection with the transaction. 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.
In February 1998, the Company completed two transactions with AlliedSignal
Inc. (AlliedSignal) pursuant to which the Company acquired certain inventory and
equipment located in Ft. Lauderdale, Florida,
F-9
<PAGE> 58
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. The Company acquired AlliedSignal's inventory and equipment located at
the Arizona facility. The aggregate purchase price of all assets acquired by the
Company from AlliedSignal was approximately $19.0 million. The Company has also
agreed 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, 2001.
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. 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, and
is restated for the merger of Personal in 1998:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Revenue................................................. $155,126,000 $119,940,000
Net income (loss)....................................... 1,115,000 (2,134,000)
Net income (loss) per share -- diluted.................. .12 (.28)
</TABLE>
The above pro forma information is not necessarily indicative of future
results.
(3) INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------------
1998 1997 1996
----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Purchased parts and completed
subassemblies.............................. $50,184,714 $38,723,546 $7,689,409
Work-in-progress............................. 8,164,861 6,950,855 1,256,570
Finished goods............................... 804,751 392,249 249,223
----------- ----------- ----------
$59,154,326 $46,066,650 $9,195,202
=========== =========== ==========
</TABLE>
F-10
<PAGE> 59
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) DEBT
Long-term debt to related parties consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------------
1998 1997 1996
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Subordinated Notes to director(a).................... $4,861,227 $4,861,227 $ --
Notes payable to Personal shareholders(b)............ -- 2,702,476 1,057,085
---------- ---------- ----------
Subtotal................................... 4,861,227 7,563,703 1,057,085
Less current maturities.............................. (50,000) (50,000) --
---------- ---------- ----------
Total long-term debt-related party, net of current
portion............................................ $4,811,227 $7,513,703 $1,057,085
========== ========== ==========
</TABLE>
- ---------------
(a) During September 1997, the Company issued $15 million of subordinated notes
(the Subordinated Notes) to a director and stockholder of the Company. The
Subordinated Notes bear interest at LIBOR plus 2% (8.19% at December 31,
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 Subordinated
Notes are subordinate to the Company's senior bank debt. The Subordinated
Notes also included warrants to acquire 500,000 shares of the Company's
common stock at $8.00 per share. The warrants were issued in October 1997
and were valued at approximately $500,000 using the Black-Scholes pricing
model. Such amount was recorded as debt discount and is being amortized to
interest expense over the term of the Subordinated Notes. The warrants were
exercised on October 9, 1997 for total proceeds of approximately $4 million.
The Company repaid $10 million of this debt in December 1997 upon the
completion of the common stock offering described in note 7 and the
scheduled repayment was reduced by the pro rata amount of unamortized
discount. Accordingly, no gain or loss was recognized on the extinguishment
of the debt. The outstanding balance, net of discount, as of December 31,
1997 and March 31, 1998 was $4,861,227, of which $50,000 is included in the
current portion of long-term debt.
(b) At December 31, 1997 and 1996, there were notes payable to Personal
shareholders in the amount of $2,702,476 and $1,057,085, respectively. At
March 31, 1998, notes payable to Personal shareholders in the amount of
$1,397,922 were converted to equity.
Long-term debt and notes payable to others consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------------
1998 1997 1996
----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Notes payable to banks(c).................... $44,325,000 $37,395,000 $ --
Note payable to a bank with interest at 1%
above prime rate adjusted annually, repaid
in 1997.................................... -- -- 3,060,000
Note payable to a bank with interest at 9.5%,
due in April 1998(c)....................... 5,000,000 -- --
----------- ----------- ----------
Subtotal........................... 49,325,000 37,395,000 3,060,000
Less current portion......................... (8,300,000) (3,100,000) (170,000)
----------- ----------- ----------
Long-term debt to others, net of current
portion.................................... $41,025,000 $34,295,000 $2,890,000
=========== =========== ==========
</TABLE>
- ---------------
(c) In connection with the CTI Companies business combination and the
AlliedSignal asset acquisition, the Company entered into a new loan
agreement consisting of a $25 million revolving line of credit renewable on
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
F-11
<PAGE> 60
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 applicable margins ranging from 0.50% to 3.25% for the term facility
(9.16% at December 31, 1997) and 0% to 2.75% for the revolving facility
(approximately 9% at December 31, 1997). Borrowings on the revolving
facility are subject to limitation based on the value of the available
collateral. The loan agreement is collateralized by substantially all of the
Company's assets and contains restrictive covenants relating to capital
expenditures, limitation on investments, borrowings, payment of dividends
and 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 December 31, 1997, the borrowing
availability under the agreement was approximately $7.6 million. This credit
facility may be withdrawn or canceled under certain conditions such as
default or in the event the Company experiences a material adverse change in
its financial condition.
In March 1998, the Company issued Bank One a 15-day note in the
principal amount of $5 million (the "Bank One Note") the proceeds of which
were used to make payments to AlliedSignal in connection with the
AlliedSignal Asset Purchase and for normal operating expenses. The existing
loan agreement was then amended in April 1998, increasing the revolving
line of credit to $40 million from $25 million. The Bank One Note was
repaid in April 1998 after this amendment was completed. As of March 31,
1998, the total outstanding principal amount under the existing loan
agreement was $44.3 million, comprised of a term loan of $19.3 million and
an outstanding balance on the revolving loan of $25 million.
Annual maturities of long-term debt, excluding the discount on the
subordinated notes, are as follows at March 31, 1998:
<TABLE>
<S> <C>
1998............................................ $ 8,300,000
1999............................................ 4,085,000
2000............................................ 4,540,000
2001............................................ 4,900,000
2002............................................ 27,500,000
-----------
$49,325,000
===========
</TABLE>
(5) LEASES
The Company has noncancelable operating leases for facilities and equipment
that expire in various years through 2002. Lease expense on these operating
leases amounted to $2,333,486, $1,215,623 and $578,958 for the years ended
December 31, 1997, 1996 and 1995, respectively.
At December 31, 1997, future minimum lease payments for operating leases
are as follows:
<TABLE>
<S> <C>
1999............................................. $2,173,150
2000............................................. 1,583,840
2001............................................. 1,049,980
2002............................................. 365,416
----------
Total future minimum lease payments.... $5,172,386
==========
</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-12
<PAGE> 61
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) INCOME TAXES
The current and deferred components of income tax expense (benefit) are as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------
1998 1997 1997 1996 1995
-------- -------- ---------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal.......................... $835,238 $(91,415) $1,210,858 $(549,846) $142,263
State............................ 53,313 -- 151,887 5,453 3,766
-------- -------- ---------- --------- --------
888,551 (91,415) 1,362,745 (544,393) 146,029
-------- -------- ---------- --------- --------
Deferred:
Federal.......................... 43,471 154,662 599,245 (196,440) (13,635)
State............................ 2,608 9,872 156,405 (125,828) (2,110)
-------- -------- ---------- --------- --------
46,079 164,534 755,650 (322,268) (15,745)
-------- -------- ---------- --------- --------
$934,630 $ 73,119 $2,118,395 $(866,661) $130,284
======== ======== ========== ========= ========
</TABLE>
Actual income tax expense (benefit) differs from the amounts computed using
the statutory tax rate of 34% as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
---------------------- -----------------------------------
1998 1997 1997 1996 1995
--------- --------- ---------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Computed tax at the expected
statutory rate................. $ 772,977 $ 228,641 $1,883,370 $(844,753) $162,983
Increase (decrease) in income
taxes resulting from:
State income taxes, net of
federal benefit and state
tax credits................. 113,673 18,157 148,565 (80,693) 839
Amortization of nondeductible
goodwill.................... 40,526 6,497 84,927 -- --
S Corporation (income) loss of
Personal.................... (316,636) (179,368) (40,797) 9,727 1,975
Non-deductible merger costs.... 297,500 -- -- -- --
Research and development tax
credits..................... -- -- -- -- (40,000)
Other, net..................... 26,590 (808) 42,330 49,058 4,487
--------- --------- ---------- --------- --------
Income tax expense
(benefit)................. $ 934,630 $ 73,119 $2,118,395 $(866,661) $130,284
========= ========= ========== ========= ========
</TABLE>
In 1997, the Company recognized $95,478 as an increase to additional
paid-in capital for the income tax benefit resulting from the exercise of stock
options by employees.
F-13
<PAGE> 62
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences at December 31, 1997 and 1996 that
give rise to significant portions of the deferred tax assets and liabilities are
presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Accrued vacation and/or bonuses........................... $ 283,078 $ 76,064
Restructuring charges..................................... -- 186,434
Deferred gain on sale leaseback........................... 27,583 36,088
Deferred loss on asset writedown.......................... 70,407 --
State net operating loss carryforwards.................... 15,200 95,420
Allowance for doubtful accounts........................... 124,807 7,600
Other..................................................... 86,405 25,453
--------- ---------
Total deferred tax assets......................... $ 607,480 $ 427,059
========= =========
Deferred tax liabilities:
Amortization of deductible goodwill....................... $(115,640) $ --
Accelerated depreciation and other basis differences for
property, plant and equipment.......................... (816,236) (315,859)
--------- ---------
Total deferred tax liabilities.................... $(931,876) $(315,859)
========= =========
</TABLE>
The above balances are classified in the accompanying consolidated balance
sheets as of December 31, 1997 and 1996 and March 31, 1998 as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Net deferred tax asset -- current........................... $494,290 $427,059
======== ========
Net deferred tax liability -- noncurrent.................... $818,686 $315,859
======== ========
</TABLE>
Management believes that it is more likely than not that future operations
will generate sufficient taxable income to realize the deferred tax assets. At
March 31, 1998, the components of deferred tax assets and liabilities have not
changed significantly from December 31, 1997.
(7) SHAREHOLDERS' EQUITY
In November 1997, the Company issued 3,506,841 shares of common stock in a
public offering for proceeds of $39.5 million, net of issuance costs of
approximately $3.1 million.
The Company has three stock option or equity incentive plans: the 1989
Plan, the Equity Incentive Plan and 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 1989 Plan. These options generally vest over a five-year
period and expire in April 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 under this plan, which 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 557,550 shares are available for grant under all plans at
December 31, 1997.
F-14
<PAGE> 63
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has also issued 930,441 nonqualified options to officers and
employees. Options generally vest 7 years after the grant date, but vesting may
accelerate based on increases in the market price of the Company's common stock.
The following summarizes activity of the various stock option plans
(described in note 7) and other stock options granted to employees for the three
years ended December 31, 1997 and three months ended March 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE PRICE
OPTIONS PER SHARE
--------- --------------
<S> <C> <C>
Balance at January 1, 1995.................................. 313,550 $ 5.11
Granted................................................... 69,500 5.30
Exercised................................................. (49,750) 3.33
Canceled.................................................. (70,600) 6.37
---------
Balance at December 31, 1995................................ 262,700 5.87
Granted................................................... 375,200 4.04
Exercised................................................. (1,800) 3.33
Canceled.................................................. (75,600) 6.64
---------
Balance at December 31, 1996................................ 560,500 4.55
Granted................................................... 2,004,000 11.63
Exercised................................................. (53,300) 4.34
Canceled.................................................. (95,980) 6.07
---------
Balance at December 31, 1997................................ 2,415,220 10.37
Granted................................................... 361,000 13.41
Exercised................................................. (7,900) 5.74
Canceled.................................................. (5,000) 16.25
---------
Balance at March 31, 1998 (unaudited)....................... 2,763,320 10.77
=========
</TABLE>
The following table summarizes information regarding fixed stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
------------------------ ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 3.33 to $ 5.00............................ 399,520 8.3 $ 3.98 356,426 $3.97
$ 5.01 to $10.00............................ 774,200 8.9 6.45 487,464 6.02
$10.01 to $15.00............................ 777,500 9.8 14.03 -- --
$15.01 to $16.25............................ 464,000 9.8 16.25 -- --
--------- -------
2,415,220 9.3 10.37 843,890 5.15
========= =======
</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 1998, 1997, 1996 and 1995.
F-15
<PAGE> 64
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
---------- ----------- --------
<S> <C> <C> <C>
Net income (loss):
As reported.................................. $3,420,929 $(1,617,907) $349,078
Pro forma.................................... 1,148,849 (1,756,201) 324,903
Income (loss) per share -- basic:
As reported.................................. .40 (.28) .06
Pro forma.................................... .14 (.32) .05
Income (loss) per share -- diluted:
As reported.................................. .38 (.28) .06
Pro forma.................................... .13 (.32) .05
</TABLE>
The weighted average fair values of options granted for the years ended
December 31, 1997, 1996 and 1995 were $5.90, $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>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Dividend yield.............................................. 0% 0% 0%
Expected volatility......................................... 70% 60% 60%
Risk-free interest rates.................................... 6% 6% 6%
Expected lives (years)...................................... 3 4 3
</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 and which vest
after that date has not been considered.
The Company also has 80,000 warrants outstanding which were issued to two
underwriters 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 March 31, 1998.
(8) FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments at December 31,
1997 and 1996 are deemed to approximate their 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.
(9) EMPLOYEE BENEFIT PLAN
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 years ended
December 31, 1997, 1996 and 1995, contributions from the Company to the plan
were approximately $138,000, $106,000 and $90,000, respectively.
F-16
<PAGE> 65
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) TRANSACTIONS WITH RELATED PARTIES
Under an existing agreement, the CTI Companies were required to pay
$500,000 upon change in control to an entity acting as a sales agent for the CTI
Companies in which individuals who are stockholders, officers and directors of
the Company have a majority ownership interest.
In 1997, the Company leased three facilities from directors of the Company.
Amounts paid to the directors totaled approximately $283,000.
An investment banking firm, of which a director of the Company is the
Managing Director, received a fee of approximately $900,000 as a representative
of the CTI Companies in their acquisition by the Company. The same firm received
a fee of approximately $640,000 in connection with the Personal merger.
(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. Inventory
allowances, totaling approximately $344,000, were also 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. 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 remained at December 31, 1997.
(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.
F-17
<PAGE> 66
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Sales to significant customers as a percentage of total net sales were as
follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, -----------------------
1998 1997 1996 1995
------------ ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
AlliedSignal...................................... 38.6 25.3% --% --%
Exabyte........................................... 4.5 12.3 20.3 --
Ohmeda (BOC Group)................................ 2.6 6.9 14.8 14.8
Hewlett Packard Company........................... 2.7 6.2 25.1 36.5
Kentrox........................................... 2.2 6.0 -- --
</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-18
<PAGE> 67
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-19
<PAGE> 68
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-20
<PAGE> 69
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
------------ ----------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
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-21
<PAGE> 70
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-22
<PAGE> 71
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-23
<PAGE> 72
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-24
<PAGE> 73
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-25
<PAGE> 74
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.
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.
F-26
<PAGE> 75
CIRCUIT TEST, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(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-27
<PAGE> 76
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-28
<PAGE> 77
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-29
<PAGE> 78
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-30
<PAGE> 79
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-31
<PAGE> 80
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-32
<PAGE> 81
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-33
<PAGE> 82
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-34
<PAGE> 83
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-35
<PAGE> 84
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-36
<PAGE> 85
======================================================
NO DEALER, SALESPERSON OR ANY 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
CONTAINED HEREIN, 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. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT RELATES IN ANY
STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE.
THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------------
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........................ 14
Price Range of Common Stock............ 14
Dividend Policy........................ 14
Capitalization......................... 15
Selected Consolidated Historical
Financial Data....................... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 18
Business and Properties................ 26
Certain Relationships and Related
Transactions......................... 34
Management............................. 35
Principal Shareholders................. 39
Selling Shareholders................... 41
Description of Capital Stock and Other
Securities........................... 41
Shares Eligible for Future Sale........ 43
Underwriting........................... 44
Legal Matters.......................... 46
Experts................................ 46
Available Information.................. 46
Incorporation of Certain Documents by
Reference............................ 47
Index to Financial Statements.......... F-1
</TABLE>
======================================================
======================================================
5,000,000 SHARES
EFTC CORPORATION
COMMON STOCK
EFTC CORPORATION LOGO
------------
PROSPECTUS
JUNE , 1998
------------
SALOMON SMITH BARNEY
J.C. BRADFORD & CO.
BANCAMERICA ROBERTSON STEPHENS
NEEDHAM & COMPANY, INC.
======================================================
<PAGE> 86
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 and the NASD Filing Fee).
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee........................................ $ 27,617
National Association of Securities Dealers, Inc. Fee........ 9,862
Nasdaq Listing Fee.......................................... 17,500
Blue Sky Qualification Fees and Expenses (including legal
fees)..................................................... 3,500+
Printing Expenses........................................... 170,000+
Legal Fees and Expenses..................................... 80,000+
Auditors' Fees and Expenses................................. 60,000+
Transfer Agent and Registrar Fees........................... 3,500+
Miscellaneous Expenses...................................... 3,021+
--------
Total............................................. $375,000+
========
</TABLE>
- ---------------
+ Estimated.
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> 87
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 Common Stock
*23.1 -- Consent of KPMG Peat Marwick LLP
*23.2 -- Consent of KPMG Peat Marwick LLP
23.3 -- Consent of Holme Roberts & Owen LLP (See Exhibit 5.1)
+23.4 -- Consent of Robert Monaco
+24.1 -- Powers of Attorney
*24.2 -- Power of Attorney of Brent L. Hofmeister
</TABLE>
- ---------------
* Filed herewith
+ Previously filed
(1) Incorporated by reference from the Company's Registration Statement on Form
SB-2 (File No. 33-73392-D) filed on December 23, 1993
(b) Financial Statement Schedules
<TABLE>
<CAPTION>
SCHEDULE
NUMBER DESCRIPTION OF SCHEDULES
-------- ------------------------
<C> <S>
</TABLE>
All other 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-2
<PAGE> 88
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-3
<PAGE> 89
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
that it has reasonable grounds to believe that it meets all of the requirements
for filing Form S-3 and has duly caused this Amendment Number 1 to be signed on
its behalf by the undersigned, thereunto duly authorized, in Denver, Colorado,
on this 28th day of May 1998.
EFTC CORPORATION
By: /s/ JACK CALDERON
----------------------------------
Jack Calderon
President and Chief Executive
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>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
* Chairman of the Board and May 28, 1998
- ----------------------------------------------------- Director
Gerald J. Reid
/s/ JACK CALDERON Director, President and Chief May 28, 1998
- ----------------------------------------------------- Executive Officer (Principal
Jack Calderon Executive Officer)
/s/ STUART W. FUHLENDORF Director and Chief Financial May 28, 1998
- ----------------------------------------------------- Officer (Principal Financial
Stuart W. Fuhlendorf Officer)
* Controller (Principal Accounting May 28, 1998
- ----------------------------------------------------- Officer)
Brent L. Hofmeister
* Director May 28, 1998
- -----------------------------------------------------
Allen S. Braswell, Sr.
* Director May 28, 1998
- -----------------------------------------------------
Allen S. Braswell, Jr.
* Director May 28, 1998
- -----------------------------------------------------
Darrayl F. Cannon
* Director May 28, 1998
- -----------------------------------------------------
James A. Doran
* Director May 28, 1998
- -----------------------------------------------------
Charles E. Hewitson
* Director May 28, 1998
- -----------------------------------------------------
Gregory C. Hewitson
</TABLE>
II-4
<PAGE> 90
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
* Director May 28, 1998
- -----------------------------------------------------
Matthew J. Hewitson
* Director May 28, 1998
- -----------------------------------------------------
Robert R. McNamara
* Director May 28, 1998
- -----------------------------------------------------
Lloyd A. McConnell
* Director May 28, 1998
- -----------------------------------------------------
Richard L. Monfort
* Director May 28, 1998
- -----------------------------------------------------
Lucille A. Reid
* Director May 28, 1998
- -----------------------------------------------------
Masoud S. Shirazi
* Director May 28, 1998
- -----------------------------------------------------
David W. Van Wert
By: /s/ STUART W. FUHLENDORF
------------------------------------------------
Stuart W. Fuhlendorf,
as attorney-in-fact
</TABLE>
II-5
<PAGE> 91
EXHIBIT INDEX
<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
*23.1 -- Consent of KPMG Peat Marwick LLP
*23.2 -- Consent of KPMG Peat Marwick LLP
23.3 -- Consent of Holme Roberts & Owen LLP (See Exhibit 5.1)
+23.4 -- Consent of Robert Monaco
+24.1 -- Powers of Attorney
*24.2 -- Power of Attorney of Brent L. Hofmeister
</TABLE>
- ---------------
* Filed herewith
+ Previously filed
(1) Incorporated by reference from the Company's Registration Statement on Form
SB-2 (File No. 33-73392-D) filed on December 23, 1993
<PAGE> 1
EXHIBIT 1.1
EFTC Corporation
5,000,000 Shares*
Common Stock
($0.01 par value)
Form of Underwriting Agreement
New York, New York
June ___, 1998
Salomon Smith Barney
J.C. Bradford & Co.
BancAmerica Robertson Stephens
Needham and Company, Inc.
As Representatives of the several Underwriters,
c/o Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
EFTC Corporation, a Colorado corporation (the "Company"),
proposes to sell to the several underwriters named in Schedule I hereto (the
"Underwriters"), for whom you (the "Representatives") are acting as
representatives, 3,200,000 shares of Common Stock, $0.01 par value ("Common
Stock"), of the Company and the persons named in Schedule II hereto (the
"Selling Shareholders") propose to sell to the several Underwriters 1,800,000
shares of Common Stock (said shares to be issued and sold by the Company and
shares to be sold by the Selling Shareholders collectively being hereinafter
called the "Underwritten Securities"). The Company also proposes to grant to
the Underwriters an option to purchase up to 750,000 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-3 which were filed under the Exchange Act on or before the
Effective Date of the Registration Statement or the issue date of such
Preliminary Prospectus or the Prospectus, as the case may be; and any reference
herein to the terms "amend," "amendment" or "supplement" with respect to
- ---------
* Plus an option to purchase from EFTC Corporation up to 750,000
additional shares to cover over-allotments.
<PAGE> 2
the Registration Statement, any Preliminary Prospectus or the Prospectus shall
be deemed to refer to and include the filing of any document under the Exchange
Act after the Effective Date of the Registration Statement, or the issue date
of any Preliminary Prospectus or the Prospectus, as the case may be, deemed to
be incorporated therein by reference. Certain terms used herein are defined in
Section 17 hereof.
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.
1. 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 1(a).
(i) The Company meets the requirements for use of
Form S-3 under the Act and has prepared and filed with the
Commission a registration statement (file number 333-52137)
on Form S-3, 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 one of the following: 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). 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.
(ii) 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
Option Securities 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
2
<PAGE> 3
with the applicable requirements of the Act and the Exchange
Act and the respective rules 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).
(iii) The subsidiaries listed on Schedule III
hereto are the only subsidiaries of the Company.
(iv) 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.
(v) 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.
(vi) 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 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
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.
(vii) 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 Sales; and -- Anti-Takeover Provisions" and
"Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Acquisitions", (B) the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1997, 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 21, 1998, under the heading "Certain Relationships and
Related Transactions," fairly summarize the matters therein
described.
(viii) 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.
(ix) 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.
(x) 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.
(xi) 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, (A) the
charter or by-laws of the Company or any of its subsidiaries,
(B) 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 the Company or any of its subsidiaries is a party
4
<PAGE> 5
or bound or to which its or their property is subject or (C)
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.
(xii) 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.
(xiii) 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 Financial Data"
and "Prospectus Summary -- Summary Consolidated Historical
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.
(xiv) 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 (A) 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 (B) could reasonably be expected to
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).
(xv) 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 currently
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 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
5
<PAGE> 6
(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.
(xvi) Neither the Company nor any subsidiary is in
violation or default of (A) any provision of its charter or
bylaws, (B) 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 (C) 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).
(xvii) KPMG Peat Marwick LLP which has certified
certain financial statements of the Company or its
subsidiaries and delivered its report with respect to the
audited consolidated financial statements and schedules
included in the Prospectus, is an independent public
accountant with respect to the Company within the meaning of
the Act and the applicable published rules and regulations
thereunder.
(xviii) 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.
(xix) 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
6
<PAGE> 7
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).
(xx) 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).
(xxi) 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).
(xxii) 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).
(xxiii) Except as set forth in or contemplated in the
Prospectus (exclusive of any supplement thereto), the Company
and its subsidiaries (A) possess all certificates,
authorizations and permits, whether from 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 (B) have
not received any notice of proceedings relating to the
revocation or modification of any such
7
<PAGE> 8
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.
(xxiv) The Company and each of its subsidiaries
maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (A) transactions are
executed in accordance with management's general or specific
authorizations; (B) transactions are recorded as necessary to
permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset
accountability; (C) access to assets is permitted only in
accordance with management's general or specific
authorization; and (D) the recorded accountability for assets
is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any
differences.
(xxv) The Company owns or has obtained licenses or
other rights for all patents, patent applications, trade and
service marks, trade names, copyrights, inventions, trade
secrets, technology, know-how and other intellectual
properties, including without limitation the rights to the AES
software described in the Prospectus (collectively, the
"Intellectual Property"), necessary for the conduct of the
Company's business as now conducted or as proposed to be
conducted in the Prospectus, except where the failure to so
own or obtain licenses or other rights would not singly 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. 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 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
8
<PAGE> 9
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.
(xxvi) Except as disclosed in the Registered
Statement and the Prospectus, the Company (A) does not have
any material lending or other relationship with any bank
affiliate or lending affiliate of Smith Barney Inc., J.C.
Bradford & Co., BancAmerica Robertson Stephens or Needham and
Company, Inc., and (B) 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.
(xxvii) 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.
(xxviii) 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 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.
(xxix) The Indemnification Agreement, dated March
31, 1998, among Raymond Marshall and Robert Monaco
(collectively, the "Personal Electronics Indemnitors") and the
Company, has been duly authorized, executed and delivered by
the Company, has been duly executed and delivered by the
Personal Electronics Indemnitors and constitutes a valid and
binding obligation of the Company and the Personal Electronics
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
9
<PAGE> 10
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 as set forth below in this Section 1(b).
(i) Such Selling Shareholder is the lawful owner
of the Securities to be sold by such Selling Shareholder
hereunder and upon delivery of such Securities to the several
Underwriters and the payment by the several Underwriters of
the purchase price therefor as provided herein, assuming that
the several Underwriters have taken delivery of such
Securities in good faith and without notice of any "adverse
claim" (as defined in Section 8-102 of the Uniform Commercial
Code--Investment Securities in McKinney's Consolidated Laws of
New York as it exists on the date hereof), the several
Underwriters will acquire such Securities free of any "adverse
claim."
(ii) 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.
(iii) Certificates in negotiable form for such
Selling Shareholder's 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 Execution Time 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 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.
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<PAGE> 11
(iv) 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.
(v) 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 1(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.
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 Section 1(a).
(d) Each Exercising Selling Shareholder represents and
warrants to, and agrees with, each Underwriter that it has delivered to the
Company (A) notice in the form attached hereto as Exhibit C of an irrevocable
election, effective as of the Execution Time, to exercise options for the
purchase of the number of shares of Common Stock shown opposite its name on
Schedule VI hereto and (B) irrevocable instructions to deliver the Exercise
Securities to the Custodian to be held by the Custodian pursuant to the Custody
Agreement; each such election
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<PAGE> 12
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.
2. Purchase and Sale.
(a) Subject to the terms and conditions and in reliance
upon the representations and warranties herein set forth, the Company agrees,
severally and not jointly, to sell 3,200,000 of the Underwritten Securities,
and each of the Selling Shareholders agree, severally and not jointly, to sell
the number of Underwritten Securities set forth opposite such Selling
Shareholder's name in Schedule II hereto to each Underwriter, and each
Underwriter agrees, severally and not jointly, to purchase from the Company and
the Selling Shareholders, 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 Company hereby
grants an option to the several Underwriters to purchase, severally and not
jointly, up to 750,000 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 setting forth the number of shares of the Option
Securities as to which the several Underwriters are exercising the option and
the settlement date. In the event that the Underwriters exercise less than
their full over- allotment option, the number of 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.
3. Delivery and Payment. Delivery of and payment for
the Underwritten Securities and the Option Securities (if the option provided
for in Section 2(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 , 1998, 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 the Selling Shareholders or as provided in
Section 9 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
12
<PAGE> 13
Underwriters through the Representatives of the respective aggregate purchase
prices of the Securities being sold by the Company and each of the Selling
Shareholders to or upon the order of the Company and the Custodian on behalf of
such Selling Shareholders, respectively, by wire transfer payable in same-day
funds to the accounts specified by the Company and an Attorney-in-Fact (as
defined in Exhibit B hereto) on behalf of the Selling Shareholders. Delivery
of the Underwritten Securities and the Option Securities 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 (A) to the
Company of the aggregate exercise price of the options described in Schedule VI
hereto as to which such Exercise Securities relate and (B) to the Custodian on
behalf of 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 (A) of this sentence, in each case, by
wire transfer payable in same day funds to the account specified pursuant to
the preceding paragraph.
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.
If the option provided for in Section 2(b) hereof is exercised
after the third Business Day prior to the Closing Date, the Company 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 Company by wire transfer payable in same-day funds to the
accounts specified by the Company. If settlement for the Option Securities
occurs after the Closing Date, the Company 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 6 hereof.
4. 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.
5. Agreements.
(a) The Company agrees with the several Underwriters
that:
(i) The Company will use its best efforts to
cause the Registration Statement, if not effective at the
Execution Time, and any amendment thereof, to become
effective. Prior to the termination of the offering of the
Securities, the
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<PAGE> 14
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.
(ii) 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 (A)
prepare and file with the Commission, subject to the second
sentence of Section 5(a)(i) hereof, an amendment or supplement
which will correct such statement or omission or effect such
compliance and (B) supply any supplemented Prospectus to you
in such quantities as you may reasonably request.
(iii) As soon as practicable, the Company will make
generally available to its security holders and to the
Representatives an earnings statement or
14
<PAGE> 15
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.
(iv) 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.
(v) 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 and
will pay any fee of the National Association of Securities
Dealers, Inc. (the "NASD"), in connection with its review of
the offering; provided that in no event shall the Company be
obligated to qualify to do business in any jurisdiction where
it is not now so qualified or to take any action that would
subject it to service of process in suits, other than those
arising out of the offering or sale of the Securities, in any
jurisdiction where it is not now so subject.
(vi) The Company will not, without the prior
written consent of Smith Barney Inc., for a period of 120 days
following the Execution Time, 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 Section 6(i)
hereof.
(c) Such Selling Stockholder will advise you promptly,
and if requested by you, will confirm such advice in writing, so long as
delivery of a prospectus relating to the Securities by an underwriter or dealer
may be required under the Act, of any material change in the
15
<PAGE> 16
information in the Registration Statement or the Prospectus relating to such
Selling Stockholder that comes to the attention of such Selling Stockholder.
6. 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 3 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 (A) 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 (B) 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 caused Holme Roberts & Owen
LLP, counsel for the Company, to have furnished to the Representatives
their opinion, dated the Closing Date and addressed to the
Representatives, to the effect that:
(i) the Company and each of its subsidiaries has
been duly incorporated or organized, as applicable, and is
validly existing as a corporation or limited liability company
in good standing under the laws of the jurisdiction in which
it is incorporated or organized, with full corporate power and
authority to own its properties and conduct its business as
described in the Prospectus;
(ii) 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 or membership interests, as applicable, 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;
(iii) 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
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<PAGE> 17
Common Stock other than the Securities being issued by the
Company have been duly and validly authorized and issued and
are fully paid and nonassessable; the 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; 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, to our knowledge
after due inquiry, 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;
(iv) 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 or
its or their property of a character required to be disclosed
in the Registration Statement that is not adequately disclosed
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 Sales; and -- Anti-Takeover Provisions" and
"Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Acquisitions", (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 21, 1998, 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, or contracts to which the Company is a
party, have been reviewed by such counsel and fairly summarize
the matters therein described;
(v) 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
17
<PAGE> 18
form in all material respects with the applicable requirements
of the Act and the Exchange Act and the respective rules
thereunder;
(vi) this Agreement has been duly authorized,
executed and delivered by the Company;
(vii) 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;
(viii) 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;
(ix) 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, (A) the articles of incorporation, by-laws or
other charter documents of the Company or its subsidiaries or
(B) 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 (C) 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
(x) 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
18
<PAGE> 19
necessary in order to make the statements therein not 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 caused Holme
Roberts & Owen LLP to have furnished to the Representatives their
opinion, dated the Closing Date, and addressed to the Representatives,
to the effect that:
(i) each Selling Shareholder has duly executed
and delivered this Agreement, the Custody Agreement and the
Power-of-Attorney, 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 Securities being sold by such Selling
Shareholder hereunder;
(ii) the delivery by each Selling Shareholder to
the several Underwriters of certificates for the Securities
being sold hereunder by such Selling Shareholder against
payment therefor as provided herein, will pass good and
marketable title to such Securities to the several
Underwriters, free and clear of all liens, encumbrances,
equities and claims whatsoever;
(iii) 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 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
(iv) neither the sale of the Securities being sold
by any Selling Shareholder, nor the consummation by any
Selling Shareholder of any other of the transactions herein
contemplated nor the fulfillment of the terms hereof by any
Selling Shareholder will conflict with, result in a breach or
violation of, or
19
<PAGE> 20
constitute a default under (A) any law or the terms of any
indenture or other agreement or instrument known to such
counsel and to which any Selling 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 (B) 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 and Hamilton, counsel for the Underwriters, such
opinion or opinions, dated the Closing Date and addressed to the
Representatives, 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 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:
(i) 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;
(ii) 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
(iii) since the date of the most recent financial
statements included or incorporated by reference 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
20
<PAGE> 21
ordinary course of business, except as set forth in or
contemplated in the Prospectus (exclusive of any supplement
thereto).
(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) The Company shall have caused KPMG Peat Marwick LLP
to have furnished to the Representatives, at the Execution Time and at
the Closing Date, 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 that they
have performed a review of the unaudited interim financial information
of the Company for the three-month period ended March 31, 1998, and as
of March 31, 1998 in accordance with Statement on Auditing Standards
No. 71 and stating in effect that:
(i) in their opinion the audited financial
statements and financial statement schedules included or
incorporated by reference in the Registration Statement and
the Prospectus and reported on by them comply as to form in
all material respects with the applicable accounting
requirements of the Act and the Exchange Act and the related
published rules and regulations;
(ii) on the basis of a reading of the latest
unaudited financial statements made available by the Company
and its subsidiaries; their limited review, in accordance with
standards established under Statement on Auditing Standards
No. 71, of the unaudited interim financial information for the
three-month period ended March 31, 1998, and as of March 31,
1998 , incorporated by reference in the Registration Statement
and the Prospectus; 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, the Board of Directors of the Company and its
compensation and audit committees, and minutes of the meetings
of the shareholders and Boards of Directors of the Company's
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 December 31, 1997, nothing came to
their attention which caused them to believe that:
21
<PAGE> 22
(1) any unaudited financial statements
included or incorporated by
reference in the Registration
Statement and the Prospectus do not
comply as to form in all material
respects with applicable accounting
requirements of the Act and with the
published rules and regulations of
the Commission with respect to
financial statements included or
incorporated by reference in
quarterly reports on Form 10-Q under
the Exchange Act; and said unaudited
financial statements are not in
conformity with generally accepted
accounting principles applied on a
basis substantially consistent with
that of the audited financial
statements included or incorporated
by reference in the Registration
Statement and the Prospectus;
(2) with respect to the period
subsequent to March 31, 1998, 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 March 31, 1998, consolidated
balance sheet included or
incorporated by reference in the
Registration Statement and the
Prospectus, or for the period from
April 1, 1998 to such specified date
there were any decreases, as
compared with the corresponding
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
(3) the information included or
incorporated by reference in the
Registration Statement and
Prospectus in response to Regulation
S-K, Item 301 (Selected Financial
Data), Item 402 (Executive
Compensation), and, to the extent
required to be disclosed, Item 302
(Supplementary Financial
Information) is not in conformity
with the applicable disclosure
requirements of Regulation S-K; and
(iii) they have performed certain other specified
procedures as a result of which they determined that certain
information of an accounting, financial or
22
<PAGE> 23
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 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.
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 (A) any change or
decrease specified in the letter or letters referred to in Section
6(g) hereof or (B) 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 (A) or
(B) 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 (A) each officer and director of the Company,
(B) each Selling Shareholder and (C) each other shareholder, in each
case listed in Schedule V hereto, 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 120 days, in each case as specified in
Schedule V hereto, after
23
<PAGE> 24
the date of this Agreement, other than (x) any shares of Common Stock
to be sold hereunder, (y) 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 (z) other than shares
of Common Stock disposed of as bona fide gifts approved by Smith
Barney Inc.
(j) The Securities shall be qualified for inclusion on
the Nasdaq Stock Market upon issuance, and satisfactory evidence of
such actions shall have been provided to the Representative.
(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 6 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
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 6 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.
7. 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 6 hereof is not
satisfied, because of any termination pursuant to Section 10 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 Smith Barney 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 7 because of any Selling
Shareholder's refusal, inability or failure to satisfy any condition to the
obligations of the Underwriters set forth in Section 6, the Selling
Shareholders pro rata in proportion to the percentage of Securities to be sold
by each shall reimburse the Company on demand for all amounts so paid.
8. Indemnification and Contribution.
(a) (i) The Company and the Joint Selling
Shareholders jointly and severally agree to indemnify and hold
harmless each Underwriter, the directors, officers,
24
<PAGE> 25
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 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.
(ii) 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 and not jointly 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 from the Company 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 legend in block capital letters
25
<PAGE> 26
on page 2 related to stabilization, syndicate covering transactions
and penalty bids and, under the heading "Underwriting," (A) the
sentences related to concessions and reallowances and (B) the
paragraph related to stabilization, syndicate covering transactions
and penalty bids 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 8 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 8, notify the
indemnifying party in writing of the commencement thereof; but the
failure so to notify the indemnifying party (A) 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 (B) 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 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 (A) the use of counsel chosen by the
indemnifying party to represent the indemnified party would present
such counsel with a conflict of interest, (B) 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, (C)
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 (D)
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 8 is unavailable to or insufficient to hold
harmless an indemnified party for any
26
<PAGE> 27
reason, the Company and the Selling Shareholders, jointly and
severally, and the Underwriters severally 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 severally
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 them, 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 8, 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:
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<PAGE> 28
(i) the liability of each Selling Shareholder
under such Selling Shareholder's representations and
warranties contained in Section 1 hereof and under the
indemnity and contribution agreements contained in this
Section 8 shall be limited to an amount equal to the initial
public offering price of the Securities sold by such Selling
Shareholder to the Underwriters;
(ii) none of the Joint Selling Shareholders shall
have any liability with respect to the representations and
warranties contained in Section 1(a) 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; none of the Several Selling Shareholders shall
have any liability with respect to the representations and
warranties contained in Section 1(c), except to the extent
that an Underwriter, or a director, officer or agent of an
Underwriter or any person who controls any Underwriter is
unable to satisfy a claim against the Company in respect of a
breach of the representations and warranties of the Company
and the Joint Selling Shareholders referred to therein; and
(iii) none of the Selling Shareholders shall have
any liability under the indemnity and contribution agreements
contained in this Section 8, except to the extent that the
indemnification and contribution obligations of the Company
provided for in this Section 8 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 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 (f) 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 1 hereof or for payment under the
indemnity and contribution agreements contained in this Section 8.
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.
9. 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
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<PAGE> 29
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 9, 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.
10. 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 either of 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, 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).
11. 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 8 hereof, and will
survive delivery of and payment for the Securities. The provisions of Sections
7 and 8 hereof shall survive the termination or cancellation of this Agreement.
12. 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 to the Salomon Smith Barney General
Counsel (fax no.: (212) 816-7912) and confirmed to the General Counsel, Salomon
Smith Barney, at 388 Greenwich Street, New York, New York 10013, 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,
29
<PAGE> 30
delivered or telefaxed with confirmation to Stuart W. Fuhlendorf (fax no.:
(303) 451-8210) and confirmed to them at the addresses set forth in Schedule II
hereto.
13. 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 8
hereof, and no other person will have any right or obligation hereunder.
14. Applicable Law. This Agreement will be governed by
and construed in accordance with the laws of the State of New York applicable
to contracts made and to be performed within the State of New York.
15. 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.
16. Headings. The section headings used herein are for
convenience only and shall not affect the construction hereof.
17. 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, and
the rules and regulations of the Commission promulgated thereunder.
"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.
"Commission" shall mean the Securities and Exchange
Commission.
"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, and the rules and regulations of the Commission
promulgated thereunder.
"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 Closing Date.
"Exercising Selling Shareholders" shall mean the Selling
Shareholders appearing on Schedule VI hereto.
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<PAGE> 31
"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 12 hereof) to the Company of a claim under the
indemnification or contribution provisions contained in
Section 8 hereof; and
(2) the Company shall have failed to satisfy such claim
within 30 days of receipt of such notice.
"Preliminary Prospectus" shall mean any preliminary prospectus
referred to in Section 1(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 Section 1(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, 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 registration statement
referred to in Section 1(a) hereof.
"Salomon Smith Barney" shall mean Smith Barney Inc. or Salomon
Brothers Inc, to the extent that either such party is a signatory to
this Agreement.
"Several Selling Shareholders" shall mean the Selling
Shareholders other than the Joint Shareholders.
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<PAGE> 32
"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.
18. 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.
32
<PAGE> 33
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:
Robert Monoco
Ray Marshall
Gerald J. Reid
Lucille A. Reid
Lloyd A. McConnell
Charles E. Hewitson
Gregory C. Hewitson
Matthew J. Hewitson
Jack Calderon
August P. Bruehlman
Stuart W. Fuhlendorf
Brent L. Hofmeister
By:
--------------------------------------
Name:
Title: Attorney-in-Fact
for each of the Selling
Shareholders
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<PAGE> 34
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Smith Barney Inc.
J.C. Bradford & Co.
BancAmerica Robertson Stephens
Needham and Company, Inc.
By: Smith Barney Inc.
By:
-----------------------------
Name:
Title:
For themselves and the other
several Underwriters named in
Schedule I to the foregoing
Agreement.
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<PAGE> 35
EXHIBIT A
Letterhead of officer, director or major shareholder of
EFTC Corporation
EFTC Corporation
Public Offering of Common Stock
May __, 1998
Salomon Smith Barney
J.C. Bradford & Co.
BancAmerica Robertson Stephens
Needham and Company, Inc.
As Representatives of the several Underwriters,
c/o Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
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 Smith Barney Inc., offer, sell, contract to sell, pledge or
otherwise dispose of, or file (or participate in the filing of) a registration
statement with the Securities and Exchange 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, and the rules and regulations of the Securities and
Exchange Commission promulgated thereunder 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 120 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 Smith Barney Inc.
<PAGE> 36
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
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<PAGE> 37
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
Brent L. Hofmeister
(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 Smith Barney Inc., J.C.
Bradford & Co., BankAmerica Robertson Stephens and Needham and Company, Inc.
will act as representatives (the "Representatives") for distribution under a
Registration Statement on Form S-3 (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, August P. Bruehlman and Brent L. Hofmeister 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 by the undersigned of the 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> 38
(i) execute and deliver on behalf of the undersigned an
underwriting agreement (the "Underwriting Agreement"), substantially in the
form of the draft dated May __, 1998, delivered to the undersigned herewith,
receipt of which is acknowledged, but with such insertions, changes, additions
(including the price at which the 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 Securities
to the Underwriters pursuant to the Underwriting Agreement and deliver to the
Underwriters certificates for the 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 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
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 Securities
and delivery of certificates therefor;
(vi) make any assurances, communications and reports
(including in the form of a signed certificate pursuant to Section 6(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 Securities, or to appropriate state or governmental authorities, which may
be necessary or advisable for effecting the registration of the 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> 39
(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
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 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 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 the Execution Time (as
defined in the Underwriting Agreement), 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
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<PAGE> 40
(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 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 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 Securities) 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 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 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 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 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 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 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
4
<PAGE> 41
provided below, the Custodian shall promptly remit to the undersigned the
undersigned's proportionate share of the proceeds.
B. Before any proceeds of the sale of the 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 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 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 Smith Barney 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 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 Securities by the Selling Stockholder
pursuant to the Underwriting Agreement is not
5
<PAGE> 42
prompted by any information concerning the Company or any of its subsidiaries
that is not set forth in the Prospectus or any supplement thereto.
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 8 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 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 Securities, to the Underwriters; and the Attorney-in-Fact
is hereby further vested with an estate, right, title and interest in and to
the 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
6
<PAGE> 43
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, 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 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 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 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 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 Securities, the proceeds from the sale of the 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 Securities and the termination of this Agreement.
7
<PAGE> 44
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 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> 45
IN WITNESS WHEREOF, the undersigned has executed this Custody Agreement
and Power of Attorney this ___ day of May, 1998.
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:
- ---------------------------------- -------------------------------------
SEE THE ATTACHED INSTRUCTIONS
<PAGE> 46
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.
1825 Lawrence Street, Suite 444
Denver, CO 80202
Attn: Margo Ankele
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
Securities than the aggregate number of 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 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 6(f) of
the Underwriting Agreement and Section 4B of the Custody Agreement and Power of
Attorney please contact Manny Cofresi of Smith Barney Inc. by phone at (212)
816-7525 or by facsimile at (212) 816-4942 if any information or
representation included in the foregoing Agreement or the
<PAGE> 47
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 6(i) of the Underwriting Agreement.
2
<PAGE> 48
(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
Number of Shares of Deposited under the Deposited by the Number of Shares of
Common Stock Custody Agreement Company Pursuant to Common Stock from
Represented by and Power of the Irrevocable This Certificate To
Certificate Number Certificate Attorney Instructions 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> 49
SCHEDULE II
Fees of Custodian
<TABLE>
<S> <C>
Custodial Fees . . . . . . . . . . . . . . . . $2,000
Selling Stockholder Processing Fees . . . . . . $10 per Selling Stockholder
Wire Transfer Fees . . . . . . . . . . . . . . $10 per transfer
Check Payment Fees . . . . . . . . . . . . . . $25 ($15 for Federal Express;
$10 for check issuance)
</TABLE>
2
<PAGE> 50
EXHIBIT C
Irrevocable Stock Option Exercise Notice
EFTC Corporation
9351 Grant Street
Denver, CO 80229
Salomon Smith Barney
J.C. Bradford & Co.
BankAmerica Robertson Stephens
Needham and Company, Inc.
As Representatives of the several Underwriters
under the Underwriting Agreement,
c/o Smith Barney, Inc.
388 Greenwich Street
New York, NY 10013
With respect to the options described on Exhibit A hereto, the
undersigned hereby irrevocably exercises, effective at such time (if any) as
the Underwriting Agreement mentioned below is executed and delivered by the
undersigned, the company and the Underwriters named therein the option to
purchase an aggregate number of shares of EFTC Corporation ("EFTC") common
stock, $0.01 par value, equal to the number of options set forth in Exhibit A
hereto. Further, the undersigned 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
between AST and the undersigned (the "Custody Agreement"). Such shares shall
be held by AST, as Custodian, pursuant to the Custody Agreement. I hereby
irrevocably authorize the Underwriters at the Closing Date (as defined in the
Underwriting Agreement) to tender payment to EFTC, from the proceeds from the
sale of such shares, in an amount equal to the exercise price of these options
and all applicable taxes due. I hereby acknowledge that the Underwriters have
an interest in the exercise of these options and delivery of the shares issued
thereunder to AST, acting as Custodian, and are relying on such exercise and
this instruction for delivery in executing the Underwriting Agreement dated May
__, 1998 between EFTC, the Selling Shareholders named therein and the
Underwriters.
<PAGE> 51
Date: May __, 1998
-----------------------------------------
Signature
Please print:
-----------------------------------------
Name
-----------------------------------------
-----------------------------------------
-----------------------------------------
Address
-----------------------------------------
Social Security Number
2
<PAGE> 52
Exhibit A
<TABLE>
<CAPTION>
Date of Grant Type of Grant Number of Shares Exercise Price
- ------------- ------------- ---------------- --------------
<S> <C> <C> <C>
</TABLE>
3
<PAGE> 1
EXHIBIT 5.1
May 28, 1998
Board of Directors of
EFTC Corporation
9351 Grant Street
Denver, Colorado 80229
Ladies and Gentlemen:
Reference is made to the registration statement on Form S-3 (the "Registration
Statement") filed with the Securities and Exchange Commission (the
"Commission") by EFTC Corporation, a Colorado corporation (the "Company"), for
the purpose of registering the issuance by the Company of up to 3,950,000
shares of Common Stock (the "Company Shares") and the resale by certain
shareholders of the Company of up to 1,800,000 shares of Common Stock (the
"Shareholder Shares") under the Securities Act of 1933.
As counsel for the Company, we have (1) examined and relied upon the
Registration Statement and (2) reviewed the Company's Articles of Incorporation
and Bylaws, each as amended, and such other documents and such questions of law
as we have considered necessary or appropriate for the purpose of this opinion.
Based on the foregoing, we are of the opinion that (a) the Company Shares, when
sold and delivered by the Company, as described in the Registration Statement,
will be validly issued, fully paid and nonassessable and (b) the Shareholder
Shares have been validly issued and are fully paid and nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in
the prospectus included in the Registration Statement and to the filing of this
opinion with the Commission as an exhibit to the Registration Statement.
We do not express an opinion on any matters other than those expressly set
forth in this letter.
Very truly yours,
Holme Roberts & Owen LLP
By: /s/ Francis R. Wheeler
--------------------------
Partner
<PAGE> 1
EXHIBIT 23.1
Independent Auditors' Consent
The Board of Directors
EFTC Corporation:
We consent to the inclusion herein of our report dated May 1, 1998, relating to
the consolidated balance sheets of EFTC Corporation and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1997, and incorporation by reference herein
of our report dated January 21, 1998, relating to the consolidated balance
sheets of EFTC Corporation and subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1997 (which report is no longer applicable), which report appears in the
December 31, 1997 annual report on Form 10-K of EFTC Corporation, and to the
references to our firm under the headings "Summary Consolidated Historical
Financial Information", "Selected Consolidated Historical Financial Data", and
"Experts" in the Prospectus.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Denver, Colorado
May 27, 1998
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors
EFTC Corporation:
We consent to the inclusion of our report dated July 11, 1997, with respect to
the combined balance sheets of Circuit Test, Inc. and affiliates as of December
31, 1996 and 1995, and the related combined statements of earnings,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1996, which report appears in the Form S-3, as
amended, of EFTC Corporation.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Memphis, Tennessee
May 27, 1998
<PAGE> 1
EXHIBIT 24.2
POWER OF ATTORNEY
The undersigned, Brent L. Hofmeister, does hereby make, constitute and
appoint each of Jack Calderon and Stuart W. Fuhlendorf as my true and lawful
attorney-in-fact and agent, with full power of substitution, resubstitution and
revocation to execute, deliver and file with the Securities and Exchange
Commission, for and on such person's behalf, and in any and all capacities, an
Amendment No. 1 to EFTC Corporation's Registration Statement on Form S-3 (File
No. 333-52137), any and all further amendments (including post-effective
amendments) thereto and any abbreviated registration statement in connection
with such Registration Statement pursuant to Rule 462(b) under the Securities
Act of 1933, with all exhibits thereto and other documents in connection
therewith, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and
necessary to be done as fully to all intents and purposes as the undersigned
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or such persons's substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
/s/ BRENT L. HOFMEISTER May 28, 1998
- ---------------------------
Brent L. Hofmeister
