SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED:
SEPTEMBER 30, 1998
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
__________ TO __________
Commission file number: 0-23332
EFTC CORPORATION
(Exact name of registrant as specified in its charter)
Colorado 84-0854616
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
9351 Grant Street, Sixth Floor
Denver, Colorado 80229
(Address of principal executive offices)
(303) 451-8200
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class of Common Stock Outstanding at November 12, 1998
--------------------- --------------------------------
Common Stock, par value $0.01 15,540,989 shares
1
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EFTC CORPORATION
FORM 10-Q
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements (unaudited) 3
Condensed Consolidated Balance Sheets
September 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Operations
Three months and Nine Months Ended
September 30, 1998 and September 30, 1997 4
Condensed Consolidated Statements of Cash Flows
Nine months Ended September 30, 1998 and September 30, 1997 5
Notes to Condensed Consolidated Financial
Statements - September 30, 1998 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
PART II. OTHER INFORMATION 13
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 14
2
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
EFTC Corporation
Condensed Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
ASSETS September 30, 1998 December 31, 1997(1)
------------------------ --------------------
<S> <C> <C>
Current assets
Cash and cash equivalents $675,312 $1,877,010
Accounts receivable 42,678,234 25,412,340
Inventories 65,641,398 46,066,650
Deferred income taxes 2,091,345 494,290
Prepaid expenses and other current assets 764,965 759,668
------- -------
Total current assets 111,851,254 74,609,958
----------- ----------
Property, plant and equipment, at cost 48,620,097 30,314,897
Less accumulated depreciation 8,868,140 5,957,233
--------- ---------
Net property, plant and equipment 39,751,957 24,357,664
---------- ----------
Other assets, net 5,231,410 3,484,897
Goodwill 45,238,891 46,372,060
---------- ----------
$202,073,512 $148,824,579
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts Payable $28,211,538 $23,579,663
Current portion of long-term debt 3,745,000 3,150,000
Accrued compensation 3,459,528 2,365,034
Other accrued liabilities 1,468,803 1,272,544
Income taxes payable 197,272 608,585
Deposit on inventory finance arrangement 8,100,000 -
- ---------
-------------
Total current liabilities 45,182,141 30,975,826
---------- ----------
Long-term debt, net of current portion 51,629,390 41,808,703
- ---------- ----------
Deferred income taxes 2,477,416 818,686
--------- -------
Shareholders' equity
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
15,540,989 and 13,641,776 shares 155,410 136,418
Additional paid-in capital 91,938,075 68,040,433
Retained earnings 10,691,080 7,044,513
---------- ---------
Total shareholders' equity 102,784,565 75,221,364
----------- ----------
$202,073,512 $148,824,579
============ ============
</TABLE>
(1) Restated for pooling of interests--See Note 1.
See notes to condensed consolidated
financial statements.
3
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EFTC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended Sept. 30, Nine months ended Sept. 30,
1998 1997(1) 1998 1997(1)
<S> <C> <C> <C> <C>
Net sales $52,805,123 $30,482,541 $168,332,277 $71,141,398
Cost of goods sold 46,201,648 25,749,618 141,429,228 60,515,870
---------- ---------- ----------- ----------
Gross profit 6,603,475 4,732,923 26,903,049 10,625,528
Selling, general, and administrative
expense 4,949,996 2,288,326 15,631,380 5,497,031
Merger costs - - 1,048,308 -
Goodwill amortization 390,990 67,115 1,172,970 156,716
------- ------ --------- -------
Operating income 1,262,489 2,377,482 9,050,391 4,971,781
--------- --------- --------- ---------
Other income (expense):
Interest expense (1,091,703) (540,844) (3,047,373) (1,129,815)
Other, net 13,214 1,182,665 161,557 1,231,342
------ --------- ------- ---------
(1,078,489) 641,821 (2,885,816) 101,527
----------- ------- ----------- -------
Income before income taxes 184,000 3,019,303 6,164,575 5,073,308
Income tax expense 67,961 795,622 2,485,437 1,134,189
------ ------- --------- ---------
Net income $116,039 $2,223,681 $3,679,138 $3,939,119
======== ========== ========== ==========
Pro forma information:
Historical net income $116,039 $2,223,681 $3,679,138 $3,939,119
Pro forma adjustment to income
tax expense - 317,981 316,636 753,233
------- ------- -------
-----------
Pro forma net income $116,039 $1,905,700 3,362,502 $3,185,886
======== ========== ========= ==========
Pro forma income per share:
Basic $0.01 $0.23 $0.23 $0.42
===== ===== ===== =====
Diluted $0.01 $0.22 $0.23 $0.39
===== ===== ===== =====
Weighted average shares
outstanding:
Basic 15,532,659 8,298,450 14,455,559 7,654,460
========== ========= ========== =========
Diluted 15,739,716 8,475,646 14,891,723 8,068,528
========== ========= ========== =========
</TABLE>
- - -----------------
(1) Restated for pooling of interests--See Note 1.
See notes to condensed consolidated
financial statements.
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EFTC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
1998 1997(1)
Cash flows from operating activities:
<S> <C> <C>
Net income $3,679,138 $3,939,119
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 4,455,877 1,493,738
Deferred income taxes 61,145 554,958
Gain on sale of fixed assets (11,484) (1,149,638)
Changes in operating assets and liabilities, net
of effects of purchase business
combinations and asset acquisitions:
Accounts receivable (17,265,894) (10,607,300)
Inventories (14,882,189) (15,535,734)
Prepaid expenses and other current assets (5,297) (339,174)
Accounts payable and other liabilities 3,490,338 13,689,441
Income taxes payable or receivable 236,180 1,108,341
Other assets 1,084,358 (3,871,536)
----------- -----------
Net cash used by operating activities (19,157,828) (10,717,785)
----------- ------------
Cash flows from investing activities:
Proceeds from sale of equipment - 2,419,820
Payments for business combinations
and asset acquisitions (7,757,526) (24,595,172)
Purchase of property, plant and equipment (16,038,601) (6,670,393)
----------- -----------
Net cash used by investing activities (23,796,127) (28,845,745)
------------ ------------
Cash flows from financing activities:
Stock options and warrants exercised 1,242,866 112,960
Deposit on inventory finance arrangement 8,100,000 -
Issuance of common stock for cash, net of costs 20,595,783 -
Proceeds from long-term debt 16,178,164 41,700,000
Principal payments on long-term debt (4,364,556) (18,776,292)
Borrowings on notes payable, net - 19,876,415
---------- ----------
Net cash provided by financing activities 41,752,257 42,913,083
---------- ----------
Increase (decrease) in cash and
cash equivalents (1,201,698) 3,349,553
Cash and cash equivalents:
Beginning of period 1,877,010 406,903
--------- -------
End of period $675,312 $3,756,456
========== ==========
</TABLE>
- - -----------------
(1) Restated for pooling of interests--See Note 1.
See notes to condensed consolidated
financial statements.
5
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EFTC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. On March 31, 1998, EFTC Corporation acquired,
through a merger with a subsidiary, 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. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three-month and
nine-month periods ended September 30, 1998 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1998. The
unaudited condensed consolidated financial statements should be read in
conjunction with the financial statements and footnotes thereto included in the
Company's annual report, Form 10-K and Form 10-K/A for the year ended December
31, 1997.
Pro Forma Net Income. Pro forma net income has been presented because
Personal Electronics was acquired by EFTC in a business combination accounted
for as a pooling of interests and was an S corporation which was not subject to
income taxes. Accordingly, no provision for income taxes has been included in
the consolidated financial statements for the operations of this company prior
to its acquisition by EFTC. The pro forma adjustment to income taxes has been
computed as if the combined company had been a taxable entity subject to income
taxes for all periods prior to closing at the marginal rates applicable in such
periods.
Earnings Per Share. Basic earnings per share (EPS) excludes dilution
and is computed by dividing pro forma net income by the weighted average number
of common shares outstanding for the period. Diluted EPS includes the effects of
the potential dilution of stock options, determined using the treasury stock
method. The computation of weighted average shares includes the shares and
options issued in connection with business combinations accounted for as a
pooling of interests as if they had been outstanding for all periods prior to
the combination.
Notes 2--Inventories
The components of inventory consist of the following:
Sept. 30, 1998 Dec. 31, 1997
-------------- -------------
Purchased parts and completed
subassemblies $52,722,998 $38,723,546
Work-in-process 11,396,954 6,950,855
Finished Goods 1,521,446 392,249
---------- ----------
$65,641,398 $46,066,650
=========== ===========
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Note 3--Supplemental Disclosure of Cash Flow Information
Nine Months Ended
Sept 30, 1998 Sept 30, 1997
-------------- -------------
Cash paid during the period for:
Interest $3,060,821 $1,054,448
========== ==========
Income taxes paid (refunded), net $2,143,695 $(402,392)
=========== ==========
Common stock issued in business combinations
treated as purchases $ - $14,182,182
======= ===========
Conversion of notes payable to shareholders'
equity $1,397,922 $ -
========== =======
Tax benefit from exercise of non-qualified
stock options $647,493 $ -
======== =======
Short term payable issued for inventory
in business asset acquisition $2,419,199 $ -
========== =======
Note 4--Asset Acquisitions
On September 1, 1998, the Company acquired the circuit card assembly
operations of Agfa Division, Bayer Corporation located in Wilmington,
Massachusetts, a suburb of Boston. Certain inventory and equipment were
purchased in the amount of approximately $6.0 million and certain employees
associated with the circuit card operation were hired by the company. In
connection with the transaction, the Company entered into long-term Supply
Agreements whereby EFTC will produce and supply circuit card assemblies to
Agfa's Electronic Prepress Systems and Medical Diagonistics Divisions.
On September 30, 1998, the Company completed the initial closing of an
agreement with AlliedSignal, Inc. (AlliedSignal) for the acquisition of the
circuit card assembly operation for the Business & General Aviation Enterprise
of AlliedSignal Electronic & Aviation Systems. The operation, which is currently
located in Lawrence, Kansas, will be relocated to a 41,000 square foot facility
in nearby Ottawa, Kansas that was acquired by the Company from AlliedSignal for
approximately $0.5 million. EFTC intends to renovate this facility for
approximately another $1.0 million. As part of the transaction, the Company
hired certain employees formerly employed by AlliedSignal. In connection with
the transaction, the Company amended its long-term supply agreement with
AlliedSignal to include production of circuit card assemblies by the Company at
the Ottawa facility.
A three-step transition process is planned for this transaction. During
the first phase, the Company will manage the production for AlliedSignal using
the Company's employees at AlliedSignal's Lawrence facility. At that time, all
material will be consigned to the Company by AlliedSignal. In the second phase,
the operation will be relocated to the Ottawa facility and materials will
continue to be consigned by AlliedSignal. In the third phase, the operation will
be converted to the Company's Oracle-based operating system and products will be
produced by EFTC and sold to AlliedSignal. In addition to the building in
Ottawa, the Company also acquired from AlliedSignal approximately $1.2 million
in manufacturing equipment.
7
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ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis provide information that EFTC's
management believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition. This discussion should
be read in conjunction with the consolidated financial statements and notes
thereto appearing elsewhere herein, as well as with the consolidated financial
statements, notes thereto and the related management's discussion and analysis
of financial condition and results of operations included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
Results of Operations
Net Sales. The Company's net sales increased by 73.1% to $52.8 million
for the third quarter of 1998 compared to $30.5 million in the third quarter of
1997. The increase in net sales is due primarily to the inclusion of the
operations of the Company's Ft. Lauderdale and Arizona facilities, acquired from
AlliedSignal in August 1997 (the "AlliedSignal Acquisition"), the inclusion of
Circuit Test, Inc. and affiliated companies (the "CTi Companies"), acquired on
September 30, 1997 (the "CTi Acquisition") and the growth in revenues of
Personal Electronics.
The Company's net sales increased by 136.7% to $168.3 million during
the nine months of 1998, from $71.1 million during the same period of 1997. The
increase in net sales is due primarily to the acquisitions mentioned above, and
the growth in revenues of Personal Electronics.
Gross Profit. Gross profit increased by 40.4% to $6.6 million for the
quarter ended September 30, 1998 compared to $4.7 million for the same period
last year. The gross profit margin percentage decreased to 12.5% for the quarter
ended September 30, 1998 from 15.5% for the quarter ended September 30, 1997.
The gross profit margin percentage decreased in 1998 because the Company
established additional infrastructure to accommodate anticipated revenue growth
for the third quarter, but net sales were lower than expected due to soft market
conditions in the electronics manufacturing services industry in general,
schedule changes for avionics related products and a greater than anticipated
decline in products related to semiconductor manufacturing equipment.
In the first nine months of 1998, gross profit increased by 153.8% to
$26.9 million compared to $10.6 million for the first nine months of 1997. The
gross profit margin percentage for the first nine months of 1998 was 16.0%
compared to 14.9% for the first nine months of 1997. The increase in gross
profit margin is related to the inclusion in 1998 operations for the entire
period of (i) the operations of the CTi Companies, which have a higher gross
profit margin and (ii) the operations acquired from AlliedSignal in Ft.
Lauderdale, Florida in August 1997, partially offset by the soft market
conditions in the third quarter of 1998 discussed above.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SGA") expense increased by 113.0% to $4.9 million for the third
quarter ended September 30, 1998, compared with $2.3 million for the same period
in 1997. As a percentage of net sales, SGA expense increased to 9.4% for the
quarter ended September 30, 1998 from 7.5% from the quarter ended September 30,
1997. The increase in SGA expense is primarily due to the inclusion of the CTi
Companies' and the Company's Ft. Lauderdale and Arizona facilities' SGA expense
and increased investment in information technology and marketing.
SGA expenses increased by 183.6% to $15.6 million for the first nine
months of 1998 compared to $5.5 million for the first nine months of 1997. As a
percentage of net sales, SGA increased to 9.3% in the first nine months of 1998
from 7.7% in the same period of fiscal 1997. The reasons for these increases are
discussed above.
Operating Income. Operating income decreased to $1.3 million for the
quarter ended September 30, 1998 from $2.4 million for the quarter ended
September 30, 1997. Operating income as a percentage of net sales decreased to
2.4% for the quarter ended September 30, 1998 from 7.8% for the quarter ended
September 30, 1997. The decrease in operating income is attributable to lower
than expected revenues for the quarter ended September 30, 1998 as discussed
above.
9
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Operating income for the first nine months of 1998 increased 82.0% to
$9.1 million from $5.0 million for the first nine months of 1997. Operating
income as a percentage of net sales decreased to 5.4% in the first nine months
of 1998 from 7.0% in the same period of 1997. The increase in operating income
is primarily due to the increased revenues associated with the acquisition of
the CTi Companies and the AlliedSignal operations and the higher revenues
associated with those acquisitions. The decrease in operating income as a
percentage of sales is because of deterioration of gross margin as discussed
above and increased SGA.
Interest Expense. Interest expense was $1.1 million for the quarter
ended September 30, 1998, compared to $0.5 million for the same period in 1997.
The increase in interest is primarily the result of the incurrence of debt
associated with the AlliedSignal Acquisition, the CTi Acquisition, and increased
debt used to finance the growth of inventories and receivables.
Interest expense for the first nine months of 1998 was $3.0 million
compared to $1.1 million for the same period of 1997. The increase is primarily
the result of increased debt as discussed above.
Income Tax Expense. The effective income tax rate for the quarter ended
September 30, 1998 was 37.0%, including pro forma income taxes, compared to
36.9% for the same period in 1997.
The effective income tax rate for the nine months ended September 30,
1998 was 45.5% including pro forma income taxes compared to 37.2% for the same
period in 1997. The increase is due to the impact of nondeductible goodwill and
the nondeductible portion of the acquisition costs in the first nine months of
1998, which increased the effective tax rate.
Liquidity and Capital Resources
At September 30, 1998, working capital totaled $66.7 million compared
to $43.6 million at December 31, 1997.
Cash used in operating activities for the nine months ended September
30, 1998, was $19.2 million compared to $10.7 million for the same period in
1997. Accounts receivable increased 68.1% to $42.7 million at September 30, 1998
from $25.4 million at December 31, 1997. Receivable turns (e.g., annualized
sales divided by period end accounts receivable) increased to 5.3 for the nine
months ended September 30, 1998 from 4.5 for 1997. Inventories increased 42.3%
to $65.6 million at September 30, 1998 from $46.1 million at December 31, 1997.
Inventory turns (i.e., annualized cost of sales divided by period end inventory)
increased to 2.9 for the nine months ended September 30, 1998 from 2.1 for 1997.
The Company anticipates further improvement of receivable turns because
receivables for the Company's largest customer, AlliedSignal, should be
collected sooner after full implementation of the Accelerated Payment Program
(APP) that is administered by GE Capital Services. The APP provides AlliedSignal
suppliers with fast invoice payment, electronic payment transfers, daily payment
processing, and priority invoice processing. A discount of 1% is taken for the
payment of invoices prior to the discount date, which is 30 days for EFTC.
Inventory turns are also expected to increase as the Company's in-plant stores
program is implemented in the fourth quarter of 1998 and first quarter of 1999.
The in-plant stores program allows certain distributors to manage the Company's
commodity parts and should reduce the current inventory levels of those parts in
the future.
The Company used cash to purchase capital equipment totaling $16.0
million for the nine months ended September 30, 1998 compared to $6.7 million
for the nine months ended September 30, 1997. The increase is primarily
attributable to construction payments for buildings and improvements in the
Northwest, Southwest, and Rocky Mountain locations and information technology
investments at various locations. The Company also used cash to purchase certain
inventory and assets associated with asset acquisitions (see Note 4 to the
Company's financial statements included in this Report) in the amount of $7.8
million in the third quarter of 1998.
In connection with the CTi Acquisition and the AlliedSignal
Acquisition, the Company entered into a Credit Agreement, dated as of September
30, 1997, as amended (the "Bank One Loan"), provided by Bank One,
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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. Borrowings under 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
(as defined in the agreement for the Bank One Loan): (i) maximum total debt to
EBITDA; (ii) minimum fixed charge coverage; (iii) minimum EBITDA to interest;
and (iv) minimum tangible net worth requirement with periodic step-up.
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 last phase of the
AlliedSignal Acquisition and for working capital. The agreement for the Bank One
Loan was 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. 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.
In June 1998, the Company completed a registered public offering of
3,000,000 shares of common stock. Of the 3,000,000 shares, 1,600,000 were sold
by the Company and 1,400,000 were sold by selling shareholders. The Company did
not receive any of the proceeds from the sale of shares by the selling
shareholders. The Company used the proceeds of such offering of $21.2 million to
pay down the revolving loan under the Bank One Loan. As of September 30, 1998,
the total outstanding principal amount under the Bank One Loan was $50.5
million, comprised of a term loan of $17.8 million and an outstanding balance on
the revolving loan of $32.7 million.
A total of $7.3 million remained available for borrowing under the Bank One Loan
on that date.
The Company is currently negotiating a sale-leaseback transaction with
one of its directors for its manufacturing facilities in Arizona and Oregon. The
proceeds will approximate $10.5 million and are to be used to reduce the
revolving credit portion of the Bank One Loan. The Company intends to sign a 5
year operating lease for these facilities after their sale. This transaction is
expected to be closed by the end of 1998.
The Company may require additional capital to finance enhancements to,
or expansions of, its manufacturing capacity through internal growth or
acquisitions 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 Year 2000 (Y2K) Issue
The Y2K issue is a result of computer programs being written in the
past using only a two digit year to save memory space, in lieu of a full four
digit year. As a result, computer programs may recognize a date using a "00"
year code as the year 1900 instead of the year 2000. This could create system
failures or miscalculations causing disruptions in the operations of the Company
and its suppliers and customers.
The Company has undertaken a project to address the Y2K issue across
its operating units. The initial evaluation of all primary systems is planned to
be completed by the end of 1998 with remediation scheduled for the first half of
1999. The Company anticipates that its primary standard networks, operating
systems, Oracle and other packaged applications, and desktop systems are or will
be compliant upon the implementation of currently pending upgrades. Systems that
have Y2K issues are expected to be identified during the evaluation period. The
Company intends to either update or replace these systems as they are
identified. Any embedded program applications, such as machine controllers and
building systems, are to be evaluated and the manufacturers
11
<PAGE>
contacted for remediation. This process has already begun at most sites, but is
to be formalized as part of the Company's Y2K project.
As part of the Company's Y2K project, the Company has begun contacting
its significant suppliers and customers at the site or division level to
determine the extent to which the Company is vulnerable to those third party
failures to remediate their Y2K issues. As part of the Company's overall Y2K
project this activity will be tracked across the Company to more efficiently
track activity with common customers and suppliers. The Company will continue to
contact significant suppliers and customers throughout 1999 to follow-up on
their progress. However, there can be no assurance that the systems of the other
companies on which the Company's business relies will be timely converted or
that failure to convert or a conversion that is incompatible with the Company's
own systems will not have an material adverse affect on the Company and it's
operations.
Expenditures in 1998 for the Company's Y2K project are not expected to
significantly impact the Company's operating results. Management believes that
expenditures in 1999 will not significantly impact the Company's operating
results, assuming no significant Y2K issues are discovered in evaluating
embedded technology.
The Company's failure to resolve Y2K issues before December 31,1999
could result in system failures or miscalculations causing disruptions in
operations, including a temporary inability to manufacture products, process
transactions, send invoices or engage in other normal business activities.
Additionally, the failure of third parties upon whom the Company's business
relies to timely remediate their Y2K issues could result in disruptions in the
Company's supply of parts and materials, late or misapplied invoices, temporary
disruptions in order processing and other general problems related to the
Company's daily business operations. While the Company believes its Y2K project
will adequately address the Company's internal Y2K issues, until the Company can
assess the Y2K readiness of a more significant number of its suppliers and
customers, the overall risks associated with Y2K remain difficult to accurately
describe and quantify. Thus there can be no assurance that the Y2K issue will
not have a material adverse effect on the Company's operations.
The Company has not yet adopted a Y2K contingency plan. It is the
Company's goal to have the principal Y2K issues resolved by the end of the
second quarter of 1999. As part of the Company's Y2K project, the Company
intends to add a Y2K compliance resource to coordinate compliance and
remediation across all divisions. Final Y2K verification is planned for the end
of June 1999. However, the Company intends to develop a contingency plan for
addressing Y2K issues by the end of March 1999 in the event the Company's Y2K
project should fall behind schedule.
Other matters
On November 13, 1998, the Company announced the closure of its
manufacturing facility located in Greeley, Colorado. The Company intends to
transfer key customers to other locations. The shutdown of the Greeley facility
will occur during the fourth quarter of 1998 and the first quarter of 1999. The
Company will transfer fixed assets, inventory and other resources to other sites
as needed. The Company anticipates charges for severance, consolidation and
moving expenses, asset impairment for assets disposed of or held for sale, and
inventory writedowns associated with customers not transferred to other EFTC
facilities. The Company is in the process of determining the costs associated
with the closure but currently estimates that pre-tax restructuring costs will
approximate $10-$12 million.
Quarterly Results
Although management does not believe that the Company's business is
affected by seasonal factors, the Company's sales and earnings may vary from
quarter to quarter, depending primarily upon the timing of the customer orders
and product mix. Therefore, the Company's operating results for any particular
quarter may not be indicative of the results for any future quarter of the year.
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Special Note Regarding Forward-looking Statements
Certain statements in this Report constitute "forward-looking
statements" within the meaning of the federal securities laws. In addition, EFTC
or persons acting on its behalf sometimes make forward-looking statements in
other written and oral communications. Such forward-looking statements may
include, among other things, statements concerning the Company's plans,
objectives and future economic prospects, prospects for achieving cost savings,
increased capacity utilization, improved profitability and other improved
financial indicators in connection with the closure of the Company's Greeley
facility, the amount of restructuring charges to be incurred by the Company in
connection with such closure, the prospects for successfully integrating
acquired operations, other matters relating to the prospects for future
operations; and other statements of expectations, beliefs, future plans and
strategies, anticipated events or trends and similar expressions concerning
matters that are not historical facts. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause the
actual results, performance or achievements of EFTC, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. 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 original equipment
manufacturers, 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, the Company's success in retaining customers affected by the
closure of the Company's Greeley facility, the Company's success in limiting
costs associated with such closure, the Company's ability to keep pace with
technological developments, governmental actions and other factors identified as
"Risk Factors" or otherwise described in the Company's filings with the
Securities and Exchange Commission.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable
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PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Two legal proceedings, one in Colorado state court, the other in U.S.
District Court, were filed against the Company and certain of its officers,
directors and shareholders during September and October 1998. The proceedings
arise in connection with the decrease in the trading price of the Company's
common stock that occurred in August 1998 and make substantially the same
allegations. While both proceedings are in the pre-trial stage and the Company
therefore cannot make any assessment of their ultimate impact, the Company
believes the allegations made in the proceedings to be totally without merit.
All defendants have indicated their intention to defend vigorously against all
claims made in the proceedings.
Craig Anderson v. Jack Calderon, Gerald J. Reid, Stuart W. Fuhlendorf,
Brent L. Hofmeister, August P. Bruehlman, Robert Monaco, Raymond Marshall,
Lucille A. Reid, Lloyd A. McConnell and Salomon Smith Barney (District Court for
the County of Weld, Colorado, Case No. 98-CV-962). Plaintiff is a shareholder of
EFTC who filed this lawsuit on September 17, 1998, and alleges that the
defendants completed an offering of EFTC common stock in June 1998 in order to
sell their EFTC holdings at artificially inflated prices. The complaint alleges
violations of Sections 11-51-501(a, b, and c), 11-51-604(3), 11-51-604(5) and
11-51-604(4) of the Colorado Securities Act. Plaintiff seeks (a) certification
of the complaint as a class action on behalf of all persons who purchased or
otherwise acquired the common stock of EFTC between April 6, 1998 and August 20,
1998; (b) an award of compensatory and/or punitive damages, interest, costs and
attorneys' fees to all members of the class; and (c) equitable relief available
under state law. The defendants have not yet responded to the complaint.
Joshua Grayck v. EFTC Corporation, Jack Calderon, Gerald J. Reid,
Stuart W. Fuhlendorf, and Brent L. Hofmeister (United States District Court for
the District of Colorado, Case No. 98-S-2178). Plaintiff is a shareholder of
EFTC who filed this lawsuit on October 8, 1998. Plaintiff alleges that the
defendants completed an offering of EFTC common stock in June 1998 in order to
sell their EFTC holdings at artificially inflated prices. The complaint alleges
violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 promulgated thereunder. Plaintiff also alleges that EFTC and Mr. Calderon
violated Section 20(a) of the Securities and Exchange Act of 1934. Plaintiff
seeks (a) certification of the complaint as a class action on behalf of all
persons who purchased or otherwise acquired the common stock of EFTC between
June 2, 1998 and August 20, 1998; (b) an award of compensatory and/or
rescisionary damages, interest, costs and attorneys' fees to all members of the
class; and (c) equitable relief available under federal and state law. The
defendants have not yet responded to the complaint.
ITEM 2. Changes in Securities
Not applicable.
ITEM 3. Defaults upon Senior Securities
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable.
ITEM 5. Other Information
Not applicable.
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ITEM 6. Exhibits and Reports on Form 8-K
Exhibit
Number
10.1 Employment Agreement dated as of June 5, 1998 between EFTC Corporation
and Jack Calderon.
10.2 AlliedSignal Supplier Partnering Agreement dated as of September 29,
1998 by and between AlliedSignal, Inc. and EFTC Corporation.
27.1 Financial Data Schedule
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
EFTC CORPORATION
(Registrant)
Date: November 16, 1998
/s/ Jack Calderon
---------------------
Jack Calderon
Chairman and Chief Executive Officer
Date: November 16, 1998
/s/ Stuart W. Fuhlendorf
------------------------
Stuart W. Fuhlendorf
Chief Financial Officer
Date: November 16, 1998
/s/ Brent L. Hofmeister
-----------------------
Brent L. Hofmeister, CPA
Controller
15
Exhibit 10.1
EMPLOYMENT AGREEMENT
This Agreement is entered into as of June 5, 1998 (the
"Effective Date"), between EFTC Corporation, a Colorado corporation (the
"Company"), and Jack Calderon (the "Executive"), to be effective on the
Effective Date. Except as specifically set forth herein, as of the Effective
Date, this Agreement supersedes and replaces the agreement entered into
effective August 5, 1996 between the Company and the Executive (the "Prior
Employment Agreement").
The parties agree as follows:
1. Employment. The Company agrees to continue to employ the Executive and
the Executive agrees to continue to be employed by the Company on the terms set
forth in this Agreement.
2. Capacity and Duties. The Executive shall be employed by the Company as
its Chief Executive Officer or in such other executive capacity as the Board of
Directors of the Company (the "Board") shall determine. During his employment,
the Executive shall perform the duties and bear the responsibilities
commensurate with his position and shall serve the Company faithfully and to the
best of his ability, under the direction of the Board. The Executive shall
devote his entire working time, attention and energies to the business of the
Company. His actions shall at all times be such that they do not discredit the
Company or its products and services. Except for his involvement in personal
investments, provided such involvement does not require any significant services
on his part, the Executive shall not engage in any other business activity or
activities that require significant personal services by the Executive or that,
in the judgment of the Board, may conflict with the proper performance of the
Executive's duties hereunder.
3. Compensation.
(a) Salary. For all services rendered by the Executive, the Company shall
pay the Executive during the term of this Agreement an initial salary at the
rate of $250,000 per annum, through December 31, 1998, payable in arrears in the
same manner as the Company generally pays its employees' salaries. Effective
January 1, 1999, the Executive's annual salary shall be increased to $300,000
for the period from January 1, 1999 through December 31, 1999. Effective January
1, 2000, the Executive's annual salary shall be increased to $350,000 for each
of the two years during the period from January 1, 2000 through December 31,
2001. The amount of the salary payable during the term of this Agreement may be
increased at the discretion of the Board, although the Executive shall not have
any right to an increase.
(b) Bonus. The Executive may also receive a bonus of up to 100% of the
Executive's annual rate of salary applicable for each calendar year as described
in Section 3(a) based upon performance targets and objectives established by the
Board with respect to each
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such calendar year. Sixty percent (60%) of the annual bonus potential for each
calendar year shall be based upon the attainment of financial performance
objectives established by the Board, of which 30% shall be based upon earnings
per share objectives, 15% shall be based upon net sales objectives, and 15%
shall be based upon margin objectives. The remaining 40% annual bonus potential
shall be based upon performance criteria to be established by the Board with
respect to each calendar year. If this Agreement is terminated (other than under
Section 5(c) or 5(d)), the Executive shall receive, within 90 days after the end
of the calendar year in which such termination occurs, a pro rata portion of
such bonus, if any, that accrues with respect to such calendar year based on the
period during such year that the Executive was employed by the Company prior to
termination.
(c) Benefits. The Company also shall provide the Executive, during the term
of this Agreement, with the benefits of such life and medical insurance plans,
profit sharing and 401(k) plans and other employee fringe benefit plans as shall
be provided generally to employees of the Company and for which the Executive
may be eligible under the terms of such plans. Nothing in this Agreement shall
require the Company to adopt or maintain any such employee benefit plans.
(d) Stock Options. The Company shall grant to the Executive non- qualified
stock options (the "Options") to purchase 350,000 shares of the Company's common
stock, $.01 par value per share (the "Common Stock"), with a per share exercise
price (the "Exercise Price") of $16.00. The Options shall be issued under the
Company's Equity Incentive Plan and shall be granted on the Effective Date. The
Options shall vest in 10% increments, with each 10% of the foregoing 350,000
share Options vesting when the price of the Common Stock averages a closing sale
price of an additional 20% or more in excess of the Exercise Price for 20 out of
the last 30 trading days. For example, if the last closing sale price of the
Common Stock averages 20% or more above the Exercise Price for 20 out of 30
consecutive trading days, 10% of the Options (or 35,000 shares) shall vest and
an additional 35,000 shares shall vest at such time as the closing sale price of
the Common Stock averages 40% or more above the Exercise Price for 20 out of 30
consecutive trading days.
Notwithstanding the vesting schedule set forth above, all Options granted
pursuant to this Agreement shall fully vest, if the Executive remains employed
with the Company, at the end of seven years of continuous employment from the
Effective Date. In addition, notwithstanding any provision to the contrary
contained in the Company's Equity Incentive Plan, in the event of a Change in
Control, as defined in Section 5(d), the vesting schedule set forth above shall
be applied based upon 130% of the per share value of the consideration paid for
the Common Stock in the transaction that constitutes the Change in Control, if
any, as if 130% of such per share value were the average closing sale price for
20 out of the last 30 trading days for purposes of such vesting schedule. Once a
portion of the Options has become vested, that portion shall become exercisable
one year following the date on which such portion became vested, provided,
however, that any portion of the Options that becomes vested as a result of a
Change in Control as provided in the immediately preceding sentence shall be
immediately exercisable upon the date of the Change in Control. Only vested
Options that become exercisable in accordance with
2
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the provisions of this Agreement may be exercised by the Executive. If the
employment of the Executive is terminated by the Company for reasons other than
set forth in Section 5(c), or upon the termination of the Executive's employment
with the Company at the end of the employment term specified in Section 4, all
vested Options shall become exercisable on the date of termination and the
Executive may exercise the vested Options within three months following the date
of termination but not thereafter. Only Options that had become vested and
exercisable on or before the date of termination may be exercised within the
three month period. In the event of the death of the Executive, those persons
entitled under his will or by the laws of descent may exercise all vested
Options within one year from the date of death but not thereafter. The Options
granted hereby shall be evidenced by such stock option certificates or
agreements that incorporate provisions of the Company's Equity Incentive Plan
not inconsistent with the foregoing as the Company determines to be appropriate.
To the extent that the foregoing grants under the Company's Equity Incentive
Plan require shareholder approval, the Company shall use its best efforts to
obtain such approval at the Company's next annual meeting of shareholders. The
Board intends and expects that the Options to be granted in accordance with the
provisions of this Section 3(d) will cover the entire employment period ending
December 31, 2001. Any stock options granted to the Executive by the Company
pursuant to the provisions of the prior Employment Agreement, or otherwise prior
to the Effective Date, shall be governed by the terms of the Prior Employment
Agreement or such other grant, and the foregoing provisions of this Section 3(d)
shall only apply to the Options.
(e) Sick Leave, Vacation. During the term of this Agreement, except as
otherwise provided in Section 5(b), the Executive shall be entitled to sick
leave consistent with the Company's customary sick leave policy and to four
weeks vacation per year, which shall be taken at times mutually satisfactory to
the Company and the Executive.
(f) Company Car. The Company shall provide to the Executive for his use
during the term of this Agreement a leased car consistent with the car currently
provided to the Executive, and the Executive shall be provided the opportunity
to purchase such car at the end of the lease term at the lease purchase price.
If the Executive elects to purchase such a leased car with his own funds, the
Company shall provide a comparable leased car to the Executive for his use
during the term of this Agreement, provided that the Company shall not provide
more than one leased car to the Executive at any time. The Company shall pay all
registration and licensing fees and maintenance and insurance costs for the car.
(g) Location of Employment. Executive shall reside near the
Company's headquarters, which is currently located in Denver, Colorado, while
employed with the Company.
(h) Expenses. During the term of this Agreement, the Company shall
reimburse the Executive for all reasonable out-of-pocket expenses incurred by
the Executive in connection with the business of the Company and in the
performance of his duties under this Agreement upon presentation to the Company
of an itemized accounting of such expenses with reasonable supporting data.
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<PAGE>
4. Term. Unless sooner terminated in accordance with Section 5, this
Agreement shall have a term beginning on the Effective Date and ending on
December 31, 2001. This Agreement shall continue thereafter from three-month
period to three-month period until either party gives notice to the other at
least 30 days prior to the end of the original or then current renewal term of
his or its intention that this Agreement shall terminate at the end of such
term. Sections 6, 7, 8 and 9 shall remain in full force and effect for the
periods specified in such sections notwithstanding the termination of this
Agreement.
5. Termination.
(a) Death. If the Executive dies during the term of this Agreement, the
Company shall pay his estate the compensation that would otherwise have been
payable to him for the month in which his death occurs, together with any
amounts representing accrued but unpaid bonus, accrued vacation, deferred
compensation and similar amounts, and this Agreement shall terminate on the last
day of such month.
(b) Disability. If during the term of this Agreement the Executive is
prevented from performing his duties by reason of illness or incapacity for a
continuous period of 120 days, the Company may terminate this Agreement on 30
days' prior notice to the Executive or his duly appointed legal representative.
For purposes of this Section 5(b), a period of illness or incapacity shall be
deemed "continuous" notwithstanding the Executive's performance of his duties
during such period for continuous periods of less than 15 days in duration. If
the Company terminates this Agreement pursuant to this Section 5(b) because of
the Executive's disability, the Company shall pay the Executive the compensation
that would otherwise have been payable to him for the month in which such
termination occurs, together with any amounts representing accrued but unpaid
bonus, accrued vacation, deferred compensation and similar amounts.
(c) Cause. The Company may terminate this Agreement at any time, with
notice simultaneous with the termination, for cause, with the prior approval of
the Board. For purposes of this Agreement, cause shall be defined as one or more
of the following:
(i) willful misconduct that is materially injurious to the Company as
determined by a majority of the Board (excluding the Executive if the Executive
is then a director);
(ii) conduct that would constitute a felony or other crime of moral
turpitude where committed;
(iii) failure to perform material required duties and obligations to the
Company under this Agreement, which failure materially, adversely affects the
Company and continues for at least 30 days after notice in writing thereof is
given by the Board (excluding the Executive); and
4
<PAGE>
(iv) a material breach by the Executive during the term of this Agreement
of Section 6, 7 or 8 below.
(d) At the Company's Election. The Company may terminate this Agreement at
any time with the prior approval of the Board, without cause, by giving 30 days'
written notice of termination to the Executive. On the effective date of any
termination pursuant to this Section 5(d), the Company shall pay the Executive a
severance payment equal to the amount that the Executive would have received had
this Agreement remained in effect for the Severance Period (as defined below)
and shall allow the Executive to participate during the Severance Period, at the
Company's expense, in such employee welfare plans as are generally made
available during such period to the Company's employees. The Company shall be
deemed to have terminated the Executive's employment pursuant to this Section
5(d) if the Executive terminates such employment after a material reduction of
his responsibilities, other benefits or the facilities or assistance at his
disposal (other than a reduction that is part of an overall change for the
Company's employees, is not disproportionately detrimental to the Executive and
occurs before any Change in Control (as defined below)) or a change of more than
15 miles in location of the principal offices of the Company or of the
Executive's primary office.
(i) In order to receive a severance payment under this Section 5(d), the
Executive must (A) resign from the Board, if he is then a member of it, and (B)
sign a release, in form and substance reasonably satisfactory to the Company,
fully releasing the Company (and its officers, directors, shareholders,
employees and agents) from any claim or cause of action that the Executive may
have against the Company or such other persons relating in any way to this
Agreement, the Executive's employment by the Company or any other aspect of the
Executive's relationship with the Company, through the date of such release. The
release shall be signed at such times as are reasonably requested by the Company
in order for the release to be fully effective under state and federal age
discrimination laws and other laws that may impose similar requirements, and
shall prohibit the Executive from making any communications or taking other acts
that may injure the business, goodwill or reputation of the Company or its
officers, directors, shareholders, employees or agents. The Company may defer
making severance payments until such time as any legally required revocation
periods set forth in the release have expired.
(ii) For purposes of this Section 5(d), the Severance Period shall be one
year.
A "Change of Control" shall be deemed to have occurred if (i)
a person (as such term is used in Section 13(d) of the Securities Exchange Act
of 1934, as amended (the "1934 Act")) becomes the beneficial owner (as defined
in Rule 13d-3 under the 1934 Act) of shares of the Company or the Company's
successor having 30% or more of the total number of votes that may be cast for
the election of directors of the Company without the prior approval of at least
a majority of the members of the Company's board of directors unaffiliated with
such person (unless such person beneficially owned shares with at least 15% of
such votes on the date of this
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Agreement), or (ii) individuals who constitute the directors of the Company at
the beginning of a 24-month period cease to constitute at least 2/3 of all
directors at any time during such period, unless the election of any new or
replacement directors was approved by a vote of at least a majority of the
members of the Company's board of directors in office immediately prior to such
period and of the new and replacement directors so approved. Notwithstanding the
foregoing, no Change in Control will be deemed to have occurred if the Executive
or any group of which the Executive is a member is the person whose acquisition
constituted the Change in Control.
(e) End of Agreement Term. If this Agreement terminates at the end of the
employment term specified in Section 4 and the Executive does not remain as an
employee of the Company, then the Company shall pay the Executive severance
compensation consisting of one year's base salary at the then base salary rate.
(f) General Provisions Regarding Severance. Any payment pursuant to Section
5(d) or (e) shall be paid, at the Company's election, either in equal monthly
installments over a 12-month period or in one lump sum. Any such payment shall
be "grossed up," if necessary, so that the Executive is left after the payment
of any excise tax imposed under Sections 280G and 4999 of the Internal Revenue
Code of 1986 (or any successor statute) in connection with any benefits received
upon termination with the amount he would have had if such excise tax had not
been imposed on the Executive.
6. Confidential Information.
(a) Confidentiality. The Executive acknowledges that the trade secrets,
know-how and proprietary processes of the Company and its confidential business
plans, strategies, concepts, prospects and financial data (collectively,
"Confidential Information") are valuable, unique assets of the Company. The
Executive shall not, during or after the term of this Agreement, disclose any of
the Confidential Information (unless already generally known to and available
for use by the public other than as a result of a violation by the Executive of
this Section 6 or as required by law) to any person or entity for any purpose,
nor shall the Executive use or permit the use of any Confidential Information
except, in either case, as is required for the Executive to perform his duties
as an employee of the Company.
(b) Surrender or Destruction. The Executive will, upon termination of his
employment with the Company, deliver to the Company all records, forms,
contracts, studies, reports, appraisals, financial data, lists of names or other
customer data, and any other articles or papers, computer tapes and materials
that have come into his possession by reason of his employment with the Company,
whether or not prepared by him, and he shall not retain memoranda or copies of
any of those items.
7. Covenants Not to Compete or Interfere.
(a) Scope. In view of the unique and valuable services that the Executive
has been retained to render to the Company and the Executive's current and
future
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knowledge of the customers, trade secrets and other proprietary information
relating to the business of the Company and its customers and suppliers, the
Executive agrees that during the period he is an employee of the Company and for
one year after any termination of this Agreement by the Company for cause or any
voluntary termination by the Executive of his employment by the Company, he will
not Participate In (as defined below) the businesses of electronic contract
manufacturing or electronic repair services within the United States of America.
(b) Definition. For purposes of this Section 7, "Participate In"means
"directly or indirectly, for his own benefit or for, with or through any other
person, firm or corporation, own, manage, operate, control, lend money to or
participate in the ownership, management, operation or control of, or be
connected as a director, officer, employee, partner, consultant, agent,
independent contractor or otherwise with, or acquiesce in the use of his name
in." Notwithstanding the foregoing, the Executive shall not be deemed to
Participate In a business merely because he owns less than 5% of the outstanding
stock of a corporation (measured in voting power or equity), if, at the time of
its acquisition by the Executive, such stock is listed on a national securities
exchange or is reported on Nasdaq. If any restriction contained in this Section
7 is deemed to be invalid, illegal or unenforceable by reason of its duration,
geographical scope or otherwise, then such provision shall be deemed reduced in
extent, duration, geographical scope or otherwise by the minimum reduction
necessary to cause the restriction to be enforceable.
(c) Noninterference. During the period specified in Section 7(a) of this
Agreement, the Executive shall not (i) directly or indirectly cause or attempt
to cause any employee of the Company to leave the employ of the Company, (ii) in
any way interfere with the relationship between the Company and any employee,
customer or supplier, (iii) directly or indirectly hire any employee of the
Company to work for any organization of which the Executive is an officer,
director, employee, consultant, independent contractor or owner of an equity or
other financial interest, or (iv) interfere or attempt to interfere with any
transaction in which the Company was involved during the term of this Agreement
or his employment.
8. Intellectual Property.
(a) The Executive agrees to assign to the Company, or to any person or
entity designated by the Company, the entire right, title and interest of the
Executive in and to all inventions, ideas, discoveries and improvements
(collectively, "Inventions"), whether patented or unpatented, and material
subject to copyright, made or conceived by the Executive, solely or jointly,
that arise out of or are related to research conducted by, for or under the
direction of the Company, or that relate to methods, apparatuses, designs,
products, processes or devices, sold, leased, used or under consideration or
development by the Company at the time of such Invention. The Executive further
acknowledges that all copyrightable materials developed or produced by the
Executive within the scope of his employment by the Company constitute works
made for hire.
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(b) The Executive shall communicate promptly and disclose to the Company,
in such form as the Company may reasonably request, all information, details and
data pertaining to any such inventions, ideas, discoveries and improvements
described in Section 8 above.
9. Injunctive Relief. Upon an actual or threatened breach by the Executive
of Section 6 or Section 7 of this Agreement, the Company shall be entitled to an
injunction restraining the Executive from such breach. Nothing in this Agreement
shall limit the Company's ability to obtain any other remedies, including
damages for such actual or threatened breach.
10. Waiver of Breach. A waiver by the Company of a breach of any provision
of this Agreement by the Executive shall not be construed as a waiver of any
breach of another provision or subsequent breach of the same provision.
11. Severability. The invalidity or unenforceability in any application of
any provision in this Agreement will not affect the validity or enforceability
of any other provision or of such provision in any other application.
12. Notices. All communications, requests, consents and other notices
provided for in this Agreement shall be in writing and shall be deemed given if
and when delivered personally by hand, sent by facsimile at the appropriate
number indicated below with electronic confirmation of receipt, or mailed by
first class mail, postage prepaid, addressed as follows:
(i) If to the Company:
EFTC Corporation
9351 Grant Street, 6th Floor
Denver, Colorado 80229
Attn:
Facsimile No. (303) 451-8210
with a copy to: Holme Roberts & Owen LLP
1700 Lincoln, Suite 4100
Denver, Colorado 80203
Attn: Francis R. Wheeler, Esq.
Facsimile No. (303) 866-0200
(ii) If to the Executive:
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or to such other address or facsimile number as either party may designate by
notice pursuant to this Section 12.
13. Governing Law. This Agreement shall be governed by Colorado law.
14. Assignment. The Company may assign its rights and delegate its
obligations under this Agreement to any affiliate of the Company or to any
acquiror of substantially all of the business of the Company whether through
merger, purchase of assets, purchase of stock or otherwise. Otherwise, neither
party may assign any rights or delegate any duties under this Agreement. This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective legal representatives, heirs, and permitted successors and
assigns.
15. Entire Agreement. This Agreement sets forth the entire agreement and
understanding of the parties and supersedes all prior understandings, agreements
or representations by the parties, written or oral, that relate to the subject
matter of this Agreement.
16. Amendments. No provision of this Agreement may be amended or waived
except by an instrument in writing signed by the party sought to be charged with
the amendment or waiver.
Executed as of the date set forth on page 1.
EFTC CORPORATION
By /s/ August P. Bruehlman
August P. Bruehlman
/s/ Jack Calderson
Jack Calderon
9
Exhibit 10.2
ALLIEDSIGNAL
SUPPLIER PARTNERING AGREEMENT
Agreement No. R20046, Rev. A (9/29/98)
This amended and restated Supplier Partnering Agreement ("Agreement") made and
entered into as of September 29, 1998, written by and between AlliedSignal Inc.,
a Delaware Corporation, acting on behalf of its various divisions and
subsidiaries (hereinafter collectively referred to as "AlliedSignal") having its
principal offices at Columbia Road and Park Avenue, Morristown, New Jersey 07960
and EFTC Corporation , a Colorado Corporation (hereinafter referred to as
"Supplier" or "EFTC").
AlliedSignal and Supplier entered into that certain Supplier Partnering
Agreement dated July 15, 1997 (the Original Agreement) with the purpose of
establishing a long term relationship based on a continuous improvement process
leading toward world class benchmarks in quality, cost, delivery, technology and
service and shall be characterized by mutually beneficial goals, trust and
benefits.
AlliedSignal and Supplier desire to modify the Original Agreement in certain
respects, and to restate the amended agreement in its entirety. Therefore, in
consideration of the mutual covenants set forth herein and for other valuable
consideration receipt of which is acknowledged, Supplier and AlliedSignal hereby
amend and restate the Original Agreement in its entirety as follows:
TERM OF AGREEMENT
The term of this Agreement shall commence on July 15, 1997 and , for AES Product
listed in Attachment 1, Appendix 1, shall end December 31, 2001. For EAS-FL and
EAS-KS product listed in Attachment 1, Appendix 1 the term of this Agreement
shall end December 31, 2002. Extensions of one (1) year duration shall be
negotiated unless a) either party informs the other in writing one year in
advance of their desire to terminate or, b) Supplier, at the reasonable
determination of AlliedSignal, fails to maintain competitive quality, delivery
and cost performance as specified herein and AlliedSignal provides notice of
termination. Releases will be by the using business unit(s) on individual
purchase orders.
THIRD PARTY SALES
Supplier agrees not to sell to any third party (except the United States
Government) any items covered by this contract for which the sole known
application is for use in any aircraft product unless Supplier or its customer
has obtained from the FAA either a Type Certificate, Technical Standard Order
Approval or Parts Manufacturing Approval (PMA) pursuant to ss.21.303 of the
Federal Aviation Regulations, covering said items. In no event shall Supplier
use any information or tooling provided by AlliedSignal for the purpose of
manufacturing and/or repairing the product for sale to any such third party,
except as provided in the terms and conditions of the individual purchase orders
issued, or as otherwise agreed in writing by the parties.
TERMS AND CONDITIONS
Standard Form GP/FFP (1/97), General Purchase Order Provisions, is included in
this agreement by reference but may be modified as necessary for specific
business unit transactions. Any future revisions to these provisions will occur
through business unit transactions. In the event of a conflict between the terms
and conditions of an AlliedSignal issued purchase order and those appearing in
this Agreement, the terms and conditions of this Agreement shall prevail.
Payment terms NET 45 unless otherwise indicated.
PRICING
Wherever applicable, the prices for products covered by this Agreement
("Products") shall be the prices shown in Attachment 1.
1
<PAGE>
MOST FAVORED CUSTOMER
The Supplier warrants the prices for products purchased pursuant to in this
Agreement are no higher than those which would be charged other customers or the
United States Government in similar transactions.
USE OF ALLIEDSIGNAL AGREEMENTS
Supplier agrees that any products, materials, or services acquired under the
provisions of AlliedSignal agreements with other suppliers will be for the sole
use of Supplier in the manufacturing process, and will not be for resale to any
party other than an AlliedSignal business unit or subsidiary unless otherwise
agreed by the Parties in writing.
COMMUNICATION
Periodic program reviews will be conducted in a timely manner between
AlliedSignal and Supplier to facilitate future partnering arrangements using
guidelines established below. In addition, AlliedSignal shall inform Supplier of
its planned production rates for the product(s) and derivative(s) to facilitate
production planning.
Every notice under this Agreement shall be given in writing to the following
address:
AlliedSignal Supplier
John Recupero Chief Financial Officer
AlliedSignal Inc. EFTC Corporation
One Technology Center. 6 th Floor
23500 W. 105th St. Horizon Terrace
Olathe, KS 66061 9351 Grant St.
Denver, Co 80229
F.A.R. REQUIREMENTS
Individual purchase orders may be subject to regulations under United States
Government Contracts. In such a case, Supplier will accept the inclusion of
Standard Form SP/FFP (9/96), Supplemental Purchase Order Provisions under U.S.
Government Contracts (and successor forms as required by U.S. Government
regulations) in such purchase orders. Any future revisions to these provisions
will occur through business unit transactions.
SHIPMENTS
Mode of transportation and carrier are to be in accordance with business unit
purchase order instructions. In case of domestic shipment, terms of purchase
shall ordinarily by FOB Origin, collect. International shipments shall
ordinarily use INCOTERMS FCA (shipping point). In the absence of shipping
instructions or for clarification contact Aerospace Transportation.
SUPPLIER AGREES TO:
- - - Have in place or be actively implementing a JIT (Just In Time) program
which incorporates measurements and reporting ability in quality
control and improvement process. These areas include, but are not
limited to:
- - - On Time Delivery
- - - Price Reductions
- - - Benchmarking
- - - Lead Time Reduction to meet Benchmarks
- - - Statistical Process Control (SPC) in Critical Process Areas
- - - Be in compliance with documented plans to achieve:
- - - Quality: Achieve 50% reduction in quality defects year over
year with a goal to achieve industry benchmark levels. A
quality level shall be developed during the first six months
of operations. Achieve increasing levels of Proven Quality
Supplier (PQS) to reduce and
2
<PAGE>
eliminate ASA over-inspection and enable increasing
percentage of Direct Line Delivery (DLD). Quality
performance objective is no line fallout during processing
at AlliedSignal with no ASA over-inspection required.
- - - Delivery (as measured to initial contract date, 3 days early
and 0 days late) to be 100% on time.
- - - Product lead times on products to industry benchmark level of
(4) weeks.
- - - Cost productivity improvement of 6% year over year on price
with a goal of 8% to include 2% in productivity improvement
through dock to stock, quality improvements, etc.
*[TEXT REDACTED]1
- - - Have in place a documented continuous improvement strategy for product
quality, cost, delivery and service. Participate in AlliedSignal
training and On-site Supplier Development (OSD) programs as appropriate
to supplement Supplier's own continuous improvement efforts.
- - - Implement a quality system in compliance with:
- ISO-9002 or ISO-9001 if Supplier builds to own design, and
- PC-001 Process Control - Variation Reduction.
- - - A program to permit Electronic Data Interchange (EDI) with AlliedSignal
prior to year end 1999.
- - - Participate in early supplier involvement on AlliedSignal new product
development programs.
- - - Meet with AlliedSignal on a regular basis to review programs,
performance measurements and barriers to progress and to review
appropriate corrective action to eliminate barriers.
The parties recognize that AlliedSignal reserves the right to have specific part
number products covered by this Agreement manufactured in its own facilities. In
addition, AlliedSignal may have requirements in its contracts with specific
customers, such as offset requirements and directed sources, to purchase certain
material from sources other than Supplier, which right is also reserved by
AlliedSignal. In the event of such a determination or requirement, the parties
agree to use their best efforts to find and add to this Agreement alternative
part numbers having the same total dollar value as the covered part numbers
being manufactured by AlliedSignal or purchased from other sources.
This Agreement plus those additional terms or conditions incorporated herein by
reference which appear in Attachment I attached hereto and made a part hereof,
constitutes the entire Agreement between the parties with respect to the matters
contained herein. No modification of the Agreement or waiver or addition to any
of its terms and conditions shall be binding upon either party unless made in
writing and signed by the parties' authorized representatives.
Supplier will honor terms of this Agreement with any AlliedSignal entity or
supplier designated by AlliedSignal.
In witness whereof the parties hereto have caused this Agreement to be executed
September 29, 1998.
EFTC Corporation AlliedSignal Inc.
By /s/Stuart W. Fuhlendorf By /s/ W. Timothy Bibens
Name Name
Chief Financial Officer Transition Program Manager
Title Title
Enclosures: Attachment 1
EAS - LF Product
EAS - KS Product
EAS Product
- - --------
1 The portion of this agreement marked "*[TEXT REDACTED]" indicates that the
portion that has been omitted from this agreement and filed separately with the
Commission pursuant to a Confidential Treatment Request.
3
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<PERIOD-END> SEP-30-1998
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0
0
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