SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the Appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
EFTC CORPORATION
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
EFTC CORPORATION
9351 Grant Street, Sixth Floor
Denver, Colorado 80229
May __, 2000
Dear Shareholder:
On behalf of the board of directors and management of EFTC Corporation,
I cordially invite you to attend a special meeting of shareholders to be held at
the Company's offices at 9351 Grant Street, Sixth Floor, Denver, Colorado, on
June __, 2000, at 10:00 a.m. local time. At the special meeting you will be
asked to consider and vote on:
o The issuance to Thayer-BLUM Funding, L.L.C. of the Company's
8.875% Senior Subordinated Convertible Notes due June 2006;
o An amendment to the Company's Amended and Restated Articles of
Incorporation increasing the number of authorized shares of
common stock from 45 million shares to 75 million shares; and
o A new stock option plan.
Approval of these matters is being sought in conjunction with a tender
offer being conducted by Thayer-BLUM Funding for up to 8,250,000 but not less
than 500,000 shares of Company common stock at a price of $4.00 per share.
Thayer-BLUM Funding was formed by affiliates of Thayer Capital Partners and BLUM
Capital Partners to hold securities of the Company.
Thayer Capital Partners is a private equity investment firm based in
Washington, DC. Thayer manages two private equity funds with more than $1.2
billion under management. The firm focuses on buyouts and growth equity
investments in four primary industries: information technology and services,
electronics and outsourced manufacturing, travel and leisure services, and
outsourced business services.
BLUM Capital Partners is a San Francisco-based private equity and
strategic block investment firm, which manages in excess of $3 billion in
capital both domestically and internationally. BLUM has invested in a wide
variety of businesses and has been successful initiating value-enhancing
strategies, including going-private transactions, equity infusions to either
restructure a balance sheet or provide growth capital, share repurchases,
acquisition programs, and business unit divestitures.
The board of directors recommends that you vote FOR each proposal. The
matters for which approval is sought, together with the tender offer and an
initial financing of the Company by Thayer-BLUM Funding that closed on March 30,
2000, are parts of a recapitalization of the company. Detailed descriptions of
the matters proposed for shareholder approval, the other aspects of the
recapitalization, the factors considered by the board of directors in evaluating
the matters proposed and other important information, including a fairness
opinion of Needham & Company, Inc., are set forth in the accompanying proxy
statement. I urge you to consider it carefully. Whether or not you plan to
attend the special meeting, please complete, sign, date and return the enclosed
proxy as soon as possible in the enclosed return envelope, which requires no
postage if mailed in the United States. This action will not limit your right to
vote in person if you attend the special meeting.
Very truly yours,
Jack Calderon
Chairman and Chief Executive Officer
<PAGE>
EFTC CORPORATION
9351 Grant Street, Sixth Floor
Denver, Colorado 80229
-----------------------------------
Notice of Special Meeting of Shareholders
to be held on June __, 2000
-----------------------------------
TO THE SHAREHOLDERS OF EFTC CORPORATION:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of EFTC
Corporation, a Colorado corporation, will be held on June ___, 2000, at 10:00
a.m. at 9351 Grant Street, Sixth Floor, Denver, Colorado 80229. At the Special
Meeting, you will be asked to consider and vote upon the following proposals:
1. The Issuance of Convertible Notes. A proposal to approve, in
accordance with the rules of The Nasdaq Stock Market, the
issuance of the Company's 8.875% Senior Subordinated Convertible
Notes due June 30, 2006 to Thayer-BLUM Funding, L.L.C.
2. Increase in the Number of Authorized Shares. A proposal to
approve an amendment to the Company's Amended and Restated
Articles of Incorporation increasing the number of authorized
shares of common stock from 45.0 million shares to 75.0 million
shares.
3. The Adoption of the 2000 Equity Stock Option Plan. A proposal to
approve the adoption of the Company's 2000 Equity Stock Option
Plan that provides for the issuance of up to 3.4 million shares
of common stock.
4. The transaction of such other business as may properly come
before the meeting or any adjournment or postponement thereof.
The board of directors has approved and recommends that you vote FOR
approval of:
o Proposal 1 - the issuance of convertible notes
o Proposal 2 - the increase in the number of authorized
shares
o Proposal 3 - the adoption of the 2000 Equity Stock
Option Plan
This proxy statement is being furnished to you in connection with the
solicitation of proxies by the board of directors of the Company for use at the
Special Meeting. This proxy statement is being mailed on or about May __, 2000.
The board of directors has fixed the close of business on May 10, 2000 as the
record date for the determination of shareholders entitled to notice of and to
vote at this Special Meeting and at any adjournment or postponement thereof. A
list of shareholders entitled to notice of and to vote at the Special Meeting
will be open to the examination of any shareholder, for any purpose appropriate
to the Special Meeting, during ordinary business hours, for a period of ten days
prior to the Special Meeting, at the principal executive offices of the Company.
BY ORDER OF THE BOARD OF DIRECTORS
August P. Bruehlman
Secretary
Denver, Colorado
May __, 2000
<PAGE>
IMPORTANT-- YOUR PROXY IS ENCLOSED
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING
REGARDLESS OF THE SIZE OF YOUR HOLDINGS. YOU ARE CORDIALLY INVITED TO ATTEND THE
MEETING. WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING IN
PERSON, WE URGE YOU TO MARK, SIGN, DATE AND MAIL THE ENCLOSED PROXY AS PROMPTLY
AS POSSIBLE. A POSTAGE PREPAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE. IF YOU
ATTEND THE SPECIAL MEETING, YOU MAY VOTE BY PROXY OR MAY WITHDRAW YOUR PROXY AND
VOTE IN PERSON. BY RETURNING YOUR PROXY PROMPTLY, A QUORUM WILL MORE LIKELY BE
REPRESENTED AT THE MEETING WHICH WILL PREVENT COSTLY FOLLOW-UP AND DELAYS.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
SUMMARY .........................................................................................................1
The Special Meeting......................................................................................1
Date, Time and Place of Special Meeting.........................................................1
Purpose .......................................................................................1
Record Date; Shares Outstanding and Entitled to Vote............................................1
Votes Required for Approval.....................................................................1
Voting Agreement................................................................................1
Summary of the Recapitalization Transaction..............................................................1
Transaction with Thayer-BLUM Funding............................................................1
Proposal 1 - Issuance of the Convertible Notes...........................................................2
Reasons for the Proposal........................................................................2
Opinion of Needham & Company, Inc...............................................................3
Certain Matters to be Considered by Shareholders................................................3
Proposal 2 - Increase in the Number of Authorized Shares.................................................4
General Description.............................................................................4
Reasons for Increase............................................................................4
Proposal 3 - Adoption of the 2000 Equity Stock Option Plan...............................................4
General .......................................................................................4
Reasons for Adoption............................................................................4
Recommendations of the Board of Directors................................................................5
FORWARD-LOOKING STATEMENTS........................................................................................6
THE SPECIAL MEETING...............................................................................................7
Date, Time and Place.....................................................................................7
The Record Date..........................................................................................7
Purpose of the Special Meeting...........................................................................7
Quorum and Voting........................................................................................7
Approval of Proposal 1 - Issuance of the Convertible Notes......................................7
Approval of Proposal 2 - Increase in the Number of Authorized Shares............................8
Approval of Proposal 3 - Adoption of the 2000 Equity Stock Option Plan..........................8
Voting Agreement................................................................................8
Revocation of Proxies....................................................................................8
Cost of Solicitation.....................................................................................8
Information Regarding Thayer and BLUM....................................................................8
Security Ownership of Certain Beneficial Owners and Management...........................................9
SUMMARY OF THE RECAPITALIZATION TRANSACTION......................................................................11
Transaction with Thayer-BLUM Funding....................................................................11
Transaction with Bank of America........................................................................11
PROPOSAL 1 - ISSUANCE OF THE CONVERTIBLE NOTES...................................................................12
General ...............................................................................................12
Background of the Recapitalization Transaction..........................................................12
Capital and Liquidity Needs....................................................................12
Negotiations with Thayer and BLUM..............................................................13
Appointment of Special Committee...............................................................14
Murphy Noell Settlement........................................................................15
Reasons for the Transaction.............................................................................15
Opinion of Needham & Company, Inc.......................................................................16
Certain Matters to be Considered by Shareholders........................................................19
Change in the Company's Board of Directors.....................................................19
Control by Thayer-BLUM Funding.................................................................19
-i-
<PAGE>
Dilution ......................................................................................19
Continued Nasdaq National Market Listing.......................................................20
Capitalization of the Company..................................................................20
Voting Agreement...............................................................................20
Repayment of Subordinated Indebtedness to a Director of the Company............................21
Stock Option Grants............................................................................21
Description of Securities Purchase Agreement............................................................21
General ......................................................................................21
Representations and Warranties.................................................................21
Covenants......................................................................................22
Termination of the Securities Purchase Agreement...............................................22
Conditions to the Tender Offer.................................................................23
Description of the Securities...........................................................................24
Exchangeable Notes.............................................................................24
Convertible Notes..............................................................................27
Warrant ......................................................................................29
Other Material Agreements...............................................................................30
Voting Agreement...............................................................................30
Registration Rights Agreement..................................................................30
Regulatory Approvals....................................................................................30
Vote Required and Board Recommendation..................................................................30
PROPOSAL 2 - INCREASE IN THE NUMBER OF AUTHORIZED SHARES.........................................................32
Background..............................................................................................32
Description of the Proposal.............................................................................32
Vote Required and Board Recommendation..................................................................32
PROPOSAL 3 - ADOPTION OF THE 2000 EQUITY STOCK OPTION PLAN.......................................................34
Background..............................................................................................34
New Plan Benefits.......................................................................................34
Description of 2000 Equity Stock Option Plan............................................................34
Administration.................................................................................34
Shares Subject to the Stock Option Plan........................................................34
Adjustments to the Shares Subject to the Stock Option Plan Upon Changes in Capital Structure or
Reorganization, Change in Control or Liquidation......................................35
Participation..................................................................................35
Grant of Options...............................................................................35
Option Term....................................................................................35
Vesting of Options.............................................................................35
Option Price...................................................................................36
Independent Directors..........................................................................36
Exercise of Options............................................................................36
Nontransferability of Options..................................................................36
Amendment and Termination......................................................................36
Federal Income Tax Consequences of Issuance and Exercise of Options............................36
Reasons for Adoption of 2000 Equity Stock Option Plan...................................................37
Certain Executive Compensation Information .............................................................38
Summary Compensation Table.....................................................................38
Options Granted................................................................................39
Employment Agreements..........................................................................40
Vote Required and Board Recommendation..................................................................42
WHERE YOU CAN FIND MORE INFORMATION..............................................................................43
INDEPENDENT PUBLIC ACCOUNTANTS...................................................................................43
-ii-
<PAGE>
SHAREHOLDER PROPOSALS............................................................................................43
OTHER MATTERS....................................................................................................43
</TABLE>
Appendix I - Opinion of Needham & Company, Inc.
Appendix II - Supplemental Letter of Needham & Company, Inc.
Appendix III - Securities Purchase Agreement
Appendix IV - Exchangeable Note
Appendix V - Form of Convertible Note
Appendix VI - Warrant
Appendix VII - 2000 Equity Stock Option Plan
Appendix VIII - EFTC Corporation Annual Report on Form 10-K
[FORM OF PROXY]
-iii-
<PAGE>
SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Proxy Statement. This summary is qualified in its entirety by
the more detailed information contained in the Proxy Statement and the
Appendices hereto. You are urged to read this Proxy Statement and the Appendices
in their entirety, as well as any other documents we have referred you to. See
"Where You Can Find More Information" on page 43.
The Special Meeting
Date, Time and Place of Special Meeting. The Special Meeting will be
held on June ___, 2000, at 10:00 a.m., local time, at the Company's executive
offices located at 9351 Grant Street, Sixth Floor, Denver, Colorado 80229.
Purpose. The Special Meeting will be held to consider and act upon the
following proposals:
o Proposal 1- Issuance of the Company's 8.875% Senior
Subordinated Convertible Notes due June 30, 2006;
o Proposal 2 - Increase in the number of authorized shares of
the Company's common stock from 45.0 million to 75.0 million;
o Proposal 3 - Adoption of the Company's 2000 Equity Stock
Option Plan that provides for the issuance of up to 3.4
million shares of common stock; and
o Transaction of any other business which properly comes before
the meeting or any adjournment or postponement.
Record Date; Shares Outstanding and Entitled to Vote. The record date
for determining the holders of the common stock entitled to vote at the Special
Meeting is May 10, 2000. As of the record date _________ shares of the common
stock were issued and outstanding and entitled to vote. As of such date, the
executive officers and directors of the Company beneficially owned approximately
____% of the Company's outstanding common stock.
Votes Required for Approval. Proposal 1 - issuance of the Company's
Convertible Notes - requires the affirmative vote of a majority of the total
votes cast on the proposal in person or by proxy. Proposal 2 - increase in the
number of authorized shares of the Company's common stock - requires the
affirmative vote of a majority of the shares of common stock outstanding as of
the record date. Proposal 3 - adoption of the Company's 2000 Equity Stock Option
Plan - requires the affirmative vote of a majority of the total votes cast on
the proposal in person or by proxy.
Voting Agreement. Directors, executive officers and other shareholders
holding an aggregate of approximately 26.5% of the Company's outstanding common
stock have entered into voting agreements pursuant to which they have agreed to
vote to approve the issuance of the Convertible Notes.
Summary of the Recapitalization Transaction
Transaction with Thayer-BLUM Funding. On March 30, 2000, the Company
completed the first stage of a recapitalization transaction with Thayer-BLUM
Funding, L.L.C., an entity formed by affiliates of Thayer Capital Partners and
BLUM Capital Partners to hold securities of the Company. This first stage
involved:
o the purchase of a total of $54.0 million in Senior
Subordinated Exchangeable Notes with a maturity date of June
30, 2006 and an initial interest rate of 15% accruing
quarterly, or at the Company's option, payable in additional
Exchangeable Notes;
o the issuance of Warrants to purchase 3,093,154 shares of the
Company's common stock at an exercise price of $.01 per share
and
1
<PAGE>
o the election of two persons designated by Thayer-BLUM Funding
to the Company's board of directors.
A tender offer is currently being conducted by Thayer-BLUM Funding for
up to 8,250,000 shares of the Company's currently outstanding common stock at a
price of $4.00 per share. If at least 500,000 shares are purchased in the tender
offer and Proposal 1 is approved at the Special Meeting, the Warrants will never
become exercisable and will be canceled and the Exchangeable Notes will be
replaced with notes convertible into common stock of the Company as set forth
below.
If Proposal 1 is approved at the Special Meeting and the tender offer
is consummated with respect to at least 500,000 shares of common stock:
o the Exchangeable Notes will automatically be replaced with
Senior Subordinated Convertible Notes with a maturity date of
June 30, 2006 and an interest rate of 8.875% accruing
quarterly, or at the Company's option, payable in additional
Convertible Notes;
o Thayer-BLUM Funding will have the right to designate a
majority of the members of the Company's board of directors;
and
o the Warrants will be canceled.
If Proposal 1 is not approved at the Special Meeting or if the tender
offer is not consummated with respect to at least 500,000 shares of common
stock:
o the Warrants will become exercisable and will remain
exercisable until June 30, 2010; and
o the Exchangeable Notes will remain in place and the interest
rate will increase to 20%, accruing quarterly, or at the
Company's option, payable in additional Exchangeable Notes.
Proposal 1 - Issuance of the Convertible Notes
Reasons for the Proposal. On March 30, 2000, the Company closed the
initial phase of the recapitalization transaction when Thayer-BLUM Funding
invested $54.0 million in the Company in exchange for $54.0 million in principal
amount of the Company's Senior Subordinated Exchangeable Notes and Warrants to
purchase 3,093,154 shares of the Company's common stock at an exercise price of
$.01 per share. In connection with that investment, the Company agreed to use
commercially reasonable efforts to obtain shareholder approval under rules
applicable to Nasdaq National Market issuers to the issuance of its Senior
Subordinated Convertible Notes. Approval of Proposal 1 is being sought by the
Company in satisfaction of that obligation.
The Company also believes it to be in the best interests of the Company
and its shareholders to approve Proposal 1. Shareholder approval of Proposal 1
will permit the second phase of the recapitalization transaction to be
completed: the exchange of its Exchangeable Notes for Convertible Notes, the
cancellation of the Warrants and the consummation of the tender offer. Failure
of shareholders to approve Proposal 1 would have a material adverse effect on
the Company and its shareholders in that:
o the Warrants would remain outstanding and the shareholders
would experience substantial dilution when they are exercised
because the Company would issue a substantial number of
additional shares but would not receive any material
additional capital;
o the Exchangeable Notes would remain outstanding and their
interest rate would increase to 20% per annum; and
o Thayer-BLUM Funding would not be obligated to consummate the
tender offer, even if sufficient shares were tendered by the
Company's shareholders.
2
<PAGE>
If Proposal 1 is not approved by shareholders, the Company believes
that it would find it necessary to refinance the Exchangeable Notes given the
high interest rate on such notes. In such a circumstance, the Company would
experience the additional costs, including prepayment penalties, associated with
such a refinancing, which could be substantial, and the Warrants would remain
outstanding.
A special committee of the board of directors, based in part on an
opinion of Needham & Company, Inc., and the board of directors, also based in
part on such opinion, concluded that the recapitalization transaction with
Thayer- BLUM Funding as a whole was fair to and in the interests of the Company
and its shareholders and recommended that the Company's shareholders approve the
proposal.
Opinion of Needham & Company, Inc. In deciding to approve the
recapitalization transaction with Thayer- BLUM Funding, the special committee
received an opinion from the Company's financial advisor, Needham & Company,
Inc., as to the fairness from a financial point of view of the purchase of the
Exchangeable Notes and Warrants and the tender offer, when taken together. The
full text of the opinion is attached as Appendix I to this proxy statement and
should be read carefully in its entirety. Needham's opinion is directed to the
special committee and does not constitute a recommendation to any shareholder
with respect to matters relating to the recapitalization transaction.
Certain Matters to be Considered by Shareholders. Shareholders should
carefully consider the matters listed below in addition to the other matters set
forth elsewhere in this Proxy Statement and its Appendices in connection with
Proposal 1 - issuance of the Company's Convertible Notes:
o Change in the Company's Board of Directors. Immediately following the
consummation of the tender offer, and assuming Proposal 1 is approved, the
composition of the Company's Board will change, with a majority of the Company's
directors being designated by Thayer-BLUM Funding.
o Control by Thayer-BLUM Funding. If Proposal 1 is approved and the
tender offer is consummated on June 30, 2000, assuming conversion of the
Convertible Notes on such date and the issuance of 1.3 million shares of common
stock into a class action settlement fund, Thayer-BLUM Funding would own a
minimum of 57.6% (if the minimum number of shares is purchased in the tender
offer) and a maximum of 77.7% (if the maximum number of shares is purchased in
the tender offer) of the outstanding common stock of the Company based upon the
number of shares outstanding on March 31, 2000. With such share ownership,
Thayer-BLUM Funding will be able to assure approval of any matters presented to
a shareholder vote that it wishes to approve, including electing the directors
that it chooses.
o Dilution. The issuance of common stock upon conversion of the
Convertible Notes will cause proportionate and substantial dilution in the
economic and voting rights of the existing shareholders of the Company. The
number of shares of common stock to be issued upon conversion of the Convertible
Notes will increase over time because accrued interest on the Convertible Notes
is also convertible at $2.58 per share, subject to adjustments.
o Continued Nasdaq National Market Listing. The Company's common stock
is currently listed for trading on the Nasdaq National Market. Nasdaq imposes
requirements for continued listing. The requirements that could be most
difficult for the Company to satisfy in the future are those of maintaining net
tangible assets of at least $4 million or of maintaining market value of
publicly held shares of $15 million. If the Company did not satisfy one of these
two requirements, its common stock might no longer be listed on the Nasdaq
National Market. Failure of the common stock to be listed on the Nasdaq National
Market would have a material adverse effect on the market for the common stock
and the ability of shareholders to sell shares of common stock held by them.
Moreover, continued listing on the Nasdaq Stock Market is a condition of the
automatic conversion of the Convertible Notes upon the satisfaction of certain
other conditions.
o Capitalization of the Company. If Proposal 1 is approved and the
tender offer is consummated on June 30, 2000, and assuming the conversion of the
Convertible Notes on such date, the Company expects to have:
> approximately $30.0 million in long-term debt
outstanding under the Company's senior revolving line
of credit, based on the Company's current projections
for borrowings on its line of credit; and
3
<PAGE>
> shareholders' equity of approximately $67.0 million
based on shareholders' equity at March 31, 2000.
However, if Proposal 1 is not approved by the shareholders, Thayer-BLUM
Funding will be entitled to exercise the Warrants to purchase up to 3,093,154
shares of common stock for $.01 per share and the interest rate on the
Exchangeable Notes will be increased from 15% to 20%. Assuming exercise of the
Warrants, the Company expects to have:
> approximately $78.0 million in long-term debt
outstanding under the Company's senior revolving line
of credit, based on the Company's current projections
for borrowings on its line of credit, and the
Exchangeable Notes; and
> shareholders' equity of approximately $21.0 million.
o Repayment of Subordinated Indebtedness to a Director of the Company.
In connection with the recapitalization transaction, an aggregate of $6.9
million in principal amount of subordinated indebtedness owed to entities
controlled by Richard L. Monfort, a director of the Company, was repaid. The
Company still owes Mr. Monfort $3.0 million in subordinated indebtedness, which
has a maturity date of March 30, 2004 and bears interest at 10%.
o Stock Option Grants. Thayer-BLUM Funding has discussed with certain
of the Company's management granting of a substantial number of additional stock
options. Such grants will not be made unless Proposal 1 is approved by
shareholders. As a consequence, management may have different interests in
approving Proposal 1 than the Company's shareholders in general.
Proposal 2 - Increase in the Number of Authorized Shares
General Description. The Company's board of directors has determined
that to increase the number of authorized shares of common stock from 45.0
million shares to 75.0 million shares is advisable and in the best interests of
the shareholders.
Reasons for Increase. Assuming the Exchangeable Notes are exchanged for
the Convertible Notes on June 30, 2000, a total of approximately 21.7 million
shares would be issuable upon conversion of the Convertible Notes on that date.
Taking into account the number of shares of the Company's common stock that are
currently outstanding or otherwise reserved for issuance, the number of shares
to be issued by the Company as part of the settlement of two class action
lawsuits and the number of shares that would be reserved for issuance under the
2000 Equity Stock Option Plan, the Company would not have sufficient shares
available for issuance upon conversion of the Convertible Notes. The proposed
amendment would permit additional shares of common stock to be reserved for
issuance upon conversion of the Convertible Notes as additional interest accrues
on the Convertible Notes and for the issuance of additional shares for
acquisitions or to give the Company greater flexibility in pursuing funding to
meet its capital needs in the future.
Proposal 3 - Adoption of the 2000 Equity Stock Option Plan
General. The board of directors of the Company has adopted the 2000
Equity Stock Option Plan which provides for the issuance of up to 3.4 million
shares of common stock. The Company also has reserved for issuance up to
approximately 4.8 million additional shares under its existing stock option
plans. Adoption of the 2000 Equity Stock Option Plan also requires the approval
of the Company's shareholders.
Reasons for Adoption. The purposes of the 2000 Equity Stock Option
Plan are:
o to provide additional incentive for directors, employees, and
consultants to the Company to further the growth, development
and financial success of the Company by personally benefitting
through the ownership of Common Stock and/or rights; and
o to enable the Company to obtain and retain the services of
directors, employees and consultants considered essential to
the long range success of the Company by offering them an
opportunity to
4
<PAGE>
own stock in the Company and/or rights that will reflect the
growth, development and financial success of the Company.
Recommendations of the Board of Directors
The board of directors has approved and recommends that you vote FOR
approval of:
o the issuance of Convertible Notes;
o the increase in the number of authorized shares; and
o the adoption of the 2000 Equity Stock Option Plan
5
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements in this Proxy Statement constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, 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. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, market
performance or achievements of the Company to differ materially 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, the following:
o the loss of Honeywell as a customer;
o Honeywell's inability to pay or unwillingness to pay in a
timely manner the outstanding receivables held by the Company;
o the Company's inability to pay its suppliers in a timely
manner;
o changes in economic or business conditions in general or
affecting the electronic products industry in particular;
o changes in the use of outsourcing by original equipment
manufacturers;
o increased material prices and service competition within the
electronic component contract manufacturing industry;
o changes in the competitive environment in which the Company
operates;
o the continued growth of the industries targeted by the Company
or its competitors;
o changes in the Company's management information needs;
o difficulties in using the Company's new management information
system;
o difficulties in managing the Company's growth or in
integrating new businesses or facilities;
o changes in customer needs and expectations;
o the Company's success in retaining customers affected by the
closure of Company facilities;
o the Company's success in limiting costs associated with such
closures;
o the Company's ability to keep pace with technological
developments; and
o governmental actions and regulations.
6
<PAGE>
THE SPECIAL MEETING
Date, Time and Place
The Special Meeting of Shareholders is scheduled to be held on June __,
2000, at 10:00 a.m., local time, at the Company's executive offices at 9351
Grant Street, Sixth Floor, Denver, Colorado 80229.
The Record Date
This Proxy Statement is being mailed to shareholders on or about May
___, 2000. The board of directors has fixed the close of business on May 10,
2000 as the Record Date for determination of the shareholders of the Company
entitled to notice of, and to vote at, the Special Meeting. The only outstanding
voting stock of the Company is the common stock, of which ________ shares were
outstanding as of the close of business on the record date, held by
approximately ____ holders of record. Each share of common stock is entitled to
one vote.
Purpose of the Special Meeting
At the Special Meeting, the shareholders will be asked to consider and
act upon the following:
o Issuance of the Company's 8.875% Senior Subordinated
Convertible Notes due June 30, 2006;
o Increase in the number of authorized shares of the Company's
common stock from 45.0 million to 75.0 million shares;
o Adoption of the Company's 2000 Equity Stock Option Plan that
provides for the issuance of up to 3.4 million shares of
common stock; and
o Transaction of any other business which properly comes before
the meeting or any adjournment or postponement.
The board of directors has determined that each of the proposals is in
the best interests of the Company and its shareholders and recommends that
shareholders vote FOR approval of each of the proposals.
Quorum and Voting
Only holders of record of shares of common stock issued and outstanding
as of the close of business on the Record Date will be entitled to notice of,
and to vote at, the Special Meeting. The holder of each share of common stock
issued and outstanding as of the record date is entitled to one vote per share
upon each matter submitted to a vote of the shareholders of the Company at the
Special Meeting or any adjournment or postponement thereof. The presence, in
person or by proxy, of the holders of a majority of the shares of common stock
entitled to vote at the Special Meeting is necessary to constitute a quorum to
transact business at the Special Meeting. If a quorum is not present at the
Special Meeting, the shareholders who are present, in person or by proxy, may,
by majority vote, adjourn the Special Meeting from time to time without notice
or other announcement until a quorum is present.
If no specific instructions are given with respect to the matters to be
acted upon at the Special Meeting, shares of common stock represented by a
properly executed proxy will be voted FOR each proposal.
Approval of Proposal 1 - Issuance of the Convertible Notes. Nasdaq
Stock Market Rule 4460(i), which is applicable to issuers whose securities are
listed on the Nasdaq National Market (the "Nasdaq Rule"), requires shareholder
approval of transactions other than a public offering involving the sale or
issuance of common stock (or securities convertible into or exercisable for
common stock) equal to 20% or more of the common stock or voting power
outstanding before the issuance at a price less than the greater of book or
market value. Under the Nasdaq Rule, approval of Proposal 1 requires the
affirmative vote of a majority of the total votes cast on the proposal in person
or by proxy.
7
<PAGE>
Approval of Proposal 2 - Increase in the Number of Authorized Shares.
Approval of Proposal 2 requires the affirmative vote of a majority of the shares
of common stock outstanding as of the record date.
Approval of Proposal 3 - Adoption of the 2000 Equity Stock Option Plan.
Approval of Proposal 3 requires affirmative vote of a majority of the total
votes cast on the proposal in person or by proxy.
A proxy submitted by a shareholder may indicate that all or a portion
of the shares represented by such proxy are not being voted by such shareholder
with respect to a particular matter. This could occur, for example, when a
broker is not permitted to vote shares held in street name on certain matters in
the absence of instructions from the beneficial owner of the shares. The shares
subject to any such proxy that are not being voted with respect to a particular
proposal may be considered present and entitled to vote for other purposes and
will count for purposes of determining the presence of a quorum. (Shares not
being voted as to a particular matter will be considered as abstentions.) Under
applicable Colorado law, abstentions and broker non-votes will have no effect on
the outcome of the matters to be voted on at the meeting, except that they have
the same effect as votes against Proposal 2.
Votes cast in person or by proxy at the Special Meeting will be
tabulated by the election inspectors appointed for the Special Meeting. The
Company's transfer agent, American Securities Transfer & Trust, Inc., will act
as inspector of election for the Special Meeting.
Voting Agreement. Directors, executive officers and other shareholders
holding an aggregate of approximately 26.5% of the Company's outstanding common
stock have entered into voting agreements pursuant to which they have agreed to
vote to approve all three proposals at the Special Meeting.
Revocation of Proxies
Proxies properly executed and returned in a timely manner will be voted
at the Special Meeting in accordance with the directions noted thereon. Any
shareholder giving a proxy has the power to revoke it any time before it is
voted, either by delivering to the Secretary of the Company a signed notice of
revocation or a later dated signed proxy or by attending the Special Meeting and
voting in person. Attendance at the Special Meeting will not in itself
constitute the revocation of a proxy. Any written notice of revocation or
subsequent proxy should be sent so as to be delivered to the Company, Attention:
Secretary, or hand delivered to the Secretary of the Company at the address of
the Company's executive offices, at or before the vote to be taken at the
Special Meeting.
Cost of Solicitation
The entire cost of this solicitation will be paid by the Company. In
addition, the Company may reimburse brokerage firms and other persons
representing beneficial owners of shares of common stock for their expenses in
forwarding solicitation material to such beneficial owners. In addition to
solicitation by mail, officers and regular employees of the Company may solicit
proxies from shareholders by telephone, facsimile or personal interview. Such
persons will receive no additional compensation for such services. Brokerage
houses, nominees, fiduciaries and other custodians will be requested to forward
soliciting material to the beneficial owners of shares held of record by them
and will be reimbursed for their reasonable expenses.
Information Regarding Thayer and BLUM
All information contained in this Proxy Statement relating solely to
Thayer, BLUM and their affiliate Thayer- BLUM Funding has been supplied by
Thayer and BLUM for inclusion herein and has not been independently verified by
the Company.
8
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of March 31, 2000
as to the beneficial ownership of common stock by certain beneficial owners of
more than five percent of the common stock, each director, certain executive
officers and by all directors and executive officers as group:
<TABLE>
<CAPTION>
Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership Common Stock(1)
- ------------------------ ---------------------- ---------------
<S> <C> <C> <C>
Val M. Avery** 14,000 (2) *
Allen S. Braswell, Jr.** 1,794,381 (3) 11.5%
August P. Bruehlman** 72,133 (4) *
Jack Calderon** 241,448 (5) 1.5%
James A. Doran** 36,700 (6)(7) *
Jeffrey W. Goettman 3,093,154 (8) 16.6%
Charles E. Hewitson** 1,595,843 (9) 10.3%
Robert K. McNamara 35,250 (10) *
Robert Monaco** 640,000 4.1%
Richard L. Monfort** 753,750 (7)(11) 4.8%
Gerald J. Reid** 511,227 (12) 3.3%
Masoud S. Shirazi 48,550 (7)(13) *
Chuck Tillett** 30,000 (14) *
John C. Walker -- (15) *
Deltec Asset Management Corporation 1,379,740 (16) 8.9%
Dimensional Fund Advisors 1,112,700 (17) 7.2%
Thayer-BLUM Funding, L.L.C. 3,093,154 (18) 16.6%
All directors and executive officers as a
group, including persons named above
(14 persons) 8,866,436 (19) 46.4%
</TABLE>
- ---------------------
* Less than one percent.
** The address of each of these persons is 9351 Grant Street, Sixth Floor,
Denver, Colorado 80229.
(1) Based solely upon reports of beneficial ownership required to be 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 March 31, 2000, greater than five
percent of the outstanding common stock.
(2) Includes 14,000 shares of common stock subject to currently exercisable
options granted under the Company's Equity Incentive Plan.
(3) Includes 369,442 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, 11,000 shares held by the Allen S.
Braswell, Sr. Trust, of which Allen S. Braswell, Sr., Allen S. Braswell,
Jr.'s father, is the trustee, 343,735 shares held by the Allen S. Braswell,
Jr. and Alma L. Braswell JTWROS, 4,000 shares held by the Allen S. and Alma
L. Braswell Family Limited Partnership, 35,000 shares held by Circuit Test
International, LP, of which Braswell Investment Corporation (Allen S.,
Braswell, Jr. is President) is a general partner and 1,031,204 shares held
by Braswell GRIT Limited Partnership of which Braswell Investment
Corporation (Allen S., Braswell, Jr. is President) is a general partner.
(4) Includes 71,633 shares subject to currently exercisable options granted
under the Company's Equity Incentive Plan.
(5) Includes 117,941 shares of common stock subject to currently exercisable,
non-qualified options granted in connection with the commencement of Mr.
Calderon's employment and 112,307 shares of common stock subject to
currently exercisable options granted pursuant to the Company's Equity
Incentive Plan.
(6) Includes 15,750 shares of common stock that are subject to currently
exercisable options under the Company's Equity Incentive Plan.
(7) Includes 20,250 shares of common stock that are subject to currently
exercisable options under the Company's Stock Option Plan for Non-Employee
Directors. Options for an additional 375 shares vest until March 2001 under
such plan.
(8) Mr. Goettman's address is 1455 Pennsylvania Avenue, N.W., Suite 350,
Washington D.C. 20004. Includes 3,093,154 shares of common stock subject to
exercise of the warrant issued to Thayer-BLUM Funding. See Note 18 below.
9
<PAGE>
(9) Includes 10,250 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 375 shares vest
each month until March 2001 under such plan. Also includes 528,531 shares
of common stock owned by Matthew Hewitson and 528,531 shares of common
stock owned by Gregory Hewitson, brothers of Charles Hewitson. Charles
Hewitson disclaims beneficial ownership of the shares of common stock owned
by Matthew Hewitson and Gregory Hewitson.
(10) Mr. McNamara's address is Broadview International, LLC, One Bridge Plaza,
Fort Lee, NJ 07024. Includes 20,250 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 250 shares vest until March 2001 under such plan. Also
includes 15,000 shares of common stock owned jointly with Irene Z.
McNamara, Mr. McNamara's wife.
(11) Includes 271,500 shares held by the Monfort Family Partnership, 250,000
shares held by Rick Montera and Kay Montera JTWROS, 125,000 shares of
common stock owned by a partnership in which Mr. Monfort is the principal
investor and 87,000 shares of Common Stock owned by three of Mr. Monfort's
minor children.
(12) Includes 10,250 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 375 shares vest
each month until March 2001 under such plan. Also includes 289,551 shares
of common stock that are held by Lucille Reid, Gerald, R. Reid's wife.
(13) Mr. Shirazi's address is Shirazi & Associates, Inc., 1770 25th Avenue,
#302, Greeley, CO 80634. Includes 300 shares of common stock owned by
several of Mr. Shirazi's minor children.
(14) Includes 30,000 shares of common stock subject to currently exercisable
options granted under the Company's Equity Incentive Plan.
(15) Mr. Walker's address is 909 Montgomery Street, Suite 400, San Francisco,
CA. 94133. Mr. Walker is a partner in RCBA Strategic Partners, L.P. See
Note 18 below.
(16) The address of Deltec Asset Management Corporation is 645 Fifth Avenue, New
York, NY 10022. Deltec reported shared dispositive power and shared voting
power with regard to 1,379,740 shares of common stock.
(17) The address of Dimensional Fund Advisors is 1299 Ocean Avenue, 11th Floor,
Santa Monica, CA 90401.
(18) Thayer-BLUM Funding was formed to hold securities of the Company. Includes
3,093,154 shares of common stock which may be purchased upon exercise of
the warrant issued to Thayer-BLUM Funding. This warrant is not currently
exercisable. A Schedule 13D relating to this issuance was jointly filed by
Thayer-BLUM Funding, L.L.C., a Delaware limited liability company (the
"Purchaser"), Thayer Equity Investors IV, L.P., a Delaware limited
partnership, TC Equity Partners IV, L.L.C., a Delaware limited liability
company, TC Manufacturing Holdings, L.L.C., a Delaware limited liability
company, TC Co-Investors IV, LLC, a Delaware limited liability company, TC
Management Partners IV, L.L.C., a Delaware limited liability company
(together each of Thayer Equity Investors IV, L.P., TC Equity Partners IV,
L.L.C., TC Manufacturing Holdings, L.L.C., TC Co-Investors IV, LLC, and TC
Management Partners IV, L.L.C., the "Thayer Entities"), RCBA Strategic
Partners, L.P., a Delaware limited partnership, BLUM Capital Partners,
L.P., a California limited partnership, Richard C. Blum & Associates, Inc.,
a California corporation, RCBA GP, L.L.C., a Delaware limited liability
company (together each of RCBA Strategic Partners, L.P., BLUM Capital
Partners, L.P., Richard C. Blum & Associates, Inc., and RCBA GP, L.L.C. the
"BLUM Entities") and Frederic V. Malek, Carl J. Rickertsen, Jeffrey W.
Goettman, Susan Gallagher and Richard C. Blum as individuals (the
"Individuals") (each of the Purchaser, the Thayer Entities, the BLUM
Entities, and the Individuals a "Reporting Person" and taken together the
"Reporting Persons"). The principal business offices of each of Purchaser,
the Thayer Entities, and Frederic V. Malek, Carl J. Rickertsen, Jeffrey W.
Goettman and Susan Gallagher is 1455 Pennsylvania Avenue, N.W., Suite 350,
Washington D.C. 20004. The business address of each of the BLUM Entities
and Richard C. Blum is 909 Montgomery Street, Suite 400, San Francisco, CA.
94133. Thayer Equity Investors IV, L.P. and TC Manufacturing Holdings,
L.L.C. are members of Thayer-BLUM Funding, L.L.C. TC Equity Partners IV,
L.L.C. is the general partner of Thayer Equity Investors IV, L.P. TC
Co-Investors IV, LLC is the managing member of TC Manufacturing Holdings,
L.L.C. TC Management Partners IV, L.L.C. is the managing member of TC
Co-Investors IV, LLC. RCBA Strategic Partners, L.P. is a member of
Thayer-BLUM Funding, L.L.C. RCBA GP, L.L.C. is the general partner of RCBA
Strategic Partners, L.P. Each of Frederic V. Malek, Carl J. Rickertsen,
Jeffrey W. Goettman and Susan Gallagher are members of TC Management
Partners IV, L.L.C. and TC Equity Partners IV, L.L.C. Each of the Reporting
Persons reported shared dispositive power and shared voting power as to the
3,093,154 shares of common stock issuable upon exercise of the warrant.
(19) Of such 8,866,436 shares, as of March 31, 2000, 463,131 represent shares of
common stock subject to options that are currently exercisable or, within
60 days of March 31, 2000, will become exercisable and 3,093,154 shares
represent shares issuable upon exercise of the warrant issued to
Thayer-BLUM Funding. This warrant is not currently exercisable.
10
<PAGE>
SUMMARY OF THE RECAPITALIZATION TRANSACTION
Transaction with Thayer-BLUM Funding
On March 30, 2000, the Company completed the first stage of a
recapitalization transaction (the "Recapitalization Transaction") with
Thayer-BLUM Funding, L.L.C., an entity formed by affiliates of Thayer Capital
Partners and BLUM Capital Partners to hold securities of the Company. This first
stage involved the purchase of a total of $54 million in Senior Subordinated
Exchangeable Notes ("Exchangeable Notes") with a maturity date of June 30, 2006
and an initial interest rate of 15% accruing quarterly, or at the Company's
option, payable in additional Exchangeable Notes. The Exchangeable Notes were
accompanied by warrants (the "Warrants") to purchase 3,093,154 shares of the
Company's common stock at an exercise price of $.01 per share. Thayer-BLUM
Funding has designated two persons who have been appointed to the Company's
board of directors and each committee thereof.
If Proposal 1 is approved at the Special Meeting and the tender offer
described below is consummated with at least 500,000 shares of common stock, the
Exchangeable Notes will automatically be replaced with Senior Subordinated
Convertible Notes ("Convertible Notes"), which have a maturity date of June 30,
2006 and bear interest at a rate 8.875% compounding quarterly, or at the
Company's option, payable in additional Convertible Notes. At the election of
the holder, the Convertible Notes, including accrued interest, may be converted,
at any time, into the Company's common stock at $2.58 per share, subject to
adjustment. Conversion will occur automatically if:
o the Company has maintained and at the time is maintaining the
listing of its common stock on the Nasdaq Stock Market;
o the Company is in full compliance with all covenants under its
senior debt; and
o the average of the high and low sales prices is above $7.50
per share for 45 consecutive trading days or, after March 30,
2000, such average is above $4.25 for 45 consecutive trading
days.
A tender offer is currently being conducted by Thayer-BLUM Funding for
up to 8,250,000 shares of the Company's currently outstanding common stock at a
price of $4.00 per share. If Proposal 1 is approved and at least 500,000 shares
are purchased in the tender offer, the Warrants will never become exercisable
and will be canceled. In addition, Thayer-BLUM Funding will have the right to
designate a majority of the members of the Company's board of directors and will
have the right to approve any significant financings, acquisitions and
dispositions.
If shareholders do not approve issuance of the Convertible Notes by
September 1, 2000 or if Thayer-BLUM Funding does not purchase at least 500,000
shares in the tender offer, the Warrants will become exercisable, the
Exchangeable Notes will remain in place and the interest rate on the
Exchangeable Notes will increase to 20%. Interest would be compounded quarterly
and continue to accrue on the original notes or be payable in additional
Exchangeable Notes, at the option of the Company.
Transaction with Bank of America
Closing of the initial investment by Thayer-BLUM Funding was
conditioned upon the simultaneous closing of a new senior credit facility. On
March 30, 2000, the Company entered into a new credit agreement with Bank of
America, N.A. to replace the Company's existing revolving line of credit with
Bank One Colorado, N.A. The new credit facility provides for a $45 million
revolving line of credit with a maturity date of March 30, 2003. Initially, the
interest rate will be the prime rate plus 0.5%. Total borrowings are subject to
limitation based on a percentage of eligible accounts receivable and eligible
inventory. Substantially all of the Company's assets are pledged as collateral
for outstanding borrowings, and the credit agreement requires compliance with
certain financial and non-financial covenants.
11
<PAGE>
PROPOSAL 1 -
ISSUANCE OF THE CONVERTIBLE NOTES
General
In accordance with the rules of the Nasdaq Stock Market, the Company is
seeking approval for the issuance of its 8.875% Senior Subordinated Notes due
June 30, 2006 to Thayer-BLUM Funding in connection with the Recapitalization
Transaction summarized above. A tender offer is currently being commenced by
Thayer-BLUM Funding.
Background of the Recapitalization Transaction
Capital and Liquidity Needs. The Company has had increasing needs for
capital since the fourth quarter of 1998 as a result of increased revenues and
continued operating losses. In March 1999, the Company entered into a long- term
supply agreement with Honeywell International, Inc. While this agreement
resulted in increased revenue to the Company, it also resulted in significantly
increased working capital requirements to finance inventory and receivables. The
Company had executed a commitment letter with Wells Fargo Business Credit, Inc.,
to finance these capital requirements; however, Wells Fargo chose not to proceed
with such financing. The Company also incurred significant costs related to
leasehold improvements and equipment at its new facility in Phoenix, Arizona,
where it provides manufacturing services for Honeywell under the agreement.
During 1999, the Company had capital expenditures of $14.4 million,
primarily related to the Honeywell agreement and the build-out of the Phoenix
facility. The capital requirements under this new agreement provided significant
challenges to the Company in 1999, due to the Company's higher debt levels at
the end of 1998, combined with its deteriorating operating performance since the
third quarter of 1998.
The Company sold a significant amount of assets during 1999 to provide
additional liquidity. The Company's services division was sold in September 1999
for net cash proceeds of approximately $28.1 million, and the Company's Greeley,
Colorado plant was sold in October 1999 for net cash proceeds of approximately
$3.8 million. Proceeds from these asset dispositions were used to repay
indebtedness and for general working capital purposes.
The Company first engaged a broker to seek financing for the Company in
September 1999.
In early October 1999, the Company engaged in discussions with Bank One
Colorado, N.A. and the other lenders under its senior credit facility with a
view to obtaining waivers of certain financial covenants with which it would be
unable to comply. Bank One stated its desire to be fully repaid by year-end. The
loan agreement was amended at the end of October to change certain financial
covenants and to provide for a new maturity date of December 30, 1999.
During October and early November 1999, the Company had discussions
with an unrelated third party that had approached it about an acquisition of the
Company. The Company and the third party were unable to reach agreement and
discussions terminated.
During November 1999, the Company advised Honeywell, then its largest
customer, of the liquidity issues it faced. Also in November 1999, the Company
obtained a $5 million subordinated loan from a director of the Company and
engaged an additional broker to obtain subordinated financing of up to $25
million, as well as senior debt of at least $40 million.
On December 1, 1999, the Company engaged Murphy Noell Capital, L.L.C.
("Murphy Noell") to obtain subordinated debt or equity financing for the Company
that also would permit the Company to obtain a new senior lender to replace the
existing senior bank group. Murphy Noell contacted Thayer Equity Investors IV,
L.P. ("Thayer") regarding a possible investment in the Company on December 5,
1999. Thayer expressed interest in a possible transaction that involves a change
of control of the Company, not just subordinated financing.
12
<PAGE>
Throughout December, Jack Calderon, the Company's president and chief
operating officer, and Stuart Fuhlendorf, then the Company's Chief Financial
Officer, visited over a dozen financing prospects, including mezzanine lenders,
senior lenders and private equity groups. The Company also resumed discussions
with Honeywell regarding manufacturing conducted at the Company's Tucson
facility. Those discussions ultimately led to the sale of the Tucson facility to
Honeywell on February 17, 2000, for net cash proceeds of approximately $12.7
million. Proceeds of the sale were used to repay indebtedness and to pay a
portion of its past-due trade payables.
The Company was unable to obtain any additional subordinated financing
or to refinance its existing senior credit facility by its December maturity
date, and the senior bank group agreed to extend the maturity date to March 30,
2000. As part of the extension, availability under the facility was reduced to
$34.0 million on January 10, 2000, and reduced again by an additional $1 million
per month on February 1, 2000 and March 1, 2000. At December 31, 1999, the
Company had trade payables in excess of $18.0 million that were outside of
established terms and many suppliers were requiring payment of past-due balances
or payment in advance for purchases of additional inventories. The Company
experienced some interruptions in production as a result of this situation.
Throughout January 2000, the Company continued discussions with
possible sources of financing. During that period, the Company received eight
proposals for subordinated indebtedness or equity financing ranging in amount
from $10 million to $35 million and nine proposals for a new senior credit
facility ranging in size from $40 million to $50 million. All of the proposals
for senior financing were contingent on obtaining subordinated financing.
Negotiations with Thayer and BLUM. On January 12, 2000, representatives
of Thayer met with Messrs. Calderon, and Fuhlendorf at the Company's Phoenix
manufacturing facility. On January 14, 2000, Thayer contacted BLUM Capital
Partners, L.P. ("BLUM") to inquire about BLUM's interest in participating with
Thayer in a potential transaction involving the Company.
On January 21, 2000, BLUM indicated to Thayer its interest in jointly
pursuing such a transaction. Also on January 21, 2000, Thayer presented its
initial proposal to the Company. The proposal called for an initial investment
of approximately $35 million in the Company in exchange for the issuance by the
Company of senior subordinated notes bearing interest at a rate of 12.5% per
annum payable in kind and warrants to purchase approximately 3.1 million shares
of the Company's common stock (representing approximately 19.9% of the Company's
outstanding shares) at $.01 per share. Thayer would conduct a tender offer for
approximately 9.6 million shares of the Company's outstanding common stock
(approximately 62.4%) at a price of $4.00 per share. Shareholder approval would
also be sought under the rules of the Nasdaq Stock Market. Upon receipt of
shareholder approval, the senior subordinated notes would become convertible
into the Company common stock at $3.00 per share, the interest rate on the notes
would be reduced to 11% per annum, the number of shares issuable upon exercise
of the warrants would be reduced to 2.5 million, and Thayer would be entitled to
designate a majority of the Company board of directors.
The Company's board of directors met at a regularly scheduled meeting
on January 21, 2000. Representatives of Murphy Noell were present, and together
with Messrs. Calderon and Fuhlendorf, described the five best proposals for
subordinated indebtedness or equity financing that had been received by the
Company, including the initial proposal from Thayer. The board requested certain
changes to the proposal, including a reduction of the interest rate to 8.25% per
annum and the termination of all warrants upon receipt of shareholder approval,
in exchange for a reduction of the conversion price of the senior subordinated
notes of $2.50. After discussion, the board authorized management to execute an
exclusivity agreement and pursue discussions with Thayer, subject to board
approval of the final transaction. On January 24, 2000, Thayer presented a
revised proposal to the Company that responded to concerns expressed by the
Company's board of directors at the January 21st meeting.
In late January 2000, Thayer met with the Company to conduct initial
due diligence at the Company's offices, and the Company and Thayer signed an
exclusivity agreement with respect to the transaction that could be terminated
by either party after February 21, 2000 if definitive agreements had not been
entered into by that date. During the remainder of January and in February,
Thayer and BLUM and their representatives continued both legal and business due
diligence. In addition, the Company and Thayer continued discussions during
February regarding the basis on which a transaction might proceed.
13
<PAGE>
On March 2, 2000, Thayer presented a revised proposal that increased
the initial investment to $45 million, increased the interest rate of the senior
subordinated notes to 15.0%, increased the interest rate on the convertible
notes to 8.625% and the conversion price to $2.55 per share and increased the
number of shares sought in the tender offer to 9.7 million.
Appointment of Special Committee. The Company's board of directors met
on March 5, 2000 to consider the revised proposal. At that time, the board
appointed a special committee to conduct further negotiations with Thayer and to
submit a recommendation to the full board of directors. The special committee
consisted of Robert K. McNamara, Chairman, Gerald J. Reid, Charles E. Hewitson,
Allen S. Braswell, Jr. and Masoud S. Shirazi, and was expressly authorized to
engage a financial advisor to deliver an opinion as to the fairness, from a
financial point of view, of the transactions with Thayer to the Company and its
shareholders. The special committee met separately from the board of directors
on March 5 and March 15, 2000. On March 17, 2000, Needham & Company, Inc. was
formally engaged by the special committee to deliver a fairness opinion on the
transaction. At meetings of the special committee on March 15 and the board of
directors on March 21, 2000, Needham reported orally on its progress toward
being able to deliver a fairness opinion when requested to do so by the special
committee.
Between March 5 and March 21, 2000, Mr. McNamara and counsel conducted
negotiations with Thayer on the transaction, with emphasis on limiting or
eliminating provisions of the agreement that might have precluded the Company
from completing a competing transaction after an exclusivity agreement or
definitive agreements had been signed. By the conclusion of these negotiations,
the parties reached an understanding that if the Company were to terminate the
agreement to accept a superior proposal, the Company would pay Thayer's expenses
and a $1.5 million termination fee, would repay the senior subordinated note
without premium, and would redeem the warrants for a payment beginning at $5
million that would increase to $6 million based upon when the redemption right
was exercised. During this period, Mr. McNamara also contacted Bank One to
determine if there was any basis upon which the bank lending group would extend
the maturity date of the Company's senior credit facility to permit the Company
to pursue financing proposals other than that proposed by Thayer and BLUM; he
was advised there was not.
The Company and its counsel met with representatives of Thayer and BLUM
and their counsel on March 20 through 22, 2000 to negotiate definitive
agreements with respect to the transaction. On March 21, 2000, Thayer and BLUM
advised the Company that they had revised their proposal to reflect an increase
of the initial investment to $54 million, an increase of the initial interest
rate on the senior subordinated notes to 15%, a reduction of the initial
conversion price on the convertible notes and a reduction of the number of
shares to be purchased in the tender offer to 8.25 million. Thayer and BLUM
conditioned closing on resolving a dispute with Murphy Noell as to the amount
payable to it as a broker in connection with the transaction and settling or
insuring over two class action securities lawsuits that had been filed against
the Company in 1998 . On March 30, 2000, a preliminary settlement was reached on
the two class action lawsuits within the parameters permitted by Thayer and BLUM
and in early April 2000 the Company filed papers in appropriate courts giving
notice of its agreement to settle the cases, subject to court approval. The
settlement provides for the payment by the Company of cash and the issuance of
1.3 million shares of common stock into the settlement fund.
On March 21, 2000, the special committee met with the balance of the
board of directors in attendance to discuss the status of negotiations for the
transaction. Mr. Calderon reported on the revised proposal made by Thayer and
BLUM. After extensive discussion, the special committee approved continued
negotiations for the transaction on the basis of the revised proposal.
During the following week, the Company, Thayer and BLUM continued
negotiations on the terms of the transaction and the form of definitive
agreements. The special committee met on March 29, 2000 to consider the
transaction as then proposed. The balance of the board of directors was also in
attendance at that meeting. Needham orally delivered its opinion that the
issuance of the Exchangeable Notes and Warrants and the tender offer, when taken
together, are fair to the Company and its shareholders (other than Thayer-BLUM
Funding and its affiliates), from a financial point of view. Needham's written
opinion as to such matters is attached as Appendix I. Counsel reviewed the
principal terms of the transaction with the special committee and the board of
directors. After extensive discussion, the special committee concluded that
Recapitalization Transaction as a whole was fair to and in the best interests of
the Company and its shareholders and referred the matter to the full board of
directors for approval. A meeting of the board
14
<PAGE>
of directors was then convened, at which the board of directors concluded that
the Recapitalization Transaction as a whole was fair to and in the best
interests of the Company and its shareholders, approved the Recapitalization
Transaction and recommend that appropriate matters be submitted to the Company's
shareholders for approval.
Documentation for the transaction was finalized on March 30, 2000. An
agreement had not been reached with Murphy Noell. Immediately prior to closing,
the Company agreed with Thayer and BLUM that the initial conversion price of the
convertible notes would be reduced to reflect any adverse determination or
settlement with respect to Murphy Noell from that agreed. Implementation of such
adjustment to the conversion price was subject to approval of the board of
directors and the special committee. The initial transaction was closed and the
Company's senior loan with Bank One was repaid on its due date.
Closing of the initial transaction was conditional upon the
simultaneous closing of new credit facility. The Company closed a revolving line
of credit of up to $45 million with a maturity date of March 2003 with Bank of
America at the same time as the transaction with Thayer-BLUM. Funding.
Murphy Noell Settlement. The Company negotiated a settlement with
Murphy Noell effective on April 5, 2000. Payments to be made to Murphy Noell
required a reduction of the conversion price of the convertible notes from $2.60
to $2.58 under the terms of the agreement reached with Thayer and BLUM
immediately prior to closing. The board of directors met on April 9, 2000 to
consider approving the reduction. The board of directors referred the matter to
the special committee with authority to consider, and approve if appropriate,
the reduction in the conversion price of the Convertible Notes. The special
committee requested that Needham advise whether the reduced conversion price of
the Convertible Notes would have affected Needham's opinion that was delivered
on March 29, 2000. The special committee met on April 27, 2000, at which time
Needham orally confirmed that they did not believe that the establishment of the
conversion price at $2.58, had it been considered as part of its analyses in
connection with its earlier opinion, would have altered its conclusion set forth
in that opinion, as of the date of the opinion. Needham's letter relating to the
reduced coversion price is attached as Appendix II. The special committee then
authorized the reduction in the conversion rate in accordance with the previous
delegation to it by the board of directors. The form of the Convertible Notes to
be delivered was revised to reflect the reduction.
Reasons for the Transaction
On March 30, 2000, the Company completed the initial stage of the
Recapitalization Transaction when Thayer- BLUM Funding invested $54 million in
the Company in exchange for $54 million in the Company's Exchangeable Notes and
the Warrants. In connection with that investment, the Company agreed to use
commercially reasonable efforts to obtain shareholder approval to the issuance
of the Convertible Notes under rules applicable to Nasdaq National Market
issuers. Approval of Proposal 1 is being sought by the Company in satisfaction
of that obligation.
The Company also believes it to be in the best interests of the Company
and its shareholders to approve Proposal 1. Shareholder approval of Proposal 1
will permit the second phase of the Recapitalization Transaction to be
completed: the exchange of the Exchangeable Notes for the Convertible Notes, the
cancellation of the Warrants and the consummation of the tender offer. Failure
of shareholders to approve Proposal 1 would have a material adverse effect on
the Company and its shareholders in that:
o the Warrants would remain outstanding and the shareholders
would experience substantial dilution when they are exercised
because the Company would issue a substantial number of
additional shares but would not receive any material
additional capital;
o the interest rate on the Exchangeable Notes would increase to
20% per annum; and
o Thayer-BLUM Funding would not be obligated to consummate the
tender offer, even if sufficient shares were tendered by the
Company's shareholders.
If Proposal 1 is not approved by shareholders, the Company believes
that it would find it necessary to refinance the Exchangeable Notes given the
high interest rate on such notes. In such a circumstance, the Company would
15
<PAGE>
experience the additional costs, including prepayment penalties, associated with
such a refinancing, which could be substantial, and the Warrant would remain
outstanding.
As noted under "Background of the Recapitalization Transaction," a
special committee of the board of directors, based in part on an opinion of
Needham and the board of directors, also based in part on such opinion,
concluded that the Recapitalization Transaction as a whole was fair to and in
the best interests of the Company and its shareholders and recommend that the
Company's shareholders approve the proposal.
In reaching these conclusions and recommendation, the Board considered,
among other things the following factors, none of which were qualified or
assigned relative weight as compared to any other factor:
o the Company's need for capital, including the March 30, 2000
maturity date of its senior bank facility with Bank One;
o the substantial amount of capital that Thayer and BLUM were
prepared to commit to an investment in the Company and to
purchasing shares in the tender offer;
o the extensive effort that had been made by the Company and its
representatives to obtain funding for its operations and the
lack of alternatives that were superior to the proposed
transaction;
o the structure of the transaction, which permitted the Company
to receive funding to satisfy its immediate capital needs,
while permitting existing shareholders the opportunity either
to tender a substantial portion of their shares to Thayer-BLUM
Funding at a significant premium to the trading price of the
Company's common stock during the period the tender offer
price was negotiated, or to retain ownership of those shares;
o the financial analysis and other information with respect to
the Company presented by Needham, including Needham's oral
opinion, which was subsequently confirmed in writing (and
which opinion is attached to the proxy statement as Appendix
I), that the issuance of the Exchangeable Notes and Warrants
and the tender offer, when taken together, are fair to the
Company and its shareholders (other than Thayer-BLUM Funding
and its affiliates), from a financial point of view; and
o the understanding that Thayer and BLUM have of the Company's
business, their track record with other investments and their
capital resources.
The foregoing discussion of the information and factors considered by
the Board is not intended to be exhaustive, but it does include the factors that
the Board considered material to its decision to approve the Recapitalization
Transaction. In view of the factors considered in connection with its
evaluation, the Board did not find it practicable to and did not quantify or
attempt to assign relative weights to the specific factors considered in
reaching its decision. In addition, individual members of the Board may have
given different weight to different factors.
Opinion of Needham & Company, Inc.
The Company retained Needham under an engagement letter to furnish
financial advisory and investment banking services with respect to the proposed
recapitalization and to render an opinion as to the fairness, from a financial
point of view, of the issuance of the Exchangeable Notes and Warrants (the
"Initial Investment") and the tender offer (together, the "Transactions") to the
holders of the Company's common stock (other than Thayer-BLUM Funding and its
affiliates). The terms of the Transactions were determined through arm's length
negotiations between the Company and Thayer-BLUM Funding and not by Needham.
At a meeting of the board of directors on March 29, 2000, Needham
delivered its oral opinion (subsequently confirmed in writing) that, as of that
date and based upon and subject to the assumptions and other matters described
in its written opinion, the Initial Investment and the Transactions, when taken
together, are fair to the Company and the holders of common stock (other than
Thayer-BLUM Funding and its affiliates) from a financial point of view. The
16
<PAGE>
Needham opinion is addressed to the special committee of the board, is directed
only to the financial terms of the securities purchase agreement and related
documents, and does not constitute a recommendation to any shareholder as to how
such shareholder should vote at the Special Meeting.
The complete text of the Needham opinion, which sets forth the
assumptions made, matters considered, limitations on and scope of the review
undertaken by Needham, is attached to this document as Appendix I. The summary
of the Needham opinion set forth in this document is qualified in its entirety
by reference to the Needham opinion. You should read the Needham opinion
carefully and in its entirety for a description of the procedures followed, the
factors considered, and the assumptions made by Needham.
In arriving at its opinion, Needham, among other things:
o reviewed a draft of the securities purchase agreement and
related drafts of the forms of Exchangeable Notes, Convertible
Notes and Warrants furnished to it on March 28, 2000;
o reviewed certain publicly available information concerning the
Company and certain other relevant financial and operating
data of the Company furnished to Needham by the Company;
o reviewed the historical stock prices and trading volumes of
the common stock;
o held discussions with members of senior management of the
Company concerning their current and future business prospects
of the Company;
o reviewed and discussed with members of the management of the
Company various financial forecasts and projections prepared
by management that assume the Transactions (except the Initial
Investment) do not occur and, in the alternative, assume the
occurrence of the Transactions, the exchange of the
Exchangeable Notes and cancellation of the Warrants;
o compared publicly available financial data of selected
companies whose securities are traded in the public markets
and that Needham deemed relevant to similar data for the
Company;
o reviewed the financial terms of selected other transactions
that Needham deemed generally relevant;
o discussed with members of the Company's management the
strategic rationale and certain other benefits to the company
resulting from an association with the Investor; and
o performed and/or considered such other studies, analyses,
inquiries and investigations as Needham deemed appropriate.
Needham assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by or discussed with it
for purposes of rendering its opinion and the assessment by the Company's
management of the strategic and other benefits expected to be derived from the
Transactions. Needham assumed that the financial forecasts relating to the
Company were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the Company's management, at the time of
preparation, of the future operating and financial performance of the Company.
Needham did not assume any responsibility for or make or obtain any independent
evaluation, appraisal or physical inspection of the assets or liabilities of the
Company. The Needham opinion states that it was based on economic, monetary and
market conditions existing as of its date. Needham expressed no opinion as to
the value of the Exchangeable Notes, Convertible Notes or Warrants or the prices
at which the common stock will actually trade at any time. In addition, Needham
was not asked to consider, and the Needham opinion does not address:
o the Company's underlying business decision to engage in the
Transactions;
o the relative merits of the Transactions as compared to any
alternative business strategies that might exist for the
Company; or
17
<PAGE>
o the effect of any other transaction in which the Company might
engage.
No limitations were imposed by the Company on Needham with respect to
the investigations made or procedures followed by Needham in rendering its
opinion.
Based on this information, Needham performed a variety of financial
analyses of the Transactions. As part of its analyses, Needham performed the
following: (a) a selected companies analysis, in which Needham compared selected
operating and financial data for selected publicly traded companies that Needham
deemed relevant to similar data for the Company; (b) a review of publicly
available information concerning the financial terms of selected transactions in
the contract manufacturing industry; (c) a liquidation analysis to analyze
certain possible scenarios in the event the Transactions were not consummated
and additional sources of liquidity were not available to the Company; (d) an
analysis of historical trading prices and volumes for the Company's common stock
and a comparison of the Company's historical stock price performance relative to
Nasdaq, the S&P 500 and selected publicly traded companies; and (e) an analysis
of the premiums and discounts implied by the proposed Transactions and a
sensitivity analysis of selected financial data and ratios assuming completion
of the Transactions at various levels of shares tendered in the tender offer.
Needham also considered certain issues with respect to the Company's liquidity
position.
No company, transaction or business used in any comparable analysis as
a comparison is identical to the Company or the Transactions. Accordingly, these
analyses are not simply mathematical; rather, they involve complex
considerations and judgments concerning differences in the financial and
operating characteristics and other factors that could affect the acquisition,
public trading or other values of the comparable companies or transactions to
which they are being compared.
The summary set forth above does not purport to be a complete
description of the analyses performed by Needham in connection with the
rendering of its opinion. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant quantitative and
qualitative methods of financial analyses and the application of those methods
to the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Accordingly, Needham believes that its
analyses must be considered as a whole and that considering any portions of its
analyses and of the factors considered, without considering all analyses and
factors, could create a misleading or incomplete view of the process underlying
its opinion. In its analyses, Needham made numerous assumptions with respect to
industry performance, general business and economic and other matters, many of
which are beyond the control of the Company. Any estimates contained in these
analyses are not necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less favorable.
Additionally, analyses relating to the values of business or assets do not
purport to be appraisals or necessarily reflect the prices at which businesses
or assets may actually be sold. Accordingly, these analyses and estimates are
inherently subject to substantial uncertainty. The Needham opinion and Needham's
related analyses were only one of many factors considered by the board of
directors in its evaluation of the Transactions and should not be viewed as
determinative of the views of the board of directors or management with respect
to the Transactions.
In connection with the reduction of the conversion price of the
Convertible Notes from $2.60 to $2.58, the special committee requested Needham
to state whether the revised conversion price would have affected Needham's
opinion. Needham was not requested to render, and did not render, a new opinion
and, accordingly, did not update its investigations made, procedures followed or
matters considered with respect to its opinion dated March 29, 2000. Needham
issued a letter to the special committee, dated April 27, 2000, that stated that
subject to those considerations, Needham believed that the establishment of the
$2.58 conversion price, had it been considered by Needham as part of its
analyses, would not have altered its conclusion set forth in its March 29, 2000
opinion as of the date of that opinion. A copy of this letter is attached to
this document as Appendix II.
Under the terms of the Needham engagement letter, the Company has paid
or agreed to pay Needham fees for rendering the Needham opinion and for
financial advisory services that the Company and Needham believe are customary
in transactions of this nature. None of Needham's fees were contingent on
consummation of the Transactions. The Company also agreed to reimburse Needham
for its reasonable out-of-pocket expenses and to
18
<PAGE>
indemnify it against specified liabilities relating to or arising out of
services performed by Needham as financial advisor to the Company.
Needham is a nationally recognized investment banking firm. As part of
its investment banking services, Needham is frequently engaged in the evaluation
of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of securities, private
placements and other purposes. Needham was retained by the special committee to
act as the Company's financial advisor in connection with the Transactions based
on Needham's experience as a financial advisor in mergers and acquisitions and
recapitalizations as well as Needham's familiarity with technology companies.
Needham has provided various investment banking services to the Company in the
past, for which it has received customary compensation. In the normal course of
its business, Needham may actively trade the equity securities of the Company
for its own account or for the account of its customers and, therefore, may at
any time hold a long or short position in these securities.
Certain Matters to be Considered by Shareholders
Change in the Company's Board of Directors. Assuming Proposal 1 is
approved, immediately following consummation of the tender offer, the size of
the board will be reduced from eleven to nine directors, and a majority of the
Company's directors will be designated by Thayer-BLUM Funding. Thayer-BLUM
Funding has expressed its intention to designate the following people to the
board of directors: Jeffrey W. Goettman, Douglas McCormick, Jose Medeiros, John
Walker and ____________.
Control by Thayer-BLUM Funding. If Proposal 1 is approved and the
tender offer is consummated on June 30, 2000, assuming conversion of the
Convertible Notes on such date and the issuance of 1.3 million shares of common
stock into a class action settlement fund, Thayer-BLUM Funding would own a
minimum of 57.6% (if the minimum number of shares are purchased in the tender
offer) and a maximum of 77.7% (if the maximum number of shares are purchased in
the tender offer) of the outstanding common stock of the Company based upon the
number of shares outstanding on March 31, 2000. With such share ownership,
Thayer-BLUM Funding will be able to assure approval of any matters presented to
a shareholder vote that it wishes to approve, including electing the directors
that it chooses.
Thayer-BLUM Funding is an entity established by affiliates of Thayer
Capital Partners and BLUM Capital Partners to hold securities of the Company and
is controlled solely by such affiliates. These entities in turn are controlled
by Thayer Capital Partners and BLUM Capital Partners.
Thayer Capital Partners is a private equity investment firm based in
Washington, DC. Thayer manages two private equity funds with more than $1.2
billion under management. The firm focuses on buyouts and growth equity
investments in four primary industries: information technology and services,
electronics and outsourced manufacturing, travel and leisure services, and
outsourced business services.
BLUM Capital Partners is a San Francisco-based private equity and
strategic block investment firm, which manages in excess of $3 billion in
capital both domestically and internationally. BLUM has invested in a wide
variety of businesses and has been successful initiating value-enhancing
strategies, including going-private transactions, equity infusions to either
restructure a balance sheet or provide growth capital, share repurchases,
acquisition programs, and business unit divestitures.
Dilution. The issuance of common stock upon conversion of the
Convertible Notes will cause proportionate and substantial dilution in the
economic and voting rights of the existing shareholders of the Company.
Following consummation of the tender offer and assuming conversion of the
Convertible Notes on June 30, 2000 and the issuance of 1.3 million shares of
common stock into a class action settlement fund, the issued and outstanding
shares of the common stock held by the current shareholders will be reduced to
approximately 39.0% of the total issued and outstanding shares of the common
stock of the Company (if the minimum number of shares is purchased in the
tender) or approximately 18.9% of the total issued and outstanding shares of the
common stock of the Company (if the maximum number of shares is purchased in the
tender offer), in each case based upon the number of shares outstanding on March
31, 2000.
19
<PAGE>
Continued Nasdaq National Market Listing. The Company's common stock is
currently listed for trading on the Nasdaq National Market, which imposes
requirements for continued listing. The requirements that could be most
difficult for the Company to satisfy are those of maintaining:
o net tangible assets of at least $4 million; or
o market value of publicly held shares of $15 million.
For this purpose, "net tangible assets" means total assets (including the value
of patents, copyrights and trade marks but excluding the value of goodwill) less
total liabilities.
As of March 31, 2000, the Company's net tangible assets were
approximately $4.5 million. Future losses could result in the Company's not
satisfying the net tangible assets requirement for continued listing. Assuming
that Thayer- BLUM Funding purchases 8.25 million shares of common stock in the
tender offer and giving effect to the issuance of 1.3 million shares of common
stock into a class action settlement fund, the number of shares of publicly held
common stock would be approximately 8.6 million shares based upon the number of
shares outstanding on March 31, 2000. Were the closing bid price of the
Company's common stock on the Nasdaq National Market to be below $1.74 per
share, the market value of publicly held shares would be below $15 million. If
the Company did not satisfy either of the net tangible assets requirement or the
market value of publicly held shares requirement, its common stock might no
longer be listed on the Nasdaq National Market. Failure of the common stock to
be listed on the Nasdaq National Market would have a material adverse effect on
the market for the common stock and the ability of shareholders to sell shares
of common stock held by them. Moreover, continued listing on the Nasdaq Stock
Market is a condition of the automatic conversion of the Convertible Notes upon
the satisfaction of certain other conditions.
Capitalization of the Company. If Proposal 1 is approved and the tender
offer is consummated on June 30, 2000, and assuming the conversion of the
Convertible Notes on such date, the Company expects to have:
o approximately $30.0 million in long-term debt outstanding
under the Company's senior revolving line of credit, based on
the Company's current porjections for borrowings on its line
of credit; and
o shareholders' equity of approximately $67.0 million based on
shareholders' equity at March 31, 2000.
The management of the Company believes such amounts of indebtedness to be
reasonable in light of the size and operations of the Company.
However, if Proposal 1 is not approved by shareholders or if the tender
offer is not consummated with respect to at least 500,000 shares of common
stock, Thayer-BLUM Funding will be entitled to exercise the Warrants to purchase
up to 3,093,154 shares of common stock for $.01 per share and the interest rate
on the Exchangeable Notes will be increased from 15% to 20%. Assuming exercise
of the Warrants, the Company expects to have:
o approximately $78.0 million in long-term debt outstanding
under the Company's senior revolving line of credit, based on
the Company's current projections for borrowings on its line
of credit, and the Exchangeable Notes; and
o shareholders' equity of approximately $21.0 million based on
shareholders' equity at March 31, 2000.
The credit facility with Bank of America, the Exchangeable Notes and
the Convertible Notes contain significant restrictive covenants eliminating the
Company's ability to incur additional debt, pay dividends and engage in
transactions, including refinancing transactions, without Bank of America's and
Thayer-BLUM Funding's consent.
Voting Agreement. Directors, executive officers and other shareholders
holding an aggregate of 26.5% of the Company's outstanding common stock have
entered into voting agreements pursuant to which they have agreed to vote to
approve the issuance of the Convertible Notes.
20
<PAGE>
Repayment of Subordinated Indebtedness to a Director of the Company. In
connection with the Recapitalization Transaction, an aggregate of $6.9 million
in principal amount of subordinated indebtedness owed to entities controlled by
Richard L. Monfort, a director of the Company was repaid. The Company still owes
the partnership $3.0 million in subordinated indebtedness, which has a maturity
date of March 30, 2004 and bears interest at 10%.
Stock Option Grants. Thayer-BLUM Funding has discussed with certain of
the Company's management granting of a substantial number of additional stock
options. Such grants will not be made unless Proposal 1 is approved by
shareholders. As a consequence, management may have different interests in
approving Proposal 1 than the Company's shareholders in general.
Description of Securities Purchase Agreement
The following summary of the Securities Purchase Agreement is qualified
in its entirety by the full text of the Securities Purchase Agreement which is
attached to this Proxy Statement as Appendix III.
General. The Securities Purchase Agreement, entered into on March 30,
2000 between Thayer-BLUM Funding and the Company, sets forth the terms and
conditions under which the Company sold and Thayer-BLUM Funding bought $54.0
million in aggregate principal amount of the Company's 15% Senior Subordinated
Exchangeable Notes due June 30, 2006, plus warrants to purchase 3,093,154 shares
of the Company's common stock at an exercise price of $.01 per share
representing approximately 19.9% of the Company's currently outstanding common
stock.
Thayer-BLUM Funding agreed to undertake a tender offer for up to
8,250,000 but not less than 500,000 shares of common stock, at a price of $4.00
per share. The tender offer must remain open until the earlier of the date on
which the Company holds the shareholders' meeting contemplated by this proxy
statement and September 1, 2000. If the tender offer is consummated and at least
500,000 shares of common stock are tendered, it will be considered a "Successful
Tender Offer." Upon shareholder approval of Proposal 1 and the completion of a
Successful Tender Offer, the Exchangeable Notes will automatically be exchanged
for the Company's 8.875% Senior Subordinated Convertible Notes due June 2006,
with an aggregate principal amount of $54 million plus any accrued but unpaid
interest on the Exchangeable Notes. The Convertible Notes will be convertible
into common stock at an exercise price of $2.58 per share, subject to certain
adjustments, and upon conversion, will be canceled.
If Proposal 1 is not approved or there is not a Successful Tender
Offer, the Warrants will become exercisable and the interest rate on the
Exchangeable Notes will be increased to 20% with a maturity date of June 30,
2006.
Upon consummation of their initial investment, Thayer-BLUM Funding
designated two directors who were elected to the Company's board of directors
and upon approval of Proposal 1 and consummation of a Successful Tender Offer,
Thayer-BLUM Funding will be entitled to designate a majority of the directors.
Representations and Warranties. The Securities Purchase Agreement
contains various customary representations and warranties of the Company and
Thayer-BLUM Funding, including representations and warranties with respect to
the parties' due organization, good standing, authority, requisite power and
absence of any conflicts with respect to the transactions contemplated by the
Securities Purchase Agreement. The Securities Purchase Agreement also contains
representations and warranties of the Company as to the following:
o the Company's capitalization;
o the Company's subsidiaries;
o the absence of material litigation;
o SEC reports and financial statements;
o title and condition of assets;
21
<PAGE>
o absence of contractual defaults;
o no material adverse change in the condition of the Company;
o absence of unfair labor practices;
o absence of strikes or other labor disputes;
o employee benefit plans;
o existing debt;
o absence of undisclosed liabilities;
o solvency;
o compliance with law;
o environmental matters;
o absence of any improper contribution, gift or bribe, including
compliance with the Foreign Corrupt
Practices Act; and
o absence of certain changes in the Company's business since
December 31, 1999.
Covenants. In addition to the preparation and distribution of this
proxy statement, the Securities Purchase Agreement contains certain other
agreements between the Company and Thayer-BLUM Funding. The Company has agreed
that it will notify Thayer-BLUM Funding of any unsolicited requests, and will
not initiate any discussions, related to any merger, the sale of material assets
of the Company, sale of the Company's voting stock having greater than 15% of
the aggregate voting power of the Company's capital stock or any other
transaction involving the transfer of effective control of the Company or any of
its divisions.
The Company has also agreed that, during the period from March 30, 2000
to the closing of the tender offer, other than as permitted or required by the
Securities Purchase Agreement, it will conduct its business and preserve its
business relationships in accordance with past practice, it will not amend its
Articles of Incorporation or Bylaws, it will not issue, pledge or sell shares of
its capital stock except in connection with the 2000 Equity Stock Option Plan or
in the ordinary course of business, it will not pay dividends, it will not adopt
or amend any employee benefit plans, it will not incur any indebtedness other
than in the ordinary course of business, it will not enter into certain material
contracts or encumber or dispose of any material assets, it may not obtain
equity financing in excess of $1 million without the prior written consent of
Thayer-BLUM Funding, and it will consult with Thayer-BLUM Funding regarding any
significant labor relations or employment issues. The Company has committed to
entering into agreements with consultants and advisors approved by Thayer-BLUM
Funding to facilitate and accelerate the Company's business plans with regard to
its manufacturing, hiring and purchasing initiatives. The Company is required to
have spent or be committed to spend at least $1.5 million, and shall reserve for
expense an additional $1.8 million, pursuant to these agreements. The Company
also has agreed to pay all transaction expenses incurred by Thayer-BLUM Funding
and its members in connection with the Recapitalization Transaction, which are
currently estimated to exceed $3 million.
Thayer-BLUM Funding has agreed that it does not intend for the tender
offer to result in the delisting of the common stock. It has also agreed that it
will take no affirmative action to delist the Company's common stock from the
Nasdaq Stock Market.
Termination of the Securities Purchase Agreement. The Securities
Purchase Agreement will terminate upon the completion of a Successful Tender
Offer, unless earlier terminated as follows:
22
<PAGE>
o by mutual consent of Thayer-BLUM Funding and the Company;
o by court order;
o by either party if the tender offer is not consummated by
September 30, 2000;
o by Thayer-BLUM Funding if the Company's board of directors has
withdrawn its recommendation or approval of the transactions
contemplated by the Securities Purchase Agreement;
o by Thayer-BLUM Funding if the shareholders fail to approve
Proposal 1;
o by Thayer-BLUM Funding if any third party acquires more than
30% of the outstanding common stock;
o by the Company if the Company receives an acquisition proposal
for the Company that the board of directors has determined in
good faith is superior to the proposal of Thayer-BLUM Funding;
or
o by either party if the Federal Trade Commission or Department
of Justice has commenced or officially recommended
commencement of an action for an order prohibiting
consummation of the tender offer.
If the termination results from the Company's board of directors either
withdrawing its approval or receiving a superior proposal, the Company must pay
a breakup fee of $1.5 million to Thayer-BLUM Funding and reimburse all of
Purchaser's out of pocket costs and expenses up to an additional $1.5 million
(net of any expenses paid previously by the Company). In the event of any other
termination of the Securities Purchase Agreement, no party shall have any
further liability or obligation other than liability for breach.
Conditions to the Tender Offer. Thayer-BLUM Funding shall not be
required to accept or pay for any shares tendered in the tender offer, and may
terminate or amend the tender offer as to any shares not then paid for, if (i)
as of the expiration date of the tender offer (A) any applicable waiting period
under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act") has not expired or terminated or (B) 500,000 shares of common stock
have not been validly tendered or (ii) at any time after March 30, 2000 and
before the time of acceptance for payment for any shares tendered any of the
following events occurs and is continuing:
o a governmental entity shall have threatened, or there shall be
pending, any action against Thayer- BLUM Funding, the Company
or any of the Company's subsidiaries, or any statute, rule,
regulation, judgment, order or injunction shall be applicable
> seeking to prohibit or impose any material
limitations on, or require the sale or disposal of,
a material portion of the Company's business or
assets, or
> challenging the tender offer, including the ability
of Thayer-BLUM Funding to pay for or exercise full
rights of ownership of tendered shares;
o a general banking moratorium or other general material
limitation on banking in the United States;
o a general suspension of trading in the securities markets;
o a declaration of war or other international or national
calamity involving the United States;
o since December 31, 1999 there shall have occurred any change
that would have, or would be reasonably likely to have, an
adverse effect on the Company equal to or greater than $3
million;
o the Company's board of directors has withdrawn or modified
adversely its support of the tender offer, or approved or
entered into any proposal for acquisition of the Company's
assets or capital stock;
23
<PAGE>
o any of the representations and warranties of the Company are
not true and correct, in each case
> as of the date referred to in any
representation and warranty which addresses
matters as of a particular date; or
> as to all other representations and
warranties, as of March 30, 2000 and as of
the scheduled expiration of the tender
offer, and such inaccuracy individually or
in the aggregate has, or would be reasonably
likely to have, an adverse effect on the
Company equal to or greater than $3 million
(without qualifications as to materiality,
knowledge or scheduled items);
o the Company fails to perform or comply with any required
obligation or condition and such failure individually or in
the aggregate has, or would reasonably be likely to have, an
adverse effect on the Company equal to or greater than $3
million;
o all required consents have not been obtained;
o the Securities Purchase Agreement is terminated;
o either the required members of the board of directors have not
tendered their resignations to be effective upon the closing
of a Successful Tender Offer or the size of the Board has not
been increased so that Thayer-BLUM Funding is not able to
designate a majority of the board of directors;
o either Jack Calderon or Chuck Tillett shall die or become
disabled; or
o either the settlement of the state class action shareholder
litigation shall have been disapproved by the Weld County
District Court or, if such court has not ruled on the case,
the Company has failed to file the proposed settlement
agreement and release with the court and failed to use its
reasonable best efforts to respond to requests for information
from the court on a timely basis
These conditions are for the sole benefit of Thayer-BLUM Funding and
may be asserted by Thayer-BLUM Funding regardless of the circumstances giving
rise to such conditions.
Description of the Securities
The terms of the Exchangeable Notes, Convertible Notes and Warrants are
very complex. Any summary thereof will be general in nature and must be
qualified by reference to the forms of such securities attached as Appendix IV,
V and VI, respectively, to this Proxy Statement. Shareholders desiring a more
complete understanding of the Warrants, Exchangeable Notes and Convertible Notes
and their operation are urged to refer to such documents.
Exchangeable Notes. Under the Senior Subordinated Exchangeable Notes
due June 30, 2006 (the "Exchangeable Notes"), the Company promises to pay to
Thayer-BLUM Funding, on June 30, 2006, the principal amount of $54,000,000, plus
interest on the unpaid principal balance at the rate of 15.0% per annum,
compounded quarterly. Interest accruing on the Exchangeable Notes is added to
the principal amount of the notes on the date so due, or, at the Company's
option, it may issue additional Exchangeable Notes for the amount of unpaid
accrued interest. Upon approval of Proposal 1 and consummation of a Successful
Tender Offer, the Exchangeable Notes shall automatically be exchanged for and
replaced by 8.875% Senior Subordinated Convertible Notes due June 30, 2006, in
an aggregate principal amount equal to the amount outstanding under the
Exchangeable Notes, plus accrued interest.
If Proposal 1 is not approved by September 1, 2000, then (i) interest
on all unpaid amounts under the Exchangeable Notes from and after such date
shall be payable at the rate of 20% per annum, and (ii) the Company may redeem
the Exchangeable Notes, in whole or in part, by paying a redemption price equal
to 108% of the principal amount redeemed, plus accrued and unpaid interest to
the redemption date. If the Company chooses to repurchase the
24
<PAGE>
Warrants, it may redeem the Exchangeable Notes, in whole, at a redemption price
equal to 100% of the principal amount outstanding, plus accrued and unpaid
interest to the redemption date.
Upon a Change of Control or a Financing Redemption Event, the Company
will be obligated to redeem the Exchangeable Notes, at the option of the holders
of a majority in principal amount of the Exchangeable Notes, in whole or in
part, at a redemption price equal to 100% of the principal amount redeemed, plus
accrued and unpaid interest to the redemption date. A "Change of Control" under
the Exchangeable Notes will occur when (i) any person becomes a beneficial owner
of 33% or more of the outstanding shares of the Company's common stock or has
the ability to cause 25% or more of the Company's board of directors to be
composed of its nominees, (ii) Jeffrey Goettman, John Walker and any other
directors elected or appointed to the Company's board of directors pursuant to
the terms of the Exchangeable Notes (as discussed below) cease for any reason to
be members of the board of directors and the holders of the Exchangeable Notes
do not have the ability to designate their replacements or (iii) the Company's
shareholders approve, or there is consummated without shareholder approval, (A)
a merger or consolidation of the Company in which the shareholders of the
Company prior to such transaction hold voting securities of the surviving entity
representing 50% or less of the total votes outstanding, (B) a plan of complete
liquidation of the Company or (C) an agreement for the sale of disposition of
all or any substantial portion of the Company's assets or a major division or
subsidiary of the Company. A "Financing Redemption Event" under the Exchangeable
Notes will occur when the Company sells equity securities in one or a series of
related transactions, which taken together, result in a total, aggregate
offering price of more than $50 million.
The indebtedness evidenced by the Exchangeable Notes is subordinated in
right of payment to the prior payment in full, in cash, of all Senior Debt (as
defined in the Exchangeable Notes). If a default, monetary or otherwise, occurs
with respect to the Senior Debt, no payments or distributions shall be made to
Thayer-BLUM Funding with respect to obligations under the Exchangeable Notes. If
an event of default occurs with respect to the Exchangeable Notes, the Company
must pay interest on all unpaid amounts under the Exchangeable Notes (including
interest) at a rate of interest equal to the then current rate of interest plus
2%.
So long as the Exchangeable Notes are outstanding, the Company shall
not, and shall not permit any subsidiary or Affiliate to, directly or
indirectly, declare or pay any dividend on any shares of its capital stock or
purchase, redeem or otherwise acquire or retire for value any equity interest of
the Company, or any subsidiary or other affiliate of the Company. Additionally,
so long as the Exchangeable Notes are outstanding, neither the Company nor its
subsidiaries may incur, issue, assume, guarantee or otherwise become liable with
respect to any indebtedness other than the indebtedness represented by the
Exchangeable Notes, the Senior Debt and other indebtedness in an aggregate
principal amount not exceeding $5 million.
As long as the Exchangeable Notes are outstanding, the Company may not
engage in any "Significant Transaction" without the prior written approval of
the holders of a majority in principal amount of the Exchangeable Notes. A
Significant Transaction means (i) one or a series of related transactions in
which the Company obtains debt financing in an aggregate amount in excess of $1
million, (ii) any material acquisition or material disposition, or (iii) any
adoption of, or amendment to, any incentive compensation plan.
The Company has agreed to provide all holders of the Exchangeable Notes
any annual reports and any information, documents or other reports that it is
required to file with the SEC. The Company will also provide holders, on a
quarterly basis, with a certificate of an officer of the Company stating that
the Company is in compliance with its obligations under the Exchangeable Notes.
In addition, the Company must furnish all holders with an officer's certificate
within 90 days after the end of the Company's fiscal year ending in 2002 setting
forth the Company's consolidated net income, plus interest, taxes, losses (or
minus gains) on the sale or disposition of assets outside the ordinary course of
business, depreciation, amortization or other non-cash charges and certain
management fees, or EBITDA, for 2002. As discussed below, it is an event of
default if the Company's EBITDA for 2002 is less than $25 million.
The Company and its subsidiaries may not engage in transactions with an
affiliate of the Company, except on terms that are no less favorable to the
Company or the relevant subsidiary than those that could have been obtained in a
transaction with an unrelated person, other than transactions between the
Company and its wholly owned subsidiaries.
25
<PAGE>
The holders of at least a majority in principal amount of the Exchangeable Notes
have the right to approve any transaction between the Company or its
subsidiaries and an affiliate of the Company having a potential value of more
than $1 million, other than transactions between the Company and its wholly
owned subsidiaries.
The Company will not, and will not permit any subsidiary, to create any
lien upon the Company's assets or any subsidiary or any shares of capital stock
of any subsidiary. Without the consent of the holders of at least a majority in
principal amount of the Exchangeable Notes, (i) the Company may not dispose of
assets (i) for aggregate net proceeds in any fiscal year exceeding $2 million,
other than sales of inventory in the ordinary course of business, or (ii) for
less than fair market value, unless such fair market value is less than $2
million and the consideration received is promptly applied to the purchase of
comparable assets. At least 90% of the consideration received by the Company for
any sale of assets must be in the form of cash.
The Company's board of directors must at all times be composed of no
more than 12 directors unless approved by holders of a majority in principal
amount of the Exchangeable Notes. At all times during the term of the
Exchangeable Notes, holders of a majority in principal amount of the
Exchangeable Notes will have the right to designate an aggregate of two persons
for election as members of the Company's board of directors (or up to four upon
occurrence of an event of default).
An event of default under the Exchangeable Notes will occur if:
o the Company defaults in its payment obligations under the
Exchangeable Notes;
o the Company fails to comply in any material respect with its
agreements under the Exchangeable Notes;
o the Company fails to comply in any material respect with its
agreements under the Warrants;
o any of the representations and warranties of the Company made
in connection with the Exchangeable Notes or the Securities
Purchase Agreement were untrue when made in any respect
materially adverse to the Company and its subsidiaries taken
as a whole;
o an event of default occurs under any agreement of the Company
or any subsidiary accelerating the payment of indebtedness of
$500,000 or more in the aggregate;
o final judgments for the payment of money in excess of $1
million are entered against the Company or any of its
subsidiaries and such judgments remain undischarged for a
period of 30 days;
o the Company or any subsidiary commences a voluntary
bankruptcy, consents to the entry of an order for relief
against it in an involuntary case, consents to the appointment
of a bankruptcy custodian for the Company or for all or
substantially all of its property, makes a general assignment
for the benefit of its creditors or generally is unable to pay
its debts as they become due;
o a court enters an order under any bankruptcy law that (i) is
for relief against the Company or any of its subsidiaries in
an involuntary case, (ii) appoints a custodian of the Company
or any of its subsidiaries or for all or substantially all of
the Company's properties or (iii) orders the liquidation of
the Company or any of its subsidiaries, and the order or
decree remains unstayed and in effect for 60 days, or
o the Company does not deliver the officer's certificate setting
forth the Company's EBITDA for 2002 within 90 days of the end
of the Company's fiscal year 2002 or such 2002 EBITDA is less
than $25 million.
If an event of default (other than an event of default than involving
bankruptcy matters or the Company's 2002 EBITDA and the related officer's
certificate) occurs and is continuing, the holders of 20% in principal amount of
the
26
<PAGE>
Exchangeable Notes, by notice to the Company, may declare the unpaid principal
of and any accrued interest on the Exchangeable Notes to be immediately due and
payable. If the event of default involves a bankruptcy matter as discussed
above, all such amounts are immediately due and payable without any declaration
or other act on the part of any holder.
If the event of default involves 2002 EBITDA or the delivery of the
related officer's certificate as discussed above, the Company must pay in full
the principal of and accrued interest on the Exchangeable Notes to the holders
by no later than September 30, 2003. If the Company does not make such payment,
the Exchangeable Notes will thereafter be due and payable and in continuing
default, and from and after September 30, 2003 interest will accrue and be
payable at 25% per annum, compounded quarterly.
In addition, if an event of default occurs and is continuing, the
Company will, at the request of the holder of a majority in principal amount of
the Exchangeable Notes, create two vacancies on the Company's board of
directors, fill such vacancies with designees named by the holders, and take
such actions as are necessary to have such newly appointed directors elected to
the board of directors by the Company's shareholders.
Convertible Notes. Under the Senior Subordinated Convertible Notes due
June 30, 2006 (the "Convertible Notes"), the Company promises to pay to
Thayer-BLUM Funding, on June 30, 2006, the principal amount of $54,000,000, plus
interest on the unpaid principal balance at the rate of 8.875% per annum,
compounded quarterly. The Convertible Notes are being issued in exchange for the
Exchangeable Notes. Interest on the Convertible Notes will accrue and be added
to the principal amount of the Convertible Notes on the date so due, or, at the
Company's option, it may issue an accrual note for the amount of unpaid accrued
interest.
The holders of the Convertible Notes may convert such notes into common
stock at any time with the number of shares issuable upon conversion being
determined by dividing the principal amount to be converted by the conversion
price in effect on the conversion date. Subject to certain adjustments, the
initial conversion price shall be $2.58 per share. The Convertible Notes are to
be automatically converted into shares of common stock if:
o the Company has maintained and at the time is maintaining the
listing of its common stock on the Nasdaq Stock Market;
o the Company is in full compliance with all covenants under its
senior debt; and
o the average of the high and low sales prices is above $7.50
per share for 45 consecutive trading days or, after March 30,
2000, such average is above $4.25 for 45 consecutive trading
days.
Upon a Change of Control, the Company will be obligated to redeem the
Convertible Notes, at the option of the holder of the Convertible Notes, in
whole or in part, at a redemption price equal to 100% of the principal amount
redeemed, plus accrued and unpaid interest to the redemption date and an amount
equal to the interest, if any, which would accrue on the Convertible Notes from
the date of redemption to the occurrence of a Change of Control up to and
including March 30, 2003. A "Change of Control" under the Convertible Notes will
occur when (i) any person becomes a beneficial owner of 33% or more of the
outstanding shares of the Company's common stock or has the ability to cause 25%
or more of the Company's board of directors to be composed of its nominees, (ii)
the directors elected or appointed to the Company's board of directors by the
holder of the Convertible Notes cease for any reason to constitute at least a
majority of the board of directors and the holders of the Convertible Notes do
not have the ability to designate their replacements or (iii) the Company's
shareholders approve, or there is consummated without shareholder approval, (A)
a merger or consolidation of the Company in which the shareholders of the
Company prior to such transaction hold voting securities of the surviving entity
representing 50% or less of the total votes outstanding, (B) a plan of complete
liquidation of the Company or (C) an agreement for the sale of disposition of
all or any substantial portion of the Company's assets or a major division or
subsidiary of the Company.
The indebtedness evidenced by the Convertible Notes shall be
subordinated in right of payment to the prior payment in full, in cash, of all
Senior Debt. If a default, monetary or otherwise, occurs with respect to the
Senior Debt, no payments or distributions shall be made to the holder with
respect to obligations under the Convertible Notes. If an
27
<PAGE>
event of default occurs with respect to the Convertible Notes, the Company shall
pay interest on all unpaid amounts under the Convertible Notes (including
interest) at the default rate of 10.875%.
So long as the Convertible Notes are outstanding, the Company shall
not, and shall not permit any subsidiary or affiliate to, directly or
indirectly, declare or pay any dividend on any shares of its capital stock or
purchase, redeem or otherwise acquire or retire for value any equity interest of
the Company, or any subsidiary or other affiliate of the Company. Additionally,
so long as the Convertible Notes are outstanding, neither the Company nor its
subsidiaries may incur, issue, assume, guarantee or otherwise become liable with
respect to any indebtedness other than the indebtedness represented by the
Convertible Notes, the Senior Debt and other indebtedness in an aggregate
principal amount not exceeding $5,000,000.
As long as the Convertible Notes are outstanding, the Company may not
engage in any Significant Transaction without the prior written approval of the
Holders of a majority in principal amount of the Notes.
The Company has agreed to provide all holders of the Convertible Notes
with any annual reports and any information, documents or other reports that it
is required to file with the SEC. The Company will also provide holders, on a
quarterly basis, with a certificate of an officer of the Company stating that
the Company is in compliance with its obligations under the Convertible Notes.
The Company and its subsidiaries may not engage in transactions with an
affiliate of the Company, except on terms that are no less favorable to the
Company or the relevant subsidiary than those that could have been obtained in a
transaction with an unrelated person, other than transactions between the
Company and its wholly owned subsidiaries. The holders of at least a majority in
principal amount of the Convertible Notes have the right to approve any
transaction between the Company or its subsidiaries and an affiliate of the
Company having a potential value of more than $1 million, other than
transactions between the Company and its wholly owned subsidiaries.
The Company will not, and will not permit any subsidiary, to create any
lien upon the Company's assets or any subsidiary or any shares of capital stock
of any subsidiary. Without the consent of the holders of at least a majority in
principal amount of the Convertible Notes, the Company may not dispose of assets
(i) for aggregate net proceeds in any fiscal year exceeding $2 million, other
than sales of inventory in the ordinary course of business, or (ii) for less
than fair market value, unless such fair market value is less than $2 million
and the consideration received is promptly applied to the purchase of comparable
assets. At least 90% of the consideration received by the Company for any sale
of assets must be in the form of cash.
The Company's board of directors must at all times be composed of no
more than 12 directors unless approved by holders of a majority in principal
amount of the Convertible Notes. The holder of the Convertible Notes will have
the right to nominate a number of persons for election as members of the board
of directors of the Company such that the number nominated by the holder will
compose a majority of the total number of directors.
An event of default under the Convertible Notes will occur if:
o the Company defaults in its payment obligations under the
Convertible Notes;
o the Company fails to comply in any material respect with its
agreements under the Convertible Notes;
o the Company fails to comply in any material respect with its
agreements under the Warrants;
o any of the representations and warranties of the Company made
in connection with the Convertible Notes or the Securities
Purchase Agreement were untrue when made in any respect
materially adverse to the Company and its subsidiaries taken
as a whole;
o an event of default occurs under any agreement of the Company
or any subsidiary accelerating the payment of indebtedness of
$500,000 or more;
28
<PAGE>
o final judgments for the payment of money in excess of $1
million are entered against the Company or any of its
subsidiaries and such judgments remain undischarged for a
period of 30 days;
o the Company or any subsidiary commences a voluntary
bankruptcy, consents to the entry of an order for relief
against it in an involuntary case, consents to the appointment
of a bankruptcy custodian for the Company or for all or
substantially all of its property, makes a general assignment
for the benefit of its creditors or generally is unable to pay
its debts as they become due; or
o a court enters an order under any bankruptcy law that (i) is
for relief against the Company or any of its subsidiaries in
an involuntary case, (ii) appoints a custodian of the Company
or any of its subsidiaries or for all or substantially all of
the Company's properties or (iii) orders the liquidation of
the Company or any of its subsidiaries, and the order or
decree remains unstayed and in effect for 60 days.
If an event of default (other than involving bankruptcy matters) occurs
and is continuing, the holders of at least a majority in principal amount of the
Convertible Notes, by notice to the Company, may declare the unpaid principal of
and any accrued interest on the Convertible Notes to be immediately due and
payable. If the event of default involves a bankruptcy matter as discussed
above, all such amounts are immediately due and payable without any declaration
or other act on the part of any holder.
Warrant. The Warrant to Purchase Shares of common stock, par value $.01
per share, entered into on March 30, 2000, between Thayer-BLUM Funding and the
Company, sets forth the terms and conditions under which the holder is entitled
to purchase 3,093,154 shares of common stock (the "Warrant"). The Warrant
provides that the holder is entitled to purchase up to 3,093,154 shares of
common stock at any time during the exercise period, at an exercise price of
$.01 per share, subject to adjustment.
To exercise the Warrant, in whole or in part, the holder must deliver
to the Company (i) a notice of exercise specifying the number of shares to be
purchased and stating the method by which the holder will pay the exercise
price, and (ii) the Warrant. The exercise period shall extend from (a) the
earlier of (i) September 1, 2000 and (ii) the date on which a "Failure to
Approve the Transactions" shall occur, until (b) the earlier of (i) the date on
which a Successful Tender Offer is consummated, or (ii) the close of business on
June 30, 2010. A Failure to Approve the Transactions shall mean that the holders
of the Company's common stock do not vote to approve Proposal 1 at the Special
Meeting. The exercise price is $.01 per share subject to adjustment for certain
events including:
o the Company's payment of dividends or distributions in shares
of common stock, convertible securities or stock purchase
rights;
o the Company's subdivision of the outstanding shares of common
stock into a larger number of shares of common stock;
o the Company's combination of its outstanding shares of common
stock into a smaller number of shares of common stock;
o the Company's reorganization, reclassification or
recapitalization of its capital stock;
o the Company's consolidation or merger with or into another
person; or
o the Company's effecting certain dilutive issuances of common
stock.
During the period beginning on March 30, 2000 and ending at 5:00 p.m.
New York City time on June 24, 2000 (the "Redemption Exercise Period"), the
Company may, at its option, redeem not less than all of the Warrants for an
amount equal to the "Optional Redemption Price." The Optional Redemption Price
means an amount equal to $5 million during the first 30 days of the Redemption
Exercise Period, plus $250,000 on April 30, 2000, plus, for each successive
seven day period beyond such date, an additional $250,000 accruing on the first
day of such seven day period.
29
<PAGE>
Other Material Agreements
Voting Agreement. Pursuant to a voting agreement (the "Voting
Agreement") between Thayer-BLUM Funding and certain shareholders of the Company
beneficially owning in the aggregate approximately 26.5 % of the outstanding
common stock, such shareholders have agreed to vote their shares of common stock
in favor of the issuance of the Convertible Notes in the event of a Successful
Tender Offer at the Special Meeting. The Voting Agreement will terminate upon
the earliest to occur of:
o receipt of shareholder approval for the issuance of the
Convertible Notes;
o the date on which the Company's shareholders shall vote on and
fail to approve such issuance; or
o December 31, 2000.
Registration Rights Agreement. The Company and Thayer-BLUM Funding have
entered into a registration rights agreement, dated as of March 30, 2000 (the
"Registration Rights Agreement"). Pursuant to the Registration Rights Agreement,
Thayer-BLUM Funding will have the right to require the Company to register the
shares of common stock held by Thayer-BLUM Funding (whether acquired through the
exercise of the Warrant, conversion of the Convertible Notes, or purchase in the
Tender Offer or otherwise (the "Registrable Securities")) under the Securities
Act of 1933, as amended (the "Securities Act"). Thayer-BLUM Funding, or a
permitted transferee of Registrable Securities, must request that the
registration include at least 1,500,000 shares of common stock. If the Company
proposes to register its securities under the Securities Act, either for its own
account or the account of others, Thayer-BLUM Funding will be entitled to notice
of such registration and to include its shares in such registration; no minimum
amount must be included in such cases. The underwriters for any such
registration will have the right to limit the number of such shares included in
such registration, subject to certain conditions.
The Company may, for any reason, withdraw or delay such registration
prior to effectiveness of the related registration statement. Thayer-BLUM
Funding may transfer its rights under the Registration Rights Agreement to its
members. Thayer-BLUM Funding may also transfer Registrable Securities, and the
related rights under the Registration Rights Agreement, to any person in a
transaction exempt from the registration requirement of the Securities Act.
Generally, the Company is required to pay all costs and expenses in connection
with its obligations under the Registration Rights Agreement. The Registration
Rights Agreement will terminate on the earlier of (i) March 30, 2010 or (ii)
such time as all Registrable Securities have been sold pursuant to an effective
registration statement under the Securities Act.
Regulatory Approvals
The issuance of the Convertible Notes and the consummation of the
tender offer is subject to the notification and waiting periods of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The parties
have filed the required notifications.
The Company is not aware of any other federal or state approvals or
filings that must be made in order to issue the Convertible Notes and consummate
the tender offer.
Vote Required and Board Recommendation.
Approval of Proposal 1 requires the affirmative vote of a majority of
the total votes cast on the proposal in person or by proxy.
As noted under "Background of the Recapitalization Transaction," a
special committee of the board of directors, based in part on an opinion of
Needham & Company, Inc. and the board of directors, also based in part on such
opinion, concluded that the Recapitalization Transaction as a whole was fair to
and in the interests of the Company and its shareholders and recommend that the
Company's shareholders approve the proposal.
30
<PAGE>
Management and the Board of Directors recommends a vote FOR this
Proposal to approve the issuance of Convertible Notes.
31
<PAGE>
PROPOSAL 2 -
INCREASE IN THE NUMBER OF AUTHORIZED SHARES
Background
The Company's board of directors has determined that amending the
Company's Amended and Restated Articles of Incorporation in the manner described
below is advisable and is in the best interest of shareholders and recommends
that the Company's shareholders approve and adopt the proposed amendment. The
proposed amendment would increase the number of authorized shares of the common
stock from 45.0 million shares to 75.0 million shares.
Assuming the Exchangeable Notes are exchanged for the Convertible Notes
on June 30, 2000, a total of 21.7 million shares would be issuable upon
conversion of the Convertible Notes on that date. Taking into account the number
of shares of the Company's common stock that are currently outstanding or
otherwise reserved for issuance, the number of shares to be issued by the
Company as part of the settlement of two class action lawsuits, and the number
of shares that would be reserved for issuance under the 2000 Equity Stock Option
Plan, the Company would not have sufficient shares available for issuance upon
conversion of the Convertible Notes. The proposed amendment would permit
additional shares of common stock to be reserved for issuance upon conversion of
the Convertible Notes as additional interest accrues on the Convertible Notes
and for the issuance of additional shares for acquisitions or to give the
Company greater flexibility in pursuing funding to meet its capital needs in the
future.
Description of the Proposal
The proposed amendment to the Amended and Restated Articles of
Incorporation will increase the number of authorized shares of common stock from
45.0 million shares to 75.0 million. As of March 31, 2000, approximately 15.5
million shares of the Company's common stock were outstanding, and approximately
10.2 million shares of common stock were reserved for issuance pursuant to the
Company's existing stock option plans, the exercise of outstanding options and
warrants, including the Warrant, and upon settlement of two class action
lawsuits to which the Company was party.
If Proposal 2 is approved, the newly authorized shares of common stock
would have all of the rights and privileges as the shares of common stock now
authorized. The common stock has no preemptive rights. Once shares of common
stock are authorized, the Board of Directors can issue shares of common stock
without shareholder approval, except as may be required by law or regulations or
by the rules of the Nasdaq Stock Market or any stock exchange on which the
Company's securities may then be listed.
Although the board of directors would issue additional shares based on
its judgment as to the best interests of the Company and its shareholders, the
issuance of additional shares would have the effect of diluting the relative
voting power per share. It also could have the effect of diluting a
shareholder's interest in the Company on an economic basis to the extent shares
are issued at a price less than their fair value.
If Proposal 2 is approved, subparagraph (a) of Article Two of the
Amended and Restated Articles of Incorporation will be amended in its entirety
to read as follows:
(a) Total Capital. The total number of shares of capital stock
that the Corporation shall have the authority to issue is 80,000,000,
of which 75,000,000 shares shall be common stock with a par value of
$0.01 per share ("Common Stock") and 5,000,000 shares shall be
preferred stock with a par value of $0.01 per share ("Preferred
Stock").
Vote Required and Board Recommendation
The affirmative vote of holders of a majority of the shares of common
stock outstanding as of the record date is required to approve the proposed
amendment to the Company's Amended and Restated Articles of Incorporation.
32
<PAGE>
If the amendment is not approved by the shareholders, the Company's Amended and
Restated Articles of Incorporation, which authorizes the issuance of 45.0
million shares of common stock, will remain unchanged.
Management and the Board of Directors recommend a vote FOR this
Proposal to approve an amendment to the Company's Amended and Restated Articles
of Incorporation to increase the number of authorized shares of common stock.
33
<PAGE>
PROPOSAL 3 -
ADOPTION OF THE 2000 EQUITY STOCK OPTION PLAN
Background
The Company currently has two stock option plans which have been
adopted by the Company's board of directors and approved by its shareholders:
o EFTC Corporation Equity Incentive Plan which provides for the
issuance of up to 4,495,000 shares of common stock
o EFTC Corporation Stock Option Plan for Non-Employee Directors
which provides for the issuance of up to 300,000 shares of
common stock
The board of directors of the Company has adopted the 2000 Equity Stock
Option Plan which provides for the issuance of up to 3.4 million shares of
common stock. Adoption of this plan also requires the approval of the Company's
shareholders.
New Plan Benefits
Thayer-BLUM Funding has discussed with certain of the Company's
management the granting of a substantial number of additional stock options
under the plan. The persons to whom such grants are to be made and the amount of
such grants has not been finalized.
Description of 2000 Equity Stock Option Plan
On May __, 2000, the Board adopted the 2000 Equity Stock Option Plan of
EFTC Corporation (the "Stock Option Plan") for the benefit of the Company's
eligible employees, consultants and directors. The Stock Option Plan provides
for the grant of incentive stock options within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code") and options that are
not incentive stock options ("non-qualified options").
The following summary of the Stock Option Plan is qualified by
reference to the complete text of the Stock Option Plan, which is incorporated
by reference and attached as Appendix VII.
Administration. The general administration of the Stock Option Plan is
the responsibility of the Compensation Committee of the Board or another
committee or subcommittee of the Board appointed under the terms of the Stock
Option Plan (the "Committee"). The Committee must be structured so that it
satisfies the "non-employee" director requirement of Rule 16b-3 ("Rule 16b-3")
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the "outside director" requirement of Code section 162(m). The Committee has the
discretion to select the employees and consultants to whom options are granted
under the Stock Option Plan and to determine the terms and conditions of each
grant, which need not be the same for each grantee. The full Board administers
the Stock Option Plan with respect to directors who are not also employees of
the Company ("Independent Directors"), selects the Independent Directors to whom
options are granted, and determines the terms and conditions of each grant,
which need not be the same for each grantee. The full Board may exercise the
rights and duties of the Committee in the administration of the Plan, except
with respect to matters that must be determined by the Committee under Rule
16b-3 or Code section 162(m). The term "Administrator" refers to both the
Committee and the Board with reference to their responsibilities to administer
the Stock Option Plan with respect to employees and consultants and Independent
Directors, respectively.
Shares Subject to the Stock Option Plan. There are 3.4 million shares
reserved for the grant of options under the Stock Option Plan. If an option
expires or is canceled without having been fully exercised or is exercised for
cash in whole or in part, the number of shares subject to the option but as to
which the option was not exercised prior to its expiration, cancellation, or
exercise are available for grant under the Stock Option Plan. Shares of common
stock that are delivered by the option holder or withheld by the Company in
payment of the exercise price or tax withholding are
34
<PAGE>
available for grant under the Plan. On May _, 2000, the last sale price of the
common stock on the Nasdaq National Market was $__ per share.
Adjustments to the Shares Subject to the Stock Option Plan Upon Changes
in Capital Structure or Reorganization, Change in Control or Liquidation. If the
Administrator, in its sole discretion, determines that any dividend or other
distribution (whether in the form of cash, common stock, other securities, or
other property), recapitalization, reclassification, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, liquidation, dissolution, or sale, transfer, exchange, or other
disposition of all or substantially all of the assets of the Company, or
exchange of common stock or other securities of the Company, or other similar
corporate transaction or event, affects the common stock such that an adjustment
is determined by the Administrator to be appropriate to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
with respect to an option, the Administrator will, in any manner it deems
equitable, adjust any or all of (1) the number and kind of shares of common
stock (or other securities or property) with respect to which options may be
granted, including the maximum number of shares that may be granted to an
individual in a calendar year, (2) the number and kind of shares subject to
outstanding options, and (3) the exercise price with respect to any option.
In the event of a transaction described in the preceding paragraph, or
any unusual or nonrecurring transactions or events affecting the Company, any
affiliate of the Company, the financial statements of the Company or any
affiliate, or any changes in the laws, regulations, or accounting principles,
the Administrator, in its sole discretion, and on such terms as it deems
appropriate, may take any one or more of the following actions: (1) to provide
for the purchase of any option for an amount of cash equal to the amount that
the option holder could have received upon exercise of the option if the option
were fully vested or to provide for the replacement of the option with other
rights or property selected by the Administrator in its sole discretion, (2) to
provide that the option cannot vest or be exercised after the transaction or
event, (3) to provide that any option shall be fully vested, (4) to provide for
the assumption of the option by the successor or surviving corporation or the
substitution of a new option on terms comparable to the outstanding option, and
(5) to make adjustments in the number and type of shares of common stock (or
other property and securities) subject to outstanding options and/or in the
terms and conditions applicable to options granted in the future.
Participation. The Stock Option Plan provides that options may be
granted to those employees, consultants, and directors who are selected by the
Committee in its sole discretion. The Company currently considers all of its
employees and consultants and all of its Independent Directors to be eligible
for the grant of options under the Stock Option Plan. As of May _, 2000, there
were approximately ___ eligible individuals. The Stock Option Plan is a
discretionary plan and, accordingly, it is not possible at present to determine
the number of shares that may be subject to options granted to any individual
during the term of the Stock Option Plan.
Grant of Options. Options are granted to employees and consultants in
such numbers, at such times, and in such numbers as the Committee determines,
except that (1) the maximum number of shares that can be subject to options
granted to one individual during a calendar year is [__________] shares and (2)
incentive stock options may be granted only to employees. The full Board
determines the time of grant and the terms and conditions of options granted to
Independent Directors, subject to the same exceptions described in the preceding
sentence.
Option Term. The Committee determines the term of an option granted to
an employee or consultant, provided however, in the case of an incentive stock
option, the term shall be no longer than 10 years (five years in the case of an
incentive stock option granted to an employee who owns common stock having more
than 10% of the voting power). The Committee may extend the term of an
outstanding option in connection with an employee's or consultant's termination
of employment or consultancy, except as limited by the requirements applicable
to incentive stock options.
Vesting of Options. The Committee determines the vesting schedule for
each option; however, unless the Committee provides otherwise, an option granted
to an option holder who is subject to Section 16(b) of the Exchange Act
("Section 16(b)") may not be exercised during the period ending six months and
one day after the option is granted. The Committee may, in its sole discretion
and subject to the terms and conditions that it determines, accelerate the
vesting schedule for any outstanding option granted to an employee or
consultant. An option granted to an employee or consultant shall not continue to
vest after termination of employment or consultancy unless the Committee
provides otherwise either at the time the option is granted or after the option
is granted. To the extent that the aggregate fair
35
<PAGE>
market value (determined at the time the option is granted) of common stock
subject to an incentive stock option becomes exercisable for the first time
during a calendar year exceeds $100,000, the option shall be treated as a non-
qualified option.
Option Price. The Committee determines the exercise price for each
option granted to an employee or consultant; however, incentive stock options
must have an exercise price that is at least equal to the fair market value of
the common stock on the date the incentive stock option is granted (at least
110% of the fair market value in the case of an incentive stock option granted
to an employee who owns common stock having more than 10% of the voting power).
Independent Directors. The terms and conditions of each option granted
to an Independent Director are determined by the Board, consistent with the
terms of the Stock Option Plan.
Exercise of Options. An option holder may exercise an option by giving
written notice and paying the exercise price in cash. The Administrator may, in
its discretion, (1) allow a delay in payment up to thirty days from the date the
notice of exercise is given, (2) allow payment, in whole or in part, through the
delivery of shares of common stock that have been owned by the option holder for
at least six months, (3) allow payment, in whole or in part, through the
surrender of common stock issuable upon exercise of the option having a fair
market value on the date the option is exercised equal to the aggregate exercise
price of the option or the portion of the option being exercised, (4) allow
payment, in whole or in part, through the delivery of property of any kind that
constitutes good and valuable consideration, (5) allow payment, in whole or in
part, through the delivery of a full recourse promissory note bearing interest
at a rate no less than the rate necessary to prevent imputation of interest
under the Code and with such security as the Administrator shall prescribe,
unless the payment by delivery of a promissory note is prohibited by law, (6)
allow payment, in whole or in part, through a broker's transaction by directing
a broker to sell all or a portion of the common stock to pay the exercise price,
or (7) allow payment through any combination of the methods in the foregoing (2)
through (6). Option holders who are subject to the withholding of tax may be
provided with an election to satisfy the minimum required withholding tax
obligation through the withholding of a portion of the common stock to be
received upon exercise of the option.
Nontransferability of Options. Except as may be permitted by the
Administrator, options are not transferable other than by will, the laws of
descent or distribution or pursuant to a domestic relations order entered in
connection with a divorce proceeding. The Committee may, in its sole discretion,
permit an option holder to transfer a non-qualified option to certain members of
the option holder's family, trusts for their benefit, foundations in which the
option holder or certain members of the option holder's family control the
management, or other entities in which the option holder or certain family
members own more than 50% of the voting interests or any other transferee
approved by the Administrator.
Amendment and Termination. The Board or the Committee may amend,
suspend or terminate the Stock Option Plan at any time in any respect, provided
that shareholder approval is obtained when it is necessary or desirable. No
amendment, suspension or termination of the Stock Option Plan may alter or
impair any rights or obligations under any outstanding option unless the terms
of the option expressly permit such alteration. No incentive stock option may be
granted under the Stock Option Plan more than ten years after the date the Stock
Option Plan was approved by the Board.
Federal Income Tax Consequences of Issuance and Exercise of Options.
When a non-qualified option is granted, there are no federal income tax
consequences for the option holder and the Company. When a non-qualified option
is exercised, in general, the option holder recognizes compensation equal to the
excess of the fair market value of the common stock on the date of exercise over
the exercise price. If, however, the sale of the common stock at a profit would
subject the option holder to liability under Section 16(b), the option holder
will recognize compensation income equal to the excess of (1) the fair market
value of the common stock on the date that is six months after the date of
exercise or the date the option holder can sell the common stock without Section
16(b) liability over (2) the exercise price. The option holder can make an
election under Code section 83 to measure the compensation as of the date the
non-qualified option is exercised. The compensation recognized by an employee is
subject to income tax withholding. The Company is entitled to a deduction equal
to the compensation recognized by the option holder for the Company's
36
<PAGE>
taxable year that ends with or within the option holder's taxable year in which
the option holder recognized the compensation, assuming that the amount of
compensation satisfies the ordinary and necessary and reasonable compensation
requirements for deductibility and that the deduction is not limited by Code
section 162(m).
When an incentive stock option is granted, there are no income tax
consequences for the option holder or the Company. When an incentive stock
option is exercised, the option holder does not recognize income and the Company
does not receive a deduction. The option holder, however, must treat the excess
of the fair market value of the common stock on the date of exercise over the
exercise price as an item of adjustment for purposes of the alternative minimum
tax. If the option holder makes a "disqualifying disposition" of the common
stock (described below) in the same taxable year the incentive stock option was
exercised, there are no alternative minimum tax consequences.
If the option holder disposes of the common stock after the option
holder has held the common stock for at least two years after the incentive
stock option was granted and one year after the incentive stock option was
exercised (the "Incentive Stock Option Holding Period"), the amount the option
holder receives upon the disposition over the exercise price is treated as
capital gain for the option holder and the Company is not entitled to a
deduction. If the option holder makes a "disqualifying disposition" of the
common stock by disposing of the common stock before the end of the Incentive
Stock Option Holding Period, the option holder recognizes compensation income
equal to the excess of (1) the fair market value of the common stock on the date
the incentive stock option was exercised or, if less, the amount received on the
disposition over (2) the exercise price. At present, the Company is not required
to withhold federal income tax. The Company is entitled to a deduction equal to
the compensation recognized by the option holder for the Company's taxable year
that ends with or within the option holder's taxable year in which the option
holder recognized the compensation, assuming that the compensation amounts
satisfy the ordinary and necessary and reasonable compensation requirements for
deductibility and that the deduction is not limited by Code section 162(m).
Under Code section 162(m), the Company may be limited as to federal
income tax deductions to the extent that total annual compensation in excess of
$ 1 million is paid to the Company's Chief Executive Officer or any one of the
four other highest paid executive officers who were employed by the Company on
the last day of the taxable year. However, certain "performance based
compensation," the material terms of which are disclosed to and approved by the
Company's shareholders, is not subject to the limitation on deductibility. The
Company has structured the Stock Option Plan with the intention that
compensation resulting from options under the Stock Option Plan would be
deductible without regard to the limitations otherwise imposed by Code section
162(m).
The foregoing is only a summary of the federal income taxation of
participants and the Company with respect to options granted under the Stock
Option Plan. It does not purport to be complete and does not address the tax
consequences arising in the context of a participant's death or the income tax
laws of any municipality, state or foreign country in which the participant's
income or gain may be taxable.
Reasons for Adoption of 2000 Equity Stock Option Plan
The purposes of the 2000 Equity Stock Option Plan are:
o to provide additional incentive for directors, employees, and
consultants to the Company to further the growth, development
and financial success of the Company by personally benefitting
through the ownership of common stock and/or rights; and
o to enable the Company to obtain and retain the services of
directors, employees and consultants considered essential to
the long range success of the Company by offering them an
opportunity to own stock in the Company and/or rights that
will reflect the growth, development and financial success of
the Company.
Under the terms of the Securities Purchase Agreement, the board of
directors agreed to approve the adoption of the 2000 Equity Stock Option Plan
and to seek and recommend shareholder approval therefor at the Special Meeting.
37
<PAGE>
Certain Executive Compensation Information
Summary Compensation Table. The following table sets forth certain
information regarding the compensation paid in the last three fiscal years to
the most highly compensated executive officers of the Company.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Name and Annual Compensation Compensation
------------------- Awards All Other
Principal Position Year Salary($) Bonus($) Options(#) Compensation($)
- ------------------ ---- --------- -------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Jack Calderon 1999 (1) $287,894 -- -- $2,241(2)
President and Chief 1998 * $240,885 $82,500 175,000(3) $2,218(2)
Executive Officer 1997 $200,000 $40,000 200,000 $10,147(2)
Stuart W. Fuhlendorf 1999 (4) $180,019(5) -- 200,000(6) --
Vice President and Chief 1998 * $178,385 $28,050 24,615(7) --
Financial Officer 1997 $85,000 $33,500 110,000 --
August P. Bruehlman 1999 (8) $123,317 -- -- --
Chief Administrative 1998 * $120,692 $21,840 14,769(9) --
Officer and Secretary 1997 $77,086 $7,800 75,000 --
Allen S. Braswell, Jr. 1999 $122,740(10) -- -- --
Senior Vice President and 1998 * $168,756 $14,438 60,818(11) 16,849 (12)
President of EFTC Services 1997 (13) $47,115 - 110,000 --
Chuck Tillett 1999 (14) $214,077 -- -- --
Chief Operations Officer 1998 (15) $83,970 -- 150,000 --
1997 -- -- -- --
Val Avery 1999 $130,000 -- 5,000 --
Chief Information Officer 1998 (16) $73,018 -- 85,000 --
1997 -- -- --
</TABLE>
- --------------------
* These officers named in this table voluntarily forfeited their salaries
for one pay period in 1998 to assist the Company's short-term liquidity
position. If they had collected their salaries for that pay period, Mr.
Calderon's salary for 1998 would have been $250,000; Mr. Fuhlendorf's
salary for 1998 would have been $185,000; Mr. Bruehlman's salary for
1998 would have been $125,000; and Mr. Braswell's salary for 1998 would
have been $175,000.
(1) Mr. Calderon voluntarily took a 15% reduction in salary during the
period beginning July 4, 1999 through October 10, 1999 to assist the
Company's short-term liquidity position. If Mr. Calderon had collected
his full salary for that period, his salary for 1999 would have been
$300,000.
(2) Represents allocation of income associated with personal use of an
automobile provided by the Company.
(3) Mr. Calderon was granted 350,000 options in June 1998. These options
were canceled and Mr. Calderon was granted 175,000 new options in
connection with a repricing of options by the Company in December
1998.
(4) Mr. Fuhlendorf voluntarily took a 10% reduction in salary during the
period beginning July 4, 1999 through October 10, 1999 to assist the
Company's short-term liquidity position. If Mr. Fuhlendorf had
collected his full salary for that period, his salary for 1999 would
have been $185,000.
(5) Mr. Fuhlendorf resigned from the Company effective March 27, 2000.
(6) Due to Mr. Fuhlendorf's resignation effective March 27, 2000, 165,000
options expired on March 27, 2000 and 35,000 will expire on June 27,
2000.
(7) 50,000 options granted to Mr. Fuhlendorf in 1997 were canceled and
24,615 new options were granted to Mr. Fuhlendorf in connection with a
repricing of options by the Company in December 1998.
38
<PAGE>
(8) Mr. Bruehlman voluntarily took a 5% reduction in salary during the
period beginning July 4, 1999 through October 10, 1999 to assist the
Company's short-term liquidity position. If Mr. Bruehlman had
collected his full salary for that period, his salary for 1999 would
have been $125,000.
(9) 30,000 options granted to Mr. Bruehlman in 1997 were canceled and
14,769 new options were granted to Mr. Bruehlman in connection with a
repricing of options by the Company in December 1998.
(10) Mr. Braswell's employment agreement with the Company was terminated on
August 31, 1999.
(11) 110,000 options granted to Mr. Braswell in 1997 were canceled and
60,818 new options were granted to Mr. Braswell in connection with a
repricing of options by the Company in December 1998.
(12) Represents payment to defray moving expenses related to Mr. Braswell's
relocation to Denver, Colorado in connection with his employment with
the Company
(13) Mr. Braswell has been employed by the Company or a subsidiary of the
Company since September 1997.
(14 Mr. Tillett voluntarily took a 10% reduction in salary during the
period beginning July 4, 1999 through October 10, 1999 to assist the
Company's short-term liquidity position. If Mr. Tillett had collected
his full salary for that period, his salary for 1999 would have been
$220,000.
(15) Mr. Tillett has been the Company's Chief Operations Officer since
October 1998.
(16) Mr. Avery has been the Company's Chief Information Officer since June
1998.
Options Granted. The following table sets forth information concerning
options granted in 1999 to the Company's executive officers named in the Summary
Compensation Table.
<TABLE>
<CAPTION>
Option Grants in the Last Fiscal Year
Percent (%)
of Total Potential Realizable Value at
Number Options Assumed Annual Rate of Stock
of Granted to Exercise Price Appreciation for Option
Options Employees Price per Expiration -----------------------------
Name Granted During 1999 Share Date 5% 10%
- ---- ------- ----------- ----- ---- --- ---
<S> <C> <C> <C> <C> <C> <C>
Jack Calderon 0 -- -- -- -- --
Stuart W. Fuhlendorf 200,000 16.4 $5.00 5/17/09 (1) $110,057 $278,905
August P. Bruehlman 0 -- -- -- -- --
Allen S. Braswell, Jr. 0 -- -- -- -- --
Chuck Tillett 0 -- -- -- -- --
Val Avery 5,000 0.4 $4.00 1/25/09 $12,578 $31,875
</TABLE>
- ---------------
* Less than 0.1%.
(1) Due to Mr. Fuhlendorf's resignation effective March 27, 2000, 165,000
options expired on March 27, 2000 and 35,000 will expire on June 27,
2000.
Option Exercises and Year End Option Values. The following table sets
forth information concerning options exercised in 1999 and outstanding options
held by the Company's executive officers named in the Summary Compensation Table
as of December 31, 1999, the end of the Company's last fiscal year.
39
<PAGE>
<TABLE>
<CAPTION>
Option Exercises in the Last Fiscal Year and Fiscal Year-End Option Values
Number of Unexercised Value of Unexercised
Shares Options at In-the-Money Options at
Acquired on Value December 31, 1999(#) December 31, 1999($)
Name Exercise(#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ----------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Jack Calderon -- -- 230,248/211,924 -- / --
Stuart W. Fuhlendorf -- -- 124,781/ -- -- / --
August P. Bruehlman -- -- 71,633/ 11,077 -- / --
Allen S. Braswell, Jr. -- -- -- / -- -- / --
Chuck Tillett -- -- 30,000/120,000 -- / --
Val Avery -- -- 14,000/ 76,000 -- / --
</TABLE>
Employment Agreements. The Company has entered into employment
agreements with certain of its current employees and former employees, including
Messrs. Braswell, Calderon, Fuhlendorf and Monaco.
Braswell Employment Agreement. Mr. Braswell's agreement provided for
him to be employed for a term of three years, expiring on September 30, 2000, at
a base salary of $175,000. Mr. Braswell's employment agreement with the Company
terminated on August 31, 1999 in connection with his accepting employment with
Jabil Global Services, a subsidiary of Jabil Circuit, Inc., after the sale of
the Company's EFTC Services Group to Jabil. Mr. Braswell served as President of
EFTC Services Group prior to its acquisition by Jabil.
Calderon Employment Agreement. Mr. Calderon's agreement provides for
him to be employed in his current position for a term of approximately three and
one-half years ending December 31, 2001 which then automatically extends for
90-day periods until terminated. Mr. Calderon's agreement provides for a base
salary of $300,000 for the year ended December 31, 1999 and a base salary of
$350,000 for the remaining term of the employment agreement. The Company may
terminate such employment agreement with or without cause. In case of a
termination without cause, however, the Company must continue the terminated
employee's salary and benefits for a severance period of one year. Mr.
Calderon's agreement also provides for his salary and benefits to continue for
twelve months after termination of employment if the employment agreement
expires, and Mr. Calderon does not remain an employee of the Company. Mr.
Calderon's agreement also provided for the Company to grant to Mr. Calderon
non-qualified stock options to purchase 350,000 shares of common stock at an
exercise price of $16.00. Mr. Calderon elected to reprice such options in
December 1998. Such options vest in 10% increments upon the common stock of the
Company achieving certain trading levels above the exercise price.
Fuhlendorf Employment Agreement. Mr. Fuhlendorf's employment agreement
had provided for him to be employed in his current capacity, for an initial term
of three years, which ended in March 1997, automatically extended for 90-day
periods until terminated. Mr. Fuhlendorf resigned from his position with the
Company, effective March 27, 2000.
Monaco Employment Agreement. The Company had an employment agreement
with Mr. Monaco which provided for him to be employed in his current capacity as
General Manager of Personal Electronics at a base salary of $125,000 for an
initial term of two years. This contract expired on March 31, 2000 and the
parties are currently in the process of negotiating a new employment agreement.
40
<PAGE>
Compensation of Directors
Directors who are not also employees of the Company receive
$1,000 for each quarter in which the director attended a meeting in person and
$250 per additional Board or committee meeting attended in person, unless such
committee meeting is held in conjunction with a meeting of the full Board of
Directors. Directors who are also employees of the Company receive no additional
compensation for serving as directors. The Company reimburses all of its
directors for reasonable travel and out-of-pocket expenses in connection with
their attendance at meetings of the Board of Directors or committees of the
Board of Directors. The Company has established a Stock Option Plan for
Non-Employee Directors (the "Director Plan"). Under the Director Plan, the
Company makes grants of stock options to purchase shares of common stock to new
directors. Options granted under the Director Plan have an exercise price equal
to the fair market value of the common stock on the date of grant, are subject
to certain vesting periods and expire 10 years following the date of grant.
Compensation Committee Interlocks and Insider Participation. Currently,
the Compensation Committee consists of Robert K. McNamara, Richard L. Monfort,
Masoud S. Shirazi, Gerald J. Reid, Charles E. Hewitson, Jeffrey Goettman and
John Walker. Several members of the Compensation Committee have engaged in
transactions with the Company.
Director Representation of Personal Electronics. Robert K. McNamara,
the Chairman of the Compensation Committee, is a Managing Director of Broadview
International LLC ("Broadview"), an investment banking firm, and in such
capacity represented Personal Electronics in connection with its acquisition by
the Company. 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 $642,500 in connection with the consummation of the
acquisition of Personal Electronics. Broadview earned a fee of $500,000 in
connection with the sale of EFTC's Services Division in September 1999. As of
April 20, 2000, $300,000 has been paid and the Company expects to pay the
remaining $200,000 by the end of May.
Sale/Leaseback Transaction. Richard L. Monfort, a member of the
Compensation Committee, entered into a sale/leaseback transaction with the
Company. The Company sold two manufacturing facilities located in Newburg,
Oregon and Tucson, Arizona to Mr. Monfort for $10.5 million. Mr. Monfort leased
these manufacturing facilities back to the Company for a term of five years with
monthly payments of $90,000. At the end of the lease term, the Company had the
option to repurchase the facilities for approximately $9.4 million. In May 1999,
the lease was amended to eliminate the purchase option, which resulted in the
recharacterization of the lease from a capital lease to an operating lease. As
such, the buildings and the related debt have been removed from the Company's
balance sheet.
Issuance of Subordinated Notes and Warrants. Mr. Richard L. Monfort, a
member of the Compensation Committee, purchased $15 million in aggregate
principal amount of subordinated notes issued by the Company on September 9,
1997. The subordinated notes had a maturity date of December 31, 2002 and
provided for interest at a variable rate (adjusted monthly) equal to 2.00% over
the applicable LIBOR rate. The proceeds of these notes were used to acquire
certain assets from Honeywell (formerly AlliedSignal, Inc.). In connection with
the issuance of these subordinated notes, the Company issued warrants to
purchase 500,000 shares of the Company's common stock at an exercise price of
$8.00 per share to Mr. Monfort. The warrants were exercised on October 9, 1997
resulting in net proceeds to the Company of $4.0 million. The Company prepaid
$10.0 million of the outstanding principal amount of these notes early in
December 1997 from the proceeds of a loan from the Company's senior lender. In
connection with such prepayment, the Company agreed to pay a fee of
approximately $325,000 to be paid in equal monthly increments until the maturity
of the notes.
In November 1999, Mr. Monfort purchased $5 million in aggregate
principal amount of subordinated notes issued by the Company. These notes had a
maturity date of March 30, 2000 and provided for interest at a rate of 10%. The
proceeds of these notes were used for general operating purposes. In connection
with the Recapitalization Transaction, the Company repaid the $10.0 million in
principal amount outstanding under both subordinated notes. In
41
<PAGE>
addition, the Company paid the remaining outstanding prepayment fee of
approximately $150,000 due in connection with the prepayment of the September
1997 notes and a fee of $100,000 due upon maturity of the November 1999 note. In
addition, the November note agreement was amended to provide for issuance of
$3.0 million in aggregate principal amount of subordinated notes, with a
maturity date of March 30, 2004 and bearing interest at 10%.
Transactions with Shirazi & Associates, P.C. During 1999, third parties
doing business with the Company paid Shirazi & Associates, P.C., an employee
benefit and consulting firm owned by Masoud Shirazi, one of the Company's
directors, approximately $230,000 in commissions.
Recapitalization Transaction. Mr. Goettman and Mr. Walker, each of whom
are members of the Compensation Committee, are partners in Thayer Capital
Partners and BLUM Capital Partners, respectively. Thayer-BLUM Funding, L.L.C.,
an affiliate of both Thayer Capital Partners and BLUM Capital Partners has
entered into a Securities Purchase Agreement with the Company which provides for
a recapitalization of the Company.
Hewitson Consulting Agreements. On February 24, 1997, the Company
entered into five-year consulting agreements with Messrs. Charles E. Hewitson,
Matthew J. Hewitson and Gregory C. Hewitson. Each of these consultants is being
paid approximately $160,000 per year and reimbursed his out-of-pocket expenses
associated with the performance of his duties. Each has agreed to devote
sufficient working time, attention and energies to the business of the Company,
but not in excess of 80% of the equivalent of being engaged on a full-time
basis. The Consulting Agreements prohibit the consultant from providing services
to, or owning 5% or more of the outstanding stock of, a competitor of the
Company during the term of his engagement and for two years after the
termination of his engagement.
Vote Required and Board Recommendation
Approval of Proposal 3 requires the affirmative vote of a majority of
the total votes cast on the proposal in person or by proxy.
The Board believes Proposal 3 is in the best interests of the Company
and its shareholders and is important in order to help assure the ability of the
Company to continue to recruit and retain highly qualified employees,
consultants, and directors.
Management and the Board of Directors recommends a vote FOR this
Proposal to approve the adoption of the Company's 2000 Equity Stock Option Plan.
42
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
The Company files annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information that we file
with the SEC's public reference rooms in Washington, D.C., New York, New York
and Chicago, Illinois. Please call the SEC at 1-800-SEC-8330 for further
information on the public reference rooms. Our SEC filings are also available to
the public from commercial document retrieval services and at the web site
maintained by the SEC at http://www.sec.gov.
The SEC allows the Company to incorporate by reference information into
this document which means that the Company can disclose important information to
you by referring to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this document,
except for information superceded by information in this document. The Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999, as filed
with the Securities and Exchange Commission on April 14, 2000 and attached
hereto as Appendix VIII, is incorporated by reference in its entirety into this
proxy statement.
INDEPENDENT PUBLIC ACCOUNTANTS
A representative of KPMG LLP, the Company's independent public
accountants, is expected to be present at the Special Meeting and is expected to
be available to respond to appropriate questions.
SHAREHOLDER PROPOSALS
The Company's 2000 annual meeting of shareholders will be held on
_________, 2000. Any proposal by a shareholder intended to be presented at the
2001 annual meeting of shareholders must be received by the Company on or before
December 22, 2000.
OTHER MATTERS
The Company does not anticipate that any other matters will be brought
before the Special Meeting. However, if any additional matters shall properly
come before the Special Meeting, it is intended that the persons authorized
under proxies may, in the absence of instructions to the contrary, vote or act
thereon in accordance with their best judgment.
The board of directors encourages you to have your shares voted by
signing and returning the enclosed proxy. The fact that you will have returned
your proxy in advance will not affect your right to vote in person should you
find it possible to attend. However, by signing and returning the proxy, you
have assured your representation at the Special Meeting. Thank you for your
cooperation.
BY ORDER OF THE BOARD OF DIRECTORS,
August P. Bruehlman
Secretary
Denver, Colorado
May __, 2000
43
<PAGE>
[FORM OF PROXY]
EFTC CORPORATION
9351 Grant Street, Suite 600
Denver, CO 80229
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE___, 2000
This Proxy is solicited on Behalf of the Board of
Directors.
The undersigned hereby appoints Jack Calderon or August P. Bruehlman,
or either of them, with full power of substitution, as a proxy or proxies to
represent the undersigned at the Special Meeting (the "Special Meeting") of
Shareholders of EFTC CORPORATION (the "Company") to be held on June __, 2000, at
10:00 a.m. at 9351 Grant Street, Sixth Floor, Denver, Colorado 80229, and at any
adjournments or postponements thereof, and to vote thereat all the shares of
common stock, $.01 par value per share, held of record by the undersigned at the
close of business on May 10, 2000, with all the power that the undersigned would
possess if personally present, as designated on the reverse side.
Shares will be voted as specified. THE BOARD OF DIRECTORS RECOMMENDS A
VOTE FOR AND APPROVAL OF EACH OF THE PROPOSALS. IF NO SPECIFICATION IS MADE,
THIS PROXY WILL BE VOTED IN FAVOR OF EACH OF THE PROPOSALS IN ACCORDANCE WITH
THE BOARD OF DIRECTORS RECOMMENDATIONS.
1. Issuance of the Convertible Notes Proposal. Approval of issuance
of the Company's 8.875% Senior Subordinated Convertible Notes due
June 30, 2006 to Thayer-BLUM Funding LLC.
FOR o AGAINST o ABSTAIN o
2. Increase in the Number of Authorized Shares Proposal. Approval of
an amendment to the Company's Amended and Restated Articles of
Incorporation to increase the number of authorized shares of
common stock from 45 million shares to 75 million shares.
FOR o AGAINST o ABSTAIN o
3. Adoption of the 2000 Equity Stock Option Plan Proposal. Approval
of adoption of the Company's 2000 Equity Stock Option Plan that
provides for the issuance of up to 3.4 million shares of common
stock.
FOR o AGAINST o ABSTAIN o
PLEASE DATE AND SIGN THIS PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE.
Signature(s): Date: , 2000
-------------------------------- -------------
Title:
NOTE: Please sign this proxy as your name appears hereon, including the title
"Executor," "Trustee," etc. if such is indicated. If joint account, each joint
owner should each sign. If stock is held by a corporation, this proxy should be
executed by a proper officer thereof.
<PAGE>
Appendix I
Opinion of Needham & Company, Inc.
<PAGE>
March 29, 2000
Special Committee of the Board of Directors
EFTC Corporation
9351 Grant Street
Denver, CO 80229
Members of the Special Committee:
We understand that EFTC Corporation (the "Company") and Thayer-BLUM
Funding, L.L.C. (the "Investor") propose to enter into a Securities Purchase
Agreement (the "Purchase Agreement") pursuant to which, among other things, (i)
the Investor will purchase $54,000,000 in aggregate principal amount of the
Company's 15% Senior Subordinated Exchangeable Notes due June 2006 (the
"Exchangeable Notes") and warrants to purchase shares of the Company's common
stock, par value $.01 per share (the "Common Stock"), with an exercise price of
$.01 per share (the "Warrants") representing approximately 19.9% of the
outstanding Common Stock at the time of the issuance of the Warrants (such
purchase, the "Initial Investment") and (ii) following consummation of the
Initial Investment, the Investor will commence a tender offer (the "Offer") to
purchase up to 8,250,000 shares of Common Stock at a price of $4.00 per share
net to the seller in cash. The Initial Investment and the Offer are collectively
referred to herein as the "Transactions." Upon stockholder approval of the
Transactions and consummation of the Offer that results in the acquisition of at
least 500,000 shares of Common Stock, (i) the Exchangeable Notes would
automatically be exchanged for the Company's 8.875% Senior Subordinated
Convertible Notes due June 2006 (the "Convertible Notes") with an aggregate
principal amount of $54,000,000 plus any accrued but unpaid interest on the
Exchangeable Notes, which Convertible Notes could be converted into shares of
Common Stock at an initial conversion price of $2.60 per share, subject to
adjustment as provided therein, and (ii) the Warrants would be cancelled. The
terms and conditions of the Transactions will be set forth more fully in the
Purchase Agreement. The Exchangeable Notes, the Convertible Notes and the
Warrants are sometimes collectively referred to herein as the "Securities."
You have asked us to advise you as to the fairness, from a financial
point of view, to the Company and the holders of the Common Stock (other than
the Investor and its affiliates) of the
I-1
<PAGE>
Initial Investment and the Transactions, when taken together. Needham & Company,
Inc., as part of its investment banking business, is regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of securities,
private placements and other purposes. We have been engaged by the Company as
financial advisor to render this opinion in connection with the Transactions and
will receive a fee for our services, none of which is contingent on the
consummation of the Transactions. In addition, the Company has agreed to
indemnify us for certain liabilities arising from our role as financial advisor
and out of the rendering of this opinion.
For purposes of this opinion we have, among other things: (i) reviewed
a draft of the Purchase Agreement and the related drafts of the Securities,
furnished to us on March 28, 2000; (ii) reviewed certain publicly available
information concerning the Company and certain other information concerning the
Company furnished to us by the Company; (iii) reviewed the historical stock
prices and trading volumes of the Common Stock; (iv) held discussions with
members of the management of the Company concerning the current and future
business prospects of the Company; (v) reviewed and discussed with members of
the management of the Company certain financial forecasts and projections
prepared by such management that assume the Transactions (other than the Initial
Investment) do not occur and, in the alternative, that assume the occurrence of
the Transactions, the exchange of the Exchangeable Notes and cancellation of the
Warrants; (vi) compared certain publicly available financial data of companies
whose securities are traded in the public markets and that we deemed relevant to
similar data for the Company; (vii) reviewed the financial terms of certain
other transactions that we deemed relevant; (viii) discussed with members of the
management of the Company the strategic rationale and certain other benefits to
the Company resulting from an association with the Investor; and (ix) performed
and/or considered such other studies, analyses, inquiries and investigations as
we deemed appropriate.
In connection with our review and in arriving at our opinion, we have
assumed and relied on (a) the accuracy and completeness of all of the financial
and other information publicly available or furnished to or otherwise reviewed
by or discussed with us for purposes of rendering this opinion and (b) the
assessment by the Company's management of the strategic and other benefits
expected to be derived from the Transactions, and have neither attempted to
verify independently nor assumed responsibility to verify any of such
information or assessment. In addition, we have assumed, with your consent, (i)
that the terms set forth in the executed Purchase Agreement and related
Securities will not differ materially from the proposed terms provided to us in
the draft Purchase Agreement and related Securities furnished to us on March 28,
2000, and (ii) that the Purchase Agreement and Securities are enforceable in
accordance with their terms and that the parties to the Transactions and the
Securities will carry out their obligations as set forth therein. With respect
to the Company's financial forecasts provided to us by its management, we have
assumed for purposes of our opinion that such forecasts have been reasonably
prepared on bases reflecting the best currently available
I-2
<PAGE>
estimates and judgments of such management, at the time of preparation, of the
future operating and financial performance of the Company. We express no opinion
with respect to such forecasts or the assumptions on which they were based. We
have not assumed any responsibility for or made or obtained any independent
evaluation, appraisal or physical inspection of the assets or liabilities of the
Company. Further, our opinion is based on economic, monetary and market
conditions as they exist and can be evaluated as of the date hereof. Our opinion
as expressed herein is limited to the fairness, from a financial point of view,
to the Company and the holders of Common Stock (other than the Investor and its
affiliates) of the Initial Investment and the Transactions, when taken together,
and does not address the Company's underlying business decision to engage in the
Transactions. Our opinion does not constitute a recommendation to any
shareholder of the Company as to how such shareholder should vote on the
proposed Transactions or as to whether such shareholder should tender shares of
Common Stock pursuant to the Offer. We are not expressing any opinion as to the
prices at which the Common Stock will actually trade at any time.
In the ordinary course of our business, we may actively trade the
equity securities of the Company for our own account or for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
This letter and the opinion expressed herein are provided at the
request and for the information of the Special Committee and the Board of
Directors of the Company and may not be quoted or referred to or used for any
purpose without our prior written consent, except that this letter may be
disclosed in connection with any proxy statement or solicitation/recommendation
statement on Schedule 14D-9 used in connection with the Transactions so long as
this letter is quoted in full in such proxy statement or
solicitation/recommendation statement.
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the Initial Investment and the Transactions, when taken
together, are fair to the Company and the holders of Common Stock (other than
the Investor and its affiliates) from a financial point of view.
Very truly yours,
/s/NEEDHAM & COMPANY, INC.
I-3
<PAGE>
Appendix II
Supplemental Letter of Needham & Company, Inc.
<PAGE>
April 27, 2000
Special Committee of the Board of Directors
EFTC Corporation
9351 Grant Street
Denver, CO 80229
Members of the Special Committee:
Reference is hereby made to our letter to you dated March 29, 2000 (the
"Opinion"), regarding certain transactions between EFTC Corporation and
Thayer-BLUM Funding, L.L.C. Capitalized terms used herein that are defined in
the Opinion have the same meanings for purposes of this letter.
We have been advised that the Investors have requested, pursuant to an agreement
reached with the Company immediately prior to closing of the Initial Investment,
that the initial conversion price of the Convertible Notes be reduced from $2.60
to $2.58, subject to approval of the Board of Directors and the Special
Committee.
We have not been requested to render, and are not hereby rendering, an opinion
as of the date hereof as to the fairness, from a financial point of view, to the
Company and the holders of the Common Stock (other than the Investor and its
affiliates) of the Initial Investment and the Transactions. With your consent,
we assume no responsibility to update the investigations made, procedures
followed or matters considered, or independently verify any information relied
upon, with respect to the Opinion. Accordingly, we have not engaged in further
analysis with respect to the reduced conversion price and our statements in this
letter should not be considered to be an opinion for any purpose. Subject to the
foregoing, we advise you that we do not believe that the establishment of the
conversion price at $2.58, had it been considered as part of our analyses in
connection with the Opinion, would have altered our conclusion set forth in the
Opinion as of the date of our Opinion.
This letter and the advice expressed herein are provided at the request and for
the information of the Special Committee and the Board of Directors of the
Company and may not be quoted or referred to or used for any purpose without our
prior written consent, except that this letter may be disclosed in connection
with any proxy statement or solicitation/recommendation statement on Schedule
14D-9 used in connection with the Transactions so long as this letter, together
with the Opinion, is quoted in full in such proxy statement or
solicitation/recommendation statement.
Very truly yours,
/s/ Needham & Company, Inc.
<PAGE>
Appendix III
Securities Purchase Agreement
<PAGE>
SECURITIES PURCHASE AGREEMENT
by
and
between
Thayer-Blum Funding, L.L.C.
and
EFTC CORPORATION
-------------------
Dated as of March 30, 2000
-------------------
================================================================================
<PAGE>
<TABLE>
TABLE OF CONTENTS
Page
ARTICLE 1. DEFINITIONS....................................................................................................2
<S> <C> <C> <C>
1.1. Definitions..................................................................................................2
1.2. Accounting Terms; Financial Statements.......................................................................7
1.3. Knowledge Standard...........................................................................................7
ARTICLE 2. PURCHASE AND SALE OF THE SECURITIES............................................................................8
2.1. Purchase and Sale of the Securities.....................................................................8
2.2. Closing......................................................................................................8
ARTICLE 3. CONDITIONS TO THE OBLIGATION OF THE PURCHASER TO PURCHASE THE SECURITIES.......................................8
3.1. Representations and Warranties..........................................................................8
3.2. Compliance with Terms and Conditions of this Agreement.......................................................8
3.3. Delivery of the Exchangeable Notes and Certificates Evidencing the Warrants..................................8
3.4. Closing Certificates.........................................................................................9
3.5. Secretary's Certificates.....................................................................................9
3.6. Documents....................................................................................................9
3.7. Purchase Permitted by Applicable Laws........................................................................9
3.8. Opinion of Counsel...........................................................................................9
3.9. Consents and Approvals.......................................................................................9
3.10. No Material Adverse Effect..................................................................................10
3.11. No Material Judgment or Order...............................................................................10
3.12. Financial Statements........................................................................................10
3.13. Bank Financing..............................................................................................10
3.14. Insurance Coverage..........................................................................................10
3.15. Board of Directors..........................................................................................10
ARTICLE 4. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY TO CLOSE.........................................................10
4.1. Representations and Warranties.........................................................................11
4.2. Compliance with Terms and Conditions of this Agreement......................................................11
4.3. Payment of Purchase Price...................................................................................11
4.4. Closing Certificates........................................................................................11
4.5. Issuance Permitted by Applicable Laws.......................................................................11
4.6. Manager's Certificate.......................................................................................11
4.7. Documents...................................................................................................11
4.8. Opinion of Counsel..........................................................................................11
4.9. Consents and Approvals......................................................................................11
4.10. No Material Judgment or Order...............................................................................12
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................................................12
5.1. Corporate Existence and Authority......................................................................12
5.2. Corporate Authorization; No Contravention...................................................................12
5.3. Governmental Authorization; Third Party Consents............................................................12
5.4. Binding Effect..............................................................................................13
III-i
<PAGE>
5.5. Other Agreements............................................................................................13
5.6. Capitalization..............................................................................................13
5.7. Subsidiaries................................................................................................14
5.8. Litigation..................................................................................................14
5.9. Financial Statements........................................................................................14
5.10. Title and Condition of Assets...............................................................................14
5.11. Contractual Obligations.....................................................................................15
5.12. No Material Adverse Effect..................................................................................15
5.13. Investment Company/Government Regulations...................................................................15
5.14. Broker's, Finder's or Similar Fees..........................................................................16
5.15. Labor Relations and Employee Matters........................................................................16
5.16. Employee Benefit Plans......................................................................................16
5.17. Outstanding Borrowings......................................................................................16
5.18. Undisclosed Liabilities.....................................................................................17
5.19. Solvency....................................................................................................17
5.20. Compliance with Law.........................................................................................17
5.21. No Other Agreements to Sell the Assets or Capital Stock of the Company......................................17
5.22. Changes.....................................................................................................17
5.23. Certain Payments............................................................................................19
5.24. Environmental Matters.......................................................................................19
5.25. SEC Reports.................................................................................................20
5.26. Fairness Opinion............................................................................................21
5.27. Disclosure..................................................................................................21
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER...............................................................21
6.1. Existence and Authority................................................................................21
6.2. Authorization; No Contravention.............................................................................21
6.3. Binding Effect..............................................................................................22
6.4. Purchasers Expertise........................................................................................22
6.5. Investment Intent...........................................................................................22
6.6. Broker's, Finder's or Similar Fees..........................................................................22
ARTICLE 7. ADDITIONAL AGREEMENTS.........................................................................................22
7.1. Proxy Statement........................................................................................22
7.2. Tender Offer................................................................................................23
7.3. Proxy Statement; Offer Documents............................................................................26
7.4. Acquisition Proposals.......................................................................................26
7.5. Interim Operations..........................................................................................27
7.6. Access to Information; Confidentiality......................................................................29
7.7. Preferred Stock Purchase Rights.............................................................................30
7.8. Continued Listing...........................................................................................31
7.9. Consultants and Advisors....................................................................................31
7.10. Operational Review Meetings.................................................................................31
7.11. Approval of Financings......................................................................................31
7.12. Stock Incentive Plan........................................................................................31
III-ii
<PAGE>
ARTICLE 8. TERMINATION...................................................................................................31
8.1. Termination Rights.....................................................................................31
8.2. Effect of Termination.......................................................................................32
ARTICLE 9. MISCELLANEOUS.................................................................................................33
9.1. Notices................................................................................................33
9.2. Successors and Assigns......................................................................................34
9.3. Amendment and Waiver........................................................................................34
9.4. Counterparts................................................................................................34
9.5. Headings....................................................................................................34
9.6. Governing Law...............................................................................................35
9.7. Jurisdiction................................................................................................35
9.8. Severability................................................................................................35
9.9. Rules of Construction.......................................................................................35
9.10. Entire Agreement............................................................................................35
9.11. Transaction Expenses........................................................................................35
9.12. Publicity...................................................................................................35
9.13. Further Assurances..........................................................................................35
</TABLE>
Exhibit A - Form of Exchangeable Note
Exhibit B - Form of Warrant
Exhibit C - Form of Convertible Note
Exhibit D - Form of Legal Opinion of Company's Counsel
Exhibit E - Form of Indemnification Agreement
Exhibit F - Form of Legal Opinion of Purchaser's Counsel
III-iii
<PAGE>
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is
entered into as of the 30th day of March, 2000 by and between Thayer-BLUM
Funding, L.L.C., a Delaware limited liability company (the "Purchaser"), and
EFTC Corporation, a Colorado corporation (the "Company").
RECITALS:
A. WHEREAS, upon the terms and subject to the conditions set forth in this
Agreement, the Company wishes to issue and sell, and the Purchaser wishes to
acquire, $54,000,000 in aggregate principal amount of the Company's 15% Senior
Subordinated Exchangeable Notes due June 2006, substantially in the form
attached as Exhibit A hereto (the "Exchangeable Notes"), and warrants to
purchase shares of the Company's common stock, par value $.01 per share, with an
exercise price of $.01 per share, substantially in the form attached as Exhibit
B hereto (the "Warrants", and together with the Exchangeable Notes, the
"Securities"), representing approximately 19.9% of the Company's outstanding
Common Stock (such acquisition, the "Initial Investment").
B. WHEREAS, following the consummation of the Initial Investment, the Purchaser
intends to engage in a tender offer for up to 8,250,000 shares of the Company's
common stock (the "Tender Offer", and together with the Initial Investment, the
"Transactions").
C. WHEREAS, the parties intend that prior to completion of the Tender Offer, the
Company's shareholders approve of the Transactions, and the Company has agreed
to call a meeting of its shareholders (the "Shareholders Meeting") and to
recommend that the shareholders vote for a proposal to approve the transactions
as contemplated by this Agreement ("Shareholder Approval").
D. WHEREAS, the parties intend that upon gaining Shareholder Approval and the
completion of a Successful Tender Offer (as defined in Section 7.2(a)), the
Exchangeable Notes would automatically be exchanged for the Company's 8.875%
Senior Subordinated Convertible Notes due June 2006, substantially in the form
attached as Exhibit C hereto (the "Convertible Notes"), with an aggregate
principal amount of $54,000,000 plus any accrued but unpaid interest on the
Exchangeable Notes, which could be converted into shares of the Company's common
stock at an exercise price of $2.60 per share, and any and all unexercised
Warrants would be cancelled.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the parties hereby agree as
follows:
III-1
<PAGE>
ARTICLE 1.
DEFINITIONS
1.1. Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:
"Acquisition Proposal" has the meaning set forth in Section
7.4.
"Action" or "Actions" has the meaning set forth in Section
5.8.
"Affiliate" means, with respect to any specified Person, any
Person that, directly or indirectly, controls, is controlled by, or is under
common control with, such specified Person, whether by contract, through one or
more intermediaries, or otherwise.
"Approval Date" has the meaning set forth in Section 7.2(a).
"Audited Financial Statements" has the meaning set forth in
Section 5.9.
"Balance Sheet Date" means December 31, 1999.
"Board of Directors" means the board of directors of the
Company, including, as appropriate, the Special Committee formed to consider the
Transactions.
"Capital Lease" means any lease of any property which would in
accordance with GAAP be required to be classified and accounted for on the
balance sheet of the lessee as a capital lease.
"Closing" has the meaning set forth in Section 2.2.
"Closing Date" has the meaning set forth in Section 2.2.
"Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute thereto.
"Commission" or "SEC" means the Securities and Exchange
Commission or any similar agency then having jurisdiction to enforce the
Securities Act.
"Common Stock" means the common stock, par value $.01 per
share, of the Company, or any other capital stock of the Company into which such
stock is reclassified or reconstituted.
"Company" has the meaning set forth in the preamble hereto.
"Condition of the Company" means the assets, business,
properties, operations, financial condition or prospects of the Company and its
Subsidiaries taken as a whole.
III-2
<PAGE>
"Confidentiality Agreement" has the meaning set forth in
Section 7.6(a).
"Contractual Obligation" means as to any Person, any provision
of any security issued by such Person or any provision of any agreement, lease
of real or personal property, undertaking, contract, indenture, mortgage, deed
of trust or other instrument to which such Person is a party or by which it or
any of its property is bound.
"Convertible Notes" has the meaning set forth in Paragraph D
of the Recitals.
"Credit Agreement" means the Loan and Security Agreement dated
as of March 30, 2000 among the Financial Institutions named therein, Bank of
America, N.A. as Agent and the Company.
"DOJ" means the United States Department of Justice.
"Environmental Laws" means, collectively, all applicable
foreign, U.S. Federal, state or local laws, statutes, ordinances, rules,
regulations, codes or common law relating to health, safety, pollution or
protection of the environment (including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, the Resource
Conservation and Recovery Act, as amended, the Clean Air Act, as amended, and
the California Hazardous Waste Control Act, as amended).
"Equipment" means all of the tangible personal property owned
or leased by the Company or any of its Affiliates and used in or held for use in
the operations of the business of the Company or any of its Affiliates.
"ERISA" has the meaning set forth in Section 5.16.
"Exchangeable Notes" has the meaning set forth in Paragraph A
of the Recitals.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.
"Facilities" means the buildings, plants, offices and all
other improvements on any real property (including fixtures affixed thereto)
which are owned or leased by the Company or any of its Subsidiaries and used or
held for use in the operation of the business of the Company or any of its
Subsidiaries.
"Financial Statements" has the meaning set forth in Section
5.9.
"FTC" means the United States Federal Trade Commission.
"GAAP" means United States generally accepted accounting
principles, in effect from time to time, consistently applied.
"Governmental Authority" means the government of any nation,
state, city, locality or other political subdivision of any thereof, any entity
III-3
<PAGE>
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
exercising public functions owned or controlled, through stock or capital
ownership or otherwise, by any of the foregoing.
"Hazardous Materials" shall include hazardous substances,
hazardous waste or hazardous materials, or pollutants or contaminants, as such
terms are defined in any Environmental Law.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the rules and regulations promulgated thereunder.
"Indebtedness" means, as to any Person: (a) all obligations,
whether or not contingent, of such Person for borrowed money (including, without
limitation, reimbursement and all other obligations with respect to surety
bonds, letters of credit and bankers' acceptances, whether or not matured), (b)
all obligations of such Person evidenced by notes, bonds, debentures or similar
instruments, (c) all obligations of such Person representing the balance of
deferred purchase price of property or services, except trade accounts payable
and accrued commercial or trade liabilities arising in the ordinary course of
business, (d) all interest rate and currency swaps, caps, collars and similar
agreements or hedging devices under which payments are obligated to be made by
such Person, whether periodically or upon the happening of a contingency, (e)
all indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), (f)
all obligations of such Person under leases which have been or should be, in
accordance with GAAP, recorded as capital leases, (g) all obligations of such
Person under operating leases in excess of $15,000,000 (h) all indebtedness
secured by any Lien (other than Liens in favor of lessors under leases other
than leases included in clauses (f) and (g)) on any property or asset owned or
held by that Person regardless of whether the indebtedness secured thereby shall
have been assumed by that Person or is non-recourse to the credit of that
Person, and (i) all Indebtedness of any other Person referred to in clauses (a)
through (g) above, guaranteed, directly or indirectly, by that Person.
"Initial Investment" has the meaning set forth in Paragraph A
of the Recitals.
"Lien" means any mortgage, deed of trust, pledge,
hypothecation, assignment, encumbrance, lien (statutory or other) or other
security interest of any kind or nature whatsoever (excluding preferred stock or
equity related preferences) including, without limitation, those created by,
arising under or evidenced by any conditional sale or other title retention
agreement, the interest of a lessor under a capital lease obligation, or any
financing lease having substantially the same economic effect as any of the
foregoing.
"Material Adverse Effect" means any material adverse change in
the Condition of the Company.
"Minimum Condition" has the meaning set forth in Section
7.2(a).
III-4
<PAGE>
"Notes" means the Exchangeable Notes and the Convertible
Notes.
"Offer Documents" has the meaning set forth in Section 7.2(b).
"Outstanding Borrowings" means all Indebtedness of the Company
and/or its Subsidiaries for borrowed money (including without limitation,
reimbursement and all other obligations with respect to surety bonds, letters of
credit and bankers' acceptances, whether or not matured), excluding obligations
with respect to trade payables incurred in the ordinary course of business.
"Pension Plan" has the meaning set forth in Section 5.16.
"Permitted Liens" means (i) Liens for taxes, governmental
charges or levies which (a) are not yet due and payable, or (b) are being
diligently contested in good faith by appropriate proceedings; provided, that
for any such taxes being diligently contested in good faith, the Company has set
aside adequate reserves, (ii) Liens imposed by law, such as mechanic's,
materialman's, landlord's, warehouseman's and carrier's liens, securing
obligations incurred in the ordinary course of business which are not yet
overdue or which are being diligently contested in good faith by appropriate
proceeding and, with respect to such obligations which are being contested, for
which the Company has set aside adequate reserves, (iii) Liens securing Senior
Debt, (iv) Liens which (x) secure obligations of less than $15,000,000 in the
aggregate, and (y) do not, individually or in the aggregate, interfere with the
use and enjoyment of the property subject thereto and (v) Liens created in favor
of General Electric Capital Corporation pursuant to the Accounts Receivables
Purchase Agreement between General Electric Capital Corporation and EFTC
Corporation, dated December 5, 1997.
"Person" means any individual, firm, corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, limited liability company, Governmental Authority or other entity of
any kind, and shall include any successor (by merger or otherwise) of such
entity.
"Projected Budget" has the meaning set forth in Section 3.12.
"Proxy Statement" has the meaning set forth in Section
5.26(b).
"Purchase Price" has the meaning set forth in Section 2.1.
"Purchaser" has the meaning set forth in the preamble hereto.
"RCBA" means RCBA Strategic Partners, L.P.
"Requirements of Law" means, as to any Person, the provisions
of the Certificate of Incorporation and by-laws or other organizational or
governing documents of such Person, and any law, treaty, rule, regulation,
right, privilege, qualification, license or franchise, order, judgment, or
III-5
<PAGE>
determination, in each case, of an arbitrator or a court or other Governmental
Authority, in each case, applicable to or binding upon such Person or any of its
property (or to which such Person or any of its property is subject) or
applicable to any or all of the transactions contemplated by or referred to in
the Transaction Documents.
"Rights" has the meaning set forth in Section 7.2(a).
"Rights Agreement" has the meaning set forth in Section
7.2(a).
"Schedule 14D-9" has the meaning set forth in Section 7.2(d).
"SEC Reports" has the meaning set forth in Section 5.25(a).
"Securities" has the meaning set forth in Paragraph A of the
Recitals.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder.
"Senior Debt" means (i) all indebtedness outstanding at any
time under the Credit Agreement, and all hedging obligations and bank products
with respect thereto, (ii) any replacement or refinancing of the Credit
Agreement which provides for borrowings by the Company up to $55,000,000 in
aggregate principal amount and (iii) all obligations with respect to any of the
foregoing. Notwithstanding anything to the contrary in the foregoing, Senior
Debt shall not include (x) any Indebtedness of the Company to any of its
Subsidiaries or other affiliates, or (y) any Indebtedness incurred for the
purchase of goods or materials or for services obtained in the ordinary course
of business (other than with the proceeds of revolving credit borrowings
permitted hereby).
"Shareholder Approval" has the meaning set forth in Paragraph
C of the Recitals.
"Shareholders Meeting" has the meaning set forth in Paragraph
C of the Recitals.
"Stock Incentive Plan" means a stock incentive plan for the
Company's employees adopted by the Board of Directors with terms satisfactory to
the Purchaser.
"Subsidiary" or "Subsidiaries" means, with respect to any
Person (the "parent"), any corporation, association or other business entity of
which securities or other ownership interests representing more than 50% of the
ordinary voting power are, at the time as of which any determination is being
made, owned or controlled by the parent or one or more subsidiaries of the
parent or by the parent and one or more subsidiaries of the parent.
"Successful Tender Offer" has the meaning set forth in Section
7.2(a).
"Superior Proposal" means an Acquisition Proposal for which
the Company's Board of Directors has determined in its good faith judgment that
its fiduciary duties require it to consider and pursue but only after (i)
consultation with outside counsel and such other advisors as it may deem
appropriate, (ii) receiving the written opinion of its financial advisor and
III-6
<PAGE>
such other information as it determines necessary, that such Acquisition
Proposal is financially superior to the Transactions and (iii) concluding based
on the advice of its financial advisor that the Person who has made the
Acquisition Proposal (x) has in place sufficient financing to be able to
successfully complete the transaction set forth in the Acquisition Proposal and
(y) would be capable of closing such transaction within a period ending on the
later of (i) June 30, 2000 and (ii) 60 days following the termination of this
Agreement pursuant to Section 8.1(g).
"Tax" or "Taxes" shall mean all federal, state, local foreign
and other taxes, assessments or other government charges, including, without
limitation, income, estimated income, business, occupation, franchise, property
sales, transfer, use, employment, commercial rent or withholding taxes,
including interest, penalties and additions in connection therewith for which
the Company may be liable.
"Tender Offer" has the meaning set forth in paragraph B of the
Recitals.
"Thayer" means, collectively, Thayer Equity Investors
IV, L.P. and TC Manufacturing Holdings, L.L.C.
"Tender Shares" has the meaning set forth in Section 7.2(a).
"Transactions" has the meaning set forth in paragraph B of the
Recitals.
"Transaction Documents" means collectively, this Agreement,
the Exchangeable Notes, the Convertible Notes and the Warrants.
"Transaction Expenses" means out-of-pocket expenses incurred
by the Purchaser (including for purposes of this definition, by its members
including, without limitation, Thayer and RCBA), in connection with the legal
and financial due diligence review of the Condition of the Company conducted by
the Purchaser, the negotiation and preparation of the Transaction Documents, the
consummation of the transactions contemplated thereby and preparation for any of
the foregoing, including, without limitation, travel expenses, fees, charges and
disbursements of the Purchaser's legal counsel, accountants, consultants, other
advisors and any similar or related costs and expenses.
"Warrants" has the meaning set forth in Paragraph A of the
Recitals.
1.2. Accounting Terms; Financial Statements. All accounting terms
used herein not expressly defined in this Agreement shall have the respective
meanings given to them in accordance with GAAP.
1.3. Knowledge Standard. When used herein, the phrase "to the knowledge of" any
Person, "to the best knowledge of" any Person or any similar phrase shall mean,
(i) with respect to any individual, the actual knowledge of such Person after
reasonable inquiry, and (ii) with respect to any other Person, the actual
knowledge of officers and directors, or Persons acting in similar capacities, of
III-7
<PAGE>
such Person and the knowledge of such facts that such persons should have in the
exercise of their duties after reasonable inquiry. When used herein, the phrase
"to the knowledge of the Company," "to the best knowledge of the Company" or any
similar phrase shall mean "to the best knowledge of the Company and each
Affiliate" using the standards set forth in the previous sentence.
ARTICLE 2.
PURCHASE AND SALE OF THE SECURITIES
2.1. Purchase and Sale of the Securities. Upon the terms and subject to the
conditions herein contained, at the Closing (as defined herein) on the Closing
Date (as defined herein), the Company agrees that it will issue and sell to the
Purchaser, and the Purchaser agrees that it will acquire and purchase from the
Company, the Securities. The purchase price of the Securities shall be
$54,000,000 (the "Purchase Price").
2.2. Closing. The closing of the sale to and purchase by the Purchaser of the
Securities referred to in Section 2.1 hereof (the "Closing") shall occur at the
offices of Latham & Watkins, 633 West Fifth Street, Suite 4000, Los Angeles, CA
90071-2007 at 10:00 a.m. Los Angeles time on March 30, 2000 or at such other
date, place or time of day as the Purchaser and the Company shall agree to in
writing (the "Closing Date"). At the Closing, (i) the Company shall deliver to
the Purchaser the Exchangeable Notes and certificates evidencing the Warrants
being purchased by the Purchaser, registered in such Purchaser's name, free and
clear of any Liens of any nature whatsoever, and (ii) the Purchaser shall
deliver to the Company the Purchase Price by wire transfer of immediately
available funds.
ARTICLE 3.
CONDITIONS TO THE OBLIGATION OF THE
PURCHASER TO PURCHASE THE SECURITIES
The obligation of the Purchaser to purchase the Securities, to
pay the Purchase Price therefor and to perform any obligations hereunder on the
Closing Date (unless otherwise specified) shall be subject to the satisfaction
as determined by, or waiver by, the Purchaser of the following conditions on or
before the Closing Date:
3.1. Representations and Warranties. The representations and warranties of the
Company contained in Article 5 hereof shall be true and correct in all material
respects at and as of the Closing Date except to the extent that such
representations and warranties relate solely to an earlier date, in which case
such representations and warranties shall have been true and correct in all
material respects as of such earlier date as if made at and as of such date.
3.2. Compliance with Terms and Conditions of this Agreement. The Company shall
have duly and properly performed and complied with all of the agreements,
covenants, obligations and conditions set forth herein that are required to be
performed or complied with by the Company on or before the Closing Date.
III-8
<PAGE>
3.3. Delivery of the Exchangeable Notes and Certificates Evidencing the
Warrants. The Company shall have delivered to the Purchaser the Exchangeable
Notes and the certificates evidencing the Warrants as set forth in Section
2.2.
3.4. Closing Certificates. The Company shall have delivered to the Purchaser a
certificate executed by an authorized officer of the Company certifying to such
matters as the Purchaser may reasonably request, including that the
representations and warranties of the Company contained in the Agreement are
true and correct in all material respects on and as of the Closing Date except
to the extent that such representations and warranties relate solely to an
earlier date, in which case such representations and warranties shall have been
true and correct in all material respects as of such earlier date, and that the
conditions set forth in this Article 3 to be satisfied by the Company have been
satisfied on and as of the Closing Date.
3.5. Secretary's Certificates. The Purchaser shall have received a certificate
from the Company, dated as of the Closing Date and signed by the Secretary or an
Assistant Secretary of the Company, certifying that the attached copies of the
Articles of Incorporation, bylaws of the Company, and resolutions of the Board
of Directors of the Company approving the Transaction Documents and the
transactions contemplated thereby, are all true, complete and correct and remain
unamended and in full force and effect.
3.6. Documents. The Purchaser shall have received true, complete and correct
copies of such documents and such other information as it may have reasonably
requested in connection with or relating to the sale of the Securities and the
transactions contemplated by the Transaction Documents, all in form and
substance reasonably satisfactory to the Purchaser prior to the Closing.
3.7. Purchase Permitted by Applicable Laws. The acquisition of and payment for
the Securities to be acquired by the Purchaser hereunder and the consummation of
the transactions contemplated by the Transaction Documents shall not (a) violate
any Requirements of Law, (b) result in a breach or default (i) under any of the
Contractual Obligations of the Company or (ii) under any order, writ, judgment,
injunction, decree, determination or award of any court, arbitrator, or
commission, board, bureau, agency or other governmental instrumentality, or (c)
result in, or require, the creation or imposition of any Lien, or the obligation
to make any payment with respect to any Lien, upon or with respect to any of the
property of the Company.
3.8. Opinion of Counsel. The Purchaser shall have received an opinion of
counsel to the Company, dated as of the Closing Date substantially in the form
of Exhibit D hereto.
3.9. Consents and Approvals. Except as set forth on Schedule 3.9, all
agreements, approvals, consents, exemptions, authorizations, or other actions
by, or notices to, or filings with, Governmental Authorities and other Persons
in respect of all Requirements of Law and with respect to those material
Contractual Obligations of the Company, necessary or required in connection with
the execution, delivery or performance of the Transaction Documents (including,
III-9
<PAGE>
without limitation, the issuance of the Securities, and issuance of the Common
Stock upon conversion of the Convertible Notes or the exercise of the Warrants)
by the Company, shall have been obtained and be in full force and effect, and
the Purchaser shall have been furnished with appropriate evidence thereof, and
all waiting periods shall have lapsed without extension or the imposition of any
conditions or restrictions.
3.10. No Material Adverse Effect. Since the Balance Sheet Date, ther
shall have been no Material Adverse Effect.
3.11. No Material Judgment or Order. There shall not be on the Closing Date any
judgment or order of a court of competent jurisdiction or any ruling of any
Governmental Authority or any condition imposed under any Requirement of Law
which, in the reasonable judgment of the Purchaser, would (i) prohibit the
purchase of the Securities or the consummation of the other transactions
contemplated hereunder, (ii) subject the Purchaser to any penalty if the
Securities were to be purchased hereunder, (iii) question the validity or
legality of the transactions contemplated hereby, or (iv) be reasonably expected
to materially and adversely affect the value of the capital stock of the
Company, the Securities or the Condition of the Company.
3.12. Financial Statements. The Company shall have delivered to the
Purchaser a copy of the FinancialStatements and a projected budget for fiscal
year 2000 (the "Projected Budget").
3.13. Bank Financing. The Company shall have entered into the Credit Agreement
upon terms which shall have been approved by the Purchaser and all other
Indebtedness which would rank senior in preference to the Notes shall have been
paid in full and any security interests related thereto shall have been
terminated.
3.14. Insurance Coverage. The Company shall provide liability insurance
for its directors and officers and shall cause such insurance to remain in full
force and effect on the Closing Date.
3.15. Board of Directors. As of the Closing Date, the Company's Board of
Directors shall have been increased by two and two persons designated by the
Purchaser shall have been appointed as directors and such persons shall have
also been appointed to each committee of the Board of Directors; provided, that
both such persons need not be appointed to the audit committee if such
appointments would cause a breach of the continued listing requirements for the
Common Stock on the Nasdaq Stock Market. In addition, the Board of Directors
shall also have granted the right to two additional persons designated by the
Purchaser to attend and observe at meetings of the Board of Directors of the
Company.
3.16. Indemnification Agreement. The Company shall have executed and
delivered to the Purchaser an indemnification agreement, dated as of the
Closing Date, substantially in the form of Exhibit E hereto.
III-10
<PAGE>
ARTICLE 4.
CONDITIONS TO THE
OBLIGATIONS OF THE COMPANY TO CLOSE
The obligation of the Company to issue and sell the Securities
and the other obligations of the Company hereunder, shall be subject to the
satisfaction as determined by, or waiver by, the Company of the following
conditions on or before the Closing Date:
4.1. Representations and Warranties. The representations and warranties of the
Purchaser contained in Section 6 hereof shall be true and correct in all
material respects at and as of the Closing Date except to the extent that such
representations and warranties relate solely to an earlier date, in which case
such representation and warranties shall have been true and correct in all
material respects as of such earlier date as if made at and as of such date.
4.2. Compliance with Terms and Conditions of this Agreement. The Purchaser shall
have performed and complied with all of the agreements, covenants, obligations
and conditions set forth herein that are required to be performed or complied
with by the Purchaser on or before the Closing Date.
4.3. Payment of Purchase Price. The Purchaser shall tender to the Company
the Purchase Price.
4.4. Closing Certificates. The Purchaser shall have delivered to the Company a
certificate executed by an authorized Person for the Purchaser certifying as to
such matters as the Company may reasonably request, including that the
representations and warranties of the Purchaser contained in this Agreement are
true and correct as of the Closing Date, and that the conditions set forth in
this Article 4 to be satisfied by the Purchaser have been satisfied on and as of
the Closing Date.
4.5. Issuance Permitted by Applicable Laws. The issuance of the Securities by
the Company hereunder and the consummation of the transactions contemplated by
the Transaction Documents shall not (a) violate any Requirements of Law, or (b)
result in a breach or default (i) under any of the Contractual Obligations of
the Purchaser, or (ii) under any order, writ, judgment, injunction, decree,
determination or award of any court, arbitrator, or commission, board, bureau,
agency or other governmental instrumentality.
4.6. Manager's Certificate. The Company shall have received a certificate from
the Purchaser, dated as of the Closing Date, and signed by an authorized Person
for the Purchaser, certifying that the attached copies of the Certificate of
Limited Liability Company, and any resolutions or similar documents for the
Purchaser approving the Transaction Documents and the transactions contemplated
thereby, are all true, complete and correct and remain unamended and in full
force and effect.
4.7. Documents. The Company shall have received true, complete and correct
copies of such documents and such other information as it may have reasonably
III-11
<PAGE>
requested in connection with or relating to the sale of the Securities and the
transactions contemplated by the Transaction Documents, all in form and
substance reasonably satisfactory to the Company prior to the Closing.
4.8. Opinion of Counsel. The Company shall have received an opinion of
counsel to the Purchaser, dated as of the Closing Date substantially in the
form of Exhibit F hereto.
4.9. Consents and Approvals. Except as set forth on Schedule 4.9, all
agreements, approvals consents, exemptions, authorizations, or other actions by,
or notices to, or filings with, Governmental Authorities and other Persons in
respect of all Requirements of Law and with respect to those material
Contractual Obligations of the Purchaser, necessary or required in connection
with the execution, delivery or performance of the Transaction Documents by the
Purchaser, shall have been obtained and be in full force and effect, and the
Company shall have been furnished with appropriate evidence thereof as requested
by the Company and all waiting periods shall have lapsed without extension or
imposition of any conditions or restrictions.
4.10. No Material Judgment or Order. There shall not be on the Closing Date any
judgment or order of a court of competent jurisdiction or any ruling of any
Governmental Authority or any condition imposed under any Requirements of Law
which, in the reasonable judgment of the Company would (i) prohibit the sale of
the Securities or the consummation of the other transactions contemplated
hereunder, (ii) subject the Company to any penalty if the Securities were to be
sold hereunder, or (iii) question the validity or legality of the transactions
contemplated hereby.
ARTICLE 5.
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser as
follows:
5.1. Corporate Existence and Authority. The Company (a) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Colorado; (b) has all requisite corporate power and authority to own and operate
its property, to lease the property it operates as lessee and to conduct the
business in which it is currently, or is currently proposed, to be engaged; (c)
is duly qualified as a foreign corporation, licensed and in good standing in
each jurisdiction in which such qualification is necessary under applicable law
as a result of the conduct of its business or the ownership of its properties;
and (d) has the corporate power and authority to execute, deliver and perform
its obligations under each Transaction Document to which it is or will be a
party.
5.2. Corporate Authorization; No Contravention. Except as set forth in Schedule
5.2, the execution, delivery and performance by the Company of each of the
Transaction Documents and the consummation of the transactions contemplated
thereby, including without limitation, the issuance of the Securities (a) has
III-12
<PAGE>
been duly authorized by all necessary corporate action, including, if required,
shareholder action, (b) does not and will not conflict with or contravene the
terms of the Articles of Incorporation or the bylaws of the Company, or any
amendment thereof; and (c) does not and will not violate, conflict with or
result in any material breach or contravention of (i) any Contractual Obligation
of the Company or any of its Subsidiaries, or (ii) any Requirements of Law
applicable to the Company or any of its Subsidiaries.
5.3. Governmental Authorization; Third Party Consents. Except as set forth on
Schedule 5.3, no approval, consent, compliance, exemption, authorization, or
other action by, or notice to, or filing with, any Governmental Authority or any
other Person in respect of any applicable Requirements of Law, and no lapse of a
waiting period under any applicable Requirements of Law, is necessary or
required to be obtained or made by the Company in connection with the execution,
delivery or performance (including, without limitation, the issuance of the
Securities, the issuance of the Common Stock upon the conversion of the
Convertible Notes or the exercise of the Warrants) by the Company or the
enforcement against the Company of the Transaction Documents, or the
transactions contemplated thereby.
5.4. Binding Effect. The Transaction Documents have been duly executed and
delivered by the Company and constitute the legal, valid and binding obligations
of the Company enforceable against the Company in accordance with their terms,
except as enforceability may be limited by applicable bankruptcy, insolvency or
other similar laws affecting the enforcement of creditors' rights generally and
by general principles of equity relating to enforceability.
5.5. Other Agreements. Except as set forth on Schedule 5.5, neither the Company
nor any Subsidiary has previously entered into any agreement which is currently
in effect or to which the Company or any Subsidiary is currently bound, granting
any registration or other material rights to any Person, the provision or
performance of which would render the provision or performance (including,
without limitation, the issuance of the Securities and the issuance of the
Common Stock upon the conversion of the Convertible Notes or the exercise of the
Warrants) of the material rights to be granted to the Purchaser by the Company
in the Transaction Documents impracticable.
5.6. Capitalization. As of the date hereof, the capital stock of the Company
consists solely of (i) 45,000,000 authorized shares of Common Stock (of which
15,543,489 are issued and outstanding); (ii) 45,000 authorized shares of Series
A Junior Participating Preferred Stock (of which none are issued and
outstanding); and (iii) 4,955,000 authorized shares of preferred stock (of which
none are issued and outstanding). Immediately following the Closing, the capital
stock of the Company will consist solely of (i) 45,000,000 authorized shares of
Common Stock (of which 15,543,489 will be issued and outstanding); (ii) 45,000
authorized shares of Series A Junior Participating Preferred Stock (of which
none will be issued and outstanding); and (iii) 4,955,000 authorized shares of
preferred stock (of which none will be issued and outstanding). Except for
issuances permitted under Section 7.5(e) and for the changes in authorized
capital contemplated by 7.5(b), immediately following the Closing and the
consummation of the Tender Offer, the capital stock of the Company will remain
unchanged. As of the date hereof, the Company has reserved (i) 4,495,000 shares
of Common Stock for issuance pursuant to the Company's Equity Incentive Plan,
(ii) 300,000 shares of Common Stock for issuance pursuant to the Company's
Non-Employee Director Plan and (iii) 402,388 shares of Common Stock for issuance
pursuant to non-qualified options issued by the Company. Immediately following
III-13
<PAGE>
the Closing, the Company will have reserved (i) 4,495,000 shares of Common Stock
for issuance pursuant to the Company's Equity Incentive Plan, (ii) 300,000
shares of Common Stock for issuance pursuant to the Company's Non-Employee
Director Plan, (iii) 3,093,154 shares for issuance upon the exercise of the
Warrant and (iv) 402,388 shares of Common Stock for issuance pursuant to
non-qualified options issued by the Company. Immediately following the closing
of the Tender Offer, the Company expects to have reserved (i) 4,495,000 shares
of Common Stock for issuance pursuant to the Company's Equity Incentive Plan,
(ii) 300,000 shares of Common Stock for issuance pursuant to the Company's
Non-Employee Director Plan, (iii) such shares of Common Stock as are issuable
pursuant to the Company's Stock Incentive Plan, (iv) such shares of Common Stock
as are issuable upon the exercise of the Convertible Note and (v) 402,388 shares
of Common Stock for issuance pursuant to non-qualified options issued by the
Company. All outstanding shares of capital stock of the Company are duly
authorized and validly issued, fully paid, nonassessable and free and clear of
any Liens, preferential rights, priorities, claims, options, charges or other
encumbrances or restrictions, except as set forth herein.
5.7. Subsidiaries. Each Subsidiary of the Company that is a corporation or a
limited liability company is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or formation,
with the corporate or requisite power and authority to own its properties and
conduct its business. Each Subsidiary is qualified and licensed to transact
business in each jurisdiction where such qualification is necessary under
applicable law as a result of the conduct of its business and ownership of its
properties, except insofar as the failure to be so qualified would not have a
Material Adverse Effect.
5.8. Litigation. Except as disclosed in the Company's SEC Reports, there is no
complaint, action, order, writ, injunction, judgment or decree outstanding, or
claim, suit, litigation, proceeding, labor dispute, arbitral action or
investigation (each an "Action" and collectively, "Actions") pending or, to the
knowledge of the Company, threatened against, relating to or affecting (i) the
assets of the Company or the Subsidiaries, or (ii) the transactions required to
be performed under this Agreement or by the Transaction Documents which could
have a Material Adverse Effect. Neither the Company nor the Subsidiaries are in
default with respect to any judgment, order, writ, injunction or decree of any
court or governmental agency, and there are no unsatisfied judgments against the
Company or any Subsidiary which default could result in a Material Adverse
Effect. Except as set forth in the SEC Reports, there is not a reasonable
likelihood of an adverse determination of any pending Action that would,
individually or in the aggregate, have a Material Adverse Effect.
5.9. Financial Statements. The Company has furnished the Purchaser with a draft
of the audited balance sheet of the Company as of December 31, 1999 and the
related consolidated statements of operations and cash flows for the fiscal year
then ended, accompanied by the report of an independent auditor (collectively,
the "Audited Financial Statements"), together with a copy of the unaudited
balance sheets of the Company as of January 31, 2000 and February 29, 2000 and
the related consolidated statements of operations and cash flows for the periods
then ended ("Unaudited Financial Statements", collectively, together with the
Audited Financial Statements, the "Financial Statements"). The Financial
III-14
<PAGE>
Statements fairly present the financial condition and results of operations in
accordance with GAAP as of the dates and for the periods set forth in the
balance sheet included therein and the results of operations of the Company for
the periods covered, except that the Unaudited Financial Statements (i) do not
have all the footnotes required by generally accepted accounting principles and
(ii) are subject to normal, year-end adjustments. The Projected Budget
represents the best good faith financial estimates of the management of the
Company for such fiscal year.
5.10. Title and Condition of Assets.
(a) Except as set forth on Schedule 5.10(a), the Company has good, and with
respect to real property, marketable, title to all of the real and personal
property reflected on the balance sheets included in the Financial Statements or
acquired by the Company and its Subsidiaries since the Balance Sheet Date, free
and clear of any Liens or defects of title, other than Permitted Liens. The
Company has a valid and enforceable leasehold interest in all real property
leased by it pursuant to the terms of the respective lease agreements. The
Company is in compliance in all material respects with the terms of all such
leases and, except as described on Schedule 5.10(a), such leases are sufficient
for the conduct of the Company's business as now being and presently planned to
be conducted.
(b) Except as set forth on Schedule 5.10(b), the Facilities and Equipment are in
good operating condition and repair (except for ordinary wear and tear and any
defect the cost of repairing which would not be material), are sufficient for
the operation of the Company's business and are in conformity in all material
respects with applicable laws, ordinances, orders, regulations and other
requirements (including applicable zoning, environmental, motor vehicle safety
standards, occupational safety and health laws and regulations) relating
thereto, except where such failure to conform would not have a Material Adverse
Effect. The Company enjoys peaceful and undisturbed possession of all Facilities
owned or leased by the Company, and, to the best knowledge of the Company, such
Facilities are not subject to any encroachments, building or use restrictions,
exceptions, reservations or limitations which in any material respect interfere
with or impair the present and continued use thereof in the usual and normal
conduct of the business of the Company. There are no pending or, to the best
knowledge of the Company, threatened, condemnation proceedings relating to any
of the Facilities. The Facilities and the Equipment are insured and are, to the
best of the Company's knowledge, structurally sound with no material defects.
(c) Assets are valued on the books of the Company at or below actual cost less
adequate and proper depreciation charges. All of the assets of the Company, in
the aggregate, have a value at least equal to the value thereof as reflected in
the balance sheet included in the Financial Statements. Except as set forth on
Schedule 5.10(c), the Company has not depreciated any of its assets for tax
purposes on an accelerated basis or in any manner inconsistent with the Code or
the rules, regulations, or guidelines of the Internal Revenue Service.
III-15
<PAGE>
5.11. Contractual Obligations. Except as set forth on Schedule 5.11, the Company
is not in default or breach under or with respect to any Contractual Obligation
to which it is a party (and to the best knowledge of the Company, no other party
to any such Contractual Obligation is in default or breach thereunder), except
any such default which, individually or together with all such defaults, would
not have a Material Adverse Effect or impair the ability of the Company to
perform its obligations under the Transaction Documents. Neither the Company nor
any of its Subsidiaries has received notice that any party to any such
Contractual Obligation intends to cancel, amend or terminate any such agreement.
5.12. No Material Adverse Effect. Since the Balance Sheet Date, there has
not been any Material Adverse Effect, nor to the best knowledge of the Company
is any such change threatened.
5.13. Investment Company/Government Regulations. Immediately following the
Closing, after giving effect to the transactions contemplated by the Transaction
Documents, neither the Company nor any Person controlling, controlled by or
under common control with the Company will be an "investment company" within the
meaning of the Investment Company Act of 1940, as amended. The Company is not
subject to regulation under the Public Utility Holding Company Act of 1935, as
amended, the Federal Power Act, or any Federal or state statute or regulation
limiting its ability to incur Indebtedness.
5.14. Broker's, Finder's or Similar Fees. Other than as set forth on Schedule
5.14, there are no brokerage commissions, finder's fees or similar fees or
commissions payable by the Company or any Subsidiary of the Company in
connection with the transactions contemplated hereby based on any agreement,
arrangement or understanding with the Company or any officer, director,
shareholder, or Subsidiary of the Company, or any action taken by any such
person.
5.15. Labor Relations and Employee Matters. The Company is not engaged in any
unfair labor practice. There is (i) no unfair labor practice complaint pending
or, to the best knowledge of the Company, threatened against the Company before
the National Labor Relations Board, and no grievance or arbitration proceeding
arising out of or under collective bargaining agreements is so pending or, to
the best knowledge of the Company, threatened against the Company, (ii) no
strike, labor dispute, slowdown or stoppage pending or, to the best knowledge of
the Company, threatened against the Company, and (iii) no union representation
question existing with respect to the employees of the Company and, to the
knowledge of the Company, no union organizing activities are taking place.
5.16. Employee Benefit Plans. Each employee pension benefit plan, as such term
is defined in Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), of the Company or any subsidiary of the Company (a
"Pension Plan") and each other employee benefit plan within the meaning of ERISA
(collectively with the Pension Plans, the "Plans") complies in all material
respects with all applicable requirements of ERISA and the Code, and other
applicable laws. None of the Plans is a multi-employer plan, as such term is
defined in Section 3(37) of ERISA. Each Pension Plan which is intended to be
qualified under Section 401(a) of the Code has been determined by the Internal
Revenue Service to be so qualified and, to the Company's knowledge, nothing has
III-16
<PAGE>
occurred since the date of any such determination or application which would
adversely affect such qualification. Neither the Company nor any Subsidiary of
the Company, nor any Plan nor any of their respective directors, officers,
employees or agents has, with respect to any Plan, engaged in any "prohibited
transaction," as such term is defined in Section 4975 of the Code or Section 406
of ERISA, which could result in any taxes or penalties or other liabilities
under Section 4975 of the Code or under Section 502(i) of ERISA, except taxes,
penalties or liabilities which in the aggregate would not have a Material
Adverse Effect. No liability to the Pension Benefit Guaranty Corporation has
been incurred with respect to any Pension Plan that has not been satisfied in
full. No Pension Plan has incurred an "accumulated funding deficiency" within
the meaning of the Code. There has been no "reportable event" within the meaning
of Section 4043 of ERISA with respect to any Pension Plan. All amounts required
by the provisions of any Pension Plan to be contributed have been so
contributed.
5.17. Outstanding Borrowings. Schedule 5.17 lists the amount of all
Outstanding Borrowings as of the date set forth in such schedule and the name
of each lender thereof.
5.18. Undisclosed Liabilities. The Company has no liabilities or obligations
(absolute, accrued, contingent or otherwise) except (i) liabilities that are
reflected and reserved against on the balance sheets included in the Financial
Statements (including the notes thereto), (ii) liabilities incurred in the
ordinary course of business and consistent with the past practice of the Company
since the Balance Sheet Date, and which are reflected and reserved for in the
balance sheets included in the Financial Statements, (iii) liabilities arising
under Contractual Obligations described on Schedule 5.18 and (iv) liabilities
incurred in connection with the transactions contemplated by the Transaction
Documents.
5.19. Solvency. Neither the Company nor any Subsidiary has (i) made a general
assignment for the benefit of its creditors, (ii) filed any voluntary petition
in bankruptcy or suffered the filing of any involuntary petition in bankruptcy
by its creditors, (iii) suffered the appointment of a receiver to take
possession of all or substantially all of its assets or properties, (iv)
suffered the attachment or other judicial seizure of all or substantially all of
its assets or (v) admitted in writing its inability to pay its debts as they
come due. After giving effect to the transactions contemplated by the
Transaction Documents, the Company will not (i) have liabilities which exceed
the stated value of its assets, or (ii) be left with unreasonably small capital
with which to engage in its respective business for the foreseeable future, or
(iii) have incurred debts beyond its ability to pay such debts as they mature.
5.20. Compliance with Law. The Company and the conduct of its business is in
compliance with all applicable laws, statutes, ordinances and regulations,
whether federal, state, local or foreign, except where the failure to comply
would not have a Material Adverse Effect. Neither the Company nor any Subsidiary
has received any written notice to the effect that it is not in compliance with
any of such statutes, regulations, orders, ordinances or other laws where the
failure to comply would have a Material Adverse Effect. The Company, to the best
III-17
<PAGE>
of its knowledge, has no reason to anticipate that any presently existing
circumstances are likely to result in any such violations which would, in any
one case or in the aggregate, have a Material Adverse Effect.
5.21. No Other Agreements to Sell the Assets or Capital Stock of the Company.
Except as set forth on Schedule 5.21 hereto, neither the Company nor any
Subsidiary has any legal obligation, absolute or contingent, other than the
obligations under the Transaction Documents, to any person or firm to (i) sell
assets of the Company to any Person or firm in an aggregate amount of up to
$100,000 and/or other than in the ordinary course of business, (ii) sell any
capital stock of the Company (other than as reflected in Section 5.6) or effect
any merger, consolidation or other reorganization of the Company or (iii) enter
into any agreement with respect to any of the foregoing.
5.22. Changes. Except as set forth on Schedule 5.22, since December 31,
1999, there has not been:
(a) any change in the assets, liabilities, financial condition or operating
results of the Company from that reflected in the Financial Statements, except
changes in the ordinary course of business, that have not caused, in the
aggregate, a Material Adverse Effect;
(b) any damage, destruction or loss, whether or not covered by insurance,
materially and adversely affecting the assets, properties, financial condition,
operating results, prospects or business of the Company (as such business is
presently conducted and as it is proposed to be conducted);
(c) any waiver by the Company of a valuable right or of a material debt
owed to it;
(d) any satisfaction or discharge of any lien, claim or encumbrance or payment
of any obligation by the Company, except in the ordinary course of business and
that is not material to the assets, properties, financial condition, operating
results or business of the Company (as such business is presently conducted and
as it is proposed to be conducted);
(e) any material change or amendment to a material contract or
arrangement by which the Company or any of its assets or properties is bound or
subject;
(f) any material change in any compensation arrangement or agreement with
any employee;
(g) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any key officer
of the Company; and to the knowledge of the Company, there is no impending
resignation or termination of employment of any such officer;
III-18
<PAGE>
(i) receipt of notice that there has been a loss of, or material order
cancellation by, any major customer of the Company;
(j) receipt of notice that any supplier or third-party outsourcing
provider will no longer supply products or services to the Company;
(k) any mortgage, pledge, transfer of a security interest in, or lien, created
by the Company, with respect to any of its material properties or assets, except
liens for taxes not yet due or payable;
(l) any loans or guarantees made by the Company to or for the benefit of its
employees, officers or directors, or any members of their immediate families,
other than travel advances and other advances made in the ordinary course of its
business;
(m) any declaration, setting aside or payment or other distribution in respect
of any of the Company's capital stock, or any direct or indirect redemption,
purchase or other acquisition of any of such stock by the Company;
(n) to the Company's knowledge, any other event or condition of any character
that would reasonably be expected to materially and adversely affect the assets,
properties, financial condition, operating results or business of the Company
(as such business is presently conducted and as it is proposed to be conducted);
or
(o) any agreement or commitment by the Company to do any of the things
described in this Section 5.22.
5.23. Certain Payments. The Company has complied with the requirements of the
Foreign Corrupt Practices Act and neither the Company nor any director, officer,
agent, or employee of the Company, or any other Person associated with or acting
for or on behalf of the Company has directly or indirectly (a) made any
contribution, gift, bribe, payoff, influence payment, kickback, or other payment
to any government official, regardless of form, whether in money, property, or
services (i) to obtain favorable treatment in securing business, (ii) to pay for
favorable treatment for business secured or, (iii) to obtain special concessions
or for special concessions already obtained, for or in respect of the Company or
any Subsidiary of the Company, (b) made any contribution, gift, bribe, payoff,
influence payment, kickback, or other payment to any person, private or public,
regardless of form, whether in money, property, or services in violation of any
law, or (c) established or maintained any fund or asset for use, directly or
indirectly, with any of the foregoing activities that has not been recorded in
the books and records of the Company.
5.24. Environmental Matters. The Company and its Subsidiaries are and at all
times have been in compliance with all Environmental Laws, except where such
instances of noncompliance would not be expected by the Company to have a
Material Adverse Effect on the business, operations or financial condition of
the Company and its Subsidiaries, taken as a whole, and (ii) neither the Company
nor any of its Subsidiaries has any material liability under any Environmental
Law. All real property previously leased by the Company or any of its
Subsidiaries was, at all times during which such premises were occupied by the
Company or any of its Subsidiaries, free from contamination from Hazardous
Materials regulated by Environmental Laws as a result of the conduct of the
III-19
<PAGE>
Company or any of its Subsidiaries or, to the best of the Company's knowledge,
any other party. Except as set forth on Schedule 5.24, (i) no notices of any
violation or alleged violation of, or any liability under, any Environmental Law
relating to the operations or properties of the Company or any of its
Subsidiaries have been received by the Company or any of its Subsidiaries and
(ii) there are no writs, injunctions, decrees, orders or judgments outstanding,
or any actions, suits, claims, proceedings, administrative actions or
investigations pending or, to the knowledge of the Company, threatened, alleging
that the Company or any of its Subsidiaries is in violation of any Environmental
Law, or that the Company or any of its Subsidiaries is a party responsible for
remedial action pursuant to any Environmental Law. Except as set forth on
Schedule 5.24, the Company and each of its Subsidiaries has all permits,
licenses and authorizations required under the Environmental Laws for the
operation of their business as it is currently operated and, to the Company's
knowledge, based on the manner in which the business of the Company and its
Subsidiaries is currently conducted, no modification or change to the operations
of such business will be required upon renewal of any such permits, licenses and
authorizations.
5.25. SEC Reports.
(a) The Company has filed all required forms, reports and documents with the SEC
since December 31, 1995 (collectively, the "SEC Reports"), except that the
Company will file a Notification of Late Filing on Form 126-25 notifying the SEC
that its Form 10-K for its 1999 fiscal year could not be filed within the
prescribed time period. Each of the SEC Reports has complied in all material
respects with all applicable requirements of the Securities Act and the Exchange
Act, each as in effect on the dates so filed. None of such forms, reports or
documents, including, without limitation, any financial statements or schedules
included or incorporated by reference therein, contained, when filed, any untrue
statement of a material fact or omitted to state a material fact required to be
stated or incorporated by reference therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Company has heretofore made available or promptly will make
available to the Purchaser, a complete and correct copy of any amendment to the
SEC Reports. None of the Subsidiaries of the Company is required to file any
reports, statements, forms or other documents with the SEC.
(b) The SEC Reports contain audited consolidated balance sheets of the Company
and its Subsidiaries as of December 31 in each of the years 1995 through 1998,
and the related audited consolidated statements of income, statements of cash
flow and changes in Shareholders' equity of the Company and its Subsidiaries for
the fiscal years then ended, together with the respective reports thereon of
KPMG LLP. These audited financial statements of the Company were included or
incorporated by reference in the SEC Reports (collectively, including the
footnotes thereto, the "SEC Financial Statements"), were prepared in accordance
with GAAP (except as otherwise stated in the SEC Financial Statements or in the
related reports of the Company's independent accountants) and present fairly the
consolidated financial position of the Company and its subsidiaries as at the
dates thereof, and the results of operations, changes in financial position and
III-20
<PAGE>
statements of Shareholders' equity of the Company and its Subsidiaries for the
periods indicated. No event has occurred since the Balance Sheet Date that would
require a restatement of the SEC Financial Statements under GAAP other than by
reason of a change in GAAP. The SEC Financial Statements reflect, and on the
Closing Date will reflect, the interest of the Company in the assets,
liabilities and operations of all Subsidiaries of the Company.
(c) Neither the Company nor any of its Subsidiaries has any material liability,
obligation or commitment of any nature whatsoever (whether known or unknown due
or to become due, accrued, fixed, contingent, liquidated, unliquidated or
otherwise) other than liabilities, obligations or commitments (i) which are
accrued or reserved against in the consolidated balance sheet of the Company and
its consolidated subsidiaries as of December 31, 1999 included in the Audited
Financial Statements or reflected in the notes thereto, (ii)(x) which arose in
the ordinary course of business since such date and (y) which do not or would
not individually or in the aggregate have a Material Adverse Effect, or (iii)
which are of the type that would not be required to be reflected on a
consolidated balance sheet of the Company and its Subsidiaries or in the notes
thereto if such balance sheet were prepared in accordance with GAAP as of the
date thereof or as of the Closing Date, as the case may be.
(d) Except as set forth on Schedule 5.25(d), since the date of the Company's
1999 Proxy Statement to the date hereof, the Company has not entered into or
otherwise become obligated with respect to any transactions which would require
disclosure pursuant to Item 404 of Regulation S-K in accordance with Items 7(b)
or (c) of Schedule 14A under the Exchange Act were a Company proxy statement to
be distributed as of the date hereof.
5.26. Fairness Opinion. The Company has received an opinion of Needham &
Company, Inc., a copy of which was furnished to the Purchaser, that the terms
of the Transactions, including the proposed consideration to be received by
the Company's shareholders in the Tender Offer, is fair to such shareholders
from a financial point of view.
5.27. Disclosure.
(a) This Agreement does not, and the documents and certificates executed by the
Company or otherwise furnished by the Company to the Purchaser at the Closing
will not, contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained herein or
therein, in light of the circumstances under which they were made, not
misleading.
(b) There is no fact known to the Company, which the Company has not disclosed
to the Purchaser in writing, which has a Material Adverse Effect, or insofar as
the Company can reasonably foresee, will have a Material Adverse Effect on the
Condition of the Company, or the ability of the Company to perform its
obligations under the Transaction Documents, or any document contemplated
thereby.
III-21
<PAGE>
ARTICLE 6.
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as
follows:
6.1. Existence and Authority. The Purchaser (a) is a limited liability company
duly organized, validly existing and in good standing under the laws of the
State of Delaware, (b) has all requisite power and authority to own its assets
and operate its business, and (c) has all requisite power and authority to
execute, deliver and perform its obligations under each of the Transaction
Documents to which it is or will be a party.
6.2. Authorization; No Contravention. The execution, delivery and performance by
the Purchaser of the Transaction Documents to which it is a party and the
consummation of the transactions contemplated thereby, including, without
limitation, the acquisition of the Securities: (a) is within the Purchaser's
power and authority and has been duly authorized by all necessary action on the
part of such Purchaser; (b) does not conflict with or contravene the terms of
the Purchaser's certificate of formation and agreement of limited liability
company or any amendments thereof; and (c) will not violate, conflict with or
result in any material breach or contravention of (i) any Contractual Obligation
of the Purchaser, or (ii) any Requirements of Law or any order or decree
applicable to the Purchaser.
6.3. Binding Effect. This Agreement has been duly executed and delivered by the
Purchaser, and this Agreement constitutes the legal, valid and binding
obligation of the Purchaser, enforceable against it in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws affecting the enforcement of creditors' rights
generally or by equitable principles relating to enforceability.
6.4. Purchasers Expertise. Without limiting the right of the Purchaser to rely
on the representations and warranties of the Company contained herein, the
Purchaser is an informed and sophisticated purchaser, possesses such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of its investment under this Agreement and has
engaged expert legal, financial, tax, business and other advisors, experienced
in the evaluation and purchase of companies such as the Company.
6.5. Investment Intent. The Purchaser is engaging in the Transactions
solely for the purpose of investment and not with a view to, or for offer or
sale in connection with, any distribution thereof.
6.6. Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable by the Company
in connection with the transactions contemplated hereby based on any agreement,
arrangement or understanding entered into by the Purchaser.
III-22
<PAGE>
ARTICLE 7.
ADDITIONAL AGREEMENTS
7.1. Proxy Statement.
(a) As promptly as practicable after the date hereof, the Company shall prepare
and file the Proxy Statement in preliminary form with the SEC under the Exchange
Act, and shall use all reasonable efforts to have it cleared with the SEC, and
promptly thereafter shall mail it in definitive form to its shareholders. The
Purchaser and the Company shall cooperate with each other in the preparation of
the Proxy Statement. Each of the Purchaser and the Company agrees promptly to
correct any information provided by it for use in the Proxy Statement if and to
the extent that it shall have become false or misleading in any material
respect. The Company agrees to take all steps necessary to cause the Proxy
Statement as so corrected to be filed with the SEC and to be mailed to the
shareholders of the Company, in each case as and to the extent required by law.
The Proxy Statement shall contain the recommendation of the Board of Directors
of the Company described in Section 7.1(b). The Purchaser, and its counsel,
shall be given an opportunity to review and comment on the Proxy Statement prior
to it being filed with the SEC.
(b) The Company shall, in accordance with the Colorado Business Corporation Act
and its Amended and Restated Articles of Incorporation and bylaws of the
Company, duly call, give notice of, convene and hold the Shareholders Meeting as
soon as practicable after the date hereof for the purpose of considering and
taking action upon the approval of the Transactions to the extent required by
law or the requirements of the Nasdaq Stock Market. Subject to the exercise of
the fiduciary duty of the Board of Directors of the Company after consultation
with outside legal counsel, the Company will include in the Proxy Statement the
recommendation of the Board of Directors that shareholders of the Company vote
in favor of the approval of the Transactions at the Shareholders Meeting and
shall use its best efforts to solicit from shareholders of the Company proxies
in favor of such approval and adoption and will take all other actions
necessary, or in the reasonable judgment of the Purchaser and the Company
advisable, to secure the approval of the Transactions by the Company's
shareholders.
7.2. Tender Offer.
(a) Provided that this Agreement shall not have been terminated in accordance
with Article 8, then, not later than the first business day after execution of
this Agreement, the Company shall issue a public announcement of the execution
of this Agreement. At the time of and following such public announcement, both
parties shall fully cooperate with each other as necessary to allow the
Purchaser to file such communications with the Commission under cover of
Schedule TO as are required to be filed pursuant to Rule 14d-2(b) under the
Exchange Act. Not later than the twentieth business day prior to the
Shareholders Meeting, the Purchaser shall, subject to the provisions of this
Agreement, commence the Tender Offer for up to 8,250,000 shares together with
the associated rights ("Rights") issued pursuant to the Rights Agreement dated
III-23
<PAGE>
as of February 25, 1999 (the "Rights Agreement"), between the Company and
American Securities Transfer & Trust, Inc., as Rights Agent (collectively, the
"Tender Shares") at a price of $4.00 per Tender Share, net to the seller in
cash. The Purchaser shall keep the Tender Offer open until the earlier of the
date on which the Company Shareholders' Meeting is held and September 1, 2000
(the "Approval Date"). The Purchaser shall accept for payment and pay for all
Tender Shares that have been validly tendered and not withdrawn pursuant to the
Tender Offer promptly following the Shareholder Approval, subject to
satisfaction, or waiver by the Purchaser, of the conditions set forth in this
Agreement and in Annex I to this Agreement. The obligation of the Purchaser to
accept for payment, purchase and pay for Tender Shares tendered pursuant to the
offer shall be subject to the conditions set forth herein and in the Offer
Documents, including the condition that a minimum of 500,000 Tender Shares shall
have been validly tendered and not withdrawn prior to the expiration date of the
Tender Offer (the "Minimum Condition"). Solely for purposes of determining
whether the Minimum Condition has been satisfied, any shares owned by the
Purchaser shall be deemed to have been validly tendered and not withdrawn
pursuant to the Tender Offer. The Purchaser expressly reserves the right to
increase the price per share payable in the Tender Offer or to make any other
changes in the terms and conditions of the Tender Offer; provided, however,
that, unless previously approved by the Company in writing, no change may be
made which decreases the price per share payable in the Offer, which changes the
form of consideration to be paid in the Tender Offer, which imposes conditions
to the Tender Offer in addition to those set forth herein, which broadens the
scope of such conditions, which increases the minimum number of Tender Shares
which must be tendered as a condition to the acceptance for payment and payment
for Tender Shares in the Tender Offer, or which otherwise amends the terms of
the Tender Offer in a manner that is materially adverse to holders of shares.
Notwithstanding the foregoing, the Purchaser may, without the consent of the
Company, extend the Tender Offer if, by the Approval Date, any of the conditions
to the Purchaser's obligation to purchase Tender Shares shall not be satisfied
until such time as such conditions are satisfied. However, if the Company shall
have held the Shareholders Meeting (with a quorum duly present) and a majority
of the shareholders present and voting did not vote to approve the Transactions
by the Approval Date, the Purchaser shall not extend the Tender Offer. It is
agreed that the conditions to the Tender Offer set forth herein and in the Annex
I to this Agreement are for the sole benefit of the Purchaser and may be
asserted by the Purchaser regardless of the circumstances giving rise to any
such condition (including any action or inaction by the Purchaser, unless any
such action or inaction by the Purchaser would constitute a breach by the
Purchaser of any of its covenants or agreements under this Agreement) or may be
waived by the Purchaser, in whole or in part at any time and from time to time,
in its sole discretion. The failure by the Purchaser at any time to exercise any
of the foregoing rights shall not be deemed a waiver of any such right and each
such right shall be deemed an ongoing right which may be asserted at any time
and from time to time. Any determination by the Purchaser with respect to any of
the foregoing conditions (including, without limitation, the satisfaction of
such conditions) shall be made in good faith and shall be final and binding on
the parties. The Purchaser may, but is not obligated to, purchase Tender Shares
in the Tender Offer if the Minimum Condition is not satisfied. However, only
consummation of the Tender Offer for a number of Tender Shares which satisfies
the Minimum Condition (a "Successful Tender Offer") shall result in the exchange
of Exchangeable Notes for Convertible Notes and the cancellation of any
outstanding Warrants.
III-24
<PAGE>
(b) The Purchaser shall file with the SEC a Tender Offer Statement on Schedule
TO with respect to the offer at such time as will permit the Tender Offer to be
commenced as contemplated by Section 7.2(a). The Tender Offer Statement shall
contain an offer to purchase and related letter of transmittal and summary
advertisement (such Schedule TO and the documents therein pursuant to which the
offer will be made, together with any supplements or amendments thereto, the
"Offer Documents"). The Offer Documents shall comply as to form in all material
respects with the requirements of the Exchange Act, and the rules and
regulations promulgated thereunder and, on the date filed with the SEC and on
the date first published, sent or given to the holders of shares of Common
Stock, shall 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, in light of the circumstances under which they are
made, not misleading, except that no representation is made by the Purchaser
with respect to information supplied by the Company in writing specifically for
inclusion in the Offer Documents. Each of the Purchaser and the Company agrees
promptly to correct any information supplied by it specifically for inclusion in
the Offer Documents if and to the extent that such information shall have become
false or misleading in any material respect, and each of the Purchaser and the
Company further agrees to take all steps necessary to cause the Offer Documents
as so corrected to be filed with the SEC and to be disseminated to shareholders
of the Company, in each case as and to the extent required by applicable Federal
securities laws. The Purchaser agrees to provide the Company and its counsel in
writing with any comments the Purchaser or its counsel may receive from the SEC
or its Staff with respect to the Offer Documents promptly after the receipt of
such comments. The Company and its counsel shall be given a reasonable
opportunity to review and comment upon the Offer Documents and all amendments
and supplements thereto prior to their filing with the SEC or dissemination to
the shareholders of the Company.
(c) The Company hereby approves of and consents to the Tender Offer and
represents and warrants that the Board of Directors of the Company, at a meeting
duly called and held, has unanimously adopted resolutions (i) determining that
this Agreement and the Transactions, are fair to, and in the best interests of,
the shareholders of the Company, (ii) approving and adopting this Agreement and
the Transactions, in all respects and that such approval constitutes approval of
the Initial Investment, the Tender Offer, this Agreement, and the terms of the
Exchangeable Notes, Warrants and Convertible Notes and (iii) recommending that
the shareholders of the Company accept the Tender Offer, tender their shares of
Common Stock thereunder to the Purchaser and approve the Transactions at the
Shareholders Meeting; provided, however, that such recommendation may be
withdrawn, modified or amended to the extent that the Board of Directors, by a
majority vote, determines in its good faith judgment, based as to legal matters
on the advice of legal counsel, that the Board has received a Superior Proposal
and is required to withdraw, modify or amend its recommendation to properly
discharge its fiduciary duties.
(d) The Company shall use its best efforts to file with the SEC a
Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the
Tender Offer (such Schedule 14D-9, as amended from time to time, the "Schedule
14D-9") on the date the Offer Documents are filed with the SEC, and in any event
shall file with the SEC the Schedule 14D-9 not later than the date required
pursuant to the Exchange Act and the applicable rules and regulations
III-25
<PAGE>
promulgated thereunder, containing the recommendation described in Section
7.2(c) and shall mail the Schedule 14D-9 to the shareholders of the Company. The
Schedule 14D-9 shall comply in all material respects with the requirements of
the Exchange Act and the rules and regulations promulgated thereunder on the
date filed with the SEC and on the date first published, sent or given to the
Company's shareholders, and shall 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, in light of the circumstances
under which they were made, not misleading, except that no representation is
made by the Company with respect to information supplied in writing by the
Purchaser specifically for inclusion or incorporation by reference in the
Schedule 14D-9. Each of the Company and the Purchaser agrees promptly to correct
any information provided by it for use in the Schedule 14D-9 if and to the
extent that such information shall have become false or misleading in any
material respect, and the Company further agrees to take all steps necessary to
amend or supplement the Schedule 14D-9 and to cause the Schedule 14D-9 as so
amended or supplemented to be filed with the SEC and disseminated to the
Company's Shareholders, in each case as and to the extent required by applicable
Federal securities laws. The Purchaser and its counsel shall be given a
reasonable opportunity to review and comment upon the Schedule 14D-9 and all
amendments and supplements thereto prior to their filing with the SEC or
dissemination to shareholders of the Company.
(e) In connection with the Tender Offer, the Company will, and will cause its
transfer agent to, furnish promptly to the Purchaser mailing labels containing
the names and addresses of all record holders of shares of Common Stock as of a
recent date and of those persons becoming record holders after such date,
together with copies of all lists of shareholders and security position listing
and computer files and all other information in the Company's possession and
control regarding the beneficial ownership of its shares of Common Stock. The
Company shall promptly furnish the Purchaser with such additional information
(including, but not limited to, updated lists of shareholders and their
addresses, mailing labels and security position listings and computer files) and
such other assistance as the Purchaser or its agents may reasonably request in
communicating the Tender Offer to the record and beneficial holders of shares.
Subject to the requirements of law, and except for such steps as are necessary
or advisable to disseminate the Tender Offer and any other documents necessary
to consummate the Transactions and to solicit tenders of shares and the approval
of the Transaction, the Purchaser and each of its Affiliates shall hold in
confidence the information contained in any of such labels, lists and additional
information, shall use such information only in connection with the Tender, and,
if this Agreement shall be terminated, shall deliver to the Company all copies
of such information then in their possession or under their control.
7.3. Proxy Statement; Offer Documents.
(a) The Proxy Statement will comply in all material respects with the applicable
requirements of the Exchange Act and the rules and regulations thereunder, and
will not, at the time of the first mailing and at the time of the Shareholders
Meeting, contain any untrue statement of a material fact or omit to state any
III-26
<PAGE>
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(b) The letter to shareholders, notice of meeting, proxy statement and form of
proxy that may be distributed by the Company to Shareholders in connection with
the Transactions (including any supplements), and any schedules required to be
filed with the SEC in connection therewith, are collectively referred to as the
"Proxy Statement".
(c) None of the information supplied by the Company in writing for inclusion in
the Offer Documents (as defined in Section 7.2(b)) or provided by the Company in
the Schedule 14D-9 will, at the respective times that the Offer Documents and
the Schedule 14D-9 or any amendments or supplements thereto are filed with the
SEC and are first published or sent or given to shareholders, shall 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, in
light of the circumstances under which they were made, not misleading.
7.4. Acquisition Proposals. The Company may, directly or indirectly, furnish
information and access, in each case in response to unsolicited requests
therefor received after the date of this Agreement, with appropriate assurances
of confidentiality, to any corporation, partnership, person or other entity or
group, and, in response to unsolicited requests, may participate in discussions
and negotiate with any corporation, partnership, person or other entity or group
concerning a proposal for any merger, sale of any material assets of the
Company, sale of shares of voting capital stock of the Company having over 15
percent of the aggregate voting power of all the Company's capital stock or
other transaction involving the transfer of effective control of the Company or
any division thereof ("Acquisition Proposal"), if the Company's Board of
Directors, after consultation with its outside counsel and its financial
advisor, and such other advisors as it deems appropriate, determines in its good
faith judgment that its fiduciary duties require such action. In addition, in
the event of such determination by the Company's Board of Directors, the Company
may direct its officers and other appropriate personnel to cooperate with and be
reasonably available to consult with any such corporation, partnership, person
or other entity or group. Except as set forth above, neither the Company, or any
of its Subsidiaries, nor any of its or their respective officers, directors,
employees, representatives or agents, shall, directly or indirectly, encourage,
solicit, participate in or initiate discussions or negotiations with, or provide
any information to, any corporation, partnership, person or other entity or
group (other than the Purchaser, any affiliate or associate of the Purchaser or
any designees of the Purchaser) concerning any Acquisition Proposal, or take any
other action to facilitate the making of a proposal that constitutes or could
III-27
<PAGE>
reasonably be expected to lead to an Acquisition Proposal. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth in
the preceding sentence by any executive officer of the Company or any of its
subsidiaries shall be deemed to be a breach of this Section 7.4 by the Company.
The Company shall use its best efforts to ensure that the officers, directors
and employees of the Company and its Subsidiaries and any investment banker or
other advisor or representatives retained by the Company are aware of the
restrictions set forth in the preceding sentences, and the Company hereby
represents that the Board has adopted resolutions directing the officers,
directors and employees of the Company and its subsidiaries to comply with such
restrictions. The Company promptly shall advise the Purchaser orally, and in a
written notice, of any Acquisition Proposal and any inquiries or developments
with respect thereto, and shall, in such notice, provide a detailed description
of such Acquisition Proposal, indicating the identity of the offeror and the
material terms and conditions of any such Acquisition Proposal, including,
without limitation, price. The Company shall not enter into any agreement
pursuant to which the Company is to provide information to any person, entity or
group in connection with a proposed or possible Acquisition Proposal in which
agreement such person, entity or group is permitted to buy shares of the Common
Stock of the Company, or make any amendment, waiver, or release with respect
thereto, unless, at or prior to entering into such agreement or making such
amendment, waiver, or release with respect thereto, unless, at or prior to
entering into such agreement or making such amendment, waiver, or release, the
Company agrees to permit the Purchaser to buy shares of Common Stock to the same
extent and on substantially comparable terms as such person, entity or group.
Neither the Board nor any committee thereof shall (i) withdraw or modify, or
propose to withdraw or modify, in a manner adverse to the Purchaser the approval
or recommendation by the Board of the Tender Offer, or (ii) approve or
recommend, or propose to approve or recommend, any Acquisition Proposal;
provided, that nothing in this Section 7.4 shall prevent the Board of Directors
from considering an Acquisition Proposal in anticipation of terminating this
Agreement pursuant to Section 8.1(g).
7.5. Interim Operations. During the period from the date of this Agreement
to the Approval Date, except (i) as contemplated by this Agreement, (ii) as
disclosed to the Purchaser in writing or in the SEC Reports or (iii) as
otherwise approved in writing by the Purchaser:
(a) Conduct of Business. The Company shall use its reasonable efforts to
preserve intact in all material respects its business organization, to preserve
its present relationships with its customers, prospective customers, suppliers,
consultants, employees and any other persons having business relations with it,
to maintain all of its properties in customary repair and condition, to maintain
insurance policies in respect of its business and properties, and to promote and
market its services consistent with past practice.
(b) Certificate and Bylaws. Except for increasing its authorized shares of
Common Stock up to a maximum of 75,000,000, the Company shall not, and shall not
permit any of its subsidiaries to, make or propose any change or amendment in
their respective Articles of Incorporation or Bylaws.
(c) Capital Stock. Except as permitted in Sections 7.5(e) and 7.5(g), the
Company shall not, and shall not permit any of its Subsidiaries to, issue,
pledge or sell any shares of capital stock or any other securities of any of
them or issue any securities convertible into, exchangeable for or representing
a right to purchase or receive, or enter into any contract with respect to the
issuance of, any shares of capital stock or any other securities of any of them
(other than pursuant to this Agreement, the Rights Agreement or the exercise of
options or vesting of employee stock awards outstanding on the date hereof), or
enter into any contract with respect to the purchase or voting of shares of
their capital stock, or adjust, split, combine or reclassify any of their
III-28
<PAGE>
securities, or make any other material changes in their capital structures;
provided, however, that nothing in this Section 7.5(c) shall limit or restrict
the Company's rights under Section 7.4 to furnish information and access in
response to unsolicited requests (and to enter into confidentiality agreements
in connection with any prospective Acquisition Proposal or "standstill"
agreements relating to the conditions under which a third party shall be
permitted to acquire shares (or the extent to which, or the manner in which,
such third party may acquire shares)), and to participate in discussions, to
negotiate and to consult with respect to any prospective Acquisition Proposal.
(d) Dividends. The Company shall not, and shall not permit any of its
Subsidiaries to, declare, set aside, pay or make any dividend or other
distribution or payment (whether in cash, stock or property) with respect to, or
purchase or redeem, any shares of the capital stock of any of them and other
than dividends, distributions and payments made solely to the Company or a
Subsidiary of the Company which Subsidiary is retained by the Company through
the Approval Date.
(e) Employee Plans; Compensation, Etc. Except as permitted in Section 7.12, the
Company shall not, and shall not permit any of its Subsidiaries to (except (i)
for increases and cash bonuses in lieu of grants of stock options and restricted
stock awards in the ordinary course of business that are consistent with past
practice and that, in the aggregate, do not result in a material increase in
benefits or compensation expense of the Company relative to the level in effect
prior to such amendment, (ii) as required by law, (iii) as required to maintain
the qualified status of any employee plan that is intended to constitute a
qualified plan under the provisions of Section 401 of the Code or the tax exempt
status under Section 501 of the Code of a trust related to such a plan in the
manner which is the least expensive alternative to the Company and its
subsidiaries, if there are alternative means of maintaining such qualified or
tax exempt status, or (iv) pursuant to the terms of an existing contract
disclosed in the SEC Reports to which the Company is a party or by which it is
bound or any amendment thereto that does not materially increase the benefits
provided thereunder) adopt, enter into or amend any bonus, profit sharing,
compensation, severance, termination, stock option, pension, retirement,
deferred compensation, employment or other employee benefit plan, agreement,
trust, plan, fund or other arrangement for the benefit or welfare of any
director, officer or employee, or increase in any manner the compensation or
fringe benefits of any director, officer or employee, or pay any benefit not
required by any existing plan or arrangement (including, without limitation, the
granting of stock options, stock appreciation rights, performance units or
restricted stock, or the removal of existing restrictions in any benefit plans
or agreements or awards made thereunder) or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing.
(f) Debt and Capital Appropriations. Except in the ordinary course of its
business, the Company shall not, and shall not permit any of its Subsidiaries
to, incur or assume any indebtedness (other than borrowings in the ordinary
course of business under its currently existing bank credit line or any renewal
thereof); make any loans, advances or capital contributions to, or investments
in, any other person (other than a wholly-owned Subsidiary of the Company);
issue or sell any debt securities or guarantee any indebtedness; or enter into
any contract, agreement, commitment or arrangement to do any of the foregoing.
The Company shall not, and shall not permit any of its Subsidiaries to, enter
III-29
<PAGE>
into any contract or agreement which involves payments by the Company or any of
its subsidiaries of more than $100,000 and which extends beyond or will affect
the business of the Company for a term of four months or more beyond the date of
this Agreement. The Company shall not, and shall not permit any of its
subsidiaries to, approve or make appropriations for capital expenditures in
excess of $200,000 in the aggregate over those provided for in the operating and
capital plans of the Company in effect on the date of this Agreement.
(g) Assets; Mergers; Etc. Except as required under the Credit Agreement, the
Company shall not, and shall not permit any of its subsidiaries to, encumber,
sell, lease or otherwise dispose of or acquire any material assets, or encumber,
sell, lease or otherwise dispose of assets having a value in excess of $100,000
in the aggregate, or enter into any merger or other agreement providing for the
acquisition of any material assets of the Company or any of its subsidiaries by
any third party or acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof or enter into any contract, agreement, commitment or arrangements to do
any of the foregoing.
(h) Labor Relations. The Company shall consult with the Purchaser concerning any
significant relations or employment issues which may arise except to the extent
prohibited by applicable law and regulation in the reasonable judgment of the
Company on advice of counsel.
7.6. Access to Information; Confidentiality.
(a) From the date hereof until the consummation of the Tender Offer, the Company
shall, and shall cause its subsidiaries, officers, directors, employees and
agents to, afford to the Purchaser and to the officers, employees and agents of
the Purchaser access at all reasonable times to their officers, employees,
agents, properties, books, records and contracts, and shall furnish the
Purchaser all financial, operating and other data and information as the
Purchaser may request as necessary to consummate the transactions contemplated
hereby including, without limitation, as necessary for consultants and advisors
hired by the Company at the request of the Purchaser; provided, however, that
the Company shall not be required to disclose or permit access to certain
information regarding the Company's business which the Company reasonably
determines after consultation with counsel would be inappropriate to disclose or
to permit access to the Purchaser due to competitive or regulatory
considerations. The Company shall, and shall cause it subsidiaries, officers,
directors, employees and agents to, afford the outside counsel of the Purchaser
with such information concerning the Company as may be necessary to file any
notification report filed under the HSR Act (and any additional information or
documentary material supplied in response to any request pursuant to the HSR Act
or any other filing), or to respond to any investigation by the DOJ, the FTC or
state attorneys general. Subject to the requirements of law or judicial process,
the Purchaser shall hold in confidence all such information, on the terms and
subject to the conditions contained in the letter agreement dated [November] __,
1999 (the "Confidentiality Agreement") the provisions of which shall survive the
termination of this Agreement, the Purchaser shall deliver to the Company all
documents, work papers and other material (including copies) obtained by the
III-30
<PAGE>
Purchaser or on its behalf from the Company, as a result of this Agreement or in
connection herewith, whether so obtained before or after the execution hereof,
and shall destroy all documents, work papers and other materials (including
copies) containing all such information; provided, however, that in the event
that any litigation or investigation has been instituted or threatened, the
Company shall be entitled to retain all documents, work papers and other
materials (including copies) otherwise subject to destruction under this Section
for the pendency of such litigation or investigation.
(b) The Purchaser shall, and shall cause its subsidiaries, officers, directors,
employees and agents to, afford the officers, employees and agents of the
Company with such information concerning the Purchaser as may be necessary for
the Company to ascertain the accuracy and completeness of the information
supplied by the Purchaser for inclusion in the Proxy Statement. The Purchaser
shall, and shall cause its subsidiaries, officers, directors, employees and
agents to, afford the outside counsel of the Company with such information
concerning Parent and the Purchaser as may be necessary to file any notification
report filed under the HSR Act (and any additional information or documentary
material supplied in response to any request pursuant to the HSR Act or any
other filing), or to respond to any investigation by the DOJ, the FTC or state
attorneys general. Subject to the requirements of law or judicial process, the
Company shall hold in confidence all such information, and, upon the
consummation of the Tender Offer or termination of this Agreement, the Company
shall deliver to the Purchaser all documents, work papers and other material
(including copies) obtained by the Company or on its behalf from the Purchaser,
as a result of this Agreement or in connection herewith, whether so obtained
before or after the execution hereof, and shall destroy all documents, work
papers and other materials (including copies) containing all such information;
provided, however, that, in the event that any litigation or investigation has
been instituted or threatened, the Purchaser shall be entitled to retain all
documents, work papers and other materials (including copies) otherwise subject
to destruction under this Section for the pendency of such litigation or
investigation.
7.7. Preferred Stock Purchase Rights. The Rights Agreement has been amended to
provide that the execution and delivery of this Agreement and the consummation
of the Tender Offer contemplated hereby will not cause (a) the Purchaser to
become an "Acquiring Person" (as such term is defined in the Rights Agreement),
(b) the "Distribution Date" (as such term is defined in the Rights Agreement) to
occur, or (c) any adjustment under the provisions of Section 11 of the Rights
Agreement.
7.8. Continued Listing. The Purchaser agrees that it does not intend for the
Tender Offer, or any other transactions contemplated herein, to result in the
Common Stock being delisted from the Nasdaq Stock Market. The Purchaser agrees
that it will take no affirmative action to delist the Common Stock from the
Nasdaq Stock Market.
7.9. Consultants and Advisors. The Company shall enter into agreements with
Synergetics as soon as possible following the Closing Date, as well as such
other consultants and advisors as are approved by the Purchaser (including for
purposes of this Section 7.9 approvals by its members, including, without
limitation Thayer and RCBA) pursuant to which the Company shall have spent or be
committed to spend at least $1.5 million. Additionally the Company shall reserve
III-31
<PAGE>
at least $1.8 million to be used for hiring consultants and advisors, approved
by the Purchaser, following the closing of the Tender Offer, to facilitate and
accelerate the Company's business plans with regard to its manufacturing, hiring
and purchasing initiatives.
7.10. Operational Review Meetings. During the period from the date of this
Agreement to the Approval Date, on the first Monday in each month, or at such
other time as the parties may agree, the Company shall make available officers
of the Company, including, but not limited to, the Chief Executive Officer, the
Chief Financial Officer and the Chief Accounting Officer, for meetings with
representatives of the Purchaser to provide an operational review of the
Company.
7.11. Approval of Financings. During the period from the date of this Agreement
to the earlier of the Approval Date or the completion of the Tender Offer, the
Company shall not, without the prior written consent of the Purchaser, engage
in, one or series of related transactions, in which the Company obtains equity
financing in an aggregate amount in excess of $1,000,000.
7.12. Stock Incentive Plan. The Board of Directors shall approve the
adoption of the Stock Incentive Plan and shall have agreed to seek and
recommend shareholder approval therefor at the Shareholders Meeting.
ARTICLE 8.
TERMINATION
8.1. Termination Rights. This Agreement shall terminate upon the
consummation of a Successful Tender Offer unless earlier terminated
pursuant to this Section 8.1. This Agreement may be terminated and the
Tender Offer contemplated herein may be abandoned at any time prior to a
Successful Tender Offer:
(a) by the mutual written consent of the Purchaser and the Company;
(b) by either the Purchaser or the Company if either (or any permitted assignee)
is prohibited by an order or injunction (other than an order or injunction on a
temporary or preliminary basis) of a court of competent jurisdiction from
consummating the Transactions and all means of appeal and all appeals from such
order or injunction have been finally exhausted;
(c) by either the Purchaser or the Company if the Tender Offer shall not have
been consummated within 6 months after the date of this Agreement; provided,
that the right to terminate this Agreement under this Section 8.1(c) shall not
be available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or results in, the failure of the Transactions
to have been consummated within such period;
(d) by the Purchaser if the Board of Directors of the Company shall have
withdrawn or modified, or resolved to withdraw or modify, in any manner which is
adverse to the Purchaser, its recommendation or approval of the Transactions,
provided, however, that the Purchaser shall not have the right to terminate this
Agreement pursuant to this Section 8.1(d) if as a result of the Company's
receipt of an Acquisition Proposal from a third party the Company withdraws,
modifies, or amends its approval or recommendation of the transactions
III-32
<PAGE>
contemplated hereby and if within three business days of taking and disclosing
to its shareholders the aforementioned position, the Company publicly reconfirms
its recommendations of the transactions contemplated hereby as set forth in
Sections 7.1(b) and 7.2(c) hereof;
(e) by the Purchaser if the shareholders of the Company fail to
approve the Transactions at the Shareholders Meeting referred to in Section
7.1(b);
(f) by the Purchaser if any third party shall have acquired beneficial
ownership of 30% or more of the outstanding shares of Common Stock;
(g) by the Company, if the Company receives an Acquisition Proposal which the
Company's Board of Directors determines is a Superior Proposal; provided,
however, that the Company may not terminate this Agreement pursuant to this
Section 8.1(g) earlier than three business days after furnishing notice to
Purchaser of such Acquisition Proposal in accordance with Section 7.4; or
(h) by either the Purchaser or the Company, if the FTC or the Antitrust Division
of DOJ shall have commenced or officially recommended commencement of an action
(judicial or administrative) for a preliminary or permanent injunction or other
order prohibiting consummation of the Tender Offer, provided, however, that the
terminating party has previously complied with Section 7.6.
8.2. Effect of Termination. In the event of a termination, other than a
termination pursuant to Section 8.1(d) or Section 8.1(g), no party hereto (or
any of its directors or officers) shall have any liability or further obligation
to any other party hereto or its shareholders or directors or officers in
respect thereof, other than as provided in Section 9.11 of this Agreement, or
under the Confidentiality Agreement, except that nothing herein will relieve any
party from liability for any breach of this Agreement. In the event the
Purchaser terminates this Agreement pursuant to Section 8.1(d) or the Company
terminates this Agreement pursuant to Section 8.1(g), the Company shall (i)
immediately pay a fee of $1.5 million to the Purchaser and (ii) reimburse all of
the Purchaser's (including its members, including, without limitation, Thayer
and RCBA) out-of-pocket costs and expenses relating to this Agreement and the
transactions contemplated hereby, up to an additional $1.5 million net of any
amounts previously paid pursuant to section 9.11.
ARTICLE 9.
MISCELLANEOUS
9.1. Notices. All notices, demands and other communications provided for
or permitted hereunder shall be made in writing to the following addresses
(or such other addresses as shall be designated by a party in writing) and
shall be by courier service or personal delivery:
III-33
<PAGE>
(a) if to Purchaser:
Thayer-BLUM Funding, L.L.C.
c/o Thayer Equity Investors IV, L.P.
1455 Pennsylvania Avenue, N.W., Suite 350
Washington, DC 20004
Attention: Jeffrey W. Goettman
Facsimile (not to be deemed notice): (202) 371-0391
and:
Thayer-BLUM Funding, L.L.C.
c/o RCBA Strategic Partners, L.P.
909 Montgomery Street, Suite 400
San Francisco, CA 94133
Attention: Murray A. Indick
Facsimile (not to be deemed notice): (415) 434-3130
with a second copy to:
Latham & Watkins
1001 Pennsylvania Avenue, N.W., Suite 1300
Washington, DC 20004-2505
Attention: Eric A. Stern, Esq.
Facsimile (not to be deemed notice): 202-637-2201
(b) if to the Company:
EFTC Corporation
9351 Grant Street
Sixth Floor
Denver, CO 80229
Attention: President
Facsimile (not to be deemed notice): (303) 280-8358
with a copy to:
Holme, Roberts & Owen, LLP
1700 Lincoln, Suite 4100
Denver, CO 80203
Attention: Francis R. Wheeler
Facsimile (not to be deemed notice): (303) 866-0200
III-34
<PAGE>
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; when delivered
by courier, if delivered by commercial overnight courier service.
9.2. Successors and Assigns. This Agreement shall inure to the benefit of and be
binding upon the successors and permitted assigns of the parties hereto. This
Agreement may be assigned by the Purchaser, subject to applicable securities
laws, to Affiliates of either Thayer or RCBA. The Company may not assign any of
its rights under this Agreement without the written consent of the Purchaser.
Except as provided in Article 9, no Person other than the parties hereto and
their successors and permitted assigns is intended to be a beneficiary of any of
the Transaction Documents.
9.3. Amendment and Waiver.
(a) No failure or delay on the part of the Company, or the Purchasers in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Company or
the Purchaser at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any provision of this
Agreement, any waiver of any provision of this Agreement, and any consent to any
departure by any party from the terms of any provision of this Agreement, shall
be effective (i) only if it is made or given in writing and signed by the
Company and the Purchaser or by the party or parties to be bound hereby, and
(ii) only in the specific instance and for the specific purpose for which made
or given. Except where notice is specifically required by this Agreement, no
notice to or demand on any party in any case shall entitle any party hereto to
any other or further notice or demand in similar or other circumstances.
9.4. Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same Agreement.
9.5. Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
9.6. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to the
principles of conflicts of law of such state.
9.7. Jurisdiction. Each party to this Agreement hereby irrevocably agrees that
any legal action or proceeding arising out of or relating to this Agreement or
any agreements or transactions contemplated hereby shall be brought in the
courts of the State of New York or of the United States of America for the
Southern District of New York and hereby expressly submits to the personal
jurisdiction and venue of such courts for the purposes thereof and expressly
III-35
<PAGE>
waives any claim of improper venue and any claim that such courts are an
inconvenient forum. Each party hereby irrevocably consents to the service of
process of any of the aforementioned courts in any such suit, action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the address set forth in Section 9.1, such service to become
effective 10 days after such mailing.
9.8. Severability. If any one or more of the provisions contained herein, or the
application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provision or
provisions held invalid, illegal or unenforceable shall substantially impair the
remaining provisions hereof.
9.9. Rules of Construction. Unless the context otherwise requires,
"or" is not exclusive, and references to sections or subsections refer to
sections or subsections of this Agreement.
9.10. Entire Agreement. This Agreement, together with the exhibits and schedules
hereto and the other Transaction Documents is intended by the parties as a final
expression of their agreement and is intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. There are no restrictions,
promises, warranties or undertakings, other than those set forth herein or
therein. This Agreement, together with the exhibits and schedules hereto, the
other Transaction Documents, supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
9.11. Transaction Expenses. The Company will pay all Transaction Expenses of
the Purchaser.
9.12. Publicity. Except as may be required by applicable law or the rules of the
Nasdaq Stock Market, none of the parties hereto shall issue a publicity release
or announcement or otherwise make any public disclosure concerning this
Agreement or the transactions contemplated hereby, without prior approval by the
other parties hereto. If any announcement is required by law or the rules of the
Nasdaq Stock Market to be made by any party hereto, prior to making such
announcement such party will deliver a draft of such announcement to the other
parties and shall give the other parties an opportunity to comment thereon.
9.13. Further Assurances. Upon the terms and subject to the conditions contained
herein, each of the parties hereto agrees, both before and after the Closing,
(i) to use all reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement,
(ii) to execute any documents, instruments or conveyances of any kind which may
be reasonably necessary or advisable to carry out any of the transactions
contemplated hereunder, and (iii) to cooperate with each other in connection
III-36
<PAGE>
with the foregoing, including using their respective commercially reasonable
efforts (A) to obtain all necessary waivers, consents and approvals from other
parties that may be required; (B) to obtain all necessary permits as are
required to be obtained under any federal, state, local or foreign law or
regulations, and (C) to fulfill all conditions to this Agreement.
37
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement or caused this Agreement to be executed and delivered
by their authorized representatives as of the date first above written.
THAYER-BLUM FUNDING, L.L.C.
By: /s/Jeffrey Goettman
Name: Jeffrey Goettman
Title: Manager
EFTC CORPORATION
By: /s/Jack Calderon
Name: Jack Calderon
Title: President and Chief Executive Officer
38
<PAGE>
Appendix IV
Exchangeable Note
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE
SECURITIES OR BLUE SKY LAWS OF ANY STATE. IT MAY NOT BE SOLD OR OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THAT ACT AND SUCH LAWS OR UNLESS SUCH
TRANSFER IS MADE PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
EFTC CORPORATION
March 30, 2000
SENIOR SUBORDINATED EXCHANGEABLE NOTE
DUE JUNE 30, 2006
No: 0001 U.S. $54,000,000
EFTC CORPORATION, a Colorado corporation (the "Company"), for
value received, promises to pay to the order of THAYER-BLUM FUNDING, L.L.C., a
Delaware limited liability company ("Holder"), or its registered successors or
assigns, on June 30, 2006 (or such earlier date as this Note shall become
payable), the principal amount of $54,000,000 (or such lesser or greater
principal amount as is then unpaid) and to pay interest (computed on the basis
of a 360-day year of twelve 30-day months) on the unpaid principal amount hereof
(and on the principal balance of any PIK Note (as defined in Section 10)) at the
rate of 15.00% per annum, compounded quarterly, commencing on the date hereof
for this Note (and on the date of issuance for any PIK Note).
1. Payment of Principal and Interest.
The principal of, together with all accrued and unpaid
interest on, this Note shall be due and payable on June 30, 2006. Interest
accruing from the date of issuance through June 30, 2000, shall be added to the
principal amount of this Note on June 30, 2000 or, at the option of the Company,
shall be paid by the issuance of a PIK Note. Thereafter, interest hereon (and on
any PIK Note) shall accrue in arrears on September 30, December 31, March 31 and
June 30 of each year, commencing June 30, 2000, and be added to the principal
amount of this Note or, at the option of the Company, shall be paid by issuance
of a PIK Note, until the principal amount hereof (and the principal amount of
any PIK Note) shall have been paid in full. Notwithstanding the foregoing, if
the Shareholder Approval (as defined in that certain Securities Purchase
Agreement, dated as of March 30, 2000, by and between the Company and Holder
(the "Purchase Agreement")) is not obtained by September 1, 2000 (the "Approval
Date"), then interest on all unpaid amounts outstanding hereunder from and after
such date (or under any PIK Note) (including overdue installments of principal
or interest) shall be payable at the rate of 20.00% per annum, compounded
quarterly (to the extent permitted by applicable law). The Company may treat the
Person in whose name this Note is registered as the owner hereof for the purpose
of receiving payment and for all other purposes. The principal and interest on
this Note (and on any PIK Note) is payable when due in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts by federal funds bank wire transfer. Certain
capitalized terms shall have the meanings specified in Section 10 hereof. This
Note is issued under and pursuant to, and subject to the terms and conditions
of, the Purchase Agreement.
IV-1
<PAGE>
2. Exchange.
Upon the consummation of a Successful Tender Offer (as defined
in the Purchase Agreement), the Notes shall automatically be exchanged for and
replaced by 8.875% Senior Subordinated Convertible Notes due June 30, 2006
("Convertible Notes") substantially in the form attached as Exhibit C to the
Purchase Agreement, in an aggregate principal amount equal to the aggregate
principal amount of Notes then outstanding, plus accrued interest.
3. Optional Redemption.
If the Shareholder Approval is not obtained on or prior to the
Approval Date, the Company may redeem the Notes, in whole or in part, by paying
a redemption price equal to 108% of the principal amount of the Notes so being
redeemed, plus accrued and unpaid interest to the redemption date. If the
Company elects to repurchase the Warrants issued by the Company on March 30,
2000 pursuant to the Purchase Agreement as provided for in Section 5 of the
Warrants, the Company may redeem this Note, in whole, at a redemption price
equal to 100% of the principal amount thereof, plus accrued and unpaid interest
to the redemption date.
4. Mandatory Redemption.
The Company will be obligated to redeem the Notes, at the
option of the Holders of a majority in principal amount of the Notes of the
Holders, in whole or in part, at a redemption price equal to 100% of the
principal amount thereof, plus accrued and unpaid interest to the redemption
date upon a Change of Control or a Financing Redemption Event (each a "Mandatory
Redemption Event").
5. Redemption Procedures.
(a) If fewer than all of the principal of and accrued interest on the Notes are
to be redeemed, the Company shall redeem a pro rata portion of each Note then
outstanding.
(b) At least 30 days but not more than 60 days before a redemption pursuant to
Section 3, the Company shall mail a notice of redemption to each Holder whose
Notes are to be redeemed. The notice shall: (i) identify the Notes to be
redeemed and shall state the redemption date; (ii) state the redemption price;
(iii) indicate, if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the redemption
date, upon surrender of such Note, a new Note or Notes in principal amount equal
to the unredeemed portion will be issued; (iv) state that Notes called for
redemption must be surrendered to the Company to collect the redemption price;
and (v) state that interest on the Notes called for redemption ceases to accrue
on and after the redemption date, unless the Company has defaulted on the
payment of the redemption price.
(c) In the event a Mandatory Redemption Event shall occur, at the sole option of
the Holders of a majority in principal amount of the Notes, Holders may elect to
have the Company mandatorily redeem Notes pursuant to Section 4 by mailing a
notice of such election to the Company within 60 days of the occurrence of such
Mandatory Redemption Event. The notice shall: (i) identify the Notes to be
redeemed and shall state the date upon which the Mandatory Redemption Event
IV-2
<PAGE>
occurred; (ii) state the redemption date (as set forth in subsection (d)); and
(iii) indicate, if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the redemption
date, upon surrender of such Note, a new Note or Notes in principal amount equal
to the unredeemed portion will be issued.
(d) The redemption date with respect to any redemption effected in the case of a
Mandatory Redemption Event shall be a date not earlier than the fifth day nor
later than the 30th day following the receipt by the Company of the notice
thereof pursuant to Section 5(c).
(e) Once notice of redemption is given, Notes called for redemption become due
and payable on the redemption date at the redemption price.
(f) Upon surrender of a Note that is redeemed in part, the Company shall issue a
new Note equal in principal amount to the unredeemed portion of the Note
surrendered.
6. Subordination.
(a) Agreement to Subordinate.
The Company and Holders agree that the indebtedness evidenced
by this Note is subordinated in right of payment, to the extent and in the
manner provided in this Section 6, to the prior payment in full, in cash, of all
Senior Debt (as defined below), (whether outstanding on the date hereof or
hereafter created, incurred, assumed or guaranteed), and that the subordination
is for the benefit of the holders of Senior Debt.
A distribution may consist of cash, securities or other
property, by set-off or otherwise.
(b) Liquidation; Dissolution; Bankruptcy.
Upon any distribution to creditors of the Company in a
liquidation or dissolution of the Company or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the Company or its
property, in an assignment for the benefit of creditors or any marshalling of
the Company's assets and liabilities:
(i) holders of Senior Debt shall be entitled to receive payment in full, in
cash, of all obligations due in respect of such Senior Debt (including interest
after the commencement of any such proceeding at the rate specified in the
applicable Senior Debt) before any Holder shall be entitled to receive any
payment with respect to its Note (except that Holders may receive Permitted
Junior Securities); and
(ii) until all obligations with respect to Senior Debt (as provided in
subsection (i) above) are paid in full, in cash, any distribution to which
Holders would be entitled but for this Section 6 shall be made to holders of
Senior Debt (except that Holders may receive Permitted Junior Securities), as
their interests may appear.
(c) Default on Senior Debt.
(i) The Company may not make any payment or distribution to any Holder in
respect of obligations with respect to the Note and may not acquire from any
IV-3
<PAGE>
Holder any loans for cash or property (other than Permitted Junior Securities)
and no Holder may accept or retain any such payments until all principal and
other obligations with respect to the Senior Debt have been paid in full, in
cash, if:
(A) a default in the payment of any principal or other obligations with respect
to Senior Debt occurs and is continuing beyond any applicable grace period in
the agreement, indenture or other document governing such Senior Debt; or
(B) a default, other than a payment default, on Senior Debt occurs and is
continuing that permits holders of the Senior Debt to accelerate its maturity
and the Company receives a notice of the default (a "Payment Blockage Notice").
If the Company and the Holder Representative receive from the Agent under the
Credit Agreement any such Payment Blockage Notice, no subsequent Payment
Blockage Notice shall be effective for purposes of this Section 6(c) unless and
until at least 360 days shall have elapsed since the effectiveness of the
immediately prior Payment Blockage Notice. No nonpayment default that existed or
was continuing on the date of delivery of any Payment Blockage Notice to the
Company shall be, or be made, the basis for a subsequent Payment Blockage Notice
unless such nonpayment default shall have been waived for a period of not less
than 180 days or unless the holder of the Senior Debt was not aware of such
default.
The Company may and shall resume payments on and distributions
in respect of the Notes and the Holder may receive and retain the same upon the
earlier of:
(1) the date upon which the default is cured or waived,
or
(2) in the case of a default referred to in Section 6(c)(ii)
hereof, 179 days pass after notice is received if the maturity of such Senior
Debt has not been accelerated,
if this Section 6 otherwise permits the payment or distribution at the time of
such payment or distribution.
(ii) No Holder may take any actions to enforce any of its
available remedies upon the occurrence of a Default or an Event of Default, for
a period of 90 days following the receipt by the Company and the Holder
Representative of a notice from the Agent under the Credit Agreement of any
default with respect to the Senior Debt; provided, that such 90 day period shall
immediately end in the event (x) of a Default under Section 8(a)(i)(G) or (H),
(y) the Senior Debt is accelerated in accordance with its terms, or (z) the
holders of the Senior Debt act to enforce their available remedies upon the
occurrence of a default on the Senior Debt.
(d) Acceleration of Securities.
If the Note is accelerated because of an Event of Default, the
Company shall promptly notify holders of Senior Debt of the acceleration.
(e) When Distribution Must Be Paid Over.
In the event that Holder receives any payment of any
obligations with respect to the Note at a time when such payment is prohibited
by Section 6(c) hereof, such payment shall be held by the Holder in trust for
the benefit of, and shall be paid forthwith over and delivered, upon written
request, to, the holders of Senior Debt under the Senior Debt Documents pursuant
IV-4
<PAGE>
to which Senior Debt may have been issued, as their respective interests may
appear, for application to the payment of all obligations with respect to Senior
Debt remaining unpaid to the extent necessary to pay such obligations in full,
in cash, in accordance with their terms, after giving effect to any concurrent
payment or distribution to or for the holders of Senior Debt.
(f) Notice by Company.
The Company shall promptly notify the Holders of any facts
known to the Company that would cause a payment of any obligations with respect
to the Note to violate this Section 6, but failure to give such notice shall not
affect the subordination of the Note to the Senior Debt as provided in this
Section 6.
(g) Subrogation.
After all Senior Debt is paid in full, in cash, and until the
Note is paid in full, the Holders shall be subrogated (equally and ratably with
all other indebtedness pari passu with the Note) to the rights of holders of
Senior Debt to receive distributions applicable to Senior Debt and all other
rights, claims and collateral security of the holders of Senior Debt to the
extent that distributions otherwise payable to the Holders have been applied to
the payment of Senior Debt. A distribution made under this Section 6 to holders
of Senior Debt that otherwise would have been made to the Holders is not, as
between the Company, on one hand, and the Holder, on the other hand, a payment
by the Company on Senior Debt.
(h) Relative Rights.
This Section 6 defines the relative rights of the Holders
and holders of Senior Debt. Nothing in this Note shall:
(a) impair, as between the Company, on one hand, and the
Holders, on the other hand, the obligation of the Company, which is absolute and
unconditional, to pay principal of and interest on the Note in accordance with
its terms;
(b) affect the relative rights of the Holders and
creditors of the Company other than their rights in relation to holders of
Senior Debt; or
(c) prevent any lender from exercising its available remedies
upon a Default or Event of Default, subject to the rights of holders of Senior
Debt to receive distributions and payments otherwise payable to the lenders, and
except as set forth in Section 6(c)(ii) above.
If the Company fails because of this Section 6 to pay
principal of or interest on the Note on the Payment Date, the failure is still a
Default or Event of Default.
(i) Subordination May Not Be Impaired by the Company.
No right of any holder of Senior Debt to enforce the
subordination of the indebtedness evidenced by any loans shall be impaired by
any act or failure to act by the Company or any Holder or by the failure of the
Company or Holders to comply with the terms of this Note.
IV-5
<PAGE>
(j) Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to
holders of Senior Debt, the distribution may be made and the notice given to
their representative.
Upon any payment or distribution of assets of the Company
referred to in this Section 6 the Holders shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction or upon any
certificate of such representative or of the liquidating trustee or agent or
other Person making any distribution to the Holders for the purpose of
ascertaining the Persons entitled to participate in such distribution, the
holders of the Senior Debt and other indebtedness of the Company, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Section 6.
(k) Authorization to Effect Subordination.
The Holders authorize and direct the Company to take such
action as may be necessary or appropriate to effectuate the subordination as
provided in this Section 6.
(l) Amendments.
The provisions of this Section 6 shall not be amended or
modified without the written consent of the holders of all Senior Debt.
7. Covenants.
The Company covenants and agrees that so long as this Note
shall be outstanding:
(a) Payment of Notes; Satisfaction of Obligations.
(i) The Company shall pay the principal of and interest on the Notes on
the dates and in the manner provided in the Notes.
(ii) If there has occurred and is continuing any Event of Default, defined
below, under Sections 8(a)(i)(A) or 8(a)(i)(B) hereof, then to the extent
lawful, the Company shall pay interest (including interest accruing after the
commencement of any proceeding under any Bankruptcy Law) on all unpaid amounts
outstanding under the Notes (including overdue installments of principal or
interest) at a rate of interest equal to the then current rate of interest plus
2%, compounded quarterly.
(iii) Subject to performance by all other parties thereto of their respective
obligations thereunder, the Company shall satisfy in all material respects all
of its obligations under the Transaction Documents.
(b) Commission Reports, Financial Reports. The Company shall deliver to the
Holders within 15 days after it files them with the Commission copies of any
annual reports and any information, documents and other reports that the Company
is required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act.
(c) Compliance Certificate. The Company shall deliver to the Holders, within 45
days after the end of each fiscal quarter and within 90 days after the end of
IV-6
<PAGE>
each fiscal year of the Company an Officers' Certificate stating that a review
of the activities of the Company and its subsidiaries during the preceding
fiscal quarter or fiscal year has been made with a view to determining whether
the Company has kept, observed, performed and fulfilled its obligations under
this Agreement, and further stating, as to each such officer signing such
certificate, that to his knowledge the Company has kept, observed, performed and
fulfilled each and every covenant contained in this Agreement (or, if a Default
or Event of Default shall have occurred, describing all such Defaults or Events
of Default of which he may have knowledge) and that to his knowledge no event
has occurred and remains in existence by reason of which payments on account of
the principal of or interest, if any, on the Notes in accordance with their
terms are prohibited or if such event has occurred, a description of the event.
So long as not contrary to the then current recommendations of the American
Institute of Certified Public Accountants, the Officers' Certificate
accompanying the fiscal year end financial statements delivered pursuant to this
Section 7 shall be accompanied by a written statement of independent public
accountants (which shall be one of the "Big Five" accounting firms) that in
making the examination necessary for certification of such financial statements
nothing has come to their attention which would lead them to believe that the
Company has violated any provisions of this Note or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation. The
Company will deliver to the Holders, forthwith upon becoming aware of (i) any
Default or Event of Default or (ii) any event of default under any other loan
agreement, mortgage, indenture or instrument referred to in Section 6, an
Officers' Certificate specifying in reasonable detail such Default, Event of
Default or default and the nature of any remedial or corrective action the
Company proposes to take with respect thereto.
(d) Stay, Extension and Usury Laws. The Company covenants and agrees (to the
extent that it may lawfully do so) that it will not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay, extension or usury law wherever enacted, now or at any time hereafter
enforced, that may affect the covenants or the performance of its obligations
under this Note; and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Holders, but will suffer and permit the
execution of every such power as though no such law has been enacted.
(e) Limitation on Restricted Payments. The Company shall not, directly or
indirectly:
(i) declare or pay any dividend on, or make any distribution to the
holders (as such) in respect of, any shares of its capital stock.
(ii) purchase, redeem or otherwise acquire or retire for value any Equity
Interest of the Company or any subsidiary of the Company (other than any such
Equity Interest of a directly or indirectly wholly-owned subsidiary of the
Company) or other Affiliate of the Company;
(iii) permit any subsidiary of the Company to declare or pay any dividend on, or
make any distribution to the holders (as such) in respect of, any shares of its
capital stock except to the Company or another directly or indirectly
wholly-owned subsidiary of the Company; or
(iv) permit any subsidiary of the Company to purchase, redeem or otherwise
retire for value any Equity Interests of it, the Company or any Affiliate the
IV-7
<PAGE>
Company (other than any such Equity Interests owned by the Company or any other
directly or indirectly wholly owned subsidiary of the Company).
(f) Corporate Existence. The Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence
and the corporate existence of each of its subsidiaries in accordance with the
respective organizational documents of each of them and the corporate rights
(charter and statutory), licenses and franchises of the Company and its
subsidiaries; provided, however, that the Company shall not be required to
preserve any such right, license or franchise, or corporate existence, if the
Board of Directors of the Company shall determine that the preservation thereof
is no longer desirable in the conduct of the business of the Company and its
subsidiaries taken as a whole and that the loss thereof will not cause a
Material Adverse Effect.
(g) Taxes. The Company shall, and shall cause its subsidiaries to, pay prior to
delinquency all material taxes, assessments and governmental levies except as
contested in good faith and by appropriate proceedings.
(h) Investment Company Act; United States Real Property Holding Corporation.
Neither the Company nor any of its subsidiaries shall become an investment
company subject to registration under the Investment Company Act of 1940, as
amended. Neither the Company nor any of its subsidiaries shall become a United
States real property holding corporation as defined in Section 897(c)(2) of the
Internal Revenue Code of 1986, as amended.
(i) Limitation on Additional Indebtedness. The Company will not, and will not
permit any of its subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become or remain directly or indirectly liable
with respect to any Indebtedness other than (A) the Indebtedness represented by
the Notes, (B) Senior Debt and (C) other Indebtedness in aggregate principal
amount of no greater than $5,000,000.
(j) Limitation on Transactions With Affiliates.
(i) Neither the Company nor any of its subsidiaries shall sell, lease, transfer
or otherwise dispose of any of its properties or assets to or purchase any
property or assets from, or enter into any contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, an Affiliate of the
Company (but specifically excluding for these purposes Holders and their
respective Affiliates) (an "Affiliate Transaction"), except on terms that are no
less favorable to the Company or the relevant subsidiary than those that could
have been obtained in a comparable transaction by the Company or such subsidiary
from an unrelated person; provided, however, that the Company and its
wholly-owned subsidiaries may engage in any sale, lease, transfer, or other
disposition of property among themselves and may enter into any contract,
agreement, understanding, loan, advance or guarantee among themselves.
(ii) In addition, neither the Company nor any subsidiary may enter into an
Affiliate Transaction or series of related Affiliate Transactions involving or
having a potential value of more than $1,000,000 unless such transaction has
been approved by the holders of at least a majority in principal amount of the
Notes such approval not to be unreasonably withheld; provided, however, that the
Company and its wholly-owned subsidiaries may engage in any sale, lease,
transfer, or other disposition of property among themselves and may enter into
any contract, agreement, understanding, loan, advance or guarantee among
themselves.
IV-8
<PAGE>
(k) Restrictions on Liens. The Company will not itself, and will not permit any
subsidiary, to create or suffer to exist any Liens upon any assets of the
Company or any subsidiary or any shares of capital stock of any subsidiary, in
either case now owned or hereafter acquired; provided, however, that this
Section 7(k) shall not prohibit the creation or continuing existence of any
Permitted Liens.
(l) Sale of Assets.
(i) Neither the Company nor any of its subsidiaries shall, without the consent
of the holders of at least a majority in principal amount of the Notes, sell,
lease, convey or otherwise dispose (whether in one transaction or a series of
transactions) of any assets (including capital stock of any subsidiaries), other
than sales of inventory in the ordinary course of business (an "Asset Sale"), if
the aggregate net proceeds of all Asset Sales during any fiscal year exceed
$2,000,000; excluding payments under the GECC Payment Agreement.
(ii) Neither the Company nor any of its subsidiaries shall, without the consent
of the holders of at least a majority in principal amount of the Notes, enter
into any Asset Sale if the consideration paid is less than the fair market value
of such asset; provided, however, that assets with a fair market value of not
greater than $2,000,000 in the aggregate may be sold during any fiscal year
without regard to the foregoing requirement if the amount of consideration
received for such assets is promptly applied to the purchase of comparable
assets.
(iii) At least 90% of the consideration for each Asset Sale received by the
Company or such subsidiary shall be in the form of cash; provided, however, that
the amount of (A) any liabilities (as shown on the Company's or such
subsidiary's most recent balance sheet or in the notes thereto) of the Company
or any subsidiary that are assumed by the transferee of any such assets or stock
sold, leased, conveyed or disposed of and (B) any notes or other obligations
received by the Company or any subsidiary from such transferee that are
immediately converted by the Company or such subsidiary into cash, shall be
deemed to be cash for purposes of this Section 7(l)(iii).
(m) Ownership of Subsidiaries. Except as permitted by Section 7(l) above, the
Company shall maintain (along with one or more subsidiaries in the case of an
indirect subsidiary) good and valid title to those Equity Interests of each of
its subsidiaries owned by it, free and clear of any Lien other than Permitted
Liens. Notwithstanding the provisions of Section 7(l) above, neither the Company
nor any subsidiary shall dispose of the capital stock of any subsidiary, if,
after giving effect to such disposition, the Company would own less than a
majority of the outstanding economic and voting interests in such subsidiary or
former subsidiary.
(n) Minimum Performance Target. The Company shall furnish to the Holders an
Officers' Certificate within 90 days after the end of the Company's fiscal year
ending in 2002 (the "2002 EBITDA Notice"), setting forth the Company's EBITDA
for its previous fiscal year. The 2002 EBITDA Notice shall be audited in
accordance with GAAP and the terms of this Note by the Company's independent
auditors which shall be a "Big Five" accounting firm and shall contain a written
statement that, in making the examination necessary for certification of the
2002 EBITDA Notice, nothing has come to their attention which would lead them to
believe that the Company's EBITDA for the fiscal year ending in 2002 is not
correctly stated in the 2002 EBITDA Notice, or, if the EBITDA is incorrectly
stated, the basis of their belief regarding such incorrect statement.
IV-9
<PAGE>
(o) Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. Except as otherwise provided herein or in the Senior Debt
Documents, the Company will not, and will not permit any subsidiary to, directly
or indirectly, create or otherwise cause or suffer to exist or become effective
any consensual encumbrance or restriction on the ability of any subsidiary of
the Company to (a) pay dividends or make any other distributions on its capital
stock or any other interest or participation in, or measured by, its profits
owned by, or pay any Indebtedness owed to, the Company or a subsidiary of the
Company, (b) make loans or advances to the Company or a subsidiary of the
Company or (c) transfer any of its properties or assets to the Company or to any
subsidiary of the Company, except for such encumbrances or restrictions existing
under or by reason of (i) any restrictions, with respect to a subsidiary of the
Company that is not a subsidiary of the Company on the date hereof, in existence
at the time such Person becomes a subsidiary of the Company; or (ii) any
restrictions existing under any agreement that refinances or replaces the
agreements containing the restrictions in clause (i); provided that the terms
and conditions of any such restrictions are no less favorable to the Holders
than those under or pursuant to the agreement evidencing the Indebtedness
refinanced. Nothing contained in this Section 7(p) shall prevent the Company or
any of its subsidiaries from entering into any agreement permitting or providing
for the incurrence of Liens otherwise permitted by Section 7(k).
(p) Compliance with Laws. The Company will, and will cause its subsidiaries to,
comply with all federal, state, local or foreign statutes, ordinances,
governmental rules and regulations, judgments, orders and decrees to which any
of them is subject, and obtain and keep in effect all licenses, permits,
franchises and other governmental authorizations necessary to the ownership or
operation of their respective properties or the conduct of their respective
businesses, except to the extent that the failure to so comply or obtain and
keep in effect would not have a Material Adverse Effect.
(q) When Company May Merge, Etc.
(i) The Company will not merge with or into, or sell, convey, or transfer, or
otherwise dispose of all or substantially all of its property and assets (as an
entirety or substantially as an entirety in one transaction or a series of
related transactions) to any Person or permit any Person to merge with or into
the Company, unless:
(A) either the Company shall be the continuing Person
or the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or that
acquired such property and assets of the Company shall be an
entity organized and validly existing under the laws of the
United States of America or any state or jurisdiction thereof
and shall expressly assume, by amendments to this Note,
executed and delivered to Holder, all of the obligations of
the Company, on this Note;
(B) immediately after giving effect, on a pro forma
basis, to such transaction, no Default or Event of Default
shall have occurred and be continuing; and
(C) the Company will have delivered to the Holders of
a majority in principal amount of the Notes an Officers'
Certificate and an opinion of counsel, in each case stating
that such consolidation, merger or transfer and such
supplemental indenture complies with this provision and that
all conditions precedent provided for herein relating to such
transaction have been complied with.
IV-10
<PAGE>
(ii) Upon any consolidation or merger or any transfer of all or substantially
all of the assets of the Company, in accordance with Section 7(q)(i), the
successor Person formed by such consolidation or into which the Company is
merged or to which such transfer is made, shall succeed to, be substituted for,
and may exercise every right and power of the Company under this Note with the
same effect as if such successor Person had been named therein as the Company
and the Company shall be released from the obligations under this Note.
(r) Office or Agency. The Company will maintain an office or agency in
metropolitan Denver, Colorado (or in any future principal place of business of
the Company with respect to which the Holder has been notified pursuant to
Section 9.1 of the Purchase Agreement) where notices, presentations and demands
to or upon the Company in respect of this Note may be given or made.
(s) Directors. The Company's Board of Directors shall at all times be composed
of no more than 12 directors unless approved by Holders of a majority in
principal amount of the Notes. At all times during the term of this Note,
Holders of a majority in principal amount of the Notes shall have the right to
designate an aggregate of two persons for election as members of the Board of
Directors of the Company (or up to an aggregate of four persons pursuant to
Section 8(c)(iii) upon the occurrence of an Event of Default). Holder hereby
acknowledges that its two designees have been appointed to the Company's Board
of Directors as of the date of the issuance of this Note. The Company agrees to
put such appointees up for election at the next meeting of shareholders called
for the election of directors, all in accordance with the Company's Bylaws. The
Company hereby further agrees to call annual shareholders' meetings for the
election of directors and to recommend that the Company's shareholders votes in
favor of director-nominees of the Holders, if any, at any such meeting called
for election of directors; provided, that the Board of Directors of the Company
shall not be required to recommend for shareholder vote any person whom the
Board of Directors has reasonably concluded after further due inquiry lacks the
requisite moral fitness to sit on the Board of Directors. The Company agrees
that the members of the Board of Directors nominated by the Holders shall be
appointed to each committee of the Board of Directors, including, but not
limited to, the compensation committee; provided, that both such persons need
not be appointed to the audit committee if such appointments would cause a
breach of the continued listing requirements for the Common Stock on the Nasdaq
Stock Market.
(t) Approval of Significant Transactions. The Company shall not engage in any
Significant Transaction, without the prior written approval of the Holders of a
majority in principal amount of the Notes. For purposes of this Section 7(t), a
"Significant Transaction" means (i) one or a series of related transactions, in
which the Company obtains debt financing (excluding the Senior Debt) in an
aggregate amount in excess of $1,000,000, (ii) any Material Acquisition or
Material Disposition, or (iii) any adoption of, or amendment to, any Incentive
Compensation Plan. A "Material Acquisition" means any acquisition (directly or
indirectly) (whether by merger, purchase of securities, purchase of assets or
otherwise) by the Company or any subsidiary of the Company, involving aggregate
consideration with a value of $2,000,000 or more; provided, that a Material
Acquisition shall not include capital expenditures made in the ordinary course
of business. A "Material Disposition" means any sale, transfer or other
disposition of assets of the Company (whether by merger, sale of stock, sale of
assets or otherwise) or its subsidiaries which assets either (A) have a fair
market value of $2,000,000 or more, or (B) represent more than 5% of the lesser
of net book value or fair market value of the tangible assets of the Company on
a consolidated basis. An "Incentive Compensation Plan" means any arrangement,
policy or plan of the Company providing for deferred compensation,
profit-sharing bonuses, stock appreciation rights, stock purchases or other
IV-11
<PAGE>
forms of incentive compensation to any director, employee, former employee,
consultant, advisor or agent of the Company which by its terms results, or but
for deferral would result, in cash payments by the Company to such person.
(u) Certain Payments. The Company shall comply with the requirements of the
Foreign Corrupt Practices Act and neither the Company nor any director, officer,
agent, or employee of the Company, or any other Person associated with or acting
for or on behalf of the Company shall directly or indirectly (i) make any
contribution, gift, bribe, payoff, influence payment, kickback, or other payment
to any governmental official, regardless of form, whether in money, property, or
services (A) to obtain favorable treatment in securing business, (B) to pay for
favorable treatment for business secured, or (C) to obtain special concessions
or for special concessions already obtained, for or in respect of the Company or
any Subsidiary of the Company, (ii) make any contribution, gift, bribe, payoff,
influence payment, kickback, or other payment to any person, private or public,
regardless of form, whether in money, property, or services, in violation of any
law, or (iii) establish or maintain any fund or asset that is not recorded in
the books and records of the Company.
8. Defaults and Remedies.
(a) Events of Default.
(i) An "Event of Default" occurs if:
(A) the Company defaults in the payment of the principal of or accrued
interest on any Note when the same becomes due and payable at maturity,
upon redemption or otherwise;
(B) the Company fails to comply in any material respect with any of the
agreements, covenants, or provisions of the Notes and the Default
continues for the period and after the notice specified below;
(C) the Company fails to comply in any material respect with any of the
agreements, covenants, or provisions of the Warrants and the Default
continues for the period and after the notice specified below;
(D) if any of the representations or warranties of the Company made in or
in connection with this Note or the Purchase Agreement were untrue when
made in any respect materially adverse to the Company and its
subsidiaries taken as a whole;
(E) an event of default occurs under any loan agreement, note, mortgage,
indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness of the Company or
any subsidiary for borrowed money (or the payment of which is
guaranteed by the Company or a subsidiary), whether such Indebtedness
or guarantee now exists or shall be created hereafter, which default
results in the acceleration of such Indebtedness prior to its expressed
maturity and the principal amount of such Indebtedness, together with
the principal amount of any other such Indebtedness the maturity of
which is so accelerated and has not been paid, aggregates $500,000 or
more;
(F) a final judgment or final judgments for the payment of money are
entered by a court or courts of competent jurisdiction against the
Company or any subsidiary of the Company and such remains undischarged
IV-12
<PAGE>
for a period (during which execution shall not be effectively stayed)
of 30 days, provided that the aggregate of all such judgments exceeds
$1,000,000;
(G) The Company or any subsidiary pursuant to or within the meaning of any
Bankruptcy Law:
(1) commences a voluntary case,
(2) consents to the entry of an order for relief against it in an
involuntary case,
(3) consents to the appointment of a Custodian of it or for all or
substantially all of its property,
(4) makes a general assignment for the benefit of its creditors, or
(5) generally is unable to pay its debts as the same become due;
(H) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(1) is for relief against the Company or any of its subsidiaries in an
involuntary case,
(2) appoints a Custodian of the Company or any of its subsidiaries or for
all or substantially all of its property, or
(3) orders the liquidation of the Company or any of its subsidiaries, and
the order or decree remains unstayed and in effect for 60 days; or
(I) the 2002 EBITDA Notice is not delivered to Holder within 90 days of
the end of the Company's fiscal year that ends in 2002; or
(J) the 2002 EBITDA Notice indicates that the Company failed to meet the Minimum
Performance Target.
(ii) The term "Bankruptcy Law" means title 11, U.S. Code or any similar federal
or state law for the relief of debtors. The term "Custodian" means any receiver,
trustee, assignee, liquidator or similar official under any Bankruptcy Law.
(iii) A Default under clause (B) or (C) (other than a Default under Section
7(e), (i), (l), (m), or (q), which Default shall be an Event of Default without
the notice or passage of time specified in this paragraph), (E) (other than a
Default resulting from the acceleration of any indebtedness described therein,
which Default shall be an Event of Default without the notice or passage of time
specified in this paragraph) or (F) is not an Event of Default until the Holders
of at least 20% in principal amount of the Notes notify the Company of the
Default and the Company does not cure the Default within 30 days after receipt
of the notice. The notice must specify the Default, demand that it be remedied
and state that the notice is a "Notice of Default".
IV-13
<PAGE>
(b) Acceleration of Notes.
(i) If an Event of Default (other than an Event of Default specified in clauses
(G), (H), (I) and (J) of Section 8(a)(i)) occurs and is continuing, the Holders
of 20% in principal amount of the Notes, by notice to the Company, may declare
the unpaid principal of and any accrued interest on all the Notes to be due and
payable. Immediately upon such declaration, the principal and interest shall be
due and payable. If an Event of Default specified in clause (G) or (H) of
Section 8(a)(i) occurs, such an amount shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
any holder. The Holders of at least a majority in principal amount of the then
outstanding Notes by notice to the Company may rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of the
acceleration.
(ii) If an Event of Default specified in clauses (I) or (J) of Section 8(a)(i)
occurs the Company shall pay in full the principal of and accrued interest on
the Notes to the Holders thereof by no later than September 30, 2003. If the
Company has not paid in full all principal of and accrued interest on the Notes
by September 30, 2003 the Notes shall thereafter be due and payable and in
continuing Default and from and after such date interest on the Notes shall
accrue and be payable at the Default Rate.
(c) Other Remedies.
(i) If an Event of Default occurs and is continuing, holders of the Notes may
pursue any available remedy to collect the payment of principal or interest on
the Notes or to enforce the performance of any provision of the Notes.
(ii) A delay or omission by any holder of any Notes in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
(iii) If an Event of Default occurs and is continuing, the Company agrees, at
the request of the holders of a majority in principal amount of the Notes, to
have two vacancies made on the Board of Directors, to fill such two vacancies
with designees named by such Holders and to take such actions as are necessary
to have such newly appointed directors elected to the Board of Directors by the
shareholders of the Company, including, if necessary, to call a special meeting
of shareholders and to recommend the election of such directors by the
shareholders.
(d) Waiver of Past Defaults.
The holders of at least a majority in principal amount of the
then outstanding Notes by notice to the Company may waive an existing Default or
Event of Default and its consequences except a continuing Default or Event of
Default in the payment of the principal of or interest on any Notes.
(e) Rights of Holder to Receive Payment.
Notwithstanding any other provision of this Agreement, the
right of any Holder of a Note to receive payment of principal and interest on
IV-14
<PAGE>
the Note, on or after the respective due dates expressed in the Note, or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of the Holder.
(f) Undertaking for Costs.
In any suit for the enforcement of any right or remedy under
this Agreement, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
9. Modification of Notes.
The Notes may be modified without prior notice to any Holder
but with the written consent of the Company and the Holders of a majority in
principal amount of the Notes then outstanding. The Holders of a majority in
principal amount of the Notes then outstanding may waive compliance by the
Company with any provision of the Notes, or give any consent or approval
required or provided for under the terms of the Notes, without prior notice to
any Holder. However, without the consent of each Holder affected, an amendment,
supplement or waiver may not (a) alter the amount of Notes whose Holders must
consent to an amendment, supplement or waiver, (b) alter the rate or the time
for payment of interest on any Note, (c) alter the principal or the maturity of
any Note or alter the redemption or prepayment provisions with respect thereto
or (d) make any Note payable in money or property other than as stated in the
Notes.
10. Definitions.
The terms defined in this Section 10 shall, for all purposes
of this Note, have the meanings herein specified, unless the context otherwise
requires.
"Affiliate" means with respect to a Person, any other Person
that directly or indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person. For the purposes of
this definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise.
Without limiting the foregoing, all directors and executive officers of a Person
that is a corporation, all managing members of a Person that is a limited
liability company, and all general partners of a partnership, shall be deemed
Affiliates of such Person for all purposes hereunder.
"Change of Control" shall be deemed to have occurred if, at
any time, (i) any "person" or "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable) other
than the Holders and each of their respective Affiliates, in the aggregate,
becomes the "beneficial owners" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of 33% or more of the outstanding shares of Common
Stock of the Company or has the ability to cause 25% or more of the Board of
Directors to be composed of its nominees, (ii) Jeffrey Goettman, John Walker and
any other directors elected or appointed to the Company's Board of Directors
IV-15
<PAGE>
pursuant to Section 7(s) cease for any reason to be members of Board of
Directors and the Holders do not have the ability to designate their
replacements or (iii) the shareholders of the Company approve, or there is
consummated without stockholder approval, a merger or consolidation of the
Company with any other entity in which the shareholders of the Company prior to
such transaction hold voting securities of the surviving entity representing 50%
or less of the total votes outstanding, a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or any
substantial portion of the Company's assets or a major division or subsidiary of
the Company.
"Commission" means the Securities and Exchange Commission.
"Company" means EFTC Corporation, a Colorado corporation.
"Consolidated Interest Expense" means, for any period, all
cash interest expense of the Borrower and its Subsidiaries (including, without
limitation, the interest component under Capital Leases and the interest
component of deferred compensation under the Retention Bonus Plan), as
determined in accordance with GAAP.
"Consolidated Net Income" means, for any period, the aggregate
of the Net Income of the Company and its consolidated subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP, provided
that (i) the Net Income of any Person which is not a Subsidiary of the Company
or is accounted for by the Company by the equity method of accounting shall be
included in Consolidated Net Income only to the extent of the amount of
dividends or distributions actually paid by such Person to the Company or a
Subsidiary of the Company, (ii) the Net Income of any Person acquired by the
Company in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded from Consolidated Net Income and (iii) the
Net Income of any Subsidiary of the Company that is subject to restrictions,
direct or indirect, on the payment of dividends or the making of distributions
to the Company shall be excluded from Consolidated Net Income to the extent of
such restrictions. "Net Income" of any Person shall mean the net income (loss)
of such Person, determined in accordance with GAAP, excluding, however, any gain
(but not loss) realized upon the sale or other disposition (including, without
limitation, dispositions pursuant to sale and leaseback transactions) of any
real property or equipment of such Person which is not sold or otherwise
disposed of in the ordinary course of business and any gain (but not loss)
realized upon the sale or other disposition of any capital stock of such Person
or a subsidiary of such Person.
"Credit Agreement" means the Loan and Security Agreement,
dated as of March 30, 2000, by and among the Financial Institutions named
therein, Bank of America, N.A., as Agent, and the Company together with any
amendment, modification or replacement thereof.
"Default" means any event which is, or after notice or passage
of time would be, an Event of Default.
"Default Rate" is 25% per annum compounded quarterly.
"EBITDA" means, for any period, the sum of the Company's (i)
Consolidated Net Income for such period, plus (ii) an amount which, in the
determination of Consolidated Net Income for such period, has been deducted for
(A) Consolidated Interest Expense, (B) total federal, state, local and foreign
income, value added and similar taxes. (C) losses (or minus gains) on the sale
IV-16
<PAGE>
or disposition of assets outside the ordinary course of business, (D)
depreciation, amortization expense and other non-cash charges, all as determined
in accordance with GAAP and (E) amounts paid in respect of management fee to the
extent permitted hereunder.
"Equity Interest" means any capital stock or warrants, options
or other rights to acquire capital stock (but excluding any debt security which
is convertible into, or exchangeable for, capital stock).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Event of Default" shall have the meaning provided in Section
6.
"Failure to Approve the Transactions" shall mean that the
holders of the Common Stock of the Company do not vote to approve the
Transactions at the Shareholders Meeting (as such term is defined in the
Purchase Agreement).
"Financing Redemption Event" means any sale or sales of equity
securities by the Company made in one or a series of related transactions, which
taken together, result in a total, aggregate offering price of more than
$50,000,000.
"GAAP" means United States generally accepted accounting
principles, in effect from time to time, consistently applied.
"GECC Payment Agreement" means that certain Agreement, dated
December 5, 1997, between General Electric Capital Corporation and the Company,
regarding the GE Capital Accelerated Payment Program.
"Holder" or "Noteholder" means the Person in whose name a Note
is registered on the Company's books and any permitted transferee thereof.
"Holder Representative" means the person designated as such by
the Holders of a majority in aggregate principal amount of the Notes, with
notice thereof provided in writing to the Agent under the Credit Agreement.
"Indebtedness" means, as to any Person: (a) all obligations,
whether or not contingent, of such Person for borrowed money (including, without
limitation, reimbursement and all other obligations with respect to surety
bonds, letters of credit and bankers' acceptances, whether or not matured), (b)
all obligations of such Person evidenced by notes, bonds, debentures or similar
instruments, (c) all obligations of such Person representing the balance of
deferred purchase price of property or services, except trade accounts payable
and accrued commercial or trade liabilities arising in the ordinary course of
business, (d) all interest rate and currency swaps, caps, collars and similar
agreements or hedging devices under which payments are obligated to be made by
such Person, whether periodically or upon the happening of a contingency, (e)
all indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), (f)
IV-17
<PAGE>
all obligations of such Person under leases which have been or should be, in
accordance with GAAP, recorded as capital leases, (g) all obligations of such
Person under operating leases in excess of $15,000,000, (h) all indebtedness
secured by any Lien (other than Liens in favor of lessors under leases other
than leases included in clauses (f) and (g)) on any property or asset owned or
held by that Person regardless of whether the indebtedness secured thereby shall
have been assumed by that Person or is non-recourse to the credit of that
Person, and (i) all Indebtedness of any other Person referred to in clauses (a)
through (g) above, guaranteed, directly or indirectly, by that Person.
"Lien" means any mortgage, deed of trust, pledge,
hypothecation, assignment, encumbrance, lien (statutory or other) or other
security interest of any kind or nature whatsoever (excluding preferred stock or
equity related preferences) including, without limitation, those created by,
arising under or evidenced by any conditional sale or other title retention
agreement, the interest of a lessor under a capital lease obligation, or any
financing lease having substantially the same economic effect as any of the
foregoing.
"Material Adverse Effect" means any material adverse change in
the assets, business or financial condition of the Company.
"Minimum Performance Target" means, for fiscal year 2002, an
EBITDA of $25,000,000.
"Note" shall mean this Note as defined in Section 1
together with all PIK Notes issued in connection thereto.
"Officers' Certificate" means a certificate signed by any two
officers of the Company, one of whom must be the chief executive officer, the
chief financial officer or chief accounting officer of the Company.
"Permitted Junior Securities" means equity interests in the
Company.
"Permitted Liens" means (i) Liens for taxes, governmental
charges or levies which (a) are not yet due and payable, or (b) are being
diligently contested in good faith by appropriate proceedings; provided, that
for any such taxes being diligently contested in good faith, the Company has set
aside adequate reserves, (ii) Liens imposed by law, such as mechanic's,
materialman's, landlord's, warehouseman's and carrier's liens, securing
obligations incurred in the ordinary course of business which are not yet
overdue or which are being diligently contested in good faith by appropriate
proceeding and, with respect to such obligations which are being contested, for
which the Company has set aside adequate reserves, (iii) Liens securing Senior
Debt, (iv) Liens which (x) secure obligations of less than $15,000,000 in the
aggregate and (y) do not, individually or in the aggregate, interfere with the
use and enjoyment of the property subject thereto and (z) Liens created in favor
of General Electric Capital Corporation pursuant to the GECC Payment Agreement.
"Person" means any individual, partnership, corporation,
trust, unincorporated organization or government or agency or political
subdivision thereof.
"PIK Notes" means the PIK Notes issued in respect of the Notes
in lieu of cash interest, each such note requiring the accrual of interest in
accordance with the terms of this Note (including the issuance of additional PIK
Notes in respect of such interest), commencing from the date of issuance of such
note or from the date such note was deemed to have been issued, at the rate of
15.00% per annum or 20.00% per annum, as appropriate, computed on the basis of a
360-day year of twelve 30-day months, for the actual number of days elapsed and
containing terms substantially identical to this Note.
IV-18
<PAGE>
"Purchase Agreement" shall have the meaning provided in
Section 1 hereto.
The "principal" of a debt security means the principal of the
security plus, when appropriate, the premium (if any) payable on the security.
"Senior Debt" means (i) all indebtedness outstanding at any
time under the Credit Agreement, and all hedging obligations and bank products
with respect thereto, (ii) any replacement or refinancing of the Credit
Agreement which provides for borrowings by the Company up to $55,000,000 in
aggregate principal amount, and (iii) all obligations with respect to any of the
foregoing. Notwithstanding anything to the contrary in the foregoing, Senior
Debt shall not include (x) any indebtedness of the Company to any of its
subsidiaries or other affiliates, or (y) any indebtedness incurred for the
purchase of goods or materials or for services obtained in the ordinary course
of business (other than with the proceeds of revolving credit borrowings
permitted hereby).
"Senior Debt Documents" means the Credit Agreement and any
comparable documents governing other senior debt, if any.
"Transaction Documents" means collectively, the Purchase
Agreement, the Notes, the Convertible Notes, and the Warrants.
11. Non-Waiver.
No course of dealing between the Company and the Holder of
this Note or any delay or failure on the part of the Holder hereof in exercising
any rights hereunder shall operate as a waiver of any rights of any Holder
hereof, except to the extent expressly waived in writing by the Holder hereof.
12. Governing Law.
This Note shall be construed in accordance with and governed
by the internal laws of the State of New York.
13. Successors and Assigns.
All of the covenants, promises and agreements in this Note
shall bind the Company's successors and assigns, whether so expressed or not.
14. Assignment.
Prior to the earlier of September 1, 2000 and the Failure to
Approve the Transactions (as defined in the Purchase Agreement), Holder shall
not sell, assign or otherwise transfer this Note, except to an Affiliate of
either of Thayer Equity Investors IV, L.P., TC Manufacturing Holdings, L.L.C. or
RCBA Strategic Partners, L.P. Prior to the earlier to occur of (i) the
consummation of a Successful Tender Offer (as defined in the Purchase Agreement)
and (ii) the termination of the Purchase Agreement, Holder shall not sell,
assign or otherwise transfer this Note, except to a Person who has become a
successor obligor under the Purchase Agreement to all of the obligations of the
original Holder of this Note thereunder.
IV-19
<PAGE>
15. Severability.
If any one or more of the provisions contained herein, or the
application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provision or
provisions held invalid, illegal or unenforceable shall substantially impair the
remaining provisions hereof.
16. Headings.
The headings of the sections and paragraphs of this Note are
inserted for convenience only and shall not be deemed to constitute a part
hereof.
IV-20
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be
signed in its name by a duly authorized officer and to be dated as of the day
and year first above written.
EFTC CORPORATION
By: /s/ Jack Calderon
Name: Jack Calderon
Title: President and Chief Executive Officer
IV-21
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to
(Insert assignee's social security or tax
identification number)
(Print or type assignee's name, address and zip code)
and irrevocably appoint
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
Date: _____________ Your Signature:
(Sign exactly as your name appears on the front of this Note)
Signature Guarantee:
<PAGE>
Appendix V
Form of Convertible Note
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE
SECURITIES OR BLUE SKY LAWS OF ANY STATE. IT MAY NOT BE SOLD OR OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THAT ACT AND SUCH LAWS OR UNLESS SUCH
TRANSFER IS MADE PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
EFTC CORPORATION
March 30, 2000
SENIOR SUBORDINATED CONVERTIBLE NOTE
DUE JUNE 30, 2006
No: 0001 U.S. $54,000,000
EFTC CORPORATION, a Colorado corporation (the "Company"), for
value received, promises to pay to the order of THAYER-BLUM FUNDING, L.L.C., a
Delaware limited liability company ("Holder"), or its registered successors or
assigns, on June 30, 2006 (or such earlier date as this Note shall become due
and payable), the principal amount of $54,000,000 (or such lesser or greater
principal amount as is then unpaid) and to accrue interest (computed on the
basis of a 360-day year of twelve 30-day months) on the unpaid principal amount
hereof (and on the principal balance of any Accrual Note (as defined in Section
9) issued pursuant to Section 1(b) below) at the rate of 8.875% per annum,
compounded quarterly, commencing on the date hereof for this Note (and on the
date of issuance for any Accrual Note). The principal and interest on this Note
(and on any Accrual Note) is payable when due in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts by federal funds bank wire transfer. Certain
capitalized terms shall have the meanings specified in Section 10 hereof. This
Note is issued in exchange for the Company's Senior Subordinated Exchangeable
Note due June 30, 2006 (pursuant to Section 2) which was issued pursuant to that
certain Securities Purchase Agreement, dated as of March 30, 2000, by and
between the Company and Holder (the "Purchase Agreement").
1. The Note.
Interest accruing from the date of issuance through _______ __, 2000,
shall be added to the principal amount of this Note on _______ __, 2000, or, at
the Company's option, shall be paid by the issuance of an Accrual Note.
Thereafter, interest hereon (and on any Accrual Note) shall accrue in arrears on
_________ __, _______ __, ______ __ and _______ __ of each year, commencing on
_______ __, 2000 (each a "Payment Date"). All interest which has accrued as of
any Payment Date shall be added to the principal amount of this Note unless the
Company elects to issue an Accrual Note therefor. In the event that an Accrual
Note is not actually issued and delivered for any accrued and unpaid interest on
any Payment Date, an Accrual Note in the aggregate principal amount of such
accrued and unpaid interest shall be deemed to have been issued to the Holder on
such Payment Date, and the amount of such accrued and unpaid interest shall be
added to the principal amount of this Note. Interest shall accrue on the unpaid
principal balance of Notes until the principal amount of the Notes shall have
been paid in full. The Company may treat the Person in whose name this Note is
V-1
<PAGE>
registered as the owner hereof for the purpose of receiving payment and for all
other purposes.
2. Mandatory Redemption.
(a) The Company will be obligated to redeem the Notes, at the option of Holder,
in whole or in part, upon the occurrence of a Change of Control at the
redemption price as set forth in this Section 2 (the "Redemption Price").
(b) The Redemption Price shall be an amount equal to the sum of (i) 100% of the
principal amount of the Notes, (ii) the accrued and unpaid interest to the
Mandatory Redemption Date and (iii) an amount equal to the interest, if any,
which would accrue on this Note from the Mandatory Redemption Date up to and
including March 30, 2003.
3. Redemption Procedures.
(a) Upon the occurrence of a Change of Control, the Company shall mail a notice
of redemption to the Holders advising Holders of the occurrence of a Change of
Control. Within 60 days of receipt of such notice from the Company, Holders, at
their sole option, may elect to have the Company mandatorily redeem the Notes,
in whole or in part, by a mailing a notice to the Company of such election. The
notice shall: (i) identify the Notes to be redeemed; (ii) state the applicable
Redemption Price; and (iii) state the Mandatory Redemption Date.
(b) The redemption date shall be the date set forth as such in the relevant
notice from Holders pursuant to Section 3(a) which shall be a date not earlier
than the 5th day nor later than the 30th day following the mailing of such
notice (the "Mandatory Redemption Date").
(c) Once notice of redemption is given, Notes called for redemption become due
and payable on the Mandatory Redemption Date at the Redemption Price. Interest
on the Notes called for redemption shall cease to accrue on and after the
Mandatory Redemption Date.
4. Subordination.
(a) Agreement to Subordinate.
The Company and Holders agree that the indebtedness evidenced
by this Note is subordinated in right of payment, to the extent and in the
manner provided in this Section 4, to the prior payment in full, in cash, of all
Senior Debt (as defined below), (whether outstanding on the date hereof or
hereafter created, incurred, assumed or guaranteed), and that the subordination
is for the benefit of the holders of Senior Debt.
A distribution may consist of cash, securities or other
property, by set-off or otherwise.
(b) Liquidation; Dissolution; Bankruptcy.
Upon any distribution to creditors of the Company in a
liquidation or dissolution of the Company or in a bankruptcy, reorganization,
V-2
<PAGE>
insolvency, receivership or similar proceeding relating to the Company or its
property, in an assignment for the benefit of creditors or any marshalling of
the Company's assets and liabilities:
(1) holders of Senior Debt shall be entitled to
receive payment in full, in cash, of all obligations due in respect of
such Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Debt) before
any Holder shall be entitled to receive any payment with respect to its
Note (except that Holders may receive Permitted Junior Securities); and
(2) until all obligations with respect to Senior
Debt (as provided in subsection (1) above) are paid in full, in cash,
any distribution to which Holders would be entitled but for this
Section 4 shall be made to holders of Senior Debt (except that Holders
may receive Permitted Junior Securities), as their interests may
appear.
(c) Default on Senior Debt.
(i) The Company may not make any payment or distribution to
any Holder in respect of obligations with respect to the Note and may not
acquire from any Holder any loans for cash or property (other than Permitted
Junior Securities) and no Holder may accept or retain any such payments until
all principal and other obligations with respect to the Senior Debt have been
paid in full, in cash, if:
(A) a default in the payment of any principal or
other obligations with respect to Senior Debt occurs and is continuing
beyond any applicable grace period in the agreement, indenture or other
document governing such Senior Debt; or
(B) a default, other than a payment default, on
Senior Debt occurs and is continuing that permits holders of the Senior
Debt to accelerate its maturity and the Company and the Holder
Representative receives a notice of the default (a "Payment Blockage
Notice"). If the Company and the Holder Representative receive from the
Agent under the Credit Agreement any such Payment Blockage Notice, no
subsequent Payment Blockage Notice shall be effective for purposes of
this Section 4(c) unless and until at least 360 days shall have elapsed
since the effectiveness of the immediately prior Payment Blockage
Notice. No nonpayment default that existed or was continuing on the
date of delivery of any Payment Blockage Notice to the Company shall
be, or be made, the basis for a subsequent Payment Blockage Notice
unless such nonpayment default shall have been waived for a period of
not less than 180 days or unless the holder of the Senior Debt was not
aware of such default.
The Company may and shall resume payments on and distributions
in respect of the Notes and the Holder may receive and retain the same upon the
earlier of:
(1) the date upon which the default is cured or waived,
or
(2) in the case of a default referred to in Section 4(c)(ii)
hereof, 179 days pass after notice is received if the maturity of such Senior
Debt has not been accelerated,
if this Section 4 otherwise permits the payment or distribution at the time of
such payment or distribution.
V-3
<PAGE>
(ii) No Holder may take any actions to enforce any of its
available remedies upon the occurrence of a Default or an Event of Default, for
a period of 90 days following the receipt by the Company and the Holder
Representative of a notice from the Agent under the Credit Agreement any default
with respect to the Senior Debt; provided, that such 90 day period shall
immediately end in the event (x) of a Default under Section 6(a)(i)(G) or (H),
(y) the Senior Debt is accelerated in accordance with its terms, or (z) the
holders of the Senior Debt act to enforce their available remedies upon the
occurrence of a default on the Senior Debt.
(d) Acceleration of Securities.
If the Note is accelerated because of an Event of Default, the
Company shall promptly notify holders of Senior Debt of the acceleration.
(e) When Distribution Must Be Paid Over.
In the event that Holder receives any payment of any
obligations with respect to the Note at a time when such payment is prohibited
by Section 4(c) hereof, such payment shall be held by the Holder in trust for
the benefit of, and shall be paid forthwith over and delivered, upon written
request, to, the holders of Senior Debt under the Senior Debt Documents pursuant
to which Senior Debt may have been issued, as their respective interests may
appear, for application to the payment of all obligations with respect to Senior
Debt remaining unpaid to the extent necessary to pay such obligations in full,
in cash, in accordance with their terms, after giving effect to any concurrent
payment or distribution to or for the holders of Senior Debt.
(f) Notice by Company.
The Company shall promptly notify the Holders of any facts
known to the Company that would cause a payment of any obligations with respect
to the Note to violate this Section 4, but failure to give such notice shall not
affect the subordination of the Note to the Senior Debt as provided in this
Section 4.
(g) Subrogation.
After all Senior Debt is paid in full, in cash, and until the
Note is paid in full, the Holders shall be subrogated (equally and ratably with
all other indebtedness pari passu with the Note) to the rights of holders of
Senior Debt to receive distributions applicable to Senior Debt and all other
rights, claims and collateral security of the holders of Senior Debt to the
extent that distributions otherwise payable to the Holders have been applied to
the payment of Senior Debt. A distribution made under this Section 4 to holders
of Senior Debt that otherwise would have been made to the Holders is not, as
between the Company, on one hand, and the Holder, on the other hand, a payment
by the Company on Senior Debt.
(h) Relative Rights.
This Section 4 defines the relative rights of the Holders and
holders of Senior Debt. Nothing in this Note shall:
V-4
<PAGE>
(a) impair, as between the Company, on one hand, and the
Holders, on the other hand, the obligation of the Company, which is absolute and
unconditional, to pay principal of and interest on the Note in accordance with
its terms;
(b) affect the relative rights of the Holders and
creditors of the Company other than their rights in relation to holders of
Senior Debt; or
(c) prevent any lender from exercising its available remedies
upon a Default or Event of Default, subject to the rights of holders of Senior
Debt to receive distributions and payments otherwise payable to the lenders, and
except as set forth in Section 4(c)(ii) above.
If the Company fails because of this Section 4 to pay
principal of or interest on the Note on the Payment Date, the failure is still a
Default or Event of Default.
(i) Subordination May Not Be Impaired by the Company.
No right of any holder of Senior Debt to enforce the
subordination of the indebtedness evidenced by any loans shall be impaired by
any act or failure to act by the Company or any Holder or by the failure of the
Company or Holders to comply with the terms of this Note.
(j) Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to
holders of Senior Debt, the distribution may be made and the notice given to
their representative.
Upon any payment or distribution of assets of the Company
referred to in this Section 4 the Holders shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction or upon any
certificate of such representative or of the liquidating trustee or agent or
other Person making any distribution to the Holders for the purpose of
ascertaining the Persons entitled to participate in such distribution, the
holders of the Senior Debt and other indebtedness of the Company, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Section 4.
(k) Authorization to Effect Subordination.
The Holders authorize and direct the Company to take such
action as may be necessary or appropriate to effectuate the subordination as
provided in this Section 4.
(l) Amendments.
The provisions of this Section 4 shall not be amended or
modified without the written consent of the holders of all Senior Debt.
5. Covenants.
The Company covenants and agrees that so long as this Note
shall be outstanding:
V-5
<PAGE>
(a) Payment of Notes; Satisfaction of Obligations.
(i) The Company shall pay the principal of and interest on the Notes on
the dates and in the manner provided in the Notes.
(ii) If there has occurred and is continuing any Event of Default, defined
below, under Sections 6(a)(i)(A) or 6(a)(i)(B) hereof, then to the extent
lawful, the Company shall pay interest (including interest accruing after the
commencement of any proceeding under any Bankruptcy Law) on all unpaid amounts
outstanding under the Notes (including overdue installments of principal or
interest) at the Default Rate, compounded quarterly.
(iii) Subject to performance by all other parties thereto of their respective
obligations thereunder, the Company shall satisfy in all material respects all
of its obligations under the Transaction Documents.
(b) Commission Reports, Financial Reports. The Company shall deliver to the
holders within 15 days after it files them with the Commission copies of any
annual reports and any information, documents and other reports that the Company
is required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act.
(c) Compliance Certificate. The Company shall deliver to the Holders, within 45
days after the end of each fiscal quarter and within 90 days after the end of
each fiscal year of the Company an Officers' Certificate stating that a review
of the activities of the Company and its subsidiaries during the preceding
fiscal quarter or fiscal year has been made with a view to determining whether
the Company has kept, observed, performed and fulfilled its obligations under
this Agreement, and further stating, as to each such officer signing such
certificate, that to his knowledge the Company has kept, observed, performed and
fulfilled each and every covenant contained in this Agreement (or, if a Default
or Event of Default shall have occurred, describing all such Defaults or Events
of Default of which he may have knowledge) and that to his knowledge no event
has occurred and remains in existence by reason of which payments on account of
the principal of or interest, if any, on the Notes in accordance with their
terms are prohibited or if such event has occurred, a description of the event.
So long as not contrary to the then current recommendations of the American
Institute of Certified Public Accountants, the Officers' Certificate
accompanying the fiscal year end financial statements delivered pursuant to this
Section 5 shall be accompanied by a written statement of independent public
accountants (which shall be one of the "Big Five" accounting firms) that in
making the examination necessary for certification of such financial statements
nothing has come to their attention which would lead them to believe that the
Company has violated any provisions of this Note or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation. The
Company will deliver to the Holders, forthwith upon becoming aware of (i) any
Default or Event of Default or (ii) any event of default under any other loan
agreement, mortgage, indenture or instrument referred to in Section 4, an
Officers' Certificate specifying in reasonable detail such Default, Event of
Default or default and the nature of any remedial or corrective action the
Company proposes to take with respect thereto.
(d) Stay, Extension and Usury Laws. The Company covenants and agrees (to the
extent that it may lawfully do so) that it will not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
V-6
<PAGE>
any stay, extension or usury law wherever enacted, now or at any time hereafter
enforced, that may affect the covenants or the performance of its obligations
under this Note; and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Holders, but will suffer and permit the
execution of every such power as though no such law has been enacted.
(e) Limitation on Restricted Payments. The Company shall not, directly or
indirectly:
(i) declare or pay any dividend on, or make any distribution to the
holders (as such) in respect of, any shares of its capital stock.
(ii) purchase, redeem or otherwise acquire or retire for value any Equity
Interest of the Company or any subsidiary of the Company (other than any such
Equity Interest of a directly or indirectly wholly-owned subsidiary of the
Company) or other Affiliate of the Company;
(iii) permit any subsidiary of the Company to declare or pay any dividend on, or
make any distribution to the holders (as such) in respect of, any shares of its
capital stock except to the Company or another directly or indirectly
wholly-owned subsidiary of the Company; or
(iv) permit any subsidiary of the Company to purchase, redeem or otherwise
retire for value any Equity Interests of it, the Company or any Affiliate of the
Company (other than any such Equity Interests owned by the Company or any other
directly or indirectly wholly owned subsidiary of the Company).
(f) Corporate Existence. The Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence
and the corporate existence of each of its subsidiaries in accordance with the
respective organizational documents of each of them and the corporate rights
(charter and statutory), licenses and franchises of the Company and its
subsidiaries; provided, however, that the Company shall not be required to
preserve any such right, license or franchise, or corporate existence, if the
Board of Directors of the Company shall determine that the preservation thereof
is no longer desirable in the conduct of the business of the Company and its
subsidiaries taken as a whole and that the loss thereof will not cause a
Material Adverse Effect.
(g) Taxes. The Company shall, and shall cause its subsidiaries to, pay prior to
delinquency all material taxes, assessments and governmental levies except as
contested in good faith and by appropriate proceedings.
(h) Investment Company Act; United States Real Property Holding Corporation.
Neither the Company nor any of its subsidiaries shall become an investment
company subject to registration under the Investment Company Act of 1940, as
amended. Neither the Company nor any of its subsidiaries shall become a United
States real property holding corporation as defined in Section 897(c)(2) of the
Internal Revenue Code of 1986, as amended.
(i) Limitation on Additional Indebtedness. The Company will not, and will not
permit any of its subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become or remain directly or indirectly liable
V-7
<PAGE>
with respect to any Indebtedness other than (A) the Indebtedness represented by
the Notes, (B) Senior Debt and (C) other Indebtedness in aggregate principal
amount of no greater than $5,000,000.
(j) Limitation on Transactions With Affiliates.
(i) Neither the Company nor any of its subsidiaries shall sell, lease, transfer
or otherwise dispose of any of its properties or assets to or purchase any
property or assets from, or enter into any contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, an Affiliate of the
Company (but specifically excluding for these purposes Holders and their
respective Affiliates) (an "Affiliate Transaction"), except on terms that are no
less favorable to the Company or the relevant subsidiary than those that could
have been obtained in a comparable transaction by the Company or such subsidiary
from an unrelated person; provided, however, that the Company and its
wholly-owned subsidiaries may engage in any sale, lease, transfer, or other
disposition of property among themselves and may enter into any contract,
agreement, understanding, loan, advance or guarantee among themselves.
(ii) In addition, neither the Company nor any subsidiary may enter into an
Affiliate Transaction or series of related Affiliate Transactions involving or
having a potential value of more than $1,000,000 unless such transaction has
been approved by the holders of at least a majority in principal amount of the
Notes, such approval not to be unreasonably withheld; provided, however, that
the Company and its wholly-owned subsidiaries may engage in any sale, lease,
transfer, or other disposition of property among themselves and may enter into
any contract, agreement, understanding, loan, advance or guarantee among
themselves.
(k) Restrictions on Liens. The Company will not itself, and will not permit any
subsidiary, to create or suffer to exist any Liens upon any assets of the
Company or any subsidiary or any shares of capital stock of any subsidiary, in
either case now owned or hereafter acquired; provided, however, that this
Section 5(k) shall not prohibit the creation or continuing existence of any
Permitted Liens.
(l) Sale of Assets.
(i) Neither the Company nor any of its subsidiaries shall, without the consent
of the holders of at least a majority in principal amount of the Notes, sell,
lease, convey or otherwise dispose (whether in one transaction or a series of
transactions) of any assets (including capital stock of any subsidiaries), other
than sales of inventory in the ordinary course of business (an "Asset Sale"), if
the aggregate net proceeds of all Asset Sales during any fiscal year exceed
$2,000,000; excluding payments under the GECC Payment Agreement.
(ii) Neither the Company nor any of its subsidiaries shall, without the consent
of the holders of at least a majority in principal amount of the Notes, enter
into any Asset Sale if the consideration paid is less than an amount equal to
the fair market value of such asset; provided, however, that assets with a fair
market value of not greater than $2,000,000 in the aggregate may be sold during
any fiscal year without regard to the foregoing requirement if the amount of
consideration received for such assets is promptly applied to the purchase of
comparable assets.
(iii) At least 90% of the consideration for each Asset Sale received by the
Company or such subsidiary shall be in the form of cash; provided, however, that
the amount of (A) any liabilities (as shown on the Company's or such
subsidiary's most recent balance sheet or in the notes thereto) of the Company
or any subsidiary that are assumed by the transferee of any such assets or stock
V-8
<PAGE>
sold, leased, conveyed or disposed of and (B) any notes or other obligations
received by the Company or any subsidiary from such transferee that are
immediately converted by the Company or such subsidiary into cash, shall be
deemed to be cash for purposes of this Section 5(l)(iii).
(m) Ownership of Subsidiaries. Except as permitted by Section 5(l) above, the
Company shall maintain (along with one or more subsidiaries in the case of an
indirect subsidiary) good and valid title to those Equity Interests of each of
its subsidiaries owned by it, free and clear of any Lien other than Permitted
Liens. Notwithstanding the provisions of Section 5(l) above, neither the Company
nor any subsidiary shall dispose of the capital stock of any subsidiary, if,
after giving effect to such disposition, the Company would own less than a
majority of the outstanding economic and voting interests in such subsidiary or
former subsidiary.
(n) Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. Except as otherwise provided for herein or in the Senior Debt
Documents, the Company will not, and will not permit any subsidiary to, directly
or indirectly, create or otherwise cause or suffer to exist or become effective
any consensual encumbrance or restriction on the ability of any subsidiary of
the Company to (a) pay dividends or make any other distributions on its capital
stock or any other interest or participation in, or measured by, its profits
owned by, or pay any Indebtedness owed to, the Company or a subsidiary of the
Company, (b) make loans or advances to the Company or a subsidiary of the
Company or (c) transfer any of its properties or assets to the Company or to any
subsidiary of the Company, except for such encumbrances or restrictions existing
under or by reason of (i) any restrictions, with respect to a subsidiary of the
Company that is not a subsidiary of the Company on the date hereof, in existence
at the time such Person becomes a subsidiary of the Company; or (ii) any
restrictions existing under any agreement that refinances or replaces the
agreements containing the restrictions in clause (i); provided that the terms
and conditions of any such restrictions are no less favorable to the Holders
than those under or pursuant to the agreement evidencing the Indebtedness
refinanced. Nothing contained in this Section 5(n) shall prevent the Company or
any of its subsidiaries from entering into any agreement permitting or providing
for the incurrence of Liens otherwise permitted by Section 5(k).
(o) Compliance with Laws. The Company will, and will cause its subsidiaries to,
comply with all Federal, state, local or foreign statutes, ordinances,
governmental rules and regulations, judgments, orders and decrees to which any
of them is subject, and obtain and keep in effect all licenses, permits,
franchises and other governmental authorizations necessary to the ownership or
operation of their respective properties or the conduct of their respective
businesses, except to the extent that the failure to so comply or obtain and
keep in effect would not have a Material Adverse Effect.
(p) When Company May Merge, Etc.
(i) The Company will not merge with or into, or sell, convey, or transfer, or
otherwise dispose of all or substantially all of its property and assets (as an
entirety or substantially as an entirety in one transaction or a series of
related transactions) to any Person or permit any Person to merge with or into
the Company, unless:
(A) either the Company shall be the continuing Person
or the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or that
acquired such property and assets of the Company shall be an
V-9
<PAGE>
entity organized and validly existing under the laws of the
United States of America or any state or jurisdiction thereof
and shall expressly assume, by amendments to this Note,
executed and delivered to Holder, all of the obligations of
the Company, on this Note;
(B) immediately after giving effect, on a pro forma
basis, to such transaction, no Default or Event of Default
shall have occurred and be continuing; and
(C) the Company will have delivered to the Holders of
a majority in principal amount of the Notes an Officers'
Certificate and an opinion of counsel, in each case stating
that such consolidation, merger or transfer and such
supplemental indenture complies with this provision and that
all conditions precedent provided for herein relating to such
transaction have been complied with.
(ii) Upon any consolidation or merger or any transfer of all or substantially
all of the assets of the Company, in accordance with Section 5(p)(i), the
successor Person formed by such consolidation or into which the Company is
merged or to which such transfer is made, shall succeed to, be substituted for,
and may exercise every right and power of the Company under this Note with the
same effect as if such successor Person had been named therein as the Company
and the Company shall be released from the obligations under this Note.
(q) Office or Agency. The Company will maintain an office or agency in
metropolitan Denver, Colorado (or in any future principal place of business of
the Company with respect to which the Holders have been notified pursuant to
Section 9.1 of the Purchase Agreement) where notices, presentations and demands
to or upon the Company in respect of this Note may be given or made.
(r) Directors. The Company's Board of Directors shall at all times be composed
of no more than 12 directors unless approved by Holders of a majority in
principal amount of the Notes. The Holder shall have the right to nominate a
number of persons for election as members of the Board of Directors of the
Company such that the number nominated by Holder shall compose a majority of the
total number of directors on the Board of Directors. The Company hereby agrees
to call annual shareholders' meetings for the election of directors and to
recommend that the Company's shareholders votes in favor of such
director-nominees of the Holders at any such meeting called for election of
directors; provided, that the Board of Directors of the Company shall not be
required to recommend for shareholder vote any person whom the Board of
Directors has reasonably concluded after due inquiry lacks the requisite moral
fitness to sit on the Board of Directors. The Company agrees that the members of
the Board of Directors nominated by the Holders shall be appointed to each
committee of the Board of Directors, including, but not limited to, the
compensation committee; provided, that both such persons need not be appointed
to the audit committee if such appointments would cause a breach of the
continued listing requirements for the Common Stock on the Nasdaq Stock Market.
(s) Approval of Significant Transactions. The Company shall not engage in any
Significant Transaction, without the prior written approval of the Holders of a
majority in principal amount of the Notes. For purposes of this Section 7(s), a
"Significant Transaction" means (i) one or a series of related transactions, in
which the Company obtains debt financing (excluding the Senior Debt) in an
aggregate amount in excess of $1,000,000, (ii) any Material Acquisition or
Material Disposition, or (iii) any adoption of, or amendment to, any Incentive
Compensation Plan. A "Material Acquisition" means any acquisition (directly or
indirectly) (whether by merger, purchase of securities, purchase of assets or
otherwise) by the Company or any subsidiary of the Company, involving aggregate
consideration with a value of $2,000,000 or more; provided, that a Material
V-10
<PAGE>
Acquisition shall not include capital expenditures made in the ordinary course
of business. A "Material Disposition" means any sale, transfer or other
disposition of assets of the Company (whether by merger, sale of stock, sale of
assets or otherwise) or its subsidiaries which assets either (A) have a fair
market value of $2,000,000 or more, or (B) represent more than 5% of the lesser
of net book value or fair market value of the tangible assets of the Company on
a consolidated basis. An "Incentive Compensation Plan" means any arrangement,
policy or plan of the Company providing for deferred compensation,
profit-sharing bonuses, stock appreciation rights, stock purchases or other
forms of incentive compensation to any director, employee, former employee,
consultant, advisor or agent of the Company which by its terms results, or but
for deferral would result, in cash payments by the Company to such person.
(t) Certain Payments. The Company shall comply with the requirements of the
Foreign Corrupt Practices Act and neither the Company nor any director, officer,
agent, or employee of the Company, or any other Person associated with or acting
for or on behalf of the Company shall directly or indirectly (i) make any
contribution, gift, bribe, payoff, influence payment, kickback, or other payment
to any governmental official, regardless of form, whether in money, property, or
services (A) to obtain favorable treatment in securing business, (B) to pay for
favorable treatment for business secured, or (C) to obtain special concessions
or for special concessions already obtained, for or in respect of the Company or
any Subsidiary of the Company, (ii) make any contribution, gift, bribe, payoff,
influence payment, kickback, or other payment to any person, private or public,
regardless of form, whether in money, property, or services, in violation of any
law, or (iii) establish or maintain any fund or asset that is not recorded in
the books and records of the Company.
6. Defaults and Remedies.
(a) Events of Default.
(i) An "Event of Default" occurs if:
(A) the Company defaults in the payment of the principal of or accrued
interest on any Note when the same becomes due and payable at maturity,
upon redemption or otherwise;
(B) the Company fails to comply in any material respect with any of the
agreements, covenants, or provisions of the Notes and the Default
continues for the period and after the notice specified below;
(C) the Company fails to comply in any material respect with any of the
agreements, covenants, or provisions of the Warrants and the Default
continues for the period and after the notice specified below;
(D) if any of the representations or warranties of the Company made in or
in connection with this Note or the Purchase Agreement were untrue when
made in any respect materially adverse to the Company and its
subsidiaries taken as a whole;
(E) an event of default occurs under any loan agreement, note, mortgage,
indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness of the Company or
any subsidiary for borrowed money (or the payment of which is
guaranteed by the Company or a subsidiary), whether such Indebtedness
V-11
<PAGE>
or guarantee now exists or shall be created hereafter, which default
results in the acceleration of such Indebtedness prior to its expressed
maturity and the principal amount of such Indebtedness, together with
the principal amount of any other such Indebtedness the maturity of
which is so accelerated and has not been paid, aggregates $500,000 or
more;
(F) a final judgment or final judgments for the payment of money are
entered by a court or courts of competent jurisdiction against the
Company or any subsidiary of the Company and such remains undischarged
for a period (during which execution shall not be effectively stayed)
of 30 days, provided that the aggregate of all such judgments exceeds
$1,000,000;
(G) The Company or any subsidiary pursuant to or within the meaning of any
Bankruptcy Law:
(1) commences a voluntary case,
(2) consents to the entry of an order for relief against it in an
involuntary case,
(3) consents to the appointment of a Custodian of it or for all or
substantially all of its property,
(4) makes a general assignment for the benefit of its creditors, or
(5) generally is unable to pay its debts as the same become due; or
(H) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(1) is for relief against the Company or any of its subsidiaries in an
involuntary case,
(2) appoints a Custodian of the Company or any of its subsidiaries or
for all or substantially all of its property, or
(3) orders the liquidation of the Company or any of its subsidiaries,
and the order or decree remains unstayed and in effect for 60 days.
(ii) The term "Bankruptcy Law" means title 11, U.S. Code or any similar federal
or state law for the relief of debtors. The term "Custodian" means any receiver,
trustee, assignee, liquidator or similar official under any Bankruptcy Law.
(iii) A Default under clause (B) or (C) (other than a Default under Section
5(e), (i), (l), (m), or (n), which Default shall be an Event of Default without
the notice or passage of time specified in this paragraph), (E) (other than a
Default resulting from the acceleration of any indebtedness described therein,
which Default shall be an Event of Default without the notice or passage of time
specified in this paragraph) or (F) is not an Event of Default until the holders
of at least a majority in aggregate principal amount of the then outstanding
Notes notify the Company of the Default and the Company does not cure the
V-12
<PAGE>
Default within 30 days after receipt of the notice. The notice must specify the
Default, demand that it be remedied and state that the notice is a "Notice of
Default."
(b) Acceleration of Notes.
If an Event of Default (other than an Event of Default
specified in clauses (G) and (H) of Section 6(a)(i)) occurs and is continuing,
the holders of at least a majority in aggregate principal amount of the then
outstanding Notes, by notice to the Company, may declare the unpaid principal of
and any accrued interest on all the Notes to be due and payable. Immediately
upon such declaration, the principal and interest shall be due and payable. If
an Event of Default specified in clause (G) or (H) of Section 6(a)(i) occurs,
such an amount shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of any holder. The holders of
at least a majority in principal amount of the then outstanding Notes by notice
to the Company may rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default have been cured or waived except nonpayment of principal or
interest that has become due solely because of the acceleration.
(c) Other Remedies.
(i) If an Event of Default occurs and is continuing, holders of the Notes may
pursue any available remedy to collect the payment of principal or interest on
the Notes or to enforce the performance of any provision of the Notes.
(ii) A delay or omission by any holder of any Notes in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
(d) Waiver of Past Defaults.
The holders of at least a majority in principal amount of the
then outstanding Notes by notice to the Company may waive an existing Default or
Event of Default and its consequences except a continuing Default or Event of
Default in the payment of the principal of or interest on any Notes.
(e) Rights of Holder to Receive Payment.
Notwithstanding any other provision of this Agreement, the
right of any Holder of a Note to receive payment of principal and interest on
the Note, on or after the respective due dates expressed in the Note, or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of the holder.
(f) Undertaking for Costs.
In any suit for the enforcement of any right or remedy under
this Agreement, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
V-13
<PAGE>
7. Modification of Notes.
The Notes may be modified, and any of the terms thereof
waived, or any consent or approval required thereunder given, without prior
notice to any Holder but with the written consent of the Holder of a majority in
principal amount of the Notes then outstanding. Subject to the provisions of the
Purchase Agreement, the Holders of a majority in principal amount of the Notes
then outstanding may waive compliance by the Company with any provision of the
Notes without prior notice to any Holder. However, without the consent of each
Holder affected, an amendment, supplement or waiver may not (a) alter the amount
of Notes whose Holders must consent to an amendment, supplement or waiver, (b)
alter the rate or the time for payment of interest on any Note, (c) alter the
principal or the maturity of any Note or alter the redemption or prepayment
provisions with respect thereto or (d) make any Note payable in money or
property other than as stated in the Notes.
8. Conversion.
(a) Conversion Privilege. The Holder of this Note may convert it into Common
Stock at any time. The number of shares issuable upon conversion of a Note is
determined as follows: Divide the principal amount to be converted by the
conversion price in effect on the conversion date. Round the result upwards to
the nearest 1/100th of a share. The initial conversion price, as of the Original
Issue Date, is $2.58 per share. The conversion price is subject to adjustment as
set forth herein. The Holder may convert all or any portion of this Note at any
time or from time to time. Provisions of this Note that apply to conversion of
all of the Note also apply to conversion of a portion of it.
(b) Automatic Conversion. The Notes shall automatically be converted into shares
of Common Stock upon a Trading Price Conversion Event in an amount equal to the
principal amount of the Notes, plus the accrued and unpaid interest to the
Conversion Date divided by the then current conversion price.
(c) Conversion Procedure. To convert this Note the Holder must give notice to
the Company setting forth the amount of this Note which Holder is converting.
The date on which the Holder gives such notice is the effective date of the
conversion (the "Conversion Date"). As soon as practical, the Company shall
deliver to Holder a certificate for the number of full shares of Common Stock
issuable upon the conversion with any fractional share being rounded up to a
full share. The person in whose name the certificate is registered shall be
treated as a shareholder of record on and after the conversion date. No payment
or adjustment will be made for accrued interest on a converted Note or portion
thereof or dividends on any Common Stock issued. Upon a surrender of this Note
if it is converted in part, the Company shall issue to the Holder a new Note
equal in principal amount to the unconverted portion of the Note surrendered.
(d) Fractional Shares. The Company will not issue a fractional share of
Common Stock upon conversion of a Note. Instead each fractional share will be
rounded up to a full share.
(e) Taxes on Conversion. If a Holder of a Note converts it, the Company shall
pay any documentary, stamp or similar issue or transfer tax due on the issue of
shares of Common Stock upon the conversion. However, the Holder shall pay any
such tax which is due because the shares are issued in a name other than the
Holder's name.
V-14
<PAGE>
(f) Company to Provide Stock. The Company has reserved and shall continue to
reserve out of its authorized but unissued Common Stock or its Common Stock held
in treasury enough shares of Common Stock to permit the conversion of the Notes
in full. All shares of Common Stock which may be issued upon conversion of the
Notes shall be fully paid and non-assessable.
The Company will endeavor to comply with all securities laws
regulating the offer and delivery of shares of Common Stock upon conversion of
Notes and will endeavor to list such shares on each national securities exchange
or inter-dealer securities quotation system on which the Common Stock is listed
or quoted.
(g) Adjustment for Change in Capital Stock. If, on or after the Original
Issue Date, the Company:
(i) pays a dividend or makes a distribution on its Common Stock in shares
of its Common Stock;
(ii) subdivides its outstanding shares of Common Stock into a greater number
of shares;
(iii) combines its outstanding shares of Common Stock into a smaller number
of shares;
(iv) makes a distribution on its Common Stock in shares of its capital stock
other than Common Stock; or
(v) issues by reclassification of its Common Stock any shares of its
capital stock;
then the conversion privilege and the conversion price in effect immediately
prior to such action shall be adjusted so that the Holder of a Note thereafter
converted may receive the number of shares of capital stock of the Company which
he would have owned immediately following such action if he had converted the
Note immediately prior to such action.
The adjustment shall become effective immediately after the
record date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification.
If after an adjustment a Holder of a Note upon conversion of
it may receive shares of two or more classes of capital stock of the Company,
the Company shall determine the allocation of the adjusted conversion price
between the classes of capital stock. After such allocation, the conversion
privilege and the conversion price of each class of capital stock shall
thereafter be subject to adjustment on terms comparable to those applicable to
Common Stock in this Section.
(h) When Adjustment May Be Deferred. No adjustment in the conversion price need
be made unless the adjustment would require an increase or decrease of at least
1% in the conversion price. Any adjustments that are not made shall be carried
forward and taken into account in any subsequent adjustment.
All calculations under this Article shall be made to the
nearest cent or to the nearest 1/100th of a share, as the case may be.
V-15
<PAGE>
(i) When No Adjustment Required. No adjustment need be made for a transaction
referred to in Sections 8(g) if all Noteholders are entitled to participate in
the transaction on a basis and with notice that the Board of Directors
determines to be fair and appropriate in light of the basis and notice on which
holders of Common Stock participate in the transaction. No adjustment need be
made for rights to purchase Common Stock pursuant to a Company plan for
reinvestment of dividends or interest. No adjustment need be made for a change
in the par value or no par value of the Common Stock. To the extent the Notes
become convertible into cash, no adjustment need be made thereafter as to the
cash. Interest will not accrue on the cash.
(j) Notice of Adjustment. Whenever the conversion price is adjusted, the Company
shall promptly mail to Noteholders a notice of the adjustment. Such notice shall
be accompanied by a certificate from the Company's independent public
accountants briefly stating the facts requiring the adjustment and the manner of
computing it.
(k) Voluntary Reduction. The Company from time to time may reduce the conversion
price by any amount for any period of time if the period is at least 20 days and
if the reduction is irrevocable during the period, provided, that in no event
may the conversion price be less than the par value of a share of Common Stock.
Whenever the conversion price is reduced, the Company shall
mail to Noteholders a notice of the reduction. The Company shall mail the notice
at least 15 days before the date the reduced conversion price takes effect. The
notice shall state the reduced conversion price and the period it will be in
effect.
A reduction of the conversion price does not change or adjust
the conversion price otherwise in effect for purposes of Sections 8(g).
(l) Notice of Certain Transactions. If:
(i) the Company takes any action that would require an adjustment in the
conversion price pursuant to Sections 8(f) and if the Company does not
let Noteholders participate pursuant to Section 8(i);
(ii) there is a liquidation or dissolution of the Company,
the Company shall mail to Noteholders a notice stating the proposed record date
for a dividend or distribution or the proposed effective date of a subdivision,
combination, reclassification, consolidation, merger, transfer, lease,
liquidation or dissolution. The Company shall mail the notice at least 15 days
before such date. Failure to mail the notice or any defect in it shall not
affect the validity of the transaction.
(m) Reorganization of Company. If the Company is a party to a Change of Control,
or a merger which reclassifies or changes its outstanding Common Stock, upon
consummation of such transaction the Notes shall automatically become
convertible into the kind and amount of securities, cash or other assets which
the Holder of a Note would have owned immediately after the consolidation,
merger, transfer or lease if the Holder had converted the Note immediately
before the effective date of the transaction. Concurrently with the consummation
V-16
<PAGE>
of such transaction, the person obligated to issue securities or deliver cash or
other assets upon conversion of the Notes shall executed an amended Note so
providing and further providing for adjustments which shall be as nearly
equivalent as may be practical to the adjustments provided for in this Section
8.
If securities deliverable upon conversion of Notes, as
provided above, are themselves convertible into the securities of an affiliate
of the formed, surviving, transferee or lessee corporation, that issuer shall
join in the amended Note which shall so provide.
If this Section applies, Section 8(g) does not apply.
9. Modification of Notes.
The Notes may be modified without prior notice to any Holder
but with the written consent of the Company and the Holders of a majority in
principal amount of the Notes then outstanding. The Holders of a majority in
principal amount of the Notes then outstanding may waive compliance by the
Company with any provision of the Notes, or give any consent or approval
required or provided for under the terms of the Notes, without prior notice to
any Holder. However, without the consent of each Holder affected, an amendment,
supplement or waiver may not (a) alter the amount of Notes whose Holders must
consent to an amendment, supplement or waiver, (b) alter the rate or the time
for payment of interest on any Note, (c) alter the principal or the maturity of
any Note or alter the redemption or prepayment provisions with respect thereto
or (d) make any Note payable in money or property other than as stated in the
Notes.
10. Definitions.
The terms defined in this Section 10 shall, for all purposes
of this Note, have the meanings herein specified, unless the context otherwise
requires.
"Accrual Notes" means the Accrual Notes issued in respect of
the Notes in lieu of cash interest, each such note requiring the accrual of
interest in accordance with the terms of this Note (including the issuance of
additional Accrual Notes in respect of such interest), commencing from the date
of issuance of such note or from the date such note was deemed to have been
issued, at the rate of 8.875% per annum, computed on the basis of a 360-day year
of twelve 30-day months, for the actual number of days elapsed and containing
terms substantially identical to this Note.
"Affiliate" means with respect to a Person, any other Person
that directly or indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person. For the purposes of
this definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise.
Without limiting the foregoing, all directors and executive officers of a Person
that is a corporation, all managing members of a Person that is a limited
liability company, and all general partners of a partnership, shall be deemed
Affiliates of such Person for all purposes hereunder.
"Change of Control" shall be deemed to have occurred if, at
any time, (i) any "person" or "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable) other
than the Holders and each of their respective Affiliates, in the aggregate,
becomes the "beneficial owners" (as defined in Rule 13d-3 under the Exchange
V-17
<PAGE>
Act), directly or indirectly, of 33% or more of the outstanding shares of Common
Stock of the Company or has the ability to cause 25% or more of the Board of
Directors to be composed of its nominees, (ii) the directors elected or
appointed to the Company's Board of Directors who were designees of the Holders
cease for any reason to constitute at least a majority of the Company's Board of
Directors and the Holders do not have the ability to designate their
replacements or (iii) the shareholders of the Company approve, or there is
consummated without stockholder approval, a merger or consolidation of the
Company with any other entity in which the shareholders of the Company prior to
such transaction hold voting securities of the surviving entity representing 50%
or less of the total votes outstanding, a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or any
substantial portion of the Company's assets or a major division or subsidiary of
the Company.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $.01 per
share, of the Company.
"Company" means EFTC Corporation, a Colorado corporation.
"Conversion Date" has the meaning set forth in Section 8(c).
"Credit Agreement" means the Loan and Security Agreement,
dated as of March 30, 2000, by and among the Financial Institutions named
therein, Bank of America, N.A., as Agent, and the Company together with any
amendment, modification or replacement thereof.
"Default" means any event which is, or after notice or
passage of time would be, an Event of Default.
"Default Rate" is 10.875% per annum.
"Equity Interest" means any capital stock or warrants, options
or other rights to acquire capital stock (but excluding any debt security which
is convertible into, or exchangeable for, capital stock).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Event of Default" shall have the meaning provided in Section
6.
"GAAP" means United States generally accepted accounting
principles, in effect from time to time, consistently applied.
"GECC Payment Agreement" means that certain Agreement dated
December 5, 1997, between General Electric Capital Corporation and the Company,
regarding the GE Capital Accelerated Payment Program.
"High Trading Price Conversion Event" shall be deemed to occur
if (a) the Company has maintained and at the time is maintaining the listing of
its Common Stock on the Nasdaq Stock Market, (b) the Company is in full
compliance with all covenants under the Senior Debt, and (c) the Common Stock
has a Trading Price at or above $7.50 per share for 45 consecutive trading days.
V-18
<PAGE>
"Holder" or "Noteholder" means the Person in whose name a Note
is registered on the Company's books, and any permitted transferee thereof.
"Holder Representative" means the person designated as such by
the Holders of a majority in principal amount of the Notes, with notice thereof
provided in writing to the Agent under the Credit Agreement.
"Indebtedness" means, as to any Person: (a) all obligations,
whether or not contingent, of such Person for borrowed money (including, without
limitation, reimbursement and all other obligations with respect to surety
bonds, letters of credit and bankers' acceptances, whether or not matured), (b)
all obligations of such Person evidenced by notes, bonds, debentures or similar
instruments, (c) all obligations of such Person representing the balance of
deferred purchase price of property or services, except trade accounts payable
and accrued commercial or trade liabilities arising in the ordinary course of
business, (d) all interest rate and currency swaps, caps, collars and similar
agreements or hedging devices under which payments are obligated to be made by
such Person, whether periodically or upon the happening of a contingency, (e)
all indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), (f)
all obligations of such Person under leases which have been or should be, in
accordance with GAAP, recorded as capital leases, (g) all obligations of such
Persons under operating leases in excess of $15,000,000, (h) all indebtedness
secured by any Lien (other than Liens in favor of lessors under leases other
than leases included in clauses (f) and (g)) on any property or asset owned or
held by that Person regardless of whether the indebtedness secured thereby shall
have been assumed by that Person or is non-recourse to the credit of that
Person, and (i) all Indebtedness of any other Person referred to in clauses (a)
through (g) above, guaranteed, directly or indirectly, by that Person.
"Lien" means any mortgage, deed of trust, pledge,
hypothecation, assignment, encumbrance, lien (statutory or other) or other
security interest of any kind or nature whatsoever (excluding preferred stock or
equity related preferences) including, without limitation, those created by,
arising under or evidenced by any conditional sale or other title retention
agreement, the interest of a lessor under a capital lease obligation, or any
financing lease having substantially the same economic effect as any of the
foregoing.
"Low Trading Price Conversion Event" shall be deemed to occur
if, on or after the third anniversary of the Original Issue Date, (a) the
Company has maintained and at the time is maintaining the listing of its Common
Stock on the Nasdaq Stock Market, (b) the Company is in full compliance with all
covenants under the Senior Debt, and (c) the Common Stock has a Trading Price at
or above $4.25 per share for 45 consecutive trading days.
"Mandatory Redemption Date" has the meaning set forth in
Section 3(b).
"Material Adverse Effect" means any material adverse change in
the assets, business or financial condition of the Company.
"Notes" shall mean this Note as defined in Section 1 together
with all Accrual Notes issued in connection thereto.
V-19
<PAGE>
"Officers' Certificate" means a certificate signed by any two
officers of the Company, one of whom must be the chief executive officer, the
chief financial officer or chief accounting officer of the Company.
"Original Issue Date" means March 30, 2000.
"Permitted Junior Securities" means equity interests in the
Company.
"Permitted Liens" means (i) Liens for taxes, governmental
charges or levies which (a) are not yet due and payable, or (b) are being
diligently contested in good faith by appropriate proceedings; provided, that
for any such taxes being diligently contested in good faith, the Company has set
aside adequate reserves, (ii) Liens imposed by law, such as mechanic's,
materialman's, landlord's, warehouseman's and carrier's liens, securing
obligations incurred in the ordinary course of business which are not yet
overdue or which are being diligently contested in good faith by appropriate
proceeding and, with respect to such obligations which are being contested, for
which the Company has set aside adequate reserves, (iii) Liens securing Senior
Debt (iv) Liens which (x) secure obligations of less than $15,000,000 in the
aggregate and (y) do not, individually or in the aggregate, interfere with the
use and enjoyment of the property subject thereto and (v) Liens created in favor
of General Electric Capital Corporation pursuant to the GECC Payment Agreement.
"Person" means any individual, partnership, corporation,
trust, unincorporated organization or government or agency or political
subdivision thereof.
"Purchase Agreement" shall have the meaning provided in the
preamble hereto.
The "principal" of a debt security means the principal of the
security plus, when appropriate, the premium (if any) payable on the security.
"Redemption Price" has the meaning set forth in Section 2(a).
"Senior Debt" means (i) all indebtedness outstanding at any
time under the Credit Agreement, and all hedging obligations and bank products
with respect thereto, (ii) any replacement or refinancing of the Credit
Agreement which provides for borrowings by the Company up to $55,000,000 in
aggregate principal amount and (iii) all obligations with respect to any of the
foregoing. Notwithstanding anything to the contrary in the foregoing, Senior
Debt shall not include (x) any indebtedness of the Company to any of its
subsidiaries or other affiliates, or (y) any indebtedness incurred for the
purchase of goods or materials or for services obtained in the ordinary course
of business (other than with the proceeds of revolving credit borrowings
permitted hereby).
"Senior Debt Documents" means the Credit Agreement and any
comparable documents governing other senior debt, if any.
"Transaction Documents" means collectively, the Purchase
Agreement, the Exchangeable Notes, the Convertible Notes and the Warrants.
V-20
<PAGE>
"Trading Price" means, on any day, the average of the high and
low reported sales prices regular way of a share of Common Stock on such day (if
such day is a trading day, and if such day is not a trading day, on the trading
day immediately preceding such trading day) on the Nasdaq Stock Market.
"Trading Price Conversion Event" means a High Trading Price
Conversion Event or a Low Trading Price Conversion Event.
11. Non-Waiver.
No course of dealing between the Company and the Holder of
this Note or any delay or failure on the part of the Holder hereof in exercising
any rights hereunder shall operate as a waiver of any rights of any Holder
hereof, except to the extent expressly waived in writing by the Holder hereof.
12. Governing Law.
This Note shall be construed in accordance with and governed
by the internal laws of the State of New York.
13. Successors and Assigns.
All of the covenants, promises and agreements in this Note
shall bind the Company's successors and assigns, whether so expressed or not.
14. Severability.
If any one or more of the provisions contained herein, or the
application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provision or
provisions held invalid, illegal or unenforceable shall substantially impair the
remaining provisions hereof.
15. Headings.
The headings of the sections and paragraphs of this Note are
inserted for convenience only and shall not be deemed to constitute a part
hereof.
V-21
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be
signed in its name by a duly authorized officer and to be dated as of the day
and year first above written.
EFTC CORPORATION
By:
Name:
itle:
V-22
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to
(Insert assignee's social security or tax identification number)
(Print or type assignee's name, address and zip code)
and irrevocably appoint
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
Date: _____________ Your Signature:
(Sign exactly as your name appears on the front of this Note)
Signature Guarantee:
<PAGE>
Appendix VI
Warrant
<PAGE>
WARRANT
To Purchase Shares of Common Stock,
par value $.01 per share, of
EFTC Corporation
March 30, 2000
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES OR BLUE SKY LAWS
OF ANY STATE. THEY MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF COMPLIANCE
WITH THE REGISTRATION REQUIREMENTS OF SAID ACT AND WITH SUCH LAWS OR PURSUANT TO
AN EXEMPTION THEREFROM.
WARRANT
To Purchase Shares of Common Stock, par value $.01 per share, of
EFTC Corporation
March 30, 2000
THIS IS TO CERTIFY that, for value received, THAYER-BLUM
FUNDING, L.L.C., or registered assigns ("Holder"), is entitled upon the due
exercise hereof at any time during the Exercise Period (defined below) to
purchase 3,093,154 shares of Common Stock, par value $.01 per share, of EFTC
Corporation, a Colorado corporation (the "Company"), at an Exercise Price
(defined below) of $.01 per share (such Exercise Price and the number of shares
of Common Stock purchasable hereunder being subject to adjustment as provided
herein), and to exercise the other rights, powers and privileges hereinafter
provided, all on the terms and subject to the conditions hereinafter set forth
(the "Warrant"). This Warrant is being issued in connection with a Securities
Purchase Agreement, dated the date hereof, by and between the Company and
Thayer-BLUM Funding, L.L.C. (the "Securities Purchase Agreement").
1. Definitions.
1.1 Definitions of Certain Terms. The following terms, whenever used an
capitalized in this Warrant, shall, unless the context otherwise requires,
have the following meanings:
"Assignment" shall mean the form of Assignment appearing at
the end of this Warrant.
"Business Day" means any day other than a Saturday or Sunday
or a day on which banking institutions in the City of New York are authorized or
required by law or executive order to remain closed.
"Common Stock" shall mean the Common Stock, par value $.01 per
share, of the Company as constituted on the date hereof and any stock into which
such Common Stock shall have been changed or any stock resulting from any
reclassification of such Common Stock.
VI-1
<PAGE>
"Convertible Securities" shall mean evidences of indebtedness,
shares (including, without limitation, preferred shares) of stock or other
securities which are convertible into or exchangeable for, with or without
payment of additional consideration, shares of Common Stock, either immediately
or upon the arrival of a specified date or the happening of a specified event.
"Exchangeable Note" shall mean the Company's 15% Senior
Subordinated Exchangeable Notes due June 2006.
"Exercise Period" shall mean the period (i) commencing on the
earlier of (A) September 1, 2000 and (B) the date on which a Failure to Approve
the Transactions shall occur and (ii) ending on the earlier of (A) the date on
which a Successful Tender Offer (as such term is defined in the Securities
Purchase Agreement) is consummated, or (B) the close of business on June 30,
2010.
"Exercise Price" shall mean the price per share of Common
Stock set forth in the preamble to this Warrant, as such price may be adjusted
pursuant to Section 4.
"Failure to Approve the Transactions" shall mean that the
holders of the Common Stock of the Company do not vote to approve the
Transactions at the Shareholders Meeting (as such term is defined in the
Purchase Agreement).
"Notice of Exercise" shall mean the form of Notice of Exercise
appearing at the end of this Warrant.
"Original Issue Date" shall mean March 30, 2000.
"Other Securities" shall mean with reference to the exercise
privilege of the holders of the Warrants, any shares (other than Common Stock)
and any other securities (including, without limitation, preferred shares) of
the Company or of any other Person which the holders of this Warrant at any time
shall be entitled to receive, or shall have received, upon the exercise or
partial exercise of the Warrant, in lieu of or in addition to Common Stock, or
which at any time shall be issuable or shall have been issued in exchange for or
in replacement of Common Stock (or Other Securities) pursuant to the terms of
the Warrant or otherwise.
"Person" shall mean any individual, firm, corporation,
partnership, limited liability company, incorporated or unincorporated
association, joint venture, joint stock company, governmental agency or
instrumentality or other entity of any kind.
"Securities Purchase Agreement" shall have the meaning
ascribed thereto in the preamble hereto, as amended from time to time.
"Senior Debt" means (i) all indebtedness outstanding at any
time under the Credit Agreement, and all hedging obligations and bank products
with respect thereto, (ii) any replacement or refinancing of the Credit
Agreement which provides for borrowings by the Company up to $55,000,000 in
aggregate principal amount, and (iii) all obligations with respect to any of the
foregoing. Notwithstanding anything to the contrary in the foregoing, Senior
VI-2
<PAGE>
Debt shall not include (x) any indebtedness of the Company to any of its
subsidiaries or other affiliates, or (y) any indebtedness incurred for the
purchase of goods or materials or for services obtained in the ordinary course
of business (other than with the proceeds of revolving credit borrowings
permitted hereby).
"Shares" of any Person shall include any and all shares of
capital stock of such Person of any class or other shares, interests,
participations or other equivalents (however designated) in the capital of such
Person.
"Stock Purchase Rights" shall mean any warrants, options or
other rights to subscribe for, purchase or otherwise acquire any shares of
Common Stock or any Convertible Securities.
"This Warrant" shall mean, and the words "herein", "hereof",
"hereunder" and words of similar import shall refer to, this instrument as it
may from time to time be amended of supplemented.
"Transactions" shall have the meaning ascribed thereto in the
Securities Purchase Agreement.
"Warrant Register" shall have the meaning specified in Section
3.1.
"Warrant Shares" shall mean the shares of Common Stock (and/or
Other Securities) issued or issuable, as the case may be, from time to time upon
exercise of the Warrant, including, without limitation, any shares of Common
Stock (and/or Other Securities) issuable with respect thereto by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation, other reorganization or otherwise.
2. Exercise of Warrant.
2.1 Right to Exercise; Notice. On the terms and subject to the conditions of
this Section 2, the holder hereof shall have the right, at its option, to
exercise this Warrant in whole or in part at any time or from time to time
during the Exercise Period, all as more fully specified below; provided that a
partial exercise of this Warrant for less than the entire remaining amount of
Warrant Shares issuable under this Warrant shall be made only for a whole number
of shares.
2.2 Manner of Exercise; Issuance of Common Stock. To exercise this Warrant, the
holder hereof shall deliver to the Company (a) a Notice of Exercise duly
executed by the holder hereof specifying (i) the number of Warrant Shares to be
purchased (and the date of exercise (the "Exercise Date") which shall be no more
than 30 Business Days and no less than 25 Business Days following the date of
receipt by the Company of the Notice of Exercise), and (ii) the method by which
the holder shall pay the amount equal to the aggregate Exercise Price for all
Warrant Shares as to which this Warrant is then being exercised, and (b) this
Warrant. For the exercise of this Warrant to be effective, on the Exercise Date,
payment of the Exercise Price shall be made, at the option of the holder hereof,
VI-3
<PAGE>
(w) by wire transfer of funds to an account in a bank located in the United
States designated by the Company for such purpose, (x) by certified or official
bank check payable to the order of the Company or (y) by any combination of such
methods. Any exercise may be rescinded by notice to the Company no later than
two (2) Business Days prior to the Exercise Date.
Upon receipt of the items referred to in this Section 2.2,
including receipt of the aggregate Exercise Price for all Warrant Shares as to
which this Warrant is then being exercised, the Company shall, on the Exercise
Date, cause to be issued and delivered to the holder hereof (or its nominee) or
the transferee designated in the Notice of Exercise, a certificate or
certificates representing the Warrant Shares equal in the aggregate to the
number of Warrant Shares specified in the Notice of Exercise (but not exceeding
the maximum number of shares issuable upon exercise of this Warrant). Such
certificates shall be registered in the name of the holder hereof (or its
nominee) or in the name of such transferee, as the case may be.
If this Warrant is exercised in part, the Company shall, at
the time of delivery of such certificate or certificates, unless the Exercise
Period expired prior to such exercise, issue and deliver to the holder hereof or
the transferee so designated in the Notice of Exercise, a new Warrant evidencing
the right of the holder hereof or such transferee to purchase at the Exercise
Price then in effect the aggregate number of Warrant Shares for which this
Warrant shall not have been exercised, and this Warrant shall be canceled.
2.3 Net Issue Exercise. Notwithstanding any provisions herein to the contrary,
if the fair market value of one share of Common Stock is greater than the
Exercise Price for one share of Common Stock (at the date of calculation, as set
forth below), in lieu of exercising this Warrant for cash, the holder may elect
to receive shares of Common Stock equal to the value (as determined below) of
this Warrant (or the portion thereof being canceled), computed using the
following formula:
WS = WCS (FMV-EP)
FMV
WHERE:
WS equals the number of Warrant Shares to be issued to
the Holder;
WCS equals the number of shares of Common Stock
purchasable under the Warrant or, if only a portion
of the Warrant is being exercised, the portion of the
Warrant being canceled (at the date of such
calculation);
FMV equals the Fair Market Value (as defined below) of
one share of Common Stock (at the date of such
calculation); and
EP equals the per share Exercise Price (as adjusted to the
date of such calculation) of the Warrant.
VI-4
<PAGE>
As used in this Section, the term "Fair Market Value" of each
Warrant Share as of any date shall be the highest bid price posted in respect of
the Common Stock in the Nasdaq Stock Market's automated dealer quotation system
at the close of trading on the Business Day prior to such exercise, or, if the
Common Stock shall not then be so quoted, Fair Market Value shall be determined
as follows: (A) if the parties hereto can agree on the Fair Market Value, such
agreed upon value shall constitute the Fair Market Value; (B) if the parties
cannot reach an agreement as to the Fair Market Value within five (5) Business
Days from the onset of negotiations, then such parties shall jointly appoint an
appraiser to determine the Fair Market Value; (C) if the parties cannot agree
upon the selection of an appraiser within five (5) Business Days after such five
(5) day period, then each party shall deliver to the other a list of three (3)
appraisers on or before the third (3rd) Business Day immediately following the
expiration of said five (5) day period, each party shall select one appraiser
from the other party's list and notify such other party of its selection on or
before the fifth (5th) Business Day immediately following the expiration of the
three (3) day period; (D) if either party does not deliver to the other party a
list of appraisers within the three (3) day period of deliver its selection of
the appraiser from the other party's list within the five (5) day period, then
the first appraiser listed on the other party's list shall be deemed to have
been jointly selected to determine the Fair Market Value; (E) if both parties
timely select an appraiser from the other party's list, then the two (2)
appraisers so selected shall jointly select a third (3rd) appraiser, which third
(3rd) appraiser shall independently calculate the Fair Market Value made in
accordance with the terms hereinabove set forth shall be final and binding on
the parties hereto.
Such conversion shall be effective as of the date of the
Company's receipt of the applicable Exercise Notice, and, upon such conversion,
the holder hereof shall surrender to the Company this Warrant in exchange for
certification evidencing the Warrant Shares issuable upon such conversion and,
in the case of a conversion of this Warrant in part, a new Warrant certificate
evidencing the portion of this Warrant not so converted.
2.4 Fractional Shares. The Company shall not issue fractional Warrant Shares or
scrip representing fractional Warrant Shares upon any exercise of this Warrant.
As to any fractional Warrant Shares which the holder hereof would otherwise be
entitled to purchase from the Company upon such exercise, the Company shall
issue one share which the holder hereof shall be entitled to purchase from the
Company at a price equal to the Exercise Price calculated as of the date of the
Notice of Exercise. Payment of such amount shall be made in any manner permitted
under Section 2.2 at the time of delivery of any certificate or certificates
deliverable upon such exercise.
2.5 Continued Validity. A holder of Warrant Shares issued upon the exercise of
this Warrant, in whole or in part, shall continue to be entitled to all rights
to which the holder of this Warrant is entitled pursuant to the provisions of
this Warrant, except such rights as by their terms apply solely to the holder of
a Warrant.
2.6 Cancellation. This Warrant shall be deemed cancelled immediately upon the
consummation of a Successful Tender Offer without any action taken by the
Company with respect thereto.
VI-5
<PAGE>
2.7 Cash Payment. Upon any exercise of this Warrant which would result in an
issuance of a number of shares which, without shareholder approval, would result
in the Common Stock being delisted under the requirements of the Nasdaq Stock
Market, the Company shall, in lieu of issuing such shares above the amount not
requiring shareholder approval (the "Excess Share Number"), pay to Holder an
amount equal to (x) the Trading Price of Common Stock times the Excess Share
Number minus (y) the Exercise Price times the Excess Share Number (the "Excess
Amount"); provided, however, that if any such payment shall at the time of
exercise be prohibited under the terms of the Senior Debt, the Company shall
issue a note substantially in the form of the Exchangeable Notes with a
principal amount equal to the Excess Amount and a term ending June 30, 2006.
3. Registration, Transfer and Exchange; Legends.
3.1 Maintenance of Registration Books. The Company shall keep at its principal
executive office or such other address (including that of the Company's transfer
agent) as the Company shall notify the holder hereof in writing, a register (the
"Warrant Register") in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration, transfer and exchange
of the Warrants. The Company shall not at any time close the Warrant Register so
as to result in preventing or delaying the exercise or transfer of this Warrant.
3.2 Transfer and Exchange. Upon surrender for registration of transfer of this
Warrant at such office, the Company shall execute and deliver in the name of the
designated transferee or transferees one or more new Warrants representing the
right to purchase at the Exercise Price then in effect a like aggregate number
of Warrant Shares. At the option of the holder hereof, this Warrant may be
exchanged for other Warrants representing the right to purchase a like aggregate
number of Warrant Shares upon surrender of this Warrant at such office. Whenever
this Warrant is so surrendered for exchange, the Company shall execute and
deliver the Warrants which the holder making the exchange is entitled to
receive. Every Warrant presented or surrendered for registration of transfer or
exchange shall be accompanied by an Assignment duly executed by the holder
thereof or its attorney duly authorized in writing. All Warrants issued upon any
registration of transfer or exchange of other Warrants shall be the valid
obligations of the Company, evidencing the same rights, and entitled to the same
benefits, as the Warrants surrendered upon such registration of transfer or
exchange.
3.3 Replacement. Upon receipt of evidence reasonably satisfactory to the Company
of the loss, theft, destruction or mutilation of this Warrant and (a) in the
case of any such loss, theft or destruction, upon delivery of indemnity
reasonably satisfactory to the Company in form and amount or (b) in the case of
any such mutilation, upon surrender of this Warrant for cancellation at the
office of the Company at which the Warrant Register is kept, the Company, at its
expense, will execute and deliver, in lieu thereof, a new Warrant representing
VI-6
<PAGE>
the right to purchase at the Exercise Price then in effect a like aggregate
number of Warrant Shares. The affidavit of any institutional holder of this
Warrant certifying as to the occurrence of any loss, theft, destruction or
mutilation of this Warrant shall constitute evidence satisfactory to the Company
for the purpose of this Section 3.3.
3.4 Ownership. The Company and any agent of the Company may treat the Person in
whose name this Warrant is registered on the Warrant Register as the owner and
holder hereof for all purposes, notwithstanding any notice to the contrary,
except that, if and when this Warrant is properly assigned in blank, the Company
may (but shall not be obligated to) treat the bearer hereof as the owner of this
Warrant for all purposes, notwithstanding any notice to the contrary. This
Warrant, if properly assigned, may be exercised by a new holder without first
having a new Warrant issued.
4. Anti-Dilution Provisions.
4.1 Adjustment of Number of Shares Purchasable. Upon any adjustment of the
Exercise Price as provided in Section 4.2, the holder hereof shall thereafter be
entitled to purchase, at the Exercise Price resulting from such adjustment, the
number of shares of Common Stock (calculated to the nearest 1/100th of a share)
obtained by multiplying the Exercise Price in effect immediately prior to such
adjustment by the number of shares of Common Stock purchasable hereunder
immediately prior to such adjustment and dividing the product thereof by the
Exercise Price resulting from such adjustment.
4.2 Adjustment of Exercise Price. The Exercise Price shall be subject to
adjustment from time to time as set forth in this Section 4.2.
(a) Stock Dividends, Subdivisions and Combinations. If the Company at
any time or from time to time subsequent to the date hereof:
(i) pays a dividend upon, or makes any distribution in respect of, any of
its Common Stock, payable in shares of Common Stock, Convertible
Securities or Stock Purchase Rights, or
(ii) subdivides its outstanding shares of Common Stock into a larger number
of shares of Common Stock, or
(iii) combines its outstanding shares of Common Stock into a smaller number
of shares of Common Stock,
then the Exercise Price in effect immediately prior to such action shall be
proportionately adjusted so that the holder of this Warrant shall, upon
subsequent exercise of this Warrant, receive the aggregate number and kind of
shares of capital stock and/or other securities of the Company which such holder
would have owned immediately following such action if such Warrant had been
exercised immediately prior to such action. The adjustment shall become
effective immediately after the record date in the case of a dividend or
distribution and immediately after the effective date in the case of a
subdivision, combination or reclassification.
VI-7
<PAGE>
If after an adjustment a holder of this Warrant upon exercise
of it may receive shares of two or more classes of capital stock or other
securities of the Company, the Company shall determine the allocation of the
adjusted Exercise Price between the classes of capital stock. After such
allocation, the exercise privilege and the Exercise Price of each class of
capital stock shall thereafter be subject to adjustment on terms comparable to
those applicable to Common Stock in this Section.
(b) Reorganization, Reclassification or Recapitalization of the Company. If the
Company at any time or from time to time subsequent to the date hereof shall
effect (i) any reorganization or reclassification or recapitalization of the
capital stock of the Company, (ii) any consolidation or merger of the Company
with or into another Person, or (iii) any other transaction (or any other event
shall occur) as a result of which holders of Common Stock become entitled to
receive any shares of stock or other securities and/or property (including,
without limitation, cash, but excluding any cash dividend that is paid out of
the earnings or surplus of the Company legally available therefor) in a
distribution with respect to or in exchange for the Common Stock of the Company,
there shall thereafter be deliverable upon the exercise of this Warrant or any
portion thereof (in lieu of or in addition to the Warrant Shares theretofore
deliverable, as appropriate) the number of shares of stock or other securities
and/or the amount of property (including, without limitation, cash) to which the
holder of the number of Warrant Shares which would otherwise have been
deliverable upon the exercise of this Warrant or any portion thereof at the time
would have been entitled upon such reorganization or reclassification or
recapitalization of capital stock, consolidation, merger, sale, transfer,
disposition or other transaction or upon the occurrence of such other event, and
at the same aggregate Exercise Price.
Prior to the consummation of any transaction or event
described in the preceding sentence, the Company shall make equitable, written
adjustments in the application of the provisions herein set forth satisfactory
to the holder or holders of Warrants at the time outstanding so that the
provisions set forth herein shall thereafter be applicable, as nearly as
possible, in relation to any shares of stock or other securities or other
property thereafter deliverable upon exercise of the Warrants. Any such
adjustment shall be made by and set forth in a supplemental agreement of the
Company and/or the successor entity, as applicable, for the benefit of the
holder or holders of the Warrants at the time outstanding, which agreement shall
bind each such entity.
(c) Exercise Price Adjustments for Certain Dilutive Issuances. The
Exercise Price shall be subject to adjustment from time to time as follows:
(i) (A) If the Company shall issue, after the date upon which the
Warrants were first issued (the "Warrant Issue Date"), any
Additional Stock (as defined below) without consideration or for
consideration per share less than $5.00, subject to adjustment
under Section 4.2(a), the Exercise Price in effect immediately
prior to each such issuance shall forthwith (except as otherwise
provided in this clause (i)) be adjusted to a price determined by
VI-8
<PAGE>
multiplying such Exercise Price by a fraction, the numerator of
which shall be the amount of consideration per share for such
Additional Stock; and the denominator of which shall be $5.00,
subject to adjustment under Section 4.2(a).
(B) No adjustment of the Exercise Price shall be made in an amount
less than one cent per share. Except to the limited extent
provided for in subsections (E)(3) and (E)(4), no adjustment of
such Exercise Price pursuant to this subsection 4.2(c)(i)) shall
have the effect of increasing the Exercise Price above the
Exercise Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions
or other expenses allowed, paid or incurred by the Company for
any underwriting or otherwise in connection with the issuance and
sale thereof.
(D) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair
value thereof as determined by the Board of Directors
irrespective of any accounting treatment.
(E) In the case of the issuance of options to purchase or other
rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock or options to
purchase or rights to subscribe for such convertible or
exchangeable securities, the following provisions shall apply for
all purposes of this subsection 4.2(c)(i) and subsection
4.2(c)(ii):
(1) The aggregate maximum number of shares of Common Stock
deliverable upon exercise (to the extent then exercisable)
of such options to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued at the time
such options or rights were issued and for a consideration
equal to the consideration (determined in the manner
provided in subsections 4.2(c)(i)(C) and (c)(i)(D)), if any,
received by the Company upon the issuance of such options or
rights plus the minimum exercise price provided in such
options or rights for the Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange (to the extent
then convertible or exchangeable) for any such convertible
or exchangeable securities or upon the exercise of options
to purchase or rights to subscribe for such convertible or
exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the
VI-9
<PAGE>
time such securities were issued or such options or rights
were issued and for a consideration equal to the
consideration, if any, received by the Company for any such
securities and related options or rights (excluding any cash
received on account of accrued interest or accrued
dividends), plus the minimum additional consideration, if
any, to be received by the Company upon the conversion or
exchange of such securities or the exercise of any related
options or rights (the consideration in each case to be
determined in the manner provided in subsections
4.2(c)(i)(C) and (c)(i)(D)).
(3) In the event of any change in the number of shares of Common
Stock deliverable or in the consideration payable to the
Company upon exercise of such options or rights or upon
conversion of or in exchange for such convertible or
exchangeable securities, including, but not limited to, a
change resulting from the antidilution provisions thereof,
the Exercise Price, to the extent in any way affected by or
computed using such options, rights or securities, shall be
recomputed to reflect such change, but no further adjustment
shall be made for the actual issuance of Common Stock or any
payment of such consideration upon the exercise of any such
options or rights or the conversion or exchange of such
securities.
(4) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the
expiration of any options or rights related to such
convertible or exchangeable securities, the Exercise Price,
to the extent in any way affected by or computed using such
options, rights or securities or options or rights related
to such securities, shall be recomputed to reflect the
issuance of only the number of shares of Common Stock (and
convertible or exchangeable securities which remain in
effect) actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such securities
or upon the exercise of the options or rights related to
such securities.
(5) The number of shares of Common Stock deemed issued and the
consideration deemed paid thereof pursuant to subsections
VI-10
<PAGE>
4.2(c)(i)(E)(1) and (2) shall be appropriately adjusted to
reflect any change, termination or expiration of the type
described in either subsection 4.2(c)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common Stock issued (or
deemed to have been issued pursuant to subsection 4.2(c)(i)(E)), by the
Company after the Warrant Issue Date.
(d) Adjustment Under Other Circumstances. In the event that the Board of
Directors of the Company determines in its sole discretion that one or more
events or circumstances have occurred which requires an equitable adjustment to
the Exercise Price, the Board of Directors of the Company may (but shall not be
required to) appropriately adjust the Exercise Price; provided, however, that
the Board of Directors of the Company may not increase the Exercise Price
pursuant to this Section 4.2(d).
4.3 Notice of Adjustments. In each case of an adjustment to the Exercise Price
pursuant to Section 4.2, the Company, at its expense, shall promptly compute
such adjustment and prepare a certificate setting forth such adjustment and
showing in detail the facts upon which such adjustment is based. The Company
shall promptly mail a copy of each such certificate to Holder pursuant to
Section 7.3 hereof.
5. Optional Redemption.
5.1 Optional Redemption at the Company's Option. During the period beginning on
the Original Issue Date and ending at 5:00 p.m. New York City time on the date
which is 86 days following the Original Issue Date (the "Redemption Exercise
Period"), the Company may, at its option, redeem not less than all of the
Warrants for an amount equal to the Optional Redemption Price.
5.2 Optional Redemption Price. The "Optional Redemption Price" means an amount
equal to $5 million during the first 30 days of the Redemption Exercise Period,
plus $250,000 on the 31st day after announcement, plus, for each successive
seven day period beyond such date, an additional $250,000 accruing on the first
day of such seven day period.
5.3 Redemption Procedures.
(a) To exercise its right to redeem the Warrants, the Company shall give a
notice of redemption to Holder. The notice shall: (i) state the applicable
Optional Redemption Price; and (ii) state that Warrants called for redemption
must be surrendered to the Company to collect the Optional Redemption Price.
(b) Once notice of redemption is given, Warrants called for redemption shall be
deemed to have been cancelled and shall no longer be exercisable. The Company
shall pay Holder the Optional Redemption Price immediately upon receipt of this
Warrant Certificate.
VI-11
<PAGE>
6. Various Covenants of the Company.
6.1 No Impairment or Amendment. Except as contemplated by the Securities
Purchase Agreement, the Company shall not by any action, including, without
limitation, amending its charter, any reorganization, recapitalization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate to protect the rights of the holder hereof against
impairment. Without limiting the generality of the foregoing, the Company (a)
will not increase the par value of any Warrant Shares above the amount payable
therefor upon such exercise, (b) will take all such corporate action as may be
necessary or appropriate in order that the Company may validly issue fully paid
and nonassessable Warrant Shares, (c) will obtain and maintain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction as may be necessary to enable the Company to perform its
obligations under this Warrant and (d) will not issue any capital stock or enter
into any agreement, the terms of which would have the effect, directly or
indirectly, of preventing the Company from honoring its obligations hereunder.
So long as any Warrants are outstanding, the Company will
acknowledge in writing, in form satisfactory to any holder of any such security,
the continued validity of the Company's obligations hereunder.
6.2 Reservation of Common Stock. The Company will at all times reserve and keep
available, solely for issuance, sale and delivery upon the exercise of this
Warrant, such number of shares of Common Stock equal to the number of shares of
Common Stock (and/or Other Securities) issuable upon the exercise of this
Warrant. All such shares of Common Stock (and/or Other Securities) shall be duly
authorized and, when issued upon exercise of this Warrant, will be validly
issued and fully paid and nonassessable with no liability on the part of the
holders thereof.
6.3 Changes to Par Value. In the event any adjustment to the Exercise Price made
pursuant to Section 4.2 hereof results in the Exercise Price per share being
less than the par value per share of the Warrant Shares to be issued upon
exercise of the Warrant, the Company agrees that it will take all actions
(including, if necessary, the calling of a special meeting of shareholders and
the recommendation of approval of such change to the shareholders) to have the
Company's Articles of Incorporation amended to lower the par value of the
Warrant Shares such that the Exercise Price per share will be no less the new
par value per share.
6.4 Indemnification. The Company shall indemnify, save and hold harmless the
holder of this Warrant and the holder of any Warrant Shares from and against any
and all liability, loss, cost, damage, reasonable attorneys' and accountants'
fees and expenses, court costs and all other out-of-pocket expenses incurred by
such holder in connection with enforcing any of the terms hereof.
VI-12
<PAGE>
6.5 Certain Expenses. The Company shall pay all expenses in connection with, and
all taxes (other than stock transfer taxes) and other governmental charges that
may be imposed in respect of the exercise of this Warrant and the issuance and
delivery of any Warrant Shares pursuant thereto.
7. Miscellaneous.
7.1 Nonwaiver. No course of dealing or any delay or failure to exercise any
right, power or remedy hereunder on the part of the holder of this Warrant or of
any Warrant Shares shall operate as a waiver of or otherwise prejudice such
holder's rights, powers or remedies.
7.2 Amendment. Any term, covenant, agreement or condition of the Warrants may,
be amended only by a written agreement signed by the Company and the holder
hereof.
7.3 Communications. All communications provided for herein shall be
delivered, or sent by recognized overnight delivery service, addressed as
follows:
(a) If to the Company, at:
EFTC Corporation
9351 Grant Street, Sixth Floor
Denver, CO 80229
Attention: Chief Financial Officer
Telecopy No. (303) 280-8358
with a copy (which shall not constitute notice) to:
Holme Roberts & Owen, LLP
1700 Lincoln, Suite 4100
Denver, CO 80203
Attention: Francis R. Wheeler, Esq.
Telecopy No.: (303) 866-0200
(b) If to the holder of any Warrant or of any Warrant Shares, to such
holder at its address appearing on the Warrant Register.
The address of the Company may be changed at any time and from
time to time and shall be the most recent such address furnished in writing by
the Company to the holder or holders of the Warrants and Warrant Shares. The
address of any such holder for any purpose hereof may be changed at any time and
from time to time and shall be the most recent such address furnished in writing
by such holder to the Company.
Any communication provided for herein shall become effective
only upon and at the time of receipt by the Person to whom it is given, unless
such communication is sent by reputable overnight courier, in which case it
shall be deemed to have been received on the day of its receipt, if a Business
Day, or the next succeeding Business Day.
VI-13
<PAGE>
Any communication provided for herein given by facsimile
transmission shall become effective at the time of transmission to the Person to
whom it is given, provided that the original of such communication is sent on
the day of such facsimile transmission to such Person by a courier guaranteeing
overnight delivery.
7.4 Remedies. The Company stipulates that the remedies at law of the holder or
holders of the Warrants and of Warrant Shares in the event of any default by the
Company in the performance of or compliance with any of the terms of the
Warrants are not and will not be adequate and that, to the fullest extent
permitted by law, such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or therein or by an
injunction against a violation of any of the terms hereof or thereof, or
otherwise.
7.5 Successors and Assigns. This Warrant and the rights evidenced hereby shall
inure to the benefit of and be binding upon the successors and assigns of the
Company, the holder or holders of this Warrant and of the Warrant Shares, to the
extent provided herein, and shall be enforceable by such holder or holders. This
Warrant shall not be sold, assigned or otherwise transferred, directly or
indirectly, except to persons controlled by Thayer Equity Investors IV, L.P., TC
Manufacturing Holdings, L.L.C. or RCBA Strategic Partners, L.P., prior to the
earlier to occur of September 1, 2000 and the Failure to Approve the
Transactions.
7.6 Modification and Severability. If, in any action before any court or agency
legally empowered to enforce any provision contained herein, any provision
hereof is found to be unenforceable, then such provision shall be deemed
modified to the extent necessary to make it enforceable by such court or agency.
If any such provision is unenforceable as set forth in the preceding sentence,
the unenforceability of such provision shall not affect the other provisions of
this Warrant, but this Warrant shall be construed as if such unenforceable
provision had never been contained herein.
7.7 Headings. The headings of the Sections of this Warrant are for convenience
of reference only and shall not, for any purpose, be deemed a part of this
Warrant.
7.8 Governing Law. This Warrant, including the validity hereof and the rights
and obligations of the parties hereto and all amendments and supplements hereof
and all waivers and consents hereunder, shall be construed in accordance with
and governed by the domestic substantive laws of the Governing Jurisdiction
without giving effect to any choice of law or conflicts of law provision or rule
that would cause the application of the domestic substantive laws of any other
jurisdiction. The "Governing Jurisdiction" shall mean the State of New York.
[THIS SPACE INTENTIONALLY LEFT BLANK]
VI-14
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed as an instrument under seal and to be attested by its duly authorized
officers as of the date first above written.
EFTC CORPORATION
By: /s/ Jack Calderon
Name: Jack Calderon
Title: President and Chief Executive Officer
THAYER-BLUM FUNDING, L.L.C.
By: /s/Jeffrey Goettman
Name: Jeffrey Goettman
Title: Manager
VI-15
<PAGE>
FORM OF NOTICE OF EXERCISE
(To be executed only upon partial or full exercise
of the within Warrant)
The undersigned registered holder of the within Warrant hereby
irrevocably elects to exercise on [specify Exercise Date] the within Warrant for
and purchases __________ shares of Common Stock (or Other Securities) [Specify]
of EFTC CORPORATION and [herewith makes payment therefor in the amount of
$_____________] [or] [has elected to use the net issue exercise option as set
forth in Section 2.3 of the Warrant], all at the price and on the terms and
conditions specified in the within Warrant, and requests that a certificate (or
certificates in denominations of __________ shares) for such shares hereby
purchased be issued in the name of and delivered to: (choose one)
(a) the undersigned or
(b) ________________, whose address is ____________________________
and, if such shares shall not include all the Warrant Shares issuable as
provided in the within Warrant, that a new Warrant of like tenor for the number
of Warrant Shares not being purchased hereunder be issued in the name of and
delivered to (choose one)
(c) the undersigned or
(d) ______________, whose address is ______________________________.
Dated: _____________ ___, ________
[ ]
By:
(Signature of Registered Holder)
NOTICE: The signature on this Notice of Exercise must correspond with
the name as written upon the face of the within Warrant in
every particular, without alteration or enlargement or any
change whatever.
<PAGE>
FORM OF ASSIGNMENT
(To be executed only upon the assignment
of the within Warrant)
FOR VALUE RECEIVED, the undersigned registered holder of the
within Warrant hereby sells, assigns and transfers unto ________________, whose
address is _________________, all of the rights of the undersigned under the
within Warrant, with respect to ________ shares of Common Stock (or Other
Securities) [Specify] of EFTC CORPORATION and, if such shares shall not include
all the Warrant Shares issuable as provided in the within Warrant, that a new
Warrant of like tenor for the number of Warrant Shares not being transferred
hereunder be issued in the name of and delivered to the undersigned, and does
hereby irrevocably constitute and appoint ____________________ Attorney to
register such transfer on the books of EFTC CORPORATION maintained for the
purpose, with full power of substitution in the premises.
Dated: ______________ ____, _______.
[ ]
By:
(Signature of Registered Holder)
NOTICE: The signature on this Assignment must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatever.
<PAGE>
Appendix VII
2000 Equity Stock Option Plan
<PAGE>
2000 STOCK OPTION PLAN
OF
EFTC CORPORATION
EFTC Corporation, a Colorado corporation, has adopted 2000
Equity Stock Option of EFTC Corporation (the "Plan"), effective ___________ ___,
2000, for the benefit of its eligible employees, consultants and directors.
The purposes of the Plan are as follows:
(1) To provide an additional incentive for directors, key
Employees and Consultants (as each such term is defined below) to further the
growth, development and financial success of the Company by personally
benefiting through the ownership of Company stock and/or rights which recognize
such growth, development and financial success.
(2) To enable the Company to obtain and retain the services of
directors, key Employees and Consultants considered essential to the long range
success of the Company by offering them an opportunity to own stock in the
Company and/or rights which will reflect the growth, development and financial
success of the Company.
ARTICLE I.
DEFINITIONS
1.1 General. Wherever the following terms are used in the Plan they shall have
the meanings specified below, unless the context clearly indicates otherwise.
Administrator. "Administrator" shall mean the entity that
conducts the general administration of the Plan as provided in Article VII. With
reference to the administration of the Plan with respect to Options granted to
Independent Directors, the term "Administrator" shall refer to the Board. With
reference to the administration of the Plan with respect to any other Option,
the term "Administrator" shall refer to the Committee unless the Board has
assumed the authority for administration of the Plan generally as provided in
Section 7.2.
1.2 Award Limit. "Award Limit" shall mean [__________] shares of
Common Stock, as adjusted pursuant to Section 8.3 of the Plan.
1.3 Board. "Board" shall mean the Board of Directors of the Company.
1.4 Code. "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.5 Committee. "Committee" shall mean the Compensation Committee of
the Board, or another committee or subcommittee of the Board, appointed as
provided in Section 8.1.
VII-1
<PAGE>
1.6 Common Stock. "Common Stock" shall mean the common stock of the Company, par
value $.01 per share, and any equity security of the Company issued or
authorized to be issued in the future, but excluding any preferred stock and any
warrants, options or other rights to purchase Common Stock. Debt securities of
the Company convertible into Common Stock shall be deemed equity securities of
the Company.
1.7 Company. "Company" shall mean EFTC Corporation, a Colorado
corporation.
1.8 Consultant. "Consultant" shall mean any consultant or adviser if:
(a) The consultant or adviser renders bona fide services to the Company;
(b) The services rendered by the consultant or adviser are not in connection
with the offer or sale of securities in a capital-raising transaction and do not
directly or indirectly promote or maintain a market for the Company's
securities; and
(c) The consultant or adviser is a natural person who has contracted
directly with the Company to render such services.
1.9 Director. "Director" shall mean a member of the Board.
1.10 Employee. "Employee" shall mean any officer or other employee (as defined
in accordance with Section 3401(c) of the Code) of the Company, or of any
corporation which is a Subsidiary.
1.11 Exchange Act. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
1.12 Fair Market Value. "Fair Market Value" of a share of Common Stock as of a
given date shall be (a) the closing price of a share of Common Stock on the
principal exchange on which shares of Common Stock are then trading, if any (or
as reported on any composite index which includes such principal exchange), on
the trading day previous to such date, or if shares were not traded on the
trading day previous to such date, then on the next preceding date on which a
trade occurred, or (b) if Common Stock is not traded on an exchange but is
quoted on Nasdaq or a successor quotation system, the mean between the closing
representative bid and asked prices for the Common Stock on the trading day
previous to such date as reported by Nasdaq or such successor quotation system;
or (c) if Common Stock is not publicly traded on an exchange and not quoted on
Nasdaq or a successor quotation system, the Fair Market Value of a share of
Common Stock as established by the Administrator acting in good faith.
1.13 Incentive Stock Option. "Incentive Stock Option" shall mean an
option which conforms to the applicable provisions of Section 422 of the Code
and which is designated as an Incentive Stock Option by the Committee.
VII-2
<PAGE>
1.14 Independent Director. "Independent Director" shall mean a member of
the Board who is not an Employee of the Company.
1.15 Non-Qualified Stock Option. "Non-Qualified Stock Option" shall mean
an Option which is not an Incentive Stock Option.
1.16 Option. 1.17 "Option" shall mean a stock option granted under Article IV of
the Plan. An Option granted under the Plan shall, as determined by the
Committee, be either a Non-Qualified Stock Option or an Incentive Stock Option;
provided, however, that Options granted to Independent Directors and Consultants
shall be Non-Qualified Stock Options.
1.18 Option Agreement. "Option Agreement" shall mean a written agreement
executed by an authorized officer of the Company and the Optionee which shall
contain such terms and conditions with respect to an Option as the Administrator
shall determine, consistent with the Plan.
1.19 Optionee. "Optionee" shall mean an Employee, Consultant or
Independent Director granted an Option under the Plan.
1.20 Plan. "Plan" shall mean The 2000 Stock Option Plan of EFTC
Corporation.
1.21 QDRO. "QDRO" shall mean a qualified domestic relations order as defined by
the Code or Title I of the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder.
1.22 Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3 under the
Exchange Act, as such Rule may be amended from time to time.
1.23 Section 162(m) Participant. "Section 162(m) Participant" shall mean any
Employee designated by the Committee as a Employee whose compensation for the
fiscal year in which the Employee is so designated or a future fiscal year may
be subject to the limit on deductible compensation imposed by Section 162(m) of
the Code.
1.24 Securities Act. "Securities Act" shall mean the Securities Act of 1933,
as amended.
1.25 Subsidiary. "Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
1.26 Termination of Consultancy. "Termination of Consultancy" shall mean the
time when the engagement of an Optionee as a Consultant to the Company or a
Subsidiary is terminated for any reason, with or without cause, including, but
not by way of limitation, by resignation, discharge, death or retirement; but
VII-3
<PAGE>
excluding terminations where there is a simultaneous commencement of employment
with the Company or any Subsidiary. The Committee, in its absolute discretion,
shall determine the effect of all matters and questions relating to Termination
of Consultancy, including, but not by way of limitation, the question of whether
a Termination of Consultancy resulted from a discharge for good cause, and all
questions of whether a particular leave of absence constitutes a Terminations of
Consultancy. Notwithstanding any other provision of the Plan, the Company or any
Subsidiary has an absolute and unrestricted right to terminate a Consultant's
service at any time for any reason whatsoever, with or without cause, except to
the extent expressly provided otherwise in writing.
1.27 Termination of Directorship. "Termination of Directorship" shall mean the
time when an Optionee who is an Independent Director ceases to be a Director for
any reason, including, but not by way of limitation, a termination by
resignation, failure to be elected, death or retirement. The Board, in its sole
and absolute discretion, shall determine the effect of all matters and questions
relating to Termination of Directorship with respect to Independent Directors.
1.28 Termination of Employment. "Termination of Employment" shall mean the time
when the employee-employer relationship between an Optionee and the Company or
any Subsidiary is terminated for any reason, with or without cause, including,
but not by way of limitation, a termination by resignation, discharge, death,
disability or retirement; but excluding (a) terminations where there is a
simultaneous reemployment or continuing employment of an Optionee by the Company
or any Subsidiary, (b) at the discretion of the Committee, terminations which
result in a temporary severance of the employee-employer relationship, and (c)
at the discretion of the Committee, terminations which are followed by the
simultaneous establishment of a consulting relationship by the Company or a
Subsidiary with the former employee. The Committee, in its absolute discretion,
shall determine the effect of all matters and questions relating to Termination
of Employment, including, but not by way of limitation, the question of whether
a Termination of Employment resulted from a discharge for good cause, and all
questions of whether a particular leave of absence constitutes a Termination of
Employment; provided, however, that, with respect to Incentive Stock Options,
unless otherwise determined by the Committee in its discretion, a leave of
absence, change in status from an employee to an independent contractor or other
change in the employee-employer relationship shall constitute a Termination of
Employment if, and to the extent that, such leave of absence, change in status
or other change interrupts employment for the purposes of Section 422(a)(2) of
the Code and the then applicable regulations and revenue rulings under said
Section. Notwithstanding any other provision of the Plan, the Company or any
Subsidiary has an absolute and unrestricted right to terminate an Employee's
employment at any time for any reason whatsoever, with or without cause, except
to the extent expressly provided otherwise in writing.
VII-4
<PAGE>
ARTICLE II.
SHARES SUBJECT TO PLAN
2.1 Shares Subject to Plan.
(a) The shares of stock subject to Options shall be Common Stock, initially
shares of the Company's Common Stock, par value $.01 per share. The aggregate
number of such shares which may be issued upon exercise of such Options under
the Plan shall not exceed three million four hundred thousand (3,400,000). The
shares of Common Stock issuable upon exercise of such Options may be either
previously authorized but unissued shares or treasury shares.
(b) The maximum number of shares which may be subject to Options, granted under
the Plan to any individual in any [calendar year] shall not exceed the Award
Limit. To the extent required by Section 162(m) of the Code, shares subject to
Options which are canceled continue to be counted against the Award Limit and
if, after grant of an Option, the price of shares subject to such Option is
reduced, the transaction is treated as a cancellation of the Option and a grant
of a new Option and both the Option deemed to be canceled and the Option deemed
to be granted are counted against the Award Limit.
2.2 Add-back of Options. If any Option, expires or is canceled without having
been fully exercised, or is exercised in whole or in part for cash as permitted
by the Plan, the number of shares subject to such Option but as to which such
Option was not exercised prior to its expiration, cancellation or exercise may
again be awarded hereunder, subject to the limitations of Section 2.1.
Furthermore, any shares subject to Options which are adjusted pursuant to
Section 8.3 and become exercisable with respect to shares of stock of another
corporation shall be considered cancelled and may again be optioned, granted or
awarded hereunder, subject to the limitations of Section 2.1. Shares of Common
Stock which are delivered by the Optionee or withheld by the Company upon the
exercise of any Option under the Plan, in payment of the exercise price thereof
or tax withholding thereon, may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. Notwithstanding the provisions of
this Section 2.2, no shares of Common Stock may again be awarded if such action
would cause an Incentive Stock Option to fail to qualify as an incentive stock
option under Section 422 of the Code.
ARTICLE III.
GRANTING OF OPTIONS
3.1 Option Agreement. Each Option shall be evidenced by an Option Agreement.
Option Agreements evidencing Options intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall contain such
terms and conditions as may be necessary to meet the applicable provisions of
Section 162(m) of the Code. Option Agreements evidencing Incentive Stock Options
shall contain such terms and conditions as may be necessary to meet the
applicable provisions of Section 422 of the Code.
VII-5
<PAGE>
3.2 Provisions Applicable to Section 162(m) Participants. The Committee,
in its discretion, may determine whether an Option is to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the
Code.
3.3 Consideration. In consideration of the granting of an Option under the Plan,
the Optionee shall agree, in the Option Agreement, to remain in the employ of
(or to consult for or to serve as an Independent Director of, as applicable) the
Company or any Subsidiary for a period of at least one year (or such shorter
period as may be fixed in the Option Agreement or by action of the Administrator
following grant of the Option) after the Option is granted (or, in the case of
an Independent Director, until the next annual meeting of stockholders of the
Company).
3.4 At-Will Employment. Nothing in the Plan or in any Option Agreement hereunder
shall confer upon any Optionee any right to continue in the employ of, or as a
Consultant for, the Company or any Subsidiary, or as a director of the Company,
or shall interfere with or restrict in any way the rights of the Company and any
Subsidiary, which are hereby expressly reserved, to discharge any Optionee at
any time for any reason whatsoever, with or without cause, except to the extent
expressly provided otherwise in a written employment agreement between the
Optionee and the Company and any Subsidiary.
ARTICLE IV.
GRANTING OF OPTIONS
4.1 Eligibility. Any Employee or Consultant selected by the Committee pursuant
to Section 4.4(a)(i) shall be eligible to be granted an Option. Each Independent
Director of the Company shall be eligible to be granted Options at the times and
in the manner set forth in Section 4.5.
4.2 Disqualification for Stock Ownership. No person may be granted an Incentive
Stock Option under the Plan if such person, at the time the Incentive Stock
Option is granted, owns stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or any then
existing Subsidiary or parent corporation (within the meaning of Section 422 of
the Code) unless such Incentive Stock Option conforms to the applicable
provisions of Section 422 of the Code.
4.3 Qualification of Incentive Stock Options. No Incentive Stock Option
shall be granted to any person who is not an Employee.
4.4 Granting of Options to Employees and Consultants.
(a) The Committee shall from time to time, in its absolute discretion, and
subject to applicable limitations of the Plan:
(i) Determine which Employees are key Employees and select from among the key
Employees or Consultants (including Employees or Consultants who have previously
VII-6
<PAGE>
received Options under the Plan) such of them as in its opinion should be
granted Options;
(ii) Subject to the Award Limit, determine the number of shares to be
subject to such Options granted to the selected key Employees or Consultants;
(iii) Subject to Section 4.3, determine whether such Options are to be Incentive
Stock Options or Non-Qualified Stock Options and whether such Options are to
qualify as performance-based compensation as described in Section 162(m)(4)(C)
of the Code; and
(iv) Determine the terms and conditions of such Options, consistent with the
Plan; provided, however, that the terms and conditions of Options intended to
qualify as performance-based compensation as described in Section 162(m)(4)(C)
of the Code shall include, but not be limited to, such terms and conditions as
may be necessary to meet the applicable provisions of Section 162(m) of the
Code.
(b) Upon the selection of a key Employee or Consultant to be granted an Option,
the Committee shall instruct the Secretary of the Company to issue the Option
and may impose such conditions on the grant of the Option as it deems
appropriate. Without limiting the generality of the preceding sentence, the
Committee may, in its discretion and on such terms as it deems appropriate,
require as a condition on the grant of an Option to an Employee or Consultant
that the Employee or Consultant surrender for cancellation some or all of the
unexercised Options which have been previously granted to him under the Plan or
otherwise. An Option, the grant of which is conditioned upon such surrender, may
have an Option price lower (or higher) than the exercise price of such
surrendered Option or other award, may cover the same (or a lesser or greater)
number of shares as such surrendered Option or other award, may contain such
other terms as the Committee deems appropriate, and shall be exercisable in
accordance with its terms, without regard to the number of shares, price,
exercise period or any other term or condition of such surrendered Option or
other award.
(c) Any Incentive Stock Option granted under the Plan may be modified by the
Committee, with the consent of the Optionee, to disqualify such Option from
treatment as an "incentive stock option" under Section 422 of the Code.
4.5 Granting of Options to Independent Directors. The Board shall from time to
time, in its discretion, and subject to applicable limitations of the Plan
select from among the Independent Directors (including Independent Directors who
have previously received Options under the Plan) such of them as in its opinion
should be granted Non-Qualified Stock Options, determine the number of shares to
be subject to such Non-Qualified Stock Options granted to the selected
Independent Directors and determine the terms and conditions of such
Non-Qualified Stock Options, consistent with the terms of the Plan.
4.6 Options in Lieu of Cash Compensation. Options may be granted under the Plan
to Employees and Consultants in lieu of cash bonuses which would otherwise be
payable to such Employees and Consultants and to Independent Directors in lieu
VII-7
<PAGE>
of directors' fees which would otherwise be payable to such Independent
Directors, pursuant to such policies which may be adopted by the Administrator
from time to time.
ARTICLE V.
TERMS OF OPTIONS
5.1 Option Price. The price per share of the shares subject to each Option
granted to Employees and Consultants shall be set by the Committee; provided,
however, that such price shall be no less than the par value of a share of
Common Stock, unless otherwise permitted by applicable state law, and (a) in the
case of Options intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code, such price shall not be less than
100% of the Fair Market Value of a share of Common Stock on the date the Option
is granted; (b) in the case of Incentive Stock Options such price shall not be
less than 100% of the Fair Market Value of a share of Common Stock on the date
the Option is granted (or the date the Option is modified, extended or renewed
for purposes of Section 424(h) of the Code); (iii) in the case of Incentive
Stock Options granted to an individual then owning (within the meaning of
Section 424(d) of the Code) more than 10% of the total combined voting power of
all classes of stock of the Company or any Subsidiary or parent corporation
thereof (within the meaning of Section 422 of the Code), such price shall not be
less than 110% of the Fair Market Value of a share of Common Stock on the date
the Option is granted (or the date the Option is modified, extended or renewed
for purposes of Section 424(h) of the Code).
5.2 Option Term. The term of an Option granted to an Employee or Consultant
shall be set by the Committee in its discretion; provided, however, that, in the
case of Incentive Stock Options, the term shall not be more than ten (10) years
from the date the Incentive Stock Option is granted, or five (5) years from such
date if the Incentive Stock Option is granted to an individual then owning
(within the meaning of Section 424(d) of the Code) more than 10% of the total
combined voting power of all classes of stock of the Company or any Subsidiary
or parent corporation thereof (within the meaning of Section 422 of the Code).
Except as limited by requirements of Section 422 of the Code and regulations and
rulings thereunder applicable to Incentive Stock Options, the Committee may
extend the term of any outstanding Option in connection with any Termination of
Employment or Termination of Consultancy of the Optionee, or amend any other
term or condition of such Option relating to such a termination.
5.3 Option Vesting.
(a) The period during which the right to exercise, in whole or in part, an
Option granted to an Employee or a Consultant vests in the Optionee shall be set
by the Committee and the Committee may determine that an Option may not be
exercised in whole or in part for a specified period after it is granted;
provided, however, that, unless the Committee otherwise provides in the terms of
the Option Agreement or otherwise, no Option shall be exercisable by any
Optionee who is then subject to Section 16 of the Exchange Act within the period
ending six months and one day after the date the Option is granted. At any time
after grant of an Option, the Committee may, in its sole and absolute discretion
VII-8
<PAGE>
and subject to whatever terms and conditions it selects, accelerate the period
during which an Option granted to an Employee or Consultant vests.
(b) No portion of an Option granted to an Employee or Consultant which is
unexercisable at Termination of Employment or Termination of Consultancy, as
applicable, shall thereafter become exercisable, except as may be otherwise
provided by the Committee either in the Option Agreement or by action of the
Committee following the grant of the Option.
(c) To the extent that the aggregate Fair Market Value of stock with respect to
which "incentive stock options" (within the meaning of Section 422 of the Code,
but without regard to Section 422(d) of the Code) are exercisable for the first
time by an Optionee during any calendar year (under the Plan and all other
incentive stock option plans of the Company and any parent or subsidiary
corporation (within the meaning of Section 422 of the Code) of the Company)
exceeds $100,000, such Options shall be treated as Non-Qualified Options to the
extent required by Section 422 of the Code. The rule set forth in the preceding
sentence shall be applied by taking Options into account in the order in which
they were granted. For purposes of this Section 5.3(c), the Fair Market Value of
stock shall be determined as of the time the Option with respect to such stock
is granted.
5.4 Terms of Options Granted to Independent Directors. The Board shall
determine the terms and conditions of each Non-Qualified Stock Option granted to
an Independent Director, consistent with the terms of the Plan.
ARTICLE VI.
EXERCISE OF OPTIONS
6.1 Partial Exercise. An exercisable Option may be exercised in whole or in
part. However, an Option shall not be exercisable with respect to fractional
shares and the Administrator may require that, by the terms of the Option, a
partial exercise be with respect to a minimum number of shares.
6.2 Manner of Exercise. All or a portion of an exercisable Option shall
be deemed exercised upon delivery of all of the following to the Secretary of
the Company or his office:
(a) A written notice complying with the applicable rules established by the
Administrator stating that the Option, or a portion thereof, is exercised. The
notice shall be signed by the Optionee or other person then entitled to exercise
the Option or such portion of the Option;
(b) Such representations and documents as the Administrator, in its absolute
discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act and any other federal or state
securities laws or regulations. The Administrator may, in its absolute
VII-9
<PAGE>
discretion, also take whatever additional actions it deems appropriate to effect
such compliance including, without limitation, placing legends on share
certificates and issuing stop-transfer notices to agents and registrars;
(c) In the event that the Option shall be exercised pursuant to Section 8.1 by
any person or persons other than the Optionee, appropriate proof of the right of
such person or persons to exercise the Option; and
(d) Full cash payment to the Secretary of the Company for the shares with
respect to which the Option, or portion thereof, is exercised. However, the
Administrator, may in its discretion (i) allow a delay in payment up to thirty
(30) days from the date the Option, or portion thereof, is exercised; (ii) allow
payment, in whole or in part, through the delivery of shares of Common Stock
which have been owned by the Optionee for at least six months, duly endorsed for
transfer to the Company with a Fair Market Value on the date of delivery equal
to the aggregate exercise price of the Option or exercised portion thereof;
(iii) allow payment, in whole or in part, through the surrender of shares of
Common Stock then issuable upon exercise of the Option having a Fair Market
Value on the date of Option exercise equal to the aggregate exercise price of
the Option or exercised portion thereof; (iv) allow payment, in whole or in
part, through the delivery of property of any kind which constitutes good and
valuable consideration; (v) allow payment, in whole or in part, through the
delivery of a full recourse promissory note bearing interest (at no less than
such rate as shall then preclude the imputation of interest under the Code) and
payable upon such terms as may be prescribed by the Committee or the Board; (vi)
allow payment, in whole or in part, through the delivery of a notice that the
Optionee has placed a market sell order with a broker with respect to shares of
Common Stock then issuable upon exercise of the Option, and that the broker has
been directed to pay a sufficient portion of the net proceeds of the sale to the
Company in satisfaction of the Option exercise price; or (vii) allow payment
through any combination of the consideration provided in the foregoing
subparagraphs (ii), (iii), (iv), (v) and (vi). In the case of a promissory note,
the Administrator may also prescribe the form of such note and the security to
be given for such note. The Option may not be exercised, however, by delivery of
a promissory note or by a loan from the Company when or where such loan or other
extension of credit is prohibited by law.
6.3 Conditions to Issuance of Stock Certificates. The Company shall not be
required to issue or deliver any certificate or certificates for shares of stock
purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges
on which such class of stock is then listed;
(b) The completion of any registration or other qualification of such shares
under any state or federal law, or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory body
which the Administrator shall, in its absolute discretion, deem necessary or
advisable;
(c) The obtaining of any approval or other clearance from any state or federal
governmental agency which the Administrator shall, in its absolute discretion,
determine to be necessary or advisable;
VII-10
<PAGE>
(d) The lapse of such reasonable period of time following the exercise of the
Option as the Committee (or Board, in the case of Options granted to Independent
Directors) may establish from time to time for reasons of administrative
convenience; and
(e) The receipt by the Company of full payment for such shares, including
payment of any applicable withholding tax, which in the discretion of the
Committee or the Board may be in the form of consideration used by the Optionee
to pay for such shares under Section 6.2(d).
6.4 Rights as Stockholders. Optionees shall not be, nor have any of the rights
or privileges of, stockholders of the Company in respect of any shares
purchasable upon the exercise of any part of an Option unless and until
certificates representing such shares have been issued by the Company to such
Optionees.
6.5 Ownership and Transfer Restrictions. The Administrator, in its absolute
discretion, may impose such restrictions on the ownership and transferability of
the shares purchasable upon the exercise of an Option as it deems appropriate.
Any such restriction shall be set forth in the respective Option Agreement and
may be referred to on the certificates evidencing such shares. The Committee may
require the Employee to give the Company prompt notice of any disposition of
shares of Common Stock acquired by exercise of an Incentive Stock Option within
(i) two years from the date of granting (including the date the Option is
modified, extended or renewed for purposes of Section 424(h) of the Code) such
Option to such Employee or (ii) one year after the transfer of such shares to
such Employee. The Committee may direct that the certificates evidencing shares
acquired by exercise of any such Option refer to such requirement to give prompt
notice of disposition.
6.6 Additional Limitations on Exercise of Options. Optionees may be required to
comply with any timing or other restrictions with respect to the settlement or
exercise of an Option, including a window-period limitation, as may be imposed
in the discretion of the Administrator.
ARTICLE VII.
ADMINISTRATION
7.1 Compensation Committee. The Compensation Committee (or another committee or
a subcommittee of the Board assuming the functions of the Committee under the
Plan) shall consist solely of two or more Independent Directors appointed by and
holding office at the pleasure of the Board, each of whom is both a
"non-employee director" as defined by Rule 16b-3 and an "outside director" for
purposes of Section 162(m) of the Code. Appointment of Committee members shall
be effective upon acceptance of appointment. Committee members may resign at any
time by delivering written notice to the Board. Vacancies in the Committee may
be filled by the Board.
7.2 Duties and Powers of Committee. It shall be the duty of the Committee to
conduct the general administration of the Plan in accordance with its
provisions. The Committee shall have the power to interpret the Plan and the
VII-11
<PAGE>
agreements pursuant to which Options are granted or awarded, and to adopt such
rules for the administration, interpretation, and application of the Plan as are
consistent therewith and to interpret, amend or revoke any such rules.
Notwithstanding the foregoing, the full Board, acting by a majority of its
members in office, shall conduct the general administration of the Plan with
respect to Options granted to Independent Directors. The terms of Options need
not be the same with respect to each Optionee. Any such interpretations and
rules with respect to Incentive Stock Options shall be consistent with the
provisions of Section 422 of the Code. In its absolute discretion, the Board may
at any time and from time to time exercise any and all rights and duties of the
Committee under the Plan except with respect to matters which under Rule 16b-3
or Section 162(m) of the Code, or any regulations or rules issued thereunder,
are required to be determined in the sole discretion of the Committee.
7.3 Majority Rule; Unanimous Written Consent. The Committee shall
act by a majority of its members in attendance at a meeting at which a quorum
is present or by a memorandum or other written instrument signed by all
members of the Committee.
7.4 Compensation; Professional Assistance; Good Faith Actions. Members of the
Committee shall receive such compensation ,if any, for their services as members
as may be determined by the Board. All expenses and liabilities which members of
the Committee incur in connection with the administration of the Plan shall be
borne by the Company. The Committee may, with the approval of the Board, employ
attorneys, consultants, accountants, appraisers, brokers, or other persons. The
Committee, the Company and the Company's officers and Directors shall be
entitled to rely upon the advice, opinions or valuations of any such persons.
All actions taken and all interpretations and determinations made by the
Committee or the Board in good faith shall be final and binding upon all
Optionees, the Company and all other interested persons. No members of the
Committee or Board shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or Options, and all
members of the Committee and the Board shall be fully protected by the Company
in respect of any such action, determination or interpretation.
ARTICLE VIII.
MISCELLANEOUS PROVISIONS
8.1 Transferability of Options.
(a) Except as otherwise provided in Section 8.1(b):
(i) No Option under the Plan may be sold, pledged, assigned or transferred in
any manner other than by will or the laws of descent and distribution or,
subject to the consent of the Committee, pursuant to a DRO, unless and until
such Option has been exercised, or the shares underlying such Option have been
issued, and all restrictions applicable to such shares have lapsed;
(ii) No Option or interest or right therein shall be liable for the debts,
contracts or engagements of the Optionee or his successors in interest or shall
be subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be voluntary
VII-12
<PAGE>
or involuntary or by operation of law by judgment, levy, attachment, garnishment
or any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect, except to
the extent that such disposition is permitted by the preceding sentence; and
(iii) During the lifetime of the Optionee, only he may exercise an Option (or
any portion thereof) granted to him under the Plan, unless it has been disposed
of pursuant to a DRO; after the death of the Optionee, any exercisable portion
of an Option may, prior to the time when such portion becomes unexercisable
under the Plan or the applicable Option Agreement, be exercised by his personal
representative or by any person empowered to do so under the deceased Optionee's
will or under the then applicable laws of descent and distribution.
(b) Notwithstanding Section 8.1(a), the Committee, in its sole discretion, may
determine to permit an Optionee to transfer a Non-Qualified Stock Option to any
one or more Permitted Transferees (as defined below), subject to the following
terms and conditions: (i) a Non-Qualified Stock Option transferred to a
Permitted Transferee shall not be assignable or transferable by the Permitted
Transferee other than by will or the laws of descent and distribution; (ii) any
Non-Qualified Stock Option which is transferred to a Permitted Transferee shall
continue to be subject to all the terms and conditions of the Non-Qualified
Stock Option as applicable to the original Optionee (other than the ability to
further transfer the Non-Qualified Stock Option); and (iii) the Optionee and the
Permitted Transferee shall execute any and all documents requested by the
Administrator, including, without limitation documents to (A) confirm the status
of the transferee as a Permitted Transferee, (B) satisfy any requirements for an
exemption for the transfer under applicable federal and state securities laws
and (C) evidence the transfer. For purposes of this Section 8.1(b), "Permitted
Transferee" shall mean, with respect to an Optionee, any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling,
niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law, including adoptive relationships, any person
sharing the Optionee's household (other than a tenant or employee), a trust in
which these persons have more than fifty percent of the beneficial interest, a
foundation in which these persons (or the Optionee) control the management of
assets, and any other entity in which these persons (or the Optionee) own more
than fifty percent of the voting interests, or any other transferee specifically
approved by the Administrator after taking into account any state or federal tax
or securities laws applicable to transferable Non-Qualified Stock Options.
8.2 Amendment, Suspension or Termination of the Plan. Except as otherwise
provided in this Section 8.2, the Plan may be wholly or partially amended or
otherwise modified, suspended or terminated at any time or from time to time by
the Board or the Committee. However, without approval of the Company's
stockholders given within twelve months before or after the action by the Board
or the Committee, no action of the Board or the Committee may, except as
provided in Section 8.3, increase the limits imposed in Section 2.1 on the
maximum number of shares which may be issued under the Plan. No amendment,
suspension or termination of the Plan shall, without the consent of the Optionee
VII-13
<PAGE>
alter or impair any rights or obligations under any Option theretofore granted
or awarded, unless the Option itself otherwise expressly so provides. No Options
may be granted or awarded during any period of suspension or after termination
of the Plan, and in no event may any Incentive Stock Option be granted under the
Plan after the first to occur of the following events:
(a) The expiration of ten years from the date the Plan is adopted by the
Board; or
(b) The expiration of ten years from the date the Plan is approved by
the Company's stockholders under Section 8.4.
8.3 Changes in Common Stock or Assets of the Company, Acquisition or
Liquidation of the Company, Change in Control and Other Corporate Events.
(a) Subject to Section 8.3(d), in the event that the Administrator determines
that any dividend or other distribution (whether in the form of cash, Common
Stock, other securities, or other property), recapitalization, reclassification,
stock split, reverse stock split, reorganization, merger, consolidation,
split-up, spin-off, combination, repurchase, liquidation, dissolution, or sale,
transfer, exchange or other disposition of all or substantially all of the
assets of the Company (including, but not limited to, a Corporate Transaction),
or exchange of Common Stock or other securities of the Company, issuance of
warrants or other rights to purchase Common Stock or other securities of the
Company, or other similar corporate transaction or event, in the
Administrator's, affects the Common Stock such that an adjustment is determined
by the Administrator to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan or with respect to an Option, then the Administrator shall, in
such manner as it may deem equitable, adjust any or all of:
(i) The number and kind of shares of Common Stock (or other securities or
property) with respect to which Options may be granted or awarded (including,
but not limited to, adjustments of the limitations in Section 2.1 on the maximum
number and kind of shares which may be issued and adjustments of the Award
Limit);
(ii) The number and kind of shares of Common Stock (or other securities or
property) subject to outstanding Options; and
(iii) The grant or exercise price with respect to any Option.
(b) Subject to Sections 8.3(b)(vii) and 8.3(d), in the event of any Corporate
Transaction or other transaction or event described in Section 8.3(a) or any
unusual or nonrecurring transactions or events affecting the Company, any
affiliate of the Company, or the financial statements of the Company or any
affiliate, or of changes in applicable laws, regulations, or accounting
principles, the Administrator, in its sole and absolute discretion, and on such
terms and conditions as it deems appropriate, either by the terms of the Option
or by action taken prior to the occurrence of such transaction or event and
either automatically or upon the Optionee's request, is hereby authorized to
take any one or more of the following actions whenever the Administrator
determines that such action is appropriate in order to prevent dilution or
VII-14
<PAGE>
enlargement of the benefits or potential benefits intended to be made available
under the Plan or with respect to any Option, to facilitate such transactions or
events or to give effect to such changes in laws, regulations or principles:
(i) To provide for either the purchase of any such Option for an amount of cash
equal to the amount that could have been attained upon the exercise of such
Option or realization of the Optionee's rights had such Option been currently
exercisable or payable or fully vested or the replacement of such Option with
other rights or property selected by the Administrator in its sole discretion;
(ii) To provide that the Option cannot vest, be exercised or become payable
after such event;
(iii) To provide that such Option shall be exercisable as to all shares covered
thereby, notwithstanding anything to the contrary in (i) Section 5.3 or 5.4 or
(ii) the provisions of the applicable Option Agreement;
(iv) To provide that such Option be assumed by the successor or survivor
corporation, or a parent or subsidiary thereof, or shall be substituted for by
similar options, rights or awards covering the stock of the successor or
survivor corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kind of shares and prices; and
(v) To make adjustments in the number and type of shares of Common Stock (or
other securities or property) subject to outstanding Options and/or in the terms
and conditions of (including the exercise price), and the criteria included in,
outstanding Options or Options which may be granted in the future.
(c) Subject to Section 8.3(d) and 8.8, the Administrator may, in its discretion,
include such further provisions and limitations in any Option, agreement or
certificate, as it may deem equitable and in the best interests of the Company.
(d) With respect to Options which are granted to [Section 162(m) Participants]
and are intended to qualify as performance-based compensation under Section
162(m)(4)(C), no adjustment or action described in this Section 8.3 or in any
other provision of the Plan shall be authorized to the extent that such
adjustment or action would cause such Option to fail to so qualify under Section
162(m)(4)(C), or any successor provisions thereto. No adjustment or action
described in this Section 8.3 or in any other provision of the Plan shall be
authorized to the extent that such adjustment or action would cause the Plan to
violate Section 422(b)(1) of the Code. Furthermore, no such adjustment or action
shall be authorized to the extent such adjustment or action would result in
short-swing profits liability under Section 16 or violate the exemptive
conditions of Rule 16b-3 unless the Administrator determines that the Option is
not to comply with such exemptive conditions. The number of shares of Common
Stock subject to any Option shall always be rounded to the next whole number.
VII-15
<PAGE>
(e) Notwithstanding the foregoing, in the event that the Company becomes a party
to a transaction that is intended to qualify for "pooling of interest"
accounting treatment and, but for one or more of the provisions of this Plan or
any Option Agreement would so qualify, then this Plan and any Option Agreement
shall be interpreted so as to preserve such accounting treatment, and to the
extent that any provision of the Plan or any Option Agreement would disqualify
the transaction from pooling of interests accounting treatment (including, if
applicable, an entire Option Agreement), then such provision shall be null and
void. All determinations to be made in connection with the preceding sentence
shall be made by the independent accounting firm whose opinion with respect to
"pooling of interests" treatment is required as a condition to the Company's
consummation of such transaction.
8.4 Approval of Plan by Stockholders. The Plan will be submitted for the
approval of the Company's stockholders within twelve months after the date of
the Board's initial adoption of the Plan. Options may be granted or awarded
prior to such stockholder approval, provided that such Options shall not be
exercisable nor shall such Options vest prior to the time when the Plan is
approved by the stockholders, and provided further that if such approval has not
been obtained at the end of said twelve-month period, all Options previously
granted or awarded under the Plan shall thereupon be canceled and become null
and void.
8.5 Tax Withholding. The Company shall be entitled to require payment in cash or
deduction from other compensation payable to each Optionee of any sums required
by federal, state or local tax law to be withheld with respect to the issuance,
vesting, exercise or payment of any Option. The Administrator may in its
discretion and in satisfaction of the foregoing requirement allow such Optionee
to elect to have the Company withhold shares of Common Stock otherwise issuable
under such Option (or allow the return of shares of Common Stock) having a Fair
Market Value equal to the sums required to be withheld. Notwithstanding any
other provision of the Plan, the number of shares of Common Stock which may be
withheld with respect to the issuance, vesting, exercise or payment of any
Option in order to satisfy the Optionee's federal and state income and payroll
tax liabilities with respect to the issuance, vesting, exercise or payment of
the Option shall be limited to the number of shares which have a Fair Market
Value on the date of withholding or repurchase equal to the aggregate amount of
such liabilities based on the minimum statutory withholding rates for federal
and state tax income and payroll tax purposes that are applicable to such
supplemental taxable income.
8.6 Loans. The Committee may, in its discretion, extend one or more loans to key
Employees in connection with the exercise or receipt of an Option. The terms and
conditions of any such loan shall be set by the Committee.
8.7 Forfeiture Provisions. Pursuant to its general authority to determine the
terms and conditions applicable to Options, the Administrator shall have the
right (to the extent consistent with the applicable exemptive conditions of Rule
16b-3) to provide, in the terms of an Option Agreement, or to require an
Optionee to agree by separate written instrument, that (i) any proceeds, gains
or other economic benefit actually or constructively received by the Optionee
upon any receipt or exercise of the Option, or upon the receipt or resale of any
Common Stock underlying the Option, must be paid to the Company, and (ii) the
VII-16
<PAGE>
Option shall terminate and any unexercised portion of the Option (whether or not
vested) shall be forfeited, if (a) a Termination of Employment, Termination of
Consultancy or Termination of Directorship occurs prior to a specified date, or
within a specified time period following receipt or exercise of the Option, or
(b) the Optionee at any time, or during a specified time period, engages in any
activity in competition with the Company, or which is inimical, contrary or
harmful to the interests of the Company, as further defined by the Committee (or
the Board, as applicable) or the Optionee incurs a Termination of Employment,
Termination of Consultancy or Termination of Directorship for cause.
8.8 Limitations Applicable to Section 16 Persons and Performance-Based
Compensation. Notwithstanding any other provision of the Plan, the Plan, and any
Option granted or awarded to any individual who is then subject to Section 16 of
the Exchange Act, shall be subject to any additional limitations set forth in
any applicable exemptive rule under Section 16 of the Exchange Act (including
any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the
application of such exemptive rule. To the extent permitted by applicable law,
the Plan and Options granted or awarded hereunder shall be deemed amended to the
extent necessary to conform to such applicable exemptive rule. Furthermore,
notwithstanding any other provision of the Plan or any Option which is granted
to a Section 162(m) Participant and is intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall be subject
to any additional limitations set forth in Section 162(m) of the Code (including
any amendment to Section 162(m) of the Code) or any regulations or rulings
issued thereunder that are requirements for qualification as performance-based
compensation as described in Section 162(m)(4)(C) of the Code, and the Plan
shall be deemed amended to the extent necessary to conform to such requirements.
8.9 Effect of Plan Upon Options and Compensation Plans. The adoption of the Plan
shall not affect any other compensation or incentive plans in effect for the
Company or any Subsidiary. Nothing in the Plan shall be construed to limit the
right of the Company (i) to establish any other forms of incentives or
compensation for Employees, Directors or Consultants of the Company or any
Subsidiary or (ii) to grant or assume options or other rights or awards
otherwise than under the Plan in connection with any proper corporate purpose
including but not by way of limitation, the grant or assumption of options in
connection with the acquisition by purchase, lease, merger, consolidation or
otherwise, of the business, stock or assets of any corporation, partnership,
limited liability company, firm or association.
8.10 Compliance with Laws. The Plan, the granting and vesting of Options under
the Plan and the issuance and delivery of shares of Common Stock and the payment
of money under the Plan or under Options granted or awarded hereunder are
subject to compliance with all applicable federal and state laws, rules and
regulations (including but not limited to state and federal securities law and
federal margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. Any securities delivered under
the Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Company, provide such assurances and
representations to the Company as the Company may deem necessary or desirable to
VII-17
<PAGE>
assure compliance with all applicable legal requirements. To the extent
permitted by applicable law, the Plan and Options granted or awarded hereunder
shall be deemed amended to the extent necessary to conform to such laws, rules
and regulations.
8.11 Titles. Titles are provided herein for convenience only and
are not to serve as a basis for interpretation or construction of the
Plan.
8.12 Governing Law. The Plan and any agreements hereunder shall be
administered, interpreted and enforced under the internal laws of the State of
[Colorado] without regard to conflicts of laws thereof.
* * * * *
I hereby certify that the foregoing Plan was duly adopted by
the Board of Directors of EFTC Corporation on ____________, 2000.
I hereby certify that the foregoing Plan was duly approved by
the stockholders of the EFTC Corporation on __________ ___, 2000.
Executed on this ____ day of _______________, 2000.
------------------
Secretary
VII-18
<PAGE>
Appendix VIII
EFTC Corporation Annual Report on Form 10-K
<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________to__________
Commission File Number 0-23332
EFTC CORPORATION
(Exact name of registrant as specified in its charter)
COLORADO
(State or other jurisdiction of incorporation of organization)
84-0854616
(I.R.S. Employer Identification No.)
9351 Grant Street
Denver, Colorado
(Address of principal executive offices)
80229
(Zip code)
Registrant's telephone number, including area
code: 303-451-8200
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g)
of the Act:
Common Stock
------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [__]
As of March 30, 2000, the number of outstanding shares of common stock
was 15,543,489. As of such date, the aggregate market value of the shares of
common stock held by non-affiliates, based on the closing price of the Common
Stock on the Nasdaq National Market, was approximately $21,156,806.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Proxy Statement for its 2000 Annual Meeting of
Shareholders is incorporated by reference in Part III of this Form 10-K.
VIII-1
<PAGE>
PART I.
Item 1. Business
General
EFTC Corporation (the "Company") is an independent provider of high mix
electronic manufacturing services to original equipment manufacturers in the
computer peripherals, medical equipment, industrial controls, telecommunications
equipment and electronic instrumentation industries. The Company's manufacturing
services consist of assembling complex printed circuit boards (using both
surface mount and pin-through-hole technologies), cables, electro-mechanical
devices and finished products. High mix manufacturing involves processing
small-lots of complex printed circuit boards at high production speeds.
Recapitalization
On March 30, 2000, the Company entered into an agreement with
Thayer-Blum Funding, LLC (the "Purchaser") for a recapitalization of the
Company. The agreement provides for the purchase of a total of $54 million in
Senior Subordinated Exchangeable Notes ("Exchangeable Notes") and a subsequent
tender offer for up to 8,250,000 shares of the Company's currently outstanding
common stock at a price of $4.00 per share. The Exchangeable Notes initially
provide for a maturity date of June 30, 2006 and a paid-in-kind interest rate of
15%, and are accompanied by warrants (the "Warrants") to purchase 3,093,154
shares of the Company's common stock at an exercise price of $.01 per share. The
Purchaser has designated two persons who have been appointed to the Company's
board of directors.
Upon shareholder approval of this transaction and assuming that at
least 500,000 shares are tendered in the tender offer, the Warrants will never
become exercisable and will be cancelled. Additionally, the Exchangeable Notes
will automatically be replaced with Senior Subordinated Convertible Notes
("Convertible Notes") that provide for interest at 8.875%, payable in additional
Convertible Notes and a maturity date of June 30, 2006. At the election of the
holder, the Convertible Notes may be converted, at any time, into the Company's
common stock at $2.60 per share, subject to adjustment. Conversion of the notes
will occur automatically (i) if the Company's common stock trades above $7.50
per share for 45 consecutive trading days, or (ii) commencing on March 30, 2003,
if the Company's common stock trades above $4.25 for 45 consecutive trading
days. Finally, at the closing of the tender offer, the Purchaser will have the
right to designate a majority of the members of the Company's board of directors
and will have the right to approve any significant financings, acquisitions and
dispositions. The Purchaser has requested that the conversion price of the
Convertible Notes be reduced to $2.58 to reflect the change in the Company's
financial condition as a result of certain excess costs that were incurred by
the Company in connection with the transaction.
If shareholders do not approve the transaction by September 1, 2000 or
if less than 500,000 shares are tendered, the Warrants and Exchangeable Notes
will remain in place and the interest rate on the Exchangeable Notes will
increase to 20%. Interest would be compounded quarterly and payable in
additional Exchangeable Notes or cash, at the option of the holders.
On March 30, 2000, the Company entered into a new credit agreement with
Bank of America, N.A. to replace the Company's existing revolving line of credit
with BankOne Colorado, N.A. The new credit facility provides for a $45 million
revolving line of credit with a maturity date of March 30, 2003. Initially, the
interest rate will be the prime rate plus .5%. Total borrowings are subject to
limitation based on a percentage of eligible accounts receivable and eligible
inventory. Substantially all of the Company's
VIII-2
<PAGE>
assets are pledged as collateral for outstanding borrowings, and the credit
agreement requires compliance with certain financial and non-financial
covenants.
VIII-3
<PAGE>
Acquisitions and Dispositions
Acquisitions
Northwest Operations Division. On February 24, 1997, the Company
acquired two affiliated entities, Current Electronics, Inc., an Oregon
corporation, and Current Electronics (Washington), Inc., a Washington
corporation, for total consideration of approximately $10.9 million, consisting
of 1,980,000 shares of Company common stock and approximately $5.5 million in
cash, including approximately $600,000 of transaction costs. During 1998, the
Company completed construction of a new manufacturing facility in Newberg,
Oregon at a total cost of approximately $7.0 million. The Newberg facility along
with one in Moses Lake, Washington comprises the Company's Northwest Operations
Division.
AlliedSignal Asset Purchase. During the period from August 1997 through
February 1998, the Company completed two transactions with AlliedSignal, Inc.
now Honeywell International Inc. ("Honeywell") pursuant to which the Company
acquired inventories and equipment located in Fort Lauderdale, Florida and
Tucson, Arizona for an aggregate purchase price of approximately $19.0 million.
In connection with these activities, the parties entered into a long-term supply
agreement for the production of circuit card assemblies. Both these facilities
were closed in 2000.
EFTC Services Division. The Company acquired the Services Division in
September 1997 for approximately $35.7 million, consisting of 1,858,975 shares
of the Company's common stock and approximately $26.5 million in cash. The
Services Division had facilities in Memphis, Tennessee, Louisville, Kentucky and
Tampa, Florida and specialized in transportation hub-based warranty and repair
services for companies engaged in the computer and communications industries.
This division was sold in September 1999.
EFTC Express Division. In March 1998, the Company acquired RM
Electronics, Inc., doing business as Personal Electronics ("Personal"), in a
business combination accounted for as a pooling of interests. The Company issued
1,800,000 shares of common stock in exchange for all of the outstanding common
stock of Personal. Personal is based in Manchester, New Hampshire and
specializes in the quick turn, front-end prototype development, low volume, and
end-of-life high mix assembly services. Personal comprises the Company's EFTC
Express Division.
Northeast Operations Division. In September 1998, the Company acquired
the circuit card assembly operations of the Agfa Division of Bayer Corporation.
The Company purchased inventory and equipment for approximately $6.0 million and
the parties entered into a long-term supply agreement for the manufacture of
circuit card assemblies. This business is conducted in the Company's leased
facility in Wilmington, Massachusetts that comprises the Northeast Operations
Division.
Midwest Operations Division. In September 1998, the Company purchased
manufacturing equipment for approximately $1.5 million from AlliedSignal. In
connection with this transaction, AlliedSignal agreed to amend the existing
long-term supply agreement it has with the Company to include the production of
circuit card assemblies at the Company's new facility in Ottawa, Kansas. The
Kansas facility comprises the Company's Midwest Operations Division.
Southeast Commercial Operations Division. In March 1999, the Company
entered into a ten year supply agreement with Honeywell that included the
acquisition of certain assets and inventory used in circuit card assembly
manufacturing. For the year ended December 31, 1999, sales under this agreement
amounted to approximately $28 million and the Company expects sales for 2000 to
be in excess of $100 million. The manufacturing activities under this agreement
are conducted in a newly leased facility near
VIII-4
<PAGE>
Phoenix, Arizona and a smaller facility in Tijuana, Mexico. These facilities
comprise the Company's Southwest Commercial Operations Division.
Closure of Certain Facilities
Greeley, Colorado. In December 1998, the Company announced a plan to
close the Rocky Mountain Division located in Greeley, Colorado and to
consolidate the remaining business into other facilities, in an effort to
improve capacity utilization and profitability. In October 1999, the Company
completed the sale of the building in Greeley for net proceeds of approximately
$3.8 million.
Sale of Services Division. On September 1, 1999, the Company sold its
Services Division for approximately $28.1 million. In connection with this sale,
the purchaser and the Company agreed to an Earn-out Contingency (the "EC").
Under the EC, if earnings for the year ending August 31, 2000 related to the
division sold are in excess of $4,455,000 ("Target Earnings"), the Company will
be entitled to an additional payment equal to three times the difference between
the actual earnings and Target Earnings. If actual earnings are less than Target
Earnings, the Company will be required to refund an amount equal to three times
the difference. The maximum amount that either party would be required to pay
under the EC is $2.5 million.
Fort Lauderdale, Florida. In an effort to improve capacity utilization
at other facilities, in September 1999 the Company initiated a plan to close its
facility in Fort Lauderdale and consolidate the business from that plant into
three other EFTC facilities. Ft. Lauderdale was selected due to its higher cost
structure and in consideration of the added benefits of transferring this
business to facilities that are in closer proximity to the affected customers.
The Ft. Lauderdale restructuring activities are expected to be substantially
complete by the end of April 2000.
Tucson, Arizona. In December 1999, the Company commenced negotiations
with Honeywell International, Inc. for the sale of inventory and equipment at
the Company's facility in Tucson and the sublease of the facility to
Honeywell. This sale closed in February 2000 and provided net proceeds to the
Company of $12.7 million.
Manufacturing Services
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's facilities have obtained, or are in the process of obtaining, ISO 9002
certification from the International Organization of Standards.
The Company's manufacturing methodology, known as Asynchronous Process
Manufacturing ("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 involves a discontinuous series of products fed
through assembly in a start-stop manner, heretofore incompatible with high-speed
techniques. APM is an alternative to both CFM and batch processing often used in
smaller scale manufacturing. The combination of small lots,
VIII-5
<PAGE>
with numerous differences in configuration from each lot to the next, and
high-speed manufacturing has been viewed as difficult, if not impossible, by
many high mix manufacturers. The Company believes that CFM techniques used by
high-volume, high-speed Electronics Manufacturing Services ("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 demand. Under CFM, all assembly occurs on the
same line, thereby slowing down the process with non-value-added operations and,
more importantly, significantly reducing flexibility. 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.
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.
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 variations. 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.
Customers and Sales
The Company seeks to serve traditional high mix OEMs and OEMs that
produce high-volume products. The Company's sales force is located regionally,
and the Company's sales approach is designed to align the Company's sales
efforts in close proximity to its customers and the Company's regional
manufacturing facilities. The Company continues to focus on the following
markets: (1) avionics; (2) industrial controls and instrumentation; (3)
computer-related products; (4) communications; and (5) medical devices.
VIII-6
<PAGE>
The following table represents the Company's net sales for manufacturing
services by industry segment for the years ended December 31, 1999, 1998 and
1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Avionics 68% 46% 27%
Industrial controls and instrumentation 18% 18% 22%
Computer-related 8% 28% 29%
Communications 5% 5% 8%
Medical devices 1% 3% 13%
Other -- -- 1%
============ =========== ===========
Total 100% 100% 100%
============ =========== ===========
</TABLE>
Sales to significant customers as a percentage of total net sales for
the years ended December 31, 1999, 1998 and 1997, were as follows:
1999 1998 1997
---- ---- ----
AlliedSignal, Inc. 46% 42% 25%
Honeywell, Inc. 10% 3% --
- ------------------------ =========== ============ ===========
Pro Forma Combined 56% 45% 25%
- ------------------------ =========== ============ ===========
Exabyte -- 4% 12%
=========== ============ ===========
In December 1999, AlliedSignal and Honeywell completed their merger and
the combined company was named Honeywell International, Inc. The pro forma
disclosure above presents the customer concentration as if the merger had
occurred on January 1, 1997. The Company historically has relied on a small
number of customers to generate a significant percentage of its revenue. During
1999, the Company's ten largest customers accounted for 88% of the Company's net
revenue. The loss of Honeywell as a customer would, and the loss of any
significant customer could, have a material adverse effect on the Company's
financial condition and results of operations.
In addition, the Company holds significant accounts receivable from
sales to certain customers. At December 31, 1999, approximately 57% of the
Company's net trade receivables were due from Honeywell and 12% of net trade
receivables were due from Bayer Corporation. 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.
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. Despite existing
contractual arrangements, there can be no assurance that current customers,
including Honeywell, 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.
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,
VIII-7
<PAGE>
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.
Backlog
The Company's backlog was approximately $219 million at December 31,
1999, compared to approximately $108 million at December 31, 1998. Backlog
generally consists of purchase orders believed to be firm that are expected to
be filled within the next six months and are based on forecasts given to the
Company by its customers. Since forecasts are frequently revised, orders and
commitments may be rescheduled or canceled and customers' desired lead times
might vary, backlog does not necessarily reflect the timing or amount of future
sales. The Company generally seeks to deliver its products within four to eight
weeks of obtaining purchase orders, which tends to minimize backlog.
Competition
Competition in the electronic manufacturing services industry is
intense. The contract manufacturing services provided by the Company are
available from many independent sources. The Company also competes with in-house
manufacturing operations of current and potential customers. The Company
competes with numerous domestic and foreign EMS firms, including SCI Systems,
Inc., Solectron Corporation, Benchmark Electronics, Inc., The DII Group, Inc.,
Plexus Corp., Reptron Electronics, Inc., Group Technologies Corporation, and
others. The Company also faces competition from its current and potential
customers, who are continually evaluating the relative merits of internal
manufacturing versus contract manufacturing for various products. Certain of the
Company's competitors have broader geographic presence than the Company,
including manufacturing facilities in foreign countries. Many of such
competitors are more established in the industry and have substantially greater
financial, manufacturing or marketing resources than the Company. 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.
Suppliers
The Company uses numerous suppliers of electronic components and other
materials for its operations. The Company works with customers and suppliers to
minimize the effect of any component shortages. Some components used by the
Company have been subject to industry-wide shortages, and suppliers have been
forced to allocate available quantities among their customers. The Company's
inability to obtain any needed components during periods of allocations could
cause delays in shipments to the Company's customers and could adversely affect
results of operations. At times, the Company's cash flow problems have resulted
in late payments to its suppliers which, in turn, has caused such suppliers to
delay or stop shipments of inventory. This has disrupted the Company's
operations, which has resulted in incomplete or late shipments of products to
the Company's customers. The Company attempts to mitigate the risks of component
shortages by working with customers to delay delivery schedules or by working
with suppliers to provide the needed components using just-in-time inventory
programs.
VIII-8
<PAGE>
Patents and Trademarks
The Company currently has two registered trademarks, which consist of
"EFTC" and "APM" (including the related design) and two unregistered trademarks
which consist of "APM" and "Asynchronous Process Manufacturing." The Company's
management does not believe that patent or trademark protection is material to
the Company's business.
Governmental Regulation
The Company's operations are subject to certain federal, state and
local regulatory requirements relating to environmental, waste management,
health and safety matters, and there can be no assurance that material costs and
liabilities will not be incurred in complying with those regulations or that
past or future operations will not result in exposure to injury or claims of
injury by employees or the public. To meet various legal requirements, the
Company has modified its circuit board cleaning processes to utilize only
aqueous (water-based) methods in its cleaning processes.
Some risk of costs and liabilities related to these matters is inherent
in the Company's business, as with many similar businesses. Management believes
that the Company's business is operated in substantial compliance with
applicable environmental, waste management, health and safety regulations, the
violation of which could have a material adverse effect on the Company. 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.
The Company periodically generates and temporarily handles limited
amounts of materials that are considered hazardous waste under applicable law.
The Company contracts for the off-site disposal of these materials.
Employees
As of December 31, 1999, the Company had 1,591 full-time equivalent
employees, of whom 1,186 were engaged in manufacturing operations services, 286
in material handling and procurement, 6 in marketing and sales and 113 in
finance and administration. The Company also engaged the full-time services of
481 temporary laborers through employment agencies in manufacturing and
operations. None of the Company's employees is subject to a collective
bargaining agreement. Management believes that the Company's relationship with
its employees is good.
Special Considerations
Dependence on Honeywell. During 1999, Honeywell accounted for more than
56% of the Company's net revenues and at December 31, 1999, approximately 57% of
the Company's net trade receivables were due from Honeywell. For the year ending
December 31, 2000, pursuant to a long-term agreement with Honeywell, the Company
expects that Honeywell will account for an increased percentage of the Company's
business. The loss of Honeywell as a customer, a decline in the volume of
business with Honeywell, or Honeywell's insolvency or inability or unwillingness
to pay outstanding receivables in a timely manner, would have a material adverse
effect on the Company's results of operations and financial condition.
Integration of Systems; Management of New Facilities. The Company
acquired or opened ten new facilities during 1997 and 1998 and two in 1999.
During 1999 the Company sold or closed four facilities and two more facilities
are expected to be closed by the end of the second quarter of 2000. The
VIII-9
<PAGE>
Company's expansion into new facilities across the country placed a significant
strain on the Company's management information, operating and financial systems,
as well as the Company's management resources. In order to maintain and improve
results of operations, the Company's management will be required to integrate
the new facilities into the Company's existing systems and management structure.
The Company needs to continue to implement and improve its management
information, operating and financial systems and internal controls, to attract
and retain qualified management personnel, to develop the management skills of
its managers and supervisors and to train, motivate and manage its employees.
The Company's failure to effectively integrate and manage its new facilities
could adversely affect the Company's results of operations.
Implementation of New Information System. The Company has implemented a
new management information system (the "MIS System") in all facilities except
EFTCExpress, based on commercially available Oracle software products, that is
designed to track and control all aspects of its manufacturing services, as well
as the Company's financial accounting applications. There can be no assurance
that the MIS System will continue to operate as designed or provide the
Company's operations any additional efficiency. If the MIS System fails to
operate as designed or the Company's business processes are not properly
integrated with the MIS System, the Company's operations could be disrupted in a
variety of ways including lost orders, orders that can not be filled in a timely
manner, inventory shortfalls and excess inventories, any or all of which could
result in lost customers and revenues. In addition, the Company could be
required to write-off costs associated with the MIS System if the system
acquisition and implementation costs are considered to be impaired. Such
disruptions or events could adversely affect results of operations and the
implementation of the Company's high mix manufacturing strategy.
Acquisition Strategy. The Company has actively pursued in the past, and
expects to actively pursue in the future, acquisitions in furtherance of its
strategy of expanding its operations, geographic markets, service offerings,
customer base and revenue base. Acquisitions involve numerous risks, including
difficulties in the integration of the operations, technologies, 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.
The Company may incur significant amounts of indebtedness in connection with
future acquisitions. 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 price such
acquisition opportunities properly, to consummate acquisitions successfully or
integrate acquired personnel and operations into the Company successfully.
Item 2. Description of Property
The following table describes the Company's material properties during
1999.
<TABLE>
<CAPTION>
Year Approximate
Location Acquired/Opened Size Owned/leased(1) Services
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Denver, Colorado 1997 18,000 square feet Leased Executive Offices
Newberg, Oregon 1998 65,000 square feet Leased (2) Manufacturing
Moses Lake, Washington 1997 20,000 square feet Leased (3) Manufacturing
Ft. Lauderdale, Florida* 1997 97,000 square feet Subleased (4) Manufacturing
Tucson, Arizona* 1998 65,000 square feet Leased (5) Manufacturing
Phoenix, Arizona 1999 145,000 square feet Leased (6) Manufacturing
Tijuana, Mexico 1999 30,000 square feet Leased (7) Manufacturing
Manchester, New Hampshire 1998 19,000 square feet Leased (8) Manufacturing
Wilmington, Massachusetts 1998 54,000 square feet Subleased (9) Manufacturing
Ottawa, Kansas 1998 40,000 square feet Owned (10) Manufacturing
</TABLE>
VIII-10
<PAGE>
The Company believes its facilities are in good condition.
- ---------------
* This facility was closed by the Company in 2000.
(1) Pursuant to the terms of the Bank of America, N.A. Loan (as defined
below), substantially all of the Company's owned and leased property is
subject to liens and other security interests in favor of Bank of America
("Bank of America"), and any other lenders from time to time under the
Bank of America Loan.
(2) The Company purchased approximately 12 acres of land from an unaffiliated
third party and built a 65,000 square foot facility in Newberg, Oregon.
This facility was sold to a related party in December 1998 and was leased
back by the Company. The lease term is for 5 years.
(3) This facility is leased from an unaffiliated third party on a year-to
year basis.
(4) The Company subleased a 97,000 square foot portion of a building from
Honeywell. In September 1999 the Company initiated a plan to consolidate
and close its operations in Fort Lauderdale, Florida. This sublease
agreement was terminated in April 2000.
(5) 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. This facility was sold to a
related party in December 1998 and was leased back by the Company. The
lease term is for 5 years. The Company sold the assets and inventory
located at this facility to Honeywell in February 2000. Honeywell has
agreed to sublease the facility from the Company for 18 months at the
same cost as the Company pays to the landlord, with an option to extend
the term until December 2003 when the Company's primary lease term
expires.
(6) The Company leases two facilities that comprise 145,000 square feet from
an unrelated third party. The lease expires in July 2007 with two
additional option terms of 5 years each.
(7) The Company utilizes this facility through a contractual arrangement with
an unrelated third party. This arrangement continues through July 2000,
and may be extended at the Company's option for subsequent one-year
periods.
(8) The Company leases a 19,000 square foot facility from an unrelated third
party. The lease expires in August 2001.
(9) The Company subleases a 54,000 square foot facility from Bayer-Agfa on a
year-to-year basis until March 31, 2003. The Company has provided notice
to its landlord that it will vacate this facility in September 2000. The
Company is in the process of locating a new facility in Massachusetts.
(10) The Company purchased a 40,000 square foot facility from Honeywell,
remodeled this facility and commenced manufacturing operations in the
facility in December 1998.
Item 3. 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.
Joshua Grayck, Philip and Angelique Signorelli, William McBride, Mark
Norris, Michael Keister, and Aiming Kiao v. EFTC Corporation, Jack Calderon,
Gerald J. Reid, Stuart W. Fuhlendorf, Brent L. Hofmeister, August P. Bruehlman,
L. Reid, and Lloyd McConnell (United States District Court for the District of
Colorado, Case No. 98-S-2178). Plaintiffs are shareholders of EFTC who
originally
VIII-11
<PAGE>
filed this lawsuit on October 8, 1998. Plaintiffs filed an amended complaint on
January 22, 1999. Plaintiffs allege that during the class period April 6, 1998
to August 20, 1998, defendants made false and misleading statements regarding
EFTC's business performance, implementation of a new computer system,
manufacturing quality systems, operating margins, relationships with its largest
customers, and future prospects for earnings growth. Plaintiffs allege that
defendants disseminated or approved a prospectus in connection with the
Company's June 1998 secondary offering, as well as certain other press releases
and financial reports which contained misrepresentations and material omissions
and also concealed materially adverse financial information. The amended
complaint alleges violations of Section 10(b) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder, as well as Section 11 of the
Securities Act of 1933. In addition, plaintiffs allege that by reason of their
positions as officers and/or directors of EFTC, Messrs. Calderon, Reid,
Fuhlendorf and Hofmeister had the power and authority to cause EFTC to engage in
the wrongful conduct alleged in the complaint. Plaintiffs allege, therefore,
that EFTC and these individual defendants violated Section 20(a) of the
Securities and Exchange Act of 1934 and Section 15 of the Securities Act of
1933. Plaintiffs seek the following relief: (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 rescisionary damages, interest, costs and attorneys' fees
to all members of the class; and (c) equitable relief available under federal
and state law.
Defendants deny the allegations of the amended complaint. Defendants
filed a motion to dismiss the case on March 8, 1999. That motion is pending.
Craig Anderson, Todd Sichelstiel, Phillip and Angelique Signorrelli,
Christy J. Baldwin and Patricia Conlon v. EFTC Corporation, Jack Calderon,
Gerald J. Reid, Stuart W. Fuhlendorf, Brent L. Hofmeister, August P. Bruehlman,
Lucille A. Reid, Lloyd A. McConnell and Salomon Smith Barney ( District Court
for the County of Weld, Colorado, Case No. 99-CV-962). Plaintiffs are
shareholders of EFTC who filed this lawsuit originally in the District Court for
the County of Weld, Colorado. Plaintiffs allege that during the class period
April 6, 1998 to August 20, 1998, defendants made false and misleading
statements regarding EFTC's business performance, implementation of a new
computer system, manufacturing quality systems, operating margins, relationships
with its largest customers, and future prospects for earnings growth. Plaintiffs
allege that defendants disseminated or approved a prospectus in connection with
the Company's June 1998 secondary offering, as well as certain other press
releases and financial reports which contained misrepresentations and material
omissions and also concealed materially adverse financial information. The
complaint alleges violations of Sections 11-51-501(1)(a, b, and c) and
11-51-604(3) of the Colorado Securities Act. In addition, plaintiff alleges that
by reason of their positions as officers and/or directors of EFTC, Messrs.
Calderon, Reid, Fuhlendorf, Hofmeister, Bruehlman, McConnell, and Ms. Reid are
controlling persons of EFTC and, therefore, that these defendants violated
Section 11-51-604(5) of the Colorado Securities Act. Plaintiffs also allege that
defendants conduct occurred in connection with the offer, sale or purchase of
EFTC securities in the secondary offering in violation of Section 11-51-604(4)
of the Colorado Securities Act. Plaintiff seeks the following relief: (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.
Defendants removed the case to federal court on January 11, 1999. The
federal court remanded the case to state court on February 14, 2000. Defendants
deny the allegations of the complaint.
The parties to these legal proceedings have reached an agreement to
settle both legal proceedings. The settlement is subject to court approval. The
proposed settlement provides for the Company to contribute $3.1 million in cash
and 1.3 million shares of the Company's common stock and its insurer to
VIII-12
<PAGE>
contribute $2.9 million into a class settlement fund. Notice of the settlement
has been filed in both state and federal court requesting a stay of all
proceedings pending the submission of settlement documents to the courts.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of 1999.
VIII-13
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Company's common stock is quoted on the Nasdaq National Market
under the symbol "EFTC". On April 10, 2000, there were approximately 267
shareholders of record of the Company's Common Stock.
The following table sets forth the high and low sale prices for the
Company's common stock, as reported on the Nasdaq National Market, for the
quarters presented.
1999 Sales Prices 1998 Sale Prices
----------------------- --------------------
High Low High Low
---- --- ---- ---
First Quarter $ 5.750 $3.375 $17.000 $12.813
Second Quarter 6.750 4.000 18.313 11.500
Third Quarter 5.188 2.625 13.750 2.844
Fourth Quarter 3.594 1.500 5.063 2.625
Dividends
The Company has never paid dividends on its common stock and does not
anticipate that it will do so in the foreseeable future. The future payments of
dividends, if any, on common stock is within the discretion of the Board of
Directors and will depend on the Company's earnings, capital requirements,
financial condition and other relevant factors. However, the Company's loan
agreement with Bank of America as well as terms of the Exchangeable Note and the
Convertible Note prohibit payment of dividends without the lender's consent.
Recent Sales of Unregistered Securities.
On February 24, 1997, the Company acquired its Northwest Operations
Division, which operated two manufacturing facilities in Newberg, Oregon and
Moses Lake, Washington, 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 determined that the issuance of such shares was exempt from registration
under Section 4(2) of the Securities Act of 1933, as amended (the "Securities
Act"), as a transaction by the issuer not involving a public offering because
the transaction involved the acquisition of a business from the owners thereof
based on private negotiations.
During September 1997, the Company issued to Richard L. Monfort, a
director of the Company, $15 million in aggregate principal amount of
subordinated notes (the "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. During October 1997, the
Company issued a warrant (the "Warrant") to purchase 500,000 shares of common
stock at a price of $8.00 per share as additional consideration for the loan
represented by the Subordinated Notes. The Warrant was exercised on October 9,
1997, resulting in net proceeds to the Company of $4 million. The Company
determined that the issuances of the Subordinated Notes, the Warrant and the
common stock issued upon exercise of the Warrants were exempt from registration
under Section 4(2) of the Securities Act because it involved a director of the
Company.
VIII-14
<PAGE>
On September 30, 1997, the Company acquired the Services Group for
approximately $29.7 million consisting of 1,858,975 shares of the Company's
common stock and approximately $20.5 million in cash, which includes
approximately $1 million of transaction costs. In addition, the Company made a
$6 million contingent payment that became payable upon closing of the Company's
public offering of common stock in November, 1997. The Company determined that
the issuance of such shares was exempt from registration under Section 4(2) of
the Securities Act as a transaction by the issuer not involving a public
offering because the transaction involved the acquisition of a business from the
owners thereof based on private negotiations.
On March 31, 1998, the Company acquired Personal Electronics which
provided quick-turn, small scale, high mix electronic manufacturing services to
OEMs in the greater Boston area and New Hampshire for total consideration of
1,800,000 shares of the Company's common stock. The Company determined that the
issuance of such shares was exempt from registration under Section 4(2) of the
Securities Act, as a transaction by the issuer not involving a public offering
because the transaction involved the acquisition of a business from the owners
thereof based on private negotiations.
In November 1999, the Company issued to Richard L. Monfort, a director
of the Company, $5 million in subordinated notes. These notes bore interest at
10% and matured on March 30, 2000. The proceeds of these subordinated notes were
used for general operating purposes. On March 30, 2000, the Company repaid $2
million (plus accrued interest on the full $5 million) of the outstanding $5
million. The note agreement was amended to provide for issuance of $3 million in
aggregate principal amount of subordinated notes, with a maturity date of March
30, 2004 and bearing interest at 10%. The Company determined that the issuance
of the subordinated notes was exempt from registration under Section 4(2) of the
Securities Act because it involved a director of the Company.
On March 30, 2000, in connection with the recapitalization described
above, the Company issued $54 million of subordinated exchangeable notes due on
June 30, 2006, with paid in kind interest at 15%. These notes are accompanied by
warrants to purchase 3,093,154 shares of the Company's common stock at an
exercise price of $0.01 per share. The Company determined that the issuance of
the subordinated notes and warrants was exempt from registration under Section
4(2) because the transaction involved a negotiated purchase of securities by an
accredited investor.
In April 2000, the Company issued warrants to purchase an aggregate of
525,000 shares of the Company's common stock at a price of $3.00 per share to
two investment banks as additional consideration for services rendered to the
Company. The Company determined that the issuances of such warrants were exempt
from registration under Section 4(2) of the Securities Act.
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, events affecting the Company's competitors and
changes in general conditions in the electronics industry, as well as variations
in the Company's actual or anticipated results of operations, may cause the
market price of the Company's common stock to fluctuate significantly.
Furthermore, the stock market has experienced extreme price and volume
fluctuations in recent years, often for reasons unrelated to the operating
performance of the specific companies. These broad market fluctuations may
materially adversely affect the price of the Company's common stock. There can
be no assurance that the market price of the Company's common stock will not
experience significant fluctuations in the future, including fluctuations that
are unrelated to the Company's performance.
VIII-15
<PAGE>
Item 6. Selected Financial Data.
The following selected financial data as of December 31, 1999 and 1998,
and for each of the years in the three-year period ended December 31, 1999, are
derived from the audited financial statements of the Company included in Item 8
and should be read in conjunction with such financial statements and the notes
thereto. The data presented below as of December 31, 1997, 1996 and 1995, and
for the years ended December 31, 1996 and 1995, are derived from financial
statements of the Company that are not included in this report.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
Statement of Operations Data: 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales $221,864 $ 226,780 $122,079 $ 60,910 $51,580
Cost of goods sold 229,892 200,581 102,166 56,277 46,437
-------- --------- -------- -------- -------
Gross profit (loss) (8,028) 26,199 19,913 4,633 5,143
Selling, general and administrative 32,089 23,038 12,711 5,916 4,324
Impairment of long-lived assets 2,822 3,342 -- 726 --
Merger costs -- 1,048 -- -- --
Goodwill amortization 1,133 1,564 547 -- --
-------- --------- -------- -------- -------
Operating income (loss) (44,072) (2,793) 6,655 (2,009) 819
Interest expense (6,516) (4,312) (2,411) (576) (432)
Gain (loss) on sale of assets (20,880) 400 1,156 50 --
Other, net (55) (104) 139 50 92
-------- --------- -------- -------- -------
Income (loss) before income taxes (71,523) (6,809) 5,539 (2,485) 479
Income tax benefit (expense) (2,180) 2,631 (2,118) 867 (130)
-------- --------- -------- -------- -------
Net income (loss) $(73,703) $ (4,178) $ 3,421 $ (1,618) $ 349
======== ========= ======== ======== =======
Pro Forma Information:
Historical net income (loss) $(73,703) $ (4,178) $ 3,421 $ (1,618) $ 349
Pro forma tax adjustment -- (317) (41) 10 2
-------- --------- -------- -------- -------
Pro forma net income (loss) $(73,703) $ (4,495) $ 3,380 $ (1,608) $ 351
======== ========= ======== ======== =======
Pro Forma Earnings Per Share:
Basic $ (4.74) $ (.31) $ .40 $ (.28) $ .06
======== ========= ======== ======== =======
Diluted $ (4.74) $ (.31) $ .38 $ (.28) $ .06
======== ========= ======== ======== =======
Weighted Average Shares:
Basic 15,543 14,730 8,502 5,742 5,762
======== ========= ======== ======== =======
Diluted 15,543 14,730 8,955 5,742 5,762
======== ========= ======== ======== =======
Cash Flow Data:
Cash provided (used) by:
Operating activities $ (9,873) $(18,181) $(29,414) $ (508) $ (999)
Investing activities 17,752 (21,924) (42,074) (1,837) 1,247
Financing activities (7,786) 38,851 72,958 2,049 208
December 31,
--------------------------------------------------------------------------
Balance Sheet Data: 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Working capital $ 26.232 $ 59,037 $ 43,634 $ 9,284 $ 9,878
Total assets 131.129 190,666 148,825 24,037 25,724
Total debt 42,994 54,983 44,959 5,917 3,277
Stockholders' equity 21,278 94,979 75,221 13,850 15,462
</TABLE>
VIII-16
<PAGE>
Item 7. 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 Private Securities Litigation Reform Act. Such
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those expressed in the statements. See
"--Special Note Regarding Forward-Looking Statements."
General
The Company is a leading independent provider of high mix electronic
manufacturing services to original equipment manufacturers (OEMs) in the
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.
During 1997 and 1998, the Company made several acquisitions of
businesses and assets in connection with an aggressive growth strategy. Between
the fourth quarter of 1998 and the fourth quarter of 1999, the Company began
taking a series of actions to improve liquidity and operating results. These
actions included the disposal or closure of several of the Company's business
units. In order to understand the Company's financial condition and results of
operations over the past three years, it is important to understand the
acquisitions, dispositions and closures that were occurring during this period.
Accordingly, a summary of these activities is presented below.
Northwest Operations Division. On February 24, 1997, the Company
acquired two affiliated entities, Current Electronics, Inc., an Oregon
corporation, and Current Electronics (Washington), Inc., a Washington
corporation, for total consideration of approximately $10.9 million, consisting
of 1,980,000 shares of Company common stock and approximately $5.5 million in
cash, including approximately $600,000 of transaction costs. During 1998, the
Company completed construction of a new manufacturing facility in Newberg,
Oregon at a total cost of approximately $7.0 million. The Newberg facility along
with one in Moses Lake, Washington comprises the Company's Northwest Operations
Division.
AlliedSignal Asset Purchase. During the period from August 1997 through
February 1998, the Company completed two transactions with AlliedSignal, Inc.
now Honeywell International Inc. ("Honeywell") pursuant to which the Company
acquired inventories and equipment located in Fort Lauderdale, Florida and
Tucson, Arizona for an aggregate purchase price of approximately $19.0 million.
In connection with these activities, the parties entered into a long-term supply
agreement for the production of circuit card assemblies.
In an effort to improve capacity utilization at other facilities, in
September 1999 the Company initiated a plan to close its facility in Fort
Lauderdale and consolidate the business from that plant into three other EFTC
facilities. Ft. Lauderdale was selected due to its higher cost structure and in
consideration of the added benefits of transferring this business to facilities
that are in closer proximity to the affected customers. The Ft. Lauderdale
restructuring activities are expected to be substantially complete by the end of
April 2000.
In December 1999, the Company commenced negotiations with Honeywell
International, Inc. for the sale of inventory and equipment at the Company's
facility in Tucson and the sublease of the facility to Honeywell. This sale
closed in February 2000 and provided net proceeds to the Company of $12.7
million.
VIII-17
<PAGE>
EFTC Services Division. The Company acquired the Services Division in
September 1997 for approximately $35.7 million, consisting of 1,858,975 shares
of the Company's common stock and approximately $26.5 million in cash. The
Services Division had facilities in Memphis, Tennessee, Louisville, Kentucky and
Tampa, Florida and specialized in transportation hub-based warranty and repair
services for companies engaged in the computer and communications industries.
On September 1, 1999, the Company sold the Services Division for
approximately $28.1 million. In connection with this sale, the purchaser and the
Company agreed to an Earn-out Contingency (the "EC"). Under the EC, if earnings
for the year ending August 31, 2000 related to the division sold are in excess
of $4,455,000 ("Target Earnings"), the Company will be entitled to an additional
payment equal to three times the difference between the actual earnings and
Target Earnings. If actual earnings are less than Target Earnings, the Company
will be required to refund an amount equal to three times the difference. The
maximum amount that either party would be required to pay under the EC is $2.5
million.
EFTC Express Division. In March 1998, the Company acquired RM
Electronics, Inc., doing business as Personal Electronics ("Personal"), in a
business combination accounted for as a pooling of interests. The Company issued
1,800,000 shares of common stock in exchange for all of the outstanding common
stock of Personal. Personal is based in Manchester, New Hampshire and
specializes in the quick turn, front-end prototype development, low volume, and
end-of-life high mix assembly services. Personal comprises the Company's EFTC
Express Division.
Northeast Operations Division. In September 1998, the Company acquired
the circuit card assembly operations of the Agfa Division of Bayer Corporation.
The Company purchased inventory and equipment for approximately $6.0 million and
the parties entered into a long-term supply agreement for the manufacture of
circuit card assemblies. This business is conducted in the Company's leased
facility in Wilmington, Massachusetts that comprises the Northeast Operations
Division.
Midwest Operations Division. In September 1998, the Company purchased
manufacturing equipment for approximately $1.5 million from AlliedSignal. In
connection with this transaction, AlliedSignal agreed to amend the existing
long-term supply agreement it has with the Company to include the production of
circuit card assemblies at the Company's new facility in Ottawa, Kansas. The
Kansas facility comprises the Company's Midwest Operations Division.
Rocky Mountain Division. In December 1998, the Company announced a plan
to close the Rocky Mountain Division located in Greeley, Colorado and to
consolidate the remaining business into other facilities, in an effort to
improve capacity utilization and profitability. In October 1999, the Company
completed the sale of the building in Greeley for net proceeds of approximately
$3.8 million.
Southeast Commercial Operations Division. In March 1999, the Company
entered into an agreement with Honeywell to acquire certain assets and inventory
used in circuit card assembly. The Company and Honeywell have entered into a
ten-year supply agreement. For the year ended December 31, 1999, sales under
this agreement amounted to approximately $28 million. The manufacturing
activities under this agreement are conducted in a newly leased facility near
Phoenix, Arizona and a smaller facility in Tijuana, Mexico. These facilities
comprise the Company's Southwest Commercial Operations Division.
VIII-18
<PAGE>
Results of Operations
The Company's quarterly results of operations are affected by several
factors, primarily the level and timing of customer orders and the mix of
turnkey and consignment orders. The level and timing of orders placed by a
customer vary due to the customer's attempts to balance its inventory, changes
in the customer's manufacturing strategy, and variation in demand for its
products due to, among other things, product life cycles, competitive conditions
and general economic conditions. In the past, changes in orders from customers
have had a significant effect on the Company's quarterly results of operations.
Other factors affecting the Company's quarterly results of operations may
include, among other things, the Company's performance under the long-term
supply agreement with Honeywell, price competition, disposition of divisions and
closure of operating units, the ability to obtain inventory from its suppliers
on a timely basis, 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 through managing inventories and other
assets, the timing of expenditures in anticipation of increased sales, and
fluctuations in the cost of components or labor.
The following table sets forth certain operating data as a percentage of net
sales:
Year Ended December 31,
--------------------------------
1999 1998 1997
---- ---- ----
Net sales 100% 100% 100%
Cost of goods sold 104% 88% 84%
--- ---- ----
Gross profit (loss) (4%) 12% 16%
Selling, general and administrative 14% 10% 10%
Impairment of long-lived assets 1% 1% --
Merger costs -- 1% --
Goodwill amortization 1% 1% 1%
--- ---- ----
Operating income (loss) (20%) (1%) 5%
==== ==== ====
1999 Compared to 1998
Net Sales. Net sales for 1999 were $222 million compared to $227
million in 1998, which is a decrease of 2.0%. Despite the minor decrease in
revenue, the Company experienced major changes in its customers and facilities
during 1999. At the start of 1999, the Company had eleven facilities. Six of
these facilities have been sold or will be closed by April 2000. However, the
Company also added facilities in Phoenix and Mexico during 1999 to support the
new business with Honeywell in connection with the long-term supply agreement
entered into with Honeywell in March 1999 which offset the loss of revenue from
other divisions. The Company's sales for 1999 include approximately $28 million
of revenue under this agreement. The Northeast Operations Division (acquired
September 1, 1998) and the Midwest Operations Division (acquired September 30,
1998) accounted for $11 million of revenue in 1998 compared to $36 million in
1999. However, this increase was offset by the loss of revenue from the Services
Group that was sold on September 1, 1999. The Services Group accounted for $41
million of revenue in 1998 compared to only $22 million in 1999. The closure of
the Greeley, Colorado facility in 1999 also contributed to lower revenue,
despite the transfer of part of this business to other facilities.
Gross Profit (Loss). The Company had gross profit of 12% in 1998 and a
loss of 4% in 1999. During 1998, the Company increased its workforce, and
invested substantial amounts in new facilities,
VIII-19
<PAGE>
equipment and information systems to prepare for expected increases in sales in
1999. This higher cost structure combined with a decrease in sales was the
primary contributor to the significant decrease in 1999 gross profit. The
Company incurred restructuring charges for the Greeley facility in the fourth
quarter of 1998, including a $5.7 million charge to cost of goods sold,
primarily for a provision for inventory allowances. During 1999, product pricing
at the Tucson facility resulted in negative margins of $3.5 million.
Additionally, in 1999 the Company incurred (i) charges included in cost of goods
sold for $1.5 million due to inventory allowances and operating charges related
to the closure of the Greeley facility, (ii) charges for excess and obsolete
inventories and other charges to cost of goods sold totaling $7.1 million
related to the closure of the Fort Lauderdale facility and (iii) approximately
$0.9 million in charges related to excess and obsolete inventories in connection
with the Services Group. Additional charges of $1.0 million are expected in the
first two quarters of 2000 in connection with the closure of the Fort Lauderdale
facility as retention bonuses are paid and other closure activities are
completed.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") increased 39% to $32.1 million in 1999 compared
to $23.0 million in 1998. SG&A expenses were up significantly in 1999, primarily
due to a $6.4 million provision for the estimated settlement of shareholder
lawsuits. During 1999, the Company also recognized charges of $5.1 million for
uncollectable receivables compared to 1998 when the Company recognized bad debt
expense of $0.6 million. The 1999 charges included (i) settlements reached with
Honeywell related to pricing issues with respect to business conducted at the
Ft. Lauderdale and Tucson facilities, (ii) charges for uncollectable receivables
related to the Services Group, (iii) approximately $0.7 million for severance
costs related to the Ft. Lauderdale closure and (iv) $0.4 million for start-up
costs at the Phoenix facility. During 1998, SG&A includes approximately $0.2
million for severance and salaries of employees performing exit activities in
connection with the Greeley closure.
Impairment of Property, Plant and Equipment. During 1999, the Company
recognized impairment expense of $2.8 million compared to $3.3 million in 1998
which is a decrease of 15.6%. The impairment in 1998 related solely to land,
building and equipment at the Greeley facility. For 1999, the Company recognized
$1.0 million of impairment related to equipment at the Ft. Lauderdale facility,
$1.2 million for the Tucson assets that were held for sale at year-end, $0.4
million for Services Group assets that were sold in September 1999, and $0.2
million for impaired assets at other locations.
Goodwill Amortization. Goodwill amortization for 1999 amounted to $1.1
million compared to $1.6 million in 1998. The decrease in 1999 was attributable
to the sale of the Services Group on September 1, 1999, and the corresponding
write-off of $36.5 million of goodwill that was included in the calculation of
the loss on sale of the Services Group.
Interest Expense. Interest expense increased 51.1% to $6.5 million in
1999 compared to $4.3 million in 1998. The increase in 1999 was partially
attributable to an increase in amortization of debt issuance costs of $.9
million in 1999. The increase in amortization in 1999 was attributable to
accelerated amortization of debt issuance costs and additional costs incurred in
connection with amendments to the credit agreement. Interest expense was also
higher in 1999 due to increases in the prime rate, as well as increases in the
rate charged by the Company's lenders due to increased credit risk.
Loss on Sale of Division. The Company recognized a loss of $20.6
million in connection with the sale of the Services Group due to the write-off
of $36.5 million of goodwill from the 1997 acquisition of the Services Group.
Additionally, the loss gives effect to the deferral of $2.5 million of the
proceeds for a post closing earn-out contingency.
Income Tax Benefit (Expense). Due to significant net losses in 1999,
the Company recorded a valuation allowance for all of its net deferred tax
assets. As a result, the Company recorded deferred tax
VIII-20
<PAGE>
expense of $2.2 million in 1999 despite a pre-tax loss of $70.2 million. During
1998, the Company recognized an income tax benefit of $2.6 million based on a
pre-tax loss of $6.8 million. Management does not expect that a tax provision
will be necessary if the Company generates earnings in 2000, since a significant
net operating loss carryforward is available for income tax purposes. However,
this carryforward may be subject to reduction or limitation as a result of
changes in ownership or certain consolidated return filing regulations.
1998 Compared to 1997
Net Sales. The Company's net sales increased by 85.8% to $226.8 million
during the year ended December, 31, 1998 from $122.1 million for the year ended
December 31, 1997. The increase in net sales is due primarily to the inclusion
of: (i) a full year's revenues from the Northwest Operations Division (acquired
on February 24, 1997), (ii) a full year's revenues from the Company's Ft.
Lauderdale and Arizona facilities (acquired in August 1997), (iii) a full year's
revenues from the Services Group (acquired on September 30, 1997), (iv) internal
growth in revenues from Personal Electronics, (v) revenues from the Wilmington,
Massachusetts facility (acquired on September 1, 1998) and (vi) revenues from
the Ottawa, Kansas facility (acquired on September 30, 1998).
Gross Profit. Gross profit increased by 31.6% to $26.2 million during
the year ended December 31,1998 from $19.9 million during the year ended
December 31,1997. The gross profit margin for the year ended December 31, 1998
was 11.6% compared to 16.3% for the year ended December 31,1997. The gross
margin decreased in 1998 because the Company established additional
infrastructure to accommodate anticipated revenue growth for the year, but net
sales were lower in the third and fourth quarters of the year 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.
The softening of revenue growth, as explained above, convinced
management and the Board of Directors to initiate a plan to consolidate and
close down its Rocky Mountain operations in Greeley, Colorado. Charges of $9.3
million were included in operations in the fourth quarter of 1998. The
restructuring and shut down involved the termination of approximately 140
employees. Total severance and salaries for employees performing exit activities
amounted to $0.5 million. Inventory allowances of $5.4 million were recorded to
provide for future losses to be incurred related to disengaged customers who
will not be continuing as customers of the Company. In addition, because of the
shutdown of the facility an amount of $3.3 million was recorded as asset
impairment. Of the $9.3 million in charges, $5.7 million was charged to cost of
goods sold, $3.3 million was recorded as an impairment of the facility, and $0.2
million was charged to selling, general and administrative expenses. Excluding
the $5.7 million in charges, gross profit margin would have been 14.1% for the
year ended December 31,1998.
Selling, General and Administrative Expenses. SG&A expenses increased
by 81.2% to $23.0 million for the year ended December 31,1998, compared with
$12.7 million for the same period in 1997. As a percentage of net sales, SG&A
expense decreased to 10.1% for the year ended December 31,1998, from 10.4% in
the same period of 1997. The increase in SG&A expenses is primarily due to the
inclusion of (i) a full year's expenses of the Northwest Operations Division
(acquired on February 24, 1997), (ii) a full year's expenses of the Company's
Ft. Lauderdale and Arizona facilities (acquired in August 1997), (iii) a full
year's expenses of the Services Group (acquired on September 30, 1997), (iv)
expenses of the Wilmington, Massachusetts facility (acquired on September
1,1998) and (v) expenses of the Ottawa, Kansas facility (acquired on September
30, 1998).
VIII-21
<PAGE>
Impairment of Property, Plant and Equipment. During the fourth quarter
of 1998, the Company incurred a write down associated with the shutdown of the
Greeley, Colorado facility in the amount of $3.3 million.
Operating Income (Loss). Operating income decreased to a $2.8 million
loss for the year ended December 31, 1998 from operating income of $6.7 million
for the same period in 1997. Operating loss as a percentage of net sales
decreased to a loss of 1.2% for the year ended December 31,1998 compared to
income of 5.5% in the same period in 1997. The decrease in operating income is
due primarily to the shutdown of the Rocky Mountain facility in Greeley,
Colorado that resulted in charges of $9.3 million, as explained above. Without
the Greeley charges, operating income as a percentage of net sales for the year
ended December 31,1998 would have been approximately 2.8%. Other factors
relating to the decline in operating profit were that the Company established
additional infrastructure to accommodate anticipated revenue growth for the
year, but net sales were lower in the third and fourth quarters of the year 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.
Interest Expense. Interest expense was $4.3 million for the year ended
December 31,1998 as compared to $2.4 million for the same period in 1997. The
increase in interest is primarily the result of additional debt associated with
the acquisition of the Midwest Operations Division, the Northeast Operations
Division and the Services Group and increased debt used to finance the growth of
inventories and receivables.
Income Tax Expense. The income tax benefit for the year ended December
31,1998 was 34.0% of loss before income taxes, including pro forma income taxes.
The effective tax rate for the year ended December 31, 1997 was 39.0%, including
pro forma income taxes. The decrease in the effective tax rate is primarily due
to the reduction of the 1998 income tax benefit for nondeductible goodwill
amortization.
VIII-22
<PAGE>
Quarterly Results.
The following table presents unaudited quarterly operating data for the
most recent eight quarters for the two years ended December 31, 1999. The
information includes all adjustments, consisting only of normal recurring
adjustments, that the Company considers necessary for a fair presentation
thereof.
<TABLE>
<CAPTION>
Year Ended December 31, 1998 Year Ended December 31, 1999
----------------------------------------- ------------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
-- -- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 54,200 $ 61,328 $ 52,805 $ 58,447 $ 54,325 $ 54,690 $ 50,434 $ 62,415
Cost of sales 44,297 50,931 46,202 59,151 48,184 52,833 60,902 67,973
---------- --------- --------- ---------- ---------- --------- ---------- ----------
Gross profit (loss) 9,903 10,397 6,603 (704) 6,141 1,857 (10,468) (5,558)
SG&A 5,321 5,361 4,950 7,406 5,011 5,174 8,966 12,938
Impairment expense -- -- -- 3,342 -- -- 1,541 1,281
Goodwill amortization 391 391 391 391 391 391 283 68
Merger costs 1,048 -- -- -- -- -- -- --
---------- --------- --------- ---------- ---------- --------- ---------- ----------
Operating income (loss) 3,143 4,645 1,262 (11,843) 739 (3,708) (21,258) (19,845)
Interest expense (909) (1,047) (1,092) (1,264) (1,264) (1,334) (1,947) (1,971)
Gain (loss) on sale of 4 7 4 122 120 5 (20,631) (374)
assets
Other, net 36 102 10 12 37 47 (294) 155
---------- --------- --------- ---------- ---------- --------- ---------- ----------
Income before taxes 2,274 3,707 184 (12,973) (368) (4,990) (44,130) (22,035)
Income tax benefit (expense) (935) (1,483) (68) 5,116 39 1,996 -- (4,215)
---------- --------- --------- ---------- ---------- --------- ---------- ----------
Net income (loss) $ 1,339 $ 2,224 $ 116 $ (7,857) $ (329) $ (2,994) $(44,130) $(26,250)
========== ========= ========= ========== ========== ========= ========== ==========
Pro forma net income (loss) $ 1,022 $ 2,224 $ 116 $ (7,857) $ (329) $(2,994) $(44,130) $(26,250
========== ========= ========= ========== ========== ========= ========== ==========
Pro forma earnings per
share-
Diluted $ .07 $ .15 $ .01 $ (.51) $ (.02) $ (.19) $ (2.84) $ (1.69)
========== ========= ========= ========== ========== ========= ========== ==========
Weighted average shares
outstanding- Diluted 14,400 14,825 15,740 15,542 15,543 15,543 15,543 15,543
========== ========= ========= ========== ========== ========= ========== ==========
</TABLE>
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, depending primarily upon the timing of 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 or year.
VIII-23
<PAGE>
Liquidity and Capital Resources
Working Capital and Operating Cash Flows. At December 31, 1999, working
capital totaled $26.2 million which is a significant decrease from the balance
at December 31, 1998 of $59.0 million. The decrease in working capital in 1999
is primarily attributable to significant operating losses incurred during the
year combined with increased inventories in connection with the Honeywell
agreement at the Company's new facility in Phoenix, Arizona.
Cash used in operating activities for the year ended December 31, 1999
was $9.9 million compared to cash used in operating activities of $18.2 million
in 1998. During 1999, the Company incurred a significant operating loss that
utilized approximately $24.7 million of cash. The Company also utilized cash of
$12.1 million to fund an increase in inventories and other current assets. These
amounts were partially financed by an increase in operating payables of $26.9
million, including over $18 million of payables to suppliers that were outside
of established payment terms.
Cash Requirements for Investing Activities. The Company used cash for
capital expenditures totaling $14.4 million in 1999 (primarily related to the
build-out for the Company's new facility in Phoenix) compared with $22.9 million
in 1998. Capital expenditures in 1998 included payments in connection with the
acquisition of assets from AlliedSignal related to the Ft. Lauderdale, Tucson
and Kansas facilities, and the asset purchase agreement with Bayer-Agfa.
Financing Sources and Related Activities. In September 1997, the
Company issued to a director of the Company $15 million in aggregate principal
amount of subordinated notes, with a maturity date of December 31, 2002 As of
December 31, 1999, the outstanding principal amount of the subordinated notes
was approximately $4.8 million. These notes were repaid on March 30, 2000 in
connection with the recapitalization described below. In connection with the
purchase of the Services Group and the assets located in Tucson and Fort
Lauderdale, the Company entered into a credit facility on September 30, 1997
with a bank group led by BankOne, Colorado, N.A. This facility was refinanced
with proceeds from the recapitalization described below.
In December 1998, the Company entered into a sale-leaseback transaction
with a director and stockholder of the Company. Two manufacturing facilities
(one in Newberg, Oregon and one in Tucson, Arizona) were sold for $10.5 million
and leased back to the Company. The proceeds were used to pay down a portion of
the BankOne Loan. The lease was accounted for as a financing transaction; thus
the assets and related long-term debt were included on the Company's 1998
balance sheet. The transaction had an imputed interest rate of 8.68%. The lease
term is for 5 years with monthly payments of $90,000. At the end of the lease
term, the Company had the option to repurchase the facilities for approximately
$9.4 million. In May 1999, the lease was amended to eliminate the purchase
option, which resulted in the re-characterization of the lease from a capital
lease to an operating lease. Accordingly, the buildings and the related debt
have been removed from the balance sheet at December 31, 1999.
In June 1998, the Company issued 1,770,000 shares of its common stock
in a public offering for proceeds of $21.4 million which were used to repay a
portion of the bank group loan.
In March 1999, the Company entered into a long-term supply agreement
with Honeywell International, Inc. While this contract provides a favorable
source of revenue to the Company, it also requires significant amounts of
working capital to finance the inventories and receivables, and the Company was
required to incur significant costs for leasehold improvements and equipment at
a new facility in Phoenix, Arizona. During 1999, the Company had capital
expenditures of $14.4 million, primarily related to the Honeywell agreement and
the build-out for the new facility in Phoenix.
VIII-24
<PAGE>
The capital requirements under this new agreement provided significant
challenges to the Company in 1999, due to the Company's higher debt levels
combined with significant operating losses since the fourth quarter of 1998.
In order to respond to the liquidity issues, the Company took a series
of actions in 1999 that were designed to ultimately provide the necessary
capital to meet existing obligations to suppliers and banks, and to have access
to financing to meet the additional working capital requirements under the new
Honeywell agreement. The first significant action after obtaining the Honeywell
business was on September 1, 1999, when the Services Group was sold, resulting
in net cash proceeds of $28.1 million. The proceeds from this sale were utilized
to repay approximately $14.0 million of term debt outstanding on the Company's
senior credit facility, with the remainder used to pay past due balances to
suppliers and debt under the revolving credit agreement. Depending on the
outcome of the earn-out contingency associated with the agreement, the Company
may be required to repay up to $2.5 million or the buyer may be required to pay
the Company up to $2.5 million.
On September 30, 1999, the Company initiated the consolidation of its
Ft. Lauderdale plant into three other EFTC facilities. In October 1999, the
Company sold its facility in Greeley, Colorado for proceeds of $3.8 million. The
Company was required to repay bank debt for $1.9 million and the remaining $1.9
million was used to pay past due balances to suppliers.
In November 1999, the Company issued to a director of the Company $5
million in aggregate principal amount of subordinated notes, with a maturity
date of March 30, 2000 and an interest rate of 10%. The proceeds of these notes
were used for operating purposes. On March 30, 2000, in connection with the
recapitalization transaction described below, the Company repaid $2 million,
plus accrued interest. The note agreement for the original loan was amended to
provide for issuance of $3 million in aggregate principal amount of subordinated
notes, with a maturity date of March 30, 2004 and an interest rate of 10%.
At December 31, 1999, the Company had trade payables in excess of $18
million that were outside of established terms and many suppliers were requiring
payment of past due balances, or payment in advance, for purchases of additional
inventories. The Company experienced some interruptions in production as a
result of delayed shipments from certain suppliers.
The Company sold assets and inventory located at the Company's Tucson
facility to Honeywell on February 17, 2000, which resulted in net proceeds of
$12.7 million. The agreement with Honeywell required the Company to utilize
$10.5 million of the proceeds to pay past due amounts to suppliers and the
remaining proceeds were utilized to repay bank debt.
Recapitalization. Beginning in September 1999, the Company began
searching for debt and equity financing that would permit the Company to also
attract a new senior lender to replace the existing bank group. By January 2000,
the Company had received several proposals for a variety of debt and equity
structures and the Board of Directors decided to proceed with a proposal
submitted by Thayer Equity Investors. After conclusion of an extensive due
diligence period, on March 30, 2000, the Company entered into an agreement with
Thayer-Blum Funding, LLC (the "Purchaser") for a recapitalization of the
Company. The agreement provides for the purchase of a total of $54 million in
Senior Subordinated Exchangeable Notes ("Exchangeable Notes") and a subsequent
tender offer for up to 8,250,000 shares of the Company's currently outstanding
common stock at a price of $4.00 per share. The Exchangeable Notes initially
provide for a maturity date of June 30, 2006 and a paid-in-kind interest rate of
15%, and are accompanied by warrants (the "Warrants") to purchase 3,093,154
shares of the Company's common stock at an exercise price of $.01 per share. The
Purchaser has designated two persons who have been appointed to the Company's
board of directors.
VIII-25
<PAGE>
Upon shareholder approval of this transaction and assuming that at
least 500,000 shares are tendered in the tender offer, the warrants will never
become exercisable and will be cancelled. Additionally, the Exchangeable Notes
will automatically be replaced with Senior Subordinated Convertible Notes
("Convertible Notes") that provide for interest at 8.875%, payable in additional
Convertible Notes and a maturity date of June 30, 2006. At the election of the
holder, the Convertible Notes may be converted, at any time, into the Company's
common stock at $2.60 per share, subject to adjustment. Conversion of the notes
will occur automatically (i) if the Company's common stock trades above $7.50
per share for 45 consecutive trading days, or (ii) commencing on March 30, 2003,
if the Company's common stock trades above $4.25 for 45 consecutive trading
days. Finally, at the closing of the tender offer, the Purchaser will have the
right to designate a majority of the members of the Company's board of directors
and will have the right to approve any significant financings, acquisitions and
dispositions. The Purchaser has requested that the conversion price of the
Convertible Notes be reduced to $2.58 to reflecdt the change in the Company's
financial condition as a result of certain excess costs that were incurred by
the Company in connection with the transaction.
If shareholders do not approve the transaction by September 1, 2000 or
if less than 500,000 shares are tendered, the Warrants and Exchangeable Notes
will remain in place and the interest rate on the Exchangeable Notes will
increase to 20%. Interest would be compounded quarterly and payable in
additional Exchangeable Notes or cash, at the option of the holders.
On March 30, 2000, the Company entered into a new credit agreement with
Bank of America, N.A. to replace the Company's existing revolving line of credit
with BankOne Colorado, N.A. The new credit facility provides for a $45 million
revolving line of credit with a maturity date of March 30, 2003. Initially, the
interest rate will be the prime rate plus .5%. Total borrowings are subject to
limitation based on a percentage of eligible accounts receivable and eligible
inventory. Substantially all of the Company's assets are pledged as collateral
for outstanding borrowings, and the credit agreement requires compliance with
certain financial and non-financial covenants.
Based on the March 30, 2000 financing activities, management believes
the Company has adequate capital resources to fund working capital and other
cash requirements during 2000.
The Year 2000 Issue
In prior years, the Company discussed the nature and progress of its
plans to become Year 2000 ready. In late 1999, the Company completed its
remediation and testing of systems. As a result of those planning and
implementation efforts, the Company experienced no significant disruptions in
mission critical information technology and non-information technology systems
and believes those systems successfully responded to the Year 2000 date change,
including the leap year date. The Company expensed approximately $100,000 during
1999 in connection with testing and remediation of its systems. The Company is
not aware of any material problems resulting from Year 2000 issues, either with
its products, its internal systems or the products and services of third
parties. The Company will continue to monitor its mission critical computer
applications and those of its suppliers and vendors throughout the year 2000 to
ensure that any latent Year 2000 matters that may arise are addressed promptly.
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
VIII-26
<PAGE>
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 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, the loss of Honeywell as a customer or
Honeywell's inability to pay, or inability or unwillingness to pay in a timely
manner, its outstanding receivables held by the Company, the Company's ability
to pay its suppliers in a timely manner, 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, 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 Company facilities, the Company's success in limiting costs
associated with such closures, 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 7A. Quantitative and Qualitative Disclosures about Market Risk
On March 30, 2000, the Company entered into a $45 million revolving
line of credit with Bank of America, N.A. The interest rate on this loan will be
based either on the prime rate or LIBOR rates, plus applicable margins.
Therefore, as interest rates fluctuate, the Company may experience changes in
interest expense that could impact financial results. The Company has not
entered into any interest rate swap agreements, or similar instruments, to
protect against the risk of interest rate fluctuations. Assuming outstanding
borrowings of $45 million, if interest rates were to increase or decrease by 1%,
the result would be an annual increase or decrease in interest expense of
approximately $450,000 under this loan.
If shareholder approval related to certain aspects of the
recapitalization is obtained, the $54 million in principal amount of debt under
the Convertible Notes will bear interest at 8.875% which would result in an
annual interest expense of $4,859,000, or if shareholder approval is not
obtained, under the Exchangeable Notes, the $54 million of principal amount of
debt will bear interest at 20% which would result in annual interest expense of
$10,950,000.
VIII-27
<PAGE>
Item 8. Financial Statements and Supplementary Data.
The following financial statements and supplementary data are included in the
report:
Page
Financial Statements:
Independent Auditors' Report 29
Consolidated Balance Sheets 30-33
Consolidated Statements of Operations 32
Consolidated Statements of Shareholders' Equity 33
Consolidated Statements of Cash Flows 34
Notes to Consolidated Financial Statements 35-51
Supplementary Data:
Independent Auditors' Report 52
Schedule II- Valuation and Qualifying Accounts 53
VIII-28
<PAGE>
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, 1999 and 1998, 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, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of EFTC Corporation and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
Denver, Colorado
April 4, 2000
VIII-29
<PAGE>
EFTC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
ASSETS
1999 1998
---- ----
Current Assets:
<S> <C> <C>
Cash and equivalents $ 716 $ 623
Trade receivables, net of allowance for doubtful
accounts of $3,689 and $1,322, respectively 26,094 34,123
Inventories, net 60,167 60,759
Income taxes receivable 2,106 125
Deferred income taxes - 5,259
Prepaid expenses and other 2,795 2,241
--------- ---------
Total Current Assets 91,878 103,130
--------- ---------
Property, Plant and Equipment, at cost:
Leasehold improvements 2,797 1,589
Buildings and improvements 1,172 17,143
Manufacturing machinery and equipment 16,496 17,435
Furniture, computer equipment and software 12,726 9,411
--------- ---------
Total 33,191 45,578
Less accumulated depreciation and amortization (9,614) (6,959)
--------- ---------
Net Property, Plant and Equipment 23,577 38,619
--------- ---------
Intangible and Other Assets:
Goodwill, net of accumulated amortization
of $758 and $2,111, repectively 7,264 44,848
Intellectual property, net of accumulated amortization
of $699 and $233, repectively 4,289 2,861
Debt issuance costs, net of accumulated amortization
of $97 and $241, respectively 460 986
Deposits and other 3,661 222
--------- ---------
Total Intangible and Other Assets 15,674 48,917
--------- ---------
$ 131,129 $ 190,666
========= =========
</TABLE>
VIII-30
<PAGE>
EFTC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, Continued
December 31, 1999 and 1998
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
1999 1998
----- ----
Current Liabilities:
<S> <C> <C>
Current maturities of long-term debt:
Related parties $ 5,018 $ 225
Banks - 3,890
Accounts payable 46,985 27,272
Accrued compensation and benefits 4,993 2,980
Deposit on inventory finance arrangement - 5,600
Other accrued liabilities 8,650 4,127
--------- ---------
Total Current Liabilities 65,646 44,094
Long-term Liabilities:
Long-term debt, net of current maturities:
Related parties 4,792 15,098
Banks 33,184 35,770
Deferred income taxes - 725
Other 6,229 -
--------- ---------
Total Liabilities 109,851 95,687
Commitments and Contingencies (Notes 8, 9 and 11)
Shareholders' Equity:
Preferred stock, $.01 par value. Authorized
5,000,000 shares; none issued - -
Common stock, $.01 par value. Authorized 45,000,000 shares;
issued and outstanding 15,543,000 shares 155 155
Additional paid-in capital 91,992 91,990
Retained earnings (deficit) (70,869) 2,834
--------- ---------
Total Shareholders' Equity 21,278 94,979
--------- ---------
$ 131,129 $ 190,666
========= =========
</TABLE>
VIII-31
<PAGE>
EFTC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1999, 1998 and 1997
(Dollars In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net Sales $ 221,864 $ 226,780 $ 122,079
Cost of Goods Sold 229,892 200,581 102,166
--------- --------- ---------
Gross profit (loss) (8,028) 26,199 19,913
Operating Costs and Expenses:
Selling, general and administrative expenses 32,089 23,038 12,711
Impairment of property, plant and equipment 2,822 3,342 -
Goodwill amortization 1,133 1,564 547
Merger costs - 1,048 -
--------- --------- ---------
Total operating costs and expenses 36,044 28,992 13,258
--------- --------- ---------
Operating income (loss) (44,072) (2,793) 6,655
Other Income (Expense):
Interest expense (6,516) (4,312) (2,411)
Loss on sale of division (20,565) - -
Gain (loss) on sale of property, plant and equipment (315) 400 1,156
Other, net (55) (104) 139
--------- --------- ---------
Income (loss) before income taxes (71,523) (6,809) 5,539
Income Tax Benefit (Expense) (2,180) 2,631 (2,118)
--------- --------- ---------
Net income (loss) $ (73,703) $ (4,178) $ 3,421
========== ========== =========
Pro Forma Information (Unaudited):
Historical Net Income (Loss) $ (73,703) $ (4,178) $ 3,421
Pro Forma Adjustment to Income Taxes - (317) (41)
--------- --------- ---------
Pro Forma Net Income (Loss) $ (73,703) $ (4,495) $ 3,380
========== ========== =========
Pro Forma Income (Loss) Per Share:
Basic $ (4.74) $ (0.31) $ 0.40
========== ========== =========
Diluted $ (4.74) $ (0.31) $ 0.38
========== ========== =========
Weighted Average Shares Outstanding:
Basic 15,543,000 14,730,000 8,502,000
========== ========== =========
Diluted 15,543,000 14,730,000 8,955,000
========== ========== =========
</TABLE>
VIII-32
<PAGE>
<TABLE>
<CAPTION>
EFTC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1999, 1998 and 1997
(Dollars in Thousands)
Additional Retained
Common Stock Paid-in Earnings
Shares Amount Capital (Deficit) Total
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1996 5,742,660 $ 57 $ 10,169 $ 3,624 $ 13,850
Issuance of common stock in
business combinations 3,838,975 38 14,144 - 14,182
Issuance of common stock in secondary
offering, net of costs of $3,100 3,506,841 35 38,917 - 38,952
Warrants issued in connection with
subordinated debt - - 490 - 490
Stock options and warrants exercised 553,300 6 4,225 - 4,231
Tax benefit from exercise of stock options - - 95 - 95
Net income - - - 3,421 3,421
---------- ---- ------- ------- -------
Balances at December 31, 1997 13,641,776 136 68,040 7,045 75,221
Conversion of notes payable to
shareholders' equity - - 1,398 - 1,398
Issuance of common stock in secondary
offering, net of costs of $3,500 1,770,000 18 21,314 - 21,332
Stock options and warrants exercised 131,213 1 512 - 513
Tax benefit from exercise of stock options - - 693 - 693
Termination of S Corporation tax status
of pooled company - - 33 (33) -
Net loss - - - (4,178) (4,178)
---------- ---- ------- ------- -------
Balances at December 31, 1998 15,542,989 155 91,990 2,834 94,979
Stock options exercised 500 - 2 - 2
Net loss - - - (73,703) (73,703)
---------- ---- ------- ------- -------
Balances at December 31, 1999 15,543,489 $ 155 $ 91,992 $(70,869) $ 21,278
========== ===== ======== ======== ========
</TABLE>
VIII-33
<PAGE>
<TABLE>
<CAPTION>
EFTC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
(Dollars in Thousands)
1999 1998 1997
---- ---- ----
Cash Flows from Operating Activities:
<S> <C> <C> <C>
Net income (loss) $ (73,703) $ (4,178) $ 3,421
Adjustments to reconcile net income (loss) to net
cash used by operating activities:
Depreciation and amortization 7,242 6,244 2,630
Amortization of debt issuance costs 1,147 241 46
Impairment of property, plant and equipment 2,822 3,342 -
Deferred income tax expense (benefit) 4,534 (4,859) 755
Provision for excess and obsolete inventories 7,287 6,975 25
Provision for doubtful accounts receivable 5,091 600 454
Loss on sale of division 20,565 - -
Loss (gain) on sale of property, plant and equipment 315 (400) (1,150)
Changes in operating assets and liabilities, net
of effects of purchase and sale of businesses:
Decrease (increase) in:
Trade receivables (338) (9,311) (16,898)
Inventories (8,899) (21,667) (28,824)
Income taxes receivable (1,981) (125) 616
Prepaid expenses and other (843) (2,289) (2,644)
Increase (decrease) in:
Accounts payable 19,047 4,463 11,551
Accured compensation and benefits 3,631 616 -
Other accrued liabilities 4,210 2,167 604
------- ------ ------
Net cash used by operating activities (9,873) (18,181) (29,414)
------- ------ ------
Cash Flows from Investing Activities:
Proceeds from sale of division, net of cash transferred 28,135 - -
Proceeds from sale of property, plant and equipment 4,036 1,000 2,420
Payments for businesses, net of cash acquired - (40) (30,998)
Capital expenditures (14,419) (22,884) (13,496)
------- ------ ------
Net cash provided (used) by investing activities 17,752 (21,924) (42,074)
------- ------ ------
Cash Flows from Financing Activities:
Proceeds from exercise of stock options and warrants 2 513 4,326
Issuance of common stock for cash, net of costs - 21,332 38,952
Receipts (payments) under inventory financing arrangement (5,600) 5,600 -
Payments for debt issuance costs (589) - (978)
Proceeds from long-term debt 153,157 16,865 98,941
Principal payments on long-term debt (154,756) (5,459) (68,283)
------- ------ ------
Net cash provided (used) by financing activities (7,786) 38,851 72,958
------- ------ ------
Net increase (decrease) in cash and equivalents 93 (1,254) 1,470
Cash and Equivalents:
Beginning of year 623 1,877 407
------- ------ ------
End of year $ 716 $ 623 $ 1,877
========= ======== =======
Supplemental Disclosure of Cash Flow Information:
<S> <C> <C> <C>
Cash paid for interest $ 5,320 $ 4,344 $ 2,023
========= ======== =======
Cash paid (received) for income taxes $ (184) $ 1,116 $ 119
======== ======== =======
Supplemental Schedule of Non-cash Investing and
Financing Activities:
Conversion of capital lease for property, plant
and equipment to an operating lease $ 10,240 $ - $ -
========= ======= =======
Conversion of notes payable to shareholders' equity $ - $ 1,398 $ -
========= ======= =======
Common stock issued in business combinations $ - $ - $14,182
========= ======= =======
</TABLE>
VIII-34
<PAGE>
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands, Except Per Share Amounts)
1. Nature of Business and Significant Accounting Policies
Nature of Business
EFTC Corporation (the "Company") is an independent provider of electronic
manufacturing services to original equipment manufacturers in the
computer peripherals, medical equipment, industrial controls,
telecommunications equipment and electronic instrumentation industries.
The Company's manufacturing services consist of assembling complex
printed circuit boards (using both surface mount and pin-through-hole
technologies), cables, electro-mechanical devices and finished products.
The Company operates in one business segment and substantially all of its
operations are conducted in the United States.
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.
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. The actual results
could differ significantly from those estimates.
The Company's consolidated financial statements are based on several
significant estimates, including the allowance for doubtful accounts, the
provision for excess and obsolete inventories, and the selection of
estimated useful lives of intangible assets and property, plant and
equipment.
Cash and Equivalents
The Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of standard cost (which approximates
weighted average cost) or market.
Financial Instruments
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 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.
VIII-35
<PAGE>
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands, Except Per Share Amounts)
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Material expenditures
that increase the life of an asset are capitalized and depreciated over
the estimated remaining useful life of the asset. The cost of normal
maintenance and repairs is charged to operating expenses as incurred. For
the year ended December 31, 1998, the Company incurred interest costs of
$4,762, of which approximately $450 was capitalized for assets under
construction. Upon disposal of an asset, the cost of the properties and
the related accumulated depreciation are removed from the accounts, and
any gains or losses are reflected in current operations. Leasehold
improvements are amortized over the lesser of the life of the lease or
the estimated life of the improvement. For the years ended December 31,
1999, 1998 and 1997, the Company recognized depreciation and amortization
expense of $5,751, $4,548 and $2,083, respectively. Depreciation is
computed using the straight-line method over the following estimated
useful lives:
Years
Buildings and improvements 30 to 40
Manufacturing machinery and equipment 5 to 10
Furniture, computer equipment and software 3 to 7
Goodwill and Other Intangible Assets
Debt issuance costs are being amortized over the term of the related debt
using the interest method. Goodwill is amortized using the straight-line
method over 30 years. Intellectual property costs, consisting of circuit
board assembly designs and specifications, are being amortized over
periods ranging from 5 to 10 years using the straight-line method. For
the years ended December 31, 1999, 1998 and 1997, the Company recognized
amortization expense related to goodwill and intellectual property of
$1,491, $1,696 and $547, respectively.
Impairment of Long-Lived Assets
The Company assesses impairment whenever events or changes in
circumstances indicate that the carrying amount of a long-lived asset,
including goodwill and intellectual property costs, may not be
recoverable. Assets held for sale are stated at the lower of the carrying
value or fair value (net of costs to sell). Recoverability of assets to
be held and used is generally measured by a comparison of the carrying
amount of an asset to undiscounted 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 restructurings in 1999 and 1998, the Company recognized
provisions for impairment of long-lived assets of $2,822 and $3,342,
respectively.
At December 31, 1999, the net carrying value of goodwill of $7,264
relates to the 1997 acquisition of Current Electronics, which now
comprises the Company's Northwest Operations Division. Since this
division is not held for sale, the Company evaluates the goodwill for
impairment by considering historical and budgeted earnings trends for
this division. If the unamortized carrying amount of the goodwill exceeds
undiscounted cash flow projections for a period equal to one-half of the
remaining amortization period, then an adjustment will be recorded to
reduce the carrying amount to the net cash flows discounted at 15%.
VIII-36
<PAGE>
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands, Except Per Share Amounts)
Income Taxes
Deferred income 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 or
when services are provided.
Earnings Per Share
Basic Earnings Per Share excludes dilution for potential common shares
and is computed by dividing net income or loss by the weighted average
number of common shares outstanding for the year. Diluted Earnings Per
Share reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into
common stock. In 1997, diluted weighted average shares outstanding
include 452,365 potential common shares, consisting of stock options and
warrants, determined using the treasury stock method. Basic and diluted
Earnings Per Share are the same in 1999 and 1998 as all potential common
shares were antidilutive.
Prior to the merger with the Company, the net income of Personal
Electronics (see Note 2) was not subject to income taxes due to its tax
status under Subchapter S of the Internal Revenue Code. For periods prior
to the merger, Earnings Per Share has been presented on a pro forma basis
to reflect the Company's earnings as if Personal Electronics had been a
taxable entity subject to federal and state income taxes at the marginal
tax rates applicable in such periods.
Stock-based Compensation
The Company accounts for stock-based compensation issued to employees
using the intrinsic value method. Accordingly, compensation cost for
stock options granted to employees is measured as the excess, if any, of
the quoted market price of the Company's common stock at the measurement
date (generally, the date of grant) over the amount an employee must pay
to acquire the stock. Pro forma disclosures of net income (loss) and
earnings per share are presented in Note 6 to reflect the impact on
stock-based compensation if the Company had adopted the alternative
method prescribed by Statement of Financial Accounting Standards No. 123,
which requires the use of an option pricing model to determine the fair
value of stock options.
Reclassifications
Certain reclassifications have been made to the 1997 and 1998 financial
statements to conform to the presentation in 1999. These
reclassifications had no effect on the previously reported net income or
loss.
VIII-37
<PAGE>
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands, Except Per Share Amounts)
2. Business Combinations and Asset Acquisitions
Personal Electronics. On March 31, 1998, the Company acquired through
merger, RM Electronics, Inc., doing business as Personal Electronics
(Personal), in a business combination accounted for as a pooling of
interests. The Company 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 were
restated for all periods presented to combine the financial position,
results of operations and cash flows of Personal with those of the
Company.
In connection with the acquisition, the Company incurred merger costs of
$1,048, which were charged to operations in March 1998. Notes payable to
shareholders of Personal of $1,398 were converted to equity upon
consummation of the merger.
CTI Companies. 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 $35,700
consisting of 1,858,975 shares of the Company's common stock and
approximately $26,500 in cash, including approximately $1,400 of
transaction costs and a $6,000 payment upon completion of the common
stock offering in October 1997. The Company recorded goodwill of
approximately $38,900, 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. The CTI Companies comprised the
Services Division that was sold on September 1, 1999 as described in Note
9.
Current Electronics, Inc. On February 24, 1997, the Company acquired two
affiliated entities, Current Electronics, Inc., an Oregon Corporation,
and Current Electronics (Washington), Inc., a Washington Corporation, for
total consideration of approximately $10,900, consisting of 1,980,000
shares of Company common stock and approximately $5,500 in cash,
including approximately $600 of transaction costs. The Company recorded
goodwill of approximately $8,000 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.
Asset Acquisitions. In September 1998, the Company acquired the circuit
card assembly operations of the Agfa Division of Bayer Corporation. The
Company purchased inventory and equipment for approximately $6,000 and
the parties entered into a long-term supply agreement for the manufacture
of circuit card assemblies.
During the period from August 1997 through February 1998, the Company
completed two transactions with AlliedSignal, Inc. ("AlliedSignal")
pursuant to which the Company acquired inventories and equipment located
in Ft. Lauderdale, Florida and Tucson, Arizona, for an aggregate purchase
price of approximately $19,000. In connection with these transactions,
the Company entered into a long-term supply agreement with AlliedSignal
for the production of circuit card assemblies. In September 1998, the
Company purchased manufacturing equipment for approximately $1,500 from
AlliedSignal. In connection with this transaction, AlliedSignal agreed to
amend the long-term supply agreement to include the production of circuit
card assemblies at the Company's new facility in Ottawa, Kansas.
VIII-38
<PAGE>
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands, Except Per Share Amounts)
3. Inventories
<TABLE>
<CAPTION>
Inventories are summarized as follows:
December 31,
---------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Purchased parts and completed sub-assemblies, net of
reserve for excess and obsolete items of $10,175 and
$8,388, respectively $43,971 $ 44,216
Work-in-process 13,317 12,474
Finished goods 2,879 4,069
-------------- --------------
$60,167 $ 60,759
============== ==============
</TABLE>
For the years ended December 31, 1999, 1998 and 1997, the Company
recognized charges to reflect excess and obsolete inventories of $7,287,
$6,975 and $25, respectively. These charges include the effects of the
restructuring activities described in Note 9.
4. Debt Financing
<TABLE>
<CAPTION>
At December 31, 1999 and 1998, long-term debt consists of the following:
December 31,
-----------------------------
1999 1998
-------------- -------------
<S> <C> <C>
Note payable to Bank Group under revolving line of credit, interest at
the prime rate (8.5% at December 31, 1999) plus 2.25%, collateralized by
substantially all assets, due March 30, 2000
(refinanced on March 30, 2000, see below) $ 33,184 $23,760
Term note payable to Bank Group, due September 2002 -- 15,900
Sale-leaseback financing arrangement with director, interest -- 10,495
Note payable to director, interest at LIBOR plus 2% (9.8% at December 31,
1999), annual principal payments of $50, due December 2002, unsecured,
net of discount of $90 and $122, respectively 4,810 4,828
Note payable to director, interest at 10% plus $100 due at maturity,
unsecured, due March 31, 2000 (see below and Note 8) 5,000 --
-------------- -------------
Total 42,994 54,983
Less current maturities (5,018) (4,115)
-------------- -------------
Long-term debt, less current maturities $ 37,976 $50,868
============== =============
</TABLE>
VIII-39
<PAGE>
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands, Except Per Share Amounts)
In September 1997, the Company entered into a credit agreement with a
Bank Group comprised of four financial institutions. The credit agreement
provided for a $40,000 revolving line of credit renewable on September
30, 2000, and a $20,000 term loan maturing on September 30, 2002. In
order to permit the sale of the Services Division discussed in Note 9,
the Bank Group required the Company to repay the term note on September
1, 1999. During the fourth quarter of 1999, the credit agreement was
amended to reduce the commitment to $35,000 and the maturity date was
changed to March 30, 2000. The commitment was further reduced to $30,500
in February 2000 in connection with a modification to the credit
agreement to permit the sale of assets related to the Company's Tucson,
Arizona manufacturing facility discussed in Note 9. Borrowings under the
revolving line of credit were subject to limitation based on the value of
the available collateral.
The loan agreement 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. During 1999, the Company was not in compliance with
certain financial covenants and the Bank Group provided waivers or agreed
to amendments to the credit agreement.
Aggregate Maturities. As discussed below, the Company entered into a new
credit agreement on March 30, 2000, which permitted the refinancing of
the $33,184 balance due to the Bank Group on a long-term basis. Aggregate
maturities of long-term debt, after giving effect to the refinancing and
based on outstanding debt at December 31, 1999, are as follows:
Year Ending December 31: Principal Discount Net
2000 $ 5,050 $ (32) $ 5,018
2001 50 (30) 20
2002 4,800 (28) 4,772
2003 33,184 -- 33,184
--------------- --------------- --------------
Total $ 43,084 $ (90) $ 42,994
=============== =============== ==============
Recapitalization. On March 30, 2000, the Company entered into an
agreement with Thayer-Blum Funding, LLC (the "Purchaser") for a
recapitalization of the Company. The agreement provides for the purchase
of a total of $54 million in Senior Subordinated Exchangeable Notes
("Exchangeable Notes") and a subsequent tender offer for up to 8,250,000
shares of the Company's currently outstanding common stock at a price of
$4.00 per share. The Exchangeable Notes initially provide for a maturity
date of June 30, 2006 and a paid-in-kind interest rate of 15%, and are
accompanied by warrants (the "Warrants") to purchase 3,093,154 shares of
the Company's common stock at an exercise price of $.01 per share. The
Purchaser has designated two persons who have been appointed to the
Company's board of directors.
Upon shareholder approval of this transaction and assuming that at least
500,000 shares are tendered in the tender offer, the Warrants will never
become exercisable and will be cancelled. Additionally, the Exchangeable
Notes will automatically be replaced with Senior Subordinated Convertible
Notes ("Convertible Notes") that provide for interest at 8.875%, payable
in additional Convertible Notes and a maturity date of June 30, 2006. At
the election of the holder, the
VIII-40
<PAGE>
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands, Except Per Share Amounts)
Convertible Notes may be converted, at any time, into the Company's common stock
at $2.60 per share, subject to adjustment. Conversion of the notes will occur
automatically (i) if the Company's common stock trades above $7.50 per share for
45 consecutive trading days, or (ii) commencing on March 30, 2003, if the
Company's common stock trades above $4.25 for 45 consecutive trading days.
Finally, at the closing of the tender offer, the Purchaser will have the right
to designate a majority of the members of the Company's board of directors and
will have the right to approve any significant financings, acquisitions and
dispositions. The Purchaser has requested that the conversion price of the
Convertible Notes be reduced to $2.58 to reflect the change in the Company's
financial condition as a result of certain excess costs that were incurred by
the Company in connection with the transaction.
If shareholders do not approve the transaction by September 1, 2000 or if
less than 500,000 shares are tendered, the Warrants and Exchangeable
Notes will remain in place and the interest rate on the Exchangeable
Notes will increase to 20%. Interest would be compounded quarterly and
payable in additional Exchangeable Notes or cash, at the option of the
holders.
Refinancing of Debt. On March 30, 2000, the Company entered into a new
credit agreement with Bank of America, N.A. to replace the Company's
existing revolving line of credit with BankOne Colorado, N.A. The new
credit facility provides for a $45 million revolving line of credit with
a maturity date of March 30, 2003. Initially, the interest rate will be
the prime rate plus .5%. Total borrowings are subject to limitation based
on a percentage of eligible accounts receivable and eligible inventory.
Substantially all of the Company's assets are pledged as collateral for
outstanding borrowings, and the credit agreement requires compliance with
certain financial and non-financial covenants.
On March 30, 2000, the Company also repaid outstanding notes payable in
the aggregate principal amount of $9,810 (net of discount) to a director
of the Company. The Company simultaneously borrowed $3,000 from this
director under a new unsecured note that provides for interest at 10%
payable quarterly and a due date of March 2004.
5. Income Taxes
<TABLE>
<CAPTION>
Income tax benefit (expense) for the years ended December 31, 1999, 1998
and 1997, is comprised of the following:
1999 1998 1997
--------------- --------------- ---------------
Current:
<S> <C> <C> <C>
Federal $ 2,370 $ (2,058) $ (1,211)
State (16) (170) (152)
--------------- --------------- ---------------
2,354 (2,228) (1,363)
--------------- --------------- ---------------
Deferred:
Federal (4,039) 4,328 (599)
State (495) 531 (156)
--------------- --------------- ---------------
(4,534) 4,859 (755)
--------------- --------------- ---------------
Income tax benefit (expense) $ (2,180) $ 2,631 $ (2,118)
=============== =============== ===============
</TABLE>
VIII-41
<PAGE>
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Actual income tax benefit (expense) differs from the amounts computed
using the federal statutory tax rate of 34%, as follows:
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Income tax benefit (expense) at the
statutory rate $ 24,318 $ 2,315 $ (1,883)
Increase (decrease) resulting from:
State income taxes, net of federal
benefit 2,146 238 (149)
Amortization of non-deductible
goodwill (135) (164) (85)
S Corporation (loss) -- 317 41
Increase in valuation allowance (28,462) -- --
Other, net (47) (75) (42)
--------------- --------------- ---------------
Income tax benefit (expense) $ (2,180) $ 2,631 $ (2,118)
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1999 and 1998, the tax effects of temporary differences
that give rise to significant portions of deferred tax assets and
liabilities are presented below:
1999 1998
---------------- ----------------
Deferred tax assets:
<S> <C> <C>
Accrued compensation and benefits $ 558 $ 501
Impairment of property, plant and equipment 844 1,257
State net operating loss carryforwards 900 --
Provision for settlement of litigation 2,368 --
Deferred liability on sale of division 925 --
Federal net operating loss carryforwards 8,695 --
Intangible assets 696 --
Capital loss carryforward 3,080 --
Allowance for doubtful accounts 1,890 529
Inventories 6,943 4,042
Other 3,186 316
---------------- ----------------
Total deferred tax assets 30,085 6,645
Less valuation allowance (28,462) --
---------------- ----------------
Net deferred tax assets $ 1,623 $ 6,645
================ ================
Deferred tax liabilities:
Amortization of intangible assets $ (622) $ (565)
Accelerated depreciation and other basis
differences for property, plant and equipment (1,001) (1,546)
---------------- ----------------
Total deferred tax liabilities $ (1,623) $ (2,111)
================ ================
</TABLE>
VIII-42
<PAGE>
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands, Except Per Share Amounts)
The above balances are classified in the accompanying consolidated
balance sheets as of December 31, 1999 and 1998, as follows:
1999 1998
-------------- ---------------
Net deferred tax asset - current $ -- $ 5,259
============== ===============
Net deferred tax liability - noncurrent $ -- $ 725
============== ===============
At December 31, 1999, the Company has a net operating loss carryforward
for Federal income tax purposes of approximately $23,000. If not
previously utilized, this carryforward will expire in 2019. A portion of
this net operating loss carryforward may be subject to reduction or
limitation of use as a result of changes in ownership or certain
consolidated return filing regulations. At December 31, 1999, the Company
also has a long-term capital loss carryforward of $8,300 that can be
utilized to offset future capital gains. This carryforward does not
expire. During 1999, the Company provided a valuation allowance for all
net deferred tax assets, including the net operating loss carryforward.
6. Stock-based Compensation
Warrants. At December 31, 1999, the Company has warrants outstanding for
10,000 shares of common stock at an exercise price of $4.00 per share. If
not previously exercised, these warrants expire in December 2001.
Stock Options. The Company has two stock option plans. 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 4,495,000. These 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 or
upon a change of control of the Company. 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. These options generally
vest over a 4-year period. At December 31, 1999, an aggregate of
approximately 1,360,000 shares are available for grant under both plans.
The Company has also issued 451,850 nonqualified options to officers and
employees. These 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.
VIII-43
<PAGE>
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands, Except Per Share Amounts)
The following summarizes activity related to stock options for the three
years ended December 31, 1999:
Weighted average
exercise price
Number of options per share
--------------------------- -----------------
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 2,578,892 9.82
Exercised (275,016) 5.34
Canceled (2,155,469) 14.46
-------------------
Balance at December 31, 1998 2,563,627 7.01
Granted 1,222,263 4.13
Exercised (500) 3.38
Canceled (650,331) 7.59
-------------------
Balance at December 31, 1999 3,135,059 5.77
===================
<TABLE>
<CAPTION>
The following table summarizes information about stock options
outstanding at December 31, 1999:
Weighted Weighted
Range of Average Average
Exercise Number Year of Exercise Number Exercise
Prices Outstanding Expiration Price Exercisable Price
---------------------- -------------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
$7.50 to $7.63 33,000 2004 $ 7.57 33,000 $7.57
$5.50 to $5.50 15,000 2005 5.50 15,000 5.50
$3.50 to $5.00 179,951 2006 4.05 178,909 4.05
$4.88 to $6.63 78,000 2007 11.84 30,500 5.74
$9.50 to $14.31 506,300 2007 5.75 491,800 10.53
$2.72 to $4.00 319,000 2008 3.27 58,900 3.33
$8.00 to $14.31 858,045 2008 8.67 263,803 8.72
$1.81 to $3.88 394,563 2009 3.02 4,000 3.85
$4.00 to $6.41 751,200 2009 4.85 114,250 4.88
-------------- ------------
$1.81 to $14.31 3,135,059 5.77 1,190,162 6.11
============== ============
</TABLE>
VIII-44
<PAGE>
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
The Company utilizes the intrinsic value method to account for
stock-based compensation. Accordingly, because the exercise price of
stock options granted by the Company is equal to the market price on the
date of grant, no compensation cost has been recognized in the
accompanying financial statements. If compensation cost had been
determined using the fair value method calculated using an option-pricing
model, the Company's pro forma net income (loss) and earnings (loss) per
share would have been as follows:
Year ended December 31,
----------------------------------------------------------
1999 1998 1997
--------------- ----------------- ----------------
Net income (loss):
<S> <C> <C> <C> <C>
As reported $ (73,703) $ (4,178) $ 3,421
Pro forma $ (75,345) $ (6,645) $ 1,149
Income (loss) per share - basic:
As reported $ (4.74) $ (.31) $ .40
Pro forma $ (4.85) $ (.45) $ .14
Income (loss) per share - diluted:
As reported $ (4.74) $ (.31) $ .38
Pro forma $ (4.85) $ (.45) $ .13
</TABLE>
<TABLE>
<CAPTION>
The weighted average fair value of options granted for the years ended
December 31, 1999, 1998 and 1997 was $2.45, $4.42 and $5.90,
respectively. In estimating the fair value of options, the Company used
the Black-Scholes option-pricing model with the following weighted
average assumptions:
Year ended December 31,
---------------------------------------------------------------------
1999 1998 1997
-------------------- ------------------- -------------------
<S> <C> <C> <C>
Dividend yield -- -- --
Expected volatility 78.0% 100.0% 70.0%
Risk-free interest rate 5.4% 5.0% 6.0%
Expected lives (years) 3.5 3.0 3.0
</TABLE>
7. Shareholder Rights Plan
In January 1999, the Board of Directors approved a Shareholder Rights
Plan and declared a dividend distribution of one right to purchase one
one-thousandth of a share of a new series of junior participating
preferred stock for each share of common stock of EFTC held. The
distribution was made on February 25, 1999, to shareholders of record on
that date
The Rights trade with the Company's common stock as a unit unless the
Rights become exercisable upon the occurrence of certain triggering
events relating to the acquisition of beneficial ownership of 15% or more
of the Company's common stock by any person or group (the "Acquirer"),
subject to certain exceptions. In certain events after the Rights become
exercisable, they will entitle each holder other than the Acquirer, to
purchase for $35.00 per share, a number of shares of common stock having
a market value of twice the Right's exercise price, or a number of the
Acquirer's common shares having a market value at the time of twice the
Right's exercise price. A shareholder
VIII-45
<PAGE>
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands, Except Per Share Amounts)
would have one such right for each share of stock held at the time the
Rights become exercisable. The Company may amend the Rights or redeem
the Rights at $0.001 per Right at any time prior to the Rights
becoming exercisable. The Rights will expire in February 2009, unless
sooner amended or redeemed by the Company.
In connection with the recapitalization discussed in Note 4, the Company
amended the agreement governing the Rights, effective March 30, 2000, to
exclude Thayer, BLUM and their affiliated entities, from the definition
of Acquirer. Thus, the acquisition of beneficial ownership of 15% or more
of the Company's common stock in connection with the recapitalization
will not result in the Rights becoming exercisable.
8. Related Party Transactions
Under a previously existing agreement, the CTI Companies were required to
pay $500 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.
An investment-banking firm, of which a director of the Company is the
Managing Director, received a fee of approximately $900 as a
representative of the CTI Companies in their acquisition by the Company.
The same firm earned a $500 fee as a representative of the Company for
the sale of the CTI Companies in September 1999. This fee has not been
paid as of December 31, 1999, and is included in other accrued
liabilities in the accompanying balance sheet. This investment-banking
firm also received a fee of $642 as a representative of Personal
Electronics in connection with the Company's 1998 acquisition described
in Note 2.
During September 1997, the Company issued $15,000 of subordinated notes
to an entity that is owned by a director of the Company. 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 using an option-pricing
model. The warrants were exercised on October 9, 1997 for total proceeds
of $4,000. The Company repaid $10,000 of this debt upon the completion of
a secondary common stock offering completed in November 1997. The
scheduled repayment was reduced by the pro rata amount of unamortized
discount. Accordingly, no gain or loss was recognized on the
extinguishment of debt. The outstanding balance (net of discount) of
$4,810 is included in long-term debt as of December 31, 1999. In November
1999, the Company borrowed an additional $5,000 from an entity that is
controlled by this director.
In December 1998, the Company entered into a sale-leaseback transaction
with a director and stockholder of the Company. Manufacturing facilities
in Newberg, Oregon and Tucson, Arizona were sold for $10,500 and leased
back to the Company. Due to the Company's continuing financial interest
in the facilities, the transaction was accounted for as a financing
transaction secured by the facilities with an imputed interest rate of
8.68%. The lease term is for 5 years with monthly payments of $90. No
gain or loss from the sale was recorded. At the end of the initial lease
term the Company had the option to buy the buildings back for $9,400. In
May 1999, the lease was
VIII-46
<PAGE>
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands, Except Per Share Amounts)
amended to eliminate the purchase option, which resulted in the
re-characterization of the lease from a capital lease to an operating
lease. Accordingly, the buildings and the related debt have been removed
from the balance sheet at December 31, 1999.
The Company has entered into consulting and employment agreements with
individuals who are officers and directors of the Company. The consulting
agreements provide for aggregate monthly payments of approximately $38
through February 2002. The employment agreements provide for monthly
payments of $44 until expiration in 2000 and 2001. The employment
agreements may be terminated prior to expiration but the Company would
generally be required to pay severance benefits equal to one-year's
salary or up to two-year's salary if a change of control occurs.
Additionally, the Company has entered into arrangements with an entity
that is owned by a director whereby an aggregate of $238 was paid for
services rendered in 1999.
9. Restructuring and Sale of Assets
Since the fourth quarter of 1998, the Company has taken actions to
increase capacity utilization through the closure of two facilities and
the sale of substantially all of the assets at two other divisions. The
aggregate 1999 operating results for these divisions, derived from the
Company's divisional accounting records (excluding corporate costs,
interest expense and income taxes), for these divisions are summarized as
follows:
Net sales $103,000
Cost of goods sold 109,200
-------------
Gross profit (loss) $ (6,200)
=============
Selling, general and administrative $ (11,400)
=============
Impairment of long-lived assets $ (2,700)
=============
Goodwill amortization $ (900)
=============
Loss on sale of assets $ (20,700)
=============
Management estimates that approximately $50,000 of the 1999 net sales
shown above relates to customers who have agreed to transition the
manufacture of their products to other facilities owned by the Company.
Presented below is a detailed description of each division that was
impacted by a sale or restructuring.
Sale of Tucson Assets. In December 1999, the Company commenced
negotiations with Honeywell International, Inc. for the sale of
inventory and equipment at the Company's facility located in Tucson,
Arizona. On February 17, 2000, these assets were sold to Honeywell for
a purchase price of $13,240. The Company was required to place $500 in an
escrow account
In connection with the agreement, Honeywell agreed to sublease the Tucson
facility for at least 18 months at $32 per month, which is equal to the
Company's rent expense. Honeywell has the option to extend the term of
the sublease until December 2003 when the Company's primary lease term
expires. If Honeywell terminates the sublease after 18 months, the
Company will attempt to enter into another sublease with a new tenant for
the remaining period under the primary lease. The
VIII-47
<PAGE>
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands, Except Per Share Amounts)
Tucson facility is currently leased from a director of the Company as
discussed in the next to last paragraph of Note 8.
The Company recognized a $1,200 impairment charge in 1999 related to
property and equipment at the Tucson facility.
Southeast Operations. On September 30, 1999, the Company initiated a plan
to consolidate and close its Southeast Operations in Fort Lauderdale,
Florida. In connection with the restructuring, the Company recognized a
charge of approximately $700 for severance costs related to approximately
200 employees who were terminated by April 2000. The unpaid portion of
the severance provision amounted to $682 at December 31, 1999 and is
included in accrued compensation and benefits in the accompanying balance
sheet.
In connection with the closure, the Company recognized charges of $7,131
for excess and obsolete inventories and other items that are included in
cost of goods sold in 1999. The Company also recognized a charge of
$1,000 for impairment of property and equipment that will not be
redeployed at other divisions. Additionally, the Company recognized an
increase in the allowance for doubtful accounts of $2,400 that is
included in selling, general and administrative expenses in 1999.
Management expects the Company will incur additional charges of $1,000 in
the first quarter of 2000 for retention bonuses, relocation costs and
other closure activities. These costs will be reflected in operations in
the period in which they occur. It is expected that the closure will be
substantially complete by April 2000.
Sale of Services Division. On September 1, 1999, the Company sold the
Services Division for approximately $28,000. The Company recognized a
loss of $20,565 primarily due to the write-off of $36,452 of unamortized
goodwill that was directly associated with the acquisition of this
division. The Company also recognized $400 for impairment of property,
plant and equipment, and additional provisions totaling $1,600 related to
inventory and receivables not transferred to the purchaser.
In connection with this sale, the purchaser and the Company agreed to an
Earn-out Contingency (the "EC"). Under the EC, if the earnings for the
year ending August 31, 2000 related to the division sold is in excess of
$4,455 ("Target Earnings"), the Company will be entitled to an additional
payment equal to three times the difference between the actual earnings
and Target Earnings. If actual earnings are less than Target Earnings,
the Company will be required to refund an amount equal to three times the
difference. The maximum amount that either party would be required to pay
under the EC is $2,500; accordingly, the Company has deferred recognition
of $2,500 of the consideration subject to the EC.
Rocky Mountain Operations. In the fourth quarter of 1998, management
initiated a plan to consolidate and close its Rocky Mountain Operations
in Greeley, Colorado. Costs of $9,250 related to the closing were charged
to operations for the year ended December 31, 1998. Additional costs to
related to the closure of $2,391 were incurred through October 1999 when
the facility was sold for $3,802. The restructuring involved the
termination of approximately 140 employees of which 123 were
manufacturing related and 17 administrative or indirect support
personnel. Total
VIII-48
<PAGE>
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands, Except Per Share Amounts)
severance and salaries of employees performing exit activities amounted
to $463 of which $263 was included in cost goods sold and $200 in
selling, general and administrative expenses in 1998. During 1998, the
Company paid $100 of these costs and the remaining costs were paid in
1999.
Inventory allowances of $5,445, which are included in cost of goods sold
in 1998, were recorded to provide for future losses to be incurred
related to disengaged customers that did not continue as customers of the
Company. In addition, a provision of $3,342 was charged to operations in
1998 related to asset impairment of land, building and equipment. At
December 31, 1999, all of the restructuring costs had been paid and no
accrual was remaining related to these restructuring activities.
10. Business and Credit Concentrations
The Company operates in the electronic manufacturing services segment of
the electronics industry. Substantially all of the Company's customers
are located in the United States. For the years ended December 31, 1999
and 1998, 68% and 46%, respectively, of the Company's sales were derived
from companies engaged in the avionics industry. 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 might experience reduced
net sales and profitability.
<TABLE>
<CAPTION>
Sales to significant customers as a percentage of total net sales for the
years ended December 31, 1999, 1998 and 1997, were as follows:
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
AlliedSignal, Inc. 46.1% 42.1% 25.3%
Honeywell, Inc. 10.3% 3.3% --
----------------- ----------------- -----------------
Pro Forma Combined 56.4% 45.4% 25.3%
================= ================= =================
Exabyte -- 4.4% 12.3%
================= ================= =================
</TABLE>
In December 1999, AlliedSignal and Honeywell completed their merger and
the combined company was named Honeywell International, Inc. The pro
forma disclosure above presents the customer concentration as if the
merger had occurred on January 1, 1997.
At December 31, 1999, approximately 57% of the Company's net trade
receivables were due from Honeywell International, Inc., and 12% of net
trade receivables were due from Bayer Corporation. The Company does not
require collateral to support trade receivables.
11. Commitments and Contingencies
Operating Leases. The Company has noncancelable operating leases for
facilities and equipment that expire in various years through 2004. Lease
expense under all operating leases amounted to $9,471, $7,072 and $2,333
for the years ended December 31, 1999, 1998 and 1997, respectively.
VIII-49
<PAGE>
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands, Except Per Share Amounts)
At December 31, 1999, future minimum lease payments (excluding sublease
rentals due from Honeywell International, Inc. discussed in Note 9) for
operating leases are as follows:
Year Ending December 31:
2000 $ 9,975
2001 7,727
2002 6,485
2003 5,881
2004 3,320
After 2005 5,845
-----------
$ 39,233
===========
Customer Royalties. In connection with long-term customer supply
agreements, the Company has agreed to pay approximately 1% of gross
revenue for all electronic assemblies and parts made for other customers
at certain facilities. These arrangements expire beginning in 2001 and
extending until 2009 at one of the Company's facilities. Total royalties
under these arrangements for the year ended December 31, 1999 amounted to
$170.
Financial Advisory Agreement. In December 1999, the Company entered into
an agreement with an entity engaged to assist the Company with a debt or
equity financing. Depending on the nature of the financing transaction,
the company will be required to pay a fee between 1.0% and 5.0% of the
gross proceeds and issue warrants to purchase up to 525,000 shares of
common stock at an exercise price of $3.00 per share.
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, 1999, 1998 and 1997, contributions from the Company to the Plan were
approximately $588, $391 and $138, respectively.
Legal Proceedings. In September and October 1998, the Company and certain
of its present and former directors and officers were named as defendants
in lawsuits brought by certain shareholders claiming to represent classes
of shareholders that purchased shares of the Company's common stock
between April and August 1998. These class action complaints purport to
present claims under federal and state securities laws and seek
unspecified damages based on alleged misleading disclosures during the
class period. On April 4, 2000, subject to court approval, the plaintiffs
and the Company agreed to settle both lawsuits. The Company has recorded
a provision for the settlement of this loss contingency as of December
31, 1999. The settlement will require the Company to pay approximately
$3,100 by April 10, 2000. Additionally, the Company will be required to
contribute to the settlement fund an aggregate of 1,300,000 shares of the
Company's common stock with an estimated fair value of $3,300.
VIII-50
<PAGE>
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands, Except Per Share Amounts)
12. Fourth Quarter Adjustments
During the fourth quarter of 1999, the Company recognized a charge of
$4,215 for a valuation allowance related to deferred tax assets, and a
charge of approximately $1,000 related to the accelerated amortization of
debt issuance costs due to a fourth quarter amendment to the bank credit
agreement. In addition, the Company incurred other charges of
approximately $6,400 related to the lawsuit settlement discussed in Note
11, and $5,600 for charges related to inventory, receivables and the
resolution of other issues (primarily related to the closure of the Ft.
Lauderdale division and the sale of the Tucson assets) with Honeywell
International, Inc.
VIII-51
<PAGE>
Independent Auditors' Report
The Board of Directors
EFTC Corporation:
Under date of April 4, 2000, we reported on the consolidated balance sheets of
EFTC Corporation and subsidiaries as of December 31, 1999 and 1998, 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, 1999
which are included in the Company's annual report on Form 10-K for the year
ended December 31, 1999. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule included in the Form 10-K. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG LLP
Denver, Colorado
April 4, 2000
VIII-52
<PAGE>
<TABLE>
<CAPTION>
EFTC CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Accounts Receivable- Allowance for Doubtful Accounts
(Dollars in Thousands)
Additions (1)
----------------------
Balance at Charged Charged Balance at
Beginning To Costs & To Other End Of
Year Ended December 31, Of Period Expenses Accounts Deductions (2) Period
--------- ---------- -------- -------------- ------
<S> <C> <C> <C> <C> <C> <C>
1997 $ 20 $ (240) $ 694 $ -- $ 474
1998 474 1,020 24 196 1,322
1999 1,322 5,091 -- 2,724 3,689
Inventories- Reserve for Excess and Obsolete Inventories
(Dollars in Thousands)
Additions (1)
---------------------------
Balance at Charged Charged Balance at
Beginning To Costs & To Other End Of
Year Ended December 31, Of Period Expenses Accounts Deductions(2)(3) Period
1997 $ 20 $ 25 $ 2,196 $ 218 $ 2,023
1998 2,023 6,975 1,487 2,097 8,388
1999 8,388 7,287 -- 5,500 10,175
</TABLE>
------------------
(1) Amounts charged to other accounts were recorded in conjunction with
acquisitions.
(2) Deductions relate to write-offs unless otherwise indicated.
(3) Deductions of $2,087 in 1998 relate to adjustments to the purchase price
allocations of acquisitions.
VIII-53
<PAGE>
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information concerning the directors and executive officers of the
Company is incorporated herein by reference to the section entitled PROPOSAL
1-ELECTION OF DIRECTORS in the Company's definitive Proxy Statement with respect
to the Company's Annual Meeting of Shareholders (the "Proxy Statement").
Item 11. Executive Compensation.
The section labeled "Compensation of Directors and Executive Officers"
appearing in the Company's Proxy Statement is incorporated herein by reference,
except for such information as need not be incorporated by reference under rules
promulgated by the Securities and Exchange Commission.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The Section labeled "Security Ownership of Directors and Executive
Officers and Certain Beneficial Owners" appearing in the Company's Proxy
Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The second labeled "Certain Relationships and Related Transactions"
appearing in the Company's Proxy Statement is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements-The financial statements listed in Item 8 on
page 28, are filed as part of this annual report.
2. Financial Statement Schedules-Schedule II- Valuation and
Qualifying Accounts and the accompanying opinion of KPMG LLP
which appear on pages 53 and 52, respectively, are filed as part
of this annual report.
3. Exhibits-The following exhibits are filed as part of this annual
report.
Exhibit
Number Document Description
*3.1 Amended and Restated Articles of Incorporation of the Company
*3.2 Articles of Amendment to the Articles of Incorporation of the Company
3.3 Articles of Amendment to the Articles of Incorporation of the Company
(10)
3.4 Amended and Restated Bylaws of the Company (1)
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3, respectively
VIII-54
<PAGE>
4.2 Specimen Common Stock Certificate of the Company (1)
*4.3 Form of Exchangeable Note dated as of March 30, 2000 issued by the
Company to Thayer-Blum Funding, LLC *4.4 Form of Convertible Note
dated as of March 30, 2000 issued by the Company to Thayer-Blum
Funding, LLC
4.5 Rights Agreement dated as of February 25, 1999 between the Company and
American Securities Transfer & Trust, Inc., as Rights Agent. (10)
*4.6 Amendment to Rights Agreement dated as of March 30, 2000 between the
Company and Rights Agent.
10.1 Form of Registration Rights Agreement dated January 1994 between the
Company and the parties thereto (1)
10.2 Registration Rights Agreement dated as of February 24, 1997, among the
Company, Charles E. Hewitson, Matthew J. Hewitson and Gregory Hewitson
and certain other parties (2)
10.3 Registration Rights Agreement dated as of March 31, 1998, among the
Company, Raymond Marshall and Robert Monaco (8)
10.4 Registration Rights Agreement dated as of September 30, 1997 among the
Company and CTI Shareholders (4)
10.5.1 Master Agreement Regarding Asset Purchase and Related Transactions
among the Company, AlliedSignal Avionics, Inc., a Kansas corporation
("Avionics"), and AlliedSignal, Inc., operating through its Aerospace
Equipment Systems Unit ("AES"), dated as of July 15, 1997, as amended
by the First Amendment to Master Agreement dated as of July 31, 1997,
and as further amended by the Second Amendment to Master Agreement
dated as of August 11, 1997 (3)
10.5.2 Third Amendment to Master Agreement dated as of September 5, 1997 (6)
10.6 Supplier Partnering Agreement between the Company and AlliedSignal,
Inc. dated as of September 29, 1998 (7)
10.7 Amended and Restated License Agreement between the Company and
AlliedSignal Technologies, Inc., dated as of September 5, 1997 (6)
*10.8 Asset Purchase Agreement dated February 17, 2000 between Honeywell
International Inc. and the Company
*10.9 Note Agreement between the Company and Richard L. Monfort dated as o
November 11, 1999
*10.10 First Amendment to Note Agreement between the Company and Richard L.
Monfort dated as of December 30, 1999, including the form of Note
attached as Exhibit A thereto.
10.11+ EFTC Corporation Equity Incentive Plan, amended and restated as of
July 9, 1997 (6)
10.12+ EFTC Corporation Stock Option Plan for Non-Employee Directors, amended
and restated as of July 9, 1997 (6) 10.13+ Employment Agreement with
Jack Calderon dated as of June 5, 1998 (7) 10.14+ Form of Consulting
Agreement entered into by the Company in connection with the
acquisition of Current Electronics, Inc.(5)
*10.15+ 1999 Management Bonus Plan
10.16 Asset Purchase Agreement dated as of August 31, 1999 between Jabil
Circuit, Inc., the Company, CTLCC Acquisition Corp., Circuit Test,
Inc., Airhub Services Group, L.C., and Circuit Test International,
L.C. (9)
*10.17 Master Agreement regarding Asset Purchase and Related Transactions
dated as of March 19, 1999 between Honeywell Inc. and the Company
*10.18 Long Term Supply Agreement dated as of March 19, 1999 between
Honeywell Inc. and the Company
Note: Confidential treatment has been requested from the Securities
and Exchange Commission for portions of this exhibit
*10.19 Amendment to Long Term Supply Agreement dated as of May 21, 1999
VIII-55
<PAGE>
*10.20 Second Amendment to Long Term Supply Agreement dated as of February
2000
*10.21 Securities Purchase Agreement between the Company and Thayer-Blum
Funding, LLC dated as of March 30, 2000
*10.22 Form of Warrant dated as of March 30, 2000 issued by the Company to
Thayer-Blum Funding, LLC
*10.23 Loan and Security Agreement dated March 30, 2000 with Bank of America,
N.A., as agent for several banks (the "Bank") and the Company
*10.24 Security Agreement - Stock Pledge dated March 30, 2000 with the Bank
and the Company
*21.1 List of Subsidiaries
*23.1 Consent of KPMG LLP
*27.1 Financial Data Schedule
- -------------
* Filed herewith
+ Management Compensation Plan
(1) Incorporated by reference from the Company's Registration Statement on
Form SB-2 (File No. 33-73392-D) filed on December 23, 1993
(2) Incorporated by reference from the Company's Current Report on Form 8-K
(File No. 0-23332) filed on March 5, 1997
(3) Incorporated by reference from the Company's Current Report on Form 8-K
(File No. 0-23332) filed on August 26, 1997
(4) Incorporated by reference from the Company's Current Report on Form 8-K
(File No. 0-23332) filed on October 15, 1997
(5) Incorporated by reference from the Company's Annual Report on Form 10-K
(File No. 0-23332) filed on March 27, 1997
(6) Incorporated by reference from the Company's Registration Statement on
Form S-2 (File No. 333-38444) filed on October 21, 1997
(7) Incorporated by reference from the Company's Quarterly Report on Form
10-Q (File No. 0-23332) filed on November 16, 1998
(8) Incorporated by reference from the Company's Current Report on Form 8-K
(File No. 0-23332) filed on April 15, 1998
(9) Incorporated by reference from the Company's Current Report on Form 8-K
(File No. 0-23332) filed on September 16, 1999
(10) Incorporated by reference from the Company's Registration Statement on
Form 8-A (File No. 0-23332) filed on February 25, 1999
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K relating to the
execution by the Company and its senior lenders of an Amendment and
Waiver to Credit Agreement dated December 20, 1999.
VIII-56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Denver,
State of Colorado, on this 14th day of April, 2000.
EFTC CORPORATION, a Colorado corporation
By: /s/ Jack Calderon
Jack Calderon
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this Report to be signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Position Held
Signature With the Registrant Date
<S> <C> <C>
/s/ Jack Calderon President and Director April 14, 2000
---------------------------
Jack Calderon (Principal Executive Officer)
/s/ James A. Doran Treasurer and Director April 14, 2000
--------------------------- (Principal Financial and Accounting Officer)
James A. Doran
/s/ Allan S. Braswell, Jr. Director April 14, 2000
----------------------------
Allan S. Braswell, Jr.
/s/ Jeffrey W. Goettman Director April 14, 2000
-------------------------
Jeffrey W. Goettman
/s/ Charles Hewitson Director April 14, 2000
---------------------------
Charles Hewitson
/s/ Robert McNamara Director April 14, 2000
---------------------------
Robert McNamara
/s/ Robert Monaco Director April 14, 2000
---------------------------
Robert Monaco
VIII-57
<PAGE>
/s/Richard L. Monfort Director April 14, 2000
---------------------------
Richard L. Monfort
/s/ Gerald J. Reid Director April 14, 2000
---------------------------
Gerald J. Reid
/s/ Masoud S. Shirazi Director April 14, 2000
---------------------------
Masoud S. Shirazi
/s/ John C. Walker Director April 14, 2000
---------------------------
John C. Walker
</TABLE>
VIII-58
