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.
<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
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assets are pledged as collateral for outstanding borrowings, and the credit
agreement requires compliance with certain financial and non-financial
covenants.
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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
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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,
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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.
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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,
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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.
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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
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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.
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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>
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
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
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.
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.
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.
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>
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.
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.
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,
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
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).
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.
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.
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.
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.
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
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.
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
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
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>
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>
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>
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>
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>
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.
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%.
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.
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.
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>
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
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>
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>
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.
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>
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
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
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
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
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.
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.
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.
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
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.
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
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
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.
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
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>
58
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
ELECTRONIC FAB TECHNOLOGY CORP.
ARTICLE ONE
Name
The name of the corporation is Electronic Fab Technology Corp.
ARTICLE TWO
Capital Stock
(a) Total Capital. The total number of shares of capital stock that
the Corporation shall have authority to issue is 5,000,000 shares of $0.01 par
value common stock (the "Common Stock").
(b) Preemptive Rights. No shareholder of the Corporation shall have any
preemptive or similar right to acquire or subscribe for any additional unissued
or treasury shares of stock, or other securities of any class, or rights,
warrants or options to purchase stock or scrip, or securities of any kind
convertible into stock or carrying stock purchase warrants or privileges.
(c) Voting. Each shareholder of record entitled to vote shall have one
vote for each share of stock standing in his name on the books of the
corporation, except that in the election of directors he shall have the right to
vote such number of shares for as many persons as there are directors to be
elected. Cumulative voting shall not be allowed in the election of directors or
for any other purpose.
ARTICLE THREE
Directors
(a) Number. The number of directors of the Corporation shall be fixed
and may be altered from time to time as provided in the bylaws. If the number of
directors is decreased by resolution of the Board of Directors pursuant to the
bylaws, in no case shall that decrease shorten the term of any incumbent
director.
(b) Classification. The directors shall be divided as evenly as
possible into three classes, designated Class I, Class II and Class III. If the
number of directors is not evenly divisible by three, the remainder positions
shall be allocated first to Class III and then to Class II. At the 1994 Annual
Meeting of the Corporation's shareholders or through written consent in lieu of
such meeting, Class I directors shall be elected for a term expiring at the next
subsequent annual meeting of shareholders, Class II directors for a term
expiring at the second subsequent annual meeting of shareholders and Class III
directors for a term expiring at the third subsequent annual meeting of
shareholders. At each succeeding annual meeting of shareholders, successors
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to directors whose terms expire at that annual meeting shall be of the same
class as the directors they succeed and shall be elected for three-year terms.
(c) Term; Vacancies. A director shall hold office until the annual
meeting for the year in which his or her term expires and until his or her
successor shall be elected and shall qualify, subject, however, to prior death,
resignation, retirement or removal from office. Any newly created directorship
resulting from an increase in the number of directors and any other vacancy on
the Board of Directors, however caused, may be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director, but may not be filled by the shareholders unless the Board of
Directors approves the filling of such vacancy by the shareholders. Any director
elected by one or more directors to fill a newly created directorship or other
vacancy shall, without regard to the class in which the vacancy occurred, hold
office until the next succeeding annual meeting of shareholders and until his or
her successor shall have been elected and qualified. The term of a director
elected by shareholders to fill a newly created directorship or other vacancy
shall expire at the same time as the terms of the other directors of the same
class.
(d) Removal. One or more or all of the directors may be removed by the
affirmative vote of the holders of at least 80 percent of the outstanding shares
of capital stock generally entitled to vote in the election of directors
("Voting Stock"), voting together as a single class, at a meeting of
shareholders for which proper notice of the proposed removal has been given. If
the Colorado Corporation Code or any successor statute shall hereafter permit
directors to be removed only for cause if so provided in a corporation's
articles of incorporation, then one or more or all of the directors of the
Corporation may thereafter be removed for cause and only for cause by the
affirmative vote of the holders of at least 80 percent of the outstanding shares
of Voting Stock, voting together as a single class, at a meeting of shareholders
for which proper notice of the proposed removal has been given.
(e) Nominations. Advance notice of nominations for the election
of directors, other than nominations by the Board of Directors or a committee
thereof, shall be given to the Corporation in the manner provided from time to
time in the Bylaws.
ARTICLE FOUR
Director Liability
No director of the Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except to the extent required by applicable law. If the
Colorado Corporation Code or any successor statute hereafter authorizes
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Colorado
Corporation Code as so amended or such successor statute. No amendment or repeal
of this Article Six shall adversely affect any right or protection of a director
of the Corporation existing hereunder immediately prior to such amendment or
repeal.
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ARTICLE FIVE
Indemnification
Each person who is or was a director or officer of the Corporation, and
each such person who is or was serving at the request of the Corporation as a
director or officer of another corporation, or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans maintained or sponsored by the Corporation (including the heirs,
executors, administrators and estate of such person) shall be indemnified by the
Corporation, in accordance with the Bylaws of the Corporation, to the fullest
extent permitted from time to time by the Colorado Corporation Code or any other
applicable laws as presently or hereafter in effect. The Corporation may, to the
extent authorized from time to time by the Board of Directors, grant rights to
indemnification and to the advancement of expenses to any employee or agent of
the Corporation to the fullest extent of the provisions of this Article with
respect to the indemnification and advancement of expenses of directors and
officers of the Corporation. Without limiting the generality or the effect of
the foregoing, the Corporation may enter into one or more agreements with any
person that provide for indemnification greater or different than that provided
in this Article Five. No amendment or repeal of this Article Five shall
adversely affect any right or protection existing hereunder or pursuant hereto
immediately prior to such amendment or repeal.
ARTICLE SIX
Shareholder Action
Any action required or permitted to be taken by the shareholders of the
Corporation must be taken at a duly called annual or special meeting of the
shareholders of the Corporation and may not be taken by consent in writing or
otherwise except upon the unanimous consent of all shareholders entitled to vote
thereon.
ARTICLE SEVEN
Special Meetings of Shareholders
Except as otherwise required by law, and subject to the rights of the
holders of any class or series of shares issued by the Corporation having a
preference over the Common Stock as to dividends or upon liquidation to elect
directors in certain circumstances, special meetings of the shareholders of the
Corporation may be called only by the Corporation's Chairman of the Board or
President or by the Board of Directors pursuant to a resolution approved by the
affirmative vote of a majority of the directors then in office.
ARTICLE EIGHT
Business Combinations With Interested Shareholders
(a) Special Vote Required for Business Combinations. In addition to any
vote required by law or under any other provisions of these Articles of
Incorporation, and except as otherwise expressly provided in this Article Eight,
any Business Combination (defined below along with other capitalized terms used
in this Article Eight) shall
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require the affirmative vote of the holders of at least (i) 80 percent of the
outstanding shares of Voting Stock, and (ii) at least a majority of such shares
not beneficially owned by the Interested Shareholder involved, in each case
voting together as a single class.
Each such affirmative vote shall be required notwithstanding the fact
that no vote may be required, or that some lesser percentage may be specified,
by law or in any agreement with any national securities exchange or otherwise.
(b) Exceptions. This Article Eight shall not apply to any Business
Combination, and such Business Combination shall require only the affirmative
vote as is required by law and any other provision of these Articles of
Incorporation. If all of the conditions specified in any of the following
subparagraphs (b)(i), (b)(ii) or (b)(iii) are met:
(i) Approval by Continuing Directors. The Business Combination
has received Continuing Director Approval.
(ii) Prior Approval by Board. The Board of Directors of the
Corporation shall by resolution have authorized or approved an agreement with
the Interested Shareholder involved in the Business Combination describing the
major terms of that Business Combination before that person became an Interested
Person.
(iii)Price, Form of Consideration and Procedural Requirements.
All of the following conditions (A) through (G) are met:
(A) Common Stock. The aggregate amount of the cash and the
Fair Market Value as of the date of the consummation of the Business Combination
(the "Consummation Date") of consideration other than cash to be received per
share in the Business Combination by holders of the Common Stock shall at least
equal the sum of:
(1) the greater of (a) (if applicable) the highest per
share price (including any brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by the Interested Shareholder involved for any share of
Common Stock of which it acquired beneficial ownership within the two-year
period immediately before the first public announcement of the proposal of the
Business Combination (the "Announcement Date") or in the transaction in which it
became an Interested Shareholder, whichever is higher, or (b) the Fair Market
Value per share of Common Stock on the day after the Announcement Date or on the
date on which such Interested Shareholder became an Interested Shareholder
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such latter date is referred to in this Article Eight as the "Determination
Date"), whichever is higher, plus
(2) interest on the per share price calculated at the
rate for 90- day United States Treasury obligations in effect on the
Determination Date, compounded quarterly from that date until the Consummation
Date, less the per share amount of cash dividends payable to holders of record
on record dates occurring in the interim, up to the amount of such interest.
(B) Other Voting Stock. The aggregate amount of the cash and
the Fair Market Value as of the Consummation Date of consideration other than
cash to be received per share in the Business Combination by holders of shares
of any class of outstanding Voting Stock other than Common Stock shall be at
least equal to the sum of the following (it being intended that the requirements
of this subparagraph (b)(iii)(B) shall apply to every such class of Voting Stock
whether or not the Interested Shareholder has previously acquired any shares of
a particular class of Voting Stock):
(1) the greater of (a) (if applicable) the highest per
share price including any brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by the Interested Shareholder for any shares of such class
of Voting Stock of which it acquired beneficial ownership within the two-year
period immediately prior to the Announcement Date or in the transaction in which
it became an Interested Shareholder, whichever is higher, or (b) the Fair Market
Value per share of such class of Voting Stock on the date after the Announcement
Date or on the Determination Date, whichever is higher; and
(2) interest on the per share price calculated at the
rate for 90- day United States Treasury obligations in effect on the
Determination Date, compounded annually from that date until the Consummation
Date, less the per share amount of cash dividends payable on such class to
holders of record on record dates occurring in the interim, up to the amount of
such interest.
(C) Form of Consideration. The consideration to be received
by holders of a particular class of outstanding Voting Stock (including Common
Stock) shall be in cash or in the same form as the Interested Shareholder has
previously paid for shares of such class
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of Voting Stock. If the Interested Shareholder has paid for shares of any class
of Voting Stock with varying forms of consideration, the form of consideration
for such class of Voting Stock shall be either cash or the form used to acquire
the largest number of shares of such class of Voting Stock previously acquired
by the Interested Shareholder.
(D) Conditions Met For All Holders. The holders of all
outstanding shares of Voting Stock (including Common Stock) not beneficially
owned by the involved Interested Shareholder immediately before the consummation
of any Business Combination shall be entitled to receive in the Business
Combination cash or other consideration for their shares meeting all of the
terms of this subparagraph (b)(iii) (except that the failure of any shareholders
who are exercising their statutory rights to dissent from the Business
Combination and receive payment of the fair value of their shares to exchange
their shares in the Business Combination shall not be deemed to have prevented
the condition set forth in this subparagraph (b)(iii)(D) from being satisfied).
(E) Certain Events. After such Interested Shareholder has
become an Interested Shareholder and before consummation of the Business
Combination: (1) there shall have been (a) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to reflect any
subdivision of the Common Stock) without Continuing Director Approval, and (b)
an increase in such annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split), recapitalization,
reorganization or any similar transaction that has the effect of reducing the
number of shares of outstanding Common Stock, unless the failure so to increase
such annual rate received Continuing Director Approval and (ii) such Interested
Shareholder shall not have become the beneficial owner of any additional shares
of Voting Stock except as part of the transaction that results in its becoming
an Interested Shareholder.
(F) Certain Benefits. After such Interested Shareholder has
become an Interested Shareholder, neither it nor its Affiliates shall have
received the benefit, directly or indirectly (except proportionately as a
shareholder of the Corporation), of any loans, advances, guarantees, pledges or
other financial assistance or any tax credits or other tax advantages provided
by the Corporation, whether in anticipation of or in connection with such
Business Combination or otherwise.
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(G) Proxy Statement. A proxy or information statement
describing the proposed Business Combination and complying with the requirements
of the Securities Exchange Act of 1934 and the rules and regulations thereunder
(or any subsequent provisions replacing such Act, rules or regulations) shall be
mailed to public shareholders of the Corporation at least 30 days before the
consummation of such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to such act or
subsequent provisions). Such proxy or information statement shall contain, if a
majority of the total number of Continuing Directors so requests, an opinion of
a reputable investment banking firm (which firm shall be selected by a majority
of the total number of Continuing Directors, furnished with all information it
reasonably requests, and paid a reasonable fee for its services by the
Corporation upon the Corporation's receipt of such opinion) as to the fairness
(or lack of fairness) of the terms of the proposed Business Combination from the
point of view of the holders of shares of Voting Stock (other than the
Interested Shareholder).
(c) Definitions. For purposes of this Article Eight:
(i) Affiliate. An "Affiliate" of a specified person is a
person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the person
specified.
(ii) Associate. "Associate," when used to indicate a relationship
with any person, means (A) any corporation or organization (other than the
Corporation or a Subsidiary) of which such person is an officer or partner or
is, directly or indirectly, the beneficial owner of 10% or more of any class of
equity securities, (B) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar fiduciary capacity, and (C) any relative or spouse of such person,
or any relative of such spouse, who has the same home as such person or is an
officer or director of any corporation controlling or controlled by such person.
(iii)Beneficial Ownership. "Beneficial ownership" has the same
meaning as in Rule 13d-3 under the Securities Exchange Act of 1934 (or any
successor rule or statutory provision) or, if Rule 13d- 3 shall be rescinded and
there shall be no successor rule or statutory provision thereto, pursuant to
Rule 13d-3 as in effect on
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December 9, 1993. A person shall, in any event, also be deemed to be the
"beneficial owner" of any Voting Stock:
(A) that such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly;
(B) that such person or any of its Affiliates or Associates
has (i) the right to acquire (whether such right is exercisable immediately or
only after the passage of time), pursuant to any agreement, arrangement or
understanding (excluding any agreement, arrangement or understanding with the
Corporation to effect a Business Combination) or upon the exercise of conversion
rights, exchange rights, warrants, or options, or otherwise, or (ii) sole or
shared voting or investment power with respect to such Voting Stock pursuant to
any agreement, arrangement, understanding, relationship or otherwise (excluding
any revocable proxies granted for a particular meeting with respect to shares of
which neither such person nor any such Affiliate or Associate is otherwise
deemed the beneficial owner); or
(C) that are beneficially owned, directly or indirectly, by
any other person with which such first mentioned person or any of its Affiliates
or Associates acts as a partnership, limited partnership, syndicate or other
group pursuant to any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of capital stock of the
Corporation.
No director or officer of the Corporation, nor any Associate or Affiliate
of any such director or officer, shall, solely by reason of any or all of
such directors and officers acting in their capacities as such, be deemed
to beneficially own any Voting Stock beneficially owned by any other such
director or officer (or any Associate or Affiliate thereof). No employee
stock ownership or similar plan of the Corporation or any subsidiary or any
trustee of such a plan, nor any Associate or Affiliate of any such trustee,
shall, solely by reason of such capacity of such trustee, be deemed to
beneficially own any Voting Stock held under any such plan.
To compute the percentage beneficial ownership of Voting Stock of a person in
order to determine if such person is an Interested Shareholder, the outstanding
Voting Stock shall include shares deemed owned by such person through
application of subparagraph (c)(iii)(B) of this Article Eight, but shall not
include any other Voting Stock that may be issuable by the Corporation pursuant
to any agreement, or upon the exercise of conversion rights, warrants or
options, or
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otherwise. For all other purposed, the outstanding Voting Stock shall include
only Voting Stock then outstanding.
(iv) Business Combination. "Business Combination" means any of
the following:
(A) Merger. Any merger or consolidation of the Corporation or
any Subsidiary with or into (i) any Interested Shareholder or any Affiliate of
an Interested Shareholder or (ii) any other corporation (whether or not itself
an Interested Shareholder) if, after such merger or consolidation, the surviving
or resulting entity would be an Affiliate of an Interested Shareholder.
(B) Sale, etc. Any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series of related
transactions) to or with any Interested Shareholder or Affiliate of an
Interested Shareholder of any Substantial Part of the assets of the Corporation
or of any Subsidiary.
(C) Issuance of Equity Securities. The issuance or transfer
by the Corporation or by a Subsidiary (in one transaction or a series of related
transactions) of any Equity Securities of the Corporation or any Subsidiary to
any Interested Shareholder or Affiliate of an Interested Shareholder except for
(1) the exercise, exchange or conversion of securities exercisable or
exchangeable for or convertible into such stock that were beneficially owned by
that person before it became an Interested Shareholder or (2) a dividend,
distribution, exchange or conversion of securities that does not result in an
increase in the proportionate share beneficially owned by that Interested
Shareholder of any class or series of stock of the Corporation of any Subsidiary
except, in the case of stock dividends, for immaterial changes due to fractional
share adjustments.
(D) Plan of Liquidation. The adoption of any plan or proposal
to liquidate or dissolve the Corporation if, as of the record date for the
determination of shareholders entitled to notice of and to vote on the plan or
proposal, any person is an Interested Shareholder.
(E) Reclassification. Any reclassification of securities
(including any reverse stock split) or recapitalization of the Corporation, or
any reorganization, merger or consolidation of the Corporation with any of its
subsidiaries or any similar transaction (whether or not with or into or
otherwise involving an Interested Shareholder) that has the effect, directly or
indirectly, of increasing the percentage
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beneficially owned by any Interested Shareholder of any class of Equity
Securities of the Corporation or any Subsidiary, except as a result of
immaterial changes due to fractional share adjustments.
(v) Consideration Other than Cash to Be Received. In
the event of any Business Combination in which the Corporation survives,
"consideration other than cash to be received" as used in subparagraphs
(b)(III)(A) and (b)(iii)(B) of this Article Eight include the Common Stock
and/or the shares of any other class of outstanding Voting Stock retained by the
holders of such shares.
(vi)Continuing Director. "Continuing Director" means any member of
the Board of Directors of the Corporation who is not an Interested Shareholder
involved in a Business Combination or an Affiliate, Associate or nominee of an
Interested Shareholder involved in a Business Combination, and who (i) was a
member of the Board of Directors before the Interested Shareholder became an
Interested Shareholder, or (ii) is a successor of such a member who was
nominated to succeed such member or to fill a newly created Board position by
Continuing Director Approval.
(vii)Continuing Director Approval. "Continuing Director
Approval" means approval by at least two-thirds of the Continuing Directors at a
time when the number of Continuing Directors is at least equal to two-thirds of
the number of Continuing Directors immediately before the Interested Shareholder
became an Interested Shareholder.
(viii)Equity Security. "Equity security" has the same meaning as
in Rule 3a11-1 under the Securities Exchange Act of 1934, as in effect on
December 9, 1993.
(ix) Fair Market Value. "Fair Market Value" means (A)in the case
of stock, the highest closing sale price during the 30-day period immediately
before the date in question of a share of such stock on the Composite Tape for
New York Stock Exchange listed stocks, or, if such stock is not listed on such
Exchange, on the principal Unites States securities exchange registered under
the Securities Exchange Act of 1934 on which such stock is listed, or, if such
stock is not listed on any such exchange, the highest closing bid quotation with
respect to a share of such stock during the 30-day period preceding the date in
question on the National Association of Securities Dealers, Inc. Automated
Quotation System or any system then in use, or if no such quotation is
available, the fair market value on the date in question of a share of such
stock as
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determined by a majority of the Continuing Directors in good faith, in each case
with respect to any class of such stock, appropriately adjusted for any dividend
or distribution in shares of such stock or any stock split or reclassification
of outstanding shares of such stock into a greater number of shares of such
stock or any combination or reclassification of outstanding shares of such stock
into a smaller number of shares of such stock; and (b) in the case of property
other than cash or stock, the fair market value of such property on the date in
question as determined in good faith by a majority of the Continuing Directors.
(x) Highest Price Per Share. References to the "highest per
share price" with respect to any class of stock shall reflect an appropriate
adjustment for any dividend or distribution in shares of such stock or any stock
split or reclassification of outstanding shares of such stock into a greater
number of shares of such stock or any combination or reclassification of
outstanding shares of such stock into a smaller number of shares of such stock.
(xi) Interested Shareholder. "Interested Shareholder" means any
Person (other than the Corporation or any Subsidiary) who or which, as of the
record date for the determination of shareholders entitled to notice of an to
vote on any Business Combination, or immediately before the consummation of any
such Business Combination is the beneficial owner, directly or indirectly, of
more than 10% of the outstanding shares of Voting Stock. Notwithstanding the
foregoing, no person that owned stock of the Corporation on December 9, 1993, or
that is an Affiliate of a Person that owned such stock on that date will be an
Interested Shareholder. Furthermore, shares acquired from any Person described
in the preceding sentence shall not be considered beneficially owned by the
acquirer in determining whether the acquirer is an Interested Shareholder.
(xii) Person. "Person" means any individual or entity.
(xiii)Subsidiary. "Subsidiary" means any corporation of which a
majority of any class of equity security is owned, directly or indirectly, by
the Corporation, except that for the purposes of the definition of Interested
Shareholder the term "Subsidiary" means only a corporation of which a majority
of each class of equity security is owned, directly or indirectly, by the
Corporation.
(xiv) Substantial Part."Substantial Part" means assets having a
book value in excess of 10% of the book value of the total consolidated
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assets of the Corporation (or Subsidiary, if applicable) (determined in
accordance with generally accepted accounting principles), at the end of its
most recent fiscal year ending before the determination is made.
(xv) Voting Stock. "Voting Stock" means the shares of capital
stock of the Company generally entitled to vote in the elected of directors.
(d) Board of Directors. A vote by Continuing Directors sufficient to
constitute Continuing Director Approval shall also be sufficient to determine,
for the purposes of this Article Eight, on the basis of information known to the
Board of Directors, (1) the number of shares of Voting Stock beneficially owned
by any person, (2) whether a person is an Affiliate or Associate of another, (3)
whether a person has an agreement, arrangement or understanding with another as
to any matter referred to in subparagraph (c)(iv)(C), (4) whether the assets
subject to any Business Combination constitute a Substantial Part of the assets
of the Corporation in question, or (5) any other factual matter relating to the
applicability or effect of this Article Eight.
(e) Board Demands. A vote by Continuing Directors sufficient to
constitute Continuing Director Approval shall be sufficient to demand that any
person who it is reasonably believed is an Interested Shareholder (or holds of
record Voting Stock beneficially owned by any Interested Shareholder) supply the
Corporation with complete information as to (1) the record owner(s) of all
shares beneficially owned by such person who it is reasonably believed is an
Interested Shareholder, (2) the number of, and class or series of, shares
beneficially owned by such person who it reasonably believed is an Interested
Shareholder and held of record by each such record owner and the number(s) of
the stock certificate(s) evidencing such shares, and (3) any other factual
matter relating to the applicability or effect of this Article Eight as may be
reasonably requested of such person, and such person shall furnish such
information within 10 days after receipt of such demand.
(f) Binding Decisions. Any determinations made by the Board, or
by the Continuing Directors, as the case may be, pursuant to this Article Eight
in good faith and on the basis of such information and assistance as was then
reasonably available for such purpose shall be conclusive and binding upon the
Corporation and its shareholders, including any Interested Shareholder.
(g) Amendment; Repeal. Any amendment or repeal of this Article Eight
or the adoption of any inconsistent provision shall, in addition to any other
vote or approval required by law or by these Articles of Incorporation,
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require the affirmative vote of the holders of at least 80% of the outstanding
Voting Stock (and such affirmative vote must include the affirmative vote of the
holders of at least a majority of the Voting Stock not beneficially owned by any
Interested Shareholder), except that this paragraph (g) of this Article Eight
shall not apply to, and such 80% vote (and such further majority vote) shall not
be required for, any amendment, repeal or adoption that receives Continuing
Director Approval and is submitted to the shareholders for their consideration.
(h) No Release. Nothing in this Article Eight shall relieve any
Interested Shareholder from any fiduciary obligation imposed by law.
ARTICLE ELEVEN
Amendments
Notwithstanding anything contained in these Articles of Incorporation
to the contrary, the affirmative vote of the holders of at least 80 percent of
the outstanding shares of Voting Stock, voting together as a single class, shall
be required to amend these Articles of Incorporation to provide for cumulative
voting or to amend, repeal, or adopt any provision inconsistent with Article
Three, Article Six, Article Seven, Article Ten or this Article Eleven, and no
amendment or repeal of or adoption of any provision inconsistent with Article
Eight shall be made except in accordance with Article Eight.
ELECTRONIC FAB TECHNOLOGY CORP
BY: /s/ Ken Schultz
---------------
Ken Schultz,
President
BY: /s/ Gerald J. Reid
------------------
Gerald J. Reid
Secretary
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ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
ELECTRONIC FAB TECHNOLOGY CORP.
Pursuant to the provisions of the Colorado Corporation Code, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
1. The name of the corporation is ELECTRONIC FAB TECHNOLOGY CORP.
2. The following amendment to the Articles of Incorporation was
adopted on January 26, 1994, as prescribed by the Colorado Corporation Code, by
a vote of the shareholders. The number of shares voted for the amendment was
sufficient for approval.
3. The Articles of Incorporation are hereby amended by striking
out the whole of subparagraph (a) of Article Two and inserting in lieu thereof a
new subparagraph (a) of Article Two reading in its entirety as follows:
(a) Total Capital. The total number of shares of
capital stock that the Corporation shall have authority to
issue is 50,000,000, of which 45,000,000 shares shall
become 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").
4. The Articles of Incorporation are hereby amended by inserting a
new subparagraph (b) to Article Two, which subparagraph (b) shall read in its
entirety as follows:
(b) Preferred Stock. The Corporation's Board is
authorized, subject to limitations prescribed by law and
to the provisions of this Article, to divide the Preferred
Stock into series and fix and determine the relative
rights and preferences of the shares of any series so
established. The authority of the Board with respect to
each series shall, to the extent allowed by the Colorado
Corporation Code or any successor statute (the "Colorado
Corporation Code"), but subject to the qualifications,
limitations and restrictions set forth in this Article,
include, without limitation, the authority to establish
and fix the following:
(1) the number of shares initially constituting
such series and the distinctive designation of such
series;
(2) whether such series shall have any dividend
rights, and, if so, the dividend rate on the shares of
such
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series, the time of payment of such dividends, whether
such dividends are cumulative and the date from which any
dividends shall accrue;
(3) whether any of the shares of such series
shall be redeemable, and, if so, the price (or method of
determining the price) at which and the terms and
conditions of redemption;
(4) whether such series shall have a sinking fund
or reserve account for the redemption or purchase of
shares of such series, and, if so, the terms and amount of
such sinking fund or reserve account;
(5) the rights of the shares of such series upon
the voluntary or involuntary liquidation, dissolution
or winding up of the Corporation;
(6) the voting powers, full or limited, if any,
of shares of that series; and
(7) whether such series shall have conversion
privileges, and, if so, the terms and conditions of such
conversion privileges including provisions, if any, for
adjustment of the conversion rate and for payment of
additional amounts by holders of shares of that series
upon exercise of such conversion privileges.
The Board is expressly authorized to vary the
provisions relating to the foregoing matters between the
various series of Preferred Stock, but, unless otherwise
specified in any Board resolution designating a series of
Preferred Stock, in all other respects the shares of each
series shall be identical with each other regardless of
series. Any of the terms of a series of Preferred Stock
may be made dependent upon facts ascertainable outside of
these Articles of Incorporation and the Board resolution
designating the series, provided that the manner in which
such facts shall operate upon such series is clearly and
expressly set forth in these Articles of Incorporation or
in the Board resolution designating the series.
5. The Articles of Incorporation are hereby amended by
redesignating subparagraphs (b) and (c) of Article Two as in effect prior to
this amendment as subparagraphs (c) and (d), respectively, of Article Two.
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6. The Articles of Incorporation are hereby amended by adding the
following clause at the beginning of what will be clause (d) of Article Two
after giving effect to this amendment: "Except as otherwise provided in any
Board resolution designating a series of Preferred Stock,".
7. The Articles of Incorporation are hereby amended by inserting a
new subparagraph (f) to Article Three, which subparagraph (f) shall read in its
entirety as follows:
(f) Special Director. Notwithstanding the foregoing,
whenever the holders of any one or more classes or series
of preferred stock issued by the Corporation shall have
the right, voting separately by class or series, to elect
directors at an annual or special meeting of shareholders,
the election, term of office, filling of vacancies and
other features of such directorships shall be governed by
the provisions of these Articles of Incorporation,
including any applicable resolutions of the Board of
Directors adopted pursuant to Article Two hereof.
Directors so elected shall not be divided into classes and
shall be elected by such holders annually unless expressly
provided otherwise by those provisions or resolutions,
and, during the prescribed terms of office of those
directors, the Board of Directors shall consist of a
number of directors equal to the number of those directors
plus the number of directors determined as provided in
paragraph (a) of this Article Three.
8. Except as amended hereby, the provisions of the Articles of
Incorporation, as heretofore amended, shall remain in full force and effect.
Dated: January 26, 1994
ELECTRONIC FAB TECHNOLOGY CORP.
By: /s/ Ken Schultz
Ken Schultz
President
and: /s/ Sophia Montoya
Sophia Montoya
Assistant Secretary
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<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.
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 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 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 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.
(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 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 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.
(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.
(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.
(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
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 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".
(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 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 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
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)
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.
"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.
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.
<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:
Title:
<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:
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
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, 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 i
n 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.
(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:
(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:
(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, 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 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 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 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 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 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 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.
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 $2.60 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.
(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.
(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
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 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.
"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.
"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.
"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.
<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: ________________________
Title:________________________
<PAGE>
AMENDMENT TO RIGHTS AGREEMENT
This Amendment to Rights Agreement is entered into as of March 30,
2000, between EFTC Corporation, a Colorado corporation ( "EFTC"), and American
Securities Transfer & Trust, Inc. (the "Rights Agent").
RECITALS
EFTC and the Rights Agent are parties to a Rights Agreement dated as of
February 25, 1999 (the "Rights Agreement") and wish to amend the same.
AGREEMENT
The parties agree as follows:
1. The definition of "Acquiring Person" in Section 1 of the
Rights Agreement shall be amended to read in its entirety as follows:
(a) "Acquiring Person" means any Person that, together with
all Affiliates and Associates of such Person, is the Beneficial Owner
of 15% or more of the shares of Common Stock then outstanding, but
shall not include (i) the Company, any Subsidiary of the Company, any
employee benefit plan of the Company or of any Subsidiary of the
Company, or any Person or entity organized, appointed or established by
the Company for or pursuant to the terms of any such plan; and (ii) any
Person who would otherwise become an Acquiring Person solely as a
result of a reduction in the number of shares of Common Stock
outstanding due to the acquisition of shares of Common Stock by the
Company or a Subsidiary of the Company, unless and until such Person
shall thereafter purchase or otherwise become the Beneficial Owner of
additional shares of Common Stock constituting one percent or more of
the then outstanding shares of Common Stock. Notwithstanding the
foregoing, (iii) none of (x) Thayer-BLUM Funding, LLC, a Delaware
limited liability company (the "Purchaser"), (y) any of its permitted
assigns under the Securities Purchase Agreement dated as of March 30,
2000 (the "Purchase Agreement"), by and between the Company and the
Purchaser, nor (z) any Person whose Beneficial Ownership of the
Company's Common Stock is derivative of the Beneficial Ownership of any
such Persons shall be an Acquiring Person hereunder; (iv) if the Board
of Directors of the Company determines in good faith that a Person who
would otherwise be an "Acquiring Person," as defined pursuant to the
foregoing provisions of this paragraph (a), has become such
inadvertently, and such Person divests as promptly as practicable a
sufficient number of shares of Common Stock so that such Person would
no longer be an "Acquiring Person," as defined pursuant to the
foregoing provisions of this paragraph (a), such Person shall not be
deemed to be an "Acquiring Person" for any purposes of this Agreement.
2. The definition of "Distribution Date" in Section 1 of the
Rights Agreement shall be amended by adding the following at the end thereof:
<PAGE>
Neither the execution and delivery of the Purchase Agreement nor the
consummation of the transactions contemplated thereby, including the
Tender Offer (as such term is defined in the Purchase Agreement), will
not cause the Distribution Date to occur.
3. Section 11 of the Rights Agreement shall be amended by adding
an additional subsection at the end thereof to read in its entirety as follows:
(q) Notwithstanding any other provision contained in this
Agreement, neither the execution and delivery of the Purchase Agreement
nor the consummation of the transactions contemplated thereby,
including the Tender Offer (as such term is defined in the Purchase
Agreement), will result in any adjustment under the provisions of this
Section 11.
4. In all other respects the Rights Agreement is ratified and
confirmed.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
EFTC CORPORATION
By: /s/ Jack Calderon
Name: Jack Calderon
Title: President and Chief Executive Officer
AMERICAN SECURITIES TRANSFER
& TRUST, INC.
By: /s/ Laura Sisneros
Name: Laura Sisneros
Title: Vice President
By: /s/ Katheen Heagerty
Name: Kathleen Heagerty
Title: Vice President
<PAGE>
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
HONEYWELL INTERNATIONAL INC., A DELAWARE CORPORATION,
OPERATING THROUGH ITS
ENGINES AND SYSTEMS BUSINESS UNIT
AND
EFTC CORPORATION, A COLORADO CORPORATION
DATED ____________
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") dated as of February
17, 2000 is entered into by and between Honeywell International Inc., a Delaware
corporation, operating through its Engines and Systems business unit
("Purchaser"), and EFTC Corporation, a Colorado corporation ("Seller" and,
together with Purchaser, the "Parties" and each a "Party"):
RECITALS
WHEREAS, Seller is engaged in a line of business consisting of the
manufacture of electronic assemblies (the "EFTC Business");
WHEREAS, Seller's business at its leased facility located at 1150 West
Drexel Road, Tucson, Arizona 85706 (the "Tucson Facility" and such business the
"Tucson Business") includes providing electronics manufacturing services on
behalf of Honeywell under those certain agreements and purchase order documents
listed in Schedule 1.5 (the "Honeywell Product Line");
WHEREAS, Seller desires to sell and Purchaser desires to purchase
certain assets of Seller identified herein and used in the Honeywell Product
Line so that Purchaser may conduct the operation of the Honeywell Product Line
and manufacture of products under the Honeywell Orders, as defined below; and
WHEREAS, contemporaneously with this Agreement and as part of a series
of related transactions the Parties are modifying certain of their business
arrangements unrelated to the Honeywell Product Line, including certain pricing
increases under contracts for purchase of electronic assemblies manufactured at
Seller's plant in Phoenix, Arizona.
NOW, THEREFORE, in consideration of the mutual covenants, agreements
representations and warranties contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Parties agree as follows:
AGREEMENT
1. PURCHASE AND SALE OF ASSETS
1.1 Purchase and Sale. Subject to the terms and conditions of this
Agreement and except as otherwise provided herein, on the Closing (as defined
below in Section 9.1) Seller shall sell, convey, transfer, assign and deliver to
Purchaser and Purchaser shall purchase and accept from Seller, all right, title
and interest in the following assets, together with such changes, deletions or
additions as are reasonably acceptable to Purchaser and Seller and occur between
the respective dates of the Schedules attached hereto and the Closing in the
ordinary course of business (the "Assets"):
1.1.1 Certain machinery and equipment, office equipment, tools
and other tangible personal property as listed in Schedule 1.1.1 (the "Personal
Property"), which Schedule shall also include Seller's net book value with
respect to each such item of Personal Property (the "Base Personal Property
Value");
1.1.2 Certain raw materials, parts and components,
work-in-process and finished goods as specified in Schedule 1.1.2 (the
"Inventory"), which Schedule shall also include Seller's net book value with
respect to each such item of Inventory (the "Base Inventory Value"); and
1.1.3 The contracts, agreements, arrangements and/or
commitments of Seller with vendors and the purchase orders specified in Schedule
1.1.3(a) and, subject to the terms of Section 13.3.3 hereof, the purchase orders
specified in Schedule 1.1.3(b) (the "Contracts"). Notwithstanding anything to
the contrary set forth herein or in any Schedule or Exhibit hereto, no contracts
for third party sales are to transfer to Purchaser under this Agreement.
1.2 [Intentionally left blank]
1.3 Transfer of Title to the Assets. Seller shall sell, assign, convey,
transfer and deliver the Assets to Purchaser at the Closing by means of bills of
sale, assignments, endorsements, certificates and such other instruments of
transfer as shall be necessary or appropriate to vest good title to the Assets
in Purchaser, free and clear of any Liens (as defined in Section 4.5 below),
except as otherwise set forth in this Agreement.
1.4 Grant of License to Purchaser.
1.4.1 "EFTC Intellectual Property" includes the copyrights and
other intellectual property including, without limitation, processes, apparatus,
formulas, trade secrets, know-how, discoveries, manufacturing, engineering top
and detail drawings, processes and specifications associated with the operation
of the Honeywell Product Line (other than that licensed to Seller under the 1997
License and other than third party software licensed to Seller). EFTC has no
registrations or applications for registrations under copyright or patent law
with respect to any EFTC Intellectual Property.
1.4.2 Seller hereby grants to Honeywell Intellectual Property,
Inc. ("HIPI") an irrevocable, fully paid-up, world-wide, transferable,
non-exclusive license in the EFTC Intellectual Property to design, modify,
rework, remanufacture, make, have made, use, sell, lease or service any and all
products and services related to the operation of the Honeywell Product Line
subject to the terms and conditions of the Agreement (the "HIPI License"). The
above license, in addition to being transferable, includes the right to
sublicense all affiliates, subsidiaries and revenue share partners of HIPI. HIPI
is an express third party beneficiary of this Section 1.4. Seller agrees to take
such further acts and provide such further documents as may be reasonably
necessary to effect and confirm the rights granted under this Section.
1.4.3 To the best of Seller's knowledge, Purchaser's use of
EFTC Intellectual Property will not violate any third party rights in existence
as of the Closing, but Seller does not make any other warranty, either express
or implied, including warranties of merchantability and fitness for a particular
purpose and shall have no liability with respect to the EFTC Intellectual
Property or any use thereof.
1.5 Assignment and Amendment of Certain Contracts. At the Closing,
Seller shall assign to Purchaser all of its rights with respect to those certain
agreements for purchase of goods and purchase order documents listed in Schedule
1.5 (the "Honeywell Orders"). The assignment of the Honeywell Orders and the
Contracts shall be pursuant to the assignment agreement in the form of Exhibit
1.5(a) (the "Assignment Agreement"). Such assignment agreement shall include an
assumption by Purchaser of Seller's obligations under the Honeywell Orders and
the Contracts, respectively, only with respect to obligations arising after the
Closing. At the Closing, Seller shall enter into an amendment to that certain
Amended and Restated License Agreement dated August 4, 1997 between Seller and
AlliedSignal Technologies Inc., which has subsequently merged into Honeywell
Intellectual Property Inc. ("HIPI"), (the "1997 License") in the form of Exhibit
1.5(b) whereby Seller shall assign to HIPI all of its rights to the intellectual
property deferred therein as the "AES Technical Data" and "AES Technical
Information" (the "1997 License Amendment").
1.6 Release Agreement. At the Closing, Seller and Purchaser shall
execute and deliver that certain Release Agreement in the form of Exhibit 1.6.
1.7 Non-Assignable Assets. Any transfer or assignment to Purchaser by
Seller of any property or property rights or any agreement which shall require
the consent or approval of any third party shall be made subject to such consent
or approval being obtained; provided, that Seller shall hold such property,
property rights or agreement for the exclusive benefit of Purchaser until such
consent or approval is obtained. Nothing set forth in this Section 1.7 shall be
deemed to waive any condition to Purchaser's obligations under this Agreement or
any closing deliveries to be provided to Purchaser by Seller or waive any
requirement of Seller to provide material third party consents.
2. PURCHASE PRICE
2.1 Purchase Price.
2.1.1 Purchaser will be provided with the opportunity to
review and verify the information contained in Schedule 1.1.1 and provide any
comments or revisions thereto. On or prior to the Closing, the Parties will
prepare a final, updated Schedule 1.1.1 mutually agreed to in writing (the
"Final Personal Property Value").
2.1.2 Purchaser and Seller shall together conduct a physical
count of the Inventory on a date as close as reasonably practicable to the
Closing, but in no event more than fifteen (15) days prior to the Closing, and
prepare a written mutually agreeable updated Schedule 1.1.2. Thereafter, the
physical count and valuation of the Inventory shall be adjusted using a mutually
agreeable perpetual inventory system methodology to determine the Inventory as
of the Closing. On or prior to the Closing, the Parties will prepare a final,
updated Schedule 1.1.2 mutually agreed to in writing (the "Final Inventory
Value").
2.1.3 The Purchase Price shall be Thirteen Million Two Hundred
Thirty-Nine Thousand Eight Hundred Seventy-Nine Dollars ($13,239,879).
2.2 Payments. All payments required to be made pursuant to this Article
2 and other provisions of this Agreement shall be made in United States dollars
in immediately available funds by wire transfer to an account required by this
Agreement or, if not so required, as designated by Seller in writing to
Purchaser. The entire amount of the Purchase Price will be disbursed as
contemplated by Sections 2.4 and 2.5 below.
2.3 Transfer Taxes. Purchaser shall be responsible for all sales,
transfer and similar taxes, duties or levies assessed or payable in connection
with the transfer of the Assets to Purchaser. Purchaser shall obtain and furnish
to Seller all required resale or other exemption certificates with respect to
the Assets.
2.4 Use of Proceeds. Immediately after Closing, Seller will use between
$10,000,000 and $11,000,000 of the Purchase Price to make payment to third party
vendors and other trade creditors (the "Vendor Payments") with past due
accounts. The Parties have agreed upon the following process to effect such
payment:
2.4.1 Immediately prior to the Closing, Seller shall provide
Purchaser with a "Borrowing Base Certificate" representing Seller's calculation
of its borrowing base under the Credit Agreement, dated as of September 30,
1997, as amended, among Seller, Bank One, Colorado, N.A., ("Bank One") as agent,
and the banks party thereto, as amended by the Restated and Amended Credit
Agreement, dated as of March 12, 1999 as amended (the "Bank One Agreement"),
which certificate shall be accurate and complete in all material respects and
acceptable to Purchaser;
2.4.2 After receipt of the "Borrowing Base Certificate"
Purchaser shall have the right to contact Bank One to confirm, to Purchaser's
satisfaction, the sufficiency of funds available to Seller under the Bank One
Agreement for purposes of the payments to be made under this Section and Bank
One's intent to abide by the flow of funds contemplated in this Section and Bank
One's satisfaction with the Borrowing Base Certificate;
2.4.3 The Parties understand that Bank One will require the
Purchase Price to be applied, immediately after Closing, to the pay down of
Seller's outstanding obligations under the Bank One Agreement and Seller agrees
to apply the Purchase Price in such manner;
2.4.4 Once the pay down contemplated by Section 2.4.3 has
occurred, Borrower will, pursuant to the terms of the Bank One Agreement, borrow
an amount equal to the Vendor Payments and such funds will be deposited in
Seller's account number 1548-1687 with Bank One (the "Seller Account") and used
solely by Seller to make the Vendor Payments;
2.4.5 At the Closing, Seller will provide Purchaser, for
Purchaser's information, with a list of the third party vendors and trade
creditors to whom Vendor Payments will be made under this Section 2.4 and the
dollar amount payable to each, such list to be created in Seller's determination
(the "Vendor List");
2.4.6 At the Closing, Seller will provide Purchaser with the
opportunity to examine original, signed checks from the Seller Account payable
to each of the vendors on the Vendor List in the amounts shown on the Vendor
List (the "Vendor Checks"); and
2.4.7 Seller will mail the Vendor Checks, via U.S. Mail,
immediately after Closing and will cooperate with Purchaser to allow Purchaser
to confirm that such Vendor Checks have actually been mailed. Seller further
agrees that it will not request Bank One to place a stop-order against any of
the Vendor Checks, except to correct mistakes in the Vendor Payments or Vendor
Checks.
2.5 Hold Back Account.
2.5.1 As collateral and security for Seller's indemnification
obligations hereunder and under the documents or agreements executed in
connection with the transactions contemplated hereby, Purchaser shall set aside
from the Purchase Price at Closing an amount equal to Five Hundred Thousand
Dollars ($500,000) and deposit such amount in a segregated bank account held by
Purchaser (the "Hold Back Account").
2.5.2 The Hold Back Account shall be in existence immediately
following the Closing and shall terminate at 5:00 p.m., Phoenix, Arizona time on
the date that is 12 months after Closing (the "Hold Back Period"). At the
termination of the Hold Back Period, Purchaser shall deliver to Seller any
monies remaining in the Hold Back Account.
2.5.3 If Purchaser incurs any Losses, as defined in Section
14.1, at any time on or before the last day of the Hold Back Period that are
subject to indemnification by Seller hereunder, Purchaser may seek reimbursement
directly from the Hold Back Account. Purchaser shall provide Seller with prompt
written notice of any disbursement from the Hold Back Account. Seller shall have
a period of five (5) business days to provide Purchaser with written notice of
any reasonable objection Purchaser may have to the disbursement from the Hold
Back Account. If no objection is made within such period, Seller shall be deemed
to have no objection to the disbursement. If Seller provides written notice of
objection within such time period, the Parties shall promptly enter into good
faith discussions regarding a resolution to such objection.
3. ASSUMPTION OF LIABILITIES AND OBLIGATIONS
3.1 Assumed Liabilities. Upon, from and after the Closing, Purchaser
shall, without any further responsibility or liability of, or recourse to,
Seller or any of its directors, shareholders, officers, employees, agents,
consultants, representatives, parent entities, affiliates, successors or
assigns, absolutely and irrevocably assume and be solely liable and responsible
for any and all liabilities and obligations of any kind or nature of the Seller
(whether fixed or contingent, matured or unmatured, foreseen or unforeseen,
known or unknown), which may arise after the Closing arising out of the
following (the "Assumed Liabilities"):
3.1.1 The ownership, use or possession or condition of the
Assets, or the operation orconduct of the Honeywell Product Line after the
Closing;
3.1.2 Seller's obligations arising after the Closing with
respect to the 1997 License Agreement pursuant to the terms of the 1997 License
Amendment and the Honeywell Orders and the Contracts pursuant to the terms of
the Assignment Agreement.
3.1.3 [Intentionally left blank]
3.1.4 Liability for all federal, state, local and foreign
taxes relating to the Assets or the Honeywell Product Line with respect to any
period or part thereof commencing immediately after the Closing; and
3.1.5 [Intentionally left blank]
3.1.6 Liability for costs of investigating or remediating the
presence of Hazardous Substances at, on, under or emanating from the Tucson
Facility but only to the extent arising out of or relating to activities of
Purchaser, its employees, agents, contractors or invitees and occurring after
Closing.
3.1.7 Liability for any violation of Environmental Law (as
hereinafter defined) to the extent arising out of or relating to activities of
Purchaser, its employees, agents, contractors or invitees at the Tucson Facility
after Closing.
3.1.8 Liability for the costs arising from or relating to the
presence of Hazardous Substances at, on under or emanating from facilities or
locations to which Purchaser sends, transports, dispose of or arranges for the
disposal of Hazardous Substances from the Tucson Facility.
The irrevocable assumption by Purchaser of all Assumed Liabilities shall be
effective upon the Closing, unless the terms hereof expressly state that such
liability or obligation shall transfer at another time, including, but not
limited to, the obligations set forth in Article 6. Nothing contained in this
Section shall be deemed to limit any obligations of Seller under this Agreement,
including but not limited to, the representations and warranties made by Seller
in Section 4.
3.2 Non-Assumed Liabilities. Seller shall at all times, without any
responsibility or liability of, or recourse to, Purchaser or any of its
directors, shareholders, officers, employees, agents, consultants,
representatives, parent entities, affiliates, successors or assigns, absolutely
and irrevocably be and remain solely liable and responsible for all Non-Assumed
Liabilities. "Non-Assumed Liabilities" shall mean (i) any and all liabilities
and obligations of any kind or nature (whether fixed or contingent, matured or
unmatured, foreseen or unforeseen, known or unknown) ("Liabilities") existing or
arising from or in connection with the EFTC Business at any time on or prior to
the Closing; (ii) any and all Liabilities existing or arising from or in
connection with the Honeywell Product Line on and prior to the Closing; and
(iii) any Liabilities or claims which may be asserted against or imposed upon
Purchaser by reason of its being a successor or transferee of Seller or as an
acquiror of the Assets of the EFTC Business or otherwise as a matter of law.
Without limitation of the foregoing, all of the following shall be Non-Assumed
Liabilities for the purposes of this Agreement:
3.2.1 any product liability, warranty claim, or Liability
relating to any toxic tort or similar claim for injury to person or property,
regardless of when made or asserted that arises out of or is based upon any
express or implied representation, warranty, agreement or guarantee made by any
Seller or any of its Affiliates, or alleged to have been made by any of such
persons or entities, or that it is imposed or asserted to be imposed by
operation of law, in connection with any service performed or product
manufactured, distributed or sold by or on behalf of Seller on or prior to the
Closing or which arises out of any condition existing as of the Closing,
including any claim relating to any product delivered, manufactured or
distributed by Seller on or prior to the Closing and any claim seeking recovery
for consequential damages, lost revenue or income;
3.2.2 all Liabilities or obligations of any nature
attributable to services rendered for the Seller by Seller's employees or former
employees, including those employed or formerly employed by the Seller,
including without limitation (a) workers compensation, disability and medical
benefits payable as a matter of law, contract or pursuant to benefit programs or
otherwise with respect to any injury, illness or medical conditions arising out
of events or exposures prior to the Closing, Retiree and Inactive Employee
Benefits (as defined in Section 6.9.1), any wages, vacations, severance pay or
other benefits under any plan, contract, bonus, deferred compensation, incentive
compensation, stock purchase, stock option, supplemental retirement, severance
or termination pay, salary continuation, hospitalization, medical, dental, life
insurance, disability, sick leave or other leave of absence, vacation, defined
benefit, defined contribution, profit sharing, stock bonus, retirement, pension,
supplemental unemployment benefits, union contracts, and each other employee
benefit plan, policy or arrangement maintained, contributed to, or required to
be contributed to, by Seller with respect to any employee, beneficiary, former
employee, retiree or other worker of Seller, whether or not any of the foregoing
is funded, subject to ERISA, or legally binding (collectively referred to as the
"Seller Benefit Plans"), and (b) withholding tax liabilities, unemployment
compensation premiums, occupational injury, disease or disability claims, or
claims for discrimination, unfair labor practices, violations of the collective
bargaining agreements or wrongful discharge;
3.2.3 any Liability relating to the operation of the EFTC
Business or any other business or operation of Seller on or prior to the Closing
arising by operation of law under any common law or statutory doctrine
(including successor Liability or de facto merger);
3.2.4 any Liability with respect to or arising out of any
contract, including any Contract (i) that is not capable of being assigned to
Purchaser at the Closing to the extent arising out of any breach or default
thereof by Seller on or prior to the Closing (including any event occurring on
or prior the Closing that, with the passing of time or the giving of notice, or
both, would become a breach or default) under any such contract, or (ii)
required by the terms thereof to be discharged on or prior to the Closing;
3.2.5 any Liability to the extent the existence of such
Liability constitutes a breach of any representation or warranty of Seller
contained in or made pursuant to this Agreement;
3.2.6 any Liability that arises out of or relates to the
employment or termination of employment of any employees, agents or independent
contractors by Seller, except any such Liability caused by Purchaser's failure
to perform its obligations under Article 6;
3.2.7 any Liability to past, present or future shareholders of
Seller in their capacity as shareholders;
3.2.8 any Liability that arises out of or relates to any
claims, action, suit, proceeding or investigation, whether civil or criminal,
pending or threatened relating to the conduct or activities of the EFTC
Business, any other business or operation of Seller, the Honeywell Product Line,
or the ownership, use or possession of the Assets, on or prior to the Closing;
3.2.9 any Liability relating to any broker's or finder's fee
or commission incurred by Seller as a result of the transactions contemplated
hereunder;
3.2.10 except for the Assumed Liabilities, any Liability
arising out of or relating to the conduct or activities of the Honeywell Product
Line (including any predecessor operations), the ownership, use or possession of
the Assets, performance of the Contracts, any Liabilities or claims arising out
of or relating to events, circumstances or conditions occurring on or before the
Closing, and any Liability associated with any other business of Seller and its
affiliated entities.
3.2.11 any Liability with respect to the 1997 License
Agreement and Honeywell Orders not expressly assumed under the 1997 License
Amendment or Assignment Agreements executed pursuant to Section 1.5;
3.2.12 liability for all federal, state, local and foreign
taxes relating to the EFTC Business, the Assets or the Honeywell Product Line
with respect to any period or part thereof on or prior to the Closing;
3.2.13 liability for costs of investigating or remediating the
presence of Hazardous Substances at, on, under or emanating from the Tucson
Facility and arising out of or relating to the activities occurring prior to
Closing or relating to activities of Seller, its employees, agents, contractors
or invitees after Closing at the Tucson Facility;
3.2.14 liability for any violation of any Environmental Law to
the extent arising out or relating to activities at the Tucson Facility prior to
Closing or relating to activities of Seller, its employees, agents, contractors
or invitees after Closing at the Tucson Facility; and
3.2.15 liability for the costs arising from or relating to the
presence of Hazardous Substances at, on, under or emanating from any facility or
location to which EFTC sent, transported, disposed of, or arranged for the
disposal, of Hazardous Substances from the Tucson Facility.
"Environmental Laws" means all federal, state, county, local, and municipal
laws, principles of common law, regulations, codes decrees, rules (having the
force of law) or judgments relating to pollution or protection of human health
or the environment. "Hazardous Substances" means any toxic, ignitable or
reactive material, pollutant or contaminant, hazardous substance, hazardous
material, toxic substance, or hazardous waste, as such terms are defined by any
Environmental Law or such substances as are regulated by any Environmental Law.
Seller hereby irrevocably waives and releases Purchaser from all Non-Assumed
Liabilities, including any Liabilities created or which arise by statute or
common law.
4. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser as follows as of the date
hereof and as of the Closing:
4.1 Corporate Status. Seller is a corporation duly organized and
validly existing under the laws of Colorado, the jurisdiction in which it is
incorporated, and has full power and authority to carry on the EFTC Business as
now conducted. Seller has all requisite corporate power and authority to enter
into this Agreement and to perform its obligations and consummate the
transactions contemplated hereby in accordance with the terms of this Agreement.
Seller is duly qualified to do business in each jurisdiction in which the
failure to be so qualified would have a material adverse effect on the Seller's
conduct of the EFTC Business.
4.2 Authorization. All corporate and other proceedings required to be
taken by or on the part of Seller including, without limitation, all action
required to be taken by the directors or shareholders of Seller to authorize
Seller to enter into and carry out this Agreement has been, or prior to the
Closing will be, duly and properly taken. This Agreement has been duly executed
and delivered by Seller and is valid and enforceable against Seller in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and the rules of law governing
specific performance, injunctive relief and other equitable remedies.
4.3 Compliance. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in the
breach of any of the terms or conditions of, or constitute a default under, or
violate, as the case may be, the articles of incorporation, by-laws or other
organization documents of Seller, or (ii) any agreement, lease, mortgage, note,
bond, indenture, credit agreement, license or other document or undertaking,
oral or written, to which Seller is a party or by which Seller is bound and by
which any of the Assets may be affected in a manner that could materially
adversely affect the Honeywell Product Line, or (iii) result in the creation of
a lien or encumbrance on Seller's interest in any of the Assets.
4.4 Contracts. Seller is not in default or defaults under any of the
Contracts and there does not exist any default under any of the Contracts by any
other party thereto that would, in either case, individually or in the aggregate
have a material adverse effect on the Honeywell Product Line, except as set
forth in Schedule 4.4.
4.5 Title. Seller has good and marketable title to all of the Assets,
the 1997 License, the EFTC Intellectual Property and the Honeywell Orders free
and clear of any mortgage, security interest, pledge, lien, conditional sales
agreement, claim, restriction, reservation, covenant, encumbrance, charge,
restraint on transfer, or any title defect of any nature whatsoever
(collectively "Liens"), except for any Liens listed on Schedule 4.5 hereto in
favor of Bank One as Agent pursuant to the Bank One Agreement (the "Bank
Liens"). At the Closing, Seller will convey good title to all the Assets free
and clear of all Liens, including without limitation the Bank Liens. Except for
financing statements evidencing the Bank Liens, no financing statement under the
Uniform Commercial Code with respect to the Assets has been filed in any
jurisdiction and not released and Seller has not signed any such financing
statement or any security agreement authorizing any secured party thereunder to
file any such financing statement.
4.6 Taxes.
4.6.1 General. All Taxes (as hereinafter defined) with respect
to the Assets that are or become due and payable or accrue with respect to any
period or portion thereof ending on or prior to the Closing have been or will be
duly and properly computed, reported, fully paid and discharged by Seller. As
used herein, the terms "Tax" and "Taxes" shall include all federal, state, local
and foreign taxes, assessments or other governmental charges (including, without
limitation, net income, gross income, excise, franchise, sales and value added
taxes, real or personal property taxes, taxes withheld from employees' salaries
and other withholding taxes and obligations and all deposits required to be made
with respect thereto), levies, assessments, deficiencies, import duties,
licenses and registration fees and charges of any nature whatsoever, including
any interest, penalties, additions to tax or additional amounts with respect
thereto, imposed by any government or taxing authority which are levied upon the
Assets.
4.6.2 Unpaid Taxes, Liens, etc. There are no unpaid Taxes with
respect to any period or portion thereof ending on or before the Closing that
could become a lien on the Assets, except for current Taxes not yet due and
payable. There are no unpaid Taxes with respect to any or all "Seller Benefit
Plans", nor have any events occurred with respect to any such Seller Benefit
Plans that could, in any case, give rise to a lien on the Assets. There are no
liens for Taxes on the purchased assets. Seller is not required to treat any
asset as owned by another person for federal income tax purposes or as
tax-exempt bond financed property or tax-exempt use property within the meaning
of Section 168 of the Internal Revenue Code (the "Code"). None of the Assets is
subject to any joint venture, partnership or other agreement or arrangement that
is treated as a partnership for federal income tax purposes. The transactions
contemplated herein are not subject to the tax withholding provisions of Section
3406 of the Code, or of Subchapter A of Chapter 3 of the Code or any other
provision of law.
4.6.3 Prorations of Property Taxes. At the Closing, all real
and personal property taxes ("Property Taxes") which are past due or have become
due upon any of the Assets before the Closing will be paid by the Seller,
together with any penalty or interest thereon. Property Taxes related to the
current tax period including, without limitation, installments of special
assessments, will be prorated and adjusted between the Buyer and the Seller as
of the Closing on a basis taking into account whether such Property Taxes are
customarily paid in advance or in arrears. If current tax bills are unavailable
at the Closing, the prior year's tax bills will be used for proration purposes.
4.7 Sufficiency and Condition of Assets.
4.7.1 Sufficiency. The Inventory and Personal Property
represent substantially all of the inventory, raw material, parts, components,
work in process, finished goods, equipment, machinery, office equipment, tools
and other tangible personal property used by the Seller directly for the
operations of the Honeywell Product Line and are sufficient to operate the
Honeywell Product Line and perform the Honeywell Orders as currently conducted
by Seller. To the best knowledge of Seller, the AES Technical Data and AES
Technical Information covered by the 1997 License Agreement and the HIPI License
represent all of the intellectual property (except for third party software
licensed to Seller) used by Seller in connection with the Honeywell Product Line
and are sufficient to operate the Honeywell Product Line and perform the
Honeywell Orders as currently conducted by Seller.
4.7.2 Net Book Value. Schedule 1.1.1 and Schedule 1.1.2 set
forth the true and correct net book value of the Personal Property and Inventory
set forth thereon, as reflected on Seller's balance sheet kept in accordance
with generally accepted accounting principles as historically applied by Seller
to the Tucson Business.
4.8 Brokers. No broker, investment banker, financial advisor or other
person or entity is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions contemplated
by this Agreement based on arrangements made by or on behalf of Seller.
4.9 Financial Information. The financial and employee information
provided to Purchaser through the Closing in connection with its due diligence
is accurate and complete in all material respects. Seller acknowledges that
Purchaser is relying on such information in its determination of whether to
enter into this transaction and its relevant terms, including, but not limited
to, the calculation of the net book value of the Assets necessary to calculate
the Purchase Price hereunder. Schedule 1.1.1 and Schedule 1.1.2, respectively,
as delivered as of the date hereof and as such schedules may be modified
pursuant to the terms of this Agreement, reflect the net book value of the
Inventory inclusive of all reserves held at any level of Seller's corporate
structure and Personal Property as reflected on Seller's financial statements,
which has been calculated in accordance with generally accepted accounting
principles as historically applied by Seller. There are no accounts or reserves
held by Seller on its books relating to the Assets that are not disclosed on
Schedule 1.1.1 or Schedule 1.1.2, as applicable. The Borrowing Base Certificate,
and the Vendor List provided for in Section 2.4 are accurate and complete in all
material respects and that Seller has used best efforts to produce Vendor checks
that conform with the Vendor List.
4.10 Environmental. Except as disclosed on Schedule 4.10 or otherwise
affirmatively disclosed by Seller to Purchaser, (i) to Seller's knowledge,
Seller is and at all times has been in compliance in all material respects with
applicable Environmental Laws in connection with the conduct of Seller's
business at the Tucson Facility, and Seller has not received any unresolved oral
or written communication from a governmental or regulatory body or other Person
that alleges that Seller is not in compliance with any Environmental Laws in
connection with the conduct of its business at the Tucson Facility; (ii) to
Seller's knowledge, Seller holds, and is in material compliance with all permits
and governmental authorizations required for Seller to conduct its business at
the Tucson Facility in compliance with Environmental Law; (iii) to Seller's
knowledge, Seller has not received any communications alleging that Seller is
liable to any party (including, but not limited to, a governmental or regulatory
body) as a result of the release, spill, disposal or discharge of a Hazardous
Substance into the environment at, on or under the Tucson Facility or at a
facility or location at which Seller has sent, transported, disposed or arranged
for the disposal of Hazardous Substances from the Tucson Facility; (iv) to the
Seller's knowledge, there have been no release, spill or discharge of Hazardous
Substances into the environment at, on or under the Tucson Facility; (v) there
are no pending or, to the knowledge of Seller, threatened notices of deficiency,
notices of violation, information requests, orders, or judicial or
administrative actions involving alleged violations by Seller, or Seller's
employees, agents, contractors or invitees of any Environmental Law at the
Tucson Facility; and (vi) to Seller' knowledge, Seller has provided, or made
available, to Purchaser with complete and accurate copies of all reports,
studies, surveys, and similar material documents commissioned by Seller or in
Seller's possession with respect to non-compliance with Environmental Laws at
the Tucson Facility, or the release, spilling, disposal or discharge of
Hazardous Substances into the environment at the Tucson Facility, within the
last three years.
4.11 Employees and Benefit Plans.
4.11.1 Schedule 4.11.1 contains a true and complete list of
the following:
(i) All arrangements, written or oral, which compel the
employment of any person in the status of "employee" or "employees" in
the Honeywell Product Line;
(ii) All agreements, written or oral, and letters of
understanding with labor unions or associations representing the
Employees;
(iii) Consulting relationships with the Honeywell Product
Line;
(iv) Strikes, slowdowns, picketing, work stoppages, threats
to organize non-union Employees or other labor issues, or other
occurrences, events or conditions of a similar character in which any
of the Employees are participating or have threatened to participate
since January 1, 1998;
(v) Any charges or complaints or petitions filed with or by
the N.L.R.B., the O.F.C.C.P. of the United States Department of Labor,
the Occupational Safety and Health Administration, the E.E.O.C. or any
similar foreign, state or local agency or commission, including charges
of race, sex, national origin, religious, handicap or age
discrimination or similar complaints against the Tucson Business,
grievance and arbitration proceedings and litigation matters including
breach of contract/wrongful discharge, and other personnel related
actions, from January 1, 1998 to the date hereof;
(vi) Any commitment or agreement to increase wages or modify
the conditions or terms of employment of the Employees;
(vii) The names and current salary rates of all employees
employed in the Honeywell Product Line and their hourly or yearly
salary, together with a summary of all bonus, incentive compensation or
other additional compensation or similar benefits paid to such persons
for the 1999 calendar year and estimated for the 2000 calendar year;
(viii)Each Seller Benefit Plan; and
(ix) Employee lease agreements relating to the Honeywell
Product Line.
4.11.2 Except as stated in Schedule 4.11.2:
(a) the Seller Benefit Plans (as defined in Section 3.2.2)
have been established and maintained in all material respects in
accordance with their terms and in compliance with all applicable laws,
including, to the extent applicable, but not limited to, the
requirements of ERISA and the Code;
(b) none of the Seller Benefit Plans subject to Part 3
Subtitle B of Title I or Title II of ERISA has incurred any
"accumulated funded deficiency" within the meaning of Section 302 of
ERISA or Section 412 of the Code (whether or not waived);
(c) no liability to the Pension Benefit Guaranty Corporation
has been incurred with respect to any of the Seller Benefit Plans
subject to Title IV of ERISA;
(d) Seller has not incurred liability for any tax imposed
under Section 4975 of the Code or Part 5 Subtitle B of Title I of ERISA
with respect to any of the Seller Benefit Plans;
(e) none of the Seller Benefit Plans is a multiemployer plan
within the meaning of Section 3(37)(A) of ERISA;
(f) no "reportable event" (within the meaning of Section 4043
of ERISA) has occurred with respect to any of the Seller Benefit Plans
since the effective date of said Section 4043;
(g) each Seller Benefit Plan which is a "group health plan",
as defined in Section 607(1) of ERISA, has been administered in
material compliance with the continuation coverage requirements of Part
6 Subtitle B of Title I of ERISA;
(h) no suit, action, litigation or claim (excluding claims for
benefits incurred in the ordinary course of plan activities) has been
brought against or with respect to any of the Seller Benefit Plans.
Except as otherwise provided in this Agreement, all contributions to
the Seller Benefit Plans that were required to be made under such
Seller Benefit Plans as of the Closing have been (or will have been by
the Closing) paid, accrued or otherwise fully reserved as of such date,
and Seller has performed (or will have performed by the Closing) all
obligations required to be performed as of such date under such plans;
(i) no event has occurred which provides a basis for the
Pension Benefit Guaranty Corporation to assert a lien on the assets of
any Seller Benefit Plan; and
(j) each individual who is characterized by the Seller as an
independent contractor for employment tax and Seller Benefit Plan
purposes has been appropriately classified as an independent contractor
under Revenue Ruling 87-41 or Section 530 of the Revenue Act of 1978
and has been properly taken into account under the eligibility or
participation provisions of the Seller Benefit Plans.
4.12 No Additional Representations. NOTWITHSTANDING ANYTHING TO THE
CONTRARY CONTAINED IN THIS ARTICLE, ANY OTHER PROVISION OF THIS AGREEMENT, OR
ANY OTHER COMMUNICATIONS BETWEEN THE PARTIES ORALLY OR IN WRITING, IT IS THE
EXPLICIT INTENT OF EACH PARTY HERETO THAT SELLER IS MAKING NO REPRESENTATION OR
WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, BEYOND THOSE EXPRESSLY GIVEN IN THIS
AGREEMENT OR ANY OF THE DOCUMENTS DELIVERED PURSUANT TO SECTION 12, INCLUDING
BUT NOT LIMITED TO ANY IMPLIED WARRANTY OR REPRESENTATION AS TO CONDITION,
MERCHANTABILITY OR SUITABILITY AS TO ANY OF THE PROPERTIES OR ASSETS OF THE
SELLER. EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN THIS AGREEMENT, OR ANY OF
THE DOCUMENTS DELIVERED PURSUANT TO SECTION 12, THE ASSETS ARE BEING SOLD ON AN
"AS IS, WHERE IS" BASIS.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller as follows:
5.1 Corporate Status. Purchaser is a corporation duly organized and
validly existing under the laws of the State of Delaware, the jurisdiction in
which it is incorporated and has full power and authority to carry on its
business and to own all of its properties and assets. Purchaser has all
requisite corporate power and authority to enter into, execute and deliver this
Agreement and to perform its obligations and consummate the transactions
contemplated hereby in accordance with the terms of this Agreement.
5.2 Authorization. All corporate and other proceedings required to be
taken by or on the part of Purchaser including, without limitation, all action
required to be taken by the directors or shareholders of Purchaser to authorize
Purchaser to enter into and carry out this Agreement, have been, or prior to the
Closing will be, duly and properly taken. This Agreement has been duly executed
and delivered by Purchaser and is valid and enforceable against Purchaser in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and the rules of law governing
specific performance, injunctive relief and other equitable remedies.
5.3 Compliance. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not result in the
breach of any of the terms or conditions of, or constitute a default under, or
violate, as the case may be, the articles of incorporation, by-laws or other
organization documents of Purchaser or any material agreement, lease, mortgage,
note, bond, indenture, license or other document or undertaking, oral or
written, to which Purchaser is a party or by which Purchaser is bound or by
which any of the Assets may be affected.
5.4 [Intentionally left blank]
5.5 Brokers. No broker, investment banker, financial advisor or other
person or entity is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions contemplated
by this Agreement based on arrangements made by or on behalf of Purchaser.
6. EMPLOYEES AND EMPLOYEE BENEFITS
6.1 Employment with the Purchaser.
6.1.1 Purchaser shall offer employment, subject to Purchaser's
employment conditions applicable to all prospective employees of Purchaser
(including, at Purchaser's discretion, without limitation, a completed
employment application, background investigation, drug screen and
confidentiality agreement) to all regular employees of Seller who are (a) not
disqualified as a result of a failure to complete the required forms, a positive
drug screen, or an unsatisfactory background investigation, (b) employed,
directly or indirectly, on or in support of the Honeywell Product Line at the
Tucson Facility as determined by the Seller, (c) listed on Schedule 6.1, and (d)
who are employed by the Seller on the Closing (the "Employees"). Schedule 6.1
may also include employees on an approved leave of absence, disability or sick
leave, provided, however that Purchaser shall not be required to make any offer
of employment to any such employee until the Seller notifies the Purchaser that
such employee's leave or disability has terminated and the employee is capable
of commencing a work schedule satisfactory to Purchaser.
6.1.2 Employees who satisfy Purchaser's employment conditions
shall become employees of Purchaser effective on the later of the first business
day following the end of the Seller's regularly scheduled payroll period which
concludes immediately following the Closing (the "Effective Date") or, if later,
the date of return to work from the approved leave of absence, or disability, as
the case may be (the "Transferred Employees"). Purchaser shall reimburse Seller
for its actual wage, payroll taxes and benefit payments or costs (other than
costs for welfare benefits maintained by Seller in accordance with Section
6.9.3) relating to the period between the Closing and the Effective Date.
Transferred Employees shall no longer be employees of Seller or its affiliated
entities after the Effective Date (or the date of return to work, if later).
Notwithstanding any provision of this Section 6.1 to the contrary, Employees
who, by the Effective Date, do not satisfy the Purchaser's employment conditions
will remain employees of the Seller and will not be eligible for any employee
benefits of the Purchaser. Commencing on the Effective Date (or such later
applicable date of employment of each Transferred Employee on leave or other
absence on the Closing), Purchaser shall have sole responsibility for the
payment of all wages, overtime, sick pay, taxes, withholdings, and employee
benefits with respect to the Transferred Employees as it relates to employment
with the Purchaser after the Effective Date. Notwithstanding the previous
sentence, Transferred Employees shall continue to be covered by Seller's welfare
plans through the end of the month in which their employment with Seller
terminates at Seller's cost.
6.1.3 Nothing contained in this Agreement shall be construed
as a guaranty to Purchaser that any number of the Employees will satisfy
Purchaser's conditions of employment or as a representation or warranty
regarding the skill level or performance of any of the Employees.
6.2 Hiring Requirements. Purchaser shall provide employment to the
selected Employees for positions similar to the positions in which such selected
Employees are employed by the Seller immediately prior to the Closing. The
Seller shall provide to Purchaser a copy of each Transferred Employee's
personnel file and any other documentation related to each Transferred
Employee's performance with Seller, provided that the Seller may require a
written consent from each Transferred Employee to provide such copy and
Purchaser may require such consent as a condition of employment for each
Transferred Employee. Purchaser shall provide an individual, signed employment
acceptance letter to each Transferred Employee confirming that he or she is an
employee of Purchaser as of his or her employment commencement date.
6.3 Compensation and Benefits.
6.3.1 Purchaser agrees to provide the Transferred Employees
base compensation equal to or greater than Seller's compensation immediately
prior to the Closing. Purchaser agrees to provide the Transferred Employees
employee benefits and policies that are at least comparable in the aggregate to
the employee benefits and policies currently provided to them by the Seller,
provided, however, that any stock option, stock purchase, or other equity-based
plan of the Seller shall not be taken into account for this purpose. Seller will
retain liability relating to all Seller Benefit Plans as described in Section
3.2.2, including any stock option, stock purchase or other equity-based
compensation plan.
6.3.2 [Intentionally left blank]
6.3.3 [Intentionally left blank]
6.3.4 All course work of a Transferred Employee currently in
progress for which either Seller has approved tuition aid shall be paid for by
the Seller through December 31, 2000. Course work that has been approved by the
Seller and paid for by the employee by the Closing but not yet started and is
subject to reimbursement to the employee under the Seller's tuition aid policy
shall be reimbursed by the Seller. "Course work" does not mean a degree program,
but only refers to the specific class in progress during a particular term in
that school.
6.4 Minimum Employment Period. Purchaser does not guarantee any minimum
period of employment or any particular work location for the Transferred
Employees, provided that in the event of any reductions-in-force ("RIF") within
twelve (12) months after the Closing, Purchaser will provide to those
Transferred Employees who are subject to a RIF, cash severance pay in an amount
at least equal to Sellers' RIF cash severance payment benefits, if any, under
Seller's currently applicable plans, as described on Schedule 4.11.1 (such
Schedule shall include the method of determination for the amount of any such
cash severance payment benefit). Such severance pay shall not apply to
Purchaser's termination of a Transferred Employee's employment for cause.
6.5 Hiring Process. Purchaser shall be solely responsible for any and
all communications Purchaser makes to any employees of the Seller during the
process of making offers of employment regardless of the Seller's involvement in
such process or receipt of documents and materials to be distributed to any
employees of the Seller. The Seller is not authorized to make, and will not
make, communications to Seller's employees about the prospective terms of
employment with Purchaser, except with Purchaser's prior written consent.
Purchaser shall comply with all laws in connection with its communications to
the Seller's employees and the hiring and transition of such employees.
6.6 Solicitation. For a period of twelve (12) months from and after the
Closing, neither Purchaser nor Seller shall directly or indirectly, or by action
in concert with others, solicit or attempt to solicit any employee of the other,
except to the extent that Purchaser will subject to the employment conditions of
Section 6.1, offer employment to the Seller's employees identified on Schedule
6.1, without the prior written authorization of the other Party.
6.7 Confidentiality. In addition to Purchaser's standard employee
confidentiality agreement, a separate confidentiality agreement may be required
of all employees and contractors of Purchaser working in the Tucson Facility due
to any shared tenancy relationship that may be in place at such site. This
separate confidentiality agreement will be subject to approval by both Parties.
Purchaser acknowledges and agrees that Transferred Employees may have continuing
confidentiality obligations to Seller with respect to information relating to
Seller's provision of electronic manufacturing services for customers other than
Purchaser, and that such information may not be disclosed by the Transferred
Employees.
6.8 Control. Purchaser shall have and maintain complete control over
its employees, including but not limited to the Transferred Employees, including
the right to hire, discharge, replace, evaluate and direct their activities
after the Closing subject to (a) the Seller's retained rights of control and
direction during the period commencing on the Closing and ending on the
Effective Date, which control and direction shall be at the direction of the
Purchaser and (b) the RIF severance benefits contained in Section 6.4.
6.9 Employee Benefit Plans.
6.9.1 Retiree and Inactive Employee Benefits. Seller shall
retain responsibility for all benefits under Seller Benefit Plans to Employees
and former employees of the Seller who have retired or will retire on or before
the Effective Date or who are on layoff, medical disability or other leave of
absence and beneficiaries of such Employees or former employees of the Seller,
including, without limitation, medical and life insurance benefits and
regardless of whether such benefits are funded or unfunded or accrued or
unaccrued (collectively, "Retiree and Inactive Employee Benefits"), and
Purchaser shall have no responsibility therefor.
6.9.2 Employee Benefit Plans for Transferred Employees. (a)
Except as otherwise specifically provided in this Section 6, effective on the
Effective Date, each Transferred Employee shall cease to be an active
participant in Seller Benefit Plans and shall become eligible to participate in
the benefit plans, policies and arrangements of the Purchaser subject to the
terms and conditions of this Agreement and of such plans, policies and
arrangements. Except as expressly provided herein, Purchaser assumes no
liability or obligation with respect to, and receives no right or interest in
any of Seller Benefit Plans.
(b) Seller shall cause each Transferred Employee to
become fully vested in the benefits accrued as of the Effective Date under any
of the Seller Benefit Plans which are "employee pension benefit plans", as
defined in Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"). Purchaser shall grant to each Transferred Employee credit
for his or her service with Seller prior to the Effective Date for purposes of
participation eligibility, vesting and retirement eligibility, but not for
benefit accrual, under any "employee pension benefit plan" maintained by the
Purchaser for the Transferred Employees. Notwithstanding the preceding sentence,
Transferred Employees' prior service with the Purchaser prior to the Effective
Date shall be credited by the Purchaser for the purposes of such plans under the
Purchaser's generally applicable re-employment policies.
6.9.3 Welfare Plans. With respect to Purchaser's "employee
welfare benefit plans", as defined in Section 3(1) of ERISA, and other welfare
and fringe benefit arrangements applicable to the Transferred Employees,
including but not limited to vacation, sick time, health, disability and
severance, Purchaser shall (i) grant service credit with Seller prior to the
Effective Date to each Transferred Employee for eligibility purposes and (ii)
grant, if applicable, credit for deductibles, co-payments and maximum
out-of-pocket maximums previously paid in accordance with evidence provided by
Seller. Notwithstanding the preceding sentence, prior service with the Purchaser
prior to the Effective Date shall be credited by the Purchaser for purposes of
such Plans under the Purchaser's generally applicable re-employment policies.
Purchaser shall not exclude any Transferred Employee from a medical plan on
account of a preexisting condition. Seller shall remain solely responsible for
all claims incurred by any Employee or Transferred Employee under any of
Seller's "employee welfare benefit plans" on or before the last day of the month
in which the Transferred Employees employment terminates with the Seller and
Purchaser shall have no liability for any such claims incurred. Coverage under
the Purchaser's plans shall commence on the first day of the month coinciding
with or next following the Effective Date.
6.9.4 Other Compensation. All accrued but unpaid holiday,
vacation or sick pay of any Transferred Employee shall be paid by Seller, and
Purchaser shall have no liability or obligation for any such pay to any
Transferred Employee. All unpaid wages, salaries and bonuses earned for periods
prior to the Effective Date shall be paid by Seller on or after the Effective
Date in accordance with Seller's normal pay practices and pursuant to applicable
law subject to reimbursement by Purchaser for actual payments made by the Seller
with respect to services rendered by Transferred Employees during the period
from the Closing to the Effective Date.
6.9.5. Severance. Seller shall pay and be solely liable and
shall indemnify and hold Purchaser harmless for all obligation, cost or expense
for severance pay, termination indemnity pay, salary continuation, special
bonuses or like compensation under Seller's plans, policies or arrangements and
for all obligation, cost or expense for liability under the Worker Adjustment
and Retraining Notification Act, arising from, relating to or claimed by reason
of actions required by this Agreement (except as provided in Section 6.10.3) or
which result from or relate to actions taken by Seller on or before the
Effective Date. Purchaser is liable for providing notice as a result of actions
taken by Purchaser after the Effective Date.
6.9.6 Health Care Continuation Coverage. Seller shall pay and
be solely liable and shall indemnify and hold Purchaser harmless from and
against and in respect of any and all losses, damages, liabilities, taxes,
sanctions that arise under section 4980B of the Code, interest and penalties,
costs and expenses (including, without limitation, disbursements and reasonable
legal fees incurred in connection therewith and in seeking indemnification
therefor, and any amounts or expenses required to be paid or incurred in
connection with any action, suit, proceeding, claim, appeal, demand, assessment
or judgment) imposed upon, incurred by, or assessed against Purchaser arising by
reason of or relating to any failure to comply with the continuation health care
coverage requirements of section 4980B of the Code and sections 601 through 608
of ERISA which failure occurred with respect to any current or prior employee or
any qualified beneficiary of such employee (as defined in section 4980B(g)(l) of
the Code) on or prior to the Effective Date or, which failure occurred as a
result of the actions required by this Agreement.
6.10 Indemnification.
6.10.1 The Seller shall not in any manner be responsible for
any liability, claim or obligation which in any way arises out of the
Purchaser's control or direction over the Transferred Employees between the
Closing and the Effective Date or the Purchaser's employment of the Transferred
Employees after the Closing, except as may arise from or relate to Seller's
communications with or treatment of the Employees prior to the Closing, the
Seller's conduct in identifying employees employed on the Honeywell Product Line
and therefore eligible for employment with Purchaser as identified on Schedule
6.1, the Seller's control over the Seller's Facility on or after the Closing, or
the Seller's exercise of any retained right of control described in Section
6.8(a) (other than pursuant to the direction of Purchaser). Purchaser agrees to
indemnify and hold the Seller harmless from any liability, claim or obligation
arising from or relating to the Transferred Employees or beneficiaries of
Transferred Employees which in any way arises from or relates to Purchaser's
control, direction or employment of the Transferred Employees after the Closing,
except as may arise from or relate to the Seller's communications with or
treatment of the Employees prior to the Closing, the Seller's conduct in
identifying employees employed on the Honeywell Product Line and therefore
eligible for employment with Purchaser as identified on Schedule 6.1, the
Seller's control over the Tucson Facility, or the Seller's exercise of any
retained right of control described in Section 6.8(a) (other than pursuant to
the direction of Purchaser).
6.10.2 Purchaser shall not in any manner be responsible for
any liability, claim or obligation which in any way arises out of the Seller's
employment of the Transferred Employees prior to the Effective Date, except as
may arise from or relate to Purchaser's communications with or treatment of the
Employees prior to the Effective Date or the Purchaser's control and direction
with respect to the Transferred Employees for the period between the Closing and
the Effective Date. The Seller agrees to indemnify and hold Purchaser harmless
from any liability, claim or obligation arising from or relating to the
Transferred Employees or beneficiaries of Transferred Employees which in any way
arises from or relates to the Seller's employment of the Transferred Employees
prior to the Effective Date, the Transferred Employees' employment at the Tucson
Facility, the Seller's exercise of any retained right of control with respect to
Transferred Employees as described in Section 6.8(a) (other than pursuant to the
direction of Purchaser), or the Seller's conduct in identifying employees
employed on the Honeywell Product Line and therefore eligible for employment
with Purchaser as identified on Schedule 6.1, except as may arise from or relate
to Purchaser's communications with or treatment of the Employees prior to the
Effective Date.
6.10.3 To the extent that this transaction results in a RIF
within 30 days after the Closing affecting more than 25 of the Seller's
remaining employees at the Tucson Facility, defined here to exclude the
Transferred Employees, any Employee described in Section 6.1 who declined to
accept employment with Purchaser (including any employee who would otherwise
have been a Transferred Employee but who was disqualified as a result of a
failure to complete required forms, a positive drug screen, an unsatisfactory
background investigation, or other generally applicable pre-employment
requirements of Purchaser described in Section 6.1), and the Seller's employees
identified on Schedule 6.10.3(a) as employed on the Seller's other product lines
at the Tucson Facility, Purchaser agrees to reimburse the Seller for it's
average RIF cash severance payments actually made to those employees selected
for RIF under the Seller's severance payment schedule in Schedule 6.10.3(b), to
the extent that such RIF affects more than 25 employees (as determined in
accordance with this Section 6.10.3) and, in any event, in an amount not to
exceed $350,000.
6.11 Transitional Assistance. To facilitate the transition of the
Business to the Purchaser, Seller agrees to make available, at Seller's cost, on
an as needed basis and for a minimum of 120 days after the Closing, the
employee(s) listed on Schedule 6.11.
6.12 Leased Employees. To the extent that it has the authority to do
so, Seller agrees to make any leased employees performing services directly or
indirectly on or in support of the Honeywell Product Line at the Tucson Facility
available to the Purchaser. Notwithstanding the preceding sentence, Seller shall
remain liable for any claims, liabilities or obligations attributable to the
performance of services by such leased employees for Seller (including any
claims by third parties arising in connection with Seller's relationship with
such leased employees) prior to and after the Closing.
6.13 Information Returns. Seller shall file all information returns
required under Section 6041 of the Code with respect to wages paid to
Transferred Employees by Seller (including payments made pursuant to Sections
6.3.4 and 6.9.4) and Purchaser shall file all such information returns with
respect to wages paid by Purchaser to Transferred Employees after the Effective
Date.
7. REAL PROPERTY AND TRANSITION
7.1 Sublease Agreement. At the Closing, Purchaser and Seller shall
execute the sublease agreement attached hereto as Exhibit 7.1(a), pursuant to
which Purchaser will lease the Tucson Facility commencing upon the Closing, (the
"Sublease Agreement"). Seller's lease agreement with Buckhorn Trading Co., Ltd.
(the "Lessor") dated December 18, 1998 covering the Tucson Facility (the "Tucson
Master Lease") requires the Lessor's consent to any sublease of the Tucson
Facility. At the Closing, Seller shall deliver to Purchaser (i) a written
consent to the Sublease Agreement, in the form of Exhibit 7.1(b), executed by
the Lessor (the "Consent to Sublease"); (ii) a non-disturbance agreement from
the Landlord regarding the Sublease in the form of Exhibit 7.1(c) (the "Lessor
Non-Disturbance Agreement"); and (iii) a non-disturbance agreement from Bank One
regarding the Sublease in the form of Exhibit 7.1(d) (the "Lender
Non-Disturbance Agreement").
7.2 Option to Purchase. The Tucson Master Lease contains an option
exercisable by Seller for the purchase of the Tucson Facility from Lessor. At
the Closing, Seller shall deliver to Purchaser an executed option to purchase
and right of first refusal, executed by Lessor, with respect to the Tucson
Facility (the "Option to Purchase and Right of First Refusal") in the form of
Exhibit 7.2(a), along with the executed written consent of Seller to such
agreement, in the form of Exhibit 7.2(b) (the "Memorandum of Agreement ").
7.3 Transition Agreement. At the Closing, Purchaser and Seller shall
execute the transition agreement attached hereto as Exhibit 7.3, pursuant to
which Seller will provide Purchaser and Purchaser will provide Seller with
certain services in connection with the transition of the Honeywell Product Line
to Purchaser (the "Transition Agreement").
7.4 Permits. Seller shall cooperate with Purchaser in arranging for the
transfer of obtaining of any permits, licenses or other approvals required for
Purchaser's operations at the Tucson Facility.
8. PRE-CLOSING COVENANTS
8.1 Access to Records and Properties. From the date hereof until the
Closing or earlier termination of this Agreement, Seller will:
8.1.1 provide Purchaser, its officers, counsel and other
representatives with reasonable access to the Assets, the principal personnel
and representatives of Seller, and such books and records pertaining to the
Honeywell Product Line as Purchaser may reasonably request, during Seller's
regular business hours, provided that Purchaser has provided Seller with
reasonable prior notice, and provided further that Purchaser agrees that such
access will be requested and exercised with due regard to minimizing
interference with the operations of the Tucson Business and provided that
disclosure would not violate the terms of any agreement to which Seller is bound
or any applicable law or regulation; and
8.1.2 make available to Purchaser for inspection and review
all documents, or copies thereof, listed in the Schedules hereto, and all files,
records and papers of any and all proceedings and matters listed in the
Schedules hereto, except to the extent prohibited or restricted by law,
regulation, contract with a third party or where the documents are subject to
the attorney-client or work product privilege.
8.2 Public Announcements. On and after the date hereof, neither of the
Parties shall issue any press release or make any public statement relating to
the subject matter of this Agreement (other than communications with persons in
the ordinary course of business relating to a press release otherwise permitted
by this Agreement) prior to obtaining the other Party's approval, which approval
shall not be unreasonably withheld, except that no such approval shall be
necessary to the extent that legal counsel to the Party proposing to make such
disclosure advises such Party that such disclosure is required by law or a
listing agreement or such disclosure is reasonably prudent to avoid potential
liability on the part of any person under the federal securities laws. Any
advice of counsel shall be confirmed in writing and promptly delivered to the
other Party.
8.3 Consents. Prior to the Closing Seller will assist Purchaser and
reasonably cooperate with Purchaser to obtain or receive an assignment of, at
Purchaser's cost and expense, any and all material governmental permits,
licenses approvals, certifications of inspection, filings, franchise and other
authorizations or such other concurrences as may be required in order for it to
conduct the Honeywell Product Line and use and operate the Assets on the
Closing. Prior to the Closing Seller shall at its sole cost and expense obtain
any Third Party Consents, as defined in Section 10.1.6.
8.4 Operation of the Honeywell Product Line. From and after the date
of this Agreement and until the Closing or as otherwise contemplated by this
Agreement or as Purchaser shall otherwise consent in writing, Seller:
8.4.1 will carry on the Honeywell Product Line in the ordinary
course of business of business, in accordance with prudent business practices,
and in conformance with the Honeywell Orders, including without limitation
keeping in full force and effect insurance comparable in amount and scope to the
coverage maintained by it (or on behalf of it) on the date hereof, and will not
enter into any other transaction relating to the Assets, the Honeywell Product
Line or the Tucson Facility other than in the ordinary course of business
consistent with past practice;
8.4.2 will not permit all or any of the Assets (real or
personal, tangible or intangible) to be sold, licensed or subjected to any lien
or other encumbrance except, with respect to the Inventory, in dispositions of
inventory for fair value in the ordinary course of business consistent with past
practices;
8.4.3 will operate the Honeywell Product Line and will conduct
its operations at the Tucson Facility in compliance in all material respects
with all applicable federal, state and local laws and regulations;
8.4.4 will maintain its inventory levels relating to the
Honeywell Product Line and its operations at the Tucson Facility in a manner and
in an amount consistent with past practice;
8.4.5 will not grant any general increase in the compensation
of Transferred Employees (including any such increase pursuant to any bonus,
pension, profit-sharing, vacation or other plan or commitment), grant any
increase in the compensation payable or to become payable to any Transferred
Employee, or amend any employee benefit plans in which any Transferred Employee
participates or is eligible for participation;
8.4.6 will not take any action that would cause any of the
representations and warranties made by Seller in this Agreement not to remain
true and correct;
8.4.7 will not modify, amend in any material respect or
terminate any Contract; and
8.4.8 will continue to maintain in all material respects the
Assets and the Tucson Facility in accordance with current practice in a
condition suitable for their current use.
8.5 Security Interests. Not later than five days prior to the Closing,
Seller shall furnish to Purchaser evidence of satisfactory Uniform Commercial
Code searches in the States of Arizona and Colorado and each other jurisdiction
(state and county or locality, as the case may be) in which any of the Assets
are located showing no Liens against any of the Assets which have not been
released, except for the Bank Liens (which will be released and discharged at
the Closing).
9. CLOSING
9.1 Closing. The consummation of the transactions contemplated hereby,
will take place as of 12:01 a.m. Arizona time on February 17, 2000, or such
other date agreed to by the Parties in writing, at such place and time as may be
agreed to by the Parties in writing (the "Closing").
10. CONDITIONS TO CLOSING
10.1 Conditions to the Obligations of Purchaser. The obligations of
Purchaser under this Agreement are subject to the fulfillment prior to or at the
Closing of each of the following conditions, any one or more of which may be
waived by Purchaser in its sole discretion:
10.1.1 No injunction or restraining order shall be in effect
to forbid or enjoin, and no suit, action or proceeding shall be pending or
threatened to prohibit, nullify or otherwise adversely affect the consummation
of the transactions contemplated by this Agreement and the Exhibits and
Schedules hereto or Purchaser's ownership, use or enjoyment of the Assets, or
any part thereof, or the operation of the Honeywell Product Line or any part
thereof.
10.1.2 The representations and warranties of Seller contained
in this Agreement or in any Exhibit hereto or certificate, document or other
instrument delivered pursuant hereto or in connection with the transactions
contemplated hereby shall be complete, true and correct in all material
respects, without regard to materiality limitations contained in such
representations and warranties, on the Closing, with the same force and effect
as though such representations and warranties had been made on and as of the
Closing, except to the extent any such representation or warranty are made as of
a specified date, in which case such representation or warranty shall be
complete, true and correct in all material respects as of the date specified.
10.1.3 Seller shall have performed all of its covenants,
obligations and agreements contained in this Agreement to be performed and
complied with by it prior to the Closing.
10.1.4 Purchaser shall have received all certificates,
instruments, agreements, and other documents to be delivered pursuant to Section
12.1.
10.1.5 Purchaser shall have received all documents,
information and confirmations contemplated by Section 2.4 to Purchaser's
satisfaction.
10.1.6 Seller shall have obtained and delivered to Purchaser
all third party consents required for the assignment of the Contracts and
transfer of the Assets to Purchaser, including, but not limited to any consents
that may be required of Seller's lenders, shareholders, or creditors (the "Third
Party Consents").
10.1.7 Purchaser shall have received all such agreements,
instruments and documents as it shall reasonably require, including without
limitation, consents, releases, and executed UCC-3 termination statements, to
evidence the complete and unconditional release and discharge of any and all
Liens, including without limitation the Bank Liens, against any of the Assets,
the 1997 License, the EFTC Intellectual Property, and the Honeywell Orders.
10.1.8 [Intentionally left blank]
10.1.9 The Parties shall have prepared and agreed upon in
writing any revisions to Schedule 1.1.1 and Schedule 1.1.2 to finalize the
calculation of the Final Inventory Value and the Final Personal Property Value.
10.2 Conditions to the Obligations of Seller. The obligations of Seller
under this Agreement are subject to the fulfillment, prior to the Closing, of
each of the following conditions, any one or more of which may be waived by the
Seller in its sole discretion:
10.2.1 No injunction or restraining order shall be in effect
to forbid or enjoin, and no suit, action or proceeding shall be pending or
threatened to prohibit, nullify or otherwise adversely affect, the consummation
of the transactions contemplated by this Agreement.
10.2.2 The representations and warranties of Purchaser
contained in this Agreement or in any Exhibit hereto or certificate, document or
other instrument delivered pursuant hereto or in connection with the
transactions contemplated hereby shall be complete, true and correct in all
material respects, without regard to materiality limitations contained in such
representations and warranties, on the Closing, with the same force and effect
as though such representations and warranties had been made on and as of the
Closing, except to the extent any such representation or warranty are made as of
a specified date, in which case such representation or warranty shall be
complete, true and correct in all material respects as of the date specified.
10.2.3 Purchaser shall have performed all of its covenants,
obligations and agreements contained in this Agreement to be performed and
complied with by the Closing.
10.2.4 Seller shall have received all certificates,
instruments, agreements and other documents to be delivered pursuant to Section
12.2.
10.2.5 Seller shall have obtained the Consent to Sublease, the
Option to Purchase and Right of First Refusal and the Memorandum of Agreement.
10.2.6 [Intentionally left blank]
10.2.7 The Parties shall have prepared and agreed upon in
writing any revisions to Schedule 1.1.1 and Schedule 1.1.2 to finalize the
calculation of the Final Inventory Value and the Final Personal Property Value.
11. TERMINATION AND SURVIVAL
11.1 Termination. Both of the Parties hereto shall use reasonable
efforts to bring about the satisfaction of the conditions hereunder prior to and
at the Closing. Notwithstanding anything to the contrary set forth herein, this
Agreement may be terminated and the transactions contemplated hereby abandoned
at any time prior to the Closing:
11.1.1 by mutual written consent of Purchaser and Seller; or
11.1.2 by Purchaser or Seller, upon written notice to the
other, if such other Party or its affiliate has breached any material
representation, warranty or covenant contained in this Agreement in any material
respect, if the non-breaching Party has notified the breaching Party of the
breach in writing and the breach has continued without cure for a period of
fifteen days after notice of the breach; or
11.1.3 by Purchaser or Seller on the issuance of a preliminary
injunction enjoining the Closing of the transactions contemplated herein with an
outcome adverse to the Parties.
11.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 11.1, this Agreement shall become void and of no further force and
effect, and neither of the Parties hereto (nor their respective affiliates,
directors, shareholders, officers, employees, agents, consultants,
attorneys-in-fact or other representatives) shall have any liability in respect
of such termination; provided, however, that if such termination is effected
pursuant to Section 11.1.2 and the failure to consummate the transactions
contemplated hereby was the result of any of the conditions to the Closing
having not been fulfilled by reason of the breach by either of the Parties of
its covenants, representations and/or warranties set forth in this Agreement or
in any agreement, document or instrument ancillary hereto, the Party having so
breached shall remain liable to the other Party.
12. CLOSING DOCUMENTS
12.1 Documents to be Delivered by Seller. At the Closing, the
Seller shall deliver to Purchaser the following documents as appropriate:
12.1.1 A Secretary's Certificate attaching copies of Seller's
corporate action authorizing the execution, delivery and performance of this
Agreement and the transactions contemplated hereby, providing evidence of the
signatures and incumbency of each person signing any document or instrument
delivered by Seller to Purchaser in connection with the transactions
contemplated hereby, and such other information and certifications relevant to
the due authorization, execution and delivery of this Agreement as Purchaser may
reasonably request, all certified by a Secretary, Assistant Secretary or other
appropriate officer of Seller;
12.1.2 Executed bills of sale with respect to the Assets in
the form of Exhibit 12.1.2;
12.1.3 an executed Waiver of Collateral Assignment in the form
attached hereto as Exhibit 12.1.3;
12.1.4 an executed Waiver by Purchaser in connection with the
Sublease in the form attached hereto as Exhibit 12.1.4;
12.1.5 An executed Assignment Agreement in the form attached
hereto as Exhibit 1.5(a); and an executed 1997 License Amendment in the form
attached hereto as Exhibit 1.5(b);
12.1.6 A certificate of an appropriate officer of Seller
relating to the representations, warranties and covenants of Seller made herein;
12.1.7 An executed Sublease Agreement in the form attached
hereto as Exhibit 7.1(a), an executed Consent to Sublease in the form of Exhibit
7.1(b), an executed Lessor Non-Disturbance Agreement in the form of Exhibit
7.1(c), and an executed Lender Non-Disturbance Agreement in the form of Exhibit
7.1(d);
12.1.8 An executed Release Agreement in the form attached
hereto as Exhibit 1.6;
12.1.9 An executed Transition Services Agreement in the form
attached hereto as Exhibit 7.3;
12.1.10 An executed Option to Purchase and Right of First
Refusal in the form attached hereto as Exhibit 7.2(a) and an executed Memorandum
of Agreement in the form of Exhibit 7.2(b);
12.1.11 [Intentionally left blank];
12.1.12 All Third Party Consents required by Section 10.1.6;
12.1.13 All agreements, consents and/or releases required
under Section 10.1.7; and
12.1.14 Any other agreement, certificate, or other document
reasonably necessary to effectuate the transactions contemplated hereby.
12.2 Documents to be Delivered by Purchaser. At the Closing, Purchaser
shall pay the Purchase Price to Seller by wire transfer as directed in writing
by the Seller and shall execute where applicable and deliver to Seller the
following documents:
12.2.1 A Secretary's Certificate attaching copies of
resolutions of Purchaser authorizing the execution, delivery and performance of
this Agreement and the transactions contemplated hereby, providing evidence of
the signatures and incumbency of each person signing any document or instrument
delivered by Purchaser to Seller in connection with the transactions
contemplated hereby and such other information and certifications relevant to
the due authorization, execution and delivery of this Agreement as Seller may
reasonably request, all certified by a Secretary, Assistant Secretary or other
appropriate officer of Purchaser;
12.2.2 [Intentionally left blank]
12.2.3 [Intentionally left blank]
12.2.4 [Intentionally left blank]
12.2.5 Executed Assignment Agreements in the form attached
hereto as Exhibit 1.5(a); and an executed 1997 License Amendment in the form
attached hereto as Exhibit 1.5(b);
12.2.6 A certificate of an appropriate officer of Purchaser
relating to the representations, warranties and covenants of Purchaser made
herein;
12.2.7 An executed Sublease Agreement in the form attached
hereto as Exhibit 7.1(a);
12.2.8 An executed Option to Purchase and Right of First
Refusal in the form attached hereto as Exhibit 7.2(a) and an executed Memorandum
of Agreement in the form of Exhibit 7.2(b);
12.2.9 An executed Transition Services Agreement in the form
attached hereto as Exhibit 7.3; and
12.2.10 An executed Release Agreement in the form attached
hereto as Exhibit 1.6.
12.2.11 [Intentionally left blank]
12.2.12 Any other agreement, certificate, or other document
reasonably necessary to effectuate the transactions contemplated hereby.
13. POST CLOSING OBLIGATIONS
13.1 Further Assurances. From time to time after the Closing, without
further consideration, the Parties shall cooperate with each other and shall
execute and deliver instruments of transfer or assignment, or such other
documents to the other Party as such other Party reasonably may request to
evidence or perfect Purchaser's right, title and interest to the Assets, and
otherwise carry out the transactions contemplated by this Agreement. Seller also
agrees that following the Closing, for no further consideration, it will
promptly execute and deliver to Purchaser such additional releases,
terminations, discharges, satisfactions or other instruments and documents as
Purchaser may reasonably request and as may be necessary or desirable to
evidence the release and termination of all Liens with respect to the Assets,
each in a form suitable for filing or recording in any applicable jurisdiction.
13.2 Access to Books and Records. After the Closing, Purchaser shall
permit Seller to have access to and the right to make copies of such of Seller's
books, records and files as constitute part of the Assets for any reasonable
purpose at any time during regular business hours, such as for use in litigation
or financial reporting, tax return preparation, or tax compliance matters.
13.3 Cooperation.
13.3.1 Litigation. The Parties shall reasonably cooperate with
each other at the requesting Party's expense in the prosecution or defense of
any litigation or other proceeding arising from their respective operation of
the Honeywell Product Line or the Assets.
13.3.2 Taxes. Seller shall cooperate with Purchaser and shall
provide Purchaser with such assistance as may reasonably be requested by
Purchaser in connection with the preparation of any tax return and the conduct
of any audit or other examination by any taxing authority or judicial or
administrative proceedings relating to the Purchased Assets.
13.3.3 Purchase Orders. At the Closing, Seller shall make
available to Purchaser the rights and benefits of the purchase orders listed on
Schedule 1.1.3(b) (the "Purchase Orders") to the extent related to the operation
of the Honeywell Product Line, and Purchaser shall indemnify Seller for any
obligations and liabilities incurred by Seller arising therefrom. Purchaser and
Seller shall work together to determine which Purchase Orders listed on Schedule
1.1.3(b) shall be assigned by Seller and assumed by Purchaser in connection with
the operation of the Honeywell Product Line.
13.4 Inventory.
13.4.1 Purchaser agrees that it will enter into good faith
negotiations to purchase any Excess Inventory from Seller at fair market value:
(i) if offered by Seller on the same terms and conditions as such may be
obtained from third party vendor; and (ii) if and when Purchaser has a need for
such Excess Inventory in the future, in its sole determination. Purchaser shall
provide a reasonably detailed forecast of its needs for Excess Inventory. Seller
will satisfy Purchaser's requests for Excess Inventory on a quarterly basis.
Seller will make available those items of Excess Inventory in its stock, however
this Section is not intended to restrict Seller from using Excess Inventory for
its own account or selling items of Excess Inventory to third parties. The
Parties' obligations under this Section will expire on the date that is 18
months after the Closing.
13.4.2 For purposes of this Agreement, "Excess Inventory"
shall mean, with respect to the Honeywell Product Line, all of Seller's raw
materials, parts and components, and work-in-process in excess of the 12 month
requirements for the Honeywell Product Line.
13.5 Warranty Claims. With respect to warranty and products liability
claims relating to the period prior to the Closing and arising from Seller's
use, sale or distribution of circuit card assemblies manufactured on or prior to
the Closing that were part of the Honeywell Product Line, Seller shall be
responsible for and assume all costs and expenses in connection therewith and
the following process shall apply:
13.5.1 Purchaser shall promptly provide Seller with written
notice and a description of any such warranty claim;
13.5.2 Seller shall have the right to inspect the product to
which the warranty claim applies to determine the validity of such claim
(provided, however, that if such inspection does not take place within 2
business days after Seller's receipt of notice of the claim, this right will be
deemed to be waived);
13.5.3 if there is no dispute as to the validity of the
warranty claim, Purchaser shall have the right to perform warranty repair
services and shall be promptly reimbursed for such services and costs by Seller;
13.5.4 if the warranty claim is disputed, Purchaser may
proceed to perform warranty repair services pending resolution of the dispute.
Purchaser's determination to proceed with warranty repair services shall not be
deemed to be a waiver of its rights hereunder and the Parties shall negotiate in
good faith to resolve such dispute;
13.5.5 the rates to be charged to Seller for labor in
connection with such services will be the hourly rates set forth in the Amended
and Restated Supplier Partnering Agreement dated September 29, 1998 in effect
between the Parties or, if such agreement is no longer in effect any successor
agreement thereto or, if there is no successor agreement, at Purchaser's
standard hourly rates for work provided to preferred customer entities;
13.5.6 the prices to be charged to Seller for parts, raw
materials and other costs in connection with such services shall be Purchaser's
actual cost without markup.
13.6 Confidential Information. With respect to proprietary and
confidential information relating to strategic, technical and/or marketing plans
of a Party (the "Discloser") and its affiliates and their various operations
("Confidential Information") the other Party (the "Recipient") agrees that it
will not use such information for any purpose whatsoever and shall destroy or
return any remaining copies. This restriction shall not apply to any information
that the Recipient can demonstrate: (a) is or becomes publicly available through
no wrongful act or omission of Recipient; (b) was in Recipient's possession
prior to the Closing; (c) was rightfully received by Recipient from a third
party without any obligation of confidentiality; or (d) was independently
developed by Recipient or for it and that was not obtained, in whole or in part,
from the Confidential Information of Discloser. In the event that Recipient is
requested or required by subpoena or other court order to disclose any
Confidential Information, the Recipient will provide notice of such request to
the Discloser and will use reasonable efforts to resist disclosure, until an
appropriate protective order may be sought, or a waiver of compliance with the
provisions of this Section granted. If, in the absence of a protective order or
the receipt of a waiver hereunder, the Recipient is nonetheless, in the opinion
of its counsel, legally required to disclose Confidential Information, then, in
such event, the Recipient may disclose such information without liability
hereunder, provided that the Discloser has been given a reasonable opportunity
to review the text of such disclosure before it is made and that the disclosure
is limited to only the Confidential Information specifically required to be
disclosed.
13.7 Intellectual Property. Seller will cooperate with Purchaser and
HIPI upon the request of Purchaser to: (i) identify any additional items of
intellectual property which may be required by Purchaser to operate the
Honeywell Product Line as it was operated prior to the Closing; and (ii) provide
to Seller the right it may need to use such items of intellectual property in
order to operate the Honeywell Product Line. This Section is not intended to
require Seller to transfer any rights to third party software licensed by
Seller.
13.8 Leased Equipment. The Honeywell Product Line as conducted prior to
the Closing utilized a wave solder machine serial number 11876058 (the "Wave
Solder Machine") that is currently leased by Seller under a corporate master
lease agreement with Key Corp. Leasing (the "Equipment Lessor") dated December
14, 1998 (the "Equipment Lease"). Seller agrees to either (i) transfer the Wave
Solder Machine into a separate lease with the Equipment Lessor, such lease to be
assumed by Purchaser, all subject to Equipment Lessor's consent and Purchaser's
approval of lease terms; or (ii) purchase the Wave Solder Machine from the
Equipment Lessor and Purchaser shall purchase such Wave Solder Machine from
Seller at Seller's cost, all on terms acceptable to Purchaser. The parties will
cooperate with each other in good faith to effect the transactions contemplated
under this Section prior to the expiration of 120 days after the Closing.
13.9 Insurance. Seller will, within five business days of Closing,
provide a certificate of insurance naming Purchaser as additional insured with
the following limits:
Insurance Coverage and Limits
Worker's Compensation Statutory Limits
Employer's Liability $500,000 per occurrence
Comprehensive General Liability
(Contractual Liability & Completed
Operations)
Bodily Injury & Property Damage $5,000,000 combined single limit/
$5,000,000 aggregate
Automobile Liability Bodily Injury
& Property Damage - $5,000,000 combined single limit/
$5,000,000 aggregate
Seller may utilize excess liability coverage for meeting the policy limit
requirements.
14. INDEMNIFICATION
14.1 Indemnification by Seller. Seller shall indemnify, defend (subject
to the provisions of Section 14.3) and hold harmless Purchaser and Purchaser's
directors, shareholders, officers, employees, agents, affiliates, successors and
assigns from and against any and all claims, Liabilities, obligations, losses,
costs, expenses (including, without limitation, reasonable legal, accounting and
similar expenses), fines, damages (individually a "Loss" and collectively
"Losses"), arising out of:
14.1.1 any breach or violation of any of the covenants made by
Seller in this Agreement or any agreement, certificate or similar document
delivered pursuant hereto;
14.1.2 any breach of, or any inaccuracy or misrepresentation
in, any of the representations or warranties made by Seller in this Agreement or
in any Schedule, agreement, instrument, certificate or similar document required
to be delivered pursuant to the terms hereof; or
14.1.3 any Non-Assumed Liability, including, without
limitation, any warranty or product liability claims with respect to (i) circuit
card assemblies manufactured by Seller on or prior to the Closing Date that were
part of the Honeywell Product Line or (ii) the EFTC Business. For any
Non-Assumed Liabilities identified at 3.2.13 and 3.2.14 that both (a) were
caused by an entity or person other than Seller, its employees, agents,
contractors or assigns and (b) for which Purchaser gives an initial Notice of
Claim (as hereinafter defined) in writing to Seller more than ten (10) years
after the Closing Date, Seller's right to indemnification under this Section
14.1.3 shall be limited to the amount of indemnification Seller receives from
any other person or entity for such Non-Assumed Liabilities.
14.1.4 [Intentionally left blank]
14.2 Indemnification by Purchaser. Purchaser shall defend, indemnify
and hold harmless Seller and such Seller's directors, shareholders, officers,
employees, agents, representatives, affiliates, successors and assigns from and
against any and all Losses arising out of:
14.2.1 any breach or violation of any of the covenants made by
Purchaser in this Agreement or any agreement, certificate or similar document
delivered pursuant hereto;
14.2.2 any breach of, or any inaccuracy in any of the
representations or warranties made by Purchaser in this Agreement, or in any
Schedule, agreement, certificate, instrument or similar documents required to be
delivered pursuant to the terms hereof;
14.2.3 any Assumed Liability;
14.2.4 any breach of the terms of Article 6 and any
communications to the Employees by Purchaser during the hiring process and the
manner Purchaser conducts the hiring process; or
14.2.5 the hiring of the Transferred Employees by Purchaser,
the Purchaser's employment practices post-Closing, including, but not limited to
hiring and firing of employees, the compensation, benefits, employment taxes,
and treatment of the Transferred Employees by Purchaser and any failure of
Purchaser to comply with all applicable laws in connection with its employees,
including, but not limited to, the Transferred Employees, provided that this
indemnification provision shall not apply to claims arising from or related in
any way to the Seller's conduct or omissions, including the Seller's
identification of the Seller's employees identified as eligible for employment
with Purchaser as identified on Schedule 6.1 and shall not include any claims or
obligations arising in connection with services performed for the Seller by
Transferred Employees on or prior to the Closing.
14.3 Indemnification Procedure.
14.3.1 Any Party seeking indemnification hereunder (the
"Indemnitee") shall notify the Party liable for such indemnification (the
"Indemnitor") in writing of any event, omission or occurrence which the
Indemnitee has determined has given or could give rise to Losses which are
indemnifiable hereunder (such written notice being hereinafter referred to as a
"Notice of Claim"). Any Notice of Claim shall be given promptly after the
Indemnitee becomes aware of such third party claim; provided, that the failure
of any Indemnitee to give notice as provided in this Section 14.3 shall not
relieve the Indemnitor of its obligations under this Section 14.3, except to the
extent that the Indemnitor is actually prejudiced by such failure to give
notice. A Notice of Claim shall specify in reasonable detail the nature and any
particulars of the event, omission or occurrence giving rise to a right of
indemnification. The Indemnitor shall satisfy its obligations hereunder, as the
case may be, within thirty (30) days of its receipt of a Notice of Claim;
provided, however, that so long as the Indemnitor is in good faith defending a
claim pursuant to Section 14.3.2 below, its obligation to indemnify the
Indemnitee with respect thereto shall be suspended.
14.3.2 Except as provided in Section 14.3.3 below, with
respect to any third party claim, demand, suit, action or proceeding that is the
subject of a Notice of Claim, the Indemnitor shall, in good faith and at its own
expense, defend, contest or otherwise protect against any such claim, demand,
suit, action or proceeding with legal counsel of its own selection. The
Indemnitee shall have the right, but not the obligation, to participate, at its
own expense, in the defense thereof through counsel of its own choice and shall
have the right, but not the obligation, to assert any and all cross claims or
counterclaims it may have. So long as the Indemnitor is defending in good faith
any such third party claim, demand, suit, action or proceeding, the Indemnitee
shall at all times cooperate, at its own expense, in all reasonable ways with,
make its relevant files and records available for inspection and copying by, and
make its employees available or otherwise render reasonable assistance to, the
Indemnitor. In the event that the Indemnitor fails to timely defend, contest or
otherwise protect against any such third party claim, demand, suit, action or
proceeding, the Indemnitee shall have the right, but not the obligation, to
defend, contest, assert crossclaims or counterclaims, or otherwise protect
against, the same and may make any compromise or settlement thereof and be
entitled to all amounts paid as a result of such third party claim, demand, suit
or action or any compromise or settlement thereof. Neither Seller nor Purchaser
shall make any compromise of asserted liability for which indemnification is or
may be sought pursuant to this Section 14.3.2 if such compromise includes the
payment of money or creates any obligation of the other Party hereto, unless
such other Party shall have given its prior written consent to such compromise.
14.3.3 Notwithstanding the above, with respect to any third
party claim, demand, suit, action or proceeding which is the subject of a Notice
of Claim and subject to indemnity under Section 14.1, Seller shall permit
Purchaser, at Purchaser's option, to defend, contest or otherwise protect
against any such claim, demand, suit, action or proceeding with legal counsel of
its own selection and at Seller's expense. Purchaser may exercise its option at
any time upon written notice to Seller. Seller shall reimburse Purchaser for its
actual reasonable costs and expenses, including legal fees and costs, in
connection with any such defense assumed by Purchaser (excluding the cost or
overhead relating to in-house counsel). Seller shall have the right, but not the
obligation, to participate, at its own expense, in the defense thereof through
counsel of its own choice and shall have the right, but not the obligation, to
assert any and all cross claims or counterclaims it may have. So long as the
Purchaser is defending in good faith any such third party claim, demand, suit,
action or proceeding, the Seller shall at all times reasonably cooperate, at its
own expense, in all reasonable ways with, make its relevant files and records
available for inspection and copying by, and make its employees available or
otherwise render reasonable assistance to, Purchaser. In the event that the
Purchaser fails to timely defend, contest or otherwise protect against any such
third party claim, demand, suit, action or proceeding, Seller shall have the
right, but not the obligation, to defend, contest, assert crossclaims or
counterclaims, or otherwise protect against, the same and may make any
compromise or settlement thereof and be entitled to all amounts paid as a result
of such third party claim, demand, suit or action or any compromise or
settlement thereof.
14.4 Survival and Limitations. The provisions of this Article 14 shall
survive the Closing. The warranties and representations of the Seller contained
in this Agreement or in any instrument delivered pursuant hereto will survive
the Closing and will remain in full force and effect thereafter for a period of
one year after the Closing and shall be effective with respect to any inaccuracy
therein or breach thereof, notice of which shall have been duly given within
such one year period, in accordance with Section 14.3 hereof. Anything to the
contrary contained herein notwithstanding, (i) Purchaser shall not assert any
claim against Seller for indemnification hereunder unless and until the amount
of such claim or claims shall exceed Two Hundred Thousand Dollars ($200,000)
calculated on a cumulative basis and not a per item basis; (ii) Purchaser shall
not be entitled to recover from Seller more than an aggregate of an amount equal
to twenty-five percent (25%) of the total Purchase Price with respect to all
claims for indemnity or damages whether such claims are brought under this
Article 14 or otherwise. The terms of the foregoing sentence shall not apply to
Seller's obligation to provide indemnification to Purchaser with respect to the
matters set forth in Section 3.2 (Non-Assumed Liabilities), Article 6 (Employees
and Employee Benefits), Section 4.5 (Title), Section 4.6 (Taxes), Section 4.10
(Environmental), and Section 4.11 (Employees and Benefit Plans) and any matter
to be performed by Sellers subsequent to the applicable Closing pursuant to this
Agreement or any document delivered by Sellers pursuant to Section 12.
14.5 Reduction for Insurance and Taxes. The amount (an "Indemnity
Payment") which an Indemnifying Party is required to pay on behalf of any
Indemnitee pursuant to this Article 14 shall be reduced by the amount of any
insurance proceeds actually received by or on behalf of the Indemnitee in
reduction of the related indemnifiable loss. An Indemnitee which shall have
received or on behalf of which there shall be paid an Indemnity Payment and
which shall subsequently receive, directly or indirectly, insurance proceeds in
respect of the related indemnifiable loss, shall pay to the Indemnifying Party
the amount of such insurance proceeds or, if lesser, the amount of the Indemnity
Payment.
14.6 Disclaimer of Consequential Damages. IN NO EVENT SHALL EITHER
PARTY BE RESPONSIBLE FOR ANY SPECIAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE
DAMAGES (INCLUDING, BUT NOT LIMITED TO, ANY LOST PROFITS), EVEN IF SUCH PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SAME AND REGARDLESS OF THE FORM OF THE
ACTION.
15. MISCELLANEOUS
15.1 Expenses. Except as specifically set forth elsewhere herein each
of the Parties hereto shall pay its own expenses and costs incurred or to be
incurred by it in negotiating, closing and carrying out this Agreement.
15.2 Notices. Any notice or communication given pursuant to this
Agreement by a Party hereto to the other Party shall be in writing and hand
delivered, or mailed by registered or certified mail, postage prepaid, return
receipt requested (notices so mailed shall be deemed given when mailed), or sent
via facsimile, with an original mailed as follows:
If to Purchaser: Honeywell International Inc. Engine Systems
111 South 34th Street
Phoenix, Arizona 85034
Attn: Vice President & General Counsel,
Engines & Systems
Fax No.: (602) 231-2104
If to Seller: EFTC Corporation
9351 Grant Street, Sixth Floor
Denver, Colorado 80829
Attn: President
Fax No: (303) 280-8358
With a copy to: Holme Roberts & Owen, LLP
1400 Lincoln, Suite 4100
Denver, CO 80203
Attn: Mashenka Lundberg
Fax No.: (303) 866-0200
15.4 Counterparts. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
15.5 Entire Agreement. This Agreement is the entire agreement between
the Parties hereto with respect to the subject matter hereof and supersedes all
prior communications, representations, agreements and understandings between the
Parties hereto, whether oral or written.
15.6 Construction. When the context so requires, references herein to
the singular number include the plural and vice versa and pronouns in the
masculine or neuter gender include the feminine. The headings contained in this
Agreement and the tables of contents, exhibits and schedules are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
15.7 Assignment. This Agreement may not be assigned without the prior
written consent of the other Party hereto, which consent shall not unreasonably
be withheld.
15.8 Amendment. This Agreement may be amended only by written
agreement duly executed by representatives of all Parties hereto.
15.9 Applicable Law. This Agreement shall be construed in accordance
with the laws of the State of Arizona, disregarding its conflicts of laws
principles which may require the application of the laws of another
jurisdiction. Each of the Parties hereby irrevocably submits to the jurisdiction
of any state or federal court sitting in Phoenix, Arizona in any action or
proceeding brought to enforce or otherwise arising out of or relating to this
Agreement and irrevocably waives to the fullest extent permitted by law any
objection which it may now or hereafter have to the laying of venue in any such
action or proceeding in any such forum in Phoenix, Arizona and hereby further
irrevocably waives any claim that any such forum is an inconvenient forum.
15.10 Failure to Close. If for any reason this Agreement is terminated
prior to Closing, each Party shall promptly upon the request of any other Party
return to such other Party all documents and other information (or notes made
therefrom), including all originals and all copies thereof, theretofore
delivered by or on behalf of such other Party. Purchaser shall in any case
comply with the terms of Section 13.6 hereof.
15.11 No Third Party Rights. This Agreement is not intended and shall
not be construed to create any rights in any parties other than Seller and
Purchaser and no other person shall assert nor have any rights as a third party
beneficiary hereunder.
15.12 Schedules and Exhibits. The Schedules and Exhibits attached
hereto are incorporated into this Agreement and shall be deemed a part hereof as
if set forth herein in full. References herein to "this Agreement" and the words
"herein," "hereof" and words of similar import refer to this Agreement
(including it Schedules and Exhibits) as an entirety. In the event of any
conflict between the provisions of this Agreement and any such Schedule or
Exhibit, the provisions of this Agreement shall control.
15.13 Waivers. Any waiver of rights hereunder must be set forth in
writing. A waiver of any breach or failure to enforce any of the terms or
conditions of this Agreement shall not in any way affect, limit or waive either
Party's rights at any time to enforce strict compliance thereafter with every
term or condition of this Agreement.
15.14 Severability. If and to the extent that any court of competent
jurisdiction holds any provisions (or any part thereof) of this Agreement to be
invalid or unenforceable, such holding shall in no way affect the validity of
the remainder of this Agreement.
15.15 [Intentionally left blank]
IN WITNESS WHEREOF, Seller and Purchaser have duly executed and delivered this
Agreement as of the day and year first above written.
"PURCHASER" HONEYWELL INTERNATIONAL INC.
ENGINES AND SYSTEMS
By: /s/
Title: Vice President and General Counsel
"SELLER" EFTC CORPORATION
By: /s/ Stuart W. Fuhlendorf
Title: Chief Financial Officer
<PAGE>
TABLE OF SCHEDULES
Schedule Content
- ----------------------------- --------------------------------------------------
1.1.1 Personal Property including Base Personal Property
Value (final and updated)
1.1.2 Inventory including Base Inventory Value (final
and updated)
1.1.3(a) Contracts
1.1.3(b) Purchase Orders
1.5 Honeywell Orders
4.4 Contracts in default
4.5 Liens
4.10 Environmental Disclosure Schedule
4.11.1 Employees and Benefit Plans
4.11.2 Employees and Benefit Plans Disclosure Schedule
6.1 Tucson Facility Employees
6.10.3(a) Non-Honeywell Product Line Employees at Tucson
Facility
6.10.3(b) EFTC Severance Payment Schedule
6.11(a) Transition Assistance Staff
<PAGE>
TABLE OF EXHIBITS
Exhibit Content
- ----------------------------- --------------------------------------------------
1.5(a) Assignment and Assumption Agreement
1.5(b) 1997 License Amendment
1.6 Release Agreement
7.1(a) Sublease Agreement
7.1(b) Written Consent of Lessor to Sublease Agreement
7.1(c) Lessor Non-disturbance Agreement
7.1(d) Lender Non-disturbance Agreement
7.2(a) Option to Purchase and Right of First Refusal
7.2(b) Memorandum of Agreement
7.3 Transition Services Agreement
12.1.2 Bill of Sale
12.1.3 Bank One Waiver of Collateral Assignment
12.1.4 Waiver by Purchaser (re: Sublease)
<PAGE>
EXECUTION VERSION
EFTC CORPORATION
$5,000,000
Subordinated Notes due March 31, 2000
---------------------
NOTE AGREEMENT
---------------------
Dated as of November 11, 1999
<PAGE>
TABLE OF CONTENTS
Page
1. THE NOTES............................................................1
1a. Authorization of Issue of Notes.............................1
1b. Interest on the Notes.......................................1
2. SALE AND PURCHASE OF NOTES...........................................1
3. CLOSING..............................................................1
3a. Closing, Closing Date.......................................1
4. CONDITIONS...........................................................2
4a. Representations and Warranties; Etc.........................2
4b. Proceedings.................................................2
5. PREPAYMENT OF THE NOTES..............................................2
5a. Optional and Mandatory Prepayments. ........................2
5b. Notice of Prepayment........................................3
5c. Surrender of Notes; Notations Thereon.......................3
5d. Prohibition on Purchase of the Notes........................3
6. AFFIRMATIVE COVENANTS................................................3
6a. Notices.....................................................3
6b. Inspection of Property......................................4
6c. Financial Records...........................................4
6d. Corporate Existence; Etc....................................4
6e. Payment of Taxes and Claims.................................4
7. MERGER, CONSOLIDATION, SALE OR TRANSFER OF ASSETS....................4
8. SUBORDINATION........................................................5
8a. Agreement That Notes Be Subordinate.........................5
8b. Limitation During Certain Defaults on Senior Indebtedness...6
8c. Priority of Senior Indebtedness.............................6
8d. Payment to Holders of Senior Indebtedness of Certain Amounts
Received by Holders of Notes................................6
8e. Notice of Specified Events; Reliance on Certificate of
Liquidating Agent...........................................7
8f. Obligation to Pay Not Impaired..............................7
8g. Limitation During Event of Default Hereunder................8
8h. Reliance by Senior Indebtedness on Subordination Provisions.8
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8i. Certain Payments and Credits Permitted.......................8
8j. Subordination Not to Be Prejudiced by Certain Acts...........8
8k. Limitation on Securing Notes.................................8
9. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................8
9a. Organization and Qualification...............................8
9b. Actions Pending; Compliance with Law.........................9
9c. Use of Proceeds..............................................9
9d. Insurance....................................................9
9e. Governmental Consent, Etc...................................10
9f. Holding Company Act and Investment Company Act Status.......10
9g. Taxes.......................................................10
9h. No Default; Conflicting Agreement or Charter Provisions.....10
9i. Financial Statements........................................10
9j. Offering of Securities......................................11
10. REPRESENTATIONS AND COVENANT OF THE PURCHASER........................11
10a. Acquisition for Investment..................................11
10b. ERISA.......................................................11
10c. Restriction on Sale, Other Disposition......................11
11. DEFAULT..............................................................12
11a. Events of Default; Acceleration.............................12
11b. Other Remedies..............................................14
12. DEFINITIONS..........................................................15
13. Miscellaneous........................................................17
13a. Home Office Payment.........................................17
13b. Expenses; Fees..............................................17
13c. Consent to Amendments.......................................17
13d. Registration, Transfer and Exchange of Notes................18
13e. Lost, Etc., Notes...........................................19
13f. Survival of Representations and Warranties; Entire Agreement19
13g. Disclosure to Other Persons.................................19
13h. Successors and Assigns......................................19
13i. Notices.....................................................20
13j. Descriptive Headings........................................20
13k. Governing Law...............................................20
13l. Counterparts................................................20
13m. Satisfaction Requirement....................................20
13n. Severability................................................20
<PAGE>
EXHIBIT A
[FORM OF NOTE].......................................................1
EXHIBIT B
[FORM OF CONFIDENTIALITY AGREEMENT]..................................1
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<PAGE>
EFTC Corporation
9351 Grant Street, Suite 600
Denver, CO 80229
As of November 11, 1999
To the Purchaser Accepting
This Agreement on the Signature
Page Hereof
Ladies and Gentlemen:
EFTC CORPORATION (the "Company"), a Colorado corporation, hereby agrees
with you as follows:
1. THE NOTES.
1a. Authorization of Issue of Notes. The Company has duly authorized an
issue of $5,000,000 aggregate principal amount of subordinated notes (the
"Notes"), in the forms of Exhibit A. Each such Note shall bear interest and be
payable as provided herein and therein. As used herein, the term "Notes" shall
include all notes originally issued pursuant to this Agreement and all notes
delivered in substitution or exchange for any of said notes pursuant to this
Agreement and, where applicable, shall include the singular number as well as
the plural. The term "Note" means one of the Notes.
1b. Interest on the Notes. Each Note shall bear interest at a
rate of ten percent (10%)per annum, and on any overdue payment, as specified in
Exhibit A.
2. SALE AND PURCHASE OF NOTES. Upon the terms and subject to the
conditions herein set forth, the Company will issue and sell to you and you will
purchase from the Company Notes in the aggregate principal amount of $
5,000,000, at a purchase price of 100% of such principal amount.
3. CLOSING.
3a. Closing, Closing Date. The closing of the sale of Notes to you
shall take place at the offices of Holme Roberts & Owen LLC, 1700 Lincoln
Street, Suite 4100, Denver, CO 80203 on November 11, 1999 or such later date as
shall be mutually agreeable to you and the Company. The date of the closing is
hereinafter referred to as the "Closing Date." At the closing, the Company will
deliver to you one or more Notes to be purchased by you, registered in your name
or in the name of your nominee, in any denominations (multiples of $1,000,000)
and in the aggregate principal amount to be purchased by you, all as you may
specify by timely notice to the Company (or in the absence of such notice, one
Note registered in your name), duly executed and dated the Closing
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<PAGE>
Date, against payment of the purchase price therefor with funds immediately
available to the Company at its account no. 126000106 at Bank One, Colorado,
N.A., Denver, CO, ABA No. 102001017. If at the closing the Company shall fail to
tender to you any of the Notes to be purchased by you as provided above in this
Section, or any of the conditions specified in Section 4 shall not have been
satisfied or waived by you by the fifth Business Day after the date intended for
the closing to occur, you shall, at your election, be relieved of all further
obligations under this Agreement, without thereby waiving any other rights you
may have by reason of such failure or such non-fulfillment.
4. CONDITIONS. Your obligations to purchase and pay for the
Notes at the closing hereunder are subject to the fulfillment to your
satisfaction, on or before the Closing Date, of the following conditions:
4a. Representations and Warranties; Etc. The representations and
warranties in Section 9 shall be true on and as of the Closing Date with the
same effect as though such representations and warranties had been made on the
Closing Date, except to the extent of changes caused by the transactions
contemplated hereby; the Company shall have performed all agreements on its part
required to be performed under this Agreement on or prior to the Closing Date;
no Default or Event of Default shall exist; and you shall have received an
Officer's Certificate, dated the Closing Date, to the effect specified in this
Section 4a.
4b. Proceedings. All corporate and other proceedings to be taken by the
Company in connection with the transactions contemplated hereby and all
documents incident thereto shall be reasonably satisfactory in substance and
form to you and your counsel, and you and your counsel shall have received all
such counterpart originals or certified or other copies of such documents as you
or they may reasonably request.
5. PREPAYMENT OF THE NOTES. The Notes may not be paid or prepaid
prior to their final maturity except as hereinafter provided.
5a. Optional and Mandatory Prepayments. (i) Upon notice given as
provided in Section 5b, the Company, at its option, may prepay the Notes as a
whole (or from time to time in part in integral multiples of $50,000), in each
case at the principal amount so to be prepaid, without premium or penalty,
together with interest accrued thereon to the date fixed for such prepayment. It
is understood that the Company intends to use a portion of the net proceeds of
any issuance and sale of equity securities to repay all or a portion of the
Notes. It is further understood that the Company's ability to make any such
prepayment may be limited or prohibited at any particular time by the terms of
the Company's then outstanding Senior Indebtedness.
(ii) Upon (x) the occurrence of a Change of Control or (y) the
incurrence by the Company of any indebtedness for borrowed money that is duly
created in accordance with the terms of a contemporaneous writing (other than
Senior Indebtedness or indebtedness contemplated hereby), then in each case upon
written request of the holders of 100% of the Notes at the time outstanding,
given not less than thirty (30) days prior to the date specified in such notice
as the prepayment date, the Company shall prepay the entire principal amount of
the Notes then outstanding (or, in the case
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<PAGE>
of clause (y), the net proceeds of the incurrence of such indebtedness, if
less); provided that the Company shall have no such obligation to so prepay the
Notes unless and until (a) the Company has legally available funds to make such
a prepayment, and (b) the Company is permitted to make such payment pursuant to
the terms of Section 8 hereof and all Senior Indebtedness at the time
outstanding.
(iii) In the event the principal amount of any such prepayment is less
than the outstanding principal amount all of the Notes at the time outstanding,
the Company will allocate the principal amount so to be prepaid among all
outstanding Notes in proportion to the respective unpaid principal amounts
thereof.
5b. Notice of Prepayment. The Company shall give written notice of each
prepayment of Notes pursuant to Section 5a to each holder of such Notes, which
notice shall be given not less than 20 days or more than 60 days prior to the
date fixed for such prepayment, shall specify the amount so to be prepaid and
the date fixed for such prepayment. Notice of prepayment having been so given,
the aggregate principal amount of the Notes so to be prepaid as specified in
such notice, together with interest accrued thereon to such date fixed for
prepayment, shall become due and payable on the specified prepayment date.
5c. Surrender of Notes; Notations Thereon. Subject to the provisions of
Section 13a, as a condition of prepayment of all or any part of the principal of
and interest on any Note, the Company may require the holder to present such
Note for notation of such payment and, if such Note is paid in full, require the
surrender thereof.
5d. Prohibition on Purchase of the Notes. The Company will not, and
will not permit any Affiliate (other than the Initial Purchaser) of the Company
to, acquire directly or indirectly by purchase or prepayment or otherwise any of
the outstanding Notes except (a) by way of payment or prepayment in accordance
with the provisions of the Notes and of this Agreement or (b) pursuant to an
offer to purchase made by the Company or any Affiliate of the Company to the
holders of all Notes, which offer shall require the Company or such Affiliate to
purchase on the same terms and conditions, pro rata among all Notes tendered,
and shall remain open for a period of at least 20 Business Days after notice has
been mailed to the holders of all Notes; provided that at the time of such offer
and purchase no Default or Event of Default shall exist and no waiver in respect
of any previous Default or Event of Default shall then be in effect. Any Notes
purchased by the Company or any such Affiliate in accordance with the preceding
sentence shall thereupon be canceled and no Notes shall be issued in
substitution therefor.
6. AFFIRMATIVE COVENANTS. The Company covenants and agrees that
so long as any Note shall be outstanding:
6a. Notices. The Company will deliver to each Significant Holder in
duplicate promptly after the Company becomes aware of the existence of a Default
or Event of Default, an Officer's Certificate specifying the nature and period
of existence of such Default or Event of Default and what action the Company has
taken, is taking or proposes to take with respect thereto.
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<PAGE>
6b. Inspection of Property. The Company will, upon reasonable notice
and subject to applicable law, permit any Person designated in writing by any
Significant Holder (without limitation of any other rights which such
Significant Holder may have as a creditor of the Company) to visit and inspect
at such Significant Holder's expense such of the offices and properties (and,
during the existence of an Event of Default, to examine all corporate books and
financial records) of the Company and its Subsidiaries as such Significant
Holder may reasonably request and to discuss the affairs, finances and accounts
of any thereof with the principal officers of the Company (and, during the
existence of an Event of Default, its independent public accountants), all at
such reasonable times and as often as such, Significant Holder may reasonably
request.
6c. Financial Records. The Company will, and will cause each of its
consolidated Subsidiaries to, maintain financial records (including, but not
limited to, journals and ledgers) so as to reflect accurately its financial
condition in all material respects in accordance with GAAP or, in the case of
any Subsidiary that is not organized under the laws of the United States of
America, any State thereof or the District of Columbia, in accordance with any
prescribed system of accounts applicable from time to time to such Person.
6d. Corporate Existence; Etc. Subject to Section 7, the Company will do
or cause to be done all things necessary to preserve and maintain its existence,
rights and privileges; provided, however, that the Company shall not be required
to preserve any such right or privilege 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 that the loss thereof is not
disadvantageous in any material respect to the holders of the Notes.
6e. Payment of Taxes and Claims. The Company will pay or discharge, or
cause to be paid or discharged before the same shall become delinquent, (i) all
taxes, assessments and governmental charges imposed upon the Company or any
Subsidiary or upon the income, profits or property of the Company or any
Subsidiary, and (ii) all lawful material claims for labor, materials and
supplies that, if unpaid, might by law become a lien upon the property of the
Company or any Subsidiary; provided that the Company shall not be required to
pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings.
7. MERGER, CONSOLIDATION, SALE OR TRANSFER OF ASSETS. The Company
covenants and agrees that so long as any Note shall be outstanding, the Company
will not consolidate with or merge into any other Person or convey, transfer or
lease its properties and assets substantially as an entirety to any Person
unless:
(i) the Person formed by such consolidation or into which the Company
is merged or the Person which acquires by conveyance or transfer, or which
leases, the properties and assets of the Company substantially as an entirety
shall either (a) expressly assume when due in writing, by documentation
satisfactory to the Required Holder(s), the due and punctual payment of the
principal of and interest on all the Notes and the performance or observance of
every covenant and obligation in this Agreement and the Notes on the part of the
Company to be performed or observed or (b)
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<PAGE>
cause a wholly owned Subsidiary of such Person to assume in writing, and such
Person shall unconditionally guarantee such Subsidiary's obligations in respect
of, in each case by documentation satisfactory to the Required Holder(s), the
due and punctual payment of the principal of and interest on all the Notes and
the performance or observance of every covenant and obligation in this Agreement
and the Notes on the part of the Company to be performed or observed;
(ii) immediately after giving effect to such transaction, no Default
or Event of Default shall exist;
(iii) the Company has delivered to each holder of a Note an Officer's
Certificate and an opinion of legal counsel, each stating that such
consolidation, merger, conveyance, transfer or lease complies with this Section
7 and that all conditions precedent herein provided for relating to such
transaction have been complied with; and
(iv) such merger or consolidation will not otherwise materially
adversely affect the ability of the Company (or any other obligator with respect
to the Notes) to perform its or their obligations under this Agreement or the
Notes.
The Company will give each holder of Notes written notice of any proposed
transaction permitted by this Section 7 not less than 30 days prior to the date
of consummation thereof. Upon any consolidation or merger of the Company into
any other Person or any conveyance, transfer or lease of the properties and
assets of the Company substantially as an entirety in accordance with the
provisions of this Section 7, the successor Person formed by such consolidation
or into which the Company is merged or to which such conveyance, transfer or
lease is made (or such wholly owned Subsidiary that assumes the Company's
obligations pursuant to this Section 7) shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under this Agreement
and the Notes with the same effect as if such successor Person or Subsidiary, as
the case may be, had been named as the Company herein, and thereafter, except in
the case of a lease to another Person, the predecessor Person shall be relieved
of all obligations and covenants under this Agreement and the Notes.
8. SUBORDINATION.
8a. Agreement That Notes Be Subordinate. The Company covenants and
agrees, and you, and each other holder of Notes issued hereunder by the
acceptance thereof likewise covenants and agrees, that all Notes shall be issued
subject to the provisions of this Section 8; and each Person holding any Note,
whether upon original issue or upon transfer or assignment thereof, accepts and
agrees to be bound by such provisions. All Notes shall, for all purposes and in
all respects without limitation, including those hereinafter in this Section 8
set forth, be subordinated and subject in right of payment to the prior payment
in full in cash or money's worth of the principal of and interest on all Senior
Indebtedness; provided, however, that payments on account of principal of and
interest on the Notes may be made from time to time, subject to the specific
limitations set forth in this Section 8.
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<PAGE>
8b. Limitation During Certain Defaults on Senior Indebtedness. If there
shall have occurred a default in the payment of the principal of or any premium
or interest on any Senior Indebtedness, or if there shall have occurred an event
of default with respect to any Senior Indebtedness permitting the holders
thereof to accelerate the maturity thereof, or if such payment would itself
constitute such an event of default, then, unless and until such default or
event of default shall have been cured or waived or shall have ceased to exist,
no payment shall be made by the Company on account of principal of or any
premium or interest on the Notes or on account of the purchase or other
acquisition of Notes.
8c. Priority of Senior Indebtedness. Upon any distribution of all or
substantially all of the assets of the Company, or upon any dissolution, winding
up or liquidation of the Company, whether voluntary or involuntary, or upon any
reorganization, readjustment, arrangement or similar proceeding relating to the
Company or its property, whether or not the Company is a party thereto, and
whether in bankruptcy, insolvency or receivership proceedings or otherwise, or
upon any assignment by the Company for the benefit of creditors, or upon any
other marshaling of the assets and liabilities of the Company:
(i) the principal of and any premium and interest on all the
Senior Indebtedness and any and all other amount dues thereunder shall
first be paid in full in cash or money's worth, or provisions made for
such payment, before any payment is made on account of the principal of
or interest on the Notes; and
(ii) any distribution of assets of the Company or payment by
or on behalf of the Company of any kind or character, whether in cash,
property or securities, to which the holders of the Notes would be
entitled except for the provisions of this Section 8, shall be paid or
delivered by the liquidating trustee or agent or other Person making
such distribution or payment, whether a trustee in bankruptcy,
receiver, assignee for benefit of creditors, liquidating trustee, or
otherwise, directly to the holders of Senior Indebtedness or their
representative or representatives or to the trustee or trustees under
any indenture pursuant to which any instruments evidencing any of such
Senior Indebtedness may have been issued, ratably according to the
aggregate amounts remaining unpaid on account of the Senior
Indebtedness held or represented by each, to the extent necessary to
make payment in full in cash or money's worth of the principal of and
any premium and interest on all Senior Indebtedness remaining unpaid,
after giving effect to any concurrent distribution or payment, or
provision therefor, to the holders of such Senior Indebtedness.
8d. Payment to Holders of Senior Indebtedness of Certain Amounts
Received by Holders of Notes. In the event that, notwithstanding the provisions
of Sections 8b and 8c, any distribution of assets of the Company or payment by
or on behalf of the Company of any kind or character, whether in cash, property
or securities, to which the holders of the Notes would be entitled but for the
provisions of this Section 8, shall be received by the holders of the Notes
before the principal of and any premium and interest on all Senior Indebtedness
is paid in full in cash or money's worth, or provision made for its payment,
such distribution or payment shall be held in trust
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<PAGE>
for the benefit of, and shall be paid over or delivered to, the holders of such
Senior Indebtedness or their representative or representatives, or to the
trustee or trustees under any indenture pursuant to which any instruments
evidencing any of such Senior Indebtedness may have been issued, ratably as
aforesaid, for application to the payment of all Senior Indebtedness remaining
unpaid to the extent necessary to pay the principal of and any premium and
interest on all such Senior Indebtedness in full in cash or money's worth, after
giving effect to any concurrent distribution or payment, or provision therefor,
to the holders of such Senior Indebtedness.
8e. Notice of Specified Events; Reliance on Certificate of Liquidating
Agent. (i) The Company shall give prompt written notice to the holders of the
Notes of any dissolution, winding up, liquidation, reorganization, readjustment,
arrangement or similar proceeding, assignment for the benefit of creditors, or
any marshaling of assets and liabilities, in respect of the Company, within the
meaning of Section 8c, and shall also give prompt written notice to the holders
of the Notes of any event which pursuant to Section 8b would prevent payment by
the Company on account of the principal of or interest on the Notes or on
account of the purchase of the Notes. The holders of the Notes shall be entitled
to assume that no such event has occurred unless the Company has given such
notice.
(ii) Upon any distribution of assets of the Company or payment by or on
behalf of the Company referred to in this Section 8, the holders of the Notes
shall be entitled to rely upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section 8c
are pending, and the holders of such Notes shall be entitled to rely upon a
certificate of the liquidating trustee or agent or other Person making any
distribution to the holders of such Notes for the purpose of ascertaining the
Persons entitled to participate in such distribution, the holders of the Senior
Indebtedness 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 8. In the event that any holder of
Notes determines, in good faith, that further evidence is required with respect
to the right of any Person as a holder of Senior Indebtedness to participate in
any payment or distribution pursuant to this Section 8, such holder of Notes may
request such Person to furnish evidence to the reasonable satisfaction of such
holder of Notes as to the amount of Senior Indebtedness held by such Person, as
to the extent to which such Person is entitled to participate in such payment or
distribution, and as to other facts pertinent to the rights of such Person under
this Section 8, and if such evidence is not furnished, such holder of Notes may
defer any payment to such Person pending judicial determination as to the right
of such Person to receive such payment.
8f. Obligation to Pay Not Impaired. Nothing contained in this Section 8
or elsewhere in this Agreement, or in the Notes, is intended to or shall alter
or impair, as between the Company, its creditors other than the holders of
Senior Indebtedness, and the holders of the Notes, the obligation of the
Company, which is absolute and unconditional, to pay to the holders of the Notes
the principal of and interest on the Notes at the time and place and at the rate
prescribed, or to affect the relative rights of the holders of the Notes and
creditors of the Company other than the holders of Senior Indebtedness, nor
shall anything herein or therein prevent the holder of any Notes from exercising
all remedies otherwise permitted by applicable law upon any Default or Event of
Default
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under this Agreement, subject to the rights, if any, under this Section 8 of the
holders of Senior Indebtedness in respect of cash, property or securities of the
Company received upon the exercise of any such remedy.
8g. Limitation During Event of Default Hereunder. Subject to Section
8b, if there shall have occurred any Event of Default specified in Section 11a,
other than of the nature referred to in Section 8c, then and unless and until
either such Event of Default shall have been cured or waived or shall have
ceased to exist or the principal of and interest on all Senior Indebtedness
shall have been paid in full in cash or money's worth, no payment shall be made
by the Company on account of the principal of or interest on, the Notes, or on
account of the purchase or other acquisition of Notes, except (i) payments at
the maturity of Notes (subject to Section 8c), (ii) current interest payments,
and (iii) payments for the purpose of curing any such Event of Default.
8h. Reliance by Senior Indebtedness on Subordination Provisions. Each
holder of any Note by the acceptance thereof acknowledges and agrees that the
subordination provisions set forth in this Section 8 are, and are intended to
be, an inducement and a consideration to each holder of any Senior Indebtedness,
whether such Senior Indebtedness was created or acquired before or after the
issuance of the Notes, to acquire and continue to hold, or to continue to hold,
such Senior Indebtedness and such holder of Senior Indebtedness shall be deemed
conclusively to have relied on such subordination provisions in acquiring and
continuing to hold such Senior Indebtedness.
8i. Certain Payments and Credits Permitted. Nothing contained in this
Section 8 or elsewhere in this Agreement, or in any of the Notes, shall prevent
(i) the Company from making payment of the principal of or interest on the
Notes, at any time except under the conditions described in Sections 8b, 8c and
8g or (ii) the application by the holder of any Notes of any moneys under this
Agreement to the payment of or on account of the principal of or interest on the
Notes at any time except under the conditions described in Section 8d.
8j. Subordination Not to Be Prejudiced by Certain Acts. No right of any
present or future holder of any Senior Indebtedness of the Company to enforce
subordination as herein provided shall at any time in any way be prejudiced or
impaired by any act or failure to act on the part of the Company or by any act
or failure to act, in good faith, by any such holder, or by any non- compliance
by the Company with the terms, provisions and covenants of this Agreement,
regardless of any knowledge thereof any such holder may have or be otherwise
charged with.
8k. Limitation on Securing Notes. The Company will not give, and the
holders of the Notes will not take or receive, any security interest for the
payment of the principal of or interest on the Notes, other than cash required
or permitted to be paid to such holders hereunder.
9. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants as hereinafter set forth.
9a. Organization and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Colorado, each of the Company's
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Subsidiaries is duly organized and existing in good standing under the laws of
the jurisdiction in which it is incorporated, and the Company and each such
Subsidiary has the corporate power to own its respective property and to carry
on its respective business as now being conducted, and the Company and each
Subsidiary is duly qualified as a foreign corporation to do business and in good
standing in every jurisdiction in which the nature of the respective business
conducted or property owned by it makes such qualification necessary and where
the failure so to qualify would have a material adverse effect on the business
or financial position of the Company or the Company and its Subsidiaries taken
as a whole. The Company and its Subsidiaries possess all rights, licenses and
permits reasonably required for the maintenance and operation of their
respective properties and the conduct of their respective businesses as now
being maintained and operated and conducted. The issuance and sale of the Notes
and the execution and delivery of this Agreement by the Company and compliance
by the Company with all of the provisions of this Agreement and the Notes (i)
are within the corporate powers and authority of the Company, (ii) do not
require the approval or consent of any stockholders of the Company and (iii)
have been authorized by all requisite corporate proceedings on the part of the
Company.
9b. Actions Pending; Compliance with Law. Other than as disclosed in
any documents filed by the Company with the Securities and Exchange Commission,
there is no action, suit, investigation or proceeding pending, or to the
knowledge of the Company threatened, against the Company or any of its
Subsidiaries or any of their respective properties or assets by or before any
court, arbitrator or governmental body, department, commission, board, bureau,
agency or instrumentality, which questions the validity of this Agreement or the
Notes or any action taken or to be taken pursuant hereto or thereto, or which,
in the opinion of senior management of the Company after consultation with
counsel, are reasonably likely to result in any material adverse change in the
business or financial condition of the Company and its Subsidiaries taken as a
whole. Neither the Company nor any of its Subsidiaries is in default in any
material respect with respect to any judgment, order, writ, injunction, decree,
or award, and, the business of the Company and its Subsidiaries is presently
being conducted so as to comply in all material respects with applicable
federal, state and local governmental laws and regulations, including without
limitation laws and regulations relating to environmental requirements (such as
requirements in respect of air, water and noise pollution) and to employment
practices (such as practices in respect of discrimination, health and safety),
all to the extent necessary to avoid any material adverse effect on the
business, properties or condition (financial or other) of the Company or the
Company and its Subsidiaries taken as a whole.
9c. Use of Proceeds. The Company will use the proceeds of the sale of
the Notes for general corporate purposes, including without limitation making
payments under the Senior Indebtedness.
9d. Insurance. The Company and its Subsidiaries maintain insurance in
such amounts, including self-insurance, retainage and deductible arrangements,
and of such a character as is usually maintained by or required for companies
engaged in the same or similar business.
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9e. Governmental Consent, Etc. The Company is not required to obtain
any consent, approval or authorization of, or to make any declaration or filing
with, any governmental authority as a condition to or in connection with the
execution, delivery or performance of this Agreement, the Notes or the valid
offer, issue, sale or delivery of the Notes or the performance by the Company of
its obligations in respect thereof.
9f. Holding Company Act and Investment Company Act Status. The Company
is not a "holding company" or a "public utility company" as such terms are
defined in the Public Utility Holding Company Act of 1935, as amended. The
Company is not an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
9g. Taxes. The Company and its Subsidiaries have filed or caused to be
filed all federal and state income tax returns which are required to be filed
and have paid or caused to be paid all taxes as shown on said returns and on all
assessments received by it to the extent that such taxes have become due, except
taxes (i) the validity or amount of which is being contested in good faith by
appropriate proceedings and with respect to which adequate reserves have been
set aside and (ii) which, in the aggregate, are in an amount that is not
material to the Company and its Subsidiaries taken as a whole. The Company and
its Subsidiaries have paid or caused to be paid, or have established reserves
adequate in all material respects, for all federal income tax liabilities and
state income tax liabilities applicable to the Company and its Subsidiaries for
all fiscal years which have not been examined and reported on by the taxing
authorities (or closed by applicable statutes).
9h. No Default; Conflicting Agreement or Charter Provisions. Neither
the Company nor any of its Subsidiaries is a party to any contract or agreement
or subject to any charter or other corporate restriction which materially and
adversely affects the business, property or assets or financial condition of the
Company and its Subsidiaries taken as a whole. Neither the issuance and sale of
the Notes nor fulfillment of nor compliance with the terms and provisions hereof
or of the Notes will conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, or result in any
violation of, the Certificate of Incorporation or by-laws of the Company or any
material mortgage, agreement, instrument, order, judgment, decree, statute, law,
rule or regulation to which the Company or its property is subject. The Company
is not in default under any outstanding indenture or other debt instrument or
with respect to the payment of principal of or interest on any outstanding
obligations for borrowed money, and there exists no default by the Company under
any material contracts or agreements, or under any instrument by which the
Company is bound, which would materially and adversely affect the Company's
ability to perform its obligations hereunder or under the Notes or which would
materially and adversely affect its business, operations or financial condition.
9i. Financial Statements. The Company has provided you copies of
consolidated balance sheets of the Company and its consolidated Subsidiaries as
of December 31, 1998 and the related consolidated statements of operations, cash
flows and changes in consolidated common stockholders' equity position of the
Company and such Subsidiaries for the fiscal years ended on said dates, all with
reports thereon of KPMG LLP, independent public accountants. The Company has
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also provided to you copies of a consolidated balance sheet of the Company and
its consolidated Subsidiaries as of June 30, 1999 and the related consolidated
statements of operations and cash flows for the fiscal quarter then ended. All
of such financial statements (including the related schedules and notes) fairly
present the consolidated financial position of the Company and such Subsidiaries
as of the respective dates of said balance sheets and the consolidated results
of their operations for the fiscal periods ended on said dates, and have been
prepared in accordance with GAAP consistently maintained by the Company and such
Subsidiaries throughout such periods, except as set forth in the notes thereto.
Except as disclosed to the Initial Purchaser, there are no material liabilities,
contingent or otherwise, of the Company or any such Subsidiary as of June 30,
1999 that are not reflected in said consolidated balance sheet (or the notes
thereto as required by GAAP) as of said date. Except as disclosed to the Initial
Purchaser, since June 30, 1999, there has been no change in the business,
financial condition, properties or prospects of the Company and its Subsidiaries
taken as a whole that could materially and adversely affect the Company's
ability to perform its obligations hereunder or under the Notes.
9j. Offering of Securities. Neither the Company nor any agent acting on
its behalf has offered the Notes or any similar securities of the Company for
sale to, or solicited any offers to buy the Notes or any similar securities of
the Company from, or otherwise approached or negotiated with respect thereof
with, any Person other than you, and the Company has offered the Notes to you
for purposes of investment and not for distribution. Neither the Company nor any
agent acting on its behalf has offered or will offer the Notes or any part
thereof or any similar securities for issue or sale to, or solicit any offer to
acquire any of the same from, anyone so as to bring the issuance and sale of the
Notes within the provisions of Section 5 of the Securities Act.
9k. Disclosure. None of this Agreement or any certificate or written
disclosure statement furnished to you on or prior to the Closing Date by or on
behalf of the Company in connection with the transactions contemplated hereby,
when taken together as a whole, contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
contained herein and therein, in light of the circumstances in which they were
made, not misleading.
10. REPRESENTATIONS AND COVENANT OF THE PURCHASER.
10a. Acquisition for Investment. You represent, and in making this sale
to you it is specifically understood and agreed, that you are not acquiring the
Notes to be purchased by you hereunder with a view to, or for sale in connection
with, any distribution of any part thereof within the meaning of the Securities
Act, and that you have no present intention or plan to effect any distribution
of any of the Notes.
10b.ERISA. You represent that your purchase of Notes hereunder is not
being made for or on behalf of any pension or welfare plan, as defined in
Section 3 of ERISA.
10c.Restriction on Sale, Other Disposition. You agree that, without
the prior consent of the Company, you will not, directly or indirectly, sell,
transfer, pledge, encumber or otherwise dispose of (a "Transfer") any Notes or
any interest therein. Without limiting the foregoing, any
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Permitted Transferee shall, by a written agreement reasonably satisfactory to
the Company, expressly assume your obligations, duties and covenants under this
Agreement as to the Notes so Transferred and make a representation to the
Company to the same or similar effect as is contained in Section 10b or provide
other information reasonably satisfactory to the Company to enable the Company
to determine that the Transfer of such Note to such Transferee will not
constitute a non- exempt prohibited transaction under Section 406 of ERISA.
11. DEFAULT.
11a. Events of Default; Acceleration. (i) "Event of Default", wherever
used herein with respect to Notes, means any one of the following events
(whatever the reason for such Event of Default and whether it shall be
occasioned by the provisions of Section 8 or be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body):
(A) default in the due and punctual payment of all or any part
of the principal on any Note (whether at the stated maturity or by
declaration of acceleration, by notice of prepayment at the option of
the Company or otherwise); or
(B) default in the due and punctual payment of any interest on
any Note and such default shall have continued for a period of 10 days;
or
(C) default in the performance or observance of any other
covenant of the Company in this Agreement and such default shall have
continued for a period of 30 days after the Company first becomes aware
thereof; or
(D) a default under any bond, debenture, note or other
evidence of indebtedness for money borrowed by the Company or any
Subsidiary or under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by the Company or a Subsidiary, whether
such indebtedness now exists or shall hereafter be created, which
default shall constitute a failure to pay an aggregate principal amount
of such indebtedness exceeding $1,000,000 when due and payable after
the expiration of any applicable grace period with respect thereto or
shall have resulted in such indebtedness becoming or being declared due
and payable prior to the date on which it would otherwise have become
due and payable in an aggregate principal amount exceeding $1,000,000,
without such indebtedness having been discharged, or such acceleration
having been rescinded or annulled, within a period of 10 days after the
occurrence thereof; or
(E) any representation or warranty of the Company in this
Agreement or in any certificate or other instrument delivered hereunder
or pursuant hereto shall prove to be false or incorrect in any material
respect on the date as of which it was made; or
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(F) the entry by a court having jurisdiction in the premises
of (1) a decree or order for relief in respect of the Company or a
Subsidiary in an involuntary case or proceeding under any applicable
United States federal or state bankruptcy, insolvency, reorganization
or other similar law of any applicable jurisdiction or (2) a decree or
order adjudging the Company or a Subsidiary a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company
under any applicable United States federal or state law or the
applicable law of any other jurisdiction or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar
official of the Company or a Subsidiary or of any substantial part of
its property, or ordering the winding up or liquidation of its affairs,
and the continuance of any such decree or order for relief or any such
other decree or order unstayed and in effect for a period of 60
consecutive days; or
(G) the commencement by the Company or any Subsidiary of a
voluntary case or proceeding under any applicable United States federal
or state bankruptcy, insolvency, reorganization or other similar law of
any applicable jurisdiction or of any other case or proceeding to be
adjudicated a bankrupt or insolvent, or the consent by it to the entry
of a decree or order for relief in respect of the Company or any
Subsidiary in an involuntary case or proceeding under any applicable
United States federal or state bankruptcy, insolvency, reorganization
or other similar law of any applicable jurisdiction or to the
commencement of any bankruptcy or insolvency case or proceeding against
it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under any applicable United States Federal or
state law or the applicable law of any other jurisdiction, or the
consent of the Company or a Subsidiary to the filing of such petition
or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official
of the Company or any Subsidiary or of any substantial part of its
property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay
its debts generally as they become due, or the taking of corporate
action by the Company or a Principal Subsidiary in furtherance of any
such action;
then (x) upon the occurrence of any Event of Default described in the foregoing
clauses (F) or (G) with respect to the Company or a Subsidiary the unpaid
principal amount of all Notes, together with the interest accrued thereon, shall
automatically become immediately due and payable, without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived by the Company, or (y) upon the occurrence of any other Event of Default,
the holder or holders of at least 25% of the outstanding principal amount of the
Notes may, by written notice to the Company, declare the unpaid principal amount
of all Notes to be, and the same shall forthwith become, due and payable,
together with the interest accrued thereon, all without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived; provided that, during the existence of an Event of Default described in
the foregoing clause (A) or clause (B) with respect to any Note, the holder of
such Note may, by written notice to the Company
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declare such Note to be, and the same shall forthwith become, due and payable,
together with the interest accrued thereon, all without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived. If any holder of any Note shall exercise the option specified in the
proviso to the preceding sentence, the Company will forthwith give written
notice thereof to the holders of all other outstanding Notes and each such
holder may (whether or not such notice is given or received), by written notice
to the Company, declare the principal of all Notes held by it to be, and the
same shall forthwith become, due and payable, together with the interest accrued
thereon.
(ii) The provisions of this Section 11a are subject, however, to the
condition that if, at any time after any Note shall have so become due and
payable, the Company shall pay all arrears of interest on the Notes and all
payments on account of the principal of the Notes which shall have become due
otherwise than by acceleration (with interest on such principal and, to the
extent permitted by law, on overdue payments of interest, at the rate specified
in the Notes) and all Events of Default (other than nonpayment of principal of
and accrued interest on Notes due and payable solely by virtue of acceleration)
shall be remedied or waived pursuant to Section 13c, then, and in every such
case, the holder or holders of at least a majority of the outstanding principal
amount of the Notes, by written notice to the Company, may rescind and annul any
such acceleration and its consequences, but no such action shall affect any
subsequent Default or Event of Default or impair any right consequent thereon.
11b. Other Remedies. (i) If any Event of Default shall exist, subject
to the provisions of Section 8, the holder of any Note may proceed to protect
and enforce its rights, either by suit in equity or by action at law, or both,
whether for the specific performance of any covenant or obligation contained in
this Agreement or in the Notes or in aid of the exercise of any power granted in
this Agreement, or the holder of any Note may proceed to enforce the payment of
all sums due upon such Note or to enforce any other legal or equitable right of
the holder of such Note.
(ii) The Company covenants that, if it shall default in the making of
any payment due under any Note or in the performance or observance of any
covenant or obligation contained in this Agreement or in the Notes, it will pay
to the holder thereof such further amounts, to the extent lawful, as shall be
sufficient to pay the costs and expenses of collection or of otherwise enforcing
such holder's rights, including reasonable legal or other professional fees.
(iii) No remedy herein conferred upon you or the holder of any Note is
intended to be exclusive of any other remedy each and every such remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute or otherwise.
(iv) No course of dealing between the Company and you or any other
holder of a Note, and no delay or failure in exercising any rights hereunder or
under any Note, shall operate as a waiver of any rights you or any such holder
of a Note may have.
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12. DEFINITIONS. For the purpose of this Agreement the following terms
shall have the meanings specified with respect thereto below:
"Affiliate" means, with respect to a specified Person, any other Person
that controls, is controlled by, or is under common control with such specified
Person. For the purposes of this definition, the term "control" (including, with
correlative meanings, the terms "controlling," "controlled by" or "under common
control with") means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
"Business Day" means any day other than a Saturday, Sunday, or a day on
which banking institutions in the State of Colorado are authorized or obligated
by law or executive order to close.
"Change of Control" means any occurrence or event pursuant to which any
Person or group of Persons (within the meaning of Section 13(d) of the Exchange
Act) shall obtain ownership or control in one or more series of transactions of
more than fifty percent (50%) of the common stock of the Company or fifty
percent (50%) of the voting power of the Company entitled to vote on the
election of members of the board of directors of the Company.
"Closing Date" shall have the meaning specified in Section 3a.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" shall have the meaning specified in the introduction to this
Agreement.
"Default" means any event which, with notice or the lapse of time or
both, would constitute an Event of Default.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
the same may be amended from time to time.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"GAAP" means generally accepted accounting principles as in effect in
the United States at the time of application to the provisions thereof.
Initial Purchaser means the initial purchaser of the Notes accepting
this Agreement on the signature page hereof.
"Interest Payment Date" means each January 1, April 1, July 1 and
October 1 of each year, beginning on January 1, 2000.
"Notes" shall have the meaning specified in Section 1a.
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"Officer's Certificate" means a certificate signed by the Chairman of
the Board, a Vice Chairman of the Board, if any, the Chief Executive Officer,
the Chief Financial Officer, the President, the Controller or a Vice President
of the Company or any officers of the Company performing the same duties from
time to time.
"Permitted Transferee" means a Person to whom Notes are permitted to be
Transferred pursuant to Section 10c.
"Person" means and include an individual, a partnership, a limited
liability company, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
"Required Holder(s)" means the holder or holders of at least 51% of the
outstanding principal amount of the Notes at the time.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means (i) the Credit Agreement among the Company,
the Banks party thereto and Bank One, Colorado, N.A., as Agent, dated as of
September 30, 1997, as amended by the Restated and Amended Credit Agreement
dated as of March 12, 1999, and any extensions or renewals, and any substitute,
refinancing or replacements thereof, (ii) all other indebtedness of the Company
for borrowed money that is duly created in accordance with the terms of a
contemporaneous writing expressly providing for such indebtedness to be senior
in right of payment to the Notes, and (iii) all debts, liabilities, obligations,
covenants and duties of the Company arising under either of the foregoing.
"Significant Holder" means (i) you, so long as you shall hold (or be
committed under this Agreement to purchase) any Notes, (ii) any Affiliate of
yours, or (iii) any other holder of at least 25% of the outstanding principal
amount of the Notes from time to time.
"Subsidiary" means (i) any Person of which or in which the Company
and/or its other Subsidiaries own directly or indirectly more than 50% of (a)
all classes of Voting Stock of such Person, if it is a corporation, (b) the
capital interest or profits interest of such Person, if it is a partnership,
limited liability company, joint venture of similar entity or (c) the beneficial
interest of such Person, if it is a trust, association or other unincorporated
organization; provided that, in the case of each Person specified in the
foregoing clauses (a) through (c), such Person is accounted for as a
consolidated Subsidiary on the balance sheet of the Company in accordance with
GAAP, and (ii) any other Person that is accounted for as a consolidated
subsidiary of the Company in accordance with GAAP. Except as otherwise expressly
indicated herein, references to Subsidiaries shall refer to Subsidiaries of the
Company.
"Transfer" shall have the meaning specified in Section 10c.
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"Voting Stock" means, with respect to a corporation, all classes of
capital stock of such corporation that have voting power under ordinary
circumstances to elect the directors of such corporation, whether at all times
or only so long as no senior class of capital stock of such corporation has such
voting power as the result of the occurrence of any contingency; and without
limiting the foregoing, any such class of capital stock which is redeemable or
which has a preference upon redemption or upon payment of dividends over any
other class of capital stock of such corporation shall not, irrespective of
voting power, be deemed to be Voting Stock.
13. Miscellaneous.
13a. Home Office Payment. The Company agrees that, as long as you shall
hold any Notes, all payments to be made on, or in connection with the payment or
prepayment of, such Notes will be made at such place and in such manner you may
designate in writing, without any requirement for the presentation or surrender
of such Notes. You agree that (i) prior to any delivery upon the sale or other
disposition of any Note held by you, you will promptly make or cause to be made
a notation on such Note of any such payment on account thereof, (ii) if such
Note shall be paid in full you will promptly surrender such Note to the Company
for cancellation, and (iii) prior to any delivery upon the sale or other
disposition of any Note held by you, you will surrender such Note to the Company
in exchange for a new Note or Notes in the same aggregate principal amount being
sold or disposed of and the aggregate unpaid principal amount of Notes to be
held by you after such sale or disposition. The Company agrees to afford the
benefits of this Section 13a to any Permitted Transferee which shall have made
the same agreement as you have made in this Section 13a.
13b. Expenses; Fees. The Company agrees to be responsible for and to
pay your and the Company's respective costs, fees and expenses incurred in
connection with the negotiation, execution and delivery of this Agreement and
the Notes. The Company also agrees to pay all fees of the Initial Purchaser as
agreed separately in writing between the Company and the Initial Purchaser.
13c. Consent to Amendments. (i) This Agreement may be amended only with
the consent of the Company, and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company shall have obtained the consent to such amendment or waiver
with respect to such action or omission to act, by one or more substantially
concurrent written instruments signed by the Required Holder(s); provided,
however, that
(A) no such amendment or waiver shall
(1) change the rate or extend the time of payment of
interest on any of the Notes, without the consent of the
holder of each Note so affected, or
(2) modify any of the provisions of this Agreement or
of the Notes with respect to the payment or prepayment
thereof, or reduce the percentage of the principal amount of
the Notes the holders of
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which are required to approve any such amendment or effectuate
any such waiver, without the consent of the holders of all the
Notes then outstanding, and
(B) no such waiver shall extend to or affect any obligation
not expressly waived or impair any right consequent thereon.
(ii) Any amendment or waiver pursuant to clause (i) above shall apply
equally to all the holders of the Notes and shall be binding upon them, upon
each future holder of any Note and upon the Company, in each case whether or not
a notation thereof shall have been placed on any Note.
(iii) the Company will not solicit, request or negotiate for or with
respect to any proposed waiver or amendment of any of the provisions of this
Agreement or the Notes unless each holder of a Note (regardless of the principal
amount of Notes then held by it) shall be informed thereof by the Company and
shall be afforded the opportunity of considering the same and shall be supplied
by the Company with sufficient information to enable it to make an informed
decision with respect thereto. The Company will not, directly or indirectly, pay
or cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, to any holder of a Note as consideration
for or as an inducement to the entering into by such holder of any such
amendment or waiver unless such remuneration is concurrently paid, on the same
terms, ratably to the holders of all of the Notes then outstanding. The Company
shall promptly send copies of any amendment, waiver (and any request for any
such amendment, consent or waiver) relating to this Agreement to you and, to the
extent practicable, shall consult with you in connection with each such
amendment, consent and waiver.
(iv) For the purpose of determining whether the holders of the
requisite outstanding principal amount of Notes have taken any action or given
any consent or approval under this Agreement, any Notes held by the Company or
any of its Affiliates (other than the Initial Purchaser) shall not be deemed
outstanding.
13d. Registration, Transfer and Exchange of Notes. The Company will
keep at its principal executive office a note register in which, subject to such
reasonable regulations as it may prescribe, but at its expense (other than
transfer taxes, if any), it will provide for the registration and transfer of
Notes.
The holder of any Note may, at such holder's option, surrender the same
for transfer or exchange at said office, or at the place of payment named in
such Note, accompanied in the case of a transfer by a written instrument of
transfer duly executed by the holder thereof or by such holder's attorney duly
authorized in writing. In case any holder shall so request transfer or exchange
of any Note, the Company at its expense (other than transfer taxes, if any, or
similar governmental charges) will deliver in exchange therefor one or more new
Notes (in minimum denominations of $1,000,000, except to evidence the entire
unpaid principal amount of the Note so surrendered), as requested by such
holder, in the same aggregate principal amount as the Note so surrendered, each
dated the later of the date of, or the date to which interest has been paid on,
the Note so surrendered.
-18-
<PAGE>
The Company and any agent of the Company may treat the Person in whose
name any Note is registered as the owner of such Note for the purpose of
receiving payment of the principal of and interest on, such Note and for all
other purposes whatsoever, whether or not such Note be overdue, and prior to due
presentment for registration of transfer, the Company shall not be affected by
notice to the contrary. If any Note shall have been transferred to another
holder pursuant to this Section and such holder shall have designated in writing
the address to which communications with respect to such Note shall be mailed,
all notices, certificates, requests, statements and other documents required or
permitted to be delivered to any holder of a Note by any provision hereof shall
be delivered to such holder.
13e. Lost, Etc., Notes. Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
any Note, and (in case of loss, theft or destruction) of indemnity satisfactory
to it, or (in the case of mutilation) upon surrender and cancellation of such
Note, the Company will make and deliver in lieu of such Note a new Note of like
tenor and for the same unpaid principal amount, dated the later of the date of,
or the date to which interest has been paid on, the Note in lieu of which such
new Note is made and delivered.
13f. Survival of Representations and Warranties; Entire Agreement. All
representations and warranties contained herein or made in writing by the
Company in connection herewith shall survive the execution and delivery of this
Agreement, the sale and purchase of the Notes. Subject to the preceding
sentence, this Agreement embodies the entire agreement and understanding between
you and the Company and supersedes all prior agreements and understandings
relating to the subject matter hereof.
13g. Disclosure to Other Persons. The Company acknowledges that the
holder of any Notes may deliver copies of any financial statements and other
documents delivered to such holder, and disclose any other information disclosed
to such holder, by or on behalf of the Company or any Subsidiary of the Company
in connection with or pursuant to this Agreement to (i) such holder's directors,
officers, employees, agents and professional consultants (who shall be made
aware of the requirements of this Section 13g and the need to comply herewith),
(ii) any federal or state regulatory authority having jurisdiction over such
holder, (iii) any Person expressly identified in a prior written consent of the
Company or (iv) any other Person to whom such delivery or disclosure may be
necessary or appropriate (a) in compliance with any law, rule, regulation or
order applicable to such holder or (b) in response to any subpoena or other
legal process; provided that you agree not to disclose to any Person specified
in clause (iii) above any information delivered to you pursuant to Section 6a or
any other provisions of this Agreement that the Company has conspicuously
identified as non-public, confidential or proprietary in nature and subject to
the provisions hereof unless such Person shall have executed and delivered to
the Company an agreement substantially in the form of Exhibit B hereto.
13h. Successors and Assigns. All covenants and agreements in this
Agreement contained by or on behalf of either of the parties hereto shall bind
and inure to the benefit of the Company's successors and assigns and your
successors and assigns, including any Permitted Transferees.
-19-
<PAGE>
13i. Notices. All communications provided for hereunder shall be sent
by facsimile transmission, with written confirmation of receipt, or a
nationwide overnight delivery service, with receipt of delivery requested, and
(i) if to you, addressed to you at the address set forth by you for such
communications on the signature page hereof, or to such other address as you may
have designated to the Company in writing, (ii) if to any other holder of the
Notes, addressed to such holder at the address of such holder in the note
register of the Company, and (iii) if to the Company, addressed to it at, EFTC
Corporation 9351 Grant Street, Suite 600, Denver, CO 80229, Attention: Chief
Financial Officer (Tel: (303) 451-8200; Fax: (303) 451-8210), with a copy to the
attention of Francis R. Wheeler, Esq. at Holme Roberts & Owen LLC, Suite 4100,
1700 Lincoln Street, Denver, CO 80203 (tel: (303) 861-7000; Fax: (303)
866-0200), or to such other address or addresses as the Company may have
designated in writing to you and each other holder of any of the Notes at the
time outstanding.
13j. Descriptive Headings. The descriptive headings of the several
Sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
13k. Governing Law. This Agreement and the Notes shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the laws of the State of Colorado (without regard to conflicts of laws
provisions thereof).
13l. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
13m. Satisfaction Requirement. If any agreement, certificate or other
writing, or any action taken or to be taken, or any other thing, is by the terms
of this Agreement required to be
-20-
<PAGE>
satisfactory to you or to the Required Holder(s), the determination of such
satisfaction shall be made by you or the Required Holder(s), as the case may be,
in the sole and exclusive judgment (exercised in good faith) of the Person or
Persons making such determination.
13n. Severability. In case any one or more of the provisions contained
in this Agreement or in any instrument contemplated hereby, or any application
thereof, shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and therein, and any other application thereof, shall not in any way be
affected or impaired thereby.
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
undersigned, whereupon this letter shall become a binding agreement between you
and the undersigned.
Very truly yours,
EFTC CORPORATION
By
Name:
Title:
The foregoing Agreement is hereby accepted and agreed as of the date first above
written:
- -------------------------------
Monfort Family Limited Partnership I
Address: 3519 Holman Court, Greeley, CO 80631
Telephone: (970) 351-6442
Fax Number: (970) 351-6441
-21-
<PAGE>
EXHIBIT A
[FORM OF NOTE]
EFTC CORPORATION
Subordinated Note due 2000
No. ________ Denver, Colorado
$__________ ____________, 1999
EFTC CORPORATION, a Colorado corporation (the "Company"), for value
received, hereby promises to pay to or registered assigns, the principal sum of
DOLLARS (or so much thereof as shall have not been prepaid) on March 31, 2000
and to pay interest (computed on the basis of a 365-day year (or a 366-day year,
in a leap year)) on the unpaid principal hereof from the date hereof at a rate
of ten percent (10%) per annum (the "Applicable Interest Rate"), payable in
arrears on each Interest Payment Date (unless any such Interest Payment Date is
a Saturday, a Sunday or a day on which banking institutions in Denver, Colorado,
or New York, New York are authorized or obligated by law or executive order to
close (an "Excluded Day"), in which case the interest payment due on such
Interest Payment Date will be made the next day thereafter that is not an
Excluded Day), until such principal sum shall have become due and payable
(whether at maturity, upon acceleration, upon notice of prepayment or otherwise)
and to pay on demand interest (so computed) on any overdue principal and, to the
extent permitted by applicable law, on any overdue interest, from the due date
thereof at a rate per annum equal to the greater of (i) 2% over the Applicable
Interest Rate for this Note from time to time in effect pursuant to the Note
Agreement and (ii) 2% above the prime commercial lending rate of interest
announced from time to time by Bank One, Colorado, N.A. at its principal office
in Denver, Colorado (or, if said bank shall no longer be in existence, by the
domestic commercial bank which at the time has the largest capital and surplus
of all domestic commercial banks), until the obligation of the Company with
respect to the payment thereof shall be discharged. Payments of principal and
interest shall be made in lawful money of the United States of America upon the
presentation hereof (subject to the provisions of Section 13a of the Note
Agreement with respect to payments to certain holders) at said principal office
of the Company.
This Note is one of the Subordinated Notes due March 31, 2000 of the
Company issued pursuant to the Note Agreement dated as of November 11, 1999 (as
at any time amended, the "Note Agreement") entered into by the Company with the
initial purchaser, and the duly registered holder of this Note is entitled to
the benefits thereof. Capitalized terms used herein without definition have the
meanings ascribed thereto in the Note Agreement.
A-1
<PAGE>
The Company may at its election prepay this Note, in whole or in part,
and the maturity hereof may be accelerated following an Event of Default and
certain other stated events, all as provided in the Note Agreement, to which
reference is made for the terms and conditions of such provisions as to
prepayment and acceleration.
Upon surrender of this Note for registration of transfer or exchange,
duly endorsed or accompanied by a written instrument of transfer duly executed
by the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note of the same series and for a like principal amount will be
issued to, and, at the option of the holder, registered in the name of, the
transferee. The Company and any agent of the Company may deem and treat the
Person in-whose name this Note is registered as the owner hereof for the purpose
of receiving payments of the principal hereof and interest hereon and for all
other purposes whatsoever whether or not this Note is overdue, and the Company
shall not be affected by any notice to the contrary.
Payments of principal and interest in respect of this Note are
subordinate, to the extent and upon the terms set forth in the Note Agreement,
to all payments on or in respect of "Senior Indebtedness". The holder of this
Note, by acceptance hereof, is deemed to accept the terms and conditions of said
Note Agreement providing for such subordination.
As provided in the Note Agreement, this Note shall be governed by and
construed in accordance with the laws of the State of Colorado.
EFTC CORPORATION
By: /s/ Jack Calderon
Name: Jack Calderon
Title: Chief Executive Officer
A-2
<PAGE>
EXHIBIT B
[FORM OF CONFIDENTIALITY AGREEMENT]
[Date]
EFTC Corporation
9351 Grant Street, Suite 600
Denver, CO 80229
Ladies and Gentlemen:
In connection with the Note Agreement, dated as of November 11, 1999 (the
"Agreement"), between EFTC Corporation (the "Company") and the initial purchaser
of the notes specified therein, the Company may furnish us with certain
information that is non-public, confidential or proprietary in nature.
As used herein, "Confidential Information" means information about the Company
furnished to us by the Company (or by a holder of Notes issued under the
Agreement who received such information as provided in the Agreement) pursuant
to Section 6a thereof (or any other information delivered to us pursuant to the
Agreement) if the Company or such holder has conspicuously identified such
information as non-public, confidential or proprietary in nature and subject to
the provisions of the Agreements or this letter, but does not include
information (i) which was publicly known, or otherwise known to me, at the time
of disclosure, (ii) which subsequently becomes publicly known through no act or
omission by me or (iii) which otherwise becomes known to me, other than through
disclosure by the Company.
I agree that I will (1) hold in confidence the Confidential Information and (2)
not disclose or permit disclosure of the Confidential Information, except as
permitted in Section 13g of the Agreement, a copy of which is attached hereto as
Annex I. Notwithstanding the foregoing, I will be free, after notice to the
Company, to correct any false or misleading information which may become public
concerning our relationship to the Company.
Please confirm your agreement with the foregoing by signing and returning to me
the enclosed copy of this letter.
Very truly yours,
By
Name:
Title:
Accepted and agreed to:
EFTC CORPORATION
By
Name:
Title:
B-1
<PAGE>
B-2
<PAGE>
ANNEX I
To Confidentiality Agreement
13g. Disclosure to Other Persons. The Company acknowledges that the
holder of any Notes may deliver copies of any financial statements and other
documents delivered to such holder, and disclose any other information disclosed
to such holder, by or on behalf of the Company or any Subsidiary of the Company
in connection with or pursuant to this Agreement to (i) such holder's directors,
officers, employees, agents and professional consultants (who shall be made
aware of the requirements of this Section 13g and the need to comply herewith),
(ii) any federal or state regulatory authority having jurisdiction over such
holder, (iii) any Person expressly identified in a prior written consent of the
Company or (iv) any other Person to whom such delivery or disclosure may be
necessary or appropriate (a) in compliance with any law, rule, regulation or
order applicable to such holder or (b) in response to any subpoena or other
legal process; provided that you agree not to disclose to any Person specified
in clause (iii) above any information delivered to you pursuant to Section 6a or
any other provisions of this Agreement that the Company has conspicuously
identified as non-public, confidential or proprietary in nature and subject to
the provisions hereof unless such Person shall have executed and delivered to
the Company an agreement substantially in the form of Exhibit B hereto.
B-3
<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:
FIRST AMENDMENT TO
NOTE AGREEMENT
THIS FIRST AMENDMENT TO NOTE AGREEMENT ("Amendment"), dated to be
effective as of December 30, 1999, is made by and among EFTC CORPORATION, a
Colorado corporation (the "Borrower"), and MONFORT FAMILY LIMITED PARTNERSHIP I
("Monfort").
RECITALS
A. The Borrower entered into that certain Note Agreement dated as
of November 11, 1999, by and among the Borrower and Monfort (the "Note
Agreement").
B. The Borrower and Monfort desire to amend the Note Agreement as
more particularly described in this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrower and Monfort hereby
agree as follows:
AGREEMENT
1. The Note Agreement is hereby amended as follows:
(a) The phrase "Subordinated Notes due March 31, 2000" on the
cover page of the Note Agreement is hereby deleted and replaced with the
phrase"Subordinated Notes due April 30, 2000."
(b) Exhibit A to the Note Agreement is hereby amended by
deleting the phrase "March 31, 2000" from the fourth line of the first paragraph
thereof and from the first line of the second paragraph thereof and by
substituting in both places the phrase "April 30, 2000."
2. Except as amended hereby, the Note Agreement shall remain as
originally stated and in full force and effect. The Borrower and Monfort hereby
confirm and ratify each of the provisions of the Note Agreement as amended
hereby. Upon surrender to the Borrower of the Note issued by Borrower in favor
of Monfort on November 11, 1999 in connection with the Note Agreement, Borrower
will issue in favor of Monfort a replacement Note in the form of Exhibit A to
the Note Agreement (as amended hereby).
3. This Amendment shall be governed by, and construed in accordance
with, the laws of the State of Colorado.
1
<PAGE>
4. This Amendment shall inure to the benefit of and shall be
binding upon the successors and assigns of the parties hereto.
5. This Amendment may be executed in one or more counterparts, each
of which shall be deemed an original, and all of which together shall constitute
one and the same instrument.
Executed and delivered as of the date first set forth above.
BORROWER:
EFTC CORPORATION,
a Colorado corporation
By: /s/ Jack Calderon
Name: Jack Calderon
Title:Chief Executive Officer
MONFORT:
MONFORT FAMILY LIMITED PARTNERSHIP I,
By: /s/ Richard L. Monfort
Name: __________________________________
Title:__________________________________
2
<PAGE>
Exhibit 10.15
Management Bonus Plan
EFTC Corporation (the "Company") has established a Management Bonus
Plan. The Compensation Committee of the Board of Directors (the "Committee") of
the Company has established that, for 1999, in accordance with the Company's
executive compensation policies, a bonus plan based on achieving certain
performance levels will provide an incentive to executives to enhance the
financial performance of the Company. The 1998 Bonus Plan provided for the
President of Manufacturing, the Senior Vice President of Sales, the Chief
Executive Officer, the Chief Financial Officer, the Chief Administrative Officer
and the Chief Information Officer with the opportunity to receive cash bonuses
if the Company achieves certain performance levels as determined by the
Committee.
<PAGE>
MASTER AGREEMENT REGARDING
ASSET PURCHASE AND RELATED TRANSACTIONS
BY AND BETWEEN
HONEYWELL INC.
AND
EFTC CORPORATION, A COLORADO CORPORATION
<PAGE>
THIS ASSET PURCHASE AGREEMENT (the "Agreement") dated to be effective
as of March 19 1999 is entered into by and between Honeywell Inc., a Delaware
corporation with a place of business at 5353 West Bell Road, Glendale, Arizona
(hereafter "Seller") and EFTC Corporation, a Colorado corporation (hereafter
"Purchaser"), with reference to the following facts:
RECITALS
A. Seller manufactures circuit card assemblies for use in avionics and aerospace
equipment produced by Seller at its facility located at 5353 West Bell Road,
Glendale, Arizona (hereinafter the "Business").
B. Purchaser has unique capabilities in the mass production of circuit card
assemblies.
C. Seller desires to sell and Purchaser desires to purchase certain assets of
Seller used primarily in the Business, and Seller desires to assign and
Purchaser desires to assume certain liabilities relating to the Business, as
described herein such that Purchaser may assume the operations of the Business.
D. The Parties agree that the nature of the transaction contemplated by this
Agreement will require the Parties to develop a long term and tightly integrated
relationship in order to assure the success of the anticipated transaction.
NOW, THEREFORE, in consideration of the mutual covenants, agreements
representations and warranties contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. PURCHASE AND SALE OF ASSETS
1.1 Purchase and Sale of Personal Property. Subject to the terms and
conditions of this Agreement and except as otherwise provided herein on and
effective as of the Closing Date, as defined in Section 9.1 below, Seller shall
sell, convey, transfer, assign and deliver to Purchaser and Purchaser shall
purchase and accept from Seller, all of Seller's right, title and interest in
and to certain machinery and equipment, office equipment, tools and other
tangible personal property as listed in Exhibit 1.1 (the "Personal Property"),
together with such changes, deletions or additions as are agreed upon by Parties
and occur between the date of such Exhibit, and the Closing Date:
1.2 Purchase and Sale of Inventory and Contracts. Subject to the terms
and conditions of this Agreement and except as otherwise provided herein, on the
Inventory Transfer Date, as defined in Section 9.2. below, Seller shall sell,
convey, transfer, assign and deliver to Purchaser and Purchaser shall purchase
and accept from Seller all of Seller's right, title and interest in and to the
following assets, together with such changes, deletions or additions as are
agreed upon by the Parties and occur between the respective dates of the
referenced Exhibits and the Inventory Transfer Date:
<PAGE>
1.2.1 All inventory of the Business, including raw materials,
parts and components and work-in-process (the "Inventory"), such Inventory to be
identified in accordance with the procedures specified in Exhibit 1.2.1; and
1.2.2 The contracts, agreements, arrangements and/or
commitments of the Business with vendors specified in Exhibit 1.2.2 (the
"Contracts"). Notwithstanding anything to the contrary set forth herein or in
any Exhibit hereto, no contracts for the sale of circuit card assemblies or
other products are to transfer to Purchaser under this Agreement (other than the
Long Term Supply Agreement).
The Personal Property, Contracts and Inventory are referred herein collectively
as the "Assets."
1.3 Non-Assignable Assets. Notwithstanding anything in this Agreement
to the contrary, this Agreement shall not constitute an agreement to assign any
Asset if the attempted assignment thereof, without the consent of a third party
thereto, would constitute a breach of any obligation of Seller or is otherwise
not permitted by the terms of any agreement or instrument governing or affecting
such Asset or by applicable law. Any transfer or assignment to Purchaser by
Seller of any property or property rights or any agreement which shall require
the consent or approval of any third party shall be made subject to such consent
or approval being obtained; provided that Seller shall hold such property,
property rights or agreement for the exclusive benefit of Purchaser until such
consent or approval is obtained.
1.4 Transfer of Title to the Assets. Seller shall sell, assign, convey,
transfer and deliver the Assets to Purchaser at the Closing Date or the
Inventory Transfer Date, as applicable, by means of mutually agreeable bills of
sale, assignments, endorsements, certificates and such other instruments of
transfer as shall be necessary or appropriate to vest good title to the Assets
in Purchaser, free and clear of any liens, charges and encumbrances, except as
otherwise set forth in this Agreement.
1.5 License Agreement. Concurrent with the execution of this Agreement
Seller and Purchaser shall enter into a license agreement (the "License
Agreement") covering certain intellectual property of the Business as described
in such agreement (the "Licensed Intellectual Property").
2. PURCHASE PRICE
2.1 Purchase Price. The method of calculating the purchase price to be
paid by Purchaser for the Assets (the "Purchase Price") and the applicable
payment terms are set forth in Exhibit 2.1
2.2 Payments. All payments required to be made pursuant to this Article
2 and other provisions of this Agreement shall be made in United States dollars
in immediately available funds by wire transfer to an account designated by
Seller.
2.3 Transfer Taxes. Purchaser shall be responsible for all sales,
transfer and similar taxes, duties or levies assessed or payable in connection
with the transfer of the Assets to Purchaser. Purchaser shall obtain and furnish
to Seller all required resale or other exemption certificates with respect to
the Assets
3. ASSUMPTION OF LIABILITIES AND OBLIGATIONS
3.1 Assumed Liabilities. Upon, from and after the Closing Date, or
with respect to the Inventory and the Contracts only, the Inventory Transfer
Date, Purchaser shall, without any further
<PAGE>
responsibility or liability of, or recourse to, Seller or any of its directors,
shareholders, officers, employees, agents, consultants, representatives, parent
entities, affiliates, subsidiaries, successors or assigns, absolutely and
irrevocably assume and be solely liable and responsible for any and all
liabilities and obligations of any kind or nature of Seller (whether fixed or
contingent, matured or unmatured, foreseen or unforeseen, known or unknown),
which may arise out of the following on or after the Closing Date or the
Inventory Transfer Date, as applicable, and which are attributable to the period
on or after the Closing Date or the Inventory Transfer Date, as applicable (the
"Assumed Liabilities"):
3.1.1 The ownership, use or possession or condition of the
Assets, or the operation or conduct of the Business;
3.1.2 Seller's obligation to purchase goods and services
incurred in the ordinary course of business consistent with past practices of
Seller through the Closing Date or the Inventory Transfer Date, as applicable,
to the extent such obligations relate to goods and services to be received by
Purchaser after the Closing Date or the Inventory Transfer Date, as applicable;
3.1.3 Seller's obligations under the Contracts; and
3.1.4 Liability for all Tax and Taxes, as described in
Section 4.6.1, relating to the Assets or the Business; and
3.1.5 Any other liability specifically and expressly
assumed by Purchaser herein or in the Exhibits hereto as the responsibility of
Purchaser.
Nothing contained in this Section shall be deemed to limit (i) any obligations
of Seller under this Agreement, including but not limited to, the
representations and warranties made by Seller in Section 4; or (ii) the
obligations set forth in Article 6.
3.2 Retained Liabilities. Seller shall at all times, without any
responsibility or liability of, or recourse to, Purchaser or any of its
directors, shareholders, officers, employees, agents, consultants,
representatives, parent entities, affiliates, subsidiaries, successors or
assigns, absolutely and irrevocably be and remain solely liable and responsible
for any and all liabilities and obligations of any kind or nature (whether fixed
or contingent, matured or unmatured, foreseen or unforeseen, known or unknown)
existing or arising from or in connection with the conduct of the Business prior
to the Closing Date, or with respect to the Inventory and the Contracts only,
the Inventory Transfer Date (collectively the "Retained Liabilities") unless the
terms hereof or of an Exhibit hereto expressly state that such liability or
obligation shall transfer to Purchaser at another time, including, but not
limited to, the obligations set forth in Article 6.
3.3 Taxes. Taxes on the Assets shall be prorated as of the Closing Date
or the Inventory Transfer Date, as applicable. The party paying the Taxes may
bill the other party for that party's prorated portion of Taxes paid.
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser as follows:
4.1 Corporate Status. Seller is a corporation duly organized and
validly existing under the laws of Delaware, the jurisdiction in which it is
incorporated, and has full power and authority to carry on the Business as now
conducted. Seller has all requisite corporate power and authority to enter into
this Agreement and to perform its obligations and consummate the transactions
contemplated hereby in accordance with the terms of this Agreement. Seller is
duly qualified to do business in each jurisdiction in which the failure to be so
qualified would have a material adverse effect on Seller's conduct of the
Business.
4.2 Authorization. All corporate and other proceedings required to be
taken by or on the part of Seller including, without limitation, all action
required to be taken by the directors or stockholders of Seller to authorize
Seller to enter into and carry out this Agreement have been, or prior to the
Closing Date will be, duly and properly taken. This Agreement has been duly
executed and delivered by Seller and is valid and enforceable against Seller in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and the rules of law governing
specific performance, injunctive relief and other equitable remedies.
4.3 Compliance. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not (a) result in the
material breach of any of the terms or conditions of, or constitute a default
under, or violate, as the case may be, the certificate of incorporation, by-laws
or other organizational documents of Seller or any material agreement, lease,
mortgage, note, bond, indenture, license or other document or undertaking, oral
or written, to which Seller is a party or by which Seller is bound or by which
any of the Assets may be affected, in a manner which could materially and
adversely affect the Business taken as a whole, or (b) result in the creation of
a lien or encumbrance on Seller's interest in any of the Assets.
4.4 Contracts. Seller is not in material default or defaults under any
of the Contracts and, to the knowledge of the Seller, there does not exist any
material default under any of the Contracts by any other party thereto that, in
either case, would in the aggregate materially and adversely affect the Business
taken as a whole.
4.5 Title. Seller has good and marketable title to, or valid leasehold
interests in, as the case may be, all of its Assets free and clear of all liens,
mortgages, pledges and encumbrances, other than (i) liens for taxes not yet due
and payable or being contested in good faith, and (ii) encumbrances that do not
materially adversely affect the marketability of any such Asset or the ability
of Seller to use such Asset for its currently intended use in the conduct of the
Business as it is now being conducted.
4.6 Taxes.
4.6.1 General. All Taxes (as hereinafter defined) with
respect to the Assets that are or become due and payable or accrue with respect
to any period or portion thereof ending on or prior
<PAGE>
to the Closing Date and, with respect to the Inventory and the Contracts only,
the Inventory Transfer Date, have been or will be duly and properly computed,
reported, fully paid and discharged by Seller. As used herein, the terms "Tax"
and "Taxes" shall include all federal, state, local and foreign taxes,
assessments or other governmental charges (including, without limitation, net
income, gross income, excise, franchise, sales, use, and value added taxes,
personal property and ad valorem taxes, taxes withheld from employees' salaries
and other withholding taxes and obligations and all deposits required to be made
with respect thereto), levies, assessments, deficiencies, import duties,
licenses and registration fees and charges of any nature whatsoever, including
any interest, penalties, additions to tax or additional amounts with respect
thereto, imposed by any government or taxing authority which are levied upon the
Assets.
4.6.2 Unpaid Taxes, Liens, etc. Except for the current Taxes
not yet due and payable, there are no unpaid Taxes that could become a lien on
the Assets, and with respect to any period or portion thereof ending on or
before the Closing Date, or with respect to the Inventory and the Contracts
only, the Inventory Transfer Date, there will be no unpaid Taxes that could
become a lien on the Assets, and there are no tax liens on the Assets. There are
no liens for Taxes on the Assets. Seller is not required to treat any Asset as
owned by another person for federal income tax purposes or as tax-exempt bond
financed property or tax-exempt use property within the meaning of Section 168
of the Internal Revenue Code (the "Code"). None of the Assets is subject to any
joint venture, partnership or other agreement or arrangement that is treated as
a partnership for federal income tax purposes. The transactions contemplated
herein are not subject to the tax withholding provisions of Section 3406 of the
Code, or of Subchapter A of Chapter 3 of the Code or any other provision of law.
4.7 ERISA and Benefits. No event has occurred and no condition exists
that could be reasonably expected to subject Purchaser or any of its employees
to any tax, fine, penalty or other liability arising under, or with respect to,
any current or former employee benefit plan maintained by or contributed to by
Seller or any member of Seller's controlled group (as defined in Section 414 of
the Code and 4001 of ERISA) or as to which Seller or any member of Seller's
controlled group has or could have any liability (within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")). None of the Assets is subject to a lien under ERISA or the Code and
no event has occurred and no condition exists that could be reasonably expected
to give rise to a lien under ERISA or the Code with respect to the Assets.
4.8 Sufficiency of Assets. To the best knowledge of Seller, the
Inventory and Personal Property represent substantially all of the Inventory and
Personal Property used by Seller directly in the operation of the Business. To
the best knowledge of Seller, the Licensed Intellectual Property represents all
of the intellectual property used by Seller directly in the operation of the
Business.
4.9 Brokers. No broker, investment banker, financial advisor or other
Person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based on arrangements made by or on behalf of Seller.
4.10 Financial Information. Exhibits 1.1 and 1.2.1, and the statements
to be provided pursuant to the terms of Exhibit 2.1 reflect or will reflect the
book value of the Inventory and
<PAGE>
Personal Property, which has been calculated in accordance with generally
accepted accounting principles as historically applied by Seller.
4.11 No Additional Representations. NOTWITHSTANDING ANYTHING TO THE
CONTRARY CONTAINED IN THIS ARTICLE, ANY OTHER PROVISION OF THIS AGREEMENT, OR
ANY OTHER COMMUNICATIONS BETWEEN THE PARTIES ORALLY OR IN WRITING, IT IS THE
EXPLICIT INTENT OF EACH PARTY HERETO THAT SELLER IS MAKING NO REPRESENTATION OR
WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, BEYOND THOSE EXPRESSLY GIVEN IN THIS
AGREEMENT, OR ANY OF THE DOCUMENTS DELIVERED PURSUANT TO SECTION 12, INCLUDING
BUT NOT LIMITED TO ANY IMPLIED WARRANTY OR REPRESENTATION AS TO CONDITION,
MERCHANTABILITY OR SUITABILITY AS TO ANY OF THE PROPERTIES OR ASSETS OF SELLER.
EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN THIS AGREEMENT, OR ANY OF THE
DOCUMENTS DELIVERED PURSUANT TO SECTION 12, THE ASSETS ARE BEING SOLD ON AN "AS
IS, WHERE IS" BASIS.
IN CONNECTION WITH THE LONG TERM SUPPLY AGREEMENT TO BE ENTERED INTO
BETWEEN THE PARTIES HEREUNDER, WHILE IT IS THE PARTIES' INTENTION TO MAINTAIN
PRODUCTION VOLUMES CONSISTENT WITH THE LONG TERM SUPPLY AGREEMENT, SELLER MAKES
NO REPRESENTATION OR WARRANTY AS TO ORDER QUANTITY, FREQUENCY OR COMPOSITION.
THE PARTIES ACKNOWLEDGE THE VOLATILITY OF SELLER'S MARKETS AND THAT SELLER MAY
ACQUIRE OR DEVELOP NEW PRODUCT LINES AND/OR DIVEST PRODUCT LINES IN ITS SOLE
DISCRETION.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller as follows:
5.1 Corporate Status. Purchaser is a corporation duly organized and
validly existing under the laws of the State of Colorado, the jurisdiction in
which it is incorporated and has full power and authority to carry on its
business and to own all of its properties and assets. Purchaser has all
requisite corporate power and authority to enter into, execute and deliver this
Agreement and to perform its obligations and consummate the transactions
contemplated hereby in accordance with the terms of this Agreement.
5.2 Authorization. All corporate and other proceedings required to be
taken by or on the part of Purchaser including, without limitation, all action
required to be taken by the directors or shareholders of Purchaser to authorize
Purchaser to enter into and carry out this Agreement, have been, or prior to the
Closing Date will be, duly and properly taken. This Agreement has been duly
executed and delivered by Purchaser and is valid and enforceable against
Purchaser in accordance with its terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and the rules of
law governing specific performance, injunctive relief and other equitable
remedies.
<PAGE>
5.3 Compliance. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not result in the
breach of any of the terms or conditions of, or constitute a default under, or
violate, as the case may be, the articles of incorporation, by-laws or other
organization documents of Purchaser or any material agreement, lease, mortgage,
note, bond, indenture, license or other document or undertaking, oral or
written, to which Purchaser is a party or by which Purchaser is bound or by
which any of the Assets may be affected.
5.4 Financing. Purchaser has funds of its own, or has binding
commitments from responsible banks or other financial institutions to provide
funds, which will be sufficient and available to pay the Purchase Price and any
up front payments under the License Agreement payable at the Closing.
5.5 Brokers. No broker, investment banker, financial advisor or other
Person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based on arrangements made by or on behalf of Purchaser.
5.6 Year 2000. Purchaser will demonstrate a process to ensure that
there will be no delay in delivery or performance as anticipated by this
Agreement due any failure to properly accommodate the date transition to the
Year 2000.
5.7 NO ADDITIONAL REPRESENTATIONS. NOTWITHSTANDING ANYTHING TO THE
CONTRARY CONTAINED IN THIS ARTICLE, ANY OTHER PROVISION OF THIS AGREEMENT, OR
ANY OTHER COMMUNICATIONS BETWEEN THE PARTIES ORALLY OR IN WRITING, IT IS THE
EXPLICIT INTENT OF EACH PARTY HERETO THAT PURCHASER IS MAKING NO REPRESENTATION
OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, BEYOND THOSE EXPRESSLY GIVEN IN THIS
AGREEMENT, THE REAL PROPERTY AGREEMENT, OR ANY OF THE DOCUMENTS DELIVERED
PURSUANT TO SECTION 12.
6. EMPLOYEES AND EMPLOYEE BENEFITS
6.1 Scope of Section. This Article 6 contains the covenants and
agreements of the parties with respect to (a) the status of employment of those
employees of Seller employed in the Business as set forth in Exhibit 6.1
("Employees") upon the sale of the Business to the Purchaser, and (b) the
employee benefits and employee benefit plans provided or covering such
Employees. Nothing herein expressed or implied confers upon any Employee any
rights or remedies of any nature or kind whatsoever under or by reason of this
Article 6.
6.2 Employment with Purchaser. Purchaser shall within four (4) business
days after the date hereof offer employment unconditionally, effective as of the
Closing Date to those Employees who are employed on the Closing Date, including
any Employee who is on an approved leave of absence as described on Exhibit 6.2.
Employees shall have five (5) business days to consider the offers made to them.
Employees who accept Purchaser's offer of employment (the "Transferred
Employees") shall become employees of Purchaser effective at the Closing Date
or, if
<PAGE>
later, on their date of return to work from the approved leave of absence, and
as of the applicable date shall no longer be employees of Seller or its
subsidiary or affiliated entities. Effective upon the applicable date of
employment of each Transferred Employee, Purchaser shall have sole
responsibility for the payment of all wages, overtime, sick pay, taxes,
withholdings, and employee benefits with respect to the Transferred Employees.
Nothing contained in this Agreement shall be construed as a guaranty to
Purchaser that any number of the Employees will accept offers of employment with
Purchaser or as a representation or warranty regarding the skill level or
performance of any of the Employees.
6.3 Hiring Requirements. Purchaser shall offer employment to the
Employees for positions comparable to the positions in which such Employees are
employed by Seller immediately prior to the Closing Date and hire such Employees
who accept such offers of employment. Purchaser shall have an individual, signed
agreement with each Transferred Employee providing that he or she is an employee
of Purchaser and not Seller.
6.3.1 Purchaser shall offer to contract with Seller's
subcontract worker provider for those subcontract workers who are working for
Seller in the Business, for positions comparable to the positions in which such
subcontract workers are working for Seller immediately prior to the Closing
Date. The majority of Seller's subcontract workers are made available to Seller
through Seller's agreement with Manpower. Seller has arranged for Purchaser to
contract for such subcontract workers at the same prices as called for by
Seller's agreement with Manpower. For purposes of this Agreement subcontract
workers are not Transferred Employees. All subcontract workers of the Business
are identified on Exhibit 6.3.1.
6.4 Compensation and Benefits. Nothing in this Agreement shall prevent
EFTC from modifying its benefit plans in its ordinary course of business.
However, the plans anticipated by this Agreement shall remain in place for a
reasonable period of time after the Closing Date.
6.4.1 Purchaser shall pay the Transferred Employees
compensation at 100% or more of that paid to them by Seller immediately prior to
the Closing Date. For purposes of the previous sentence, "compensation" means
base pay plus planned 1999 focal point salary increases per Seller's salary
schedule. Purchaser agrees to have and maintain in place employee benefits and
policies for the Transferred Employees comparable to the employee benefits and
policies provided to the other employees of Purchaser, of similar stature and
rank as the Employees except as may be required elsewhere in this Agreement.
6.4.2 Each welfare plan (within the meaning of Section 3(1) of
ERISA) orpolicy maintained or sponsored by the Purchaser in which Transferred
Employees participate (including, but not limited to, plans that provide medical
and life insurance to active Employees, retiree medical and life insurance
programs, disability, severance, vacation, cafeteria, flexible spending or
dependent care) shall (a) credit all service with Seller for all purposes under
the plans and policies, including eligibility, participation and benefit
entitlement, (b) waive any pre-existing condition limitation or exclusion, and
(c) credit all payments made for health care expenses during the current plan
year for purposes of satisfying the initial general deductible, co-insurance and
maximum out-of-pocket provisions, provided, however, except as may otherwise be
required by applicable laws, that no credit shall be
<PAGE>
given for purposes of satisfying specific deductible, co-insurance and maximum
out-of-pocket requirements applicable to specific conditions or procedures.
6.4.3 Purchaser shall pay to each Transferred Employee a
signing bonus equal to two weeks pay on or about April 5, 1999. The signing
bonus shall be calculated against the Transferred Employee's base salary only,
exclusive of any overtime, differential, or other wages, as of April 5, 1999,
consistent with the focal point salary increase (reference Section 6.4.9). Nine
months from the Closing Date Purchaser also agrees to provide a retention bonus
payment to each Transferred Employee who is still employed by Purchaser on such
date equal to two weeks pay. The retention bonus payment shall be calculated
against the Transferred Employee's base salary only, exclusive of any overtime,
differential, or other wages. Such signing and retention bonuses shall be funded
by Honeywell as such bonuses are due via a wire transfer from Honeywell.
6.4.4 Purchaser agrees to communicate to the Transferred
Employees its bonus plan which provides a for a quarterly profit sharing
opportunity to eligible employees, such plan has been previously supplied to
Seller in writing.
6.4.5 Purchaser agrees to provide a company paid Short Term
Disability ("STD") plan for an approved medical leave of absence. The STD plan
will commence on the 6th consecutive day the employee is absent up to the 60th
consecutive day absent. Income replacement shall be at 66 2/3% of the employee's
base salary. Purchaser will continue to provide a company paid Long Term
Disability plan commencing on the 61st day.
6.4.6 Purchaser agrees to provide an employee assistance
program (EAP) on a company paid basis similar to the plan currently in effect at
Honeywell.
6.4.7 Purchaser agrees to provide the "WEE Care" and "In Home
Care" sick child care programs currently in effect at Honeywell at the same
employee and company cost share ratios. Seller to provide current pricing
information on employee cost share.
6.4.8 Purchaser agrees to provide focal point base salary
increases (focal point means all employees receive their salary increases at the
same date) to all employees on April 5, 1999. Exhibit 6.4.8 sets forth the
actual increase for each Employee consistent with the Honeywell salary plan for
1999.
6.4.9 Seller and Purchaser agree to expediently provide for
the transfer of responsibility and administration of any current employee
garnishments or child support orders.
6.4.10 Purchaser agrees to establish a mechanism for payroll
deductions to be made to the Sperry Federal Union for Transferred Employees.
6.4.11 Purchaser agrees to accept the transfer of vacation and
floating holiday balances of up to 168 hours calculated as of the Closing Date
per Transferred Employee. Seller agrees to reconcile any vacation buy or
vacation sell prior to the transfer of vacation balances. Vacation balances
shall be transferred to the Purchaser on or about April 19, 1999. Seller agrees
<PAGE>
to pay off any vacation balances in excess of 168 hours to the Transferred
Employees at the Transferred Employee's salary as of April 7, 1999. Purchaser
agrees that Transferred Employees will continue to earn paid time off under
Purchaser's established paid time off schedule, but that the year end maximum
carry over of paid time off will be 168 hours. Such vacation and floating
holiday balances shall be funded by Honeywell via a wire transfer from Honeywell
on or before April 25, 1999.
6.5 Minimum Employment Period. Purchaser agrees that it will continue
to employ to the Transferred Employee for a minimum of twelve (12) months,
except that Purchaser may follow its existing personnel policies with respect to
employee performance and discipline and in the event a Transferred Employee
fails to perform Purchaser may discipline and terminate such non-performing
Transferred Employee. Thereafter, for the next six (6) month period, if
Purchaser engages in a reduction in force ("RIF"), (i) Purchaser agrees, to the
extent practicable and consistent with the needs of its business, to reduce its
use of subcontract workers prior to affecting the Transferred Employees; (ii)
any such RIF that affects the Transferred Employees will be conducted in a
manner consistent with Purchaser's personnel policies, taking into account
seniority (after crediting the Transferred Employees with their years of service
with Seller) in accordance with Purchaser's policies; and (iii) Purchaser will
provide to those Transferred Employees who are subject to a RIF severance pay,
at least as favorable to the Transferred Employees as the terms of Seller's
severance policies in effect as of the Closing Date. Seller's severance plan is
attached in Exhibit 6.5.
6.6 Hiring Process. Purchaser shall be solely responsible for any and
all communications it makes to any employees of Seller during the process of
making offers of employment regardless of Seller's involvement in such process
or receipt of documents and materials to be distributed to any employees of
Seller. Purchaser shall comply, at its expense, with all laws in connection with
its communications to Seller's employees, the process of offering employment to
them, and the hiring and transition of such employees. Between the date hereof
and the Closing Date, Purchaser shall maintain adequate trained human resources
staff on site at Seller's facility who shall be responsible for the offer
process and the transition of the Transferred Employees from Seller to
Purchaser. Purchaser shall maintain a full time human resources representative
on site at the facility at which the Business is located commencing on the
Closing Date. As soon as reasonably practical after the date of this Agreement,
Purchaser shall make a formal presentation to the Employees and commence its on
site human resources presence. As soon as reasonably practical after the date of
this Agreement, Seller shall provide Purchaser with its schedule for conducting
communications with the Employees in order to facilitate coordination between
the parties and minimize disruption to the Business. Such schedule is subject to
Seller's approval, which shall not be unreasonably withheld.
6.7 Solicitation. For a period of twelve (12) months from and after the
Closing Date, Purchaser shall not directly or indirectly, or by action in
concert with others, knowingly solicit or attempt to solicit for employment any
employee of Seller's Arizona based business units, or any subcontract labor
provided to Seller via its subcontract agreement(s) with any Arizona based
business unit of Honeywell Inc. without the prior written authorization of
Seller, other than the Employees listed on Exhibit 6.1. For a period of twelve
(12) months from and after the Closing
<PAGE>
Date, Seller shall not directly or indirectly, or by action in concert with
others, knowingly solicit or attempt to solicit for employment any of the
Purchaser's employees based in Arizona without the prior written authorization
of Purchaser. Contact for such communications will be through Seller's Director
of Human Resources and Purchaser's Chief Administrative Officer. Additionally,
for a period of twelve (12) months from and after the Closing Date, neither
party shall directly or indirectly, or by action in concert with others,
knowingly solicit or attempt to solicit for employment any employee of the other
party who is a director level employee or higher who is based in the United
States without the prior written authorization of the other Party.
6.8 Confidentiality. In addition to Purchaser's standard employee
confidentiality agreement, Purchaser shall use its best efforts to obtain a
separate confidentiality agreement from all employees and contractors of
Purchaser working at its facility. The separate confidentiality agreement will
be prepared by Seller, subject to Purchaser's approval, which approval shall not
be unreasonably withheld.
6.9 Control. Purchaser shall have and maintain complete control over
its employees, including but not limited to the Transferred Employees, including
the right to hire, discharge, replace, evaluate and direct their activities
subject to Sections 6.4. and 6.5.
6.10 Health Care Continuation Liability. Purchaser agrees to pay and be
responsible for all liability, cost, expense, taxes and sanctions under Section
4980B of the Internal Revenue Code (the "Code"), interest and penalties imposed
upon, incurred by, or assessed against Purchaser or Seller that arise by reason
of or relate to any failure to comply with the health care continuation coverage
requirements of Section 4980B of the Code and Sections 601 through 608 of ERISA,
as amended, which failure occurs with respect to any Transferred Employee or any
qualified beneficiary (as defined in Section 4980B(g)(1)) of such Transferred
Employee who incurs a qualifying event (as defined in Section 4980B(f)(3) of the
Code) after the Closing Date..
6.11 Employment Laws. As of the Closing Date Purchaser shall be
responsible for complying with, at its expense, all applicable state and federal
labor and employment laws, including, but not limited to, the Fair Labor
Standards Act, Title VII of the Civil Rights Act of 1964, the Americans with
Disabilities Act, the Age Discrimination in Employment Act, the Family Medical
Leave Act, Executive Order 11246 and the Worker Adjustment Retraining and
Notification Act (the "Employment Laws") and Seller shall have no responsibility
or liability with respect to any alleged violations by Purchaser of the
Employment Laws. Purchaser shall maintain and preserve all records required by
the Employment Laws. Seller shall responsible for compliance with all Employment
Laws for the Transferred Employees for the time period prior to the Closing
Date.
6.12 Indemnification.
6.12.1 Seller shall not in any manner be responsible for any
liability, claim or obligation which in any way arises out of Purchaser's
employment or termination thereof, of the Transferred Employees, except as may
arise from or relate to Seller's communications with or treatment of the
Employees prior to the Closing Date. Purchaser agrees to indemnify and hold
Seller harmless from
<PAGE>
any Loss (as defined in Section 14.1) arising from or relating to the
Transferred Employees or beneficiaries of Transferred Employees which in any way
arises from or relates to Purchaser's employment, treatment or termination
thereof, of the Transferred Employees, except as may arise from or relate to
Seller's communications with or treatment of the Employees prior to the Closing
Date.
6.12.2 Purchaser shall not in any manner be responsible for
any liability, claim or obligation which in any way arises out of Seller's
employment of the Transferred Employees prior to the Closing Date, except as may
arise from or relate to Purchaser's communications with or treatment of the
Employees prior to the Closing Date. Seller agrees to indemnify and hold
Purchaser harmless from any Loss arising from or relating to the Transferred
Employees or beneficiaries of Transferred Employees which in any way arises from
or relates to Seller's employment or treatment of the Transferred Employees
prior to the Closing Date, except as may arise from or relate to Purchaser's
communications with or treatment of the Employees prior to the Closing Date.
6.12.3 Any claims for indemnification under this Section 6.12
shall be made following the procedures specified in Section 14.3.
7. REAL PROPERTY AND TRANSITION.
7.1 Premises License Agreement. Concurrent with the execution of this
Agreement Purchaser and Seller shall execute the premises license agreement
pursuant to which Purchaser will receive a license to use a portion of Seller's
facility located at 5353 West Bell Road, Glendale, Arizona for a term to end no
later than September 17, 1999 (the "Premises License"). It is intended by the
parties that upon the expiration or earlier termination of the Premises License,
the Business will be relocated to a new facility.
7.2 Transition Services Agreement. Concurrent with the execution of
this Agreement Purchaser and Seller shall execute the transition services
agreement pursuant to which Seller will provide Purchaser with certain services
in connection with the transition of the Business to Purchaser (the "Transition
Services Agreement"). Prior to the Closing, Purchaser and Seller shall finalize
the project implementation plan to be attached as an exhibit to the Transition
Services Agreement.
8. CERTAIN COVENANTS
8.1 Access to Records and Properties. From the date hereof until the
Closing Date or earlier termination of this Agreement, Seller will:
8.1.1 provide Purchaser, its officers, counsel and other
representatives with reasonable access to the Assets, the principal personnel
and representatives of Seller, and such books and records pertaining to the
Business as Purchaser may reasonably request, during Seller's regular business
hours, provided that Purchaser has provided Seller with reasonable prior notice,
and provided further that Purchaser agrees that such access will be requested
and exercised with due regard to minimizing interference with the operations of
the Business and provided that disclosure would not violate the terms of any
agreement to which Seller is bound or any applicable law or regulation; and
<PAGE>
8.1.2 make available to Purchaser for inspection and review
all documents, or copies thereof, listed in the Schedules and Exhibits hereto,
and all files, records and papers of any and all proceedings and matters listed
in the Schedules hereto, except to the extent prohibited or restricted by law,
regulation, contract with a third party or where the documents are subject to
the attorney-client or work product privilege.
8.2 Public Announcements. On and after the date hereof and through the
Closing Date, neither of the parties shall issue any press release or make any
public statement relating to the subject matter of this Agreement (other than
communications with persons in the ordinary course of business relating to a
press release otherwise permitted by this Agreement) prior to obtaining the
other party's approval, which approval shall not be unreasonably withheld,
except that no such approval shall be necessary to the extent that counsel to
the party proposing to make such disclosure advises such party that such
disclosure is required by law or a listing agreement or such disclosure is
reasonably prudent to avoid potential liability on the part of any person under
the federal securities laws. Any such advice of counsel shall be confirmed in
writing and promptly delivered to the other party. Approvals shall be requested
in writing and, if a party fails to respond to an approval request within
forty-eight (48) hours after its receipt thereof, approval shall be deemed to
have been given.
8.3 Consents. Prior to the Closing, or with respect to the Inventory
and the Contracts only, prior to the Inventory Transfer Date, Seller shall at
its sole cost and expense obtain any third party consents required for the
assignment of the Contracts and transfer of the Assets to Purchaser.
8.4 Operation of the Business. From and after the date of this
Agreement and until the Closing Date or as otherwise contemplated by this
Agreement or as Purchaser shall otherwise consent in writing, Seller:
8.4.1 will carry on the Business in the ordinary course and in
substantially the same manner as heretofore, including without limitation
keeping in full force and effect insurance comparable in amount and scope to the
coverage maintained by it (or on behalf of it) on the date hereof;
8.4.2 will not permit all or any of the Assets (real or
personal, tangible or intangible) to be sold, licensed or subjected to any lien
or other encumbrance except in dispositions of inventory or of worn-out or
obsolete equipment for fair value in the ordinary course of business consistent
with past practices;
8.4.3 will operate the Business in compliance in all material
respects with all applicable federal, state and local laws and regulations;
8.4.4 will maintain its inventory levels in a manner and in an
amount consistent with past practice;
8.4.5 will not grant any general increase in the compensation
of Employees (including any such increase pursuant to any bonus, pension,
profit-sharing, vacation or other plan or commitment) or grant any increase in
the compensation payable or to become payable to
<PAGE>
any Employee, except with the prior consent of Purchaser, except as may be
required elsewhere in this Agreement;
8.4.6 will not take any action that would cause any of the
representations and warranties made by Seller in this Agreement not to remain
true and correct;
8.4.7 will not modify, amend in any material respect or
terminate any Contract; and
8.4.8 will continue to maintain, in all material respects, the
Assets in accordance with present practice in a condition suitable for their
current use.
8.4 Year 2000. To the extent that a failure to properly accommodate the
date transition to the Year 2000 affects the ability to use the output of the
machinery and equipment portion of the Personal Property, identified in Exhibit
1.1, Seller shall either repair, replace or upgrade such manufacturing equipment
or machinery by September 30, 1999.
9. CLOSING
9.1 Closing Date. The Parties shall execute this Agreement on or before
March 19, 1999. Notwithstanding the foregoing, in order to enable Purchaser to
accomplish the obligations describe in Section 6.2 hereof, the consummation of
the transactions contemplated hereby, other than the transfer and sale of the
Inventory and assignment of the Contracts, will take place on April 2, 1999 (the
"Closing"). The date upon which the Closing occurs and the time on such date at
which the Closing shall be effective are collectively referred to herein as the
"Closing Date." Any amounts payable by Purchaser to Seller at the Closing shall
be wire transferred to Seller's account on April 2, 1999.
9.2 Inventory Transfer Date. The transfer of the Inventory and
Contracts will take place, subject to the terms hereof, on a date mutually
agreed upon by Seller and Purchaser in writing, which date shall be no earlier
than the date Purchaser has implemented at its new facility a "materials
resource planning system" capable of supporting the operations of the Business
(the "MRP System") and the conditions contained in Section 13.7 are hereof
fulfilled. It is anticipated by the Parties that the Inventory Transfer Date
shall occur on July 2, 1999, however in no event later than September 17, 1999
(the "Inventory Transfer Date"). If the Inventory Transfer Date has not occurred
by July 2, 1999, Purchaser shall make a deposit toward the purchase price of the
inventory in the amount of one million dollars ($1,000,000.00 US) by the end of
the month. For each month thereafter that the Inventory Transfer Date is
delayed, Purchaser shall make an additional deposit of one million dollars until
the Inventory Transfer Date, up to the remaining value of the Inventory that
would be due on the Inventory Transfer Date.
10. CONDITIONS TO CLOSING
10.1 Conditions to the Obligations of Purchaser. The obligations of
Purchaser under this Agreement are subject to the fulfillment prior to or at the
Closing of each of the following conditions, any one or more of which may be
waived by Purchaser in its sole discretion:
<PAGE>
10.1.1 No injunction or restraining order shall be in effect
to forbid or enjoin, and no suit, action or proceeding shall be pending to
prohibit, nullify or otherwise adversely affect the consummation of the
transactions contemplated by this Agreement and the Exhibits hereto or
Purchaser's ownership, use or enjoyment of the Business or any part thereof.
10.1.2 The representations and warranties of Seller contained
in this Agreement or in any Exhibit hereto or certificate, document or other
instrument delivered pursuant hereto or in connection with the transactions
contemplated hereby shall be complete, true and correct in all material
respects, without regard to materiality limitations contained in such
representations and warranties, on the Closing Date, with the same force and
effect as though such representations and warranties had been made on and as of
the Closing Date, except to the extent any such representation or warranty is
made as of a specified date, in which case such representation or warranty shall
be complete, true and correct in all material respects as of the date specified.
10.1.3 Seller shall have performed all of its material
covenants, obligations and agreements contained in this Agreement to be
performed and complied with by it prior to the Closing Date.
10.1.4 Purchaser shall have received all certificates,
instruments, agreements, and other documents to be delivered pursuant to Section
12.1.
10.1.5 Purchaser shall have received an appropriate waiver
with respect to the transactions contemplated by this Agreement from the banks
who are party to its credit agreement dated as of September 30, 1997, as
amended, or any similar agreement which could adversely impact this Agreement.
10.1.6 By the Inventory Transfer Date, Seller shall have
obtained any third party consents required for the assignment of the Contracts
and transfer of the Assets to Purchaser
10.2 Conditions to the Obligations of Seller. The obligations of Seller
under this Agreement are subject to the fulfillment, prior to the Closing Date,
of each of the following conditions, any one or more of which may be waived by
Seller in its sole discretion:
10.2.1 No injunction or restraining order shall be in effect
to forbid or enjoin, and no suit, action or proceeding shall be pending to
prohibit, nullify or otherwise adversely affect, the consummation of the
transactions contemplated by this Agreement.
10.2.2 The representations and warranties of Purchaser
contained in this Agreement or in any Exhibit hereto or certificate, document or
other instrument delivered pursuant hereto or in connection with the
transactions contemplated hereby shall be complete, true and correct in all
material respects, without regard to materiality limitations contained in such
representations and warranties, on the Closing Date, with the same force and
effect as though such representations and warranties had been made on and as of
the Closing Date, except to the extent any such representation or warranty is
made as of a specified date, in which case such representation or warranty shall
be complete, true and correct in all material respects as of the date specified.
#612429 v1
<PAGE>
10.2.3 Purchaser shall have performed all of its material
covenants, obligations and agreements contained in this Agreement to be
performed and complied with by the Closing Date.
10.2.4 Seller shall have received all certificates,
instruments, agreements and other documents to be delivered pursuant to Section
12.2.
10.2.5 Seller shall have received that portion of the Purchase
Price payable at the Closing.
10.2.6 Purchaser shall have obtained any and all material
governmental permits, licenses approvals, certifications of inspection, filings,
franchise and other authorizations or shall have received such other
concurrences as may be required in order for it to conduct the Business and use
and operate the Assets.
10.2.7 By the Inventory Transfer Date, Seller shall have
obtained any third party consents required for the assignment of the Contracts
and transfer of the Assets to Purchaser.
10.3 Conditions to the Obligations of Purchaser and Seller. Seller and
Purchaser shall have executed, concurrent with this Agreement, the following
agreements: (i) a License Agreement covering the Licensed Intellectual Property;
(ii) a Premises License Agreement; (iii) a Transition Services Agreement; (iv) a
Long Term Supply Agreement; and (v) an On-Site Services Agreement.
11. TERMINATION AND SURVIVAL
11.1 Termination. Both of the parties hereto shall use reasonable
efforts to bring about the satisfaction of the conditions hereunder prior to and
at the Closing. Notwithstanding anything to the contrary set forth herein, this
Agreement may be terminated and the transactions contemplated hereby abandoned
at any time prior to the Closing:
11.1.1 by mutual written consent of Purchaser and Seller; or
11.1.2 by Purchaser or Seller, upon written notice to the
other, if such other party, subsidiary or its affiliate has breached any
material representation, warranty or covenant contained in this Agreement in any
material respect, if the non-breaching party has notified the breaching party of
the breach in writing and the breach has continued without cure for a period of
thirty days after notice of the breach; or
11.1.3 by Purchaser or Seller if a court of competent
jurisdiction shall have issued an order, decree or ruling permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement and such order, decree, ruling or other action shall have become
final and nonappealable; or
11.1.4 by Purchaser or Seller if the other party is unable to
pay its debts generally as they come due or is declared insolvent or bankrupt,
is the subject of any proceedings
<PAGE>
relating to its liquidation, insolvency or for the appointment of a receiver or
similar officer for it which is not dismissed or otherwise terminated within
thirty (30) days of its inception, makes an assignment for the benefit of all or
substantially all of its creditors, or enters into an agreement for the
composition, extension or readjustment of all or substantially all of its
obligations; or
11.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 11.1, this Agreement shall become void and of no further force and
effect, and neither of the parties hereto (nor their respective affiliates,
subsidiaries, directors, shareholders, officers, employees, agents, consultants,
attorneys-in-fact or other representatives) shall have any liability in respect
of such termination; provided, however, that if such termination is effected
pursuant to Section 11.1.2 and the failure to consummate the transactions
contemplated hereby was the result of any of the conditions to the applicable
Closing having not been fulfilled by reason of the breach by either of the
parties of its covenants, representations and/or warranties set forth in this
Agreement or in any agreement, document or instrument ancillary hereto, the
party having so breached shall remain liable to the other party.
12. CLOSING DOCUMENTS
12.1 Documents to be Delivered by Seller. At the Closing Date or the
Inventory Transfer Date, as applicable (except as otherwise specified in this
Section 12.1), Seller shall deliver to Purchaser the following documents:
12.1.1 Executed bills of sale or other appropriate instruments
of transfer with respect to all of the Assets not otherwise transferred or
assigned by any other documents or instruments delivered in connection with this
Agreement;
12.1.2 A certificate of an appropriate officer of Seller
confirming the representations, warranties and covenants of Seller made herein;
and
12.1.3 Any other document reasonably necessary to effectuate
the transactions contemplated hereby.
12.2 Documents to be Delivered by Purchaser. At the Closing, Purchaser
shall pay the portion of the Purchase Price payable on the Closing Date to
Seller by wire transfer pursuant to the terms hereof, as directed in writing by
Seller, and shall execute where applicable and deliver to Seller the following
documents (except as otherwise specified in this Section 12.2):
12.2.1 A Secretary's Certificate attaching copies of
resolutions of the board of directors of Purchaser authorizing the execution,
delivery and performance of this Agreement and the transactions contemplated
hereby, providing evidence of the signatures and incumbency of each person
signing any document or instrument delivered by Purchaser to Seller in
connection with the transactions contemplated hereby and such other information
and certifications relevant to the due authorization, execution and delivery of
this Agreement as Seller may reasonably request, all certified by a Secretary,
Assistant Secretary or other appropriate officer of Purchaser;
<PAGE>
12.2.2 A certificate of an appropriate officer of Purchaser
confirming the representations, warranties and covenants of Purchaser made
herein.
12.2.3 Any other document reasonably necessary to effectuate
the transactions contemplated hereby.
13. POST CLOSING OBLIGATIONS
13.1 Further Assurances. From time to time after the Closing, without
further consideration, the parties shall cooperate with each other and shall
execute and deliver instruments of transfer or assignment, or such other
documents to the other party as such other party reasonably may request to
evidence or perfect Purchaser's right, title and interest to the Assets, and
otherwise carry out the transactions contemplated by this Agreement.
13.2 Access to Books and Records. After the Closing, Purchaser shall
permit Seller to have access to and the right to make copies of such of Seller's
books, records and files as constitute part of the Assets for any reasonable
purpose at any time during regular business hours, including without limitation,
for use in litigation or financial reporting, tax return preparation, or tax
compliance matters. Prior to disposing of or destroying any such information or
records, Purchaser shall afford Seller a reasonable opportunity to segregate,
remove or copy such books, records and files as Seller may select.
13.3 Cooperation.
13.3.1 Litigation. The parties shall reasonably cooperate with
each other at the requesting party's expense in the prosecution or defense of
any litigation or other proceeding arising from their respective operation of
the Business.
13.3.2 Taxes. Each party shall cooperate with the other Party
and shall provide the other Party with such assistance as may reasonably be
requested in connection with the preparation of any tax return and the conduct
of any audit or other examination by any taxing authority or judicial or
administrative proceedings relating to the Assets.
13.3.3 Retain Records. Seller shall retain any books, records
and files relating to the Assets and their use in the Business in accordance
with Seller's then current document retention policies, and Purchaser shall have
the right upon prior notice to inspect and to make copies of the same at any
time during business hours for any proper purpose. Seller shall not destroy or
allow the destruction of any such books, records and files, except if such
destruction is conducted in accordance with Seller's then current document
retention policies, without first offering in writing to deliver them to
Purchaser. Without limiting the generality of the foregoing, such books, records
and files shall include all tax returns, supporting work schedules, and other
records or information that may be relevant to such tax returns for all tax
periods or portions thereof ending before or including the Closing Date that
relate to the Assets of their use in the Business.
13.4 Purchase Price Allocation. The purchase price (including assumed
liabilities) shall be allocated among the acquired assets in the manner set
forth in Exhibit 13.4. The parties shall file all tax returns (including amended
returns and claims for refund) and information
<PAGE>
reports in a manner consistent with such allocation, and shall use their
reasonable best efforts to sustain such allocation in any subsequent tax audit
or tax dispute.
13.5 Proprietary Information. Prior to the Closing Date, the Business
was routinely supplied copies of proprietary and confidential information
relating to strategic, technical, and/or marketing plans of Seller and their
affiliates and subsidiaries and their various operations. Although Seller has
attempted to recover such information from the Business, some may still be
present within the Business. Purchaser therefore agrees that it will not use
such information for any purpose whatsoever, and shall destroy any remaining
copies.
13.6 Conditions to Inventory and Contract Transfer. The obligations of
Seller and Purchaser to effect the transfer of the Inventory and Contracts as
contemplated herein are subject to the fulfillment, or waiver by the parties in
writing, of the following conditions prior to the Inventory Transfer Date: (i)
Seller shall at its sole cost and expense have obtained any third party consents
required for the transfer of the Contracts to Purchaser; (ii) Purchaser shall
have transferred the operations of the Business to Purchaser's new Facility in a
manner reasonably acceptable to Seller; (iii) Purchaser's MRP System shall be
reasonably acceptable to Seller and shall comply with the conditions set forth
in the Transition Services Agreement required to be met for Purchaser's MRP
System; (iv) Purchaser shall have implemented, to the reasonable satisfaction of
Seller, a fully auditable quality system capable of supporting purchaser order
flow down requirements and applicable regulatory requirements as specified in
the Transition Services Agreement; and (v) all other conditions to such transfer
provided for in the Transition Services Agreement shall have been met.
14. INDEMNIFICATION.
14.1 Indemnification by Seller. Seller shall defend, indemnify and hold
harmless Purchaser and Purchaser's directors, shareholders, officers, employees,
agents, affiliates, subsidiaries, successors and assigns from and against any
and all claims, liabilities, obligations, losses, costs, expenses (including,
without limitation, reasonable legal, accounting and similar expenses), fines
and damages (individually a "Loss" and collectively "Losses"), arising out of:
14.1.1 any breach or violation of any of the covenants made by
Seller in this Agreement or any agreement, certificate or similar document
delivered pursuant hereto;
14.1.2 any breach of, or any inaccuracy or misrepresentation
in, any of the representations or warranties made by Seller in this Agreement or
in any Schedule, agreement, instrument, certificate or similar document required
to be delivered pursuant to the terms hereof;
14.1.3 any Retained Liability; or
14.1.4 any warranty or product liability claims with respect
to circuit card assemblies and other products covered by this Agreement
manufactured by the Business as operated by Seller prior to the Inventory
Transfer Date, except in cases where such fault is a result of Purchaser's
actions following the Closing Date.
<PAGE>
14.2 Indemnification by Purchaser. Purchaser shall defend, indemnify
and hold harmless Seller and Seller's directors, shareholders, officers,
employees, agents, representatives, affiliates, subsidiaries, successors and
assigns from and against any and all Losses arising out of:
14.2.1 any breach or violation of any of the covenants made by
Purchaser in this Agreement or any agreement, certificate or similar document
delivered pursuant hereto;
14.2.2 any breach of, or any inaccuracy in any of the
representations or warranties made by Purchaser in this Agreement, or in any
Schedule, agreement, certificate, instrument or similar documents required to be
delivered pursuant to the terms hereof; or
14.2.3 any Assumed Liability.
14.3 Indemnification Procedure.
14.3.1 Any party seeking indemnification hereunder (the
"Indemnitee") shall notify the party liable for such indemnification (the
"Indemnitor") in writing of any event, omission or occurrence which the
Indemnitee has determined has given or could give rise to Losses which are
indemnifiable hereunder (such written notice being hereinafter referred to as a
"Notice of Claim"). Any Notice of Claim shall be given promptly after the
Indemnitee becomes aware of such third party claim; provided, that the failure
of any Indemnitee to give notice as provided in this Section 14.3 shall not
relieve the Indemnitor of its obligations under this Section 14.3, except to the
extent that the Indemnitor is actually prejudiced by such failure to give
notice. A Notice of Claim shall specify in reasonable detail the nature and any
particulars of the event, omission or occurrence giving rise to a right of
indemnification. The Indemnitor shall satisfy its obligations hereunder, as the
case may be, within thirty (30) days of its receipt of a Notice of Claim;
provided, however, that so long as the Indemnitor is in good faith defending a
claim pursuant to Section 14.3.2 below, its obligation to indemnify the
Indemnitee with respect thereto shall be suspended.
14.3.2 With respect to any third party claim, demand, suit,
action or proceeding which is the subject of a Notice of Claim, the Indemnitor
shall, in good faith and at its own expense, defend, contest or otherwise
protect against any such claim, demand, suit, action or proceeding with legal
counsel of its own selection. The Indemnitee shall have the right, but not the
obligation, to participate, at its own expense, in the defense thereof through
counsel of its own choice and shall have the right, but not the obligation, to
assert any and all cross claims or counterclaims it may have. So long as the
Indemnitor is defending in good faith any such third party claim, demand, suit,
action or proceeding, the Indemnitee shall at all times cooperate, at its own
expense, in all reasonable ways with, make its relevant files and records
available for inspection and copying by, and make its employees available or
otherwise render reasonable assistance to, the Indemnitor. In the event that the
Indemnitor fails to timely defend, contest or otherwise protect against any such
third party claim, demand, suit, action or proceeding, the Indemnitee shall have
the right, but not the obligation, to defend, contest, assert crossclaims or
counterclaims, or otherwise protect against, the same and may make any
compromise or settlement thereof and be entitled to all amounts paid as a result
of such third party claim, demand, suit or action or any compromise or
settlement thereof. Neither Seller nor Purchaser shall make any compromise of
asserted liability for which indemnification is or may be sought pursuant to
this Section 14.3.2 if such compromise includes
<PAGE>
the payment of money or creates any obligation of the other party hereto, unless
such other party shall have given its prior written consent to such compromise.
14.4 Survival and Limitations. The provisions of this Article 14 shall
survive the Closing. The warranties and representations of Seller contained in
this Agreement or in any instrument delivered pursuant hereto will survive the
Closing and will remain in full force and effect thereafter for a period of one
year after the Inventory Closing Date and shall be effective with respect to any
inaccuracy therein or breach thereof, notice of which shall have been duly given
within such one year period, in accordance with Section 14.3 hereof, except that
the representations of Seller in Section 4.6 shall survive until the end of the
applicable statute of limitations. Anything to the contrary contained herein
notwithstanding, (i) Purchaser shall not assert any claim against Seller for
indemnification hereunder unless and until the amount of such claim or claims
shall exceed One Hundred Thousand Dollars ($100,000) calculated on a cumulative
basis and not a per item basis, in which event Purchaser shall be entitled to
claim only the amount of such excess; (ii) Purchaser shall not be entitled to
recover from Seller more than an aggregate amount equal to twenty five percent
(25%) of the total Purchase Price with respect to all claims for indemnity or
damages whether such claims are brought under this Article 14 or otherwise. The
terms of the foregoing sentence shall not apply to Seller's' obligation to
provide indemnification to Purchaser with respect to the matters set forth in
Section 3.2 (Retained Liabilities), Article 6 (Employees and Employee Benefits)
and Section 14.6 (Environmental) and any matter to be performed by Seller
subsequent to the Closing Date or Inventory Closing Date, as applicable,
pursuant to this Agreement or any document delivered by Seller pursuant to
Section 1.2.
14.5 Reduction for Insurance and Taxes. The amount (an "indemnity
Payment") which an Indemnifying Party is required to pay on behalf of any other
party ("Indemnitee") pursuant to this Article 14 shall be reduced by the amount
of any insurance proceeds actually received by or on behalf of the Indemnitee in
reduction of the related indemnifiable loss and by the net amount of any tax
benefits to the Indemnitee as a result of the indemnifiable loss and the
Indemnity Payments. An Indemnitee which shall have received or on behalf of
which there shall be paid an Indemnity Payment and which shall subsequently
receive, directly or indirectly, insurance proceeds in respect of the related
indemnifiable loss, shall pay to the Indemnifying Party the amount of such
insurance proceeds or, if lesser, the amount of the Indemnity Payment, net of
any related taxes.
14.6 Environmental. Representations and warranties regarding,
indemnifications for, and other provisions relating to, environmental matters
are contained in the Premises License, and are expressly incorporated into this
Agreement and are not subject to the limitations of Section 14.4. The parties
intend that the representations and warranties relating to environmental matters
in the Premises License, as such, are "expressly given" and "specifically
provided" in this Agreement. Except for this Section 14.6, nothing in this
Agreement shall be interpreted to diminish the effectiveness, limit the scope,
or add to the obligations of such provisions. With respect to indemnifications,
Seller and Purchaser expressly assume the responsibilities and liabilities under
the indemnifications section of the Premise License.
<PAGE>
15. MISCELLANEOUS
15.1 Expenses. Except as specifically set forth elsewhere herein each
of the parties hereto shall pay its own expenses and costs incurred or to be
incurred by it in negotiating, closing and carrying out this Agreement.
15.2 Notices. Any notice or communication given pursuant to this
Agreement by a party hereto to the other party shall be in writing and hand
delivered, or mailed by registered or certified mail, postage prepaid, return
receipt requested (notices so mailed shall be deemed given when mailed), or sent
via facsimile, with an original mailed as follows:
If to Seller: Honeywell Inc.
5353 West Bell Road
Glendale, AZ
Attn: CAS Division Counsel or Off-Load Manager
FAX: (602) 436-7304 (602) 436-7305
If to Purchaser: EFTC Corporation
9351 Grant St., Sixth Floor
Denver, Colorado 80229
Attn: Chief Financial Officer
Fax: (303) 280-8358
with a copy to
Holme Roberts & Owen LLP
1700 Lincoln Street, Suite 4100
Denver, Colorado 80203
Attn: Francis Wheeler
Fax: (303) 866-0200
15.3. Confidentiality. Seller and Purchaser have entered into a
Confidentiality Agreement. Notwithstanding any provision herein to the contrary,
such confidentiality agreement shall survive the execution and delivery of this
Agreement and the Closing.
15.4 Counterparts. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
15.5 Entire Agreement. Except for the Confidentiality Agreement
referred to in Section 15.3, this Agreement together with its Exhibits is the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersedes all prior communications, representations, agreements and
understandings between the parties hereto, whether oral or written, including,
without limitation, any financial or other projections or predictions regarding
Seller or the Business.
<PAGE>
15.6 Construction. When the context so requires, references herein to
the singular number include the plural and vice versa and pronouns in the
masculine or neuter gender include the feminine. The headings contained in this
Agreement and the tables of contents, exhibits and schedules are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
15.7 Assignment. This Agreement may not be assigned without the prior
written consent of the other party hereto, which consent shall not unreasonably
be withheld.
15.8 Amendment. This Agreement may be amended only by written
agreement duly executed by representatives of all parties hereto.
15.9 Applicable Law. This Agreement shall be construed in accordance
with the laws of the State of Arizona, disregarding its conflicts of laws
principles which may require the application of the laws of another
jurisdiction.
15.10 Failure to Close. If for any reason this Agreement is terminated
prior to Closing, each party shall promptly upon the request of any other party
return to such other party all documents and other information (or notes made
therefrom), including all originals and all copies thereof, theretofore
delivered by or on behalf of such other party. Purchaser shall in any case
comply with the terms of the Confidentiality Agreement referred to in Section
15.3.
15.11 No Third Party Rights. This Agreement is not intended and shall
not be construed to create any rights in any parties other than Seller and
Purchaser and no other person shall assert any rights as a third party
beneficiary hereunder.
15.12 Exhibits. The Exhibits attached hereto are incorporated into this
Agreement and shall be deemed a part hereof as if set forth herein in full.
References herein to "this Agreement" and the words "herein," "hereof" and words
of similar import refer to this Agreement (including Exhibits) as an entirety.
In the event of any conflict between the provisions of this Agreement and any
such Exhibit, the provisions of this Agreement shall control.
15.13 Waivers. Any waiver of rights hereunder must be set forth in
writing. A waiver of any breach or failure to enforce any of the terms or
conditions of this Agreement shall not in any way affect, limit or waive either
party's rights at any time to enforce strict compliance thereafter with every
term or condition of this Agreement.
15.14 Severability. If and to the extent that any court of competent
jurisdiction holds any provisions (or any part thereof) of this Agreement to be
invalid or unenforceable, such holding shall in no way affect the validity of
the remainder of this Agreement.
15.15 Arbitration. Any controversy, claim or dispute arising out of or
relating to this Agreement or the transactions contemplated hereby or the
breach, termination, enforcement, interpretation or validity hereof, including
the determination of the scope or applicability of this agreement to arbitrate
(collectively "Dispute"), shall be determined by arbitration in Phoenix, Arizona
before a sole arbitrator. The following shall apply to any such arbitration:
<PAGE>
15.15.1 The arbitration shall be administered by the American
Arbitration Association ("AAA") pursuant to its Commercial Rules and
Supplementary Procedures for Large, Complex Disputes.
15.15.2 The arbitrator shall not be an officer, employee,
director or affiliate of any party hereto or of its affiliates or subsidiaries.
If the parties are unable to agree on an arbitrator within 30 days of the filing
of the Demand for Arbitration, an arbitrator shall be selected pursuant to the
rules and procedures of the AAA.
15.15.3 Any party may seek from any court interim or
provisional relief that is necessary to protect the rights or property of that
party, pending the appointment of the arbitrator or pending the arbitrator's
determination of the merits of the controversy.
15.15.4 The parties shall bear their own costs and expenses,
including attorneys' fees, but the arbitrator may, in the award, allocate all of
the administrative costs of the arbitration (and mediation, if applicable),
including the fees of the arbitrator and mediator, against the party who did not
prevail.
15.15.5 The arbitration award shall be in writing and shall
specify the factual and legal bases for the award. Judgment on the award may be
entered in any court having jurisdiction.
15.16 Negotiated Terms. All terms of this Agreement were negotiated
between the Parties at arm's length, recognizing the special needs, knowledge,
and benefits of each Party. The Parties agree that in the event a dispute arises
in connection with this Agreement, the terms contained in this Agreement shall
be given their plain meaning, and that no term shall be construed in favor of
one Party over the other by virtue of one Party having drafted a term in this
Agreement.
<PAGE>
IN WITNESS WHEREOF, Seller and Purchaser have duly executed and delivered this
Agreement as of the day and year first above written.
"SELLER" Honeywell Inc. "PURCHASER" EFTC Corporation
By: /s/ Mike Smith /s/ Jack Calderon
-------------------------------- By: -------------------------------
Name: Mike Smith Name: Jack Calderon
---------------------------------- -------------------------------
Title: President Title: Chief Executive Officer
------------ ------------------------------
Date: 3/19/99 Date: 3/19/99
------------- -------------
<PAGE>
NOTE: CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FROM THE SECURITIES AND
EXCHANGE COMMISSION FOR PORTIONS OF THIS EXHIBIT.
*** = confidential portion omitted and filed separately with SEC
LONG TERM SUPPLY AGREEMENT
This Long Term Supply Agreement is made this 19th day of March, 1999, by and
between Honeywell Inc., a Delaware corporation acting on behalf of its various
divisions and subsidiaries, with offices at 5353 West Bell Road, Glendale AZ
85304 (hereinafter collectively referred to as "Honeywell"), and EFTC
Corporation, a Colorado corporation with offices at 9351 Grant Street, Sixth
Floor, Denver, Colorado 80229 (hereinafter referred to as "EFTC"). Honeywell and
EFTC are hereinafter referred to singly as the "Party", and collectively, as the
"Parties".
RECITALS
A. Honeywell entered into that certain Master Agreement Regarding Asset Purchase
and Related Transactions dated March 19, 1999 (the "Master Agreement") whereby
Honeywell agreed to transfer certain intellectual property, assets and employees
related to the manufacture of electronic assemblies to EFTC, EFTC agreed to
enter into a Long Term Supply Agreement with Honeywell providing for the
manufacture by EFTC of electronic assemblies for Honeywell and its affiliated
entities.
B. Honeywell and EFTC are entering into this Long Term Supply Agreement with the
purpose of establishing a long term relationship, based on continuous
improvement processes, leading toward world class benchmarks in quality, cost,
delivery, technology and service. The Parties' relationship shall be
characterized by mutually beneficial goals, trust and benefits.
C. This Agreement is intended to outline the specific contractual
responsibilities, procedures, and special terms and conditions for work to be
performed by EFTC in accordance with Honeywell's specifications, drawings, bills
of material and/or other pertinent instructions and/or documentation provided by
Honeywell as anticipated in the Master Agreement.
D. It is the intent of the Parties that this Agreement be a long term agreement
and that EFTC will perform in such a manner that Honeywell's Commercial Aviation
Systems business can eventually have EFTC act as its primary manufacture for
circuit card assemblies
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter set forth, and in consideration of the
execution and performance of the Master Agreement, the parties hereto agree as
follows:
1. TERM OF AGREEMENT
1.1 The term of this Agreement will begin on the date first written above and
remain in full force and effect through December 31, 2010 (the "Term"). The Term
will automatically renew for additional five (5) year periods unless either
party gives written noticed to the other of its intention not to renew at least
one (1) year before the end of the initial Term or any renewal Term.
Long Term Sup. Agmt. Page 2 (3-18-99)(jb)(klm)
EFTC/Honeywell Proprietary/Confidential
<PAGE>
2. PRICING
2.1 The prices for Products covered by this Agreement shall be the prices shown
in "Attachment A" and shall be effective as of the Inventory Transfer Date.
2.2 EFTC warrants the prices for Products purchased in this Agreement are no
higher than those charged other EFTC customers in similar transactions.
2.3 Additional Products as agreed by both Parties, may be added to this
Agreement at any time during the term of this Agreement, through a written
Addendum to this Agreement.
2.4 On an annual basis, either party may request a review and/or re-negotiation
of the price terms set forth in Attachment A, hereto. Such request shall be
submitted in writing to the other Party at least three (3) months prior to an
annual term and shall be consistent with Section 9 hereof. In the event that the
Parties are unable to agree to a change in price the existing price shall remain
in effect until the next annual pricing cycle. The Parties agree to negotiate
such pricing modification requests in good faith.
3. TERMS AND CONDITIONS
Honeywell's current General Purchase Order Terms and Conditions are hereby
incorporated into this Agreement. The current version of the Honeywell General
Purchase Order Terms and Conditions are referenced in "Attachment B". In the
event of a conflict between the terms and conditions of a Honeywell Purchase
Order and those appearing in this Agreement, the terms and conditions of this
Agreement shall take precedence.
4. PAYMENT TERMS
4.1 Payments by Honeywell to EFTC shall be net forty-five (45) days from
Honeywell receipt of Products (which shall be no earlier than the delivery date
stated in the Purchase Order), with a 2% discount for payments made within ten
(10) business days from Honeywell's receipt of Products.
4.2 All deliveries shall be FOB (INCOTERMS 1990) Honeywell's Dock, unless
otherwise agreed by the Parties in writing.
5. PURCHASE ORDERS
5.1 This Agreement supplements and forms a part of any purchase order(s) that
Honeywell may issue to EFTC for those items described in "Attachment A", as
amended from time to time (hereafter called the"Products"). All such purchase
order(s) shall reflect the applicable unit price(s) for the Products as agreed
to in "Attachment A". In the event of a conflict between this Agreement and any
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additional terms and conditions contained in purchase orders, acknowledgments or
invoices, this Agreement will control.
5.2 This Agreement is not a firm commitment to purchase Products from EFTC.
Actual authorization to ship shall be Honeywell's Purchase Order or as otherwise
agreed in writing by the Parties (for example, electronic data interchange, bar
code information transfer or other agreed methods).
5.3 This Agreement shall be applicable to purchase orders issued to EFTC by any
location of Honeywell, it being agreed that all such Honeywell locations and
subsidiaries are expressly intended to be benefitted hereby. In the case of any
subsidiary, the term "Honeywell" as used herein shall be deemed to refer to the
subsidiary.
6. PERFORMANCE PROVISIONS
6.1 Both Parties have established a performance goal of i) 100% on-time delivery
as measured from the date specified in Honeywell's purchase order, and ii) 100%
quality acceptance of Products by Honeywell as measured from Honeywell's final
assembly product test. EFTC shall work to reduce and eliminate the need for
Honeywell inspection of Products and both Parties shall work to install
point-of-use ("PoU") delivery processes. These PoU processes involve the
creation of a predetermined amount of Products stored at Honeywell's facility
and Honeywell shall pay for Products as the Products are removed from the EFTC
PoU inventory. EFTC shall then replenish the Product inventory based on a
min/max criteria based on demand patterns and Product lead-times, which shall be
agreed upon by the Parties in writing.
6.2 Honeywell will monitor EFTC quality and delivery performance levels at a
frequency no longer than monthly and this information will be provided to EFTC
in a Supplier Rating Report via a password secured Internet site. The Parties
have established a performance threshold for the quality and delivery of
Products from EFTC and actual performance that falls below this threshold shall
trigger an escalation process to improve performance (such process is described
in Attachment D). These thresholds will be detailed at the individual Product or
Product group level, to be determined by Honeywell and EFTC, and updated at
least annually.
6.3 Honeywell will provide EFTC with a Supplier Rating Report via a password
secure Internet web site. EFTC shall provide corrective action to Honeywell
within ten (10) business days after each Supplier Rating Report is posted on the
Internet site.
6.4 Under the EFTC/Honeywell On-Site Services agreement, repairs will be
performed on Honeywell premises with no Return Material Authorization required.
Honeywell reserves the right to rework/repair EFTC's Product and EFTC's agrees
to honor the warranty on Honeywell repaired Product. Any failure analysis data
and/or corrective action reports, if required, shall be provided to Honeywell
within 10 days after receipt of request.
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6.5 EFTC's Product's determined to be defective by Honeywell and not the fault
of EFTC, may be returned to the EFTC for rework or replacement at Honeywell's
expense. The previous sentence does not absolve EFTC of the responsibility for
performing all its delivery, quality and other obligations under this Agreement,
including without limitation EFTC's responsibility for performing acceptable
verification of material purchased by EFTC for use in the Products.
7. QUALITY
7.1 Honeywell's commitment to offering products and services that meet its
customer needs and expectations is dependent upon the ability of EFTC to provide
quality Products in accordance with contractual and regulatory requirements,
including the Federal Aviation Administration (FAA) FAR- PART-21. In order to be
successful EFTC, jointly with its suppliers, must work towards continuous
quality and productivity improvement and have in place a documented continuous
improvement strategy for Product quality, cost, delivery and service.
7.1.1 EFTC's quality system shall be in compliance with Honeywell's,
Quality Control Requirements for Suppliers (QCS-210) attached as "Attachment C",
and any special QCS-210 codes or other quality requirements specified on the
Purchase Order.
7.1.2 Materials described in Honeywell's Specification Control Drawings
or Source Control Drawings (SCD) shall be purchased from the approved source(s)
of supply, including their part numbers, as found in Query (P7500683) Purchase
Part Source. This provides the process for defining administration requirements
for Purchase Specifications (P-SPEC) 7500683. The P-SPEC contains qualified
source of supply information for purchased part drawings.
7.1.3 Materials under Honeywell's design control drawings shall be
purchased from an EFTC approved supplier. EFTC's supplier approval process must
be approved by a Honeywell quality assurance representative. Accompanied by an
EFTC Quality Assurance Representative, Honeywell may conduct a survey and/or
surveillance, of EFTC's suppliers to evaluate the degree of ability to comply
with the approval process.
7.1.4 EFTC shall, upon receiving a request from Honeywell for
corrective action, respond within ten (10) business days. The response will
state a corrective action implemented to avoid recurrence of the reported
deficiency, together with the effectivity of the correction. The response must
include the scope of the problem and a statement addressing any additional
defective Product that may have by passed EFTC's quality system.
7.1.5 EFTC shall promptly notify Honeywell if it has reason to believe
that there may be a form, fit, function, usability, or reliability problem with
Products that have already been delivered to Honeywell.
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7.1.6 Manufacturing and test process capability for Product
characteristics determined to be most important to Honeywell, or related to
potential manufacturing problems, shall be identified and controlled using
Statistical Process Control (SPC) practices.
7.2 Nonconformity Material Review Board (MRB).
7.2.1 Nonconforming materials or Products for use as described in
Honeywell proprietary designs shall be submitted to Honeywell's MRB for
disposition, unless after initial review by EFTC's MRB, it is determined that
discrepant materials or Products will be: i) reworked to meet the specified
requirements, ii) scrapped, or iii) returned to EFTC's supplier.
7.2.2 When Honeywell furnished material has been used in the
fabrication of non- salvageable items, the material may not be scrapped without
Honeywell's prior written consent.
7.2.3 Any non-conforming materials used in EFTC proprietary designs
(not a Honeywell part number), may be disposed of by EFTC's MRB.
7.3 Products supplied under the terms of this Agreement may be utilized
in equipment which has been or will be subject to Federal Aviation
Administration type certification or Technical Standard Order
Authorizations/Parts Manufacturer Approval. EFTC's facility and quality system
are subject to surveillance by authorized representatives of the Federal
Aviation Administration. EFTC shall provide all reasonable facilities and
assistance to the authorized FAA representatives, upon request.
8. DEMAND PLANNING
8.1 Honeywell forecasts for Products shall be provided to EFTC on a weekly
basis. EFTC will procure material based on such forecast. However, Honeywell's
liability to pay for material purchased by EFTC in reliance on Honeywell's
forecast shall be limited to material purchased three (3) months prior to
Honeywell's delivery date or industry lead-time, which ever is longer.
8.2 Standard lead-time for Products to be supplied by EFTC shall be two (2)
weeks on forecasted items. Forecasts or Purchase Orders may be rescheduled (in
or out) as follows, or as mutually agreed to by both Parties (subject to the
terms in Section 8.1):
Days remaining until original schedule Rescheduling (in or out) options*
(calendar days)
0-14 days No rescheduling or cancellations.
15-45 days Honeywell may reschedule or cancel up to
25% of Purchase Order/Forecast volume
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NOTE: Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Omissions are designed as
***. Confidential treatment has been requested with respect to the
omitted portions.
45-90 days Honeywell may reschedule or cancel up to
50% of Purchase Order/Forecast volume
90 days or more Honeywell may reschedule or cancel up to
100% of Purchase Order/Forecast volume
*The above schedule is based on material and resource availability for
rescheduling in.
9. COST CONTAINMENT
9.1 Starting January 1, 2001, EFTC shall offer *** . By July 30, 2000
the Parties shall mutually agree to establish the Product price base line that
will be used as the basis for the *** . EFTC and Honeywell agree to ***. The
Parties will, in good faith, review and revise as appropriate these commitments
every two years beginning in December 2003.
9.2 At Honeywell's convenience and upon reasonable notice to EFTC, Honeywell's
buyers, accountants, and other representatives shall have full access to inspect
all properties, books, accounts, records, contracts, and other documents
relating to EFTC business with Honeywell, to ensure cost control is being
managed for both Parties' benefits.
10. DESIGN PARTICIPATION
10.1 EFTC shall participate in Honeywell's training and on-site Concurrent
Development Process (CDP) and Earlier Supplier Involvement (ESI) programs on
Honeywell's new products development programs as appropriate to supplement
EFTC's own continuous improvement efforts.
10.2 It is the intention of the Parties to maintain technology leadership in
respective industries. In order to foster mutual technological advances,
technology exchange seminars will occur on a periodic basis as determined by the
Parties.
11. VALUE ENGINEERING
Both Parties agree to continually participate in individual and joint value
engineering cost reduction programs. The goal of such programs shall be to lower
costs by implementing the following: box sets, point of use delivery, cycle-time
improvements through lead-time reduction on material, pull system using EDI
releases, card testing, adding Honeywell Bill of Materials into EFTC's Component
Obsolescence Program (COP) and other agreed methods.
12. THIRD PARTY SALES
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12.1 EFTC agrees not to sell any items covered by this Agreement or information
and tooling provided by Honeywell for the purpose this Agreement to any third
party, except as otherwise agreed in writing by the Parties.
12.2 EFTC will extend the terms of this Agreement to all Honeywell locations,
subsidiaries, and subcontractors. With respect to Honeywell subcontractors,
Honeywell shall provide EFTC with written notice authorizing the subcontractor
to purchase under this Agreement, and Products purchased by the subcontractor
shall be used exclusively for work contracted by Honeywell and no other purpose.
All purchases described in this section will be included in Honeywell's total
volumes for pricing discounts. EFTC reserves the right to verify such
subcontractors credit worthiness.
13. USE OF HONEYWELL AGREEMENTS
EFTC agrees that any Products, materials, or services acquired under the
provisions of Honeywell agreements with other supplier will be for the sole use
of EFTC under the terms of this Agreement, and will not be sold to any party
other than a Honeywell business unit, subsidiary or subcontractor unless
otherwise agreed by the Parties in writing. Both Parties agree to pursue
opportunities for consortium buying that will benefit the Parties, under
separate written agreements.
14. NOTICES
Any notice or communication given pursuant to this Agreement by a Party hereto
to the other party shall be in writing and hand delivered, or mailed by
registered or certified mail, postage prepaid, return receipt requested (notices
so mailed shall be deemed given when mailed), or sent via facsimile, with an
original mailed as follows:
If to Seller: Honeywell Inc.
5353 West Bell Road
Glendale, Arizona
Attn: Off-Load Manager
FAX: (602) 436-7305
If to Purchaser: EFTC Corporation
9351 Grant St., Sixth Floor
Denver, Colorado 80229
Attn: Chief Financial Officer
Fax: (303) 280-8358
15. BUSINESS OR OFFSET REQUIREMENTS
While it is Honeywell's intent to closely align its Product needs with EFTC,
Honeywell reserves the right to have specific Products covered by this Agreement
manufactured in its own facilities. In
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addition, Honeywell may have requirements in its contracts with specific
customers to purchase Products from sources other than EFTC, which right is also
reserved by Honeywell.
16. TERMINATION
16.1 For reasons other than described in section 6.3 either Party shall have the
right to terminate this Agreement thirty (30) days after sending written notice
of default and right to cure, in the event that the other party, its officers or
employees commits a material violation of any provision of this Agreement, its
Attachments or purchase orders and fails to cure such violation within the
thirty (30) day period. If either Party dissolves, terminates or suspends its
business, becomes subject to any bankruptcy or insolvency proceeding under
Federal or state statute, becomes insolvent or subject to direct control by a
trustee, receiver or similar authority or becomes a party to any action relating
to the bankruptcy or insolvency which is not dismissed within 30 days, then the
other Party shall have the option to either:
16.1.1 terminate this Agreement and/or purchase orders giving ten days
written notice to the other Party, or
16.1.2 treat this Agreement and/or purchase orders as in full force and
effect and take steps to enforce its terms.
16.2 In the event that a Honeywell customer cancels booked orders due to
economic downturn or enforceable situation hereunder, in whole of from time to
time in part, Honeywell may cancel such purchase orders pursuant to Section 8
hereof. In such event Honeywell would still be responsible for material as
specified in other sections of this Agreement.
16.3 Termination of the Agreement and/or purchase orders pursuant to it shall
not relieve either Party of its obligations incurred prior to such termination.
16.4 (a) If this Agreement is terminated by Honeywell on or before April 2, 2003
either (i) because EFTC is unable to pay its debts generally as they come due or
is declared insolvent or bankrupt, is the subject of any proceedings relating to
its liquidation, insolvency or for the appointment of a receiver or similar
officer for it which is not dismissed or otherwise terminated within thirty (30)
days of its inception, makes an assignment for the benefit of all or
substantially all of its creditors, or enters into an agreement for the
composition, extension or readjustment of all or substantially all of its
obligations; or (ii) because there has been a degradation of performance by EFTC
as described in Section 6 hereof then Honeywell shall have the option to
re-acquire from EFTC the Business and the Assets (as such terms are defined in
the Master Agreement) and such other assets of EFTC as are located at the
principal location in Phoenix, Arizona, at which the Products are produced and
are necessary for manufacture of the Products, and to offer to employ such of
EFTC's employees as are necessary to operate the Business and are employed at
such location. Honeywell may exercise such option giving at least 10 business
days prior written notice
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thereof to EFTC. If such option is exercised by Honeywell, the Parties promptly
shall take such actions as are necessary and appropriate to facilitate (x) the
transfer to Honeywell of the assets being acquired by it and the production of
the Products by Honeywell and (y) the retention by EFTC of other contracts and
business unrelated to the Products and the transfer of the means of producing
such other contracts and business to other facilities operated by EFTC. The
assets to be acquired by Honeywell pursuant to this Section 16.4 shall be sold
and transferred to Honeywell by EFTC on a basis comparable to that applicable to
Honeywell as seller under the Master Agreement to the extent appropriate and the
price Honeywell shall pay for such assets shall be calculated using the method
for determining the price of such assets described in Exhibit 2.1 of the Master
Agreement.
(b) If this Agreement is terminated after April 2, 2003 for either of the
reasons specified in Section 16.4(a), then Honeywell shall have the option to
re-acquire from EFTC the Business and the Assets as specified in Section
16.4(a), except that Honeywell and EFTC shall segregate the assets to be
acquired and the employees to be hired by Honeywell in a manner consistent with
types of products being produced by EFTC at the facility at the time of such
termination and the customers for whom such products are then being produced,
and the parties shall agree to a reasonable allocation of leased space and other
resources necessary to permit each to produce the products for which it is
responsible for production after such termination.
16.5 Termination of this Agreement shall be in addition to and not in lieu
of any remedies available at law or in equity to the Parties.
16.6 Obligations under this Agreement which by their very nature would continue
beyond the termination of the Agreement will survive such termination or
expiration.
17. FORCE MAJEURE
If a Party is unable to meet its obligations under this Agreement as a result of
flood, earthquake, storm, other act of God, fire, war, riot, embargo, act of
government or governmental agency or any other similar cause beyond the
reasonable control of such party ("Force Majeure"), the obligations of the
Parties hereto shall be suspended for the duration of the Force Majeure. The
Party claiming Force Majeure shall, within five (5) days from the date of
disability, excluding Saturdays, Sundays and holidays, notify the other Party of
the existence of a Force Majeure condition and will similarly notify the other
Party within a period of five (5) days, excluding Saturdays, Sundays and
holidays, when the Force Majeure has ended. If EFTC's performance is delayed for
these reasons for a cumulative period of sixty (60) days or more, Honeywell may
terminate this Agreement or any Purchase Order by giving EFTC written notice,
which termination will become effective upon receipt of such notice. If
Honeywell terminates this Agreement under this Section 17, its sole liability
under this Agreement or any Purchase Order will be to pay any balance due for
conforming Products or services (1) delivered by EFTC before receipt of
Honeywell's termination notice; and (2) ordered by Honeywell for delivery and
actually delivered within 15 days after receipt of
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Honeywell's termination notice. If EFTC cannot deliver Products because of a
Force Majeure condition, Honeywell may immediately seek substitute performance.
18. LIABILITY AND INDEMNIFICATION
18.1 Each Party will hold harmless and indemnify the other Party from and
against any and all injuries, damages, fines, costs, and expenses (including,
but not limited to, reasonable attorneys' fees) caused by or resulting from any
negligent act, error or omission of the indemnifying Party in the performance of
its duties under this Agreement or caused by, or resulting from, any breach by
the indemnifying Party of any of the terms and conditions of this Agreement.
18.2 Nothing in this Agreement is intended to confer any rights or remedies
under or by reason of this Agreement on any persons other than Honeywell, EFTC
and their respective successors and permitted assigns. Nothing in this Agreement
is intended to relieve or discharge the obligations or liabilities of any third
persons to Honeywell or EFTC.
18.3 EFTC will defend, at its own expense, any suit or claim that may be
instituted against Honeywell for alleged infringement of patents, copyrights or
mask work rights relating to the maintenance, sale, or use of Products under
this Agreement, except for any such infringement resulting from EFTC's
compliance with detailed designs provided by Honeywell or resulting from EFTC's
use of information data or know-how licensed by Honeywell to EFTC (except to the
extent the infringement results from modifications of such information, data or
know-how made by EFTC). EFTC will indemnify and hold Honeywell harmless for all
costs and damages arising out of such alleged infringement.
18.4 Honeywell will defend, at its own expense, any suit or claim that may be
instituted against EFTC for alleged infringement of patents, copyrights or mask
work rights relating to EFTC's compliance with detailed designs provided by
Honeywell. Honeywell will indemnify and hold EFTC harmless for all costs and
damages arising out of such alleged infringement.
18.5 To the fullest extent permitted by law, EFTC will indemnify and hold
harmless Honeywell, its agents and employees, from and against all claims,
damages, losses, and expenses, including but not limited to attorney's fees,
arising out of or resulting from any actual or alleged defect in the Product or
services provided by EFTC under this Agreement, except for matters for which
Honeywell is obligated to indemnify EFTC under Section 18.6.
18.6 To the fullest extent permitted by law, Honeywell will indemnify and hold
harmless EFTC, its agents and employees, from and against all claims, damages,
losses, and expenses, including but not limited to attorney's fees, arising out
of or resulting from any actual or alleged defect in the Product to the extent
that such defect results from a Honeywell directed design or specification.
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18.7 It is expressly agreed that in no event shall either Party be liable for
any special, indirect, contingent or consequential loss or damage (including,
without limitation, loss of contract, loss of business, loss of revenue, loss of
goodwill, loss of market, loss of profit or loss of anticipated profit), expense
or cost whatsoever or howsoever suffered or incurred, whether or not the same
are foreseeable and whether arising in contract, tort or otherwise, relating to
or arising out of performance of this Agreement pursuant to this Agreement, even
if either Party had been advised, knew or should have known of the possibility
thereof. The terms of this Section 18.6 shall not apply in the event of willful
misconduct of either Party.
18.8 The parties agree to cooperate, to the extent reasonable, to mitigate any
potential damage exposure that may accrue in connection with any such suit or
claim covered by Sections 18.3 or 18.4. Claims for indemnification under this
Section 18 shall be made in compliance with procedures for indemnification
comparable to those set forth in Section 14.3 of the Master Agreement.
19. AGREEMENT MODIFICATION
This Agreement shall not be subject to change or modification except with the
prior written mutual consent of the each Party. Any deviations from Purchase
Orders or any exceptions or alterations must be approved by each Party in
writing. If so approved, such modification to the original Purchase Order shall
bind each Party as if it were part of the original Purchase Order.
20. CONSTRUCTION
When the context so requires, references herein to the singular number shall
include the plural and vice versa and pronouns in the masculine or neuter gender
shall include the feminine. The headings contained in this Agreement and the
tables of contents, exhibits and schedules are for reference purposes only and
shall not affect the meaning or interpretation of this Agreement.
21. ASSIGNMENT
This Agreement may not be assigned without the prior written consent of the
other Party hereto, which consent shall not unreasonably be withheld.
22. AMENDMENT
This Agreement may be amended only by written Agreement duly executed by
representatives of all parties hereto.
23. APPLICABLE LAW
This Agreement shall be construed in accordance with the laws of the State of
Arizona, disregarding its conflicts of laws principles which may require the
application of the laws of another jurisdiction.
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24. WAIVERS
Any waiver of rights hereunder must be set forth in writing. A waiver of any
breach or failure to enforce any of the terms or conditions of this Agreement
shall not in any way affect, limit or waive either party's rights at any time to
enforce strict compliance thereafter with every term or condition of this
Agreement.
25. SEVERABILITY
If and to the extent that any court of competent jurisdiction holds any
provisions (or any part thereof) of this Agreement to be invalid or
unenforceable, such holding shall in no way affect the validity of the remainder
of this Agreement.
26. COMPLETE AGREEMENT
This Agreement, including all other Agreements expressly incorporated herein by
reference, constitutes the entire Agreement between the parties respecting the
subject matter hereof, and there are merged herein all prior and pre-existing
representations and Agreements made by the between Honeywell and EFTC.
27. PUBLICITY
Neither Party shall release any information, advertisements, announcements or
other publicity concerning the other Party or this Agreement without the prior
written consent of the other Party, unless required by law.
28. RELATIONSHIP OF THE PARTIES
This Agreement is not intended to and does not constitute a joint venture,
partnership or other formal business organization. Each Party hereto shall act
as an independent contractor and shall not, except as specifically authorized
and provided herein, act as an agent for the other Party for any purpose
whatsoever and no Party shall have the authority to bind the other or make any
commitment or incur any costs or expenses for or in the name of the other Party
except to the extent found herein.
29. ARBITRATION
Any controversy, claim or dispute arising out of or relating to this Agreement
or the transactions contemplated hereby or the breach, termination, enforcement,
interpretation or validity hereof, including the determination of the scope or
applicability of this agreement to arbitrate (collectively "Dispute"), shall be
determined by arbitration in Phoenix, Arizona before a sole arbitrator. The
following shall apply to any such arbitration:
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29.1 The arbitration shall be administered by the American Arbitration
Association ("AAA") pursuant to its Commercial Rules and Supplementary
Procedures for Large, Complex Disputes. The arbitrator shall not be an officer,
employee, director or affiliate of any party hereto or of its affiliates or
Subsidiaries. If the parties are unable to agree on an arbitrator within 30 days
of the filing of the Demand for Arbitration, an arbitrator shall be selected
pursuant to the rules and procedures of the AAA.
29.2 Any party may seek from any court interim or provisional relief that is
necessary to protect the rights or property of that party, pending the
appointment of the arbitrator or pending the arbitrator's determination of the
merits of the controversy.
29.3 The parties shall bear their own costs and expenses, including attorneys'
fees, but the arbitrator may, in the award, allocate all of the administrative
costs of the arbitration (and mediation, if applicable), including the fees of
the arbitrator and mediator, against the party who did not prevail.
29.4 The arbitration award shall be in writing and shall specify the factual and
legal bases for the award. Judgment on the award may be entered in any court
having jurisdiction.
30. NEGOTIATED TERMS
All terms of this Agreement were negotiated between the Parties at arm's length,
recognizing the special needs, knowledge, and benefits of each Party. The
Parties agree that in the event a dispute arises in connection with this
Agreement, the terms contained in this Agreement shall be given their plain
meaning, and that no term shall be construed in favor of one Party over the
other by virtue of one Party having drafted a term in this Agreement.
31. REVIEW MEETINGS
31.1 Immediately following the effective date of this Agreement the Parties
shall establish a Operation Committee which will oversee the business
relationship between the Parties. The Operational Committee meetings will be
held on a regular basis to review programs, performance measurements and
barriers to progress and to review appropriate action to eliminate barriers, but
no less frequently than monthly during the calendar year. Topics to be addressed
will include, but not be limited to the following: i) information communication
quality and accuracy, ii) purchase volume and payment history, iii) Delivery and
Purchase Order lead time performance, iv) emergency Purchase Order handling, v)
value engineering initiatives, continuous improvement activities, and vi)
applicable pricing.
31.2 Immediately following the effective date of this Agreement the Parties
shall establish a Executive Steering Committee which will oversee the business
relationship between the Parties. The Executive Steering Committee meetings will
be held as needed, but not less than four times per year from the Effective
Date.
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32. YEAR 2000
To the extent that Product contains software and excluding Product containing
software designed or specified by Honeywell, EFTC warrants that all such Product
will process dates and times in such a manner that the software will continue to
materially comply with specifications without interruption by dates prior to and
during the Year 2000. Further, EFTC will demonstrate a process to ensure that
there will be no delay in delivery or performance as anticipated by this
Agreement due any failure to properly accommodate the date transition to the
Year 2000.
33. OBSOLETE & EXCESS MATERIAL
33.1 Honeywell does not intend to be engaged in the ongoing managing of material
required for this Agreement. EFTC has expertise in material management and the
ability to design and manage a Component Obsolescence Program. Therefore, EFTC
shall be responsible for all such material which shall include Last Time/Life
Time Buy and Obsolete Inventory (hereafter referred to as "LTB".
33.2 As compensation for EFTC buying and managing LTB inventory on a recurring
basis with the intent that Honeywell will have no future obligation to buy back
such LTB inventory, after the unit price of the assembly's have been
established, Honeywell shall pay EFTC and additional one percent (1%) over the
material cost of all inventory purchased by EFTC for Honeywell and sold to
Honeywell (hereafter such compensation shall be referred to as "LTB Cost").
33.3 The LTB Cost will be reviewed annually for reasonableness. If the parties
agree that there has been a significant change in the amount of LTB inventory
reserve needed, the LTB Cost will be re-negotiated or the Parties shall agree to
adjustment.
33.4 For the purpose of calculating Honeywell's Product pricing, attached as
Attachment A, EFTC will exclude its net purchase price of LTB inventory acquired
under the Master Agreement..
33.5 Any sale of LTB inventory by EFTC to a third party must be approved in
writing by Honeywell.
33.6 Piece Part Material Purchases. Honeywell will, from time to time, purchase
piece parts from EFTC. The objective of such piece part purchases shall be to
limit Honeywell's transaction costs and allow Honeywell to purchase such piece
parts at EFTC prices.
33.6.1 All piece part purchases by Honeywell will be under a blanket
purchase order. When possible, Honeywell will attempt to order piece parts on a
regular batch basis. The purchase price paid by Honeywell will be EFTC's price
plus a handling charge not to exceed the fully burdened cost
Long Term Sup. Agmt. Page 15 (3-18-99)(jb)(klm)
EFTC/Honeywell Proprietary/Confidential
<PAGE>
of one full time equivalent EFTC buyer. Such purchase price shall be reviewed
annually by the Parties. The intent is to fully cover EFTC's direct cost of
providing this service to Honeywell.
33.6.2 Only piece parts in EFTC's active bills of material will be
available for sale to Honeywell, with the exception of Honeywell's new design
materials list.. If such piece parts are not in stock, EFTC shall not be
obligated to purchase such piece parts for Honeywell, with the exception of
Honeywell's new design materials list.
NOW, THEREFORE, intending to be legally bound, Honeywell and EFTC execute this
Agreement on the date first written above.
Honeywell Inc. EFTC
By: /s/ Michael Smith By: /s/ Jack Calderon
------------------------------- -------------------------------
Name: Michael Smith Name: Jack Calderon
----------------------------- ------------------------------
Title: President Title: Chief Executive Officer
---------------------------- -----------------------------
Date: 3/19/99 Date: 3/19/99
----------------------------- ------------------------------
Attachments to this Agreement
Attachment A - Product Prices
Attachment B - Honeywell General Terms and Conditions
Attachment C - Honeywell Quality Control Requirements
Attachment D - Performance Threshold Process
Long Term Sup. Agmt. Page 16 (3-18-99)(jb)(klm)
EFTC/Honeywell Proprietary/Confidential
<PAGE>
NOTE: CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FROM THE SECURITIES AND
EXCHANGE COMMISSION FOR PORTIONS OF THIS EXHIBIT.
*** = confidential portion omitted and filed separately with SEC
AMENDMENT TO
LONG TERM SUPPLY AGREEMENT
This Amendment dated as of May 21, 1999 (the "Amendment") amends that
certain Long Term Supply Agreement dated March 19, 1999, by and between
Honeywell, Inc., a Delaware corporation acting on behalf of its various
divisions and subsidiaries (hereinafter collectively referred to as
"Honeywell"), and EFTC Corporation, a Colorado corporation ("EFTC") (the
"Original Supply Agreement"). The Amendment and the Original Supply Agreement
are collectively referred to herein as the "Agreement."
RECITALS
A. Honeywell and EFTC have entered into an Amendment of even date herewith (the
"Amendment to Master Agreement") to the Master Agreement Regarding Asset
Purchase and Related Transactions dated March 19, 1999 (the "Master Agreement").
Pursuant to the Amendment to the Master Agreement, Honeywell has agreed to
transfer to EFTC certain additional intellectual property, assets and employees
relating to the manufacture of electronic assemblies, and EFTC and Honeywell
entered into the Original Supply Agreement providing for the manufacture by EFTC
of electronic assemblies for Honeywell and its affiliated entities.
B. Honeywell and EFTC now wish to amend the Original Supply Agreement to
provide for the manufacture of additional products by EFTC for Honeywell.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements hereinafter set forth, and in consideration of the execution and
performance of the Amendment to Master Agreement, the parties hereto agree as
follows:
1. All capitalized terms used in this Amendment without definition shall have
the meanings ascribed thereto in the Original Supply Agreement. All capitalized
terms used in the Original Supply Agreement without definition shall have the
meanings ascribed thereto in the Master Agreement, as amended. Except as
specifically provided in this Amendment, all other terms and conditions of the
Original Supply Agreement shall remain in full force and effect.
2. An additional ATS Attachment A shall be attached to this Agreement to
add the additional Products to be manufactured under the Agreement, and
the prices for such Products. Prices for the additional Products in ATS
Attachment A shall be effective as of the ATS Inventory Transfer Date
or the Honeymex BCAS Inventory Transfer Date (as those terms are
defined in the Master Agreement, as amended).
Page 1
<PAGE>
NOTE: Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Omissions are designed as
***. Confidential treatment has been requested with respect to the
omitted portions.
3. Section 4.1 of the Original Supply Agreement is hereby amended to read
in its entirety as follows:
4.1 Payments by Honeywell to EFTC shall be (a) for the calendar
years 1999 and 2000, net thirty (30) days and (b) thereafter,
net forty-five (45) days, in each case measured from Honeywell
receipt of Products (which shall be no earlier than the
delivery date stated in the Purchase Order), with a 2%
discount for payments made within ten (10) business days from
Honeywell's receipt of Products.
4. Section 6.5 is hereby amended to add the following additional sentence
to the end:
In the event that product is returned for rework or
replacement under this Section 6.5, the costs of such reworking or replacement
shall be calculated in the same manner as the costs described in Section 2.3 of
the On-Site Services Agreement, as amended to date.
5. Section 8 of the Original Supply Agreement is hereby amended to add the
following new Section 8.3:
8.3 Honeywell's liabilities under this Section 8 for material
purchases by EFTC in excess of Honeywell's forecasts shall be reviewed at least
quarterly, with more frequent reviews if appropriate. EFTC shall sell to
Honeywell such excess inventory and invoice Honeywell for this excess inventory
after the end of each calendar quarter, and Honeywell shall pay such invoices
within thirty (30) days of receipt thereof.
6. The title of Section 9 of the Original Supply Agreement is hereby
amended to be: "COST CONTAINMENT AND PROFIT SHARING."
7. Section 9.1 of the Original Supply Agreement is hereby amended to read
in its entirety as follows:
9.1 By July 31, 2000, the Parties shall review the Product costs then
in effect, which costs shall serve as a baseline for the discussions of
Product pricing in September 2000. Starting January 1, 2001, EFTC shall
offer *** . By September 30, 2000, the Parties shall mutually agree to
establish the Product price base line that will be used as the basis
for *** . EFTC and Honeywell agree to *** . The Parties will, in good
faith, review and revise as appropriate these commitments every year in
September for the following calendar year.
Page 2
<PAGE>
NOTE: Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Omissions are designed as
***. Confidential treatment has been requested with respect to the
omitted portions.
8. A new Section 9.3 is hereby added to the end of Section 9:
9.3 For EFTC's fiscal years ending December 31, 2000 and 2001, EFTC
shall pay to Honeywell *** within ten (10)
business days after the filing of EFTC's Form 10-Q Report for that
quarter with the Securities and Exchange Commission (the "SEC") for the
first three quarters of each of EFTC's fiscal year. Within ten (10)
days after the filing with the SEC of EFTC's Form 10-K Report for the
fiscal years ending December 31, 2000 and 2001, EFTC shall pay to
Honeywell any additional amounts due under this Section 9.3 *** as
determined under this Section 9.3. If EFTC has made excess payments to
Honeywell *** Honeywell shall re-pay to EFTC any excess amounts. In
the event that EFTC has not paid *** to Honeywell under this Section
9.3, EFTC shall pay the difference to Honeywell within ten (10) days
after the filing with the SEC of EFTC's Form 10-K Report for the
fiscal year ending December 31, 2001; *** The maximum payments to
Honeywell for fiscal years 2000 and 2001 under this Section 9.3 shall
be ***.
8. The last sentence of Section 31.1 shall be amended to add the following
subsection at the end:
"...and (vii) material price variances (MPV)."
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the day
and year first above written.
HONEYWELL, INC. EFTC CORPORATION
By:/s/ Michael A. Smith By: /s/ Jack Calderon
--------------------------- ---------------------------
Its: President Its: Chief Executive Officer
-------------------------- ---------------------------
Page 3
<PAGE>
NOTE: CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FROM THE SECURITIES AND
EXCHANGE COMMISSION FOR PORTIONS OF THIS EXHIBIT.
*** = confidential portion omitted and filed separately with SEC
SECOND AMENDMENT
TO
LONG TERM SUPPLY AGREEMENT
This Second Amendment to Long Term Supply Agreement (the "Amendment")
is entered into by and between Honeywell, Inc., a Delaware corporation acting on
behalf of its various divisions and subsidiaries ("Honeywell") and EFTC
Corporation, a Colorado corporation ("EFTC") and is effective as of February __,
2000.
RECITALS
A. Honeywell and EFTC entered into a Long Term Supply Agreement dated
as of March 19, 1999 (the "Original Supply Agreement"), as amended by the
Amendment to Long Term Supply Agreement dated as of May 21, 1999 (the "May
Amendment"; the Original Supply Agreement and the May Amendment are collectively
referred to herein as the "Supply Agreement"), which provided for the
manufacture by EFTC of electronic assemblies for Honeywell and its affiliated
entities.
B. The prices for Products covered by the Supply Agreement were based
on estimated annual revenues to EFTC in 2000 of approximately $170 million from
the Long Term Agreement, as stated in Honeywell's May 1999 forecast.
C. Honeywell had estimated annual revenues to EFTC in 2000 of
approximately $120 million from the Supply Agreement, as stated in Honeywell's
November 1999 forecast.
D. Honeywell has now informed EFTC that as a result of Honeywell
divesting its Traffic Collision Avoidance System operations (the "TCAS
Divestiture"), annual revenues to EFTC in 2000 and 2001 are expected to be
decreased by approximately an additional $5 million and 12 million,
respectively.
E. The parties therefore desire to amend the Supply Agreement as
follows:
AGREEMENT
1. All capitalized terms used in this Agreement without definition
shall have the meanings ascribed thereto in the Original Supply Agreement or the
May Amendment. All capitalized terms used in the Original Supply Agreement
without definition shall have the meaning ascribed to them in the Master
Agreement, as amended. Except as specifically provided in this amendment, all
other terms and conditions of the Supply Agreement shall remain in full force
and effect.
2. A new Section 2.5 is added as follows:
<PAGE>
NOTE: Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Omissions are designed as
***. Confidential treatment has been requested with respect to the
omitted portions.
2.5 The price for the Product manufactured by EFTC in 2000 will
be increased by a total amount of $6 million. This amount
shall be paid in twelve monthly installments with each
installment being due and payable on the first day of each
month, commencing January 1, 2000. Payments by Honeywell
shall be made net thirty (30) days.
3. Section 9.1 of the May Amendment is hereby amended to add the
following language after the first sentence:
Honeywell will provide EFTC with its revenue forecasts for
2001 as soon as such forecasts are available.
4. Section 9.1 of the May Amendment is hereby further amended to delete
the fourth sentence and add the following language instead:
By September 30, 2000, EFTC and Honeywell will evaluate
Honeywell's revenue forecasts for 2001. Both Parties will
agree upon the prices for the Products and adjust invoices
and purchase order prices for Products manufactured by EFTC
in 2001 based on mutually agreed upon profits and returns
for EFTC. This product pricing will be considered the base
line price that will be used as the basis ***. EFTC's
delivery performance levels and ability to transition
Product to EFTC's Facility in accordance with Honeywell's
transition dates, as such may be modified from time to time
by mutual agreement of the Parties, will be considered by
the Parties in negotiating such product price base line.
5. A new Section 34 is hereby added to the Supply Agreement:
34. PRICING REVIEW DUE TO TCAS DIVESITURE.
Beginning July 1, 2000, EFTC and Honeywell agree to meet and
evaluate the overall economic impact of the TCAS Divestiture
on EFTC's projected revenues from the Supply Agreement. In
light of the TCAS Divestiture and the impact of such
divestiture on the projected revenues to EFTC from the
Supply Agreement, the Parties agree to review pricing on all
Products manufactured by EFTC for Honeywell in Phoenix and
the Parties further agree to consider, in good faith, a
price increase on such Products. The Parties agree that such
price review and potential price increase is fair and
reasonable in light of the changes to Honeywell's forecasts,
on which EFTC initially based the pricing for the Products,
caused by the TCAS Divestiture. Both Parties agree to
explore, in good faith, further steps to mitigate the
economic impact of the TCAS Divestiture on EFTC and its
revenues from the Supply Agreement, including, but not
limited to, increasing Honeywell business to EFTC from other
Honeywell divisions and cooperative efforts to improve
management of overall costs related to EFTC's Phoenix
facility.
<PAGE>
6. As of the date hereof and through December 31, 2000, Attachment D is
hereby amended in the following manner:
The term "3 consecutive months" is deleted and replaced with
the term "2 consecutive months".
The term "6 consecutive months" is deleted and replaced with
the term "4 consecutive months".
The term "12 consecutive months" is deleted and replaced
with the term "6 consecutive months".
7. As of January 1, 2001 and through the remaining term of the Supply
Agreement, Attachment D (as amended by Section 6 above) is hereby further
amended in the following manner:
The term "2 consecutive months" is deleted and replaced with
the term "current month".
The term "4 consecutive months" is deleted and replaced with
the term "2 consecutive months".
The term "6 consecutive months" is deleted and replaced with
the term "3 consecutive months".
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the day and year first above written.
HONEYWELL, INC. EFTC CORPORATION
By: /s/ By: /s/Stuart W. Fuhlendorf
Its: Vice President Its: Chief Financial Officer
Integrated Supply Chain
<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:
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.
"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
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).
"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
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
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 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.
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,
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,
there 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 Financial Statements 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.
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 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
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
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 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.
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 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
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;
(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
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 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.
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.
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
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.
(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
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 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
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 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 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
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
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 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:
(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
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
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 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.
<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
<PAGE>
TABLE OF CONTENTS - (cont'd)
================================================================================
SECURITIES PURCHASE AGREEMENT
by
and
between
Thayer-Blum Funding, L.L.C.
and
EFTC CORPORATION
-------------------
Dated as of March 30, 2000
-------------------
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1. DEFINITIONS........................................................2
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...........9
3.3. Delivery of the Exchangeable Notes and Certificates Evidencing
the Warrants.....................................................9
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...............................................10
3.9. Consents and Approvals...........................................10
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...............................................11
3.15. Board of Directors...............................................11
ARTICLE 4. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY TO CLOSE..............11
4.1. Representations and Warranties...................................11
4.2. Compliance with Terms and Conditions of this Agreement...........11
4.3. Payment of Purchase Price........................................12
4.4. Closing Certificates.............................................12
4.5. Issuance Permitted by Applicable Laws............................12
4.6. Manager's Certificate............................................12
4.7. Documents........................................................12
4.8. Opinion of Counsel...............................................12
4.9. Consents and Approvals...........................................12
4.10. No Material Judgment or Order....................................13
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................13
5.1. Corporate Existence and Authority................................13
5.2. Corporate Authorization; No Contravention........................13
5.3. Governmental Authorization; Third Party Consents.................13
5.4. Binding Effect...................................................14
5.5. Other Agreements.................................................14
5.6. Capitalization...................................................14
5.7. Subsidiaries.....................................................15
5.8. Litigation.......................................................15
5.9. Financial Statements.............................................15
5.10. Title and Condition of Assets....................................16
5.11. Contractual Obligations..........................................16
5.12. No Material Adverse Effect.......................................17
5.13. Investment Company/Government Regulations........................17
5.14. Broker's, Finder's or Similar Fees...............................17
5.15. Labor Relations and Employee Matters.............................17
5.16. Employee Benefit Plans...........................................17
5.17. Outstanding Borrowings...........................................18
5.18. Undisclosed Liabilities..........................................18
5.19. Solvency.........................................................18
5.20. Compliance with Law..............................................19
5.21. No Other Agreements to Sell the Assets or Capital Stock of the
Company..........................................................19
5.22. Changes..........................................................19
5.23. Certain Payments.................................................20
5.24. Environmental Matters............................................21
5.25. SEC Reports......................................................21
5.26. Fairness Opinion.................................................22
5.27. Disclosure.......................................................23
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER....................23
6.1. Existence and Authority..........................................23
6.2. Authorization; No Contravention..................................23
6.3. Binding Effect...................................................23
6.4. Purchasers Expertise.............................................24
6.5. Investment Intent................................................24
6.6. Broker's, Finder's or Similar Fees...............................24
ARTICLE 7. ADDITIONAL AGREEMENTS..............................................24
7.1. Proxy Statement..................................................24
7.2. Tender Offer.....................................................25
7.3. Proxy Statement; Offer Documents.................................28
7.4. Acquisition Proposals............................................28
7.5. Interim Operations...............................................29
7.6. Access to Information; Confidentiality...........................31
7.7. Preferred Stock Purchase Rights..................................32
7.8. Continued Listing................................................33
7.9. Consultants and Advisors.........................................33
7.10. Operational Review Meetings......................................33
7.11. Approval of Financings...........................................33
7.12. Stock Incentive Plan.............................................33
ARTICLE 8. TERMINATION........................................................33
8.1. Termination Rights...............................................33
8.2. Effect of Termination............................................34
ARTICLE 9. MISCELLANEOUS......................................................35
9.1. Notices..........................................................35
9.2. Successors and Assigns...........................................36
9.3. Amendment and Waiver.............................................36
9.4. Counterparts.....................................................37
9.5. Headings.........................................................37
9.6. Governing Law....................................................37
9.7. Jurisdiction.....................................................37
9.8. Severability.....................................................37
9.9. Rules of Construction............................................37
9.10. Entire Agreement.................................................38
9.11. Transaction Expenses.............................................38
9.12. Publicity........................................................38
9.13. Further Assurances...............................................38
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
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 and 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.
"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
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, (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.
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.
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 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.
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
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
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
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.
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.
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.
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]
<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: ______________________________
Name: ______________________________
Title:______________________________
THAYER-BLUM FUNDING, L.L.C.
By: ______________________________
Name: ______________________________
Title:______________________________
<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.
LOAN AND SECURITY AGREEMENT
Dated as of March 30, 2000
Among
THE FINANCIAL INSTITUTIONS NAMED HEREIN
as the Lenders
and
BANK OF AMERICA, N.A.
as the Agent and Sole Lead Arranger
and
EFTC CORPORATION,
and
RM ELECTRONICS, INC.,
as the Borrowers
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Section
Page
<S> <C>
ARTICLE 1 INTERPRETATION OF THIS AGREEMENT................................................................1
1.1 Definitions.....................................................................................1
1.2 Accounting Terms...............................................................................26
1.3 Interpretive Provisions........................................................................27
ARTICLE 2 LOANS AND LETTERS OF CREDIT....................................................................28
2.1 Total Facility.................................................................................28
2.2 Revolving Loans................................................................................28
2.3 Intentionally Deleted..........................................................................34
2.4 Letters of Credit..............................................................................34
2.5 Bank Products..................................................................................40
ARTICLE 3 INTEREST AND FEES..............................................................................40
3.1
Interest.........................................................................................................40
3.2 Continuation and Conversion Elections..........................................................41
3.3 Maximum Interest Rate..........................................................................42
3.4 Agent's Fees...................................................................................42
3.5 Unused Line Fee................................................................................43
3.6 Letter of Credit Fee...........................................................................43
ARTICLE 4 PAYMENTS AND PREPAYMENTS.......................................................................43
4.1 Revolving Loans................................................................................43
4.2 Termination of Facility........................................................................43
4.3 [Intentionally Deleted]........................................................................44
4.4 [Intentionally Deleted]........................................................................44
4.5 [Intentionally Deleted]........................................................................44
4.6 Payments by the Borrowers......................................................................44
4.7 Payments as Revolving Loans....................................................................45
4.8 Apportionment, Application and Reversal of Payments............................................45
4.9 Indemnity for Returned Payments................................................................46
4.10 Agent's and Lenders' Books and Records; Monthly Statements.....................................46
ARTICLE 5 TAXES, YIELD PROTECTION AND ILLEGALITY.........................................................47
5.1 Taxes..........................................................................................47
5.2 Illegality.....................................................................................48
5.3 Increased Costs and Reduction of Return........................................................48
5.4 Funding Losses.................................................................................48
5.5 Inability to Determine Rates...................................................................49
5.6 Certificates of Lenders........................................................................49
5.7 Survival.......................................................................................49
ARTICLE 6 COLLATERAL.....................................................................................50
6.1 Grant of Security Interest.....................................................................50
6.2 Perfection and Protection of Security Interest.................................................51
6.3 Location of Collateral.........................................................................52
6.4 Title to, Liens on, and Sale and Use of Collateral.............................................52
6.5 Appraisals.....................................................................................53
6.6 Access and Examination; Confidentiality; Consent to Advertising................................53
6.7 Collateral Reporting...........................................................................54
6.8 Accounts.......................................................................................54
6.9 Collection of Accounts; Payments...............................................................56
6.10 Inventory; Perpetual Inventory.................................................................57
6.11 Equipment......................................................................................57
6.12 Assigned Contracts.............................................................................58
6.13 Documents, Instruments, and Chattel Paper......................................................59
6.14 Right to Cure..................................................................................59
6.15 Power of Attorney..............................................................................59
6.16 The Agent's and Lenders' Rights, Duties and Liabilities........................................60
6.17 Site Visits, Observations and Testing..........................................................60
ARTICLE 7 BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES..............................................61
7.1 Books and Records..............................................................................61
7.2 Financial Information..........................................................................61
7.3 Notices to the Lenders.........................................................................64
ARTICLE 8 GENERAL WARRANTIES AND REPRESENTATIONS.........................................................66
8.1 Authorization, Validity, and Enforceability of this Agreement and the Loan Documents...........66
8.2 Validity and Priority of Security Interest.....................................................66
8.3 Organization and Qualification.................................................................66
8.4 Corporate Name; Prior Transactions.............................................................67
8.5 Subsidiaries and Affiliates....................................................................67
8.6 Financial Statements and Projections...........................................................67
8.7 Capitalization.................................................................................67
8.8 Solvency.......................................................................................68
8.9 Debt...........................................................................................68
8.10 Distributions..................................................................................68
8.11 Title to Property..............................................................................68
8.12 Real Estate; Leases............................................................................68
8.13 Proprietary Rights.............................................................................69
8.14 Trade Names....................................................................................69
8.15 Litigation.....................................................................................69
8.16 Restrictive Agreements.........................................................................69
8.17 Labor Disputes.................................................................................69
8.18 Environmental Laws.............................................................................69
8.19 No Violation of Law............................................................................71
8.20 No Default.....................................................................................71
8.21 ERISA Compliance...............................................................................71
8.22 Taxes..........................................................................................72
8.23 Regulated Entities.............................................................................72
8.24 Use of Proceeds; Margin Regulations............................................................72
8.25 Copyrights, Patents, Trademarks and Licenses, etc..............................................72
8.26 No Material Adverse Change.....................................................................72
8.27 Full Disclosure................................................................................73
8.28 Material Agreements............................................................................73
8.29 Bank Accounts..................................................................................73
8.30 Governmental Authorization.....................................................................73
ARTICLE 9 AFFIRMATIVE AND NEGATIVE COVENANTS.............................................................73
9.1 Taxes and Other Obligations....................................................................73
9.2 Corporate Existence and Good Standing..........................................................74
9.3 Compliance with Law and Agreements; Maintenance of Licenses....................................74
9.4 Maintenance of Property........................................................................74
9.5 Insurance......................................................................................74
9.6 Condemnation...................................................................................75
9.7 Environmental Laws.............................................................................76
9.8 Compliance with ERISA..........................................................................77
9.9 Mergers, Consolidations or Sales...............................................................77
9.10 Distributions; Capital Change; Restricted Investments..........................................77
9.11 Transactions Affecting Collateral or Obligations...............................................78
9.12 Guaranties.....................................................................................78
9.13 Debt...........................................................................................78
9.14 Prepayment.....................................................................................78
9.15 Transactions with Affiliates...................................................................78
9.16 Investment Banking and Finder's Fees...........................................................79
9.17 Directors' Fees................................................................................79
9.18 Business Conducted.............................................................................79
9.19 Liens..........................................................................................79
9.20 Sale and Leaseback Transactions................................................................79
9.21 New Subsidiaries...............................................................................80
9.22 Fiscal Year....................................................................................80
9.23 Capital Leases.................................................................................80
9.24 Operating Lease Obligations....................................................................80
9.25 Capital Expenditures...........................................................................80
9.26 Cash Flow......................................................................................80
9.27 [Intentionally Deleted]........................................................................80
9.28 [Intentionally Deleted]........................................................................80
9.29 Coverage Ratio.................................................................................81
9.30 Use of Proceeds................................................................................81
9.31 Payment of Honeywell...........................................................................81
9.32 Further Assurances.............................................................................81
ARTICLE 10 CONDITIONS OF LENDING..........................................................................81
10.1 Conditions Precedent to Making of Loans on the Closing Date....................................81
10.2 Conditions Precedent to Each Loan..............................................................83
ARTICLE 11 DEFAULT; REMEDIES..............................................................................84
11.1 Events of Default..............................................................................84
11.2 Remedies.......................................................................................87
ARTICLE 12 TERM AND TERMINATION...........................................................................88
12.1 Term and Termination...........................................................................88
ARTICLE 13 AMENDMENTS; WAIVERS; PARTICIPATIONS; ASSIGNMENTS; SUCCESSORS...................................88
13.1 Amendments and Waivers.........................................................................88
13.2 Assignments; Participations....................................................................89
ARTICLE 14 THE AGENT......................................................................................91
14.1 Appointment and Authorization..................................................................91
14.2 Delegation of Duties...........................................................................92
14.3 Liability of Agent.............................................................................92
14.4 Reliance by Agent..............................................................................92
14.5 Notice of Default..............................................................................93
14.6 Credit Decision................................................................................93
14.7 Indemnification................................................................................93
14.8 Agent in Individual Capacity...................................................................94
14.9 Successor Agent................................................................................94
14.10 Withholding Tax................................................................................95
14.11 Co-Agents......................................................................................96
14.12 Collateral Matters.............................................................................96
14.13 Restrictions on Actions by Lenders; Sharing of Payments........................................97
14.14 Agency for Perfection..........................................................................98
14.15 Payments by Agent to Lenders...................................................................98
14.16 Concerning the Collateral and the Related Loan Documents.......................................98
14.17 Field Audit and Examination Reports; Disclaimer by Lenders.....................................98
14.18 Relation Among Lenders.........................................................................99
ARTICLE 15 MISCELLANEOUS..................................................................................99
15.1 No Waivers; Cumulative Remedies................................................................99
15.2 Severability...................................................................................99
15.3 GOVERNING LAW; CHOICE OF FORUM; SERVICE OF PROCESS............................................100
15.4 WAIVER OF JURY TRIAL..........................................................................100
15.5 Survival of Representations and Warranties....................................................101
15.6 Other Security and Guaranties.................................................................101
15.7 Fees and Expenses.............................................................................101
15.8 Notices.......................................................................................102
15.9 Waiver of Notices.............................................................................103
15.10 Binding Effect................................................................................103
15.11 Indemnity of the Agent and the Lenders by Each Borrower.......................................104
15.12 Limitation of Liability.......................................................................104
15.13 Final Agreement...............................................................................105
15.14 Counterparts..................................................................................105
15.15 Captions......................................................................................105
15.16 Right of Setoff...............................................................................105
15.17 Replacement of Affected Lenders...............................................................106
15.18 Joint and Several Liability...................................................................106
15.19 Contribution and Indemnification among the Borrowers..........................................107
15.20 Agency of the Parent for each other Borrower..................................................108
</TABLE>
<PAGE>
EXHIBITS AND SCHEDULES
EXHIBIT A - FORM OF BORROWING BASE CERTIFICATE
EXHIBIT B - FORM OF FINANCIAL COVENANT CERTIFICATE
EXHIBIT C - FINANCIAL STATEMENTS
EXHIBIT D - FORM OF NOTICE OF BORROWING
EXHIBIT E - FORM OF NOTICE OF CONTINUATION/CONVERSION
EXHIBIT F - FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT
EXHIBIT G - GECC PAYMENT AGREEMENT
SCHEDULE 1.1 - ASSIGNED CONTRACTS
SCHEDULE 6.3 - LOCATION OF COLLATERAL AND CHIEF EXECUTIVE OFFICES
SCHEDULE 8.3 - ORGANIZATION AND QUALIFICATIONS
SCHEDULE 8.4 - CORPORATE NAMES, ETC.
SCHEDULE 8.5 - SUBSIDIARIES AND AFFILIATES
SCHEDULE 8.9 - DEBT
SCHEDULE 8.11 - TITLE
SCHEDULE 8.12 - REAL ESTATE; LEASES
SCHEDULE 8.13 - PROPRIETARY RIGHTS
SCHEDULE 8.14 - TRADE NAMES
SCHEDULE 8.20 - DEFAULTS
SCHEDULE 8.28 - MATERIAL AGREEMENTS
SCHEDULE 8.29 - BANK ACCOUNTS
<PAGE>
LOAN AND SECURITY AGREEMENT
Loan and Security Agreement, dated as of March 30, 2000, among the
financial institutions listed on the signature pages hereof (such financial
institutions, together with their respective successors and assigns, are
referred to hereinafter each individually as a "Lender" and collectively as the
"Lenders"), Bank of America, N.A. with an office at 55 South Lake Avenue, Suite
900, Pasadena, California 91101, as agent for the Lenders (in its capacity as
agent, the "Agent") and as the sole lead arranger, and EFTC Corporation, a
Colorado corporation ("EFTC" or "Parent") with a chief executive office
located at 9351 Grant Street, 6th Floor, Denver, Colorado 80229 and RM
Electronics, Inc., a New Hampshire corporation (doing business as Personal
Electronics) ("PEI" and collectively with EFTC, the "Borrowers"), with a
chief executive office located at One Perimeter Road, Manchester, New
Hampshire 03103.
W I T N E S S E T H
WHEREAS, the Borrowers have requested the Lenders to make available to
the Borrowers a revolving line of credit for loans and letters of credit in an
amount not to exceed $45,000,000 and which extension of credit the Borrowers
will use for their working capital needs and general business purposes;
WHEREAS, the Lenders have agreed to make available to the Borrowers a
revolving credit facility upon the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth in this Agreement, and for good and valuable consideration,
the receipt of which is hereby acknowledged, the Lenders, the Agent, and the
Borrowers hereby agree as follows.
ARTICLE 1
INTERPRETATION OF THIS AGREEMENT
1.1 Definitions. As used herein:
"Accounts" means all of the Borrowers' now owned or hereafter
acquired or arising accounts as defined in the UCC, including any rights to
payment for the sale or lease of goods or rendition of services, whether or not
they have been earned by performance.
"Accounts Advance Rate" means 85%; provided, however, that
such rate shall be reduced by one percentage point if the Dilution is equal to
or greater than 8% and shall be further reduced by an additional percentage
point for each full percent that the Dilution exceeds 8% and provided further,
however, that if the Dilution is equal to or greater than 11%, the Accounts
Advance Rate shall be reduced by two percentage points for each full percent
that the Dilution exceeds 10%. By way of example: (i) Dilution of 7.5% would
result in an Accounts Advance Rate of 85%; (ii) dilution of 10.5% would result
in an Accounts Advance Rate of 82%; and (iii) Dilution of 14.6% would result in
an Accounts Advance Rate of 74%.
"Account Debtor" means each Person obligated in any way on or
in connection with an Account.
"ACH Transactions" means any cash management or related
services including the automatic clearing house transfer of funds by the Bank
for the account of any Borrower pursuant to agreement or overdrafts.
"Adjusted Net Earnings from Operations" means, with respect to
any fiscal period of the Parent, the Parent's net income after provision for
income taxes for such fiscal period, as determined in accordance with GAAP and
reported on the Financial Statements for such period, excluding any and all of
the following included in such net income: (a) gain or loss arising from the
sale of any capital assets; (b) gain arising from any write-up in the book value
of any asset; (c) earnings of any Person, substantially all the assets of which
have been acquired by the Parent in any manner, to the extent realized by such
other Person prior to the date of acquisition; (d) earnings of any Person in
which the Parent has an ownership interest unless (and only to the extent) such
earnings shall actually have been received by the Parent in the form of cash
distributions; (e) earnings of any Person to which assets of the Parent shall
have been sold, transferred or disposed of, or into which the Parent shall have
been merged, or which has been a party with the Parent to any consolidation or
other form of reorganization, prior to the date of such transaction; (f) gain
arising from the acquisition of debt or equity securities of the Parent or from
cancellation or forgiveness of Debt; (g) gain arising from extraordinary items,
as determined in accordance with GAAP, or from any other non-recurring
transaction; and (h) other one-time adjustments for gains (or losses) to the
extent agreed upon by the Borrower, the Agent and the Majority Lenders.
"Affiliate" means, as to any Person, any other Person (a)
which directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person or (b) which owns, directly or indirectly, ten
percent (10%) or more of the outstanding equity interest of such Person;
provided, however, that this clause (b) shall not include a company whose
securities are owned by either RCBA, Thayer or any of their respective
affiliates unless either RCBA, Thayer or any of their respective affiliates, as
the case may be, own more than 50% of the voting securities of that company. A
Person shall be deemed to control another Person if the controlling Person
possesses, directly or indirectly, the power to direct or cause the direction of
the management and policies of the other Person, whether through the ownership
of voting securities, by contract, or otherwise.
"Agent" means the Bank, solely in its capacity as agent for
the Lenders, and any successor agent.
"Agent Advances" has the meaning specified in Section 2.2(i).
"Agent's Fee Letter" means that certain letter agreement,
dated of even date herewith, among the Agent and the Borrowers, as amended,
modified, supplemented or replaced from time to time.
"Agent's Liens" means the Liens in the Collateral granted to
the Agent, for the benefit of the Lenders, Bank, and Agent pursuant to this
Agreement and the other Loan Documents.
"Agent-Related Persons" means the Agent, together with its
Affiliates, and the officers, directors, employees, agents and attorneys-in-fact
of the Agent and such Affiliates.
"Aggregate Revolver Outstandings" means, at any date of
determination, the sum of (a) the unpaid balance of Revolving Loans, (b) the
aggregate amount of Pending Revolving Loans, (c) one hundred percent (100%) of
the aggregate undrawn face amount of all outstanding Letters of Credit, and (d)
the aggregate amount of any unpaid reimbursement obligations in respect of
Letters of Credit.
"Agreement" means this Loan and Security Agreement.
"Anniversary Date" means each anniversary of the Closing Date.
"Applicable Margin" means
(i) with respect to Base Rate Revolving Loans and all
other Obligations (other than LIBOR Rate Loans), 0.50%; and
(ii) with respect to LIBOR Rate Loans, 2.75%;
provided, however, that, upon the first day of the first month following the
delivery to the Agent and the Lenders of the Parent's audited Financial
Statements for either Fiscal Year 2000 or Fiscal Year 2001, as required by
Section 7.2 (a), together with a Financial Covenant Certificate for the last
fiscal quarter of such Fiscal Year, the then effective Applicable Margins set
forth in clauses (i) and (ii) above each shall be reduced to either Pricing
Level I or Pricing Level II as provided in the following table if (a) no Event
of Default then exists and (b) such Financial Statements and the Financial
Covenant Certificate demonstrate the Parent's compliance for such Fiscal Year
with both the Coverage Ratio Test and the Inventory Turnover Test required for
such Pricing Level:
Pricing Level Applicable Margins
Level I 0.25% for Base Rate Revolving Loans and all other
Obligations other than LIBOR Rate Loans
2.50% for LIBOR Rate Loans
Level II 0.00% for Base Rate Revolving Loans and all other
Obligations other than LIBOR Rate Loans
2.25% for LIBOR Rate Loans
All such adjustments shall be made effective on the later of the first
Anniversary Date following the end of such Fiscal Year or the first day of the
first month after the Agent's receipt of such Financial Statements for such
Fiscal Year, but no such adjustment shall affect any LIBOR Revolving Loan with
an Interest Period that commenced prior to the delivery of the Financial
Covenant Certificate and Financial Statements demonstrating such compliance.
Subject to the applicability of the Default Rate, a failure by the Parent to
achieve an Inventory Turnover Test or a Coverage Ratio Test that it achieved in
a prior Fiscal Year will not result in an increase in the Applicable Margin. As
used in this definition, the term "Coverage Ratio Test" means a Coverage Ratio
greater than 1.0 to 1.0 (for Pricing Level I) or greater than 1.4 to 1.0 (for
Pricing Level II), and the term "Inventory Turnover Test" means an Inventory
Turnover Rate of less than 86 days (for Pricing Level I) or less than 75 days
(for Pricing Level II).
"Assigned Contracts" means, collectively, all of the
Borrowers' rights and remedies under, and all moneys and claims for money due or
to become due to any Borrower under those contracts set forth on Schedule 1.1,
and any other material contracts, and any and all amendments, supplements,
extensions, and renewals thereof including all rights and claims of any Borrower
now or hereafter existing: (i) under any insurance, indemnities, warranties, and
guarantees provided for or arising out of or in connection with any of the
foregoing agreements; (ii) for any damages arising out of or for breach or
default under or in connection with any of the foregoing contracts; (iii) to all
other amounts from time to time paid or payable under or in connection with any
of the foregoing agreements; or (iv) to exercise or enforce any and all
covenants, remedies, powers and privileges thereunder.
"Assignee" has the meaning specified in Section 13.2(a).
"Assignment and Acceptance" has the meaning specified in
Section 13.2(a).
"Attorney Costs" means and includes all reasonable fees,
expenses and disbursements of any law firm or other counsel engaged by the
Agent, the reasonable allocated costs of internal legal services of the Agent
and the reasonable expenses of internal counsel to the Agent.
"Availability" means, at any time, (a) the Borrowing Base
minus (b) the Aggregate Revolver Outstandings.
"Availability Reserve" means a reserve initially in the amount
of $19,000,000. So long as no Event of Default then exists, and based upon the
Agent's receipt of a Borrowing Base Certificate together with such other
financial information as the Agent may require, the Agent shall reduce the
Availability Reserve from time to time to an amount not to exceed the greater
of: (a) the amount, if any, of the then outstanding accounts payable of Parent
owing to Honeywell in respect of One Time Buy Inventory, or (b) $15,000,000
minus the then outstanding amount of Eligible Accounts owed by Honeywell
to Parent.
"Bank" means Bank of America, N.A., a national banking
association, or any successor entity thereto.
"Bank Products" means any one or more of the following types
of services or facilities extended to any Borrower by the Bank or any affiliate
of the Bank in reliance on the Bank's agreement to indemnify such affiliate: (i)
credit cards; (ii) ACH Transactions; and (iii) Hedge Agreements.
"Bank Product Reserves" means all reserves which the Agent
from time to time establishes in its sole discretion for the Bank Products then
provided or outstanding; which reserves (or the potential therefor) will be
disclosed at the time Bank enters into such Bank Products with the Borrowers.
"Bankruptcy Code" means Title 11 of the United States Code (11
U.S.C.ss. 101 et seq.).
"Base Rate" means, for any day, the rate of interest in effect
for such day as publicly announced from time to time by the Bank in Charlotte,
North Carolina as its "prime rate" (the "prime rate" being a rate set by the
Bank based upon various factors including the Bank's costs and desired return,
general economic conditions and other factors, and is used as a reference point
for pricing some loans, which may be priced at, above, or below such announced
rate). Any change in the prime rate announced by the Bank shall take effect at
the opening of business on the day specified in the public announcement of such
change. Each Interest Rate based upon the Base Rate shall be adjusted
simultaneously with any change in the Base Rate.
"Base Rate Loans" means the Base Rate Revolving Loans.
"Base Rate Revolving Loan" means a Revolving Loan during
any period in which it bears interest based on the Base Rate.
"Blocked Account Agreement" means an agreement among the
Borrower, the Agent and a Clearing Bank, in form and substance satisfactory to
the Agent, concerning the collection of payments which represent the proceeds of
Accounts or of any other Collateral.
"Borrowing" means a borrowing hereunder consisting of
Revolving Loans made on the same day by the Lenders to any Borrower or by Bank
in the case of a Borrowing funded by Non-Ratable Loans or by the Agent in the
case of a Borrowing consisting of an Agent Advance, or the issuance of Letters
of Credit hereunder.
"Borrowing Base" means, at any time, an amount equal to (a)
the lesser of (i) the Maximum Revolver Amount or (ii) the sum of (A) (1) the
Accounts Advance Rate times (2) the difference between (y) the Net Amount of
Eligible Accounts less (z) the Honeywell Reserve; plus (B) the lesser of (1) the
Inventory Limit or (2) the sum of (x) 50% of the value of Eligible Inventory
consisting of raw materials and finished goods plus (y) 30% of the value of
Eligible Inventory consisting of work in process minus (z) the Availability
Reserve; minus (b) the sum of (i) reserves for accrued and unpaid interest on
the Obligations, (ii) the Environmental Compliance Reserve, (iii) the Bank
Product Reserves, (iv) The Rent Reserve, and (v) all other reserves which the
Agent deems necessary in the exercise of its reasonable credit judgment to
maintain with respect to any Borrower's account, including reserves for any
amounts which the Agent or any Lender may be obligated to pay in the future for
the account of any Borrower.
"Borrowing Base Certificate" means a certificate by a
Responsible Officer of the Parent, substantially in the form of Exhibit A (or
another form acceptable to the Agent) setting forth the calculation of the
Borrowing Base, including a calculation of each component thereof, all in such
detail as shall be satisfactory to the Agent. All calculations of the Borrowing
Base in connection with the preparation of any Borrowing Base Certificate shall
originally be made by Parent and certified to the Agent; provided, that the
Agent shall have the right to review and adjust, in the exercise of its
reasonable credit judgment, any such calculation (1) to reflect its reasonable
estimate of declines in value of any of the Collateral described therein, and
(2) to the extent that such calculation is not in accordance with this
Agreement.
"Business Day" means (a) any day that is not a Saturday,
Sunday, or a day on which banks in Los Angeles, California are closed, and (b)
with respect to all notices, determinations, fundings and payments in connection
with the LIBOR Rate or LIBOR Rate Loans, any day that is a Business Day pursuant
to clause (a) above and that is also a day on which trading in Dollars is
carried on by and between banks in the London interbank market.
"Capital Adequacy Regulation" means any guideline, request or
directive of any central bank or other Governmental Authority, or any other law,
rule or regulation, whether or not having the force of law, in each case,
regarding capital adequacy of any bank or of any corporation controlling a bank.
"Capital Expenditures" means all payments due (whether or not
paid) in respect of the cost of any fixed asset or improvement, or replacement,
substitution, or addition thereto, which has a useful life of more than one
year, including, without limitation, those costs arising in connection with the
direct or indirect acquisition of such asset by way of increased product or
service charges or in connection with a Capital Lease.
"Capital Lease" means any lease of property by any Borrower
which, in accordance with GAAP, should be reflected as a capital lease on the
balance sheet of such Borrower.
"Cash Flow" means, for any period, (a) Parent's EBITDA for
such period, minus (b) Parent's Fixed Charges for such period.
"Change of Control" means the occurrence of any of the
following events: (i) a "Change in Control" shall have occurred as provided in
the Senior Subordinated Debt, (ii) prior to the consummation of a Successful
Tender Offer (as that term is defined in the Securities Purchase Agreement), if
either (w) individuals nominated by RCBA and Thayer (together with Persons
controlled by RCBA or Thayer) constitute fewer than 2 in number or 15% in
proportion of the total members of the Parent's Board of Directors or (x) RCBA
and Thayer (together with Persons controlled by RCBA or Thayer) collectively are
the legal and beneficial owners of less than 60% of the principal amount of the
Senior Subordinated Debt, (ii) following the consummation of a Successful Tender
Offer, if either (y) RCBA and Thayer (together with Persons controlled by RCBA
or Thayer) collectively cease to have voting control over at least 40% (on a
fully diluted basis) of the total voting stock of the Parent or (z) any other
Person or two or more Persons (other than RCBA, Thayer, and Persons controlled
by RCBA or Thayer) acting in concert (within the meaning of Section 13(d) of the
Exchange Act) shall have voting control over more of the total voting stock of
the Parent than does RCBA, Thayer, and Persons controlled by RCBA or Thayer,
collectively.
"Clearing Bank" means the Bank or any other banking
institution with whom a Payment Account has been established pursuant to a
Blocked Account Agreement.
"Closing Date" means the date of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor statute, and regulations promulgated
thereunder.
"Collateral" has the meaning specified in Section 6.1.
"Commitment" means, at any time with respect to a Lender, the
principal amount set forth beside such Lender's name under the heading
"Commitment" on the signature pages of this Agreement or on the signature page
of the Assignment and Acceptance pursuant to which such Lender became a Lender
hereunder in accordance with the provisions of Section 13.2, as such Commitment
may be adjusted from time to time in accordance with the provisions of Section
13.2, and "Commitments" means, collectively, the aggregate amount of the
commitments of all of the Lenders.
"Contaminant" means any waste, pollutant, hazardous substance,
toxic substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, asbestos in any form or condition, polychlorinated biphenyls
("PCBs"), or any constituent of any such substance or waste.
"Continuation/Conversion Date" means the date on which the
Loan is converted into or continued as a LIBOR Rate Loan.
"Coverage Ratio" means, for any period, the ratio of (a)
EBITDA for such period to (b) Fixed Charges for such period; provided, however,
that (i) for purposes of determining whether investments can be made under
Section 9.10, measurement of the Coverage Ratio as of the last day of Parent's
fiscal quarters ending on March 31, 2000, June 30, 2000, and September 30, 2000
shall be calculated on the basis of the one, two, and three quarters then
ending, respectively, and measurements of the Coverage Ratio as of the last day
of each of the Parent's fiscal quarters thereafter shall be calculated on the
basis of the four fiscal quarters then ending; (ii) for purposes of determining
whether the Parent has complied with the minimum Coverage Ratio set forth in
Section 9.29, measurement of the Coverage Ratio as of the last day of the
Parent's fiscal quarters ending on March 31, 2001, June 30, 2001, September 30,
2001, and December 31, 2001 shall be calculated on the basis of the one, two,
three and four quarters then ending, respectively, and measurement of the
Coverage Ratio as of the last day of each of the Parent's months commencing
January 31, 2002 shall be calculated on the basis of the twelve months then
ending; and (iii) for purposes of determining whether the Parent has met the
Coverage Ratio Test: the December 31, 2000 measurement shall be calculated for
the three fiscal quarters then ending, and the December 31, 2001 measurement
shall be calculated for the four fiscal quarters then ending.
"Coverage Ratio Test" has the meaning set forth in the
definition of "Applicable Margin."
"Credit Support" has the meaning specified in Section 2.4(a).
"Debt" means, without duplication, all liabilities,
obligations and indebtedness of any Borrower to any Person, of any kind or
nature, now or hereafter owing, arising, due or payable, howsoever evidenced,
created, incurred, acquired or owing, whether primary, secondary, direct,
contingent, fixed or otherwise, and including, without in any way limiting the
generality of the foregoing: (a) such Borrower's liabilities and obligations to
trade creditors; (b) all Obligations; (c) all obligations and liabilities of any
Person secured by any Lien on such Borrower's property, even though such
Borrower shall not have assumed or become liable for the payment thereof;
provided, however, that all such obligations and liabilities which are limited
in recourse to such property shall be included in Debt only to the extent of the
book value of such property as would be shown on a balance sheet of such
Borrower prepared in accordance with GAAP; (d) all obligations or liabilities
created or arising under any Capital Lease or conditional sale or other title
retention agreement with respect to property used or acquired by such Borrower,
even if the rights and remedies of the lessor, seller or lender thereunder are
limited to repossession of such property; provided, however, that all such
obligations and liabilities which are limited in recourse to such property shall
be included in Debt only to the extent of the book value of such property as
would be shown on a balance sheet of such Borrower prepared in accordance with
GAAP; and (e) all obligations and liabilities under Guaranties.
"Debt For Borrowed Money" means, as to any Person, all Debt
that constitutes (a) Debt for borrowed money or as evidenced by notes, bonds
(other than performance or surety bonds), debentures or similar evidences of any
such Debt of such Person, (b) the deferred and unpaid purchase price of any
property or business (other than trade accounts payable incurred in the ordinary
course of business and constituting current liabilities) and (c) all obligations
under Capital Leases.
"Default" means any event or circumstance which, with the
giving of notice, the lapse of time, or both, would (if not cured, waived, or
otherwise remedied during such time) constitute an Event of Default.
"Defaulting Lender" has the meaning specified in Section
2.2(g)(ii).
"Default Rate" means a fluctuating per annum interest rate at
all times equal to the sum of (a) the otherwise applicable Interest Rate plus
(b) 2.0%. Each Default Rate shall be adjusted simultaneously with any change in
the applicable Interest Rate. In addition, with respect to Letters of Credit,
the Default Rate shall mean an increase in the Letter of Credit Fee by two
percentage points.
"Dilution" means, in each case based upon the experience of
the immediately prior three months, the result of dividing (a) the Dollar amount
of Borrowers' bad debt write-downs, discounts, advertising allowances, offsets,
returns, promotional allowances, credits, or other dilutive items with respect
to the Accounts, by (b) the Dollar amount of Borrowers' gross billings for such
period.
"Distribution" means, in respect of any corporation: (a) the
payment or making of any dividend or other distribution of property in respect
of capital stock (or any options or warrants for or other rights with respect to
such stock) of such corporation, other than distributions in capital stock (or
any options or warrants for or other rights with respect to such stock) of the
same class; or (b) the redemption or other acquisition by such corporation of
any capital stock (or any options or warrants for such stock) of such
corporation.
"DOL" means the United States Department of Labor or any
successor department or agency.
"Dollar" and "$" means dollars in the lawful currency of the
United States.
"EBITDA" means, for any period, the sum of:
(1) the Adjusted Net Earnings From Operations of the
Parent for such period; plus (or minus)
(2) to the extent that any of the items referred to in any of
clauses (i) through (iv) below are deducted (or added) in calculating such net
income (or net loss):
(i) Interest Expense of the Parent (to the
extent it exceeds interest income of the Parent) for such period;
(ii) income tax expense of the Parent with
respect to operations for such period;
(iii) the amount of all depreciation and
amortization of the Parent for such period; and
(iv) the amount of any non-recurring
charges incurred in Fiscal Year 2000 in respect of:
(x) transaction costs, (y) moving the "NEO" facility (not to exceed $500,000),
and (z) consulting fees (not to exceed $3,500,000) provided, however, the sum of
all transaction costs that have been incurred in the Parent's Fiscal Year 2000,
cannot exceed $7,000,000.
"Eligible Accounts" means the Accounts which the Agent in the
exercise of its reasonable commercial discretion determines to be Eligible
Accounts. Without limiting the discretion of the Agent to establish other
criteria of ineligibility, Eligible Accounts shall not, unless the Agent in its
sole discretion elects, include any Account:
(a) with respect to which more than 120 days
have elapsed since the date of the original invoice therefor or which is
more than 60 days past due;
(b) with respect to which any of the
representations, warranties, covenants, and agreements contained in Section
6.8 are not or have ceased to be complete and correct or have been breached;
(c) with respect to which Account (or any other
Account due from such Account Debtor), in whole or in part, a check,
promissory note, draft, trade acceptance or other instrument for the payment of
money has been received, presented for payment and returned uncollected for any
reason;
(d) which represents a progress billing (as
hereinafter defined) or as to which the applicable Borrower has extended the
time for payment without the consent of the Agent; for the purposes hereof,
"progress billing" means any invoice for goods sold or leased or services
rendered under a contract or agreement pursuant to which the Account Debtor's
obligation to pay such invoice is conditioned upon such Borrower's completion of
any further performance under the contract or agreement;
(e) with respect to which any one or more of the
following events has occurred to the Account Debtor on such Account: death or
judicial declaration of incompetency of an Account Debtor who is an individual;
the filing by or against the Account Debtor of a request or petition for
liquidation, reorganization, arrangement, adjustment of debts, adjudication as a
bankrupt, winding-up, or other relief under the bankruptcy, insolvency, or
similar laws of the United States, any state or territory thereof, or any
foreign jurisdiction, now or hereafter in effect; the making of any general
assignment by the Account Debtor for the benefit of creditors; the appointment
of a receiver or trustee for the Account Debtor or for any of the assets of the
Account Debtor, including, without limitation, the appointment of or taking
possession by a "custodian," as defined in the Federal Bankruptcy Code; the
institution by or against the Account Debtor of any other type of insolvency
proceeding (under the bankruptcy laws of the United States or otherwise) or of
any formal or informal proceeding for the dissolution or liquidation of,
settlement of claims against, or winding up of affairs of, the Account Debtor;
the sale, assignment, or transfer of all or any material part of the assets of
the Account Debtor; the nonpayment generally by the Account Debtor of its debts
as they become due; or the cessation of the business of the Account Debtor as a
going concern;
(f) if 50% or more of the aggregate Dollar
amount of outstanding Accounts owed at such time by the Account Debtor thereon
is classified as ineligible under clause (a) above;
(g) owed by an Account Debtor which: (i) does
not maintain its chief executive office in the United States of America or
Canada; or (ii) is not organized under the laws of the United States of America
or Canada or any state or province thereof; or (iii) is the government of any
foreign country or sovereign state, or of any state, province, municipality, or
other political subdivision thereof, or of any department, agency, public
corporation, or other instrumentality thereof; except to the extent that such
Account is owed by Bayer Diagnostics (Ireland), Agfa-Gevaert Group, or by such
other account debtor as is specifically approved by the Agent in its sole
discretion, or secured or payable by a letter of credit satisfactory to the
Agent in its discretion;
(h) owed by an Account Debtor which is an
Affiliate or employee of any Borrower;
(i) except as provided in clause (k)
below, with respect to which either the perfection, enforceability, or validity
of the Agent's Lien in such Account, or the Agent's right or ability to obtain
direct payment to the Agent of the proceeds of such Account, is governed by any
federal, state, or local statutory requirements other than those of the UCC;
(j) (i) owed by an Account Debtor to which any
Borrower or any of its Subsidiaries, is indebted in any way, or which is subject
to any right of setoff or recoupment by the Account Debtor, unless the Account
Debtor has entered into an agreement acceptable to the Agent to waive setoff
rights; or (ii) if the Account Debtor thereon has disputed liability or made any
claim with respect to any other Account due from such Account Debtor; but in
each the case of clauses (i) and (ii) of this paragraph, only to the extent of
such indebtedness, setoff, recoupment, dispute, or claim;
(k) owed by the government of the United
States of America, or any department, agency, public corporation, or other
instrumentality thereof, unless the Federal Assignment of Claims Act of 1940, as
amended (31 U.S.C.ss. 3727 et seq.), and any other steps necessary to perfect
the Agent's Lien therein, have been complied with to the Agent's satisfaction
with respect to such Account;
(l) owed by any state, municipality, or other
political subdivision of the United States of America, or any department,
agency, public corporation, or other instrumentality thereof and as to which the
Agent determines that its Lien therein is not or cannot be perfected;
(m) which represents a sale on a bill-and-hold,
guaranteed sale, sale and return, sale on approval, consignment, or other
repurchase or return basis;
(n) which is evidenced by a promissory note or
other instrument or by chattel paper;
(o) if the Agent believes, in the exercise of
its reasonable judgment, that the prospect of collection of such Account is
impaired or that the Account may not be paid by reason of the Account Debtor's
financial inability to pay;
(p) with respect to which the Account Debtor is
located in any state requiring the filing of a Notice of Business Activities
Report or similar report in order to permit the applicable Borrower to seek
judicial enforcement in such State of payment of such Account, unless such
Borrower has qualified to do business in such state or has filed a Notice of
Business Activities Report or equivalent report for the then current year;
(q) which arises out of a sale not made in the
ordinary course of the applicable Borrower's business;
(r) with respect to which the goods giving rise
to such Account have not been shipped and delivered to and accepted by the
Account Debtor or the services giving rise to such Account have not been
performed by the applicable Borrower, and, if applicable, accepted by the
Account Debtor, or the Account Debtor revokes its acceptance of such goods or
services;
(s) owed by an Account Debtor which is obligated
to the applicable Borrower respecting Accounts the aggregate unpaid balance of
which exceeds 15% (or in the case of Honeywell and its affiliates, collectively,
80%) of the aggregate unpaid balance of all Accounts owed to the Borrowers at
such time by all of the Borrowers' Account Debtors, but only to the extent of
such excess;
(t) which arises out of an enforceable contract
or order which, by its terms, forbids, restricts or makes void or unenforceable
the granting of a Lien by the applicable Borrower to the Agent with respect to
such Account; or
(u) which is not subject to a first priority and
perfected security interest in favor of the Agent for the benefit of the
Lenders.
If any Account at any time ceases to be an Eligible Account, then such
Account shall promptly be excluded from the calculation of Eligible Accounts.
"Eligible Assignee" means (a) a commercial bank, commercial
finance company or other asset based lender, having total assets in excess of
$1,000,000,000; (b) any Lender listed on the signature page of this Agreement;
(c) any Affiliate of any Lender; and (d) if an Event of Default exists, any
Person reasonably acceptable to the Agent.
"Eligible Inventory" means the Inventory, valued at the lower
of cost (on a "first-in, first-out" basis) or market in accordance with GAAP,
which the Agent, in its commercially reasonable discretion, determines to be
Eligible Inventory. Without limiting the discretion of the Agent to establish
other criteria of eligibility, Eligible Inventory shall meet all of the
following requirements:
(a) such Inventory is owned by a Borrower;
(b) such Inventory is subject to the Agent's Liens, which are
perfected as to such Inventory, and is subject to no other Lien whatsoever
(other than the Liens described in clause (d) of the definition of Permitted
Liens provided that such Permitted Liens (i) are junior in priority to the
Agent's Liens and (ii) do not impair directly or indirectly the ability of the
Agent to realize on or obtain the full benefit of the Collateral);
(c) such Inventory consists of finished goods,
work-in-process, or raw materials, provided, however, that the overhead cost
component of any raw materials or work-in-process shall not be considered
Eligible Inventory;
(d) such Inventory does not consist of service parts,
chemicals, supplies, or packing and shipping materials;
(e) such Inventory is in good condition, not unmerchantable or
defectives, and meets all standards imposed by any Governmental Authority,
having regulatory authority over such goods, their use or sale;
(f) such Inventory is currently either usable or salable,
at prices approximating at least cost, in the normal course of the applicable
Borrower's business;
(g) such Inventory is not obsolete (which for purposes of this Agreement shall
mean Inventory (other than Lifetime Buy Inventory) in excess of the greater of
(i) Inventory on hand exceeding nine months of supply or usage (consistent with
past practice) or (ii) the amount of Inventory set forth in the Parent's
obsolescence reserve set forth in its books and records), or used parts,
returned or repossessed goods, or goods taken in trade;
(h) such Inventory is located within the United States of America or Canada
(and not in-transit from vendors or suppliers);
(i) such Inventory is Lifetime Buy Inventory, but only to the extent that
Honeywell has agreed to repurchase such Inventory from the Borrowers or the
Agent pursuant to the Honeywell Buy Back Agreement;
(j) such Inventory is not leased or on consignment;
(k) if such Inventory contains or bears any Proprietary Rights
licensed to a Borrower by any Person, the Agent shall be satisfied that it may
sell or otherwise dispose of such Inventory in accordance with Article 11
without infringing the rights of the licensor of such Proprietary Rights or
violating any contract with such licensor (and without payment of any royalties
other than any royalties due with respect to the sale or disposition of such
Inventory pursuant to the existing license agreement), and, if the Agent deems
it necessary, the applicable Borrower shall deliver to the Agent a consent or
sublicense agreement from such licensor in form and substance acceptable to the
Agent; and
(l) such Inventory is not determined by the Agent in its
reasonable discretion, to be ineligible for any other reason.
If any Inventory at any time ceases to be Eligible Inventory,
such Inventory shall promptly be excluded from the calculation of Eligible
Inventory.
"Environmental Claims" means all claims, however asserted, by
any Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law, or for a Release or
injury to the environment.
"Environmental Compliance Reserve" means any reserve which the
Agent, after the Closing Date, establishes in its reasonable discretion from
time to time for amounts that are reasonably likely to be expended by any
Borrower in order for such Borrower and its operations and property (a) to
comply with any notice from a Governmental Authority asserting material
non-compliance with Environmental Laws, or (b) to correct any such material
non-compliance identified in a report delivered to the Agent and the Lenders
pursuant to Section 9.7.
"Environmental Laws" means all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes, together
with all administrative orders, directed duties, licenses, authorizations and
permits of, and agreements with, any Governmental Authority, in each case
relating to environmental, health, safety and land use matters.
"Environmental Lien" means a Lien in favor of any Governmental
Authority for (a) any liability under Environmental Laws, or (b) damages arising
from, or costs incurred by such Governmental Authority in response to, a Release
or threatened Release of a Contaminant into the environment.
"Equipment" means all of the Borrowers' now owned and
hereafter acquired machinery, equipment, furniture, furnishings, fixtures, and
other tangible personal property (except Inventory), including motor vehicles
with respect to which a certificate of title has been issued, aircraft, dies,
tools, jigs, and office equipment, as well as all of such types of property
leased by any Borrower and all of the Borrowers' rights and interests with
respect thereto under such leases (including, without limitation, options to
purchase); together with all present and future additions and accessions
thereto, replacements therefor, component and auxiliary parts and supplies used
or to be used in connection therewith, and all substitutes for any of the
foregoing, and all manuals, drawings, instructions, warranties and rights with
respect thereto; wherever any of the foregoing is located.
"ERISA" means the Employee Retirement Income Security Act of
1974, and regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control with any Borrower within the meaning of
Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for
purposes of provisions relating to Section 412 of the Code).
"ERISA Event" means (a) a Reportable Event with respect to a
Pension Plan, (b) a withdrawal by any Borrower or any ERISA Affiliate from a
Pension Plan subject to Section 4063 of ERISA during a plan year in which it was
a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a
cessation of operations which is treated as such a withdrawal under Section
4062(e) of ERISA, (c) a complete or partial withdrawal by any Borrower or any
ERISA Affiliate from a Multi-employer Plan or notification that a Multi-employer
Plan is in reorganization, (d) the filing of a notice of intent to terminate,
the treatment of a Plan amendment as a termination under Section 4041 or 4041A
of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension
Plan or Multi-employer Plan, (e) the occurrence of an event or condition which
might reasonably be expected to constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any
Pension Plan or Multi-employer Plan, or (f) the imposition of any liability
under Title IV of ERISA, other than for PBGC premiums due but not delinquent
under Section 4007 of ERISA, upon any Borrower or any ERISA Affiliate.
"Event of Default" has the meaning specified in Section 11.1.
"Exchange Act" means the Securities Exchange Act of 1934, and
regulations promulgated thereunder.
"FDIC" means the Federal Deposit Insurance Corporation, and
any Governmental Authority succeeding to any of its principal functions.
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day; provided that (a) if such day is not a Business Day,
the Federal Funds Rate for such day shall be such rate on such transactions on
the next preceding Business Day as so published on the next succeeding Business
Day, and (b) if no such rate is so published on such next succeeding Business
Day, the Federal Funds Rate for such day shall be the average rate charged to
the Bank on such day on such transactions as determined by the Agent.
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System or any successor thereto.
"Financial Covenant Certificate" means a certificate of a
Responsible Officer of Parent to be delivered in connection with the delivery by
the Parent of its Financial Statements respecting the end of each month or the
end of each fiscal quarter of each Fiscal Year of Parent, as the case may be,
and setting forth the Coverage Ratio, the Inventory Turnover Ratio, and the Cash
Flow as of the last day of each such month of Borrower, but only to the extent
that such measurement is required for such period under the terms of this
Agreement, together with such supporting documentation and calculations,
substantially in the form of Exhibit B, as the Agent may reasonably request with
respect to such Coverage Ratio, Inventory Turnover Ratio, and the Cash Flow.
"Financial Statements" means, according to the context in
which it is used, the financial statements referred to in Section 8.6 or any
other financial statements required to be given to the Lenders pursuant to this
Agreement.
"Fiscal Year" means the Parent's fiscal year for financial
accounting purposes. The current Fiscal Year of the Parent will end on December
31, 2000.
"Fixed Assets" means the Equipment and Real Estate of the
Borrowers.
"Fixed Charges" means, for any period, the sum of (i) the
aggregate amount of cash required to be paid by the Borrowers in respect of
Interest Expense for such period, (ii) the aggregate amount of cash required to
be paid by the Borrowers in respect of taxes for such period, (iii) all
non-financed Capital Expenditures of the Borrowers made in such period, and (iv)
all payments made in such period on account of: (x) the principal amount of the
Borrowers' Debt for Borrowed Money (other than the Obligations), (y)
Distributions, if any, allowed under Section 9.10, and (z) Restricted
Investments, if allowed, under Section 9.10.
"Funding Date" means the date on which a Borrowing occurs.
"GAAP" means generally accepted accounting principles and
practices set forth from time to time in the opinions and pronouncements of the
Accounting Principles Board and the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board (or agencies with similar functions of comparable stature and
authority within the U.S. accounting profession), which are applicable to the
circumstances as of the Closing Date.
"GECC" means General Electric Capital Corporation.
"GECC Payment Agreement" means that certain Agreement, dated
December 5, 1997, between GECC and the Parent, regarding the GE Capital
Accelerated Payment Program, a copy of which is attached hereto as Exhibit G,
and pursuant to which GECC may purchase from the Parent certain Accounts owing
by Honeywell (as successor in interest to AlliedSignal, Inc.).
"General Intangibles" means all of the Borrowers, now owned or
hereafter acquired general intangibles, choses in action and causes of action
and all other intangible personal property of the Borrowers of every kind and
nature (other than Accounts), including, without limitation, all contract
rights, Proprietary Rights, corporate or other business records, inventions,
designs, blueprints, plans, specifications, patents, patent applications,
trademarks, service marks, trade names, trade secrets, goodwill, copyrights,
computer software, customer lists, registrations, licenses, franchises, tax
refund claims, any funds which may become due to any Borrower in connection with
the termination of any Plan or other employee benefit plan or any rights thereto
and any other amounts payable to any Borrower from any Plan or other employee
benefit plan, rights and claims against carriers and shippers, rights to
indemnification, business interruption insurance and proceeds thereof, property,
casualty or any similar type of insurance and any proceeds thereof, proceeds of
insurance covering the lives of key employees on which any Borrower is
beneficiary, and any letter of credit, guarantee, claim, security interest or
other security held by or granted to any Borrower.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof, any central bank (or similar
monetary or regulatory authority) thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"Guaranty" means, with respect to any Person, all obligations
of such Person which in any manner directly or indirectly guarantee or assure,
or in effect guarantee or assure, the payment or performance of any
indebtedness, dividend or other obligations of any other Person (the "guaranteed
obligations"), or assure or in effect assure the holder of the guaranteed
obligations against loss in respect thereof, including any such obligations
incurred through an agreement, contingent or otherwise: (a) to purchase the
guaranteed obligations or any property constituting security therefor; (b) to
advance or supply funds for the purchase or payment of the guaranteed
obligations or to maintain a working capital or other balance sheet condition;
or (c) to lease property or to purchase any debt or equity securities or other
property or services.
"Hedge Agreement" means any and all transactions, agreements
or documents now existing or hereafter entered into, which provides for an
interest rate, credit, commodity or equity swap, cap, floor, collar, forward
foreign exchange transaction, currency swap, cross currency rate swap, currency
option, or any combination of, or option with respect to, these or similar
transactions, for the purpose of hedging any Borrower's exposure to fluctuations
in interest or exchange rates, loan, credit exchange, security or currency
valuations or commodity prices.
"Honeywell" means Honeywell International Inc., a Delaware
corporation, together with such company's affiliates, Honeywell, Inc.,
AlliedSignal Avionics, Inc., and AlliedSignal, Inc..
"Honeywell No Offset Letter" means that certain letter
agreement between the Agent and Honeywell, of even date herewith, concerning
Honeywell's offset rights against the Parent.
"Honeywell Buy Back Agreement" means that certain Inventory
Repurchase Agreement, dated as of March 21, 2000, among Honeywell, the Agent,
and the Parent.
"Honeywell Reserve" means a reserve determined by the Agent in
the amount of amounts owing by Parent to Honeywell arising out of the Life Time
Buy Inventory and any other amounts payable by Parent to Honeywell or its
affiliates other than the One Time Buy Inventory.
"Intellectual Property Agreement" means the Security
Agreement, if any, executed and delivered by any Borrower to the Agent to
evidence and perfect the Agent's security interest in such Borrower's present
and future copyrights, patents, trademarks, and related licenses and rights, for
the benefit of the Agent and the Lenders.
"Intercompany Accounts" means all assets and liabilities,
however arising, which are due to any Borrower from, which are due from any
Borrower to, or which otherwise arise from any transaction by any Borrower with
any Affiliate of any Borrower.
"Interest Expense" means, for any period, total interest
expense of the Borrowers during such period determined in accordance with GAAP.
"Interest Period" means, as to any LIBOR Rate Loan, the period
commencing on the Funding Date of such Loan or on the Continuation/Conversion
Date on which the Loan is converted into or continued as a LIBOR Rate Loan, and
ending on the date one, two, three, six, or nine months thereafter as selected
by the applicable Borrower in its Notice of Borrowing, in the form attached
hereto as Exhibit D, or Notice of Continuation/Conversion, in the form attached
hereto as Exhibit E provided that:
(a) if any Interest Period would otherwise
end on a day that is not a Business Day, that Interest Period shall be extended
to the following Business Day unless the result of such extension would be to
carry such Interest Period into another calendar month, in which event such
Interest Period shall end on the preceding Business Day;
(b) any Interest Period pertaining to a
LIBOR Rate Loan that begins on the last Business Day of a calendar month (or on
a day for which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Business Day of the
calendar month at the end of such Interest Period; and
(c) no Interest Period shall extend beyond the
Stated Termination Date.
"Interest Rate" means each or any of the interest rates,
including the Default Rate, set forth in Section 3.1.
"Inventory" means all of the Borrowers' now owned and
hereafter acquired inventory, goods and merchandise, wherever located, to be
furnished under any contract of service or held for sale or lease, all returned
goods, raw materials, other materials and supplies of any kind, nature or
description which are used or consumed in the Borrowers' business or used in
connection with the packing, shipping, advertising, selling or finishing of such
goods or merchandise, and all documents of title or other documents representing
them.
"Inventory Limit" means $22,500,000 for the first six months
after the Closing Date, and at any time thereafter means the lesser of (a)
$22,500,000 or (b) the outstanding amount of Loans advanced at such time in
respect of Eligible Accounts.
"Investment Property" means all of the Borrowers' right, title
and interest in and to any and all: (a) securities whether certificated or
uncertificated; (b) securities entitlements; (c) securities accounts; (d)
commodity contracts; or (e) commodity accounts.
"Inventory Turnover Rate" means, as of any date, the product
of (a) the quotient of the net Inventory of Parent on such date divided by the
Parent's cost of goods sold for such Fiscal Year, multiplied by (b) 365.
"Inventory Turnover Test" has the meaning set forth in the
definition of "Applicable Margin."
"IRS" means the Internal Revenue Service and any Governmental
Authority succeeding to any of its principal functions under the Code.
"Latest Projections" means: (a) on the Closing Date and
thereafter until the Agent receives new projections pursuant to Section 7.2(f),
the projections of the Parent's financial condition, results of operations, and
cash flows, for the period commencing on January 1, 2000 and ending on December
31, 2009 and delivered to the Agent by the Parent prior to the Closing Date; and
(b) thereafter, the projections most recently received by the Agent pursuant to
Section 7.2(f).
"Lender" and "Lenders" have the meanings specified in the
introductory paragraph hereof and shall include the Agent to the extent of any
Agent Advance outstanding and the Bank to the extent of any Non-Ratable Loan
outstanding; provided that no such Agent Advance or Non-Ratable Loan shall be
taken into account in determining any Lender's Pro Rata Share.
"Letter of Credit" has the meaning specified in Section
2.4(a).
"Letter of Credit Fee" has the meaning specified in Section
3.6.
"Letter of Credit Issuer" means the Bank, any affiliate of the
Bank or any other financial institution that issues any Letter of Credit
pursuant to this Agreement.
"LIBOR Activation Date" means the first date on which the
Coverage Ratio is at least 1.0 to 1.0 for each of the two most recently
completed fiscal quarters for which Financial Covenant Certificates and
quarterly Financial Statements have been delivered to the Agent and the Lenders.
"LIBOR Rate" means, for any Interest Period, with respect to
LIBOR Rate Loans, the rate of interest per annum determined pursuant to the
following formula:
LIBOR Rate = Offshore Base Rate
------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"Offshore Base Rate" means the rate per annum
appearing on Telerate Page 3750 (or any successor page) as the
London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two Business Days prior
to the first day of such Interest Period for a term comparable
to such Interest Period. If for any reason such rate is not
available, the Offshore Base Rate shall be, for any Interest
Period, the rate per annum appearing on Reuters Screen LIBO
Page as the London interbank offered rate for deposits in
Dollars at approximately 11:00 a.m. (London time) two Business
Days prior to the first day of such Interest Period for a term
comparable to such Interest Period; provided, however, if more
than one rate is specified on Reuters Screen LIBO Page, the
applicable rate shall be the arithmetic mean of all such
rates. If for any reason none of the foregoing rates is
available, the Offshore Base Rate shall be, for any Interest
Period, the rate per annum determined by Agent as the rate of
interest at which dollar deposits in the approximate amount of
the LIBOR Rate Loan comprising part of such Borrowing would be
offered by the Bank's London Branch to major banks in the
offshore dollar market at their request at or about 11:00 a.m.
(London time) two Business Days prior to the first day of such
Interest Period for a term comparable to such Interest Period.
"Eurodollar Reserve Percentage" means, for any day
during any Interest Period, the reserve percentage (expressed
as a decimal, rounded upward to the next 1/100th of 1%) in
effect on such day applicable to member banks under
regulations issued from time to time by the Federal Reserve
Board for determining the maximum reserve requirement
(including any emergency, supplemental or other marginal
reserve requirement) with respect to Eurocurrency funding
(currently referred to as "Eurocurrency liabilities"). The
Offshore Rate for each outstanding LIBOR Rate Loan shall be
adjusted automatically as of the effective date of any change
in the Eurodollar Reserve Percentage.
"LIBOR Rate Loans" means the LIBOR Revolving Loans.
"LIBOR Revolving Loan" means a Revolving Loan during any
period in which it bears interest based on the LIBOR Rate.
"Lien" means: (a) any interest in property securing an
obligation owed to, or a claim by, a Person other than the owner of the
property, whether such interest is based on the common law, statute, or
contract, and including a security interest, charge, claim, or lien arising from
a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment,
deposit arrangement, agreement, security agreement, conditional sale or trust
receipt or a lease, consignment or bailment for security purposes; (b) to the
extent not included under clause (a), any reservation, exception, encroachment,
easement, right-of-way, covenant, condition, restriction, lease or other title
exception or encumbrance affecting property; and (c) any contingent or other
agreement to provide any of the foregoing.
"Lifetime Buy Inventory" means Inventory purchased by the
Parent from Honeywell no longer available in the market and expected to be used
over the remaining life of the end product.
"Loan Account" means the loan account of the Borrowers, which
account shall be maintained by the Agent.
"Loan Documents" means this Agreement, the Agent's Fee Letter,
the Stock Pledge, the Intellectual Property Agreement, and any other agreements,
instruments, and documents heretofore, now or hereafter evidencing, securing,
guaranteeing or otherwise relating to the Obligations, the Collateral, or any
other aspect of the transactions contemplated by this Agreement.
"Loans" means, collectively, all loans and advances provided
for in Article 2.
"Majority Lenders" means at any date of determination Lenders
whose Pro Rata Shares aggregate at least than 66-2/3% as such percentage is
determined under the definition of Pro Rata Share set forth herein; provided,
however, that at any time when there are only two Lenders, Majority Lenders
shall mean both Lenders.
"Margin Stock" means "margin stock" as such term is defined in
Regulation T, U or X of the Federal Reserve Board.
"Material Adverse Effect" means (a) a material adverse change
in, or a material adverse effect upon, the operations, business, properties,
condition (financial or otherwise) or prospects of any Borrower or the
Collateral; (b) a material impairment of the ability of any Borrower to perform
under any Loan Document to which it is a party and to avoid any Event of
Default; or (c) a material adverse effect upon the legality, validity, binding
effect or enforceability against any Borrower of any Loan Document to which it
is a party.
"Maximum Revolver Amount" means $45,000,000.
"Multi-employer Plan" means a "multi-employer plan" as defined
in Section 4001(a)(3) of ERISA which is or was at any time during the current
year or the immediately preceding six (6) years contributed to by any Borrower
or any ERISA Affiliate.
"Net Amount of Eligible Accounts" means, at any time, the
gross amount of Eligible Accounts less sales, excise or similar taxes, and less
returns, discounts, claims, credits and allowances of any nature at any time
issued, owing, granted, outstanding, available or claimed.
"Non-Ratable Loan" and "Non-Ratable Loans" have the meanings
specified in Section 2.2(h).
"Notice of Borrowing" has the meaning specified in Section
2.2(b).
"Notice of Continuation/Conversion" has the meaning specified
in Section 3.2(b).
"Obligations" means all present and future loans, advances,
liabilities, obligations, covenants, duties, and debts owing by any Borrower to
the Agent and/or any Lender, arising under or pursuant to this Agreement or any
of the other Loan Documents, whether or not evidenced by any note, or other
instrument or document, whether arising from an extension of credit, opening of
a letter of credit, acceptance, loan, guaranty, indemnification or otherwise,
whether direct or indirect, absolute or contingent, due or to become due,
primary or secondary, as principal or guarantor, and including all principal,
interest, charges, expenses, fees, attorneys' fees, filing fees and any other
sums chargeable to any Borrower hereunder or under any of the other Loan
Documents. "Obligations" includes, without limitation, (a) all debts,
liabilities, and obligations now or hereafter arising from or in connection with
the Letters of Credit and (b) all debts, liabilities and obligations now or
hereafter arising from or in connection with Bank Products.
"One Time Buy Inventory" means the approximately $19,000,000
of Inventory purchased by the Parent from Honeywell in February of 2000 as part
of the transition of product from Honeywell's facilities to the Parent's
Phoenix, Arizona facility.
"Other Taxes" means any present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies which
arise from any payment made hereunder or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or any other Loan
Documents.
"Parent" has the meaning set forth in the introductory
paragraph of this Agreement.
"Participant" means any Person who shall have been granted the
right by any Lender to participate in the financing provided by such Lender
under this Agreement, and who shall have entered into a participation agreement
in form and substance satisfactory to such Lender.
"Payment Account" means each bank account established
pursuant to Section 6.9, to which the proceeds of Accounts and other Collateral
are deposited or credited, and which is maintained in the name of the Agent or
any Borrower, as the Agent may determine, on terms acceptable to the Agent.
"PBGC" means the Pension Benefit Guaranty Corporation or
any Governmental Authority succeeding to the functions ---- thereof.
"Pending Revolving Loans" means, at any time, the aggregate
principal amount of all Revolving Loans requested in any Notice of Borrowing
received by the Agent which have not yet been advanced.
"Pension Plan" means a pension plan (as defined in Section
3(2) of ERISA) subject to Title IV of ERISA which any Borrower sponsors,
maintains, or to which it makes, is making, or is obligated to make
contributions, or in the case of a Multi-employer Plan has made contributions at
any time during the immediately preceding five (5) plan years.
"Permitted Liens" means:
(a) Liens for taxes not delinquent or
statutory Liens for taxes in an amount not to exceed $100,000 provided that the
payment of such taxes which are due and payable is being contested in good faith
and by appropriate proceedings diligently pursued and as to which adequate
financial reserves have been established on the applicable Borrower's books and
records and a stay of enforcement of any such Lien is in effect;
(b) the Agent's Liens;
(c) Liens consisting of deposits made in the
ordinary course of business in connection with, or to secure payment of,
obligations under worker's compensation, unemployment insurance, social security
and other similar laws, or to secure the performance of bids, tenders or
contracts (other than for the repayment of borrowed money) or to secure
indemnity, performance or other similar bonds for the performance of bids,
tenders or contracts (other than for the repayment of borrowed money) or to
secure statutory obligations (other than liens arising under ERISA or
Environmental Liens) or surety or appeal bonds, or to secure indemnity,
performance or other similar bonds;
(d) Liens securing the claims or demands of
materialmen, mechanics, carriers, warehousemen, landlords and other like
Persons, provided that if any such Lien arises from the nonpayment of such
claims or demand when due, such claims or demands do not exceed $100,000 in the
aggregate;
(e) Liens constituting encumbrances in the
nature of reservations, exceptions, encroachments, easements, rights of way,
covenants running with the land, and other similar title exceptions or
encumbrances affecting any Real Estate, provided that they do not in the
aggregate materially detract from the value of the Real Estate or materially
interfere with its use in the ordinary conduct of the Borrowers' business;
(f) Liens arising from judgments and
attachments in connection with court proceedings provided that the attachment or
enforcement of such Liens would not result in an Event of Default hereunder and
such Liens are being contested in good faith by appropriate proceedings,
adequate reserves have been set aside and no material Property is subject to a
material risk of loss or forfeiture and the claims in respect of such Liens are
fully covered by insurance (subject to ordinary and customary deductibles) and a
stay of execution pending appeal or proceeding for review is in effect; and
(g) a Lien in favor of GECC, but limited to the
security interest in the Parent's rights in those invoices from Honeywell that
have been purchased by GECC as set forth in the GECC Payment Agreement, the
Accounts arising therefrom, and the proceeds thereof.
"Permitted Rentals" has the meaning specified in Section 9.24.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, Governmental Authority, or any other
entity.
"Plan" means an employee benefit plan (as defined in Section
3(3) of ERISA) which any Borrower sponsors or maintains or to which any Borrower
makes, is making, or is obligated to make contributions and includes any Pension
Plan.
"Pro Rata Share" means, with respect to a Lender, a fraction
(expressed as a percentage), the numerator of which is the amount of such
Lender's Commitment and the denominator of which is the sum of the amounts of
all of the Lenders' Commitments, or if no Commitments are outstanding, a
fraction (expressed as a percentage), the numerator of which is the amount of
Obligations owed to such Lender and the denominator of which is the aggregate
amount of the Obligations owed to the Lenders, in each case giving effect to a
Lender's participation in Non-Ratable Loans and Agent Advances.
"Proprietary Rights" means all of the Borrowers' now owned and
hereafter arising or acquired: licenses, franchises, permits, patents, patent
rights, copyrights, works which are the subject matter of copyrights,
trademarks, service marks, trade names, trade styles, patent, trademark and
service mark applications, and all licenses and rights related to any of the
foregoing, including those patents, trademarks, service marks, trade names and
copyrights set forth on Schedule 8.13 hereto, and all other rights under any of
the foregoing, all extensions, renewals, reissues, divisions, continuations, and
continuations-in-part of any of the foregoing, and all rights to sue for past,
present and future infringement of any of the foregoing.
"RCBA" means RCBA Strategic Partners, L.P. a Delaware limited
partnership.
"Real Estate" means all of the Borrowers' now or hereafter
owned or leased estates in real property, including, without limitation, all
fees, leaseholds and future interests, together with all of the Borrowers' now
or hereafter owned or leased interests in the improvements thereon, the fixtures
attached thereto and the easements appurtenant thereto.
"Release" means a release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration of a
Contaminant into the indoor or outdoor environment or into or out of any Real
Estate or other property, including the movement of Contaminants through or in
the air, soil, surface water, groundwater or Real Estate or other property.
"Rent Reserve" means all reserves that the Agent from time to
time establishes for Inventory located at a leased location, in any public
warehouse, or with any other third party bailee, if such lessor, warehouseman,
or bailee has not delivered to the Agent an acceptable landlord's waiver or
bailee letter, as applicable. Prior to an Event of Default, the amount of the
Rent Reserve with respect to each such location shall be equal to two months of
rental or storage costs owing to such lessor, warehouseman, or bailee, provided,
however, that the Agent agrees not to institute the Rent Reserve until 45 days
after the Closing Date with respect to each location other than the Parent's
Phoenix, Arizona facility (on which a Rent Reserve will be instituted
immediately).
"Rentals" has the meaning specified in Section 9.24.
"Reportable Event" means, any of the events set forth in
Section 4043(b) of ERISA or the regulations thereunder, other than any such
event for which the 30-day notice requirement under ERISA has been waived in
regulations issued by the PBGC.
"Requirement of Law" means, as to any Person, any law
(statutory or common), treaty, rule or regulation or determination of an
arbitrator or of a Governmental Authority, in each case applicable to or binding
upon the Person or any of its property or to which the Person or any of its
property is subject.
"Responsible Officer" means the chief executive officer or the
president of the applicable Borrower, or any other officer having substantially
the same authority and responsibility; or, with respect to compliance with
financial covenants and the preparation of the Borrowing Base Certificate or the
Financial Covenant Certificate, the chief financial officer, the treasurer, or
the Controller of the applicable Borrower, or any other officer having
substantially the same authority and responsibility.
"Restricted Investment" means, as to any Borrower, any
acquisition of property by any Borrower in exchange for cash or other property,
whether in the form of an acquisition of stock, debt, or other indebtedness or
obligation, or the purchase or acquisition of any other property, or a loan,
advance, capital contribution, or subscription, except the following: (a)
acquisitions of Equipment to be used in the business of any Borrower so long as
the acquisition costs thereof constitute Capital Expenditures permitted
hereunder; (b) acquisitions of Inventory in the ordinary course of business of
any Borrower; (c) acquisitions of current assets acquired in the ordinary course
of business of any Borrower; (d) direct obligations of the United States of
America, or any agency thereof, or obligations guaranteed by the United States
of America, provided that such obligations mature within one year from the date
of acquisition thereof; (e) acquisitions of certificates of deposit maturing
within one year from the date of acquisition, bankers' acceptances, Eurodollar
bank deposits, or overnight bank deposits, in each case issued by, created by,
or with a bank or trust company organized under the laws of the United States of
America or any state thereof having capital and surplus aggregating at least
$100,000,000; (f) acquisitions of commercial paper given a rating of "A2" or
better by Standard & Poor's Corporation or "P2" or better by Moody's Investors
Service, Inc. and maturing not more than 90 days from the date of creation
thereof; and (g) Hedge Agreements.
"Revolving Loans" has the meaning specified in Section 2.2 and
includes each Agent Advance and Non-Ratable Loan.
"Securities Purchase Agreement" shall mean that certain
Securities Purchase Agreement, dated March __, 2000, between Thayer - BLUM
Funding, LLC and EFTC.
"Senior Subordinated Convertible Notes" means any of the
$54,000,000 of 8.875% Senior Convertible Notes due 2006 issued under the
Securities Purchase Agreement, and any extensions, replacements, amendments,
restatements, or modifications thereto or thereof.
"Senior Subordinated Debt" means either the Senior
Subordinated Exchange Notes or the Senior Subordinated Convertible Notes.
"Senior Subordinated Exchange Notes" means any of the
$54,000,000 of 15% Senior Subordinated Exchangeable Notes due 2006 issued under
the Securities Purchase Agreement, and any extensions, replacements, amendments,
restatements, or modifications thereto or thereof.
"Settlement" and "Settlement Date" have the meanings specified
in Section 2.2(j)(i).
"Solvent" means when used with respect to any Person that at
the time of determination:
(a) the assets of such Person, at a fair valuation, are
in excess of the total amount of its debts (including contingent liabilities);
and
(b) the present fair saleable value of its assets is
greater than its probable liability on its existing debts as such debts become
absolute and matured; and
(c) it is then able and expects to be able to pay its
debts (including contingent debts and other commitments) as they mature; and
(d) it has capital sufficient to carry on its business as
conducted and as proposed to be conducted.
For purposes of determining whether a Person is Solvent, the amount of any
contingent liability shall be computed as the amount that, in light of all the
facts and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability, and the amount
of such Person's assets shall include the contingent claims for contribution
such Person may have under Section 15.19.
"Stated Termination Date" means March 30, 2003.
"Stock Pledge" means that certain Security Agreement-Stock
Pledge, of even date herewith, between Borrower and Agent.
"Subsidiary" of a Person means any corporation, association,
partnership, limited liability company, joint venture or other business entity
of which more than fifty percent (50%) of the voting stock or other equity
interests (in the case of Persons other than corporations), is owned or
controlled directly or indirectly by the Person, or one or more of the
Subsidiaries of the Person, or a combination thereof. Unless the context
otherwise clearly requires, references herein to a "Subsidiary" refer to a
Subsidiary of the Parent.
"Taxes" means any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, excluding, in the case of each Lender and the Agent, such taxes
(including income taxes or franchise taxes) as are imposed on or measured by the
Agent's or each Lender's net income in any jurisdiction (whether federal, state
or local and including any political subdivision thereof) under the laws of
which such Lender or the Agent, as the case may be, is organized or maintains a
lending office.
"Termination Date" means the earliest to occur of (i) the
Stated Termination Date, (ii) the date the Total Facility is terminated either
by the Parent pursuant to Section 4.2 or by the Majority Lenders pursuant to
Section 11.2, and (iii) the date this Agreement is otherwise terminated for any
reason whatsoever pursuant to the terms of this Agreement.
"Thayer" means Thayer Equity Investors IV, L.P., a Delaware
limited partnership.
"Total Facility" has the meaning specified in Section 2.1.
"UCC" means the Uniform Commercial Code (or any revision,
amendment or successor statute thereto), as in effect from time to time, of the
State of New York or of any other state the laws of which are required as a
result thereof to be applied in connection with the issue of perfection of
security interests.
"Unfunded Pension Liability" means the excess of a Plan's
benefit liabilities under Section 4001(a)(16) of ERISA, over the current value
of that Plan's assets, determined in accordance with the assumptions used for
funding the Pension Plan pursuant to Section 412 of the Code for the applicable
plan year.
"Unused Letter of Credit Subfacility" means an amount equal to
$15,000,000 minus the sum of (a) the aggregate undrawn amount of all outstanding
Letters of Credit plus (b) the aggregate unpaid reimbursement obligations with
respect to all Letters of Credit.
"Unused Line Fee" has the meaning specified in Section 3.5.
1.2 Accounting Terms. (a) Any accounting term used in this Agreement shall have,
unless otherwise specifically provided herein, the meaning customarily given in
accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
as consistently applied and using the same method for inventory valuation as
used in the preparation of the Financial Statements.
(b) Whenever the term "Parent" is used in respect of a
Financial Statement, a financial covenant or a related definition, such term
shall mean Parent and its Subsidiaries (including the other Borrowers) on a
consolidated basis, unless the context clearly requires otherwise.
1.3 Interpretive Provisions. (a) The meanings of defined terms are
equally applicable to the singular and plural forms of the defined terms.
(b) The words "hereof," "herein," "hereunder" and similar
words refer to this Agreement as a whole and not to any particular provision of
this Agreement; and Subsection, Section, Schedule and Exhibit references are to
this Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and
all instruments, documents, agreements, certificates, indentures, notices and
other writings, however evidenced.
(ii) The term "including" is not limiting and
means "including without limitation."
(iii) In the computation of periods of time from
a specified date to a later specified date, the word "from" means "from and
including," the words "to" and "until" each mean "to but excluding" and the word
"through" means "to and including."
(d) Unless otherwise expressly provided herein, (i) references
to agreements (including this Agreement) and other contractual instruments shall
be deemed to include all subsequent amendments and other modifications thereto,
but only to the extent such amendments and other modifications are not
prohibited by the terms of any Loan Document, and (ii) references to any statute
or regulation are to be construed as including all statutory and regulatory
provisions consolidating, amending, replacing, supplementing or interpreting the
statute or regulation.
(e) The captions and headings of this Agreement are for
convenience of reference only and shall not affect the interpretation of this
Agreement.
(f) This Agreement and other Loan Documents may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are cumulative and shall
each be performed in accordance with their terms.
(g) This Agreement and the other Loan Documents are the result
of negotiations among and have been reviewed by counsel to the Agent, the
Borrowers and the other parties, and are the products of all parties.
Accordingly, they shall not be construed against the Lenders or the Agent merely
because of the Agent's or Lenders' involvement in their preparation.
ARTICLE 2
LOANS AND LETTERS OF CREDIT
2.1 Total Facility. Subject to all of the terms and conditions of this
Agreement, the Lenders severally agree to make available a total credit facility
of up to $45,000,000 (the "Total Facility") for the Borrowers' use from time to
time during the term of this Agreement. The Total Facility shall be composed of
a revolving line of credit consisting of Revolving Loans and Letters of Credit
up to the Borrowing Base, as described in Sections 2.2 and 2.4.
2.2 Revolving Loans. (a) Amounts. Subject to the satisfaction of the conditions
precedent set forth in Article 10, each Lender severally, but not jointly,
agrees, upon the applicable Borrower's request from time to time on any Business
Day during the period from the Closing Date to the Termination Date, to make
revolving loans (the "Revolving Loans") to such Borrower in amounts not to
exceed (except for the Bank with respect to Non-Ratable Loans and except for the
Agent with respect to Agent Advances) such Lender's Pro Rata Share of the
Borrowing Base. The Lenders, however, in their unanimous discretion, may elect
to make Revolving Loans or issue or arrange to have issued Letters of Credit in
excess of the Availability on one or more occasions, but if they do so, neither
the Agent nor the Lenders shall be deemed thereby to have changed the limits of
the Borrowing Base or to be obligated to exceed such limits on any other
occasion. If the Aggregate Revolver Outstandings exceed the Borrowing Base, the
Lenders may refuse to make or otherwise restrict the making of Revolving Loans
as the Lenders determine until such excess has been eliminated, subject to the
Agent's authority, in its sole discretion, to make Agent Advances pursuant to
the terms of Section 2.2(i).
(b) Procedure for Borrowing. (1) Each Borrowing shall be made
upon the applicable Borrower's irrevocable written notice delivered to the Agent
in the form of a notice of borrowing ("Notice of Borrowing") together with a
Borrowing Base Certificate reflecting sufficient Availability, which must be
received by the Agent prior to 10:00 a.m. (Los Angeles, California time) (i)
three Business Days prior to the requested Funding Date, in the case of LIBOR
Rate Loans and (ii) no later than 12:00 noon (Los Angeles, California time) on
the requested Funding Date, in the case of Base Rate Loans, specifying:
(A) the amount of the Borrowing,
which in the case of a LIBOR Rate Loan may not be less than $500,000.
(B) the requested Funding Date, which
shall be a Business Day;
(C) whether the Revolving Loans
requested are to be Base Rate Revolving Loans or LIBOR Revolving Loans (and if
not specified, it shall be deemed a request for a Base Rate Revolving Loan); and
(D) the duration of the Interest
Period if the requested Revolving Loans are to be LIBOR Revolving Loans. If the
Notice of Borrowing fails to specify the duration of the Interest Period for any
Borrowing comprised of LIBOR Rate Loans, such Interest Period shall be one
month;
provided, however, that with respect to any Borrowing to be made before the
LIBOR Activation Date, such Borrowings will consist of Base Rate Revolving Loans
only.
(2) With respect to any request for Base
Rate Revolving Loans, in lieu of delivering the above-described Notice of
Borrowing the applicable Borrower may give the Agent telephonic notice of such
request by the required time, with such telephonic notice to be confirmed in
writing within 24 hours of the giving of such notice but the Agent at all times
shall be entitled to rely on such telephonic notice in making such Revolving
Loans, regardless of whether any such confirmation is received by Agent.
(3) The Borrowers shall have no right to request
a LIBOR Rate Loan before the LIBOR Activation Date or at any time while a
Default or Event of Default has occurred and is continuing.
(c) Reliance upon Authority. Each Borrower shall deliver to
the Agent, prior to the Closing Date, a writing setting forth the account of
such Borrower to which the Agent is authorized to transfer the proceeds of the
Revolving Loans requested pursuant to this Section 2.2. which account shall be
reasonably satisfactory to the Agent. The Agent shall be entitled to rely
conclusively on any person's request for Revolving Loans on behalf of a
Borrower, the proceeds of which are to be transferred to the account specified
by such Borrower pursuant to the immediately preceding sentence, until the Agent
receives written notice from such Borrower that the proceeds of the Revolving
Loans are to be sent to a different account. The Agent shall have no duty to
verify the identity of any individual representing himself or herself as a
person authorized by a Borrower to make such requests on its behalf.
(d) No Liability. The Agent shall not incur any liability to
any Borrower as a result of acting upon any notice referred to in Sections
2.2(b) and (c), which notice the Agent believes in good faith to have been given
by an officer or other person duly authorized by such Borrower to request
Revolving Loans on its behalf or for otherwise acting in good faith under this
Section 2.2, and the crediting of Revolving Loans to such Borrower's deposit
account, as such Borrower shall direct, shall conclusively establish the
obligation of such Borrower to repay such Revolving Loans as provided herein.
(e) Notice Irrevocable. Any Notice of Borrowing (or telephonic
notice in lieu thereof) made pursuant to Section 2.2(b) shall be irrevocable and
the applicable Borrower shall be bound to borrow the funds requested therein in
accordance therewith.
(f) Agent's Election. Promptly after receipt of a Notice of
Borrowing (or telephonic notice in lieu thereof) pursuant to Section 2.2(b), the
Agent shall elect, in its discretion, (i) to have the terms of Section 2.2(g)
apply to such requested Borrowing, or (ii) to request the Bank to make a
Non-Ratable Loan pursuant to the terms of Section 2.2(h) in the amount of the
requested Borrowing; provided, however, that if the Bank declines in its sole
discretion to make a Non-Ratable Loan pursuant to Section 2.2(h), the Agent
shall elect to have the terms of Section 2.2(g) apply to such requested
Borrowing.
(g) Making of Revolving Loans. (i) In the event that the Agent
shall elect to have the terms of this Section 2.2(g) apply to a requested
Borrowing as described in Section 2.2(f), then promptly after receipt of a
Notice of Borrowing or telephonic notice pursuant to Section 2.2(b), the Agent
shall notify the Lenders by telecopy, telephone or other similar form of
transmission, of the requested Borrowing. Each Lender shall make the amount of
such Lender's Pro Rata Share of the requested Borrowing available to the Agent
in immediately available funds, to such account of the Agent as the Agent may
designate, not later than 12:00 noon, (Los Angeles, California time) on the
Funding Date applicable thereto. After the Agent's receipt of the proceeds of
such Revolving Loans, the Agent shall make the proceeds of such Revolving Loans
available to the applicable Borrower on the applicable Funding Date by
transferring same day funds equal to the proceeds of such Revolving Loans
received by the Agent to the account of the applicable Borrower, designated in
writing by the applicable Borrower and acceptable to the Agent; provided,
however, that the amount of Revolving Loans so made on any date shall in no
event exceed the Availability on such date.
(ii) Unless the Agent receives notice from a
Lender on or prior to the Closing Date or, with respect to any Borrowing after
the Closing Date, at least one Business Day prior to the date of such Borrowing,
that such Lender will not make available as and when required hereunder to the
Agent for the account of the applicable Borrower the amount of that Lender's Pro
Rata Share of the Borrowing, the Agent may assume that each Lender has made such
amount available to the Agent in immediately available funds on the Funding Date
and the Agent may (but shall not be so required), in reliance upon such
assumption, make available to the applicable Borrower on such date a
corresponding amount. If and to the extent any Lender shall not have made its
full amount available to the Agent in immediately available funds and the Agent
in such circumstances has made available to the applicable Borrower such amount,
that Lender shall on the Business Day following such Funding Date make such
amount available to the Agent, together with interest at the Federal Funds Rate
for each day during such period. A notice by the Agent submitted to any Lender
with respect to amounts owing under this subsection shall be conclusive, absent
manifest error. If such amount is so made available, such payment to the Agent
shall constitute such Lender's Revolving Loan for all purposes of this
Agreement. If such amount is not made available to the Agent on the Business Day
following the Funding Date, the Agent will notify the applicable Borrower of
such failure to fund and, upon demand by the Agent, the applicable Borrower
shall pay such amount to the Agent for the Agent's account, together with
interest thereon for each day elapsed since the date of such Borrowing, at a
rate per annum equal to the Interest Rate applicable at the time to the
Revolving Loans comprising such Borrowing. The failure of any Lender to make any
Revolving Loan on any Funding Date (any such Lender, prior to the cure of such
failure, being hereinafter referred to as a "Defaulting Lender") shall not
relieve any other Lender of any obligation hereunder to make a Revolving Loan on
such Funding Date, but no Lender shall be responsible for the failure of any
other Lender to make the Revolving Loan to be made by such other Lender on any
Funding Date.
(iii) The Agent shall not be obligated to
transfer to a Defaulting Lender any payments made by the Borrowers to the Agent
for the Defaulting Lender's benefit; nor shall a Defaulting Lender be entitled
to the sharing of any payments hereunder. Amounts payable to a Defaulting Lender
shall instead be paid to or retained by the Agent. The Agent may hold and, in
its discretion, re-lend to the Borrowers the amount of all such payments
received or retained by it for the account of such Defaulting Lender. Any
amounts so re-lent to the Borrowers shall bear interest at the rate applicable
to Base Rate Revolving Loans and for all other purposes of this Agreement shall
be treated as if they were Revolving Loans, provided, however, that for purposes
of voting or consenting to matters with respect to the Loan Documents and
determining Pro Rata Shares, such Defaulting Lender shall be deemed not to be a
"Lender". Until a Defaulting Lender cures its failure to fund its Pro Rata Share
of any Borrowing (A) such Defaulting Lender shall not be entitled to any portion
of the Unused Line Fee and (B) the Unused Line Fee shall accrue in favor of the
Lenders which have funded their respective Pro Rata Shares of such requested
Borrowing and shall be allocated among such performing Lenders ratably based
upon their relative Commitments. This Section shall remain effective with
respect to such Lender until such time as the Defaulting Lender shall no longer
be in default of any of its obligations under this Agreement. The terms of this
Section shall not be construed to increase or otherwise affect the Commitment of
any Lender, or relieve or excuse the performance by any Borrower of its duties
and obligations hereunder.
(h) Making of Non-Ratable Loans. (i) In the event the Agent
shall elect, with the consent of the Bank, to have the terms of this Section
2.2(h) apply to a requested Borrowing as described in Section 2.2(f), the Bank
shall make a Revolving Loan in the amount of such Borrowing (any such Revolving
Loan made solely by the Bank pursuant to this Section 2.2(h) being referred to
as a "Non-Ratable Loan" and such Revolving Loans being referred to collectively
as "Non-Ratable Loans") available to the applicable Borrower on the Funding Date
applicable thereto by transferring same day funds to an account of the
applicable Borrower, designated in writing by the applicable Borrower and
acceptable to the Agent. Each Non-Ratable Loan shall be subject to all the terms
and conditions applicable to other Revolving Loans except that all payments
thereon shall be payable to the Bank solely for its own account (and for the
account of the holder of any participation interest with respect to such
Revolving Loan). The Agent shall not request the Bank to make any Non-Ratable
Loan if (A) the Agent shall have received written notice from any Lender that
one or more of the applicable conditions precedent set forth in Article 10 will
not be satisfied on the requested Funding Date for the applicable Borrowing, or
(B) the requested Borrowing would exceed the Availability on such Funding Date.
The Agent shall not otherwise be required to determine whether the applicable
conditions precedent set forth in Article 10 have been satisfied or the
requested Borrowing would exceed the Availability on the Funding Date applicable
thereto prior to making, in its sole discretion, any Non-Ratable Loan.
(ii) The Non-Ratable Loans shall be secured
by the Agent's Liens in and to the Collateral, shall constitute Revolving Loans
and Obligations hereunder, and shall bear interest at the rate applicable to the
Revolving Loans from time to time.
(i) Agent Advances. (i) Subject to the limitations set forth
in the provisos contained in this Section 2.2(i), the Agent is hereby authorized
by the Borrowers and the Lenders, from time to time in the Agent's sole
discretion, (A) after the occurrence of a Default or an Event of Default, or (B)
at any time that any of the other applicable conditions precedent set forth in
Article 10 have not been satisfied, to make Base Rate Revolving Loans to the
Borrowers on behalf of the Lenders which the Agent, in its reasonable business
judgment, deems necessary or desirable (1) to preserve or protect the
Collateral, or any portion thereof, (2) to enhance the likelihood of, or
maximize the amount of, repayment of the Loans and other Obligations, or (3) to
pay any other amount chargeable to the Borrowers pursuant to the terms of this
Agreement, including costs, fees and expenses as described in Section 15.7 (any
of the advances described in this Section 2.2(i) being hereinafter referred to
as "Agent Advances"); provided, that the Majority Lenders may at any time revoke
the Agent's authorization contained in this Section 2.2(i) to make Agent
Advances, any such revocation to be in writing and to become effective
prospectively upon the Agent's receipt thereof;
(ii) The Agent Advances shall be repayable on
demand and secured by the Agent's Liens in and to the Collateral, shall
constitute Revolving Loans and Obligations hereunder, and shall bear interest at
the rate applicable to Base Rate Revolving Loans from time to time. The Agent
shall notify each Lender in writing of each such Agent Advance.
(j) Settlement. It is agreed that each Lender's funded portion
of the Revolving Loans is intended by the Lenders to be equal at all times to
such Lender's Pro Rata Share of the outstanding Revolving Loans. Notwithstanding
such agreement, the Agent, the Bank, and the other Lenders agree (which
agreement shall not be for the benefit of or enforceable by the Borrowers) that
in order to facilitate the administration of this Agreement and the other Loan
Documents, settlement among them as to the Revolving Loans, the Non-Ratable
Loans and the Agent Advances shall take place on a periodic basis in accordance
with the following provisions:
(i) The Agent shall request settlement
("Settlement") with the Lenders on at least a weekly basis, or on a more
frequent basis if so determined by the Agent, (A) on behalf of the Bank, with
respect to each outstanding Non-Ratable Loan, (B) for itself, with respect to
each Agent Advance, and (C) with respect to collections received, in each case,
by notifying the Lenders of such requested Settlement by telecopy, telephone or
other similar form of transmission, of such requested Settlement, no later than
12:00 noon (Los Angeles, California time) on the date of such requested
Settlement (the "Settlement Date"). Each Lender (other than the Bank, in the
case of Non-Ratable Loans and the Agent in the case of Agent Advances) shall
make the amount of such Lender's Pro Rata Share of the outstanding principal
amount of the Non-Ratable Loans and Agent Advances with respect to which
Settlement is requested available to the Agent, to such account of the Agent as
the Agent may designate, not later than 12:00 noon (Los Angeles, California
time), on the Settlement Date applicable thereto, which may occur before or
after the occurrence or during the continuation of a Default or an Event of
Default and whether or not the applicable conditions precedent set forth in
Article 10 have then been satisfied. Such amounts made available to the Agent
shall be applied against the amounts of the applicable Non-Ratable Loan or Agent
Advance and, together with the portion of such Non-Ratable Loan or Agent Advance
representing the Bank's Pro Rata Share thereof, shall constitute Revolving Loans
of such Lenders. If any such amount is not made available to the Agent by any
Lender on the Settlement Date applicable thereto, the Agent shall (A) on behalf
of the Bank, with respect to each outstanding Non-Ratable Loan, and (B) for
itself, with respect to each Agent Advance be entitled to recover such amount on
demand from such Lender together with interest thereon at the Federal Funds Rate
for the first three (3) days from and after the Settlement Date and thereafter
at the Interest Rate then applicable to the Revolving Loans.
(ii) Notwithstanding the foregoing, not more
than one (1) Business Day after demand is made by the Agent (whether before or
after the occurrence of a Default or an Event of Default and regardless of
whether the Agent has requested a Settlement with respect to a Non-Ratable Loan
or Agent Advance), each other Lender (A) shall irrevocably and unconditionally
purchase and receive from the Bank or the Agent, as applicable, without recourse
or warranty, an undivided interest and participation in such Non-Ratable Loan or
Agent Advance equal to such Lender's Pro Rata Share of such Non-Ratable Loan or
Agent Advance and (B) if Settlement has not previously occurred with respect to
such Non-Ratable Loans or Agent Advances, upon demand by Bank or Agent, as
applicable, shall pay to Bank or Agent, as applicable, as the purchase price of
such participation an amount equal to one-hundred percent (100%) of such
Lender's Pro Rata Share of such Non-Ratable Loans or Agent Advances. If such
amount is not in fact made available to the Agent by any Lender, the Agent shall
be entitled to recover such amount on demand from such Lender together with
interest thereon at the Federal Funds Rate for the first three (3) days from and
after such demand and thereafter at the Interest Rate then applicable to Base
Rate Revolving Loans.
(iii) From and after the date, if any, on
which any Lender purchases an undivided interest and participation in any
Non-Ratable Loan or Agent Advance pursuant to clause (ii) preceding, the Agent
shall promptly distribute to such Lender, such Lender's Pro Rata Share of all
payments of principal and interest and all proceeds of Collateral received by
the Agent in respect of such Non-Ratable Loan or Agent Advance.
(iv) Between Settlement Dates, the Agent, to the
extent no Agent Advances are outstanding, may pay over to the Bank any payments
received by the Agent, which in accordance with the terms of this Agreement
would be applied to the reduction of the Revolving Loans, for application to the
Bank's Revolving Loans including Non-Ratable Loans. If, as of any Settlement
Date, collections received since the then immediately preceding Settlement Date
have been applied to the Bank's Revolving Loans (other than to Non-Ratable Loans
or Agent Advances in which such Lender has not yet funded its purchase of a
participation pursuant to Section 2.2(j)(ii) above), as provided for in the
previous sentence, the Bank shall pay to the Agent for the accounts of the
Lenders, to be applied to the outstanding Revolving Loans of such Lenders, an
amount such that each Lender shall, upon receipt of such amount, have, as of
such Settlement Date, its Pro Rata Share of the Revolving Loans. During the
period between Settlement Dates, the Bank with respect to Non-Ratable Loans, the
Agent with respect to Agent Advances, and each Lender with respect to the
Revolving Loans other than Non-Ratable Loans and Agent Advances, shall be
entitled to interest at the applicable rate or rates payable under this
Agreement on the actual average daily amount of funds employed by the Bank, the
Agent and the other Lenders.
(k) Notation. The Agent shall record on its books the
principal amount of the Revolving Loans owing to each Lender, including the
Non-Ratable Loans owing to the Bank, and the Agent Advances owing to the Agent,
from time to time. In addition, each Lender is authorized, at such Lender's
option, to note the date and amount of each payment or prepayment of principal
of such Lender's Revolving Loans in its books and records, including computer
records, such books and records constituting presumptive evidence, absent
manifest error, of the accuracy of the information contained therein.
(l) Lenders' Failure to Perform. All Revolving Loans (other
than Non-Ratable Loans and Agent Advances) shall be made by the Lenders
simultaneously and in accordance with their Pro Rata Shares. It is understood
that (i) no Lender shall be responsible for any failure by any other Lender to
perform its obligation to make any Revolving Loans hereunder, nor shall any
Commitment of any Lender be increased or decreased as a result of any failure by
any other Lender to perform its obligation to make any Revolving Loans
hereunder, (ii) no failure by any Lender to perform its obligation to make any
Revolving Loans hereunder shall excuse any other Lender from its obligation to
make any Revolving Loans hereunder, and (iii) the obligations of each Lender
hereunder shall be several, not joint and several.
2.3 Intentionally Deleted.
2.4 Letters of Credit.
(a) Agreement to Issue or Cause To Issue. Subject to the terms
and conditions of this Agreement, and in reliance upon the representations and
warranties of the Borrowers herein set forth, the Agent agrees (i) to cause the
Letter of Credit Issuer to issue for the account of a Borrower one or more
commercial/documentary and standby letters of credit ("Letter of Credit") and/or
(ii) to provide credit support or other enhancement to a Letter of Credit Issuer
acceptable to Agent, which issues a Letter of Credit for the account of a
Borrower (any such credit support or enhancement being herein referred to as a
"Credit Support") in accordance with this Section 2.4 from time to time during
the term of this Agreement.
(b) Amounts; Outside Expiration Date. The Agent shall not have
any obligation to take steps to issue or cause to be issued any Letter of Credit
or to provide Credit Support for any Letter of Credit at any time if: (i) the
maximum face amount of the requested Letter of Credit is greater than the Unused
Letter of Credit Subfacility at such time; (ii) the maximum undrawn amount of
the requested Letter of Credit and all commissions, fees, and charges due from
the Borrowers in connection with the opening thereof exceed the Availability at
such time; or (iii) such Letter of Credit has an expiration date later than the
Stated Termination Date or more than twelve (12) months from the date of
issuance for standby letters of credit and 180 days for merchandise letters of
credit.
(c) Other Conditions. In addition to being subject to the
satisfaction of the applicable conditions precedent contained in Article 10, the
obligation of the Agent to issue or to cause to be issued any Letter of Credit
or to provide Credit Support for any Letter of Credit is subject to the
following conditions precedent having been satisfied in a manner reasonably
satisfactory to the Agent:
(1) The applicable Borrower shall have
delivered to the Letter of Credit Issuer, at such times and in such manner as
such Letter of Credit Issuer may prescribe, an application in form and substance
satisfactory to such Letter of Credit Issuer and reasonably satisfactory to the
Agent for the issuance of the Letter of Credit and such other documents as may
be required pursuant to the terms thereof, and the form and terms of the
proposed Letter of Credit shall be reasonably satisfactory to the Agent and the
Letter of Credit Issuer; and
(2) As of the date of issuance, no order of any
court, arbitrator or Governmental Authority shall purport by its terms to enjoin
or restrain money center banks generally from issuing letters of credit of the
type and in the amount of the proposed Letter of Credit, and no law, rule or
regulation applicable to money center banks generally and no request or
directive (whether or not having the force of law) from any Governmental
Authority with jurisdiction over money center banks generally shall prohibit, or
request that the proposed Letter of Credit Issuer refrain from, the issuance of
letters of credit generally or the issuance of such Letters of Credit.
(d) Issuance of Letters of Credit.
(1) Request for Issuance. The applicable
Borrower shall give the Agent three Business Days prior written notice of the
applicable Borrower's request for the issuance of a Letter of Credit. Such
notice shall be irrevocable and shall specify the original face amount of the
Letter of Credit requested, the effective date (which date shall be a Business
Day) of issuance of such requested Letter of Credit, whether such Letter of
Credit may be drawn in a single or in partial draws, the date on which such
requested Letter of Credit is to expire (which date shall be a Business Day),
the purpose for which such Letter of Credit is to be issued, and the beneficiary
of the requested Letter of Credit. The applicable Borrower shall attach to such
notice the proposed form of the Letter of Credit.
(2) Responsibilities of the Agent; Issuance.
The Agent shall determine, as of the Business Day immediately preceding the
requested effective date of issuance of the Letter of Credit set forth in the
notice from the applicable Borrower pursuant to Section 2.4(d)(1), (A) the
amount of the applicable Unused Letter of Credit Subfacility and (B) the
Availability as of such date. If (i) the undrawn amount of the requested Letter
of Credit is not greater than the Unused Letter of Credit Subfacility and (ii)
the amount of such requested Letter of Credit and all commissions, fees, and
charges due from the Borrowers in connection with the opening thereof would not
exceed the Availability, the Agent shall, so long as the other conditions hereof
are met, cause the Letter of Credit Issuer to issue the requested Letter of
Credit on such requested effective date of issuance.
(3) Notice of Issuance. On each Settlement
Date, the Agent shall give notice to each Lender of the issuance of all Letters
of Credit issued since the last Settlement Date.
(4) No Extensions or Amendment. The Agent
shall not be obligated to cause the Letter of Credit Issuer to extend or amend
any Letter of Credit issued pursuant hereto unless the requirements of this
Section 2.4 are met as though a new Letter of Credit were being requested and
issued. With respect to any Letter of Credit which contains any "evergreen" or
automatic renewal provision, each Lender shall be deemed to have consented to
any such extension or renewal unless any such Lender shall have provided to the
Agent, not less than thirty (30) days prior to the last date on which the
applicable issuer can in accordance with the terms of the applicable Letter of
Credit decline to extend or renew such Letter of Credit, written notice that it
declines to consent to any such extension or renewal; provided, that if all of
the requirements of this Section 2.4 are met and no Default or Event of Default
exists, no Lender shall decline to consent to any such extension or renewal.
(e) Payments Pursuant to Letters of Credit.
(1) Payment of Letter of Credit Obligations.
The Borrowers agree to reimburse, immediately upon demand, the Letter of Credit
Issuer for any draw under any Letter of Credit and the Agent for the account of
the Lenders upon any payment pursuant to any Credit Support, and to pay the
Letter of Credit Issuer the amount of all other obligations and other amounts
payable to such Letter of Credit Issuer under or in connection with any Letter
of Credit immediately when due, irrespective of any claim, setoff, defense or
other right which the Borrowers may have at any time against such issuer or any
other Person.
(2) Revolving Loans to Satisfy Reimbursement
Obligations. Each drawing under any Letter of Credit shall constitute a request
by the applicable Borrower to the Agent for a Borrowing of a Base Rate Revolving
Loan in the amount of such drawing. The Funding Date with respect to such
Borrowing shall be the date of such drawing.
(f) Participations.
(1) Purchase of Participations. Immediately
upon issuance of any Letter of Credit in accordance with Section 2.4(d), each
Lender shall be deemed to have irrevocably and unconditionally purchased and
received without recourse or warranty, an undivided interest and participation
equal to such Lender's Pro Rata Share of the face amount of such Letter of
Credit or the Credit Support provided through the Agent to the Letter of Credit
Issuer, if not the Agent, in connection with the issuance of such Letter of
Credit (including all obligations of the Borrowers with respect thereto, and any
security therefor or guaranty pertaining thereto).
(2) Sharing of Reimbursement Obligation
Payments. Whenever the Agent receives a payment from the Borrowers on account of
reimbursement obligations in respect of a Letter of Credit or Credit Support as
to which the Agent has previously received for the account of the Letter of
Credit Issuer thereof payment from a Lender pursuant to Section 2.4(e)(2), the
Agent shall promptly pay to such Lender such Lender's Pro Rata Share of such
payment from the Borrowers in Dollars. Each such payment shall be made by the
Agent on the Business Day on which the Agent receives immediately available
funds paid to such Person pursuant to the immediately preceding sentence, if
received prior to 1:00 p.m. (Los Angeles, California time) on such Business Day
and otherwise on the next succeeding Business Day.
(3) Documentation. Upon the request of any
Lender, the Agent shall furnish to such Lender copies of any Letter of Credit,
Credit Support for any Letter of Credit, reimbursement agreements executed in
connection therewith, applications for any Letter of Credit, and such other
documentation as may reasonably be requested by such Lender.
(4) Obligations Irrevocable. The obligations
of each Lender to make payments to the Agent with respect to any Letter of
Credit or with respect to their participation therein or with respect to
any Credit Support for any Letter of Credit or with respect to the
Revolving Loans made as a result of a drawing under a Letter of Credit and
the obligations of the Borrowers to make payments to the Agent, for the
account of the Lenders, shall be irrevocable, not subject to any
qualification or exception whatsoever, including any of the following
circumstances:
(i) any lack of validity or
enforceability of this Agreement or any of the other Loan Documents;
(ii) the existence of any claim, setoff,
defense or other right which any Borrower may have at any time against a
beneficiary named in a Letter of Credit or any transferee of any Letter of
Credit (or any Person for whom any such transferee may be acting), any
Lender, the Agent, the issuer of such Letter of Credit, or any other
Person, whether in connection with this Agreement, any Letter of Credit,
the transactions contemplated herein or any unrelated transactions
(including any underlying transactions between any Borrower or any other
Person and the beneficiary named in any Letter of Credit);
(iii) any draft, certificate or any other
document presented under the Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect;
(iv) the surrender or impairment of any
security for the performance or observance of any of the terms of any of
the Loan Documents;
(v) the occurrence of any Default or
Event of Default; or
(vi) the failure of the Borrowers to
satisfy the applicable conditions precedent set forth in Article 10.
(g) Recovery or Avoidance of Payments. In the event any
payment by or on behalf of the Borrowers received by the Agent with respect to
any Letter of Credit or Credit Support provided for any Letter of Credit and
distributed by the Agent to the Lenders on account of their respective
participations therein is thereafter set aside, avoided or recovered from the
Agent in connection with any receivership, liquidation or bankruptcy proceeding,
the Lenders shall, upon demand by the Agent, pay to the Agent their respective
Pro Rata Shares of such amount set aside, avoided or recovered, together with
interest at the rate required to be paid by the Agent upon the amount required
to be repaid by it.
(h) Indemnification; Exoneration; Power of Attorney
(1) Indemnification. In addition to amounts
payable as elsewhere provided in this Section 2.4, the Borrowers hereby
agree to protect, indemnify, pay and save the Lenders and the Agent
harmless from and against any and all claims, demands, liabilities,
damages, losses, costs, charges and expenses (including reasonable
attorneys' fees) which any Lender or the Agent (other than the Bank in its
capacity as Letter of Credit Issuer) may incur or be subject to as a
consequence, direct or indirect, of the issuance of any Letter of Credit or
the provision of any Credit Support or enhancement in connection therewith.
The agreement in this Section 2.4(h)(1) shall survive payment of all
Obligations. Nothing contained in this Agreement is intended to limit the
Borrowers' rights, if any, with respect to the Letter of Credit Issuer
which arise as a result of the letter of credit application and related
documents executed by and between any Borrower and the Letter of Credit
Issuer.
(2) Assumption of Risk by the Borrowers. As
among the Borrowers, the Lenders, and the Agent, the Borrowers assume all
risks of the acts and omissions of, or misuse of any of the Letters of
Credit by, the respective beneficiaries of such Letters of Credit. In
furtherance and not in limitation of the foregoing, the Lenders and the
Agent shall not be responsible for: (A) the form, validity, sufficiency,
accuracy, genuineness or legal effect of any document submitted by any
Person in connection with the application for and issuance of and
presentation of drafts with respect to any of the Letters of Credit, even
if it should prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged; (B) the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign
any Letter of Credit or the rights or benefits thereunder or proceeds
thereof, in whole or in part, which may prove to be invalid or ineffective
for any reason; (C) the failure of the beneficiary of any Letter of Credit
to comply duly with conditions required in order to draw upon such Letter
of Credit; (D) errors, omissions, interruptions, or delays in transmission
or delivery of any messages, by mail, cable, telegraph, telex or otherwise,
whether or not they be in cipher; (E) errors in interpretation of technical
terms; (F) any loss or delay in the transmission or otherwise of any
document required in order to make a drawing under any Letter of Credit or
of the proceeds thereof; (G) the misapplication by the beneficiary of any
Letter of Credit of the proceeds of any drawing under such Letter of
Credit; or (H) any consequences arising from causes beyond the control of
the Lenders or the Agent, including any act or omission, whether rightful
or wrongful, of any present or future de jure or de facto Governmental
Authority. None of the foregoing shall affect, impair or prevent the
vesting of any rights or powers of the Agent or any Lender under this
Section 2.4(h).
(3) Exoneration. In furtherance and extension,
and not in limitation, of the specific provisions set forth above, any
action taken or omitted by the Agent or any Lender under or in connection
with any of the Letters of Credit or any related certificates, if taken or
omitted in good faith, shall not put the Agent or any Lender under any
resulting liability to any Borrower or relieve any Borrower of any of its
obligations hereunder to any such Person. Nothing contained in this
Agreement is intended to limit any Borrower's rights, if any, with respect
to the Letter of Credit Issuer which arise as a result of the letter of
credit application and related documents executed by and between any
Borrower and the Letter of Credit Issuer.
(4) Indemnification by Lenders. The Lenders
agree to indemnify the Letter of Credit Issuer (to the extent not
reimbursed by the Borrowers and without limiting the obligations of the
Borrowers hereunder) ratably in accordance with their respective Pro Rata
Shares, for any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses (including attorneys'
fees) or disbursements of any kind and nature whatsoever that may be
imposed on, incurred by or asserted against the Letter of Credit Issuer in
any way relating to or arising out of any Letter of Credit or the
transactions contemplated thereby or any action taken or omitted by the
Letter of Credit Issuer under any Letter of Credit or any Loan Document in
connection therewith; provided that no Lender shall be liable for any of
the foregoing to the extent it arises from the gross negligence or willful
misconduct of the Person to be indemnified. Without limitation of the
foregoing, each Lender agrees to reimburse the Letter of Credit Issuer
promptly upon demand for its Pro Rata Share of any costs or expenses
payable by the Borrowers to the Letter of Credit Issuer, to the extent that
the Letter of Credit Issuer is not promptly reimbursed for such costs and
expenses by the Borrowers. The agreement contained in this Section shall
survive payment in full of all Obligations.
(5) Power of Attorney. In connection with all
Inventory financed by Letters of Credit, the Borrowers hereby appoint the
Agent, or the Agent's designee, as their attorney, with full power and
authority: (a) to sign and/or endorse any Borrower's name upon any
warehouse or other receipts; (b) to sign any Borrower's name on bills of
lading and other negotiable and non-negotiable documents; (c) to clear
Inventory through customs in the Agent's or any Borrower's name, and to
sign and deliver to customs officials powers of attorney in any Borrower's
name for such purpose; (d) to complete in any Borrower's or the Agent's
name, any order, sale, or transaction, obtain the necessary documents in
connection therewith, and collect the proceeds thereof; and (e) to do such
other acts and things as are necessary in order to enable the Agent to
obtain possession or control of the Inventory and to obtain payment of the
Obligations. Neither the Agent nor its designee, as the Borrowers'
attorney, will be liable for any acts or omissions, nor for any error of
judgment or mistakes of fact or law. This power, being coupled with an
interest, is irrevocable until all Obligations have been paid and
satisfied.
(6) Account Party. The Borrowers hereby
authorize and direct any Letter of Credit Issuer to name any Borrower as
the "Account Party" therein and to deliver to the Agent all instruments,
documents and other writings and property received by the Letter of Credit
Issuer pursuant to the Letter of Credit, and to accept and rely upon the
Agent's instructions and agreements with respect to all matters arising in
connection with the Letter of Credit or the application therefor.
(7) Control of Inventory. In connection with
all Inventory financed by Letters of Credit, the Borrowers will, at the
Agent's request, instruct all suppliers, carriers, forwarders, customs
brokers, warehouses or others receiving or holding cash, checks, Inventory,
documents or instruments in which the Agent holds a security interest to
deliver them to the Agent and/or subject to the Agent's order, and if they
shall come into any Borrower's possession, to deliver them, upon request,
to the Agent in their original form. The Borrowers shall also, at the
Agent's request, designate the Agent as the consignee on all bills of
lading and other negotiable and non-negotiable documents.
(i) Supporting Letter of Credit; Cash Collateral. If,
notwithstanding the provisions of Section 2.4(b) and Section 12.1, any Letter of
Credit or Credit Support is outstanding upon the termination of this Agreement,
then upon such termination the Borrowers shall deposit with the Agent, for the
ratable benefit of the Agent and the Lenders, with respect to each Letter of
Credit or Credit Support then outstanding, as the Majority Lenders, in their
discretion shall specify, either (A) a standby letter of credit (a "Supporting
Letter of Credit") in form and substance satisfactory to the Agent, issued by an
issuer satisfactory to the Agent in an amount equal to the greatest amount for
which such Letter of Credit or such Credit Support may be drawn plus any fees
and expenses associated with such Letter of Credit or such Credit Support, under
which Supporting Letter of Credit the Agent is entitled to draw amounts
necessary to reimburse the Agent and the Lenders for payments to be made by the
Agent and the Lenders under such Letter of Credit or Credit Support and any fees
and expenses associated with such Letter of Credit or Credit Support, or (B)
cash in amounts necessary to reimburse the Agent and the Lenders for payments
made by the Agent or the Lenders under such Letter of Credit or such Credit
Support and any fees and expenses associated with such Letter of Credit. Such
Supporting Letter of Credit or deposit of cash shall be held by the Agent, for
the ratable benefit of the Agent and the Lenders, as security for, and to
provide for the payment of, the aggregate undrawn amount of such Letters of
Credit or such Credit Support remaining outstanding.
2.5 Bank Products.
Each Borrower may request and the Bank may, in its sole and
absolute discretion, arrange for each Borrower to obtain from the Bank or the
Bank's Affiliates Bank Products although the Borrowers are not required to do
so. To the extent Bank Products are provided by an Affiliate of the Bank, each
Borrower agrees to indemnify and hold the Bank and the Lenders harmless from any
and all costs and obligations now or hereafter incurred by the Bank or any of
the Lenders which arise from the indemnity given by the Bank to its Affiliates
related to such Bank Products; provided, however, nothing contained herein is
intended to limit any Borrower's rights, with respect to the Bank or its
Affiliates, if any, which arise as a result of the execution of documents by and
between any Borrower and the Bank which relate to Bank Products. The agreement
contained in this Section shall survive termination of this Agreement. Any
Borrower acknowledges and agrees that the obtaining of Bank Products from the
Bank or the Bank's Affiliates (a) is in the sole and absolute discretion of the
Bank or the Bank's Affiliates, and (b) is subject to all rules and regulations
of the Bank or the Bank's Affiliates.
ARTICLE 3
INTEREST AND FEES
3.1 Interest.
(a) Interest Rates. All outstanding Obligations shall bear interest on the
unpaid principal amount thereof (including, to the extent permitted by law, on
interest thereon not paid when due) from the date made until paid in full in
cash at a rate determined by reference to the Base Rate or the LIBOR Rate and
Sections 3.1(a)(i), or (ii), as applicable, but not to exceed the Maximum Rate
described in Section 3.3. Subject to the provisions of Section 3.2, any of the
Loans may be converted into, or continued as, Base Rate Loans or LIBOR Rate
Loans in the manner provided in Section 3.2. If at any time Loans are
outstanding with respect to which notice has not been delivered to the Agent in
accordance with the terms of this Agreement specifying the basis for determining
the interest rate applicable thereto, then those Loans shall be Base Rate Loans
and shall bear interest at a rate determined by reference to the Base Rate until
notice to the contrary has been given to the Agent in accordance with this
Agreement and such notice has become effective. Except as otherwise provided
herein, the outstanding Obligations shall bear interest as follows:
(i) For all Base Rate Revolving Loans and
other Obligations (other than LIBOR Rate Loans) at a fluctuating per annum
rate equal to the Base Rate plus the Applicable Margin; and
(ii) For all LIBOR Revolving Loans at a per
annum rate equal to the LIBOR Rate plus the Applicable Margin.
Each change in the Base Rate shall be reflected in the interest rate described
in clauses (i) and (ii) above as of the effective date of such change. All
interest charges shall be computed on the basis of a year of 360 days and actual
days elapsed (which results in more interest being paid than if computed on the
basis of a 365-day year). Interest accrued on all Loans will be payable in
arrears on the first day of each month hereafter and on the Termination Date.
(b) Default Rate. If any Default or Event of Default occurs and is continuing
and the Agent or the Majority Lenders in their discretion so elect, then, while
any such Default or Event of Default is continuing, all of the Obligations shall
bear interest at the Default Rate applicable thereto.
3.2 Continuation and Conversion Elections. (a) The Borrowers may, upon
irrevocable written notice to the Agent in accordance with Section 3.2(b):
(i) elect, as of any Business Day, in the
case of Base Rate Loans to convert any such Loans (or any part thereof in
an amount not less than $500,000, or that is in an integral multiple of
$100,000 in excess thereof) into LIBOR Rate Loans; or
(ii) elect, as of the last day of the
applicable Interest Period, to continue any LIBOR Rate Loans having
Interest Periods expiring on such day (or any part thereof in an amount not
less than $500,000, or that is in an integral multiple of $100,000 in
excess thereof);
provided, that if at any time the aggregate amount of LIBOR Rate Loans in
respect of any Borrowing is reduced, by payment, prepayment, or conversion of
part thereof to be less than $500,000, such LIBOR Rate Loans shall automatically
convert into Base Rate Loans, and on and after such date the right of the
Borrowers to continue such Loans as, and convert such Loans into, LIBOR Rate
Loans, as the case may be, shall terminate, and provided further that if the
notice shall fail to specify the duration of the Interest Period, such Interest
Period shall be one month.
(c) The applicable Borrower shall deliver a notice of conversion/continuation
("Notice of Continuation/Conversion") to be received by the Agent not later than
10:00 a.m. (Los Angeles, California time) at least three Business Days in
advance of the Continuation/Conversion Date, if the Loans are to be converted
into or continued as LIBOR Rate Loans and specifying:
(i) the proposed Continuation/Conversion Date;
(ii) the aggregate amount of Loans to be
converted or renewed;
(iii) the type of Loans resulting from the
proposed conversion or continuation; and
(iv) the duration of the requested Interest
Period.
(d) If upon the expiration of any Interest Period applicable to LIBOR Rate
Loans, the applicable Borrower has failed to select timely a new Interest Period
to be applicable to LIBOR Rate Loans or if any Default or Event of Default then
exists, the applicable Borrower shall be deemed to have elected to convert such
LIBOR Rate Loans into Base Rate Loans effective as of the expiration date of
such Interest Period.
(e) The Agent will promptly notify each Lender of its receipt of a Notice of
Conversion/Continuation. All conversions and continuations shall be made ratably
according to the respective outstanding principal amounts of the Loans with
respect to which the notice was given held by each Lender.
(f) During the existence of a Default or Event of Default, the Borrowers may not
elect to have a Loan converted into or continued as a LIBOR Rate Loan.
(g) After giving effect to any conversion or continuation of Loans, there may
not be more than six different Interest Periods in effect hereunder.
3.3 Maximum Interest Rate. In no event shall any interest rate provided for
hereunder exceed the maximum rate legally chargeable by any Lender under
applicable law for such Lender with respect to loans of the type provided for
hereunder (the "Maximum Rate"). If, in any month, any interest rate, absent such
limitation, would have exceeded the Maximum Rate, then the interest rate for
that month shall be the Maximum Rate, and, if in future months, that interest
rate would otherwise be less than the Maximum Rate, then that interest rate
shall remain at the Maximum Rate until such time as the amount of interest paid
hereunder equals the amount of interest which would have been paid if the same
had not been limited by the Maximum Rate. In the event that, upon payment in
full of the Obligations, the total amount of interest paid or accrued under the
terms of this Agreement is less than the total amount of interest which would,
but for this Section 3.3, have been paid or accrued if the interest rate
otherwise set forth in this Agreement had at all times been in effect, then the
Borrowers shall, to the extent permitted by applicable law, pay the Agent, for
the account of the Lenders, an amount equal to the excess of (a) the lesser of
(i) the amount of interest which would have been charged if the Maximum Rate
had, at all times, been in effect or (ii) the amount of interest which would
have accrued had the interest rate otherwise set forth in this Agreement, at all
times, been in effect over (b) the amount of interest actually paid or accrued
under this Agreement. In the event that a court of competent jurisdiction
determines that the Agent and/or any Lender has received interest and other
charges hereunder in excess of the Maximum Rate, such excess shall be deemed
received on account of, and shall automatically be applied to reduce, the
Obligations other than interest, in the inverse order of maturity, and if there
are no Obligations outstanding, the Agent and/or such Lender shall refund to the
Borrowers such excess.
3.4 Agent's Fees. The Borrowers agree to pay the Agent, for its sole account,
the fees set forth in the Agent's Fee Letter, at the times and in the amounts
set forth therein. The Borrowers agree that such fees shall be financed by the
Lenders as a Revolving Loan.
3.5 Unused Line Fee. Until the Loans have been paid in full and this Agreement
terminated, the Borrowers agree to pay, on the first day of each month and on
the Termination Date, to the Agent, for the account of the Lenders, in
accordance with their respective Pro Rata Shares, an unused line fee (the
"Unused Line Fee") equal to 0.375% per annum times the amount by which the
Maximum Revolver Amount exceeded the sum of the average daily outstanding amount
of Revolving Loans and the average daily undrawn face amount of outstanding
Letters of Credit, during the immediately preceding month or shorter period if
calculated on the Termination Date. The Unused Line Fee shall be computed on the
basis of a 360-day year for the actual number of days elapsed. All payments
received by the Agent shall be deemed to be credited to the Borrowers' Loan
Account immediately upon receipt for purposes of calculating the Unused Line Fee
pursuant to this Section 3.5.
3.6 Letter of Credit Fee. The Borrowers agree to pay to the Agent, for the
account of the Lenders, in accordance with their respective Pro Rata Shares, for
each Letter of Credit, a fee (the "Letter of Credit Fee") equal to 1.50% per
annum of the undrawn face amount of each Letter of Credit, plus all reasonable
out-of-pocket costs, fees and expenses incurred by the Agent in connection with
the application for, processing of, issuance of, or amendment to any Letter of
Credit, which costs, fees and expenses shall include a "fronting fee" payable to
such issuer. The Letter of Credit Fee shall be payable monthly in arrears on the
first day of each month following any month in which a Letter of Credit was
issued and/or in which a Letter of Credit remains outstanding and on the
Termination Date. The Letter of Credit Fee shall be computed on the basis of a
360-day year for the actual number of days elapsed.
ARTICLE 4
PAYMENTS AND PREPAYMENTS
4.1 Revolving Loans. The Borrowers shall repay the outstanding principal balance
of the Revolving Loans, plus all accrued but unpaid interest thereon, on the
Termination Date. The Borrowers may prepay Revolving Loans at any time, and
reborrow subject to the terms of this Agreement; provided, however, that with
respect to any LIBOR Revolving Loans prepaid by the Borrowers prior to the
expiration date of the Interest Period applicable thereto, the Borrowers shall
pay to the Agent for account of the Lenders the amounts described in Section
5.4. In addition, and without limiting the generality of the foregoing, upon
demand the Borrowers shall pay to the Agent, for account of the Lenders, the
amount, without duplication, by which the Aggregate Revolver Outstandings
exceeds the Borrowing Base.
4.2 Termination of Facility. The Parent may terminate this Agreement upon at
least thirty (30) Business Days' notice to the Agent and the Lenders, upon (a)
the payment in full of all outstanding Revolving Loans, together with accrued
interest thereon, and the cancellation and return of all outstanding Letters of
Credit, (b) the payment of the early termination fee set forth in the next
sentence, (c) the payment in full in cash of all other Obligations together with
accrued and unpaid interest thereon, and (d) with respect to any LIBOR Rate
Loans prepaid in connection with such termination prior to the expiration date
of the Interest Period applicable thereto, the payment of the amounts described
in Section 5.4. If this Agreement is terminated at any time prior to the Second
Anniversary Date, whether pursuant to this Section or pursuant to Section 11.2,
the Borrowers shall pay to the Agent, for the account of the Lenders, an early
termination fee determined in accordance with the following table:
Period during which
early termination Early Termination
occurs Fee
On or prior to the second 1.0% of the average Loans and Letters of Credit
Anniversary Date outstanding during the 180 days (or lesser period
if within 180 days of the Closing Date) prior to
the date of termination
provided, however, that the early termination fee described in this Section 4.2
shall not be payable in the event that: (i) at any time after the first
Anniversary Date the Borrowers terminate this Agreement and pay all Obligations
utilizing either the proceeds of a credit facility agented by the Bank or any of
its Affiliates or the proceeds of a debt or equity issuance that is arranged by
the Bank or any of the Bank's Affiliates; or (ii) such termination occurs within
60 days of the exercise by the Agent of its discretion to institute a reserve
against Availability of a type not already specified, or to make ineligible any
category of previously Eligible Accounts or Eligible Inventory, which in any
such case results in Availability being less than $0.
4.3 [Intentionally Deleted]
4.4 [Intentionally Deleted]
4.5 [Intentionally Deleted]
4.6 Payments by the Borrowers. (a) All payments to be made by the Borrowers
shall be made without set-off, recoupment or counterclaim. Except as otherwise
expressly provided herein, all payments by the Borrowers shall be made to the
Agent for the account of the Lenders , at the account designated by the Agent
and shall be made in Dollars and in immediately available funds, no later than
12:00 noon (Los Angeles, California time) on the date specified herein. Any
payment received by the Agent later than 12:00 noon (Los Angeles, California
time) shall be deemed to have been received on the following Business Day and
any applicable interest or fee shall continue to accrue.
(b) Subject to the provisions set forth in the definition of
"Interest Period" herein, whenever any payment is due on a day other than a
Business Day, such payment shall be due on the following Business Day, and such
extension of time shall in such case be included in the computation of interest
or fees, as the case may be.
(c) Unless the Agent receives notice from the Borrowers prior
to the date on which any payment is due to the Lenders that the Borrowers will
not make such payment in full as and when required, the Agent may assume that
the Borrowers have made such payment in full to the Agent on such date in
immediately available funds and the Agent may (but shall not be so required), in
reliance upon such assumption, distribute to each Lender on such due date an
amount equal to the amount then due such Lender. If and to the extent the
Borrowers have not made such payment in full to the Agent, each Lender shall
repay to the Agent on demand such amount distributed to such Lender, together
with interest thereon at the Federal Funds Rate for each day from the date such
amount is distributed to such Lender until the date repaid.
4.7 Payments as Revolving Loans. All payments of principal, interest,
reimbursement obligations in connection with Letters of Credit and Credit
Support for Letters of Credit, fees, premiums and other sums payable hereunder,
including all reimbursement for expenses pursuant to Section 15.7, may, at the
option of the Agent, in its sole discretion, subject only to the terms of this
Section 4.7, be paid from the proceeds of Revolving Loans made hereunder,
whether made following a request by the Borrowers pursuant to Section 2.2 or a
deemed request as provided in this Section 4.7. The Borrowers hereby irrevocably
authorize the Agent to charge the Loan Account for the purpose of paying
principal, interest, reimbursement obligations in connection with Letters of
Credit and Credit Support for Letters of Credit, fees, premiums and other sums
payable hereunder, including reimbursing expenses pursuant to Section 15.7, and
agrees that all such amounts charged shall constitute Revolving Loans (including
Non-Ratable Loans and Agent Advances) and that all such Revolving Loans so made
shall be deemed to have been requested by Borrowers pursuant to Section 2.2.
4.8 Apportionment, Application and Reversal of Payments. Principal and interest
payments shall be apportioned ratably among the Lenders (according to the unpaid
principal balance of the Loans to which such payments relate held by each
Lender) and payments of the fees shall, as applicable, be apportioned ratably
among the Lenders. All payments shall be remitted to the Agent and all such
payments not relating to principal or interest of specific Loans, or not
constituting payment of specific fees, and all proceeds of Accounts or other
Collateral received by the Agent, shall be applied, ratably, subject to the
provisions of this Agreement, first, to pay any fees, indemnities or expense
reimbursements then due to the Agent from any Borrower; second, to pay any fees
or expense reimbursements then due to the Lenders from the Borrowers; third, to
pay interest due in respect of all Revolving Loans, including Non-Ratable Loans
and Agent Advances; fourth, to pay or prepay principal of the Non-Ratable Loans
and Agent Advances; fifth, to pay or prepay principal of the Revolving Loans
(other than Non-Ratable Loans and Agent Advances) and unpaid reimbursement
obligations in respect of Letters of Credit; and sixth, to the payment of any
other Obligation including any amounts relating to Bank Products due to the
Agent or any Lender by the Borrowers. Notwithstanding anything to the contrary
contained in this Agreement, unless so directed by the Borrowers, or unless an
Event of Default has occurred and is continuing, neither the Agent nor any
Lender shall apply any payments which it receives to any LIBOR Revolving Loan,
except (a) on the expiration date of the Interest Period applicable to any such
LIBOR Rate Loan, or (b) in the event, and only to the extent, that there are no
outstanding Base Rate Revolving Loans. The Agent shall promptly distribute to
each Lender, pursuant to the applicable wire transfer instructions received from
each Lender in writing, such funds as it may be entitled to receive, subject to
a Settlement delay as provided for in Section 2.2(j). The Agent and the Lenders
shall have the continuing and exclusive right to apply and reverse and reapply
any and all such proceeds and payments to any portion of the Obligations.
4.9 Indemnity for Returned Payments. If after receipt of any payment which is
applied to the payment of all or any part of the Obligations, the Agent or any
Lender is for any reason compelled to surrender such payment or proceeds to any
Person because such payment or application of proceeds is invalidated, declared
fraudulent, set aside, determined to be void or voidable as a preference,
impermissible setoff, or a diversion of trust funds, or for any other reason,
then the Obligations or part thereof intended to be satisfied shall be revived
and continued and this Agreement shall continue in full force as if such payment
or proceeds had not been received by the Agent or such Lender and the Borrowers
shall be liable to pay to the Agent and the Lenders, and hereby does indemnify
the Agent and the Lenders and hold the Agent and the Lenders harmless for the
amount of such payment or proceeds surrendered. The provisions of this Section
4.9 shall be and remain effective notwithstanding any contrary action which may
have been taken by the Agent or any Lender in reliance upon such payment or
application of proceeds, and any such contrary action so taken shall be without
prejudice to the Agent's and the Lenders' rights under this Agreement and shall
be deemed to have been conditioned upon such payment or application of proceeds
having become final and irrevocable. The provisions of this Section 4.9 shall
survive the termination of this Agreement.
4.10 Agent's and Lenders' Books and Records; Monthly Statements. Each Borrower
agrees that the Agent's and each Lender's books and records showing the
Obligations and the transactions pursuant to this Agreement and the other Loan
Documents shall be admissible in any action or proceeding arising therefrom, and
shall constitute rebuttably presumptive proof thereof, irrespective of whether
any Obligation is also evidenced by a promissory note or other instrument. The
Agent will provide to the Borrowers a monthly statement of Loans, payments, and
other transactions pursuant to this Agreement. Such statement shall be deemed
correct, accurate, and binding on the Borrowers and an account stated (except
for reversals and reapplications of payments made as provided in Section 4.8 and
corrections of errors discovered by the Agent), unless the Borrowers notify the
Agent in writing to the contrary within sixty (60) days after such statement is
rendered. In the event a timely written notice of objections is given by the
Borrowers, only the items to which exception is expressly made will be
considered to be disputed by the Borrowers.
ARTICLE 5
TAXES, YIELD PROTECTION AND ILLEGALITY
5.1 Taxes. (a) Any and all payments by any Borrower to each Lender or the Agent
under this Agreement and any other Loan Document shall be made free and clear
of, and without deduction or withholding for any Taxes. In addition, the
Borrowers shall pay all Other Taxes.
(b) Each Borrower agrees to indemnify and hold harmless each
Lender and the Agent for the full amount of Taxes or Other Taxes (including any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section) paid by any Lender or the Agent and any liability (including penalties,
interest, additions to tax and expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted. Payment under this indemnification shall be made within 30 days after
the date such Lender or the Agent makes written demand therefor.
(c) If any Borrower shall be required by law to deduct or
withhold any Taxes or Other Taxes from or in respect of any sum payable
hereunder to any Lender or the Agent, then:
(i) the sum payable shall be increased as
necessary so that after making all required deductions and withholdings
(including deductions and withholdings applicable to additional sums
payable under this Section) such Lender or the Agent, as the case may be,
receives an amount equal to the sum it would have received had no such
deductions or withholdings been made;
(ii) such Borrower shall make such deductions and
withholdings;
(iii) such Borrower shall pay the full amount
deducted or withheld to the relevant taxing authority or other authority in
accordance with applicable law; and
(iv) such Borrower shall also pay to each
Lender or the Agent for the account of such Lender, at the time interest is
paid, all additional amounts which the respective Lender specifies as
necessary to preserve the after-tax yield such Lender would have received
if such Taxes or Other Taxes had not been imposed.
(d) Within 30 days after the date of any payment by any
Borrower of Taxes or Other Taxes, such Borrower shall furnish the Agent the
original or a certified copy of a receipt evidencing payment thereof, or other
evidence of payment satisfactory to the Agent.
(e) If any Borrower is required to pay additional amounts to
any Lender or the Agent pursuant to subsection (c) of this Section, then such
Lender shall use reasonable efforts (consistent with legal and regulatory
restrictions) to change the jurisdiction of its lending office so as to
eliminate any such additional payment by such Borrower which may thereafter
accrue, if such change in the judgment of such Lender is not otherwise
disadvantageous to such Lender.
5.2 Illegality. (a) If any Lender determines that the introduction of any
Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, has made it
unlawful, or that any central bank or other Governmental Authority has asserted
that it is unlawful, for any Lender or its applicable lending office to make
LIBOR Rate Loans, then, on notice thereof by that Lender to the Borrowers
through the Agent, any obligation of that Lender to make LIBOR Rate Loans shall
be suspended until that Lender notifies the Agent and the Borrowers that the
circumstances giving rise to such determination no longer exist.
(b) If a Lender determines that it is unlawful to maintain any
LIBOR Rate Loan, the Borrowers shall, upon their receipt of notice of such fact
and demand from such Lender (with a copy to the Agent), prepay in full such
LIBOR Rate Loans of that Lender then outstanding, together with interest accrued
thereon and amounts required under Section 5.4, either on the last day of the
Interest Period thereof, if that Lender may lawfully continue to maintain such
LIBOR Rate Loans to such day, or immediately, if that Lender may not lawfully
continue to maintain such LIBOR Rate Loans. If the Borrowers are required to so
prepay any LIBOR Rate Loans, then concurrently with such prepayment, the
Borrowers shall borrow from the affected Lender, in the amount of such
repayment, a Base Rate Loan.
5.3 Increased Costs and Reduction of Return. (a) If any Lender determines that
due to either (i) the introduction of or any change in the interpretation of any
law or regulation or (ii) the compliance by that Lender with any guideline or
request from any central bank or other Governmental Authority (whether or not
having the force of law), there shall be any increase in the cost to such Lender
of agreeing to make or making, funding or maintaining any LIBOR Rate Loans, then
the Borrowers shall be liable for, and shall from time to time, upon demand
(with a copy of such demand to be sent to the Agent), pay to the Agent for the
account of such Lender, additional amounts as are sufficient to compensate such
Lender for such increased costs.
(b) If any Lender shall have determined that (i) the
introduction of any Capital Adequacy Regulation, (ii) any change in any Capital
Adequacy Regulation, (iii) any change in the interpretation or administration of
any Capital Adequacy Regulation by any central bank or other Governmental
Authority charged with the interpretation or administration thereof, or (iv)
compliance by such Lender or any corporation or other entity controlling such
Lender with any Capital Adequacy Regulation, affects or would affect the amount
of capital required or expected to be maintained by such Lender or any
corporation or other entity controlling such Lender and (taking into
consideration such Lender's or such corporation's or other entity's policies
with respect to capital adequacy and such Lender's desired return on capital)
determines that the amount of such capital is increased as a consequence of its
Commitments, loans, credits or obligations under this Agreement, then, upon
demand of such Lender to the Borrowers through the Agent, the Borrowers shall
pay to such Lender, from time to time as specified by such Lender, additional
amounts sufficient to compensate such Lender for such increase.
5.4 Funding Losses. The Borrowers shall reimburse each Lender and hold
each Lender harmless from any loss or expense which such Lender may sustain or
incur as a consequence of:
(a) the failure of any Borrower to make on a timely basis
any payment of principal of any LIBOR Rate Loan;
(b) the failure of any Borrower to borrow, continue or convert
a Loan after such Borrower has given (or is deemed to have given) a Notice of
Borrowing or a Notice of Continuation/Conversion; or
(c) the prepayment or other payment (including after
acceleration thereof) of any LIBOR Rate Loans on a day that is not the last
day of the relevant Interest Period;
including any such loss of anticipated profit and any loss or expense arising
from the liquidation or reemployment of funds obtained by it to maintain its
LIBOR Rate Loans or from fees payable to terminate the deposits from which such
funds were obtained. Borrowers shall also pay any customary administrative fees
charged by any Lender in connection with the foregoing.
5.5 Inability to Determine Rates. If the Agent determines that for any reason
adequate and reasonable means do not exist for determining the LIBOR Rate for
any requested Interest Period with respect to a proposed LIBOR Rate Loan, or
that the LIBOR Rate for any requested Interest Period with respect to a proposed
LIBOR Rate Loan does not adequately and fairly reflect the cost to the Lenders
of funding such Loan, the Agent will promptly so notify the Borrowers and each
Lender. Thereafter, the obligation of the Lenders to make or maintain LIBOR Rate
Loans hereunder shall be suspended until the Agent revokes such notice in
writing. Upon receipt of such notice, any Borrower may revoke any Notice of
Borrowing or Notice of Conversion/Continuation then submitted by it. If the
applicable Borrower does not revoke such Notice, the Lenders shall make, convert
or continue the Loans, as proposed by such Borrower, in the amount specified in
the applicable notice submitted by such Borrower, but such Loans shall be made,
converted or continued as Base Rate Loans instead of LIBOR Rate Loans.
5.6 Certificates of Lenders. Any Lender claiming reimbursement or compensation
under this Article 5 shall deliver to the Borrowers (with a copy to the Agent) a
certificate setting forth in reasonable detail the amount payable to such Lender
hereunder and such certificate shall be conclusive and binding on the Borrowers
in the absence of manifest error.
5.7 Survival. The agreements and obligations of the Borrowers in
this Article 5 shall survive the payment of all other Obligations.
ARTICLE 6
COLLATERAL
6.1 Grant of Security Interest. (a) As security for all Obligations, each
Borrower hereby grants to the Agent, for the benefit of the Agent and the
Lenders, a continuing security interest in, lien on, assignment of and right of
set-off against, all of the right, title, and interest of such Borrower in the
following property and assets, whether now owned or existing or hereafter
acquired or arising, regardless of where located:
(i) all Accounts (including any credit
enhancement therefor);
(ii) all Inventory;
(iii) all contract rights, letters of credit,
Assigned Contracts, chattel paper, instruments, notes, documents, and
documents of title;
(iv) all General Intangibles;
(v) all Equipment;
(vi) all Investment Property;
(vii) all money, cash, cash equivalents,
securities and other property of any kind of such Borrower held directly or
indirectly by the Agent or any Lender;
(viii) all of such Borrower's deposit accounts,
credits, and balances with and other claims against the Agent or any Lender
or any of their Affiliates or any other financial institution with which
such Borrower maintains deposits, including any Payment Accounts;
(ix) all books, records and other property
related to or referring to any of the foregoing, including books, records,
account ledgers, data processing records, computer software and other
property and General Intangibles at any time evidencing or relating to any
of the foregoing; and
(x) all accessions to, substitutions for and
replacements, products and proceeds of any of the foregoing, including, but
not limited to, proceeds of any insurance policies, claims against third
parties, and condemnation or requisition payments with respect to all or
any of the foregoing.
All of the foregoing, and all other property of the Borrowers in which the Agent
or any Lender may at any time be granted a Lien, is herein collectively referred
to as the "Collateral."
(b) Notwithstanding anything to the contrary contained herein,
the foregoing grant of a security interest shall not include any rights or
interests in any General Intangible or contracts (including, without limitation,
Assigned Contracts) if and to the extent that (a) the terms of the contract of
document creating or evidencing such General Intangible or contract right
prohibits assignment or encumbrance thereof, (b) the term prohibiting such
assignment or encumbrance is effective as a matter of law (including Section
9-318 of the UCC), and (c) the term prohibiting such assignment or encumbrance
has not been waived or the consent of the necessary party of the grant of such
security interest to the Agent has not been obtained; provided, however that all
proceeds of any such General Intangible or contract shall continue to be covered
by the grant of a security interest.
(c) All of the Obligations shall be secured by all of the
Collateral.
6.2 Perfection and Protection of Security Interest. (a) Each Borrower shall, at
its expense, perform all steps requested by the Agent at any time to perfect,
maintain, protect, and enforce the Agent's Liens, including: (i) executing,
delivering and/or filing and recording of the Intellectual Property Agreement
and executing and filing financing or continuation statements, and amendments
thereof, in form and substance reasonably satisfactory to the Agent; (ii)
delivering to the Agent the originals of all instruments, documents, and chattel
paper, and all other Collateral of which the Agent determines it should have
physical possession in order to perfect and protect the Agent's security
interest therein, duly pledged, endorsed or assigned to the Agent without
restriction; (iii) delivering to the Agent warehouse receipts covering any
portion of the Collateral located in warehouses and for which warehouse receipts
are issued and certificates of title covering any portion of the collateral for
which certificates of title have been issued; (iv) when an Event of Default
exists, transferring Inventory to warehouses or other locations designated by
the Agent; (v) placing notations on such Borrower's books of account to disclose
the Agent's security interest; (vi) delivering to the Agent all letters of
credit on which such Borrower is named beneficiary; and (vii) taking such other
steps as are deemed necessary or desirable by the Agent to maintain and protect
the Agent's Liens. To the extent permitted by applicable law, the Agent may
file, without the applicable Borrower's signature, one or more financing
statements disclosing the Agent's Liens. Each Borrower agrees that a carbon,
photographic, photostatic, or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement.
(b) If any Collateral is at any time in the possession or
control of any warehouseman, bailee or any of a Borrower's agents or processors,
then such Borrower shall notify the Agent thereof and shall, at the request of
Agent, notify such Person of the Agent's security interest in such Collateral
and instruct such Person to hold all such Collateral for the Agent's account
subject to the Agent's instructions. If at any time any Collateral is located in
any operating facility of a Borrower not owned by such Borrower, then such
Borrower shall, at the request of the Agent, obtain written landlord lien
waivers or subordinations, in form and substance reasonably satisfactory to the
Agent, of all present and future Liens to which the owner or lessor of such
premises may be entitled to assert against the Collateral.
(c) From time to time, each Borrower shall, upon the Agent's request, execute
and deliver confirmatory written instruments pledging to the Agent, for the
ratable benefit of the Agent and the Lenders, the Collateral with respect to
such Borrower, but such Borrower's failure to do so shall not affect or limit
any security interest or any other rights of the Agent or any Lender in and to
the Collateral with respect to such Borrower. So long as this Agreement is in
effect and until all Obligations have been fully satisfied, the Agent's Liens
shall continue in full force and effect in all Collateral (whether or not deemed
eligible for the purpose of calculating the Availability or as the basis for any
advance, loan, extension of credit, or other financial accommodation).
(d) Within 60 days after the Closing Date, upon the Agent's request, the Parent
shall deliver to the Agent a deed of trust, mortgage or similar instrument to
perfect the Agent's Lien on the Parent's Real Estate located in Lawrence,
Kansas; provided, however, that the Borrowers shall not be responsible to pay
more than $10,000 of the costs (including Attorney Costs) and expenses of
preparing and recording such instrument.
6.3 Location of Collateral. Each Borrower represents and warrants to the Agent
and the Lenders that: (a) Schedule 6.3 is a correct and complete list of such
Borrower's state of incorporation, chief executive office, the location of its
books and records, the locations of the Collateral (other than Inventory in
transit to such a location), and the locations of all of its other places of
business; and (b) Schedule 6.3 correctly identifies any of such facilities and
locations that are not owned by such Borrower and sets forth the names of the
owners and lessors or sublessors of such facilities and locations. Each Borrower
covenants and agrees that it will not (i) maintain any Collateral at any
location other than those locations listed for such Borrower on Schedule 6.3,
(ii) otherwise change or add to any of such locations, or (iii) change the
location of its chief executive office from the location identified in Schedule
6.3, or reincorporate in any other jurisdiction, unless it gives the Agent at
least thirty (30) days' prior written notice thereof and executes any and all
financing statements and other documents that the Agent reasonably requests in
connection therewith; provided, however, that no Inventory that is subject to
Honeywell's obligation to repurchase under the Honeywell Buy Back Agreement may
be moved from the Parent's Phoenix, Arizona location or from the Parent's
Tijuana, Mexico location to any third location without (y) the advance written
confirmation from Honeywell that, notwithstanding such relocation, Honeywell
will remain obligated to repurchase such Inventory under the Honeywell Buy Back
Agreement and (z) such Inventory being moved to a location in which the Agent's
first priority Lien thereon has been perfected. Not more than $6,000,000 of
Inventory subject to the Honeywell Buy Back Agreement will be located at the
Parent's Tijuana, Mexico location at any one time. Without limiting the
foregoing, each Borrower represents that all of its Inventory (other than
Inventory in transit) is, and covenants that all of its Inventory will be,
located either (a) on premises owned by the Borrower, (b) on premises leased by
such Borrower, provided that the Agent has, if requested by the Agent, received
an executed landlord waiver from the landlord of such premises in form and
substance satisfactory to the Agent, or (c) in a warehouse or with a bailee,
provided that the Agent has, if requested by the Agent, received an executed
bailee letter from the applicable Person in form and substance satisfactory to
the Agent.
6.4 Title to, Liens on, and Sale and Use of Collateral. Each Borrower represents
and warrants to the Agent and the Lenders and agrees with the Agent and the
Lenders that: (a) all of the Collateral is and will continue to be owned by the
Borrowers free and clear of all Liens whatsoever, except for Permitted Liens;
(b) the Agent's Liens in the Collateral will not be subject to any prior Lien
except for those Liens identified in clauses (c), (d), (e) and (g) of the
definition of Permitted Liens; and (c) the Borrowers will use, store, and
maintain the Collateral with all reasonable care and will use such Collateral
for lawful purposes only.
6.5 Appraisals. Whenever a Default or Event of Default exists, and at such other
times not more frequently than once a year as the Agent requests, the Borrowers
shall, upon the Agent's request, provide the Agent with appraisals or updates
thereof of any or all of the Collateral from an appraiser, and prepared on a
basis, satisfactory to the Agent, such appraisals and updates to include,
without limitation, information required by applicable law and regulation and by
the internal policies of the Lenders. Any such appraisals conducted prior to an
Event of Default shall be at the sole cost and expense of the Agent and Lenders,
and any such appraisals conducted after an Event of Default shall be at the sole
cost and expense of the Borrowers.
6.6 Access and Examination; Confidentiality; Consent to Advertising. (a) The
Agent, accompanied by any Lender which so elects, may at all reasonable times
during regular business hours (and at any time when a Default or Event of
Default exists and is continuing) have access to, examine, audit, make extracts
from or copies of and inspect any or all of the Borrowers' records, files, and
books of account and the Collateral, and discuss the Borrowers' affairs with the
Borrowers' officers and management. Each Borrower will deliver to the Agent any
instrument necessary for the Agent to obtain records from any service bureau
maintaining records for such Borrower. The Agent may, and at the direction of
the Majority Lenders shall, at any time when a Default or Event of Default
exists, and at the Borrowers' expense, make copies of all of the Borrowers'
books and records, or require the Borrowers to deliver such copies to the Agent.
The Agent may, without expense to the Agent, use such of the Borrowers.
respective personnel, supplies, and Real Estate as may be reasonably necessary
for maintaining or enforcing the Agent's Liens. The Agent shall have the right,
at any time, in the Agent's name or in the name of a nominee of the Agent, to
verify the validity, amount or any other matter relating to the Accounts,
Inventory, or other Collateral, by mail, telephone, or otherwise.
(b) The Agent and each Lender may (with the Parent's prior
approval) issue and disseminate to the public general information describing the
credit accommodation entered into pursuant to this Agreement, including the name
and address of such Borrower and a general description of such Borrower business
and may use such Borrower's name in advertising and other promotional material.
(c) Each Lender severally agrees to take normal and reasonable
precautions and exercise due care, in accordance with sound banking practices,
to maintain the confidentiality of all information provided to the Agent or such
Lender by or on behalf of such Borrower, under this Agreement or any other Loan
Document, except to the extent that such information (i) was or becomes
generally available to the public other than as a result of disclosure by the
Agent or such Lender, or (ii) was or becomes available on a nonconfidential
basis from a source other than such Borrower, provided that such source is not
bound by a confidentiality agreement with such Borrower known to the Agent or
such Lender; provided, however, that the Agent and any Lender may disclose such
information (1) at the request or pursuant to any requirement of any
Governmental Authority to which the Agent or such Lender is subject or in
connection with an examination of the Agent or such Lender by any such
Governmental Authority; (2) pursuant to subpoena or other court process; (3)
when required to do so in accordance with the provisions of any applicable
Requirement of Law; (4) to the extent reasonably required in connection with any
litigation or proceeding (including, but not limited to, any bankruptcy
proceeding) to which the Agent, any Lender or their respective Affiliates may be
party; (5) to the extent reasonably required in connection with the exercise of
any remedy hereunder or under any other Loan Document; (6) to the Agent's or
such Lender's independent auditors, accountants, attorneys and other
professional advisors; (7) to any prospective Participant or Assignee under any
Assignment and Acceptance, actual or potential, provided that such prospective
Participant or Assignee agrees to keep such information confidential to the same
extent required of the Agent and the Lenders hereunder; (8) as expressly
permitted under the terms of any other document or agreement regarding
confidentiality to which such Borrower is party or is deemed party with the
Agent or such Lender, and (9) to its Affiliates, provided that such Affiliates
have agreed to keep such information confidential to the same extent required of
the Agent and the Lenders hereunder.
6.7 Collateral Reporting. The Parent shall provide the Agent with the following
documents at the following times in form satisfactory to the Agent: (a) on a
weekly basis, or more frequently if requested by the Agent, a schedule of each
Borrower's Accounts created since the last such schedule and a Borrowing Base
Certificate; (b) on a monthly basis, by the 15th day of the following month, or
more frequently if requested by the Agent, an aging of each Borrower's Accounts,
together with a reconciliation to the previous month's aging of each Borrower's
Accounts and to each Borrower's general ledger; (c) on a monthly basis by the
15th day of the following month, or more frequently if requested by the Agent,
an aging of each Borrower's accounts payable; (d) on a monthly basis by the 15th
day of the following month (or more frequently if requested by the Agent),
Inventory reports by category and location, with additional detail showing
additions to and deletions from the Inventory, together with a reconciliation to
each Borrower's general ledger; (e) upon request, copies of invoices in
connection with each Borrower's Accounts, customer statements, credit memos,
remittance advices and reports, deposit slips, shipping and delivery documents
in connection with each Borrower's Accounts and for Inventory and Equipment
acquired by each Borrower, purchase orders and invoices; (f) upon request, a
statement of the balance of each of the Intercompany Accounts; (g) such other
reports as to the Collateral of each Borrower as the Agent shall reasonably
request from time to time; and (h) with the delivery of each of the foregoing, a
certificate of the Parent executed by an officer thereof certifying as to the
accuracy and completeness of the foregoing. If any Borrower's records or reports
of the Collateral are prepared by an accounting service or other agent, such
Borrower hereby authorizes such service or agent to deliver such records,
reports, and related documents to the Agent, for distribution to the Lenders.
6.8 Accounts. (a) Each Borrower hereby represents and warrants to the Agent and
the Lenders, with respect to such Borrower's Accounts, that: (i) each existing
Account represents, and each future Account will represent, a bona fide sale or
lease and delivery of goods by such Borrower, or rendition of services by such
Borrower, in the ordinary course of such Borrower's business; (ii) each existing
Account is, and each future Account will be, for a liquidated amount payable by
the Account Debtor thereon on the terms set forth in the invoice therefor or in
the schedule thereof delivered to the Agent, without any offset, deduction,
defense, or counterclaim except those known to such Borrower and disclosed to
the Agent and the Lenders pursuant to this Agreement; (iii) no payment will be
received with respect to any Account, and no credit, discount, or extension, or
agreement therefor will be granted on any Account, except as reported to the
Agent and the Lenders in accordance with this Agreement; (iv) each copy of an
invoice delivered to the Agent by such Borrower will be a genuine copy of the
original invoice sent to the Account Debtor named therein; and (v) all goods
described in any invoice representing a sale of goods will have been delivered
to the Account Debtor and all services of such Borrower described in each
invoice will have been performed.
(b) No Borrower shall re-date any invoice or sale or make
sales on extended dating beyond that customary in such Borrower's business or
extend or modify any Account. If any Borrower becomes aware of any matter
adversely affecting the collectibility of any Account or the Account Debtor
therefor involving an amount greater than $100,000, including information
regarding the Account Debtor's creditworthiness, such Borrower will promptly so
advise the Agent.
(c) No Borrower shall accept any note or other instrument
(except a check or other instrument for the immediate payment of money) with
respect to any Account without the Agent's written consent. If the Agent
consents to the acceptance of any such instrument, it shall be considered as
evidence of the Account and not payment thereof and such Borrower will promptly
deliver such instrument to the Agent, endorsed by such Borrower to the Agent in
a manner satisfactory in form and substance to the Agent. Regardless of the form
of presentment, demand, notice of protest with respect thereto, such Borrower
shall remain liable thereon until such instrument is paid in full.
(d) Each Borrower shall notify the Agent promptly of all
disputes and claims in excess of $100,000 with any Account Debtor, and agrees to
settle, contest, or adjust such dispute or claim at no expense to the Agent or
any Lender. No discount, credit or allowance shall be granted to any such
Account Debtor without the Agent's prior written consent, except for discounts,
credits and allowances made or given in the ordinary course of such Borrower's
business when no Event of Default exists hereunder. Each Borrower shall send the
Agent a copy of each credit memorandum in excess of $100,000 as soon as issued.
The Agent may at all times when an Event of Default exists hereunder, settle or
adjust disputes and claims directly with Account Debtors for amounts and upon
terms which the Agent or the Majority Lenders, as applicable, shall consider
advisable and, in all cases, the Agent will credit the Borrowers' Loan Account
with the net amounts received by the Agent in payment of any Accounts.
(e) If an Account Debtor returns any Inventory to any Borrower
when no Event of Default exists, then such Borrower shall promptly determine the
reason for such return and shall issue a credit memorandum to the Account Debtor
in the appropriate amount. Each Borrower shall immediately report to the Agent
any return involving an amount in excess of $100,000. Each such report shall
indicate the reasons for the returns and the locations and condition of the
returned Inventory. In the event any Account Debtor returns Inventory to any
Borrower when an Event of Default exists, such Borrower, upon the request of the
Agent, shall: (i) hold the returned Inventory in trust for the Agent; (ii)
segregate all returned Inventory from all of its other property; (iii) dispose
of the returned Inventory solely according to the Agent's written instructions;
and (iv) not issue any credits or allowances with respect thereto without the
Agent's prior written consent. All returned Inventory shall be subject to the
Agent's Liens thereon. Whenever any Inventory is returned, the related Account
shall be deemed ineligible to the extent of the amount owing by the Account
Debtor with respect to such returned Inventory
6.9 Collection of Accounts; Payments. (a) Until the Agent notifies the Borrowers
to the contrary, the Borrowers shall make collection of all Accounts and other
Collateral for the Agent, shall receive all payments as the Agent's trustee, and
shall immediately deliver all payments in their original form duly endorsed in
blank into a Payment Account established for the account of the Borrowers at a
Clearing Bank acceptable to the Agent, subject to a Blocked Account Agreement.
If the Agent requests, the Borrowers shall establish a lock-box service for
collections of Accounts at a Clearing Bank acceptable to the Agent and subject
to a Blocked Account Agreement and other documentation acceptable to the Agent.
If such lock-box service is established, the Borrowers shall instruct all
Account Debtors to make all payments directly to the address established for
such service. If, notwithstanding such instructions, any Borrower receives any
proceeds of Accounts, it shall receive such payments as the Agent's trustee, and
shall immediately deliver such payments to the Agent in their original form duly
endorsed in blank or deposit them into a Payment Account, as the Agent may
direct. All collections received in any lock-box or Payment Account or directly
by any Borrower or the Agent, and all funds in any Payment Account or other
account to which such collections are deposited shall be subject to the Agent's
sole control and withdrawals by the Borrowers shall not be permitted. The Agent
or the Agent's designee may, at any time after the occurrence and during the
continuance of an Event of Default, notify Account Debtors that the Accounts
have been assigned to the Agent and of the Agent's security interest therein,
and may collect them directly and charge the collection costs and expenses to
the Loan Account as a Revolving Loan. So long as an Event of Default has
occurred and is continuing, each Borrower, at the Agent's request, shall execute
and deliver to the Agent such documents as the Agent shall require to grant the
Agent access to any post office box in which collections of Accounts are
received.
(b) If sales of Inventory are made or services are rendered
for cash, the applicable Borrower shall immediately deliver to the Agent or
deposit into a Payment Account the cash which such Borrower receives.
(c) All payments including immediately available funds
received by the Agent at a bank account designated by it, will be the Agent's
sole property for its benefit and the benefit of the Lenders and will be
credited to the Loan Account (conditional upon final collection) immediately
upon receipt for purposes of (i) determining Availability, (ii) calculating the
Unused Line Fee pursuant to Section 3.5, and (iii) calculating the amount of
interest accrued thereon solely for purposes of determining the amount of
interest to be distributed by the Agent to the Lenders (but not the amount of
interest payable by the Borrowers).
(d) In the event the Borrowers repay all of the Obligations
upon the termination of this Agreement or upon acceleration of the Obligations,
other than through the Agent's receipt of payments on account of the Accounts or
proceeds of the other Collateral, such payment will be credited (conditional
upon final collection) to the Loan Account on the same Business Day as the
Agent's receipt of such funds.
6.10 Inventory; Perpetual Inventory. Each Borrower represents and warrants to
the Agent and the Lenders and agrees with the Agent and the Lenders that all of
the Inventory owned by such Borrower is and will be held for sale or lease, or
to be furnished in connection with the rendition of services, in the ordinary
course of such Borrower's business, and is and will be fit for such purposes.
Each Borrower will keep its Inventory in good and marketable condition, except
for damaged or defective goods arising in the ordinary course of such Borrower's
business. Each Borrower will not, without the prior written consent of the
Agent, acquire or accept any Inventory on consignment or approval; provided,
however, that the Parent may have on hand up to $1,000,000 at any one time (in
book value) of consigned Inventory so long as all such consigned Inventory shall
be reported to the Agent and be kept identifiable and segregated from the
Parent's other Inventory. Each Borrower agrees that all Inventory produced by
such Borrower in the United States of America will be produced in accordance
with the Federal Fair Labor Standards Act of 1938, as amended, and all rules,
regulations, and orders thereunder. The Parent will conduct cycle counts,
consistent with past practices, of the Inventory at least once per Fiscal Year,
and after and during the continuation of an Event of Default, at such other
times as the Agent requests. Each Borrower will maintain a perpetual inventory
reporting system at all times. Each Borrower will not, without the Agent's
written consent, sell any Inventory on a bill-and-hold, guaranteed sale, sale
and return, sale on approval, consignment, or other repurchase or return basis.
6.11 Equipment. (a) Each Borrower represents and warrants to the Agent and the
Lenders and agrees with the Agent and the Lenders that all of the Equipment
owned by such Borrower is and will be used or held for use in such Borrower's
business, and is and will be fit for such purposes. Except as set forth on
Schedule 6.11, the Borrowers shall keep and maintain the Equipment in good
operating condition and repair (ordinary wear and tear excepted) and shall make
all necessary replacements thereof.
(b) The Borrowers shall promptly inform the Agent of any
material additions to or deletions from the Equipment. The Borrowers shall not
permit any Equipment to become a fixture with respect to real property or to
become an accession with respect to other personal property with respect to
which real or personal property the Agent does not have a Lien. The Borrowers
will not, without the Agent's prior written consent, alter or remove any
identifying symbol or number on any of the Equipment constituting Collateral.
(c) The Borrowers shall not, without the Agent's prior written
consent, sell, lease as a lessor, or otherwise dispose of any of the Equipment;
provided, however, that the Borrowers may (i) sell the Equipment located at the
EFTC's Fort Lauderdale, Florida facility and the "NEO" facility, or (ii) dispose
of obsolete or unusable Equipment having an orderly liquidation value no greater
than $500,000 in the aggregate in any Fiscal Year, or $1,500,000 in the
aggregate during the term of this Agreement, in each case without the Agent's
consent, subject to the conditions set forth in the next sentence. In the event
any of such Equipment is sold, transferred or otherwise disposed of pursuant to
the proviso contained in the immediately preceding sentence, (1) if such sale,
transfer or disposition is effected without replacement of such Equipment, or
such Equipment is replaced by Equipment leased by the Borrowers or by Equipment
purchased by the Borrowers subject to a Lien, then the Borrowers shall deliver
the net cash proceeds of any such sale, transfer or disposition to the Agent,
which proceeds shall be applied to the reduction of the Obligations, or (2) if
such sale, transfer or disposition is made in connection with the purchase by
the Borrowers of replacement Equipment, then the Borrowers shall use the
proceeds of such sale, transfer or disposition to purchase such replacement
Equipment and, with respect to purchases exceeding $200,000 in the aggregate in
any Fiscal Year, shall deliver to the Agent written evidence of the use of the
proceeds for such purchase. All replacement Equipment purchased by the Borrowers
shall be free and clear of all Liens except the Agent's Lien.
6.12 Assigned Contracts. Each Borrower shall fully perform all of its material
obligations under each of the Assigned Contracts, and shall enforce all of its
rights and remedies thereunder, in each case, as it deems appropriate in its
business judgment; provided, however, that the Borrowers shall not take any
action or fail to take any action with respect to the Assigned Contracts which
would cause the termination of a material Assigned Contract. Without limiting
the generality of the foregoing, each Borrower shall take all action necessary
or appropriate to permit, and shall not take any action which would have any
materially adverse effect upon, the full enforcement of all indemnification
rights under its Assigned Contracts. Each Borrower shall notify the Agent and
the Lenders in writing, promptly after such Borrower becomes aware thereof, of
any event or fact which could give rise to a material claim by it for
indemnification under any of its Assigned Contracts, and shall diligently pursue
such right and report to the Agent on all further developments with respect
thereto. Each Borrower shall deposit into the Payment Account or remit directly
to the Agent for application to the Obligations in such order as the Majority
Lenders shall determine, all amounts received by such Borrower as
indemnification or otherwise pursuant to its Assigned Contracts. If any Borrower
shall fail after the Agent's demand to pursue diligently any right under its
Assigned Contracts, or if an Event of Default then exists, the Agent may, and at
the direction of the Majority Lenders shall, directly enforce such right in its
own or such Borrower's name and may enter into such settlements or other
agreements with respect thereto as the Agent or the Majority Lenders, as
applicable, shall determine. In any suit, proceeding or action brought by the
Agent for the benefit of the Lenders under any Assigned Contract for any sum
owing thereunder or to enforce any provision thereof, the Borrowers shall
indemnify and hold the Agent and Lenders harmless from and against all expense,
loss or damage suffered by reason of any defense, setoff, counterclaims,
recoupment, or reduction of liability whatsoever of the obligor thereunder
arising out of a breach by any Borrower of any obligation thereunder or arising
out of any other agreement, indebtedness or liability at any time owing from any
Borrower to or in favor of such obligor or its successors. All such obligations
of the Borrowers shall be and remain enforceable only against the Borrowers and
shall not be enforceable against the Agent or the Lenders. Notwithstanding any
provision hereof to the contrary, each Borrower shall at all times remain liable
to observe and perform all of its duties and obligations under its Assigned
Contracts, and the Agent's or any Lender's exercise of any of their respective
rights with respect to the Collateral shall not release any Borrower from any of
such duties and obligations. Neither the Agent nor any Lender shall be obligated
to perform or fulfill any of a Borrower's duties or obligations under its
Assigned Contracts or to make any payment thereunder, or to make any inquiry as
to the nature or sufficiency of any payment or property received by it
thereunder or the sufficiency of performance by any party thereunder, or to
present or file any claim, or to take any action to collect or enforce any
performance, any payment of any amounts, or any delivery of any property.
6.13 Documents, Instruments, and Chattel Paper. Each Borrower represents and
warrants to the Agent and the Lenders that (a) all documents, instruments, and
chattel paper describing, evidencing, or constituting Collateral, and all
signatures and endorsements thereon, are and will be complete, valid, and
genuine, and (b) all goods evidenced by such documents, instruments, and chattel
paper are and will be owned by the applicable Borrower, free and clear of all
Liens other than Permitted Liens.
6.14 Right to Cure. The Agent may, in its discretion, and shall, at the
direction of the Majority Lenders, pay any amount or do any act required of any
Borrower hereunder or under any other Loan Document in order to preserve,
protect, maintain or enforce the Obligations, the Collateral or the Agent's
Liens therein, and which such Borrower fails to pay or do, including payment of
any judgment against such Borrower, any insurance premium, any warehouse charge,
any finishing or processing charge, any landlord's or bailee's claim, and any
other Lien upon or with respect to the Collateral. All payments that the Agent
makes under this Section 6.14 and all out-of-pocket costs and expenses that the
Agent pays or incurs in connection with any action taken by it hereunder shall
be charged to the Loan Account as a Revolving Loan. Any payment made or other
action taken by the Agent under this Section 6.14 shall be without prejudice to
any right to assert an Event of Default hereunder and to proceed thereafter as
herein provided.
6.15 Power of Attorney. Each Borrower hereby appoints the Agent and the Agent's
designee as such Borrower's attorney, with power: (a) to endorse such Borrower's
name on any checks, notes, acceptances, money orders, or other forms of payment
or security that come into the Agent's or any Lender's possession; (b) to sign
such Borrower's name on any invoice, bill of lading, warehouse receipt or other
document of title relating to any Collateral, on drafts against customers, on
assignments of Accounts, on notices of assignment, financing statements and
other public records and to file any such financing statements by electronic
means with or without a signature as authorized or required by applicable law or
filing procedure; (c) so long as any Event of Default has occurred and is
continuing, to notify the post office authorities to change the address for
delivery of such Borrower's mail to an address designated by the Agent and to
receive, open and dispose of all mail addressed to such Borrower; (d) to send
requests for verification of Accounts to customers or Account Debtors; (e) to
clear Inventory through customs in such Borrower's name, the Agent's name or the
name of the Agent's designee, and to sign and deliver to customs officials
powers of attorney in such Borrower's name for such purpose; and (f) to do all
things necessary to carry out this Agreement. Each Borrower ratifies and
approves all acts of such attorney. None of the Lenders or the Agent nor their
attorneys will be liable for any acts or omissions or for any error of judgment
or mistake of fact or law except for their gross negligence or willful
misconduct. This power, being coupled with an interest, is irrevocable until
this Agreement has been terminated and the Obligations have been fully
satisfied.
6.16 The Agent's and Lenders' Rights, Duties and Liabilities. Each Borrower
assumes all responsibility and liability arising from or relating to the use,
sale or other disposition of the Collateral. The Obligations shall not be
affected by any failure of the Agent or any Lender to take any steps to perfect
the Agent's Liens or to collect or realize upon the Collateral, nor shall loss
of or damage to the Collateral release any Borrower from any of the Obligations.
Following the occurrence and continuation of an Event of Default, the Agent may
(but shall not be required to), and at the direction of the Majority Lenders
shall, without notice to or consent from any Borrower, sue upon or otherwise
collect, extend the time for payment of, modify or amend the terms of,
compromise or settle for cash, credit, or otherwise upon any terms, grant other
indulgences, extensions, renewals, compositions, or releases, and take or omit
to take any other action with respect to the Collateral, any security therefor,
any agreement relating thereto, any insurance applicable thereto, or any Person
liable directly or indirectly in connection with any of the foregoing, without
discharging or otherwise affecting the liability of any Borrower for the
Obligations or under this Agreement or any other agreement now or hereafter
existing between the Agent and/or any Lender and any Borrower.
6.17 Site Visits, Observations and Testing. The Agent and its representatives
will have the right at any reasonable time to enter and visit the Real Estate
and any other place where any property of any Borrower is located for the
purposes of observing the Real Estate, taking and removing soil or groundwater
samples, and conducting tests on any part of the Real Estate. The Agent is under
no duty, however, to visit or observe the Real Estate or to conduct tests, and
any such acts by the Agent will be solely for the purposes of protecting the
Agent's Liens and preserving the Agent and the Lenders' rights under this
Agreement. No site visit, observation or testing by the Agent and the Lenders
will result in a waiver of any default of any Borrower or impose any liability
on the Agent or the Lenders. In no event will any site visit, observation or
testing by the Agent be a representation that hazardous substances are or are
not present in, on or under the Real Estate, or that there has been or will be
compliance with any Environmental Law. Neither any Borrower nor any other party
is entitled to rely on any site visit, observation or testing by the Agent. The
Agent and the Lenders owe no duty of care to protect any Borrower or any other
party against, or to inform any Borrower or any other party of, any hazardous
substances or any other adverse condition affecting the Real Estate. The Agent
may in its discretion disclose to any Borrower or to any other party if so
required by law any report or findings made as a result of, or in connection
with, any site visit, observation or testing by the Agent. Each Borrower
understands and agrees that the Agent makes no warranty or representation to
such Borrower or any other party regarding the truth, accuracy or completeness
of any such report or findings that may be disclosed. Each Borrower also
understands that depending on the results of any site visit, observation or
testing by the Agent and disclosed to such Borrower, such Borrower may have a
legal obligation to notify one or more environmental agencies of the results,
that such reporting requirements are site-specific, and are to be evaluated by
such Borrower without advice or assistance from the Agent. In each instance, the
Agent will give the applicable Borrower reasonable notice before entering the
Real Estate or any other place the Agent is permitted to enter under this
Section 6.17. The Agent will make reasonable efforts to avoid interfering with
any Borrower's use of the Real Estate or any other property in exercising any
rights provided hereunder. Any such site visit, observation and testing
undertaken by the Agent or its representative under this Section 6.17 while no
Event of Default exists shall be at the sole cost and expense of the Agent and
Lenders.
ARTICLE 7
BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES
7.1 Books and Records. Each Borrower shall maintain, at all times, correct and
complete books, records and accounts in which complete, correct and timely
entries are made of its transactions in accordance with GAAP applied
consistently with the audited Financial Statements required to be delivered
pursuant to Section 7.2(a). Each Borrower shall, by means of appropriate
entries, reflect in such accounts and in all Financial Statements proper
liabilities and reserves for all taxes and proper provision for depreciation and
amortization of property and bad debts, all in accordance with GAAP. Each
Borrower shall maintain at all times books and records pertaining to the
Collateral in such detail, form and scope as the Agent or any Lender shall
reasonably require, including, but not limited to, records of (a) all payments
received and all credits and extensions granted with respect to the Accounts;
(b) the return, rejection, repossession, stoppage in transit, loss, damage, or
destruction of any Inventory; and (c) all other dealings affecting the
Collateral.
7.2 Financial Information. Each Borrower shall promptly furnish to each Lender,
all such financial information as the Agent shall reasonably request. Without
limiting the foregoing, the Parent will furnish to the Agent and each Lender, in
such detail as the Agent or the Lenders shall request, the following:
(a) As soon as available, but in any event not later than 90
days after the close of each Fiscal Year (or by April 15, 2000, with respect to
Fiscal Year 1999), consolidated audited balance sheets, and statements of income
and expense, cash flow and of stockholders' equity for the Parent and its
Subsidiaries for such Fiscal Year, and the accompanying notes thereto, setting
forth in each case in comparative form figures for the previous Fiscal Year, all
in reasonable detail, fairly presenting the financial position and the results
of operations of the Parent and its consolidated Subsidiaries as at the date
thereof and for the Fiscal Year then ended, and prepared in accordance with
GAAP. Such statements shall be examined in accordance with generally accepted
auditing standards by and, in the case of such statements performed on a
consolidated basis, accompanied by a report thereon unqualified in any respect
of independent certified public accountants selected by the Parent and
reasonably satisfactory to the Agent. The Parent hereby authorizes the Agent to
communicate directly with its certified public accountants and, by this
provision, authorizes those accountants to disclose to the Agent any and all
financial statements and other supporting financial documents and schedules
relating to the Parent and to discuss directly with the Agent the finances and
affairs of the Parent and its consolidated Subsidiaries.
(b) As soon as available, but in any event not later than 30
days after the end of each month, consolidated and divisional (to the extent
prepared) unaudited balance sheets of the Parent and its consolidated
Subsidiaries as at the end of such month, and consolidated and divisional (to
the extent prepared) unaudited statements of income and expense and cash flow
for the Parent and its consolidated Subsidiaries for such month and for the
period from the beginning of the Fiscal Year to the end of such month, all in
reasonable detail, fairly presenting the financial position and results of
operations of the Parent and its consolidated Subsidiaries as at the date
thereof and for such periods, and prepared in accordance with the Parent's past
practices applied consistently with the audited Financial Statements required to
be delivered pursuant to Section 7.2(a). The Parent shall certify by a
certificate signed by its chief financial officer that all such statements have
been prepared in accordance with the Parent's past practices and present fairly,
subject to normal year-end adjustments, the Parent's financial position as at
the dates thereof and its results of operations for the periods then ended.
(c) As soon as available, but in any event not later than 45
days after the close of each fiscal quarter other than the fourth quarter of a
Fiscal Year, consolidated and divisional (to the extent prepared) unaudited
balance sheets of the Parent and its consolidated Subsidiaries as at the end of
such quarter, and consolidated and divisional (to the extent prepared) unaudited
statements of income and expense and statement of cash flows for the Parent and
its Subsidiaries for such quarter and for the period from the beginning of the
Fiscal Year to the end of such quarter, all in reasonable detail, fairly
presenting the financial position and results of operation of the Parent and its
Subsidiaries as at the date thereof and for such periods, prepared in accordance
with GAAP consistent with the audited Financial Statements required to be
delivered pursuant to Section 7.2(a). The Parent shall certify by a certificate
signed by its chief financial officer that all such statements have been
prepared in accordance with GAAP and present fairly, subject to normal year-end
adjustments, the Parent's financial position as at the dates thereof and its
results of operations for the periods then ended.
(d) With each of the audited Financial Statements delivered
pursuant to Section 7.2(a), a written statement by the independent certified
public accountants (a) stating whether, in connection with their audit
examination, any condition or event that constitutes a Default or Event of
Default has come to their attention and, if such a condition or event has come
to their attention, specifying the nature and period of existence thereof, it
being understood that such audit examination extended only to accounting matters
and that no special investigation was made with respect to the existence of
Defaults or Events of Default, and (b) stating that based on their audit
examination nothing has come to their attention that causes them to believe
either or both that the information contained in the certificates delivered
therewith pursuant to Section 7.2(a) is not correct or that the matters set
forth in compliance certificates delivered therewith pursuant to Section 7.2(e)
for the applicable Fiscal Year are not stated in accordance with the terms of
this Agreement.
(e) With each of the annual audited Financial Statements
delivered pursuant to Section 7.2(a), and within 30 days after the end of each
month, a certificate of the chief financial officer of the Parent (i) setting
forth in reasonable detail the calculations required to establish that the
Parent was in compliance with the covenants set forth in Sections 9.23 through
9.29 during the period covered in such Financial Statements and as at the end
thereof, and (ii) stating that, except as explained in reasonable detail in such
certificate, (A) all of the representations and warranties of the Borrowers
contained in this Agreement and the other Loan Documents are correct and
complete in all material respects as at the date of such certificate as if made
at such time, except for those that speak as of a particular date, (B) the
Borrowers are, at the date of such certificate, in compliance in all material
respects with all of their respective covenants and agreements in this Agreement
and the other Loan Documents, (C) no Default or Event of Default then exists or
existed during the period covered by such Financial Statements, (D) describing
and analyzing in reasonable detail all material trends, changes, and
developments in each and all Financial Statements; and (E) explaining the
variances of the figures in the corresponding budgets and prior Fiscal Year
Financial Statements. If such certificate discloses that a representation or
warranty is not correct or complete, or that a covenant has not been complied
with, or that a Default or Event of Default existed or exists, such certificate
shall set forth what action the Borrowers have taken or propose to take with
respect thereto.
(f) No sooner than 60 days before and not later than 45 days
after the beginning of each Fiscal Year, annual forecasts (to include forecasted
Availability, consolidated and divisional (to the extent prepared) balance
sheets, statements of income and expenses and statements of cash flow) for the
Parent and its Subsidiaries as at the end of and for each fiscal quarter of such
Fiscal Year.
(g) Promptly after filing with the PBGC and the IRS, a copy of
each annual report or other filing filed with respect to each Plan of any
Borrower.
(h) Promptly upon the filing thereof, copies of all reports,
if any, to or other documents filed by any Borrower or any of its Subsidiaries
with the Securities and Exchange Commission under the Exchange Act, and all
reports, notices, or statements sent or received by any Borrower or any of its
Subsidiaries to or from the holders of any equity interests of any Borrower
(other than routine non-material correspondence sent by shareholders of any
Borrower to such Borrower) or any such Subsidiary or of any Debt for Borrowed
Money of any Borrower or any of its Subsidiaries registered under the Securities
Act of 1933 or to or from the trustee under any indenture under which the same
is issued.
(i) As soon as available, but in any event not later than 15
days after any Borrower's receipt thereof, a copy of all management reports and
management letters prepared for such Borrower by any independent certified
public accountants of such Borrower.
(j) Promptly after their preparation, copies of any and all
proxy statements, financial statements, and reports which any Borrower makes
available to its shareholders.
(k) Promptly after filing with the IRS, a copy of
each tax return filed by any Borrower or by any of its Subsidiaries.
(l) Such additional information as the Agent and/or any Lender
may from time to time reasonably request regarding the financial and business
affairs of any Borrower or any Subsidiary.
7.3 Notices to the Lenders. Each Borrower shall notify the Agent and
the Lenders in writing of the following matters at the following times:
(a) Immediately after becoming aware of any Default or Event
of Default;
(b) Immediately after becoming aware of the assertion by the
holder of any Debt in a face amount in excess of $100,000 that a default exists
with respect thereto or that any Borrower or such Subsidiary is not in
compliance with the terms thereof in any material respect, or the threat or
commencement by such holder of any enforcement action because of such asserted
default or non-compliance;
(c) Immediately after becoming aware of any event or
circumstance which could reasonably be expected to have a Material Adverse
Effect;
(d) Immediately after becoming aware of any pending or
threatened action, suit, or proceeding, by any Person, or any pending or
threatened investigation by a Governmental Authority, which could reasonably be
expected to have a Material Adverse Effect;
(e) Immediately after becoming aware of any pending or
threatened strike, work stoppage, unfair labor practice claim, or other labor
dispute affecting any Borrower or any of its Subsidiaries in a manner which
could reasonably be expected to have a Material Adverse Effect;
(f) Immediately after becoming aware of any violation of any
law, statute, regulation, or ordinance of a Governmental Authority affecting any
Borrower or any Subsidiary which could reasonably be expected to have a Material
Adverse Effect;
(g) Immediately after receipt of any notice of any violation
by any Borrower or any of its Subsidiaries of any Environmental Law which could
reasonably be expected to have a Material Adverse Effect or that any
Governmental Authority has asserted in writing that any Borrower or any
Subsidiary is not in compliance with any Environmental Law or is investigating
any Borrower's or such Subsidiary's compliance therewith;
(h) Immediately after receipt of any written notice that any
Borrower or any of its Subsidiaries is or may be liable to any Person as a
result of the Release or threatened Release of any Contaminant or that any
Borrower or any Subsidiary is subject to investigation by any Governmental
Authority evaluating whether any remedial action is needed to respond to the
Release or threatened Release of any Contaminant which, in either case, is
reasonably likely to give rise to liability in excess of $100,000;
(i) Immediately after receipt of any written notice of
the imposition of any Environmental Lien against any property of any Borrower or
any of its Subsidiaries;
(j) Any change in any Borrower's name, state of organization,
or form of organization, trade names under which any Borrower will sell
Inventory or create Accounts, or to which instruments in payment of Accounts may
be made payable, in each case at least thirty (30) days prior thereto;
(k) Within ten (10) Business Days after any Borrower or any
ERISA Affiliate knows or has reason to know, that an ERISA Event or a prohibited
transaction (as defined in Sections 406 of ERISA and 4975 of the Code) has
occurred, and, when known, any action taken or threatened by the IRS, the DOL or
the PBGC with respect thereto;
(l) Upon request, or, in the event that such filing reflects a
significant change with respect to the matters covered thereby, within three (3)
Business Days after the filing thereof with the PBGC, the DOL or the IRS, as
applicable, copies of the following: (i) each annual report (form 5500 series),
including Schedule B thereto, filed with the PBGC, the DOL or the IRS with
respect to each Plan, (ii) a copy of each funding waiver request filed with the
PBGC, the DOL or the IRS with respect to any Plan and all communications
received by any Borrower or any ERISA Affiliate from the PBGC, the DOL or the
IRS with respect to such request, and (iii) a copy of each other filing or
notice filed with the PBGC, the DOL or the IRS, with respect to each Plan by
either any Borrower or any ERISA Affiliate;
(m) Upon request, copies of each actuarial report for any Plan
or Multi-employer Plan and annual report for any Multi-employer Plan; and within
three (3) Business Days after receipt thereof by any Borrower or any ERISA
Affiliate, copies of the following: (i) any notices of the PBGC's intention to
terminate a Plan or to have a trustee appointed to administer such Plan; (ii)
any favorable or unfavorable determination letter from the IRS regarding the
qualification of a Plan under Section 401(a) of the Code; or (iii) any notice
from a Multi-employer Plan regarding the imposition of withdrawal liability;
(n) Within three (3) Business Days after the occurrence
thereof: (i) any changes in the benefits of any existing Plan which increase any
Borrower's annual costs with respect thereto, or the establishment of any new
Plan or the commencement of contributions to any Plan to which any Borrower or
any ERISA Affiliate was not previously contributing; or (ii) any failure by any
Borrower or any ERISA Affiliate to make a required installment or any other
required payment under Section 412 of the Code on or before the due date for
such installment or payment; or
(o) Within three (3) Business Days after any Borrower or any
ERISA Affiliate knows or has reason to know that any of the following events has
or will occur: (i) a Multi-employer Plan has been or will be terminated; (ii)
the administrator or plan sponsor of a Multi-employer Plan intends to terminate
a Multi-employer Plan; or (iii) the PBGC has instituted or will institute
proceedings under Section 4042 of ERISA to terminate a Multi-employer Plan.
Each notice given under this Section shall describe the
subject matter thereof in reasonable detail, and shall set forth the action that
any Borrower, its Subsidiary, or any ERISA Affiliate, as applicable, has taken
or proposes to take with respect thereto.
ARTICLE 8
GENERAL WARRANTIES AND REPRESENTATIONS
Each Borrower warrants and represents to the Agent and the Lenders that
except as hereafter disclosed to and accepted by the Agent and the Majority
Lenders in writing:
8.1 Authorization, Validity, and Enforceability of this Agreement and the Loan
Documents. Each Borrower has the corporate power and authority to execute,
deliver and perform this Agreement and the other Loan Documents to which it is a
party, to incur the Obligations, and to grant to the Agent Liens upon and
security interests in the Collateral. Each Borrower has taken all necessary
corporate action (including obtaining approval of its stockholders if necessary)
to authorize its execution, delivery, and performance of this Agreement and the
other Loan Documents to which it is a party. This Agreement and the other Loan
Documents to which it is a party have been duly executed and delivered by each
Borrower, and constitute the legal, valid and binding obligations of each
Borrower, enforceable against it in accordance with their respective terms
without defense, setoff or counterclaim, except, with respect to enforceability,
as affected by bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally and general principles of equity.
Each Borrower's execution, delivery, and performance of this Agreement and the
other Loan Documents to which it is a party do not and will not conflict with,
or constitute a violation or breach of, or constitute a default under, or result
in, or require the creation or imposition of any Lien upon the property of such
Borrower or any of its Subsidiaries by reason of the terms of (a) any material
contract, mortgage, Lien, lease, agreement, indenture, or instrument to which
such Borrower is a party or which is binding upon it, (b) any material
Requirement of Law applicable to such Borrower or any of its Subsidiaries, or
(c) the certificate or articles of incorporation or by-laws of such Borrower or
any of its Subsidiaries.
8.2 Validity and Priority of Security Interest. The provisions of this Agreement
and the other Loan Documents create legal and valid Liens on all the Collateral
in favor of the Agent, for the ratable benefit of the Agent and the Lenders, and
such Liens constitute perfected and continuing Liens on all the Collateral,
having priority over all other Liens on the Collateral, except for those Liens
identified in clauses (c), (d), (e) and (g) of the definition of Permitted Liens
securing all the Obligations, and enforceable against the Borrowers and all
third parties.
8.3 Organization and Qualification. Each Borrower (a) is duly incorporated and
organized and validly existing in good standing under the laws of the state of
its incorporation, (b) is qualified to do business as a foreign corporation and
is in good standing in the jurisdictions set forth on Schedule 8.3 which are the
only jurisdictions in which failure to so qualify or be in good standing could
reasonably be expected to have a Material Adverse Effect and (c) has all
requisite power and authority to conduct its business and to own its property.
8.4 Corporate Name; Prior Transactions. Except as set forth on Schedule 8.4, no
Borrower has, during the past five (5) years, been known by or used any other
corporate or fictitious name, or been a party to any merger or consolidation, or
acquired all or substantially all of the assets of any Person, or acquired any
of its property outside of the ordinary course of business.
8.5 Subsidiaries and Affiliates. Schedule 8.5 is a correct and complete list of
the name and relationship to each Borrower of each and all of such Borrower's
Subsidiaries and other Affiliates. Each Subsidiary is (a) duly incorporated and
organized and validly existing in good standing under the laws of its state of
incorporation set forth on Schedule 8.5, and (b) qualified to do business as a
foreign corporation and in good standing in each jurisdiction in which the
failure to so qualify or be in good standing could reasonably be expected to
have a material adverse effect on any such Subsidiary's business, operations,
prospects, property, or condition (financial or otherwise) and (c) has all
requisite power and authority to conduct its business and own its property;
provided, however, that none of the Subsidiaries of the Parent (other than PEI)
presently conducts any business, owns any assets, or has any Debt.
8.6 Financial Statements and Projections. (a) The Parent has delivered to the
Agent and the Lenders the audited balance sheet and related statements of
income, retained earnings, cash flows, and changes in stockholders equity for
the Parent and its consolidated Subsidiaries as of December 31, 1998, and for
the Fiscal Year then ended, accompanied by the report thereon of the Parent's
independent certified public accountants, KPMG LLP. The Parent has also
delivered to the Agent and the Lenders the unaudited balance sheet and related
statements of income and cash flows for the Parent and its consolidated
Subsidiaries as of February 29, 2000. Such financial statements are attached
hereto as Exhibit C. All such financial statements have been prepared in
accordance with GAAP and present accurately and fairly the financial position of
the Parent and its consolidated Subsidiaries as at the dates thereof and their
results of operations for the periods then ended.
(b) The Latest Projections when submitted to the Lenders as
required herein represent the Parent's best estimate of the future financial
performance of the Parent and its consolidated Subsidiaries for the periods set
forth therein. The Latest Projections have been prepared on the basis of the
assumptions set forth therein, which the Parent believes are fair and reasonable
in light of current and reasonably foreseeable business conditions at the time
submitted to the Lenders except that the unaudited Financial Statements (i) do
not have all of the footnotes required by GAAP, and (ii) are subject to normal,
year end adjustments.
(c) The pro forma balance sheet of the Parent as at March 31,
2000, attached hereto as Exhibit C, presents fairly and accurately the Parent's
financial condition as at such date and has been prepared in accordance with
GAAP.
8.7 Capitalization. As of the date hereof, the capital stock of the Parent
consists 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) 4,455,000 authorized shares of preferred stock (of which none are
issued and outstanding). As of the date hereof, the Parent has reserved (i)
4,495,000 shares of common stock for issuance pursuant to the Parent's Equity
Incentive Plan and (ii) 300,000 shares of common stock for issuance pursuant to
the Company's Non-Employee Director Plan. The outstanding shares of common stock
are validly issued, duly paid and non-assessable.
8.8 Solvency. Each Borrower is Solvent prior to and after giving effect to the
making of the Revolving Loans to be made on the Closing Date and the issuance of
the Letters of Credit to be issued on the Closing Date, and shall remain Solvent
during the term of this Agreement.
8.9 Debt. After giving effect to the making of the Revolving Loans to be made on
the Closing Date, the Borrowers have no Debt, except (a) the Obligations, (b)
Debt described on Schedule 8.9, (c) trade payables and other contractual
obligations arising in the ordinary course of business, and (d) other Debt
existing on the Closing Date and reflected in the Financial Statements attached
hereto as Exhibit C.
8.10 Distributions. Since December 31, 1998, no Distribution has been declared,
paid, or made upon or in respect of any capital stock or other securities of any
Borrower or any of its Subsidiaries.
8.11 Title to Property. Each Borrower has good and marketable title in fee
simple to the Real Estate identified on Schedule 8.12 as owned by such Borrower,
and each Borrower has good, indefeasible, and merchantable title to all of its
other property (including the assets reflected on the December 31, 1998
Financial Statements delivered to the Agent and the Lenders, except as disposed
of in the ordinary course of business since the date thereof), free of all Liens
except Permitted Liens.
8.12 Real Estate; Leases. Schedule 8.12 sets forth, as of the Closing Date, a
correct and complete list of all Real Estate owned by each Borrower, all leases
and subleases of real or personal property held by each Borrower as lessee or
sublessee (other than leases of personal property as to which such Borrower is
lessee or sublessee for which the value of such personal property is less than
$250,000), and all leases and subleases of real or personal property held by
each Borrower as lessor, or sublessor. Each Borrower has a valid and enforceable
leasehold interest in all Real Estate or personal property leased by it pursuant
to the terms of the lease agreements set forth on Schedule 8.12. Each Borrower
is in compliance in all material respects with the terms of such leases.
8.13 Proprietary Rights. Schedule 8.13 sets forth a correct and complete list of
all of the Borrowers' Proprietary Rights. None of the Proprietary Rights is
subject to any licensing agreement or similar arrangement except as set forth on
Schedule 8.13. To the best of each Borrower's knowledge, none of the Proprietary
Rights infringes on or conflicts with any other Person's property, and no other
Person's property infringes on or conflicts with the Proprietary Rights. The
Proprietary Rights described on Schedule 8.13 constitute all of the property of
such type necessary to the current and anticipated future conduct of the
Borrowers' business.
8.14 Trade Names. All trade names or styles under which any Borrower or any of
its Subsidiaries will sell Inventory or create Accounts, or to which instruments
in payment of Accounts may be made payable, are listed on Schedule 8.14.
8.15 Litigation. Except as disclosed, there is no pending, or to the best of any
Borrower's knowledge threatened, action, suit, proceeding, or counterclaim by
any Person, or to the best of any Borrower's knowledge investigation by any
Governmental Authority, or any basis for any of the foregoing, which could
reasonably be expected to cause a Material Adverse Effect.
8.16 Restrictive Agreements. No Borrower is a party to any contract or
agreement, or subject to any charter or other corporate restriction, which
adversely affects its ability to execute, deliver, and perform the Loan
Documents and repay the Obligations or which could reasonably be expected to
cause a Material Adverse Effect.
8.17 Labor Disputes. As of the Closing Date (a) there is no collective
bargaining agreement or other labor contract covering employees of any Borrower
or any of its Subsidiaries, (b) no such collective bargaining agreement or other
labor contract is scheduled to expire during the term of this Agreement, (c) no
union or other labor organization is seeking to organize, or to be recognized
as, a collective bargaining unit of employees of any Borrower or any of its
Subsidiaries or for any similar purpose, and (d) there is no pending or (to the
best of each Borrower's knowledge) threatened, strike, work stoppage, material
unfair labor practice claim, or other material labor dispute against or
affecting any Borrower or its Subsidiaries or their employees.
8.18 Environmental Laws.
(a) Each Borrower and its Subsidiaries have complied in all
material respects with all Environmental Laws and neither any Borrower nor any
Subsidiary nor any of their presently owned real property or presently conducted
operations, nor to their knowledge their previously owned real property or prior
operations, is subject to any enforcement order from or liability agreement with
any Governmental Authority or private Person respecting (i) compliance with any
Environmental Law or (ii) any potential liabilities and costs or remedial action
arising from the Release or threatened Release of a Contaminant.
(b) Each Borrower and its Subsidiaries have obtained all
material permits necessary for their current operations under Environmental
Laws, and all such permits are in good standing and each Borrower and its
Subsidiaries are in compliance with all material terms and conditions of such
permits.
(c) Neither any Borrower nor any of its Subsidiaries, nor, to
the best of each Borrower's knowledge, any of its predecessors in interest, has
in violation of applicable law stored, treated or disposed of any hazardous
waste.
(d) Neither any Borrower nor any of its Subsidiaries has
received any summons, complaint, order or similar written notice indicating that
it is not currently in compliance with, or that any Governmental Authority is
investigating its compliance with, any Environmental Laws or that it is or may
be liable to any other Person as a result of a Release or threatened Release of
a Contaminant.
(e) To the best of each Borrower's knowledge, none of the
present or past operations of any Borrower and its Subsidiaries is the subject
of any investigation by any Governmental Authority evaluating whether any
remedial action is needed to respond to a Release or threatened Release of a
Contaminant.
(f) There is not now, nor to the best of each Borrower's
knowledge has there ever been on or in the Real Estate:
(1) any underground storage tanks or surface
impoundments in violation of applicable Environmental Laws,
(2) any asbestos-containing material in
violation of applicable Environmental Laws, or
(3) any polychlorinated biphenyls (PCBs) used
in hydraulic oils, electrical transformers or other equipment in violation of
applicable Environmental Laws.
(g) Neither any Borrower nor any of its Subsidiaries has filed
any notice under any requirement of Environmental Law reporting a spill or
accidental and unpermitted Release or discharge of a Contaminant into the
environment.
(h) Neither any Borrower nor any of its Subsidiaries has
entered into any negotiations or settlement agreements with any Person
(including the prior owner of its property) imposing material obligations or
liabilities on any Borrower or any of its Subsidiaries with respect to any
remedial action in response to the Release of a Contaminant or environmentally
related claim.
(i) None of the products manufactured, distributed or
sold by any Borrower or any of its Subsidiaries contain asbestos containing
material.
(j) No Environmental Lien has attached to the Real
Estate.
8.19 No Violation of Law. Neither any Borrower nor any of its Subsidiaries is in
violation of any law, statute, regulation, ordinance, judgment, order, or decree
applicable to it which violation could reasonably be expected to have a Material
Adverse Effect.
8.20 No Default. Subject only to the repayment in full on the Closing Date of
the Debt for Borrowed Money owing by the Parent to the syndicate of lenders led
by Bank One, except as set forth on Schedule 8.20, neither any Borrower nor any
of its Subsidiaries is in default with respect to any note, indenture, loan
agreement, mortgage, lease, deed, or other agreement to which such Borrower or
such Subsidiary is a party or by which it is bound, which default could
reasonably be expected to have a Material Adverse Effect.
8.21 ERISA Compliance.
(a) Each Plan is in compliance in all material respects with
the applicable provisions of ERISA, the Code and other federal or state law.
Each Plan which is intended to qualify under Section 401(a) of the Code has
received a favorable determination letter from the IRS and to the best knowledge
of each Borrower, nothing has occurred which would cause the loss of such
qualification. Each Borrower and each ERISA Affiliate has made all required
contributions to any Plan subject to Section 412 of the Code, and no application
for a funding waiver or an extension of any amortization period pursuant to
Section 412 of the Code has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of any
Borrower, threatened claims, actions or lawsuits, or action by any Governmental
Authority, with respect to any Plan which has resulted or could reasonably be
expected to result in a Material Adverse Effect. There has been no prohibited
transaction or violation of the fiduciary responsibility rules with respect to
any Plan which has resulted or could reasonably be expected to result in a
Material Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected
to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither
any Borrower nor any ERISA Affiliate has incurred, or reasonably expects to
incur, any liability under Title IV of ERISA with respect to any Pension Plan
(other than premiums due and not delinquent under Section 4007 of ERISA); (iv)
neither any Borrower nor any ERISA Affiliate has incurred, or reasonably expects
to incur, any liability (and no event has occurred which, with the giving of
notice under Section 4219 of ERISA, would result in such liability) under
Section 4201 or 4243 of ERISA with respect to a Multi-employer Plan; and (v)
neither any Borrower nor any ERISA Affiliate has engaged in a transaction that
could be subject to Section 4069 or 4212(c) of ERISA.
8.22 Taxes. Each Borrower and its Subsidiaries have filed all federal and other
tax returns and reports required to be filed, and have paid all federal and
other taxes, assessments, fees and other governmental charges levied or imposed
upon them or their properties, income or assets otherwise due and payable unless
such unpaid taxes and assessments would constitute a Permitted Lien.
8.23 Regulated Entities. None of any Borrower, any Person controlling any
Borrower, or any Subsidiary, is an "Investment Company" within the meaning of
the Investment Company Act of 1940. Each Borrower is subject to regulation under
the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act, any state public utilities code or law, or any other
federal or state statute or regulation limiting its ability to incur
indebtedness.
8.24 Use of Proceeds; Margin Regulations. The proceeds of the Loans are to be
used solely for the Borrowers' working capital purposes, general corporate
purposes, and, to the extent not prohibited hereunder, for capital expenditures
and Restricted Investments. Neither any Borrower nor any Subsidiary is engaged
in the business of purchasing or selling Margin Stock or extending credit for
the purpose of purchasing or carrying Margin Stock.
8.25 Copyrights, Patents, Trademarks and Licenses, etc. Each Borrower owns or is
licensed or otherwise has the right to use all of the patents, trademarks,
service marks, trade names, copyrights, contractual franchises, licenses, rights
of way, authorizations and other rights that are reasonably necessary for the
operation of its businesses as currently conducted, without, to the best of any
Borrower's knowledge, conflict with the rights of any other Person. To the best
knowledge of each Borrower, no slogan or other advertising device, product,
process, method, substance, part or other material now employed, or now
contemplated to be employed, by such Borrower or any Subsidiary infringes upon
any rights held by any other Person. No claim or litigation regarding any of the
foregoing is pending or to the best of any Borrower's knowledge, threatened, and
to the best knowledge of each Borrower, no patent, invention, device,
application, principle or any statute, law, rule, regulation, standard or code
is pending or proposed relating to such intellectual property, which, in either
case, could reasonably be expected to have a Material Adverse Effect.
8.26 No Material Adverse Change. No material adverse change has occurred in any
Borrower's property, business, operations, or conditions (financial or
otherwise) since the date of the Financial Statements delivered to the Lenders.
8.27 Full Disclosure. None of the representations or warranties made by any
Borrower or any Subsidiary in the Loan Documents as of the date such
representations and warranties are made or deemed made, and none of the
statements contained in any exhibit, report, statement or certificate furnished
by or on behalf of any Borrower or any Subsidiary in connection with the Loan
Documents (including the offering and disclosure materials delivered by or on
behalf of any Borrower to the Lenders prior to the Closing Date but excluding
the Latest Projections which shall be governed by Section 8.6(b)), contains any
untrue statement of a material fact or omits any material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances under which they are made, not misleading as of the time when made
or delivered.
8.28 Material Agreements. Schedule 8.28 hereto sets forth as of the
Closing Date all material agreements and contracts to which any Borrower or any
of its Subsidiaries is a party or is bound as of the date hereof.
8.29 Bank Accounts. Schedule 8.29 contains as of the Closing Date a
complete and accurate list of all bank accounts maintained by each Borrower
with any bank or other financial institution.
8.30 Governmental Authorization. No approval, consent, exemption, authorization,
or other action by, or notice to, or filing with, any Governmental Authority or
other Person is necessary or required in connection with the execution, delivery
or performance by, or enforcement against, any Borrower or any of its
Subsidiaries of this Agreement or any other Loan Document.
ARTICLE 9
AFFIRMATIVE AND NEGATIVE COVENANTS
Each Borrower covenants to the Agent and each Lender that so
long as any of the Obligations remain outstanding or this Agreement is in
effect:
9.1 Taxes and Other Obligations. Each Borrower shall, and shall cause each of
its Subsidiaries to, (a) file when due all tax returns and other reports which
it is required to file; (b) pay, or provide for the payment, when due, of all
taxes, fees, assessments and other governmental charges against it or upon its
property, income and franchises, make all required withholding and other tax
deposits, and establish adequate reserves for the payment of all such items, and
provide to the Agent and the Lenders, upon request, satisfactory evidence of its
timely compliance with the foregoing; and (c) pay when due all Debt owed by it
and all claims of materialmen, mechanics, carriers, warehousemen, landlords,
processors and other like Persons, and all other indebtedness owed by it and
perform and discharge in a timely manner all other obligations undertaken by it;
provided, however, so long as the Borrowers have notified the Agent in writing,
neither any Borrower nor any of its Subsidiaries need pay any tax, fee,
assessment, or governmental charge, that (i) it is contesting in good faith by
appropriate proceedings diligently pursued, (ii) such Borrower or its
Subsidiary, as the case may be, has established proper reserves for as provided
in GAAP, and (iii) no Lien (other than a Permitted Lien) results from such
non-payment.
9.2 Corporate Existence and Good Standing. Each Borrower shall, and shall cause
each of its Subsidiaries to, maintain its corporate existence and its
qualification and good standing in all jurisdictions in which the failure to
maintain such existence and qualification or good standing could reasonably be
expected to have a Material Adverse Effect.
9.3 Compliance with Law and Agreements; Maintenance of Licenses. Each Borrower
shall comply, and shall cause each Subsidiary to comply, in all material
respects with all Requirements of Law of any Governmental Authority having
jurisdiction over it or its business (including the Federal Fair Labor Standards
Act and all Environmental Laws). Each Borrower shall, and shall cause each of
its Subsidiaries to, obtain and maintain all licenses, permits, franchises, and
governmental authorizations necessary to own its property and to conduct its
business as conducted on the Closing Date. No Borrower shall modify, amend or
alter its certificate or article of incorporation other than in a manner which
does not adversely affect the rights of the Lenders or the Agent.
9.4 Maintenance of Property. Each Borrower shall, and shall cause each of its
Subsidiaries to, maintain all of its property necessary and useful in the
conduct of its business, in good operating condition and repair, ordinary wear
and tear excepted.
9.5 Insurance. (a) Each Borrower shall maintain, and shall cause each of its
Subsidiaries to maintain, with financially sound and reputable insurers having a
rating of at least AVII or better by Best Rating Guide, insurance against loss
or damage by fire with extended coverage; theft, burglary, pilferage and loss in
transit; public liability (including liability with respect to the Shareholder
Lawsuit) and third party property damage; larceny, embezzlement or other
criminal liability; business interruption; public liability and third party
property damage; and such other hazards or of such other types as is customary
for Persons engaged in the same or similar business, as the Agent, in its
discretion, or acting at the direction of the Majority Lenders, shall specify,
in amounts, and under policies acceptable to the Agent and the Majority Lenders.
Without limiting the foregoing, each Borrower shall also maintain, and shall
cause each of its Subsidiaries to maintain, flood insurance, in the event of a
designation of the area in which any Real Estate and any of the Equipment and
Inventory located on such Real Estate is located as "flood prone" or a "flood
risk area," (hereinafter "SFHA") as defined by the Flood Disaster Protection Act
of 1973, in an amount to be reasonably determined by the Agent, and shall comply
with the additional requirements of the National Flood Insurance Program as set
forth in said Act. Each Borrower shall also maintain flood insurance for its
Inventory and Equipment which is, at any time, located in a SFHA.
(b) Each Borrower shall cause the Agent, for the ratable
benefit of the Agent and the Lenders, to be named as secured party or mortgagee
and sole loss payee or additional insured, in a manner acceptable to the Agent.
Each policy of insurance shall contain a clause or endorsement requiring the
insurer to give not less than thirty (30) days' prior written notice to the
Agent in the event of cancellation of the policy for any reason whatsoever and a
clause or endorsement stating that the interest of the Agent shall not be
impaired or invalidated by any act or neglect of the Borrowers or any of their
Subsidiaries or the owner of any Real Estate for purposes more hazardous than
are permitted by such policy. All premiums for such insurance shall be paid by
the Borrowers when due, and certificates of insurance and, if requested by the
Agent or any Lender, photocopies of the policies, shall be delivered to the
Agent, in each case in sufficient quantity for distribution by the Agent to each
of the Lenders. If any Borrower fails to procure such insurance or to pay the
premiums therefor when due, the Agent may, and at the direction of the Majority
Lenders shall, do so from the proceeds of Revolving Loans.
(c) Each Borrower shall promptly notify the Agent and the
Lenders of any loss, damage, or destruction to the Collateral, whether or not
covered by insurance. The Agent is hereby authorized to collect all insurance
proceeds in respect of Collateral directly and to apply or remit them as
follows:
(i) With respect to insurance proceeds relating
to Collateral other than Fixed Assets, after deducting from such proceeds the
reasonable expenses, if any, incurred by the Agent in the collection or handling
thereof, the Agent shall apply such proceeds, ratably, to the reduction of the
Obligations in the order provided for in Section 4.8.
(ii) With respect to insurance proceeds
relating to Collateral consisting of Fixed Assets, after deducting from such
proceeds the reasonable expenses, if any, incurred by the Agent in the
collection or handling thereof, the Agent shall apply such proceeds to the
reduction of the Obligations, or at the option of the Majority Lenders, may
permit or require the Borrowers to use such money, or any part thereof, to
replace, repair, restore or rebuild the relevant Fixed Assets in a diligent and
expeditious manner with materials and workmanship of substantially the same
quality as existed before the loss, damage or destruction; provided, however,
that so long as there does not then exist any Default or Event of Default, the
Borrowers shall be permitted to use insurance proceeds relating to Collateral
consisting of Fixed Assets to replace, repair, restore or rebuild the relevant
Fixed Assets, in the manner set forth in this sentence; and provided, further,
that the Borrowers first (i) provide the Agent and the Majority Lenders with
plans and specifications for any such repair or restoration which shall be
reasonably satisfactory to the Agent and the Majority Lenders and (ii)
demonstrates to the reasonable satisfaction of the Agent and the Majority
Lenders that the funds available to them will be sufficient to complete such
project in the manner provided therein.
9.6 Condemnation. (a) Each Borrower shall, immediately upon learning of the
institution of any proceeding for the condemnation or other taking of any of its
property, notify the Agent of the pendency of such proceeding, and agrees that
the Agent may participate in any such proceeding, and each Borrower from time to
time will deliver to the Agent all instruments reasonably requested by the Agent
to permit such participation.
(b) The Agent is hereby authorized to collect the proceeds of
any condemnation claim or award directly, and to apply or remit them as follows:
(i) With respect to condemnation proceeds
relating to Collateral other than Fixed Assets, after deducting from such
proceeds the reasonable expenses, if any, incurred by the Agent in the
collection or handling thereof, the Agent shall apply such proceeds, ratably, to
the reduction of the Obligations in the order provided for in Section 4.8.
(ii) With respect to condemnation proceeds
relating to Collateral consisting of Fixed Assets, after deducting from such
proceeds the reasonable expenses, if any, incurred by the Agent in the
collection or handling thereof, the Agent shall apply such proceeds to the
reduction of the Obligations, or at the option of the Majority Lenders, may
permit or require the applicable Borrower to use such money, or any part
thereof, to replace, repair, restore or rebuild the relevant Fixed Assets in a
diligent and expeditious manner with materials and workmanship of substantially
the same quality as existed before the condemnation; provided, however, that so
long as there does not then exist any Default or Event of Default, the Borrowers
shall be permitted to use proceeds relating to Collateral consisting of Fixed
Assets to replace, repair, restore or rebuild the relevant Fixed Assets, in the
manner set forth in this sentence; and provided, further, that plans and
specifications for any such repair or restoration shall be reasonably
satisfactory to the Agent and the Majority Lenders and shall be subject to the
reasonable approval of the Agent and the Majority Lenders.
9.7 Environmental Laws. (a) Each Borrower shall, and shall cause each of its
Subsidiaries to, conduct its business in compliance with all Environmental Laws
applicable to it, including those relating to the generation, handling, use,
storage, and disposal of any Contaminant, except where failure to do so could
not reasonably be expected to have a Material Adverse Effect. Each Borrower
shall, and shall cause each of its Subsidiaries to, take prompt and appropriate
action to respond to any non-compliance with Environmental Laws and shall
regularly report to the Agent on such response.
(b) Without limiting the generality of the foregoing, each
Borrower shall submit to the Agent and the Lenders annually, commencing on the
first Anniversary Date, and on each Anniversary Date thereafter, an update of
the status of each environmental compliance or liability issue. The Agent or any
Lender may request copies of technical reports prepared by any Borrower and its
communications with any Governmental Authority to determine whether such
Borrower or any of its Subsidiaries is proceeding reasonably to correct, cure or
contest in good faith any alleged non-compliance or environmental liability.
Each Borrower shall, at the Agent's or the Majority Lenders' request and at such
Borrower's expense, (i) retain an independent environmental engineer acceptable
to the Agent to evaluate the site, including tests if appropriate, where the
non-compliance or alleged non-compliance with Environmental Laws has occurred
and prepare and deliver to the Agent, in sufficient quantity for distribution by
the Agent to the Lenders, a report setting forth the results of such evaluation,
a proposed plan for responding to any environmental problems described therein,
and an estimate of the costs thereof, and (ii) provide to the Agent and the
Lenders a supplemental report of such engineer whenever the scope of the
environmental problems, or the response thereto or the estimated costs thereof,
shall change in any material respect.
9.8 Compliance with ERISA. Each Borrower shall, and shall cause each of its
ERISA Affiliates to: (a) maintain each Plan in compliance in all material
respects with the applicable provisions of ERISA, the Code and other federal or
state law; (b) cause each Plan which is qualified under Section 401(a) of the
Code to maintain such qualification; (c) make all required contributions to any
Plan subject to Section 412 of the Code; (d) not engage in a prohibited
transaction or violation of the fiduciary responsibility rules with respect to
any Plan; and (e) not engage in a transaction that could be subject to Section
4069 or 4212(c) of ERISA.
9.9 Mergers, Consolidations or Sales. Neither any Borrower nor any of its
Subsidiaries shall enter into any transaction of merger, reorganization, or
consolidation, or transfer, sell, assign, lease, or otherwise dispose of all or
any part of its property, or wind up, liquidate or dissolve, or agree to do any
of the foregoing, except for (i) sales of Inventory in the ordinary course of
its business (ii) dispositions of Borrowers' Equipment and Real Estate in
connection with the sale of the Fort Lauderdale, Florida and "NEO" facilities
(iii) sales or other dispositions of Equipment in the ordinary course of
business that are obsolete or no longer useable by such Borrower in its business
as permitted by Section 6.11, (iv) sales of Accounts arising out of invoices
from Honeywell that are purchased by GECC pursuant to the terms of the GECC
Payment Agreement, but only to the extent that the purchase price paid therefor
is at least 99% of the invoice amount and such payment is made directly by GECC
into a Payment Account, and (v) the consummation of the tender offer
contemplated by the Securities Purchase Agreement. The inclusion of proceeds in
the definition of Collateral shall not be deemed to constitute the Agent's or
any Lender's consent to any sale or other disposition of the Collateral except
as expressly permitted herein.
9.10 Distributions; Capital Change; Restricted Investments. Neither any Borrower
nor any of its Subsidiaries shall (i) directly or indirectly declare or make, or
incur any liability to make, any Distribution including any Distributions in
connection with any warrants of the Parent, except Distributions to any Borrower
by its Subsidiaries, (ii) make any change in its capital structure which could
have a Material Adverse Effect or (iii) make any Restricted Investment other
than (y) the Parent's existing investment in its Subsidiaries; or (z) one or
more investments (including the acquisition of all or substantially all of the
assets or controlling equity interests of other Persons in the same line of
business as the Borrowers, and joint ventures with any Person in the same line
of business as the Borrowers) that would otherwise be Restricted Investments,
provided that (i) no Default or Event of Default exists at such time or would
result from such investment, (ii) at the time of making such investment, the
Coverage Ratio for each of the two most recent fiscal quarters of the Parent is
at least 1.1 to 1.0 and the Coverage Ratio would remain (on a pro forma basis
taking into account any payment that would be required under any new Debt for
Borrowed Money incurred in connection with such investment) at least 1.1 to 1.0,
(iii) at the time of making such investment (and taking such investment into
account) Availability would be at least 20% of the Borrowing Base.
9.11 Transactions Affecting Collateral or Obligations. Neither any
Borrower nor any of its Subsidiaries shall enter into any transaction which
would be reasonably expected to have a Material Adverse Effect.
9.12 Guaranties. Neither any Borrower nor any of its Subsidiaries shall
make, issue, or be or become liable on any Guaranty, except Guaranties of the
Obligations in favor of the Agent.
9.13 Debt. Neither any Borrower nor any of its Subsidiaries shall incur or
maintain any Debt, other than: (a) the Obligations; (b) trade payables and
contractual obligations to suppliers and customers arising in the ordinary
course of business; (c) other Debt existing on the Closing Date and reflected in
the Financial Statements attached hereto as Exhibit C; (d) Debt described on
Schedule 8.9; (e) unsecured, subordinated Debt (including Debt utilized to make
investments permitted under Section 9.10) on material terms that are no less
favorable to the Parent and the Lenders than the terms of the Senior
Subordinated Debt in effect on the Closing Date, or that is otherwise reasonably
acceptable to the Agent; provided, however, that any such subordinated Debt (up
to a maximum principal amount of $3,000,000) may provide for cash interest
payments, not to exceed 10% per annum, so long as the terms of such Debt specify
that no cash payments shall be made during the existence of or which would
result in an Event of Default; (f) Debt evidenced by Operating Lease Obligations
permitted under Section 9.24 and Capital Lease Obligations permitted under
Section 9.23; (g) purchase money Debt incurred to provide some or all of the
purchase price of Capital Expenditures permitted under Section 9.25, but only to
the extent that the amount of such Debt does not exceed the purchase price of
such assets, together with refinancings of such purchase money Debt from time to
time on terms no less favorable to the Parent than the original purchase money
Debt and so long as the amount refinanced is not greater than the outstanding
principal balance (plus accrued interest) outstanding at the time of such
refinancing; provided, however, that none of the subsidiaries of the Parent
(other than PEI) will incur any Debt.
9.14 Prepayment. Neither any Borrower nor any of its Subsidiaries shall
voluntarily prepay or redeem any Debt (including the Senior Subordinated Debt),
except the Obligations in accordance with the terms of this Agreement.
9.15 Transactions with Affiliates. Except as set forth below, neither any
Borrower nor any of its Subsidiaries shall, sell, transfer, distribute, or pay
any money or property, including, but not limited to, any fees or expenses of
any nature (including, but not limited to, any fees or expenses for management
services), to any Affiliate, or lend or advance money or property to any
Affiliate, or invest in (by capital contribution or otherwise) or purchase or
repurchase any stock or indebtedness, or any property, of any Affiliate, or
become liable on any Guaranty of the indebtedness, dividends, or other
obligations of any Affiliate. Notwithstanding the foregoing, while no Event of
Default has occurred and is continuing, each Borrower and its Subsidiaries may
engage in transactions with Affiliates in the ordinary course of business, in
amounts and upon terms fully disclosed to the Agent and the Lenders, and no less
favorable to such Borrower and its Subsidiaries than would be obtained in a
comparable arm's-length transaction with a third party who is not an Affiliate.
9.16 Investment Banking and Finder's Fees. Neither any Borrower nor any of its
Subsidiaries shall pay or agree to pay, or reimburse any other party with
respect to, any investment banking or similar or related fee, underwriter's fee,
finder's fee, or broker's fee to any Person in connection with this Agreement,
except a fee in an amount not to exceed $500,000 payable by the Parent to Murphy
Noell. Each Borrower shall defend and indemnify the Agent and the Lenders
against and hold them harmless from all claims of any Person that any Borrower
is obligated to pay for any such fees, and all costs and expenses (including
attorneys' fees) incurred by the Agent and/or any Lender in connection
therewith.
9.17 Directors' Fees. Neither any Borrower nor any of its Subsidiaries shall,
directly or indirectly make any payments to directors as directors fees (but
excluding reimbursement of expenses) in excess of $250,000 per year in the
aggregate, or at any time when an Event of Default exists or would result from
such payment.
9.18 Business Conducted. No Borrower shall, nor shall any Borrower permit any of
its Subsidiaries to, engage directly or indirectly, in any line of business
other than the businesses in which such Borrower is engaged on the Closing Date,
and any substantially similar businesses; provided, however, that none of the
Parent's Subsidiaries (other than PEI) shall own any assets or conduct any
business.
9.19 Liens. Neither any Borrower nor any of its Subsidiaries shall create,
incur, assume, or permit to exist any Lien on any property now owned or
hereafter acquired by any of them, except Permitted Liens.
9.20 Sale and Leaseback Transactions. Neither any Borrower nor any of its
Subsidiaries shall, directly or indirectly, enter into any arrangement with any
Person providing for any Borrower or such Subsidiary to lease or rent property
that such Borrower or such Subsidiary has sold or will sell or otherwise
transfer to such Person.
9.21 New Subsidiaries. No Borrower shall, directly or indirectly,
organize, create, acquire or permit to exist any Subsidiary other than those
listed on Schedule 8.5.
9.22 Fiscal Year. No Borrower shall change its Fiscal Year.
9.23 Capital Leases. Neither any Borrower nor any of its Subsidiaries shall
enter into any Capital Leases if, after giving effect thereto, the aggregate
amount of all Capital Leases by the Borrowers and their Subsidiaries on a
consolidated basis would exceed $15,000,000 during the term of this Agreement.
9.24 Operating Lease Obligations. Neither any Borrower nor any of its
Subsidiaries shall enter into, or suffer to exist, any lease of real or personal
property as lessee or sublessee (other than a Capital Lease), if, after giving
effect thereto, the aggregate amount of Rentals (as hereinafter defined) payable
by the Borrowers and their Subsidiaries on a consolidated basis in any Fiscal
Year in respect of such lease and all other such leases would exceed $15,000,000
(such amount being referred to herein as "Permitted Rentals"). The term
"Rentals" means all payments due from the lessee or sublessee under a lease,
including, without limitation, basic rent, percentage rent, property taxes,
utility or maintenance costs, and insurance premiums.
9.25 Capital Expenditures. To the extent that no other term of this Agreement
would be breached thereby, the Parent shall be entitled to make Capital
Expenditures for the acquisition of Equipment to the extent necessary to conduct
its business, and up to $3,000,000 of Capital Expenditures for the acquisition
of Real Estate to be used in its business; provided, however, that in connection
with acquiring any such Real Estate that is not financed with purchase money
Debt, the Parent shall provide the Agent with a deed of trust, mortgage or
equivalent documentation providing the Agent with a Lien on such Real Estate,
and such Real Estate shall be Collateral hereunder.
9.26 Cash Flow. The Parent shall maintain Cash Flow of at least ($10,000,000)
(i.e. such Cash Flow shall be positive or, to the extent that it is negative, it
will not be worse than a negative $10,000,000) as of the last day of each month
during the term of this Agreement, measured from the first day of the first
month after the Closing Date.
9.27 [Intentionally Deleted]
9.28 [Intentionally Deleted]
9.29 Coverage Ratio. The Parent shall maintain a Coverage Ratio of at least 1.0
to 1.0 tested as of each quarter commencing with the fiscal quarter ending March
31, 2001 through the fiscal quarter ending December 31, 2001, and as of each
month end thereafter commencing January 31, 2002.
9.30 Use of Proceeds. No Borrower shall, nor shall it suffer or permit any
Subsidiary to, use any portion of the Loan proceeds, directly or indirectly, (i)
to purchase or carry Margin Stock, (ii) to repay or otherwise refinance
indebtedness of such Borrower or others incurred to purchase or carry Margin
Stock, (iii) to extend credit for the purpose of purchasing or carrying any
Margin Stock, or (iv) to acquire any security in any transaction that is subject
to Section 13 or 14 of the Exchange Act, or (v) to repurchase or effect the
repurchase or acquisition of any shares of stock of any Borrower.
9.31 Payment of Honeywell. Payments of the accounts payable owing by the Parent
to Honeywell arising out of the One Time Buy Inventory shall be made by wire
transfers by the Agent to Honeywell with proceeds of Loans or Agent Advances, as
the case may be, as instructed by the Parent in accordance with that certain
Memorandum of Understanding dated March 29, 2000 between Parent and Honeywell
regarding Amendment of Inventory Transfer Agreement. All such accounts payable
shall be paid in full by July 31, 2000.
9.32 Further Assurances. Each Borrower shall execute and deliver, or cause to be
executed and delivered, to the Agent and/or the Lenders such documents and
agreements, and shall take or cause to be taken such actions, as the Agent or
any Lender may, from time to time, reasonably request to carry out the terms and
conditions of this Agreement and the other Loan Documents.
ARTICLE 10
CONDITIONS OF LENDING
10.1 Conditions Precedent to Making of Loans on the Closing Date. The obligation
of the Lenders to make the initial Revolving Loans on the Closing Date, and the
obligation of the Agent to cause the Letter of Credit Issuer to issue any Letter
of Credit on the Closing Date, are subject to the following conditions precedent
having been satisfied in a manner satisfactory to the Agent and each Lender:
(a) This Agreement and the other Loan Documents shall have
been executed by each party thereto and each Borrower shall have performed and
complied with all covenants, agreements and conditions contained herein and the
other Loan Documents which are required to be performed or complied with by each
Borrower before or on such Closing Date.
(b) Upon making the Revolving Loans (including such Revolving
Loans made to finance fees or otherwise as reimbursement for fees, costs and
expenses then payable under this Agreement) and with all its obligations
current, the Borrowers would have Availability in an amount no less than
$5,000,000.
(c) All representations and warranties made hereunder and in
the other Loan Documents shall be true and correct in all material respects as
if made on such date unless specifically related to a different date.
(d) No Default or Event of Default shall exist on the Closing
Date, or would exist after giving effect to the Loans to be made, the Letters of
Credit to be issued and the Credit Support to be in place on such date.
(e) The Agent and the Lenders shall have received such
opinions of counsel for each Borrower as the Agent or any Lender shall request,
each such opinion to be in a form, scope, and substance satisfactory to the
Agent, the Lenders, and their respective counsel.
(f) The Agent shall have received preliminary title reports
(or other satisfactory title and lien search results), in form and substance
acceptable to Agent, with respect to owned Real Estate of the Borrowers.
(g) The Agent shall have received:
(i) acknowledgment copies (or other proof of the
filing) of proper financing statements, duly filed on or before the Closing Date
under the UCC of all jurisdictions that the Agent may deem necessary or
desirable in order to perfect the Agent's Lien;
(ii) duly executed UCC-3 Termination
Statements and such other instruments, in form and substance satisfactory to the
Agent, as shall be necessary to terminate and satisfy all Liens on the Property
of each Borrower and its Subsidiaries except Permitted Liens;
(iii) duly executed copies of all Subordinated
Debt Documents, containing terms and conditions, including subordination terms,
satisfactory to the Agent in its sole discretion, together with evidence that
the Parent has received or will receive on the Closing Date at least $54,000,000
in the aggregate in cash proceeds from the issuance of the Senior Subordinated
Exchange Notes;
(iv) a duly executed copy of the Honeywell
Buy Back Agreement, containing terms and conditions satisfactory to Agent in its
sole discretion, including the commitment of Honeywell to purchase all Inventory
located at the Parent's Phoenix, Arizona facility (including Lifetime Buy
Inventory but excluding obsolete Inventory) at a price equal to at least 90% of
such Inventory's cost and a duly executed copy of the Honeywell No Offset
Letter, containing terms and conditions satisfactory to Agent in its sole
discretion.
(h) The Borrowers shall have paid all fees and expenses of the
Agent and the Attorney Costs incurred in connection with any of the Loan
Documents and the transactions contemplated thereby to the extent invoiced.
(i) The Agent shall have received evidence, in form, scope,
and substance, reasonably satisfactory to the Agent, of all insurance coverage
as required by this Agreement.
(j) The Agent and the Lenders shall have had an opportunity, if they so choose,
to examine the books of account and other records and files of the Borrowers,
including all of the Borrowers' material contracts, and to make copies thereof,
and to conduct a pre-closing audit which shall include, without limitation,
verification of Inventory, Accounts, and the Borrowing Base, and the results of
such examination and audit shall have been satisfactory to the Agent and the
Lenders in all respects.
(k) a draft of the audited Financial Statements of the Parent for its
Fiscal Year ending 1999.
(l) All proceedings taken in connection with the execution of this Agreement,
all other Loan Documents and all documents and papers relating thereto,
including receipt of any governmental and third party consents and approvals
that may be required in connection with the Loan Documents and the transactions
contemplated thereby, shall be satisfactory in form, scope, and substance to the
Agent and the Lenders.
The acceptance by any Borrower of any Loans made or Letters of Credit
issued on the Closing Date shall be deemed to be a representation and warranty
made by such Borrower to the effect that all of the conditions precedent to the
making of such Loans or the issuance of such Letters of Credit have been
satisfied, with the same effect as delivery to the Agent and the Lenders of a
certificate signed by a Responsible Officer of the applicable Borrowers, dated
the Closing Date, to such effect.
Execution and delivery to the Agent by a Lender of a counterpart of
this Agreement shall be deemed confirmation by such Lender that (i) all
conditions precedent in this Section 10.1 have been fulfilled to the
satisfaction of such Lender, (ii) the decision of such Lender to execute and
deliver to the Agent an executed counterpart of this Agreement was made by such
Lender independently and without reliance on the Agent or any other Lender as to
the satisfaction of any condition precedent set forth in this Section 10.1, and
(iii) all documents sent to such Lender for approval consent, or satisfaction
were acceptable to such Lender.
10.2 Conditions Precedent to Each Loan. The obligation of the Lenders to make
each Loan, including the initial Revolving Loans on the Closing Date, and the
obligation of the Agent to cause the Letter of Credit Issuer to issue any Letter
of Credit shall be subject to the further conditions precedent that on and as of
the date of any such extension of credit:
(a) the following statements shall be true, and the acceptance
by any Borrower of any extension of credit shall be deemed to be a statement to
the effect set forth in clauses (i) and (ii), with the same effect as the
delivery to the Agent and the Lenders of a certificate signed by a Responsible
Officer, dated the date of such extension of credit, stating that:
(i) The representations and warranties
contained in this Agreement and the other Loan Documents are correct in all
material respects on and as of the date of such extension of credit as though
made on and as of such date, other than any such representation or warranty
which relates to a specified prior date and except to the extent the Agent and
the Lenders have been notified by any Borrower that any representation or
warranty is not correct and the Majority Lenders have explicitly waived in
writing compliance with such representation or warranty; and
(ii) No event has occurred and is continuing,
or would result from such extension of credit, which constitutes a Default or an
Event of Default; and
(b) The amount of the Borrowing Base shall be sufficient to
make such Revolving Loans or issue such Letters of Credit without exceeding the
Availability, provided, however, that the foregoing conditions precedent are not
conditions to each Lender participating in or reimbursing the Bank or the Agent
for such Lenders' Pro Rata Share of any Non-Ratable Loan or Agent Advance made
in accordance with the provisions of Sections 2.2(h), (i) and (j).
ARTICLE 11
DEFAULT; REMEDIES
11.1 Events of Default. It shall constitute an event of default ("Event
of Default") if any one or more of the following shall occur for any reason:
(a) any failure by the Borrowers to pay the principal
of or interest or premium on any of the Obligations or any fee or other amount
owing hereunder when due, whether upon demand or otherwise;
(b) any representation or warranty made or deemed made by any
Borrower in this Agreement or by any Borrower or any of its Subsidiaries in any
of the other Loan Documents, any Financial Statement, or any certificate
furnished by any Borrower or any of its Subsidiaries at any time to the Agent or
any Lender shall prove to be untrue in any material respect as of the date on
which made, deemed made, or furnished;
(c) any default shall occur in the observance or performance
of any of the covenants and agreements contained in this Agreement, any other
Loan Documents, or any other agreement entered into at any time to which any
Borrower or any Subsidiary and the Agent or any Lender are party (including in
respect of any Bank Products), or if any such agreement or document shall
terminate (other than in accordance with its terms or the terms hereof or with
the written consent of the Agent and the Majority Lenders) or become void or
unenforceable, without the written consent of the Agent and the Majority
Lenders;
(d) default shall occur with respect to any Debt For Borrowed
Money (other than the Obligations) of any Borrower or any of its Subsidiaries in
an outstanding principal amount which exceeds $1,000,000, or under any agreement
or instrument under or pursuant to which any such Debt For Borrowed Money may
have been issued, created, assumed, or guaranteed by any Borrower or any of its
Subsidiaries, and such default shall continue for more than the period of grace,
if any, therein specified, if the effect thereof (with or without the giving of
notice or further lapse of time or both) is to accelerate, or to permit the
holders of any such Debt For Borrowed Money to accelerate, the maturity of any
such Debt For Borrowed Money; or any such Debt For Borrowed Money shall be
declared due and payable or be required to be prepaid (other than by a regularly
scheduled required prepayment) prior to the stated maturity thereof;
(e) any Borrower or any of its Subsidiaries shall (i) file a
voluntary petition in bankruptcy or file a voluntary petition or an answer or
otherwise commence any action or proceeding seeking reorganization, arrangement
or readjustment of its debts or for any other relief under the federal
Bankruptcy Code, as amended, or under any other bankruptcy or insolvency act or
law, state or federal, now or hereafter existing, or consent to, approve of, or
acquiesce in, any such petition, action or proceeding; (ii) apply for or
acquiesce in the appointment of a receiver, assignee, liquidator, sequestrator,
custodian, monitor, trustee or similar officer for it or for all or any part of
its property; (iii) make an assignment for the benefit of creditors; or (iv) be
unable generally to pay its debts as they become due;
(f) an involuntary petition or proposal shall be filed or an
action or proceeding otherwise commenced seeking reorganization, arrangement,
consolidation or readjustment of the debts of any Borrower or any of its
Subsidiaries or for any other relief under the federal Bankruptcy Code, as
amended, or under any other bankruptcy or insolvency act or law, state or
federal, now or hereafter existing and any of the following events occur: (i)
either Borrower consents to the institution of such action or proceeding; (ii)
the petition commencing such action or proceeding is not timely controverted;
(iii) the petition commencing such action or proceeding is not dismissed within
60 calendar days of the date of the filing thereof; provided, however, that
during the pendency of such period, the Lenders shall be relieved of their
obligation to extend credit hereunder; or (iv) an order for relief shall have
been issued or entered;
(g) a receiver, assignee, liquidator, sequestrator, custodian,
monitor, trustee or similar officer for any Borrower or any of its Subsidiaries
or for all or any part of its property shall be appointed and the same shall not
have been removed within 60 days of such appointment; provided, however that
during the pendency of such period the Lenders shall be relieved of their
obligation to extend credit hereunder or a warrant of attachment, execution or
similar process shall be issued against any part of the property of any Borrower
or any of its Subsidiaries and the same shall not have been dissolved or
extinguished within 60 days of such issuance; provided, however that during the
pendency of such period the Lenders shall be relieved of their obligation to
extend credit hereunder;
(h) any Borrower or any of its Subsidiaries shall (i) file a
certificate of dissolution under applicable state law or shall be liquidated,
dissolved or wound-up or shall commence, or (ii) have commenced against it any
action or proceeding for dissolution, winding-up or liquidation, and such
proceeding is not dismissed within 60 calendar days of the date of the
commencement thereof; provided, however, that during the pendency of such
period, the Lenders shall be relieved of their obligation to extend credit
hereunder, or (iii) shall take any corporate action in furtherance thereof;
(i) all or any material part of the property of any Borrower
or any of its Subsidiaries shall be nationalized, expropriated or condemned,
seized or otherwise appropriated, or custody or control of such property or of
any Borrower or such Subsidiary shall be assumed by any Governmental Authority
or any court of competent jurisdiction at the instance of any Governmental
Authority, except where contested in good faith by proper proceedings diligently
pursued where a stay of enforcement is in effect;
(j) the Honeywell Buy Back Agreement or the Honeywell No
Offset Letter shall be terminated, revoked or declared void or invalid or the
GECC Payment Agreement is materially modified without the advance written
consent of the Agent or monies paid to the Parent thereunder by GECC are not
received in the Payment Account;
(k) one or more judgments, orders, decrees or arbitration
awards is entered against any Borrower involving in the aggregate liability (to
the extent not covered by independent third-party insurance as to which the
insurer does not dispute coverage) as to any single or related or unrelated
series of transactions, incidents or conditions, of $3,000,000 or more, and the
same shall remain unsatisfied, unvacated and unstayed pending appeal for a
period of 5 days after the entry thereof;
(l) any loss, theft, damage or destruction of any item or
items of Collateral or other property of any Borrower or any Subsidiary occurs
which could reasonably be expected to cause a Material Adverse Effect and is not
adequately covered by insurance;
(m) there occurs a Material Adverse Effect;
(n) there is filed against any Borrower or any of its
Subsidiaries any action, suit or proceeding under any federal or state
racketeering statute (including the Racketeer Influenced and Corrupt
Organization Act of 1970), which action, suit or proceeding (i) is not dismissed
within one hundred twenty (120) days, and (ii) could reasonably be expected to
result in the confiscation or forfeiture of any material portion of the
Collateral;
(o) for any reason other than the failure of the Agent to take
any action available to it to maintain perfection of the Agent's Liens, pursuant
to the Loan Documents, any Loan Document ceases to be in full force and effect
or any Lien with respect to any material portion of the Collateral intended to
be secured thereby ceases to be, or is not, valid, perfected and prior to all
other Liens (other than Permitted Liens) or is terminated, revoked or declared
void;
(p) an ERISA Event shall occur with respect to a Pension Plan or Multi-employer
Plan which has resulted or could reasonably be expected to result in liability
of any Borrower under Title IV of ERISA to the Pension Plan, Multi-employer Plan
or the PBGC; (ii) there shall exist any Unfunded Pension Liability among all
Pension Plans; or (iii) any Borrower or any ERISA Affiliate shall fail to pay
when due, after the expiration of any applicable grace period, any installment
payment with respect to its withdrawal liability under Section 4201 of ERISA
under a Multi-employer Plan;
(q) there occurs a Change of Control.
11.2 Remedies. (a) If a Default or an Event of Default exists, the Agent may, in
its discretion, and shall, at the direction of the Majority Lenders, do one or
more of the following at any time or times and in any order, without notice to
or demand on the Borrowers: (i) reduce the Maximum Revolver Amount, or the
advance rates against Eligible Accounts and/or Eligible Inventory used in
computing the Borrowing Base, or reduce one or more of the other elements used
in computing the Borrowing Base; (ii) restrict the amount of or refuse to make
Revolving Loans; and (iii) restrict or refuse to provide Letters of Credit or
Credit Support. If an Event of Default exists, the Agent shall, at the direction
of the Majority Lenders, do one or more of the following, in addition to the
actions described in the preceding sentence, at any time or times and in any
order, without notice to or demand on the Borrower: (A) terminate the
Commitments and this Agreement; (B) declare any or all Obligations to be
immediately due and payable; provided, however, that upon the occurrence of any
Event of Default described in Sections 11.1(e), 11.1(f), 11.1(g), or 11.1(h),
the Commitments shall automatically and immediately expire and all Obligations
shall automatically become immediately due and payable without notice or demand
of any kind; and (C) pursue its other rights and remedies under the Loan
Documents and applicable law.
(b) If an Event of Default has occurred and is continuing: (i)
the Agent shall have for the benefit of the Lenders, in addition to all other
rights of the Agent and the Lenders, the rights and remedies of a secured party
under the UCC; (ii) the Agent may, at any time, take possession of the
Collateral and keep it on the Borrowers' premises, at no cost to the Agent or
any Lender, or remove any part of it to such other place or places as the Agent
may desire, or the Borrowers shall, upon the Agent's demand, at the Borrowers'
cost, assemble the Collateral and make it available to the Agent at a place
reasonably convenient to the Agent; and (iii) the Agent may sell and deliver any
Collateral at public or private sales, for cash, upon credit or otherwise, at
such prices and upon such terms as the Agent deems advisable, in its sole
discretion, and may, if the Agent deems it reasonable, postpone or adjourn any
sale of the Collateral by an announcement at the time and place of sale or of
such postponed or adjourned sale without giving a new notice of sale. Without in
any way requiring notice to be given in the following manner, each Borrower
agrees that any notice by the Agent of sale, disposition or other intended
action hereunder or in connection herewith, whether required by the UCC or
otherwise, shall constitute reasonable notice to such Borrower if such notice is
mailed by registered or certified mail, return receipt requested, postage
prepaid, or is delivered personally against receipt, at least ten (10) Business
Days prior to such action to the Borrowers' address specified in or pursuant to
Section 15.8. If any Collateral is sold on terms other than payment in full at
the time of sale, no credit shall be given against the Obligations until the
Agent or the Lenders receive payment, and if the buyer defaults in payment, the
Agent may resell the Collateral without further notice to the Borrowers. In the
event the Agent seeks to take possession of all or any portion of the Collateral
by judicial process, each Borrower irrevocably waives: (A) the posting of any
bond, surety or security with respect thereto which might otherwise be required;
(B) any demand for possession prior to the commencement of any suit or action to
recover the Collateral; and (C) any requirement that the Agent retain possession
and not dispose of any Collateral until after trial or final judgment. Each
Borrower agrees that the Agent has no obligation to preserve rights to the
Collateral or marshal any Collateral for the benefit of any Person. The Agent is
hereby granted a license or other right to use, without charge, each Borrower's
labels, patents, copyrights, name, trade secrets, trade names, trademarks, and
advertising matter, or any similar property, in completing production of,
advertising or selling any Collateral, and each Borrower's rights under all
licenses and all franchise agreements shall inure to the Agent's benefit for
such purpose. The proceeds of sale shall be applied first to all expenses of
sale, including attorneys' fees, and then to the Obligations. The Agent will
return any excess to the Borrowers and the Borrowers shall remain liable for any
deficiency.
(c) If an Event of Default occurs and is continuing, each
Borrower hereby waives all rights to notice and hearing prior to the exercise by
the Agent of the Agent's rights to repossess the Collateral without judicial
process or to reply, attach or levy upon the Collateral without notice or
hearing.
ARTICLE 12
TERM AND TERMINATION
12.1 Term and Termination. The term of this Agreement shall end on the Stated
Termination Date. The Agent upon direction from the Majority Lenders may
terminate this Agreement without notice upon the occurrence of an Event of
Default. Upon the effective date of termination of this Agreement for any reason
whatsoever, all Obligations (including all unpaid principal, accrued and unpaid
interest and any early termination or prepayment fees or penalties) shall become
immediately due and payable and the Borrowers shall immediately arrange for the
cancellation and return of Letters of Credit then outstanding. Notwithstanding
the termination of this Agreement, until all Obligations are indefeasibly paid
and performed in full in cash, each Borrower shall remain bound by the terms of
this Agreement and shall not be relieved of any of its Obligations hereunder,
and the Agent and the Lenders shall retain all their rights and remedies
hereunder or under any other Loan Document (including the Agent's Liens in and
all rights and remedies with respect to all then existing and after-arising
Collateral).
ARTICLE 13
AMENDMENTS; WAIVERS; PARTICIPATIONS; ASSIGNMENTS; SUCCESSORS
13.1 Amendments and Waivers. No amendment or waiver of any provision of this
Agreement or any other Loan Document, and no consent with respect to any
departure by any Borrower therefrom, shall be effective unless the same shall be
in writing and signed by the Majority Lenders (or by the Agent at the written
request of the Majority Lenders) and the Borrowers and then any such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given; provided, however, that no such waiver, amendment, or
consent shall, unless in writing and signed by all the Lenders and the Borrowers
and acknowledged by the Agent, do any of the following:
(a) increase or extend the Commitment of any Lender;
(b) postpone or delay any date fixed by this Agreement or any
other Loan Document for any payment of principal, interest, fees or other
amounts due to the Lenders (or any of them) hereunder or under any other Loan
Document;
(c) reduce the principal of, or the rate of interest
specified herein on any Loan, or any fees or other amounts payable hereunder or
under any other Loan Document;
(d) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Loans which is required for the Lenders
or any of them to take any action hereunder;
(e) increase any of the percentages set forth in the
definition of the Borrowing Base;
(f) amend this Section or any provision of this Agreement
providing for consent or other action by all Lenders;
(g) release Collateral other than as permitted by Section
14.12;
(h) change the definition of "Majority Lenders"; or
(i) increase the Maximum Revolver Amount, the Maximum
Inventory Loan, and Unused Letter of Credit Subfacility;
provided, however, the Agent may, in its sole discretion and notwithstanding the
limitations contained in clauses (e) and (i) above and any other terms of this
Agreement, make Revolving Loans (including Agent Advances) in an amount not to
exceed 10% of the Borrowing Base and, provided further, that no amendment,
waiver or consent shall, unless in writing and signed by the Agent, affect the
rights or duties of the Agent under this Agreement or any other Loan Document.
13.2 Assignments; Participations.
(a) Any Lender may, with the written consent of the Agent
(which consent shall not be unreasonably withheld) and, unless there exists an
Event of Default, the Parent (which consent shall not be unreasonably withheld
or delayed), assign and delegate to one or more Eligible Assignees (provided
that no consent of the Agent shall be required in connection with any assignment
and delegation by a Lender to an Affiliate of such Lender) (each an "Assignee")
all, or any ratable part of all, of the Loans, the Commitments and the other
rights and obligations of such Lender hereunder, in a minimum amount of
$5,000,000 (provided that, unless an assignor Lender has assigned and delegated
all of its Loans and Commitments, no such assignment and/or delegation shall be
permitted unless, after giving effect thereto, such assignor Lender retains a
Commitment in a minimum amount of $5,000,000); provided, however, that the
Borrowers and the Agent may continue to deal solely and directly with such
Lender in connection with the interest so assigned to an Assignee until (i)
written notice of such assignment, together with payment instructions, addresses
and related information with respect to the Assignee, shall have been given to
the Borrowers and the Agent by such Lender and the Assignee; (ii) such Lender
and its Assignee shall have delivered to the Borrowers and the Agent an
Assignment and Acceptance in the form of Exhibit F ("Assignment and Acceptance")
and (iii) the assignor Lender or Assignee has paid to the Agent a processing fee
in the amount of $3,000.
(b) From and after the date that the Agent notifies the
assignor Lender that it has received an executed Assignment and Acceptance and
payment of the above-referenced processing fee, (i) the Assignee thereunder
shall be a party hereto and, to the extent that rights and obligations,
including, but not limited to, the obligation to participate in Letters of
Credit and Credit Support have been assigned to it pursuant to such Assignment
and Acceptance, shall have the rights and obligations of a Lender under the Loan
Documents, and (ii) the assignor Lender shall, to the extent that rights and
obligations hereunder and under the other Loan Documents have been assigned by
it pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto).
(c) By executing and delivering an Assignment and Acceptance,
the assigning Lender thereunder and the Assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other Loan Document furnished
pursuant hereto or the attachment, perfection, or priority of any Lien granted
by the Borrowers to the Agent or any Lender in the Collateral; (ii) such
assigning Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrowers or the
performance or observance by any Borrower of any of its obligations under this
Agreement or any other Loan Document furnished pursuant hereto; (iii) such
Assignee confirms that it has received a copy of this Agreement, together with
such other documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into such Assignment and Acceptance;
(iv) such Assignee will, independently and without reliance upon the Agent, such
assigning Lender or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement; (v) such
Assignee appoints and authorizes the Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement as are delegated to the
Agent by the terms hereof, together with such powers, including the
discretionary rights and incidental power, as are reasonably incidental thereto;
and (vi) such Assignee agrees that it will perform in accordance with their
terms all of the obligations which by the terms of this Agreement are required
to be performed by it as a Lender.
(d) Immediately upon satisfaction of the requirements of
Section 13.2(a), this Agreement shall be deemed to be amended to the extent, but
only to the extent, necessary to reflect the addition of the Assignee and the
resulting adjustment of the Commitments arising therefrom. The Commitment
allocated to each Assignee shall reduce such Commitments of the assigning Lender
pro tanto.
(e) Any Lender may at any time sell to one or more commercial
banks, financial institutions, or other Persons not Affiliates of any Borrower
(a "Participant") participating interests in any Loans, the Commitment of that
Lender and the other interests of that Lender (the "originating Lender")
hereunder and under the other Loan Documents; provided, however, that (i) the
originating Lender's obligations under this Agreement shall remain unchanged,
(ii) the originating Lender shall remain solely responsible for the performance
of such obligations, (iii) the Borrowers and the Agent shall continue to deal
solely and directly with the originating Lender in connection with the
originating Lender's rights and obligations under this Agreement and the other
Loan Documents, and (iv) no Lender shall transfer or grant any participating
interest under which the Participant has rights to approve any amendment to, or
any consent or waiver with respect to, this Agreement or any other Loan
Document, and all amounts payable by the Borrowers hereunder shall be determined
as if such Lender had not sold such participation; except that, if amounts
outstanding under this Agreement are due and unpaid, or shall have been declared
or shall have become due and payable upon the occurrence of an Event of Default,
each Participant shall be deemed to have the right of set-off in respect of its
participating interest in amounts owing under this Agreement to the same extent
and subject to the same limitation as if the amount of its participating
interest were owing directly to it as a Lender under this Agreement.
(f) Notwithstanding any other provision in this Agreement, any
Lender may at any time create a security interest in, or pledge, all or any
portion of its rights under and interest in this Agreement in favor of any
Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury
Regulation 31 CFR ss.203.14, and such Federal Reserve Bank may enforce such
pledge or security interest in any manner permitted under applicable law.
ARTICLE 14
THE AGENT
14.1 Appointment and Authorization. Each Lender hereby designates and appoints
Bank as its Agent under this Agreement and the other Loan Documents and each
Lender hereby irrevocably authorizes the Agent to take such action on its behalf
under the provisions of this Agreement and each other Loan Document and to
exercise such powers and perform such duties as are expressly delegated to it by
the terms of this Agreement or any other Loan Document, together with such
powers as are reasonably incidental thereto. The Agent agrees to act as such on
the express conditions contained in this Article 14. The provisions of this
Article 14 are solely for the benefit of the Agent and the Lenders and the
Borrowers shall have no rights as a third party beneficiary of any of the
provisions contained herein. Notwithstanding any provision to the contrary
contained elsewhere in this Agreement or in any other Loan Document, the Agent
shall not have any duties or responsibilities, except those expressly set forth
herein, nor shall the Agent have or be deemed to have any fiduciary relationship
with any Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against the Agent. Without limiting the generality
of the foregoing sentence, the use of the term "agent" in this Agreement with
reference to the Agent is not intended to connote any fiduciary or other implied
(or express) obligations arising under agency doctrine of any applicable law.
Instead, such term is used merely as a matter of market custom, and is intended
to create or reflect only an administrative relationship between independent
contracting parties. Except as expressly otherwise provided in this Agreement,
the Agent shall have and may use its sole discretion with respect to exercising
or refraining from exercising any discretionary rights or taking or refraining
from taking any actions which the Agent is expressly entitled to take or assert
under this Agreement and the other Loan Documents, including (a) the
determination of the applicability of ineligibility criteria with respect to the
calculation of the Borrowing Base, (b) the making of Agent Advances pursuant to
Section 2.2(i), and (c) the exercise of remedies pursuant to Section 11.2, and
any action so taken or not taken shall be deemed consented to by the Lenders.
14.2 Delegation of Duties. The Agent may execute any of its duties under this
Agreement or any other Loan Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects as
long as such selection was made without gross negligence or willful misconduct.
14.3 Liability of Agent. None of the Agent-Related Persons shall (i) be liable
for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document or the transactions
contemplated hereby (except for its own gross negligence or willful misconduct),
or (ii) be responsible in any manner to any of the Lenders for any recital,
statement, representation or warranty made by any Borrower or any Subsidiary or
Affiliate of any Borrower, or any officer thereof, contained in this Agreement
or in any other Loan Document, or in any certificate, report, statement or other
document referred to or provided for in, or received by the Agent under or in
connection with, this Agreement or any other Loan Document, or the validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document, or for any failure of any Borrower or any other party
to any Loan Document to perform its obligations hereunder or thereunder. No
Agent-Related Person shall be under any obligation to any Lender to ascertain or
to inquire as to the observance or performance of any of the agreements
contained in, or conditions of, this Agreement or any other Loan Document, or to
inspect the properties, books or records of any Borrower or any of any
Borrower's Subsidiaries or Affiliates.
14.4 Reliance by Agent. The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons,
and upon advice and statements of legal counsel (including counsel to any
Borrower), independent accountants and other experts selected by the Agent. The
Agent shall be fully justified in failing or refusing to take any action under
this Agreement or any other Loan Document unless it shall first receive such
advice or concurrence of the Majority Lenders as it deems appropriate and, if it
so requests, it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement or
any other Loan Document in accordance with a request or consent of the Majority
Lenders (or all Lenders if so required by Section 13.1) and such request and any
action taken or failure to act pursuant thereto shall be binding upon all of the
Lenders.
14.5 Notice of Default. The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default, unless the Agent
shall have received written notice from a Lender or a Borrower referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default." The Agent will notify the Lenders of its
receipt of any such notice. The Agent shall take such action with respect to
such Default or Event of Default as may be requested by the Majority Lenders in
accordance with Section 11; provided, however, that unless and until the Agent
has received any such request, the Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable.
14.6 Credit Decision. Each Lender acknowledges that none of the Agent-Related
Persons has made any representation or warranty to it, and that no act by the
Agent hereinafter taken, including any review of the affairs of any Borrower and
its Affiliates, shall be deemed to constitute any representation or warranty by
any Agent-Related Person to any Lender. Each Lender represents to the Agent that
it has, independently and without reliance upon any Agent-Related Person and
based on such documents and information as it has deemed appropriate, made its
own appraisal of and investigation into the business, prospects, operations,
property, financial and other condition and creditworthiness of any Borrower and
its Affiliates, and all applicable bank regulatory laws relating to the
transactions contemplated hereby, and made its own decision to enter into this
Agreement and to extend credit to the Borrowers. Each Lender also represents
that it will, independently and without reliance upon any Agent-Related Person
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement and the other Loan Documents,
and to make such investigations as it deems necessary to inform itself as to the
business, prospects, operations, property, financial and other condition and
creditworthiness of each Borrower. Except for notices, reports and other
documents expressly herein required to be furnished to the Lenders by the Agent,
the Agent shall not have any duty or responsibility to provide any Lender with
any credit or other information concerning the business, prospects, operations,
property, financial and other condition or creditworthiness of any Borrower
which may come into the possession of any of the Agent-Related Persons.
14.7 Indemnification. Whether or not the transactions contemplated hereby are
consummated, the Lenders shall indemnify upon demand the Agent-Related Persons
(to the extent not reimbursed by or on behalf of the Borrowers and without
limiting the obligation of the Borrowers to do so), pro rata, from and against
any and all Indemnified Liabilities as such term is defined in Section 15.11;
provided, however, that no Lender shall be liable for the payment to the
Agent-Related Persons of any portion of such Indemnified Liabilities resulting
solely from such Person's gross negligence or willful misconduct. Without
limitation of the foregoing, each Lender shall reimburse the Agent upon demand
for its ratable share of any costs or out-of-pocket expenses (including Attorney
Costs) incurred by the Agent in connection with the preparation, execution,
delivery, administration, modification, amendment or enforcement (whether
through negotiations, legal proceedings or otherwise) of, or legal advice in
respect of rights or responsibilities under, this Agreement, any other Loan
Document, or any document contemplated by or referred to herein, to the extent
that the Agent is not reimbursed for such expenses by or on behalf of the
Borrowers. The undertaking in this Section shall survive the payment of all
Obligations hereunder and the resignation or replacement of the Agent.
14.8 Agent in Individual Capacity. The Bank and its Affiliates may make loans
to, issue letters of credit for the account of, accept deposits from, acquire
equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with any Borrower and its
Subsidiaries and Affiliates as though the Bank were not the Agent hereunder and
without notice to or consent of the Lenders. The Lenders acknowledge that,
pursuant to such activities, the Bank or its Affiliates may receive information
regarding any Borrower or its Affiliates (including information that may be
subject to confidentiality obligations in favor of such Borrower or such
Subsidiary) and acknowledge that the Agent and the Bank shall be under no
obligation to provide such information to them. With respect to its Loans, the
Bank shall have the same rights and powers under this Agreement as any other
Lender and may exercise the same as though it were not the Agent, and the terms
"Lender" and "Lenders" include the Bank in its individual capacity.
14.9 Successor Agent. The Agent may resign as Agent upon 30 days notice to the
Lenders and the Borrowers, such resignation to be effective upon the acceptance
of a successor agent to its appointment as Agent. In the event the Bank sells
all of its Commitment and Revolving Loans as part of a sale, transfer or other
disposition by the Bank of substantially all of its loan portfolio, the Bank
shall resign as Agent and such purchaser or transferee shall become the
successor Agent hereunder. If the Agent resigns under this Agreement, subject to
the proviso in the preceding sentence, the Majority Lenders shall appoint from
among the Lenders a successor agent for the Lenders. If no successor agent is
appointed prior to the effective date of the resignation of the Agent, the Agent
may appoint, after consulting with the Lenders and the Borrowers, a successor
agent from among the Lenders. Upon the acceptance of its appointment as
successor agent hereunder, such successor agent shall succeed to all the rights,
powers and duties of the retiring Agent and the term "Agent" shall mean such
successor agent and the retiring Agent's appointment, powers and duties as Agent
shall be terminated. After any retiring Agent's resignation hereunder as Agent,
the provisions of this Article 14 shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement.
14.10 Withholding Tax. (a) If any Lender is a "foreign corporation,
partnership or trust" within the meaning of the Code and such Lender claims
exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or
1442 of the Code, such Lender agrees with and in favor of the Agent, to deliver
to the Agent:
(i) if such Lender claims an exemption from, or
a reduction of, withholding tax under a United States of America tax treaty,
properly completed IRS Forms 1001 and W-8 before the payment of any interest in
the first calendar year and before the payment of any interest in each third
succeeding calendar year during which interest may be paid under this Agreement;
(ii) if such Lender claims that interest paid
under this Agreement is exempt from United States of America withholding tax
because it is effectively connected with a United States of America trade or
business of such Lender, two properly completed and executed copies of IRS Form
4224 before the payment of any interest is due in the first taxable year of such
Lender and in each succeeding taxable year of such Lender during which interest
may be paid under this Agreement, and IRS Form W-9; and
(iii) such other form or forms as may be required
under the Code or other laws of the United States of America as a condition to
exemption from, or reduction of, United States of America withholding tax.
Such Lender agrees to promptly notify the Agent of any change in circumstances
which would modify or render invalid any claimed exemption or reduction.
(b) If any Lender claims exemption from, or reduction of,
withholding tax under a United States of America tax treaty by providing IRS
Form 1001 and such Lender sells, assigns, grants a participation in, or
otherwise transfers all or part of the Obligations owing to such Lender, such
Lender agrees to notify the Agent of the percentage amount in which it is no
longer the beneficial owner of Obligations of the Borrowers to such Lender. To
the extent of such percentage amount, the Agent will treat such Lender's IRS
Form 1001 as no longer valid.
(c) If any Lender claiming exemption from United States of
America withholding tax by filing IRS Form 4224 with the Agent sells, assigns,
grants a participation in, or otherwise transfers all or part of the Obligations
owing to such Lender, such Lender agrees to undertake sole responsibility for
complying with the withholding tax requirements imposed by Sections 1441 and
1442 of the Code.
(d) If any Lender is entitled to a reduction in the applicable
withholding tax, the Agent may withhold from any interest payment to such Lender
an amount equivalent to the applicable withholding tax after taking into account
such reduction. If the forms or other documentation required by subsection (a)
of this Section are not delivered to the Agent, then the Agent may withhold from
any interest payment to such Lender not providing such forms or other
documentation an amount equivalent to the applicable withholding tax.
(e) If the IRS or any other Governmental Authority of the
United States of America or other jurisdiction asserts a claim that the Agent
did not properly withhold tax from amounts paid to or for the account of any
Lender (because the appropriate form was not delivered, was not properly
executed, or because such Lender failed to notify the Agent of a change in
circumstances which rendered the exemption from, or reduction of, withholding
tax ineffective, or for any other reason) such Lender shall indemnify the Agent
fully for all amounts paid, directly or indirectly, by the Agent as tax or
otherwise, including penalties and interest, and including any taxes imposed by
any jurisdiction on the amounts payable to the Agent under this Section,
together with all costs and expenses (including Attorney Costs). The obligation
of the Lenders under this subsection shall survive the payment of all
Obligations and the resignation or replacement of the Agent.
14.11 Co-Agents. None of the Lenders identified on the facing page or signature
pages of this Agreement as a "co-agent" shall have any right, power, obligation,
liability, responsibility or duty under this Agreement other than those
applicable to all Lenders as such. Without limiting the foregoing, none of the
Lenders so identified as a "co-agent" shall have or be deemed to have any
fiduciary relationship with any Lender. Each Lender acknowledges that it has not
relied, and will not rely, on any of the Lenders so identified in deciding to
enter into this Agreement or in taking or not taking action hereunder.
14.12 Collateral Matters.
(a) The Lenders hereby irrevocably authorize the Agent, at its
option and in its sole discretion, to release any Agent's Lien upon any
Collateral (i) upon the termination of the Commitments and payment and
satisfaction in full by Borrowers of all Loans and reimbursement obligations in
respect of Letters of Credit and Credit Support, and the termination of all
outstanding Letters of Credit (whether or not any of such obligations are due)
and all other Obligations; (ii) constituting property being sold or disposed of
if the applicable Borrower certifies to the Agent that the sale or disposition
is made in compliance with Section 9.9 (and the Agent may rely conclusively on
any such certificate, without further inquiry); (iii) constituting property in
which the Borrowers owned no interest at the time the Lien was granted or at any
time thereafter; or (iv) constituting property leased to a Borrower under a
lease which has expired or been terminated in a transaction permitted under this
Agreement. Except as provided above, the Agent will not release any of the
Agent's Liens without the prior written authorization of the Lenders; provided
that the Agent may, in its discretion, release the Agent's Liens on Collateral
valued in the aggregate not in excess of $2,000,000 during any one year period
without the prior written authorization of the Lenders. Upon request by the
Agent or the Borrowers at any time, the Lenders will confirm in writing the
Agent's authority to release any Agent's Liens upon particular types or items of
Collateral pursuant to this Section 14.12.
(b) Upon receipt by the Agent of any authorization required
pursuant to Section 14.12(a) from the Lenders of the Agent's authority to
release any Agent's Liens upon particular types or items of Collateral, and upon
at least five (5) Business Days prior written request by the applicable
Borrower, the Agent shall (and is hereby irrevocably authorized by the Lenders
to) execute such documents as may be necessary to evidence the release of the
Agent's Liens upon such Collateral; provided, however, that (i) the Agent shall
not be required to execute any such document on terms which, in the Agent's
opinion, would expose the Agent to liability or create any obligation or entail
any consequence other than the release of such Liens without recourse or
warranty, and (ii) such release shall not in any manner discharge, affect or
impair the Obligations or any Liens (other than those expressly being released)
upon (or obligations of the applicable Borrower in respect of) all interests
retained by the applicable Borrower, including the proceeds of any sale, all of
which shall continue to constitute part of the Collateral.
(c) The Agent shall have no obligation whatsoever to any of
the Lenders to assure that the Collateral exists or is owned by any Borrower or
is cared for, protected or insured or has been encumbered, or that the Agent's
Liens have been properly or sufficiently or lawfully created, perfected,
protected or enforced or are entitled to any particular priority, or to exercise
at all or in any particular manner or under any duty of care, disclosure or
fidelity, or to continue exercising, any of the rights, authorities and powers
granted or available to the Agent pursuant to any of the Loan Documents, it
being understood and agreed that in respect of the Collateral, or any act,
omission or event related thereto, the Agent may act in any manner it may deem
appropriate, in its sole discretion given the Agent's own interest in the
Collateral in its capacity as one of the Lenders and that the Agent shall have
no other duty or liability whatsoever to any Lender as to any of the foregoing.
14.13 Restrictions on Actions by Lenders; Sharing of Payments. (a) Each of the
Lenders agrees that it shall not, without the express consent of all Lenders,
and that it shall, to the extent it is lawfully entitled to do so, upon the
request of all Lenders, set off against the Obligations, any amounts owing by
such Lender to any Borrower or any accounts of any Borrower now or hereafter
maintained with such Lender. Each of the Lenders further agrees that it shall
not, unless specifically requested to do so by the Agent, take or cause to be
taken any action to enforce its rights under this Agreement or against any
Borrower, including the commencement of any legal or equitable proceedings, to
foreclose any Lien on, or otherwise enforce any security interest in, any of the
Collateral.
(b) If at any time or times any Lender shall receive (i) by
payment, foreclosure, setoff or otherwise, any proceeds of Collateral or any
payments with respect to the Obligations of any Borrower to such Lender arising
under, or relating to, this Agreement or the other Loan Documents, except for
any such proceeds or payments received by such Lender from the Agent pursuant to
the terms of this Agreement, or (ii) payments from the Agent in excess of such
Lender's ratable portion of all such distributions by the Agent, such Lender
shall promptly (1) turn the same over to the Agent, in kind, and with such
endorsements as may be required to negotiate the same to the Agent, or in same
day funds, as applicable, for the account of all of the Lenders and for
application to the Obligations in accordance with the applicable provisions of
this Agreement, or (2) purchase, without recourse or warranty, an undivided
interest and participation in the Obligations owed to the other Lenders so that
such excess payment received shall be applied ratably as among the Lenders in
accordance with their Pro Rata Shares; provided, however, that if all or part of
such excess payment received by the purchasing party is thereafter recovered
from it, those purchases of participations shall be rescinded in whole or in
part, as applicable, and the applicable portion of the purchase price paid
therefor shall be returned to such purchasing party, but without interest except
to the extent that such purchasing party is required to pay interest in
connection with the recovery of the excess payment.
14.14 Agency for Perfection. Each Lender hereby appoints each other Lender as
agent for the purpose of perfecting the Lenders' security interest in assets
which, in accordance with Article 9 of the UCC can be perfected only by
possession. Should any Lender (other than the Agent) obtain possession of any
such Collateral, such Lender shall notify the Agent thereof, and, promptly upon
the Agent's request therefor shall deliver such Collateral to the Agent or in
accordance with the Agent's instructions.
14.15 Payments by Agent to Lenders. All payments to be made by the Agent to the
Lenders shall be made by bank wire transfer or internal transfer of immediately
available funds to each Lender pursuant to wire transfer instructions delivered
in writing to the Agent on or prior to the Closing Date (or if such Lender is an
Assignee, on the applicable Assignment and Acceptance), or pursuant to such
other wire transfer instructions as each party may designate for itself by
written notice to the Agent. Concurrently with each such payment, the Agent
shall identify whether such payment (or any portion thereof) represents
principal, premium or interest on the Revolving Loans or otherwise.
14.16 Concerning the Collateral and the Related Loan Documents. Each Lender
authorizes and directs the Agent to enter into this Agreement and the other Loan
Documents, for the ratable benefit and obligation of the Agent and the Lenders.
Each Lender agrees that any action taken by the Agent or Majority Lenders, as
applicable, in accordance with the terms of this Agreement or the other Loan
Documents, and the exercise by the Agent or the Majority Lenders, as applicable,
of their respective powers set forth therein or herein, together with such other
powers that are reasonably incidental thereto, shall be binding upon all of the
Lenders.
14.17 Field Audit and Examination Reports; Disclaimer by Lenders. By signing
this Agreement, each Lender:
(a) is deemed to have requested that the Agent furnish such
Lender, promptly after it becomes available, a copy of each field audit or
examination report (each a "Report" and collectively, "Reports") prepared by the
Agent;
(b) expressly agrees and acknowledges that neither the Bank
nor the Agent (i) makes any representation or warranty as to the accuracy of any
Report, or (ii) shall be liable for any information contained in any Report;
(c) expressly agrees and acknowledges that the Reports are not
comprehensive audits or examinations, that the Agent or the Bank or other party
performing any audit or examination will inspect only specific information
regarding the Borrowers and will rely significantly upon the Borrowers' books
and records, as well as on representations of the Borrowers' personnel;
(d) agrees to keep all Reports confidential and strictly
for its internal use, and not to distribute except to its participants, or use
any Report in any other manner; and
(e) without limiting the generality of any other
indemnification provision contained in this Agreement, agrees: (i) to hold the
Agent and any such other Lender preparing a Report harmless from any action the
indemnifying Lender may take or conclusion the indemnifying Lender may reach or
draw from any Report in connection with any loans or other credit accommodations
that the indemnifying Lender has made or may make to the Borrowers, or the
indemnifying Lender's participation in, or the indemnifying Lender's purchase
of, a loan or loans of the Borrowers; and (ii) to pay and protect, and
indemnify, defend and hold the Agent and any such other Lender preparing a
Report harmless from and against, the claims, actions, proceedings, damages,
costs, expenses and other amounts (including Attorney Costs) incurred by the
Agent and any such other Lender preparing a Report as the direct or indirect
result of any third parties who might obtain all or part of any Report through
the indemnifying Lender.
14.18 Relation Among Lenders. The Lenders are not partners or co-venturers, and
no Lender shall be liable for the acts or omissions of, or (except as otherwise
set forth herein in case of the Agent) authorized to act for, any other Lender.
ARTICLE 15
MISCELLANEOUS
15.1 No Waivers; Cumulative Remedies. No failure by the Agent or any Lender to
exercise any right, remedy, or option under this Agreement or any present or
future supplement thereto, or in any other agreement between or among any
Borrower and the Agent and/or any Lender, or delay by the Agent or any Lender in
exercising the same, will operate as a waiver thereof. No waiver by the Agent or
any Lender will be effective unless it is in writing, and then only to the
extent specifically stated. No waiver by the Agent or the Lenders on any
occasion shall affect or diminish the Agent's and each Lender's rights
thereafter to require strict performance by any Borrower of any provision of
this Agreement. The Agent and the Lenders may proceed directly to collect the
Obligations without any prior recourse to the Collateral. The Agent's and each
Lender's rights under this Agreement will be cumulative and not exclusive of any
other right or remedy which the Agent or any Lender may have.
15.2 Severability. The illegality or unenforceability of any provision of this
Agreement or any Loan Document or any instrument or agreement required hereunder
shall not in any way affect or impair the legality or enforceability of the
remaining provisions of this Agreement or any instrument or agreement required
hereunder.
15.3 GOVERNING LAW; CHOICE OF FORUM; SERVICE OF PROCESS. (a) THIS AGREEMENT
SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO
DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF
LAWS PROVISIONS PROVIDED THAT PERFECTION ISSUES WITH RESPECT TO ARTICLE 9 OF THE
UCC MAY GIVE EFFECT TO APPLICABLE CHOICE OR CONFLICT OF LAW RULES SET FORTH IN
DIVISION 9 OF THE UCC) OF THE STATE OF NEW YORK; PROVIDED THAT THE AGENT AND THE
LENDERS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY 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 BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE BORROWERS,
THE AGENT AND THE LENDERS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY,
TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE BORROWERS, THE
AGENT AND THE LENDERS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION
TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH
JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO.
NOTWITHSTANDING THE FOREGOING: (1) THE AGENT AND THE LENDERS SHALL HAVE THE
RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST ANY BORROWER OR ITS PROPERTY IN
THE COURTS OF ANY OTHER JURISDICTION THE AGENT OR THE LENDERS DEEM NECESSARY OR
APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR OTHER SECURITY FOR THE
OBLIGATIONS AND (2) EACH OF THE PARTIES HERETO ACKNOWLEDGES THAT ANY APPEALS
FROM THE COURTS DESCRIBED IN THE IMMEDIATELY PRECEDING SENTENCE MAY HAVE TO BE
HEARD BY A COURT LOCATED OUTSIDE THOSE JURISDICTIONS.
(c) EACH BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND
ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY
REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO SUCH BORROWER AT ITS
ADDRESS SET FORTH IN SECTION 15.8 AND SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN SO DEPOSITED IN THE U.S.
MAILS POSTAGE PREPAID. NOTHING CONTAINED HEREIN SHALL AFFECT THE RIGHT OF AGENT
OR THE LENDERS TO SERVE LEGAL PROCESS BY ANY OTHER MANNER PERMITTED BY LAW.
15.4 WAIVER OF JURY TRIAL. SUBJECT TO THE PROVISIONS OF SECTION 15.3(d), EACH
BORROWER, THE LENDERS AND THE AGENT EACH IRREVOCABLY WAIVE THEIR RESPECTIVE
RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR
ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO
CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. EACH BORROWER, THE LENDERS AND THE
AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER
AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF
THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN
WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT
OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
15.5 Survival of Representations and Warranties. All of the Borrowers'
representations and warranties contained in this Agreement shall survive the
execution, delivery, and acceptance thereof by the parties, notwithstanding any
investigation by the Agent or the Lenders or their respective agents.
15.6 Other Security and Guaranties. The Agent, may, without notice or demand and
without affecting any Borrower's obligations hereunder, from time to time: (a)
take from any Person and hold collateral (other than the Collateral) for the
payment of all or any part of the Obligations and exchange, enforce or release
such collateral or any part thereof; and (b) accept and hold any endorsement or
guaranty of payment of all or any part of the Obligations and release or
substitute any such endorser or guarantor, or any Person who has given any Lien
in any other collateral as security for the payment of all or any part of the
Obligations, or any other Person in any way obligated to pay all or any part of
the Obligations.
15.7 Fees and Expenses. Except as otherwise provided in the Agent's Fee Letter,
the Borrowers agree to pay to the Agent, for its benefit, on demand, all costs
and expenses that Agent pays or incurs in connection with the negotiation,
preparation, syndication, consummation, administration, enforcement, and
termination of this Agreement or any of the other Loan Documents, including: (a)
Attorney Costs; (b) costs and expenses (including reasonable attorneys' and
paralegals' fees and disbursements) for any amendment, supplement, waiver,
consent, or subsequent closing in connection with the Loan Documents and the
transactions contemplated thereby; (c) costs and expenses of lien and title
searches and title insurance; (d) taxes, fees and other charges for recording
the filing financing statements and continuations, and other actions to perfect,
protect, and continue the Agent's Liens (including costs and expenses paid or
incurred by the Agent in connection with the consummation of Agreement); (e)
sums paid or incurred to pay any amount or take any action required of any
Borrower under the Loan Documents that such Borrower fails to pay or take; (f)
costs of inspections, and verifications of the Collateral, including travel,
lodging, and meals for inspections of the Collateral and any Borrower's
operations by the Agent plus the Agent's then customary charge for field
examinations and audits and the preparation of reports thereof (such charge is
currently $750 per day (or portion thereof) for each agent or employee of the
Agent with respect to each field examination or audit); (g) costs and expenses
of forwarding loan proceeds, collecting checks and other items of payment, and
establishing and maintaining Payment Accounts and lock boxes; (h) costs and
expenses of preserving and protecting the Collateral; and (i) costs and expenses
(including Attorneys' Costs) paid or incurred to obtain payment of the
Obligations, enforce the Agent's Liens, sell or otherwise realize upon the
Collateral, and otherwise enforce the provisions of the Loan Documents, or to
defend any claims made or threatened against the Agent or any Lender arising out
of the transactions contemplated hereby (including preparations for and
consultations concerning any such matters). The foregoing shall not be construed
to limit any other provisions of the Loan Documents regarding costs and expenses
to be paid by any Borrower. All of the foregoing costs and expenses shall be
charged to the Borrowers' Loan Account as Revolving Loans as described in
Section 4.7.
15.8 Notices. Except as otherwise provided herein, all notices, demands and
requests that any party is required or elects to give to any other shall be in
writing, or by a telecommunications device capable of creating a written record,
and any such notice shall become effective (a) upon personal delivery thereof,
including, but not limited to, delivery by overnight mail and courier service,
(b) four (4) days after it shall have been mailed by United States mail, first
class, certified or registered, with postage prepaid, or (c) in the case of
notice by such a telecommunications device, when properly transmitted, in each
case addressed to the party to be notified as follows:
If to the Agent or to the Bank:
Bank of America, N.A.
55 South Lake Avenue, Suite 900
Pasadena, California 91101
Attention: Regional Manager
Telecopy No.: (626) 578-6069
with copies to:
Bank of America, N.A.
10124 Old Grove Road
San Diego, California 92131
Attention: Legal Department
Telecopy No.: (619) 549-7518
If to any Borrower:
c/o EFTC Corporation
9351 Grant Street
6th floor
Denver, Colorado 80229
Attention: Jim Doran
Telecopy No.: (303) 451-8210
with a copy to:
Thayer Capital Partners
1455 Pennsylvania Avenue NW
Suite 350
Washington, D.C. 20004
Attention: Douglas McCormick
Telecopy No.: (202) 371-0391
or to such other address as each party may designate for itself by like notice.
Failure or delay in delivering copies of any notice, demand, request, consent,
approval, declaration or other communication to the persons designated above to
receive copies shall not adversely affect the effectiveness of such notice,
demand, request, consent, approval, declaration or other communication.
15.9 Waiver of Notices. Unless otherwise expressly provided herein, each
Borrower waives presentment, and notice of demand or dishonor and protest as to
any instrument, notice of intent to accelerate the Obligations and notice of
acceleration of the Obligations, as well as any and all other notices to which
it might otherwise be entitled. No notice to or demand on any Borrower which the
Agent or any Lender may elect to give shall entitle any Borrower to any or
further notice or demand in the same, similar or other circumstances.
15.10 Binding Effect. The provisions of this Agreement shall be binding upon and
inure to the benefit of the respective representatives, successors, and assigns
of the parties hereto; provided, however, that no interest herein may be
assigned by any Borrower without prior written consent of the Agent and each
Lender. The rights and benefits of the Agent and the Lenders hereunder shall, if
such Persons so agree, inure to any party acquiring any interest in the
Obligations or any part thereof.
15.11 Indemnity of the Agent and the Lenders by Each Borrower.
(a) The Borrowers agree to defend, indemnify and hold the
Agent-Related Persons, and each Lender and each of its respective officers,
directors, employees, counsel, agents and attorneys-in-fact (each, an
"Indemnified Person") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses and disbursements (including Attorney Costs) of any kind or
nature whatsoever which may at any time (including at any time following
repayment of the Loans and the termination, resignation or replacement of the
Agent or replacement of any Lender) be imposed on, incurred by or asserted
against any such Person in any way relating to or arising out of this Agreement
or any document contemplated by or referred to herein, or the transactions
contemplated hereby, or any action taken or omitted by any such Person under or
in connection with any of the foregoing, including with respect to any
investigation, litigation or proceeding (including any Insolvency Proceeding or
appellate proceeding) related to or arising out of this Agreement, any other
Loan Document, or the Loans or the use of the proceeds thereof, whether or not
any Indemnified Person is a party thereto (all the foregoing, collectively, the
"Indemnified Liabilities"); provided, that the Borrowers shall have no
obligation hereunder to any Indemnified Person with respect to Indemnified
Liabilities resulting solely from the gross negligence or willful misconduct of
such Indemnified Person. The agreements in this Section shall survive payment of
all other Obligations.
(b) The Borrowers agree to indemnify, defend and hold harmless
the Agent and the Lenders from any loss or liability directly or indirectly
arising out of the use, generation, manufacture, production, storage, release,
threatened release, discharge, disposal or presence of a hazardous substance
relating to any Borrower's operations, business or property. This indemnity will
apply whether the hazardous substance is on, under or about a Borrower's
property or operations or property leased to any Borrower. The indemnity
includes but is not limited to Attorneys Costs. The indemnity extends to the
Agent and the Lenders, their parents, affiliates, subsidiaries and all of their
directors, officers, employees, agents, successors, attorneys and assigns.
"Hazardous substances" means any substance, material or waste that is or becomes
designated or regulated as "toxic," "hazardous," "pollutant," or "contaminant"
or a similar designation or regulation under any federal, state or local law
(whether under common law, statute, regulation or otherwise) or judicial or
administrative interpretation of such, including petroleum or natural gas. This
indemnity will survive repayment of all other Obligations.
15.12 Limitation of Liability. NO CLAIM MAY BE MADE BY ANY BORROWER, ANY LENDER
OR OTHER PERSON AGAINST THE AGENT, ANY LENDER, OR THE AFFILIATES, DIRECTORS,
OFFICERS, OFFICERS, EMPLOYEES, OR AGENTS OF ANY OF THEM FOR ANY SPECIAL,
INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM FOR BREACH
OF CONTRACT OR ANY OTHER THEORY OF LIABILITY ARISING OUT OF OR RELATED TO THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY
ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, AND EACH BORROWER AND
EACH LENDER HEREBY WAIVE, RELEASE AND AGREE NOT TO SUE UPON ANY CLAIM FOR SUCH
DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST
IN ITS FAVOR.
15.13 Final Agreement. This Agreement and the other Loan Documents are intended
by the Borrowers, the Agent and the Lenders to be the final, complete, and
exclusive expression of the agreement between them. This Agreement supersedes
any and all prior oral or written agreements relating to the subject matter
hereof. No modification, rescission, waiver, release, or amendment of any
provision of this Agreement or any other Loan Document shall be made, except by
a written agreement signed by the Borrowers and a duly authorized officer of
each of the Agent and the requisite Lenders.
15.14 Counterparts. This Agreement may be executed in any number of
counterparts, and by the Agent, each Lender and each Borrower in separate
counterparts, each of which shall be an original, but all of which shall
together constitute one and the same agreement; signature pages may be detached
from multiple separate counterparts and attached to a single counterpart so that
all signature pages are physically attached to the same document.
15.15 Captions. The captions contained in this Agreement are for convenience of
reference only, are without substantive meaning and should not be construed to
modify, enlarge, or restrict any provision.
15.16 Right of Setoff. In addition to any rights and remedies of the Lenders
provided by law, if an Event of Default exists or the Loans have been
accelerated, each Lender is authorized at any time and from time to time,
without prior notice to any Borrower, any such notice being waived by each
Borrower to the fullest extent permitted by law, to set off and apply any and
all deposits (general or special, time or demand, provisional or final) at any
time held by, and other indebtedness at any time owing by, such Lender to or for
the credit or the account of any Borrower against any and all Obligations owing
to such Lender, now or hereafter existing, irrespective of whether or not the
Agent or such Lender shall have made demand under this Agreement or any Loan
Document and although such Obligations may be contingent or unmatured. Each
Lender agrees promptly to notify the Borrowers and the Agent after any such
set-off and application made by such Lender; provided, however, that the failure
to give such notice shall not affect the validity of such set-off and
application. NOTWITHSTANDING THE FOREGOING, NO LENDER SHALL EXERCISE ANY RIGHT
OF SET-OFF, BANKER'S LIEN, OR THE LIKE AGAINST ANY DEPOSIT ACCOUNT OR PROPERTY
OF ANY BORROWER HELD OR MAINTAINED BY SUCH LENDER WITHOUT THE PRIOR WRITTEN
UNANIMOUS CONSENT OF THE LENDERS.
15.17 Replacement of Affected Lenders. If any Lender (other than the Agent) (x)
is owed a material amount of increased costs under Section 5.3 or ceases to be
obligated to make LIBOR Rate Loans as a result of the operation of Section 5.2,
(y) refuses to consent to certain proposed changes, waivers, discharges or
terminations with respect to this Agreement which have been approved pursuant to
Section 13.1 by Lenders whose Pro Rata Shares aggregate at least 66-2/3% as such
percentage is determined under the definition of Pro Rata Share set forth
herein; or (z) is a Defaulting Lender, then the Agent shall have the right, but
not the obligation, to replace such Lender (the "Replaced Lender") with one or
more Eligible Assignees (collectively, the "Replacement Lender") provided, that:
(i) at the time of any replacement pursuant to this Section
15.17, the Replacement Lender shall enter into one or more assignment agreements
pursuant to Section 13.2 pursuant to which the Replacement Lender shall acquire
all of the Commitments and outstanding Loans and participation in Letters of
Credit of the Replaced Lender and, in connection therewith, shall pay to (x) the
Replaced Lender in respect thereof an amount equal to the sum of (A) the
principal of, and all accrued interest on, all outstanding Loans of the Replaced
Lender, (B) an amount equal to all unpaid reimbursement obligations that have
been funded by (and not reimbursed to) such Replaced Lender, together with all
then unpaid interest with respect thereof at such time, and (C) all accrued, but
theretofore unpaid fees owing to the Replaced Lender, (y) the Letter of Credit
Issuer an amount equal to such Replaced Lender's Pro Rata Share of any unpaid
reimbursement obligations under any Letter of Credit to the extent such amount
was not theretofore funded by such Replaced Lender and (z) the Agent, the
processing fee set forth in Section 13.2(a);
(ii) all obligations of the Borrowers owing to the Replaced
Lender (other than those specifically described in preceding clause (i) in
respect of which the assignment purchase price has been, or is concurrently
being, paid) shall be paid by the Borrower in full to such Replaced Lender (or
by the Agent as an Agent Advance if the Borrower has refused to make any such
payments) concurrently with such replacement; and
(iii) upon the execution of the respective assignment
documentation pursuant to preceding clause (i) and the payment of amounts
referred to in preceding clauses (i) and (ii), the Replacement Lender shall
become a Lender hereunder and the Replaced Lender shall cease to constitute a
Lender hereunder, except with respect to indemnification provision of this
Agreement and the other Loan documents, which shall survive as to such Replaced
Lender.
15.18 Joint and Several Liability. Each Borrower shall be liable for all amounts
due to the Agent and/or any Lender under this Agreement, regardless of which
Borrower actually receives Loans or other extensions of credit hereunder or the
amount of such Loans received or the manner in which the Agent and/or such
Lender accounts for such Loans or other extensions of credit on its books and
records. Each Borrower's Obligations with respect to Loans made to it, and each
Borrower's Obligations arising as a result of the joint and several liability of
such Borrower hereunder, with respect to Loans made to the other Borrowers
hereunder, shall be separate and distinct obligations, but all such Obligations
shall be primary obligations of such Borrower.
Each Borrower's Obligations arising as a result of the joint
and several liability of such Borrower hereunder with respect to Loans or other
extensions of credit made to the other Borrowers hereunder shall, to the fullest
extent permitted by law, be unconditional irrespective of (i) the validity or
enforceability, avoidance or subordination of the Obligations of the other
Borrowers or of any promissory note or other document evidencing all or any part
of the Obligations of the other Borrowers, (ii) the absence of any attempt to
collect the Obligations from the other Borrowers, any other guarantor, or any
other security therefor, or the absence of any other action to enforce the same,
(iii) the waiver, consent, extension, forbearance or granting of any indulgence
by the Agent and/or any Lender with respect to any provision of any instrument
evidencing the Obligations of the other Borrowers, or any part thereof, or any
other agreement now or hereafter executed by the other Borrowers and delivered
to the Agent and/or any Lender, (iv) the failure by the Agent and/or any Lender
to take any steps to perfect and maintain its security interest in, or to
preserve its rights to, any security or collateral for the Obligations of the
other Borrowers, (v) the Agent's and/or any Lender's election, in any proceeding
instituted under the Bankruptcy Code, of the application of Section 1111(b)(2)
of the Bankruptcy Code, (vi) any borrowing or grant of a security interest by
the other Borrowers, as debtor-in-possession under Section 364 of the Bankruptcy
Code, (vii) the disallowance of all or any portion of the Agent's and/or any
Lender's claim(s) for the repayment of the Obligations of the other Borrowers
under Section 502 of the Bankruptcy Code, or (viii) any other circumstances
which might constitute a legal or equitable discharge or defense of a guarantor
or of the other Borrowers. With respect to each Borrower's Obligations arising
as a result of the joint and several liability of such Borrower hereunder with
respect to Loans or other extensions of credit made to any other Borrower
hereunder, each Borrower waives, until the Obligations shall have been paid in
full and the Loan Agreement shall have been terminated, any right to enforce any
right of subrogation or any remedy which the Agent and/or any Lender now has or
may hereafter have against the other Borrowers, any endorser or any guarantor of
all or any part of the Obligations, and any benefit of, and any right to
participate in, any security or collateral given to the Agent and/or any Lender
to secure payment of the Obligations or any other liability of the other
Borrowers to the Agent and/or any Lender.
Upon any Event of Default, the Agent may proceed directly and
at once, without notice, against each Borrower to collect and recover the full
amount, or any portion of the Obligations, without first proceeding against the
other Borrowers or any other Person, or against any security or collateral for
the Obligations. Each Borrower consents and agrees that the Agent shall be under
no obligation to marshal any assets in favor of such Borrower or against or in
payment of any or all of the Obligations.
15.19 Contribution and Indemnification among the Borrowers. Each Borrower is
obligated to repay the Obligations as joint and several obligors under this
Agreement. To the extent that any Borrower shall, under this Agreement as a
joint and several obligor, repay any of the Obligations constituting Loans made
to another Borrower hereunder or other Obligations incurred directly and
primarily by any other Borrower (an "Accommodation Payment"), then the Borrower
making such Accommodation Payment shall be entitled to contribution and
indemnification from, and be reimbursed by, each of the other Borrowers in an
amount, for each of such other Borrowers, equal to a fraction of such
Accommodation Payment, the numerator of which fraction is such other Borrower's
"Allocable Amount" (as defined below) and the denominator of which is the sum of
the Allocable Amounts of all of the Borrowers. As of any date of determination,
the "Allocable Amount" of each Borrower shall be equal to the maximum amount of
liability for Accommodation Payments which could be asserted against such
Borrower hereunder without (a) rendering such Borrower "insolvent" within the
meaning of Section 101 (31) of the Bankruptcy Code, Section 2 of the Uniform
Fraudulent Transfer Act ("UFTA") or Section 2 of the Uniform Fraudulent
Conveyance Act ("UFCA"), (ii) leaving such Borrower with unreasonably small
capital or assets, within the meaning of Section 548 of the Bankruptcy Code,
Section 4 of the UFTA, or Section 5 of the UFCA, or (iii) leaving such Borrower
unable to pay its debts as they become due within the meaning of Section 548 of
the Bankruptcy Code or Section 4 of the UFTA, or Section 5 of the UFCA. All
rights and claims of contribution, indemnification and reimbursement under this
Section shall be subordinate in right of payment to the prior payment in full of
the Obligations. The provisions of this Section shall, to the extent expressly
inconsistent with any provision in any Loan Document, supersede such
inconsistent provision.
15.20 Agency of the Parent for each other Borrower. Each of the other Borrowers
appoints the Parent as its agent for all purposes relevant to this Agreement,
including the giving and receipt of notices and execution and delivery of all
documents, instruments and certificates contemplated herein and all
modifications hereto. Any acknowledgement, consent, direction, certification or
other action which might otherwise be valid or effective only if given or taken
by
<PAGE>
all of the Borrowers or acting singly, shall be valid and effective if given or
taken only by the Parent, whether or not either of the other Borrowers joins
therein.
IN WITNESS WHEREOF, the parties have entered into this
Agreement on the date first above written.
"BORROWERS"
EFTC CORPORATION,
a Colorado corporation
By /s/ Jack Calderon
Title: Chief Executive Officer
RM ELECTRONICS, INC.,
a New Hampshire corporation (doing business as Personal
Electronics)
By
Title:
"AGENT"
BANK OF AMERICA, N.A., as the Agent
By
------------------------------
--------------, Vice President
"LENDERS"
Commitment: $45,000,000 BANK OF AMERICA, N.A., as a Lender
Pro Rata Share: 100%
By
------------------------------
--------------, Vice President
SECURITY AGREEMENT -- STOCK PLEDGE
This SECURITY AGREEMENT -- STOCK PLEDGE, dated as of March 30,
2000, is entered into by and among BANK OF AMERICA, N.A. ("Agent") as agent for
Lenders (as defined in the Loan and Security Agreement) and EFTC CORPORATION, a
Colorado corporation ("Pledgor"), in light of the following:
R E C I T A L S
WHEREAS, Pledgor and RM ELECTRONICS, INC., a New Hampshire
corporation (doing business as Personal Electronics) ("PEI", and collectively
with Pledgor, "Borrowers"), Agent and certain other financial institutions
signatory thereto ("Lenders") are currently entering into that certain Loan and
Security Agreement, of even date herewith (as amended, supplemented, or
otherwise modified from time to time, the "Loan and Security Agreement");
WHEREAS, Pledgor is the record and beneficial owner of certain
securities identified on Schedule A attached hereto issued by each corporation
listed on such Schedule (each a "Corporation"), which Pledgor is willing to
pledge to Agent for the ratable benefit of Lenders as further security for
Pledgor 's obligations under the Loan and Security Agreement and the other Loan
Documents;
WHEREAS, pursuant to the terms of the Loan Agreement, Pledgor
and Agent are entering into this Agreement as additional security for the
Obligations.
NOW, THEREFORE, in consideration of the mutual promises,
covenants, conditions, representations, and warranties hereinafter set forth,
and for other good and valuable consideration, the parties hereto agree as
follows:
A G R E E M E N T
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. All initially capitalized terms used but not
defined in this Agreement shall have the meanings set forth in the Loan and
Security Agreement. In addition, the following terms shall have the following
meanings:
"Agreement" means this Security Agreement--Stock
Pledge, any concurrent or subsequent exhibits or schedules hereto, and any
extensions, supplements, amendments, or modifications to or in connection with
this Security Agreement--Stock Pledge, or to any such schedules or exhibits.
"Bankruptcy Code" means the Bankruptcy Reform Act of
1978 (11 U.S.C.
Sections 101-1330), as amended or supplemented from time to time, and any
successor statute, and any and all rules issued or promulgated in connection
therewith.
<PAGE>
"Code" means the California Uniform Commercial Code,
as amended and supplemented from time to time, any successor statute.
"Collateral" means all of the following:
(a) 100% of the presently existing and hereafter
arising issued and outstanding shares of capital stock of each of the
Corporations owned by Pledgor and listed on Schedule A (collectively, the
"Shares") and the certificates representing the Shares;
(b) 100% of Pledgor's presently existing and
hereafter arising stock subscription warrants, stock options, or other rights to
purchase capital stock and all rights represented thereby of each Corporation
(collectively, the "Options"); and
(c) The proceeds of all of the foregoing,
including, without limitation, any and all dividends, cash, instruments, and
other property from time to time received, receivable, or otherwise distributed
in respect of or in exchange for any of the Shares or the Options (collectively,
the "Proceeds").
"Event of Default" means an Event of Default under
the Loan and Security
Agreement.
"Obligations" means all Obligations under the Loan
and Security Agreement and all of the present and future obligations of Pledgor
hereunder.
"'33 Act" means the Securities Act of 1933, as
amended and supplemented from time to time, and any successor statute, and any
and all rules promulgated in connection therewith.
1.2 Construction. Unless the context of this Agreement clearly
requires otherwise: (a) references to the plural include the singular and
references to the singular include the plural; (b) references to any gender
include the other gender; (c) the terms "include" and "including" are not
limiting; and (d) the term "or" has the inclusive meaning represented by the
phrase "and/or." The terms "hereof," "herein," "hereby," and "hereunder," and
other similar terms in this Agreement, refer to this Agreement as a whole and
not to any particular provision of this Agreement. References in this Agreement
to any "determination," or any matter being "determined," by Agent or any Lender
include good faith estimates (in the case of quantitative determinations), and
good faith beliefs (in the case of qualitative determinations) by Agent or such
Lender and mean that any such determination so made shall be conclusive absent
manifest error. Unless otherwise specified, section and subsection references
are to this Agreement. Any reference to any statute, law, or regulation shall
include all amendments thereto and revisions thereof. Any reference herein to
any of the Loan Documents includes any and all alterations, amendments,
extensions, modifications, renewals, or supplements thereto or thereof, as
applicable.
2. PLEDGE.
<PAGE>
As security for the prompt and complete payment and
performance of the Obligations, Pledgor hereby delivers, pledges, and grants to
Agent for the ratable benefit of Lenders a continuing security interest in all
of Pledgor's now-owned or hereafter-acquired right, title, and interest in and
to the Collateral.
3. DELIVERY OF COLLATERAL; FURTHER ASSURANCES.
3.1 Delivery. All certificates or instruments representing or
evidencing the Collateral shall be delivered to and held by Agent on behalf of
the Lenders pursuant hereto and shall be in suitable form for transfer by
delivery and shall be accompanied by all necessary instruments of transfer or
assignment, duly executed in blank and undated, all in form and substance
satisfactory to Agent.
3.2 Uncertificated Securities. In the event that the
securities that comprise the Collateral are uncertificated or in book entry
form, then Pledgor shall (a) take such actions as may be required to cause each
Corporation (i) to reflect Agent as the registered owner of such Collateral and
(ii) to otherwise take such actions as the Agent may require for the Agent's
security interest therein to be perfected by giving the Agent "control" of the
Shares pursuant to Section 8106 of the UCC and (b) upon request of Agent,
provide Agent with an opinion of counsel reasonably satisfactory to the Agent,
to the effect that Agent has a perfected security interest in the Collateral and
such other opinions as Agent may reasonably require, in form and substance
reasonably satisfactory to Agent.
3.3 Registration. Agent shall have the right, at any time
after an Event of Default shall have occurred and be continuing, to transfer to
or to register in the name of Agent or any of its nominees any or all of the
Collateral, subject only to the revocable rights specified in Section 5.1.
3.4 Further Assurances. Pledgor agrees that it will cooperate
with Agent, upon request of Agent, and shall execute and deliver, or cause to be
executed and delivered, to Agent, all stock powers, proxies, applications,
agreements, assignments, financing statements, instruments, and other documents,
and shall take all further action, at the expense of Pledgor, from time to time
reasonably requested by Agent, in order to maintain a continuing,
first-priority, perfected security interest in the Collateral in favor of Agent,
and to enable Agent to exercise and enforce its rights and remedies hereunder
with respect to the Collateral, and Pledgor agrees that it shall execute and
deliver to Agent at Agent's request any further applications, agreements,
documents and instruments, and shall perform any and all acts deemed necessary
by Agent, to carry into effect the terms, conditions, and provisions of this
Agreement and the transactions connected herewith.
4. AGENT'S DUTIES.
The powers conferred on the Agent hereunder are solely to
protect the interest of Agent and Lenders in the Collateral and shall not impose
any duty upon Agent to exercise any such powers. Agent shall not have any duties
with respect to the Collateral other than the duty to use reasonable care if the
Collateral is in its possession and to account for moneys actually received by
it hereunder. In accordance with Section 9207 of the Code, Agent shall be deemed
to have used
<PAGE>
reasonable care if it observes substantially the same standard of care with
respect to the custody or preservation of the Collateral as it observes with
respect to similar assets owned by Agent. Without limiting the generality of the
foregoing, Agent shall be under no obligation to take any steps to preserve
rights in the Collateral against any other parties, to sell the same if it
threatens to decline in value, or to ascertain or to exercise any rights
represented thereby (including rights with respect to calls, conversions,
exchanges, maturities, or tenders); provided, however, that Agent may, at its
option, do so, and any and all expenses incurred in connection therewith shall
be for the account of Pledgor.
5. VOTING RIGHTS; DIVIDENDS; ETC.
During the term of this Agreement, and as long as no Event of
Default has occurred and is continuing:
5.1 Voting Rights. Pledgor shall be entitled to exercise any
and all voting and other consensual rights pertaining to any of the Shares or
any part thereof for any purpose not inconsistent with the terms of this
Agreement; provided, however, no vote shall be cast or any consent, waiver or
ratification given or any action taken which would violate or be inconsistent
with the terms of this Agreement, the Loan Agreement or any other instrument or
agreement referred to therein or herein, or which could have the effect of
impairing the value of the Collateral or any part thereof or the position or
interest of Agent therein.
5.2 Dividends. Pledgor shall be entitled to receive and retain
any and all dividends and distributions paid in respect of the Shares (but only
to the extent that such distribution is permitted under the Loan and Security
Agreement); provided, however, that any and all:
(a) dividends and distributions paid or payable
other than in cash in respect of, and any and all additional shares or
instruments and other property received, receivable, or otherwise distributed in
respect of, or in exchange for, any Shares;
(b) dividends and distributions paid or payable
in cash in respect of any Shares in connection with a partial or total
liquidation or dissolution, merger, consolidation or reorganization of any
Corporation; and
(c) cash paid with respect to, payable, or
otherwise distributed on redemption of, or in exchange for, any Shares, shall be
forthwith delivered to Agent to hold as Collateral and shall, if received by
Pledgor, be received in trust for the benefit of the Agent and Lenders, be
segregated from the other property or funds of Pledgor, and be forthwith
delivered to Agent as Collateral in the same form as so received (with any
necessary endorsement), and, if deemed appropriate by Agent, Pledgor shall take
such actions, including the actions described in Section 2, as Agent may
require.
5.3 Proxy Statements. Agent shall execute and deliver
(or cause to be executed and delivered) to Pledgor all such proxies and other
instruments as Pledgor may reasonably request for the purposes of enabling
Pledgor to exercise those voting and other rights that Pledgor is entitled
<PAGE>
to exercise pursuant to Section 5.1 above and to receive those dividends or
distributions that Pledgor is authorized to receive and retain pursuant to
Section 5.2.
5.4 Event of Default. If an Event of Default shall have
occurred and be continuing: (i) all rights of Pledgor to exercise the voting and
other consensual rights that it would otherwise be entitled to exercise pursuant
to Section 5.1 and to receive the dividends and distributions that they would
otherwise be autho-rized to receive and retain pursuant to Section 5.2 shall, at
Agent's option, cease, and all such rights shall, at Agent's option, thereupon
become vested in Agent for the ratable benefit of Lenders, so long as an Event
of Default shall continue, and Agent shall, at its option, thereupon have the
sole right to exercise such voting and other consensual rights and to receive
and hold as Collateral such dividends and interest payments, (ii) any payments
received Pledgor contrary to the provisions of this Section 5.4 shall be held in
trust by Pledgor for the benefit of Agent and Lenders, shall be segregated from
other funds of Pledgor, and shall be promptly paid over to Agent in the same
form as so received (with any necessary endorsement), and (iii) Agent shall have
the right, pursuant to the terms of this Section 5.4, to vote all or any part of
the Shares (whether or not transferred into the name of the Lender), and give
all consents, waivers and ratifications in respect of the Collateral and
otherwise act with respect thereto as though it were the outright owner thereof.
PLEDGOR HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS AGENT THE PROXY AND
ATTORNEY-IN-FACT OF PLEDGOR, COUPLED WITH AN INTEREST, WITH FULL POWER OF
SUBSTITUTION TO DO SO; SUCH PROXY SHALL CONTINUE IN FULL FORCE AND EFFECT AND
TERMINATE ONLY UPON THE EARLIER TO OCCUR OF (A) THE INDEFEASIBLE PAYMENT IN FULL
OF THE SECURED OBLIGATIONS, AND (B) 10 YEARS FROM THE DATE HEREOF. AGENT AGREES
NOT TO EXERCISE SUCH PROXY OR TO EXERCISE SUCH POWERS AS ATTORNEY-IN-FACT UNLESS
AT SUCH TIME THERE SHALL BE CONTINUING AN EVENT OF DEFAULT.
6. REPRESENTATIONS, WARRANTIES, AND COVENANTS.
Pledgor warrants, represents, and covenants that:
6.1 Incorporation. Pledgor is a corporation duly
organized, validly existing and in good standing under the laws of Colorado.
6.2 No Conflict. The execution, delivery and performance by
Pledgor of this Agreement are within Pledgor's powers, are not in conflict with
the terms of the Articles of Incorporation or Bylaws or other organizational
agreement or instrument of Pledgor, and will not result in a breach of or
constitute a default under any material contract, obligation, indenture or other
instrument to which Pledgor is a party or by which Pledgor is bound or any
material law, rule, regulation, judgment, decree or order of any court or
governmental authority binding on Pledgor.
6.3 Actions. Pledgor has taken all corporate action necessary
to authorize the execution and delivery of this Agreement, and the consummation
of the transactions contemplated hereby. Upon its execution and delivery in
accordance with the terms hereof, this Agreement will constitute legal, valid,
and binding obligations of Pledgor, enforceable against Pledgor in accordance
<PAGE>
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, and similar laws and equitable principles affecting the enforcement
of creditors' rights generally.
6.4 Ownership of Collateral. Pledgor is the sole legal and
beneficial owner of the Collateral and has the right to pledge and grant a
security interest in or otherwise transfer such Collateral free of any
encumbrances or rights of third parties.
6.5 Liens and Encumbrances. All of the Collateral is and shall
remain free from all liens, claims, encumbrances, and purchase-money or other
security interests except for the security interest created by this Agreement.
Pledgor shall not, without Agent's prior written consent, sell, assign (by
operation of law or otherwise), or otherwise dispose of any of the Collateral.
6.6 Perfection. The execution and delivery of this Agreement,
and the delivery to Agent of the Shares, creates a valid, perfected, and
first-priority security interest in the Collateral in favor of Agent on behalf
Lenders, and, after such delivery, all actions necessary to such perfection will
have been duly taken.
6.7 Governmental Authority. No authorization, consent,
approval or other action by, and no notice to or filing with, any governmental
authority or regula-tory body is required: (a) for the grant by Pledgor of the
security interest granted hereby or for the execution, delivery, or performance
of this Agreement by Pledgor; (b) for the perfection of or exercise by Agent of
its rights and remedies hereunder (except as may have been taken by or at the
direction of Pledgor or as may be required in connection with a disposition of
the Collateral by laws affecting the offering and sale of securities generally);
or (c) for the exercise by Agent of the voting or other rights provided for in
this Agreement or the remedies in respect of the Collateral pursuant to this
Agreement (except as may be required in connection with a disposition of the
Collateral by laws affecting the offering and sale of securities generally). The
pledge of the Collateral pursuant to this Agreement, does not violate
Regulations T, U, or X of the Board of Governors of the Federal Reserve System.
6.8 Outstanding Shares. Each Corporation presently has
issued and outstanding the number of shares of capital stock listed on Schedule
A hereto, of which Pledgor owns the percentages thereof listed on such Schedule;
6.9 Options. There are no presently existing Options. Except
as set forth on Schedule B there are no presently existing stock subscription
warrants, stock options, or other rights to purchase any Corporation's capital
stock, in favor of any party including the Pledgor; and the options described on
Schedule B may not be exercised during the term of this Agreement.
6.10 Shares Validly Issued. All of the issued and
outstanding Shares have been duly and validly issued by the respective
Corporations, and they are fully paid and nonassessable.
6.11 Potential Changes Affecting Collateral. Pledgor has made
their own arrangements for keeping informed of changes or potential changes
affecting the Collateral (including, but not limited to, rights to convert,
rights to subscribe, payment of dividends, reorganization or other exchanges,
tender offers, and voting rights), and Pledgor agrees that
<PAGE>
Agent shall not have any responsibility or liability for informing Pledgor of
any such changes or potential changes or for taking any action or omitting to
take any action with respect thereto.
6.12 Additional Capital Stock. Pledgor will not permit any
Corporation to issue additional capital stock or any Options, warrants, or other
rights to acquire such capital stock without the prior written consent of Agent.
7. SHARE ADJUSTMENTS.
In the event that during the term of this Agreement, any
reclassification, readjustment, or other change is declared or made in the
capital structure of any Corporation, or any Option is exercised, all new
substituted and additional shares, options, or other securities, issued or
issuable to Pledgor by reason of any such change or exercise shall be delivered
to and held by Agent under the terms of this Agreement in the same manner as the
Collateral originally pledged hereunder.
8. OPTIONS.
In the event that during the term of this Agreement, Options
shall be issued or exercised in connection with the Collateral, such Options
acquired by Pledgor shall be immediately assigned by Pledgor to Agent, and all
new shares or other securities so acquired by Pledgor shall also be immediately
assigned to Agent to be held under the terms of this Agreement in the same
manner as the Collateral originally pledged hereunder.
9. CONSENT.
Pledgor hereby consents that, from time to time, before or
after the occurrence or existence of any Event of Default with or without notice
to or assent from Pledgor, any other security at any time held by or available
to Agent for any of the Obligations or any other security at any time held by or
available to Agent of any other person, firm, or corporation secondarily or
otherwise liable for any of the Obligations, may be exchanged, surrendered, or
released and any of the Obligations may be changed, altered, renewed, extended,
continued, surrendered, compromised, waived, or released, in whole or in part,
as Agent may see fit. Pledgor shall remain bound under this Agreement
notwithstanding any such exchange, surrender, release, alteration, renewal,
extension, continuance, compromise, waiver, or inaction, or extension of further
credit.
10. EVENT OF DEFAULT.
The occurrence of an Event of Default under, and as defined
in, the Loan Agreement shall constitute an event of default ("Event of Default")
under this Agreement.
11. REMEDIES UPON DEFAULT.
During the continuance of an Event of Default, Agent shall
have, in addition to any other rights given by law or in this Agreement, in the
Loan and Security Agreement, or in any other Loan Document, all of the rights
and remedies with respect to the Collateral of a secured party under
<PAGE>
the UCC, and also shall have, without limitation, the following rights, which
Pledgor hereby agrees to be commercially reasonable:
11.1 Public or Private Sale. At any time or from time to time,
Agent, for the ratable benefit of Lenders, may sell, assign and deliver, or
grant options to purchase, all or any part of the Collateral, or any interest
therein, at any public or private sale, in one (1) or more sales or lots,
without demand of performance, or advertisement, for cash, on credit, or for
other proper-ty, for immediate or future delivery without any assump-tion of
credit risk, and for such price or prices and on such terms as Agent in its
absolute discretion may deem commercially reasonable. Agent shall not be
obligated to make any such sale of Collateral regardless of whether any such
notice of sale has therefor been given. Pledgor hereby waives any other
requirement of notice, demand, or advertisement for sale, to the extent
permitted by law. Pledgor hereby waives and releases to the fullest extent
permitted by law any right or equity of redemption with respect to the
Collateral, whether before or after sale hereunder, and all rights, if any, of
marshaling the Collateral and any other security for the Obligations or
otherwise. Agent shall not be liable for failure to collect or realize upon any
or all of the Collateral or for any delay in so doing nor shall Agent be under
any obligation to take any action whatsoever with regard thereto.
11.2 Commercially Reasonable. Any sale of the Collateral
conducted in conformity with reasonable commercial practices of financial
institutions disposing of property similar to the Collateral shall be deemed to
be commercially reasonable. Any requirements of reasonable notice shall be met
if such notice is mailed to Pledgor, pursuant to the notice provision in the
Loan and Security Agreement, at least five (5) calendar days before the time of
the sale or disposition. Any other requirement of notice, demand, or
advertisement for sale, is, to the extent permitted by law, waived.
11.3 Purchase by the Lender at Public Sale. Agent may, in its
name, or in the name of a designee or nominee, buy any of the Collateral at any
public sale of the Collateral. Agent shall have the right to execute any
document or form, in its name or in the name of any Borrower, that may be
necessary or desirable in connection with such sale of the Collateral.
11.4 Applicable Securities Laws. Should Agent reasonably
deter-mine that, prior to any public offering of any of the Collateral, such
securities should be regis-tered under the '33 Act and/or registered or
qualified under any other federal or state law, and that such registration
and/or qualification is not practical, Pledgor agrees that it will be
commercially reasonable if a private sale is arranged even though the sales
price estab-lished and/or obtained may be substantially less than the price that
would be obtained pursuant to a public offering. In connection with any such
private sale, Agent may from time to time attempt to sell all or any part of the
Collateral by a private placement, restricting bidders and prospective
purchasers to those who will represent and agree that they are purchasing for
investment only and not for dis-tri-bution. In so doing, Agent may solicit
offers to buy the Collateral, or any part of it for cash, from a limited number
of investors deemed by Agent, in its reasonable judgment, to be responsible
parties who might be interested in purchasing the Collateral. Agent shall be
under no obligation to delay a sale of any of the Collateral for the period of
time necessary to permit the issuer of such securities to register such
securities for public sale under the '33 Act or similar law, or under applicable
state securities laws. Without limiting the
<PAGE>
generality of the foregoing, the provisions of this Section would apply if, for
example, Agent were to place all or any part of the Collateral for private
placement by an investment banking firm, or if such investment banking firm
purchased all or any part of the Collateral for its own account, or if Agent
placed all or any part of the Collateral privately with a purchaser or
purchasers.
12. INDEFEASIBLE PAYMENT
The Obligations shall not be considered indefeasibly paid for
purposes of this Agreement unless and until all payments to Agent for the
ratable benefit of the Lenders are no longer subject to any right on the part of
any Person, including Pledgor, Pledgor as a debtor in possession, or any trustee
(whether appointed under the Bankruptcy Code or otherwise) of Pledgor or any of
Pledgor's Assets, to invalidate or set aside such payments or to seek to recoup
the amount of such payments or any portion thereof, or to declare same to be
fraudulent or preferential. In the event that, for any reason, any portion of
such payments to Agent is set aside or restored, whether voluntarily or
involuntarily, after the making thereof, then the obligation intended to be
satisfied thereby shall be revived and continued in full force and effect as if
said payment or payments had not been made.
13. AGENT AS PLEDGOR'S ATTORNEY-IN-FACT.
Pledgor irrevocably appoints Agent as Pledgor's
attorney-in-fact, with full authority in the place and stead and name of
Pledgor, from time to time at the Agent's discretion, to take any action and to
execute any instrument which the Agent may, in accordance with the provisions of
the Loan Documents or this Agreement, require as necessary or advisable to
accomplish the purposes of this Agreement. Pledgor ratifies and approves all
acts of such attorney. Agent will not be liable for any acts or omissions or for
any error of judgment or mistake of fact or law except to the extent that such
act or omission constituted the gross negligence or wilful misconduct of Agent,
or its officers, directors, employees or agents. This power, being coupled with
an interest, is irrevocable until the commitments under this Agreement and the
Loan and Security Agreement have been terminated, all Letters of Credit have
expired or terminated, and the payment and performance in full of all
non-contingent Obligations. Agent agrees not to exercise such power unless at
such time there shall be continuing an Event of Default, but such limitation
does not limit the effectiveness thereof.
14. GENERAL PROVISIONS.
14.1 Effectiveness of this Agreement. This Agreement
shall be binding and deemed effective when executed by Pledgor and accepted and
executed by Agent.
. The enumeration herein of the Agent's rights and remedies is not intended to
be exclusive, and such rights and remedies are in addition to and not by way of
limitation of any other rights or remedies that Agent may have under the UCC or
other applicable law. Agent shall have the right, in its sole discretion, to
determine which rights and remedies are to be exercised and in which order. The
exercise of one right or remedy shall not preclude the exercise of any others,
all of which shall be cumulative. Agent may, without limitation, proceed
directly against Pledgor to collect the Obligations without any prior recourse
to the Collateral.
<PAGE>
. No act, failure or delay by Agent shall constitute a waiver of any rights and
remedies. No single or partial waiver by Agent of any provision of this
Agreement, the Loan and Security Agreement, or any other Loan Document, or of
breach or default hereunder or thereunder, or of any right or remedy which Agent
may have, shall operate as a waiver of any other provision, breach, default,
right or remedy or of the same provision, breach, default, right or remedy of a
future occasion. No waiver by Agent shall affect its rights to require strict
performance of this Agreement.
. If any provision of this Agreement shall be prohibited or invalid, under
applicable law, it shall be effective only to such extent, without invalidating
the remainder of this Agreement.
. This Agreement shall be deemed to have been made in the State of New York and
shall be governed by and interpreted in accordance with the laws of such state,
except that no doctrine of choice of law shall be used to apply the laws of any
other state or jurisdiction.
. Pledgor agrees that, in addition to any other courts that may have
jurisdiction under applicable laws or rules, any action or proceeding to enforce
or arising out of this Agreement or any of the Loan Documents may be commenced
in New York, and Pledgor consent and submit in advance to such jurisdiction and
agrees that venue will be proper in such courts on any such matter. The choice
of forum set forth in this section shall not be deemed to preclude the
enforcement of any judgment obtained in such forum, or the taking of any action
under this Agreement to enforce the same, in any appropriate jurisdiction.
PLEDGOR HEREBY WAIVE TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT
TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, THE LOAN DOCUMENTS,
THE OBLIGATIONS OR THE COLLATERAL, OR ANY INSTRUMENT OR DOCUMENT DELIVERED
PURSUANT HERETO OR THERETO, OR ANY OTHER CLAIM OR DISPUTE HOWSOEVER ARISING,
BETWEEN PLEDGOR AND AGENT. PLEDGOR CONFIRM THAT THE FOREGOING WAIVER IS INFORMED
AND FREELY MADE.
14.8 [Intentionally Deleted.]
. All of Pledgor's representations and warranties contained in this Agreement
shall survive the execution, delivery and acceptance thereof by the parties,
notwithstanding any investigation by Agent, the Lenders or any of their
respective agents.
. Except as otherwise provided herein, all notices, demands, and requests that
either party is required or elects to give to the other shall be in writing
(including facsimile communication), and shall be delivered pursuant to the
terms of Section 15.8 of the Loan and Security Agreement.
. Unless otherwise expressly provided herein, Pledgor waives presentment,
protest, and notice of demand or dishonor and protest as to any instrument, as
well as any and all other notices to which
<PAGE>
it might otherwise be entitled. No notice to or demand on Pledgor which Agent
may elect to give shall entitle Pledgor to any or further notice or demand in
the same, similar or other circumstances.
. The provisions of this Agreement shall be binding upon and inure to the
benefit of the respective representatives, successors and assigns of the parties
hereto; provided, however, that no interest herein may be assigned by Pledgor
without the prior written consent of Agent. The rights and benefits of Agent
hereunder shall, if Agent so agrees, inure to any party acquiring any interest
in the Obligations or any part thereof.
. This Agreement is intended by Pledgor and Agent to be the final, complete, and
exclusive expression of the agreement between them. This Agreement supersedes
any and all prior oral or written agreements relating to the subject matter
hereof and may not be contradicted by evidence of prior, contemporaneous or
subsequent oral agreements of the parties. There are no oral agreements between
the parties. No modification, rescission, waiver, release or amendment of any
provision of this Agreement shall be made, except by a written agreement signed
by Pledgor and Agent.
14.15 Ambiguities. To the extent permitted by applicable law,
neither this Agreement nor any uncertainty or ambiguity herein shall be
construed or resolved using any presumption against either Pledgor or Agent,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by Pledgor and Agent and their respective counsel.
To the extent permitted by applicable law, in case of any ambiguity or
uncertainty, this Agreement shall be construed and interpreted according to the
ordinary meaning of the words used to accomplish fairly the purposes and
intentions of all parties hereto.
. This Agreement may be executed in any number of counterparts, and by Agent and
Pledgor in separate counterparts, each of which shall be an original, but all of
which shall together constitute one and the same agreement.
. The captions contained in this Agreement are for convenience only, are without
substantive meaning and should not be construed to modify, enlarge or restrict
any provision.
. After termination of all commitments under the Loan and Security Agreement,
the expiration or termination of all Letters of Credit, and the payment and
performance in full of all non-contingent Obligations, Agent shall execute and
deliver to Pledgor a termination of all of the security interests granted by
Pledgor hereunder and, to the extent they have been delivered to Agent and not
disposed of in accordance with this Agreement, certificates evidencing the
Shares.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first written above.
"Agent"
BANK OF AMERICA, N.A.,
as Agent and Lender
By:
Name:
Title:
"Pledgor"
EFTC CORPORATION,
a Colorado corporation
By: /s/ Jack Calderon
Name: Jack Calderon
Title: Chief Executive Officer
<TABLE>
SCHEDULE A
<CAPTION>
Pledgor Issuer Stock Certificate Number of Shares
Number
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EFTC Corporation Current Electronics, Inc. 1 1,000
(certificate is for stock of
"Current Merger Corp.", which
merged with Current
Electronics, Inc.)
EFTC Corporation Circuit Test, Inc. 1 1,000
EFTC Corporation CTLLC Acquisition Corp. 1 1,000
EFTC Corporation RM Electronics, Inc. (doing 1 1,000
business as Personal
Electronics)
</TABLE>
List of Subsidiaries
of
EFTC Corporation
Current Electronics, Inc., an Oregon corporation
Circuit Test, Inc., a Florida corporation
Airhub Service Group, L.C., a Kentucky limited liability company
Circuit Test International, L.C., a Florida limited liability company
CTI Acquisition Corp., a Florida corporation
Personal Electronics, Inc., a New Hampshire corporation
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
The Board of Directors
EFTC Corporation:
We consent to incorporation by reference in the registration statements (Nos.
33-77938, 33-92418, 333- 34255 and 333-47943) on Form S-8 of EFTC Corporation of
our reports dated April 4, 2000, relating to 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,
and the related financial statement schedule, which reports appear in the
December 31, 1999 annual report on Form 10-K of EFTC Corporation.
KPMG LLP
Denver, Colorado
April 13, 2000
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1999
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0
0
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