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As filed with the Securities and Exchange Commission on July 19, 2000
_________________________________________________________
SECURITIES AND EXCHANGE COMMISSION,
Washington, D.C. 20549
___________
SCHEDULE 14D-9
Solicitation/Recommendation Statement
Under Section 14(d)(4)
of the Securities Exchange Act of 1934
___________
EFTC CORPORATION
(Name of Subject Company)
___________
EFTC CORPORATION
(Name of Persons Filing Statement)
Common Stock, par value $0.01 per share
(Title of Class of Securities)
268443 10 8
(CUSIP Number of Class of Securities)
___________
Jack Calderon
Chairman
EFTC Corporation
9351 Grant Street, Sixth Floor
Denver, Colorado 80229
(303) 451-8200
(Name, address and telephone
number of person authorized to
receive notices and communications on
behalf of the persons filing statement)
with a copy to:
Francis R. Wheeler, Esq.
Holme Roberts & Owen LLP
1700 Lincoln, Suite 4100
Denver, Colorado 80203
(303) 861-7000
[_] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
___________
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EFTC Corporation
9351 Grant Street, Sixth Floor
Denver, Colorado 80229
(303) 451-8200
July 19, 2000
To Our Shareholders:
I am pleased to inform you that EFTC Corporation (the "Company") has
entered into an Securities Purchase Agreement, dated as of March 30, 2000 and as
amended as of July 12, 2000 (the "Purchase Agreement"), providing for the
acquisition of securities of the Company by Thayer-BLUM Funding, L.L.C., a
Delaware limited liability company (the "Purchaser"). Pursuant to the Purchase
Agreement, the Purchaser purchased a total of $54.0 million of the Company's 15%
Senior Subordinated Exchangeable Notes due June 30, 2006 (issued on March 30,
2000) (the "March Exchangeable Notes"), $14.0 million of the Company's 15%
Senior Subordinated Exchangeable Notes due June 30, 2006 (issued on July 14,
2000) (the "July Exchangeable Notes" and, together with the March Exchangeable
Notes, the "Exchangeable Notes"), and warrants to purchase 3,093,154 shares of
the Company's common stock at an exercise price of $0.01 per share. In
addition, the Purchaser designated two directors for election to the Company's
Board of Directors.
The Purchaser has commenced a tender offer (the "Offer") to purchase up to
5,625,000 shares of the Company's currently outstanding common stock and rights
at a cash price of $4.00 per share. If at least 500,000 shares are tendered in
the Offer and the Company's shareholders approve the issuance of the Company's
8.875% Senior Subordinated Convertible Notes (the "Convertible Notes") and
Series B Convertible Preferred Stock (the "Convertible Preferred Stock"), the
warrants will never become exercisable and will be canceled, the March
Exchangeable Notes will automatically be replaced with the Convertible Notes and
the July Exchangeable Notes will automatically be replaced with the Convertible
Preferred Stock. In addition, the Purchaser will have the right to designate a
majority of the members of the Company's Board of Directors.
Your Board of Directors has unanimously approved the Offer and the
transactions contemplated by the Purchase Agreement and, based in part on the
opinion of its financial advisor, Needham & Company, Inc., has determined that
the Offer and the transactions contemplated by the Purchase Agreement, when
taken together, are fair to, and in the best interests of, the Company and its
shareholders from a financial point of view, and unanimously recommends that
shareholders accept the Offer and tender their shares of common stock pursuant
to the Offer.
Directors, executive officers and other shareholders having the power to
vote an aggregate of 26.5% of the Company's outstanding common stock have
entered into voting agreements pursuant to which they have agreed to vote to
approve the transactions contemplated by the Purchase Agreement, including the
issuance of the Convertible Notes and the Convertible Preferred Stock.
Purchaser's Offer to Purchase and related materials, including a Letter of
Transmittal to be used for tendering your shares, are enclosed with this letter.
These documents set forth in detail the terms and conditions of the Offer and
the Purchase Agreement and provide instructions on how to tender your shares. I
urge you to read the enclosed materials carefully.
Attached to this letter is a copy of the Company's
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Recommendation")
filed with the Securities and Exchange Commission, which includes information
regarding the factors considered by the Board of Directors in its deliberations,
and certain other information regarding the Offer and the Purchase Agreement.
Included as Exhibit 10 to the Recommendation is a copy of the written opinions
of Needham & Company, Inc. to the effect that, as of such date and based upon
and subject to certain matters stated therein, the Offer and the transactions
contemplated by the Purchase Agreement, when taken together, are fair to the
Company and its shareholders (other than the Purchaser and its affiliates), from
a financial point of view. You are urged to read such opinions carefully in
their entirety.
On behalf of the Board of Directors, I thank you for your continued
support.
/s/ Jack Calderon
Jack Calderon
Chairman
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Item 1. Subject Company Information
The name of the subject company and filer is EFTC Corporation, a Colorado
corporation (the "Company"), and the address of the principal executive offices
of the Company is 9351 Grant Street, Sixth Floor, Denver, Colorado 80229. The
telephone number of the principal executive offices of the Company is (303) 451-
8200. The Company has announced that it intends to relocate its principal
executive offices to Phoenix, Arizona by the end of 2000.
The title of the class of equity securities to which this statement relates
is the common stock, par value $0.01 per share, of the Company (the "Common
Stock"). As of July 17, 2000, there were 15,543,489 shares of Common Stock
outstanding.
Item 2. Identity and Background of the Filing Person
This Statement relates to the tender offer by Thayer-BLUM Funding, L.L.C.,
a Delaware limited liability company ("Purchaser"), disclosed in a Tender Offer
Statement on Schedule TO (the "Schedule TO"), dated July 19, 2000 and filed with
the Securities and Exchange Commission (the "Commission"), to purchase up to
5,625,000 but not less than 500,000 of the outstanding shares of Common Stock at
a price of $4.00 per share (the "Offer Price"), net to the seller in cash, upon
the terms and subject to the conditions set forth in the Offer to Purchase dated
July 19, 2000 (the "Offer to Purchase") and in the related Letter of Transmittal
(the "Letter of Transmittal") (which, together with any amendments and
supplements thereto, collectively constitute the "Offer") included in the
Schedule TO.
The Offer is being made pursuant to a Securities Purchase Agreement, dated
as of March 30, 2000, as amended on July 12, 2000 (the "Purchase Agreement"),
between Purchaser and the Company. On March 30, 2000, the Company completed the
first stage of a recapitalization transaction with Purchaser pursuant to the
Purchase Agreement. This first stage involved:
. the purchase of a total of $54.0 million in Senior Subordinated
Exchangeable Notes with a maturity date of June 30, 2006 and an
initial interest rate of 15% accruing quarterly, or at the Company's
option, payable in additional Exchangeable Notes (the "March
Exchangeable Notes");
. the issuance of Warrants to purchase 3,093,154 shares of the Common
Stock at an exercise price of $.01 per share; and
. the election of two persons designated by Purchaser to the Company's
board of directors.
On July 14, 2000, Purchaser purchased $14.0 million in Senior Subordinated
Exchangeable Notes with a maturity date of June 30, 2006 and an initial interest
rate of 15% accruing quarterly, or at the Company's option, payable in
additional Exchangeable Notes (the "July Exchangeable Notes" and, together with
the March Exchangeable Notes, the "Exchangeable Notes"), substantially in the
form of the Company's currently outstanding March Exchangeable Notes held by
Purchaser.
If issuance of the Convertible Notes and the Convertible Preferred Stock
(as described below) is approved at the special meeting of shareholders (the
"Special Meeting") and the Offer is consummated with respect to at least 500,000
shares of Common Stock (a "Successful Tender Offer"):
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. the March Exchangeable Notes will automatically be replaced with
Senior Subordinated Convertible Notes with a maturity date of June 30,
2006 and an interest rate of 8.875% compounding quarterly, or at the
Company's option, payable in additional Convertible Notes and which
are convertible at a rate of $2.58 per share;
. the July Exchangeable Notes will automatically be replaced with
Company's Convertible Preferred Stock having a liquidation preference
equal to the aggregate principal amount of the July Exchangeable
Notes, plus accrued interest, and convertible into Common Stock at
$1.80 per share;
. Purchaser will have the right to designate a majority of the members
of the Company's board of directors; and
. the Warrants will never become exercisable and will be canceled.
If issuance of the Convertible Notes and the Convertible Preferred Stock is
not approved at the Special Meeting or if the Offer is not consummated with
respect to at least 500,000 shares of Common Stock:
. the Warrants will become exercisable and will remain exercisable until
June 30, 2010; and
. the Exchangeable Notes will remain in place and the interest rate will
increase to 20%, compounding quarterly, or at the Company's option,
payable in additional Exchangeable Notes.
The address of the principal executive office of Purchaser is 1455
Pennsylvania Avenue, N.W., Suite 350; Washington, D.C. 20004. All information
contained in this Statement or incorporated herein by reference concerning
Purchaser or its affiliates, or actions or events with respect to any of them,
was provided by Purchaser, and the Company assumes no responsibility therefor.
Item 3. Past Contacts, Transactions, Negotiations and Agreements
Certain contracts, agreements, arrangements or understandings and any
actual or potential conflicts of interest between the Company or its affiliates
and the Company's executive officers, directors or affiliates are described in
the proxy statement for the Special Meeting under the captions "Executive
Compensation Information" and "Compensation of Directors."
Certain contracts, agreements, arrangements or understandings and any
actual or potential conflicts of interest between the Company or its affiliates
and Purchaser or its executive officers, directors or affiliates are described
below. For a description of the background of the transaction and recent
contacts between Purchaser and the Company, see Item 4 below.
The Purchase Agreement
The summary of the Purchase Agreement set forth below is qualified in its
entirety by reference to the Purchase Agreement incorporated herein by
reference.
General. The Purchase Agreement sets forth the terms and conditions under
which the Company sold and Purchaser bought $54.0 million in aggregate principal
amount of the March Exchangeable Notes,
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$14.0 million in aggregate principal amount of the July Exchangeable Notes, plus
Warrants to purchase 3,093,154 shares of the Common Stock at an exercise price
of $.01 per share representing approximately 19.9% of the Company's currently
outstanding Common Stock.
Representations and Warranties. The Purchase Agreement contains various
customary representations and warranties of the Company and Purchaser, including
representations and warranties with respect to the parties' due organization,
good standing, authority, requisite power and absence of any conflicts with
respect to the transactions contemplated by the Purchase Agreement. The
Purchase Agreement also contains representations and warranties of the Company
as to the following:
. the Company's capitalization;
. the Company's subsidiaries;
. the absence of material litigation;
. SEC reports and financial statements;
. title and condition of assets;
. absence of contractual defaults;
. no material adverse change in the condition of the Company;
. absence of unfair labor practices;
. absence of strikes or other labor disputes;
. employee benefit plans;
. existing debt;
. absence of undisclosed liabilities;
. solvency;
. compliance with law;
. environmental matters;
. absence of any improper contribution, gift or bribe, including
compliance with the Foreign Corrupt Practices Act; and
. absence of certain changes in the Company's business since December
31, 1999 and May 31, 2000.
Covenants. In addition to the preparation and distribution of the proxy
statement related to the Special Meeting, the Purchase Agreement contains
certain other agreements between the Company and Purchaser. The Company has
agreed that it will notify Purchaser of any unsolicited requests, and will not
initiate any discussions, related to any merger, the sale of material assets of
the Company, sale of the Company's voting stock having greater than 15% of the
aggregate voting power of the Company's capital
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stock or any other transaction involving the transfer of effective control of
the Company or any of its divisions.
The Company has also agreed that, during the period from March 30, 2000 to
the closing of the Offer, other than as permitted or required by the Purchase
Agreement, it will conduct its business and preserve its business relationships
in accordance with past practice, it will not amend its Articles of
Incorporation or Bylaws except to increase the number of authorized shares as
contemplated by the Purchase Agreement and to create the Convertible Preferred
Stock, it will not issue, pledge or sell shares of its capital stock except in
connection with the 2000 Equity Stock Option Plan or in the ordinary course of
business, it will not pay dividends, it will not adopt or amend any employee
benefit plans, it will not incur any indebtedness other than in the ordinary
course of business, it will not enter into certain material contracts or
encumber or dispose of any material assets, it may not obtain equity financing
in excess of $1 million without the prior written consent of Purchaser, and it
will consult with Purchaser regarding any significant labor relations or
employment issues. The Company has committed to entering into agreements with
consultants and advisors approved by Purchaser to facilitate and accelerate the
Company's business plans with regard to its manufacturing, hiring and purchasing
initiatives. The Company is required to have spent or be committed to spend at
least $1.5 million, and shall reserve for expense an additional $1.8 million,
pursuant to these agreements. The Company also has agreed to pay all
transaction expenses incurred by Purchaser and its members in connection with
the recapitalization transaction with the Company, which are currently estimated
to exceed $3 million.
Purchaser has agreed that it does not intend for the Offer to result in the
delisting of the Common Stock. It has also agreed that it will take no
affirmative action to delist the Common Stock from the Nasdaq Stock Market. The
Company and Purchaser have each agreed, through September 30, 2010, to use
commercially reasonable efforts to comply with the non-quantitative designation
criteria applicable to Nasdaq National Market issuers and to comply with any
applicable minimum per share bid price by effecting a reverse stock split, if
necessary. In addition, the Company has agreed to use commercially reasonable
efforts to list its Common Stock on the Nasdaq Small Cap Market if the Common
Stock is either de-listed, or is in the process of being de-listed, from the
Nasdaq National Market.
Purchaser has agreed that it will take no action prior to December 31, 2001
to cause the Company to be the subject of a Rule 13e-3 transaction (a "going
private" transaction as defined in Rule 13e-3 adopted under the Exchange Act)
with an affiliate of Purchaser unless approved by a majority of disinterested
directors.
Termination. The Purchase Agreement will terminate if the Offer is
consummated with respect to at least 500,000 shares of Common Stock, with
certain covenants surviving such termination, unless earlier terminated as
follows:
. by mutual consent of Purchaser and the Company;
. by court order;
. by either party if the Offer is not consummated by September 30, 2000;
. by Purchaser if the Company's board of directors has withdrawn its
recommendation or approval of the transactions contemplated by the
Purchase Agreement;
. by Purchaser if the shareholders fail to approve the issuance of the
Convertible Notes and Convertible Preferred Stock;
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. by Purchaser if any third party acquires more than 30% of the
outstanding Common Stock;
. by the Company if the Company receives an acquisition proposal for the
Company that the board of directors has determined in good faith is
superior to the proposal of Purchaser; or
. by either party if the Federal Trade Commission or Department of
Justice has commenced or officially recommended commencement of an
action for an order prohibiting consummation of the Offer.
If the termination results from the Company's board of directors either
withdrawing its approval or receiving a superior proposal, the Company must pay
a breakup fee of $1.5 million to Purchaser and reimburse all of Purchaser's out
of pocket costs and expenses up to an additional $1.5 million (net of any
expenses paid previously by the Company). In the event of any other termination
of the Purchase Agreement, no party shall have any further liability or
obligation other than liability for breach.
Conditions to the Offer. Purchaser shall not be required to accept or pay
for any shares tendered in the Offer, and may terminate or amend the Offer as to
any shares not then paid for, if (i) as of the expiration date of the Offer (A)
any applicable waiting period under the Hart-Scott Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act") has not expired or terminated or (B)
500,000 shares of Common Stock have not been validly tendered or (ii) at any
time after March 30, 2000 and before the time of acceptance for payment for any
shares tendered any of the following events occurs and is continuing, unless
Purchaser has consented otherwise:
. a governmental entity shall have threatened, or there shall be
pending, any action against Purchaser, the Company or any of the
Company's subsidiaries, or any statute, rule, regulation, judgment,
order or injunction shall be applicable
. seeking to prohibit or impose any material limitations on, or
require the sale or disposal of, a material portion of the
Company's business or assets, or
. challenging the Offer, including the ability of Purchaser to pay
for or exercise full rights of ownership of tendered shares;
. a general banking moratorium or other general material limitation on
banking in the United States;
. a general suspension of trading in the securities markets;
. a declaration of war or other international or national calamity
involving the United States;
. the Company's board of directors has withdrawn or modified adversely
its support of the Offer, or approved or entered into any proposal for
acquisition of the Company's assets or capital stock;
. all required consents have not been obtained;
. the Purchase Agreement is terminated;
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. either the required members of the board of directors have not
tendered their resignations to be effective upon the closing of a
Successful Tender Offer or the size of the Board has not been
increased so that Purchaser is not able to designate a majority of the
board of directors;
. Honeywell, Inc. Commercial Aviation Systems ("Honeywell") shall have
given a written notice to the Company of default and right to cure
under Section 16.1 of the Long Term Supply Agreement between Honeywell
and the Company, which notice has not been withdrawn by Honeywell; and
Honeywell shall have terminated the Long Term Supply Agreement;
. the making of any restricted payment prohibited by Section 7(e) of the
Exchangeable Notes;
. the incurrence of indebtedness in excess of that permitted by Section
7(i) of the Exchangeable Notes;
. the recapitalization (other than as expressly contemplated by the
recapitalization transaction between the Company and Purchaser),
merger or consolidation of the Company;
. the authorization or issuance of securities other than (a) in
settlement of the securities litigation as currently agreed, (b)
pursuant to currently outstanding options or warrants, (c) stock
options granted to employees (other than executive officers) in the
ordinary course of business and (d) as otherwise expressly
contemplated by the recapitalization transaction;
. the amendment of the Company's articles of incorporation or bylaws
(other than as expressly contemplated by the Purchase Agreement);
. the acquisition or disposition of a material line of business or
facility, or the formation of a material joint venture;
. the making of any material change in the compensation arrangements or
employee benefit plans applicable to the Company's executive officers
or the making of any material change to the compensation arrangements
applicable to the Company's other employees except as made in the
ordinary course of business (other than as expressly contemplated by
the Purchase Agreement);
. the making of capital expenditures in fiscal year 2000 that exceed by
10% (i) $2,684,000 in the second fiscal quarter, (ii) $6,417,000 in
the third fiscal quarter or (iii) $3,432,000 in the fourth fiscal
quarter;
. the hiring or firing of any executive officer (other than as expressly
contemplated by the Purchase Agreement);
. the making of any material amendment to either supply agreement
between the Company and Honeywell (other than as currently being
negotiated for lifetime buy inventory); or
. any agreement to do any of the foregoing.
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These conditions are for the sole benefit of Purchaser and may be asserted
by Purchaser regardless of the circumstances giving rise to such conditions.
Exchangeable Notes
The summary of the Exchangeable Notes set forth below is qualified in its
entirety by reference to the form of Exchangeable Note incorporated herein by
reference.
Under the March Exchangeable Notes, the Company promises to pay to
Purchaser, on June 30, 2006, the principal amount of $54.0 million, plus
interest on the unpaid principal balance at the rate of 15.0% per annum,
compounded quarterly. Interest accruing on the March Exchangeable Notes is
added to the principal amount of the notes on the date so due, or, at the
Company's option, it may issue additional March Exchangeable Notes for the
amount of unpaid accrued interest. Upon shareholder approval of the issuance of
the Convertible Notes and Convertible Preferred Stock and consummation of a
Successful Tender Offer, the March Exchangeable Notes shall automatically be
exchanged for and replaced by 8.875% Senior Subordinated Convertible Notes due
June 30, 2006, in an aggregate principal amount equal to the amount outstanding
under the March Exchangeable Notes, plus accrued but unpaid interest.
Under the July Exchangeable Notes, the Company promises to pay to
Purchaser, on June 30, 2006, the principal amount of $14.0 million, plus
interest on the unpaid principal balance at the rate of 15.0% per annum,
compounded quarterly. Interest accruing on the July Exchangeable Notes is added
to the principal amount of the notes on the date so due, or, at the Company's
option, it may issue additional July Exchangeable Notes for the amount of unpaid
accrued interest. Upon shareholder approval of the issuance of the Convertible
Notes and Convertible Preferred Stock and consummation of a Successful Tender
Offer, the July Exchangeable Notes shall automatically be exchanged for and
replaced by Convertible Preferred Stock convertible into the Common Stock at a
price of $1.80 per share of Common Stock. The aggregate liquidation preference
of the Convertible Preferred Stock will be equal to the aggregate amount then
outstanding under the July Exchangeable Notes, plus accrued interest.
If the shareholders do not approve the issuance of the Convertible Notes
and Convertible Preferred Stock by September 30, 2000, then (i) interest on all
unpaid amounts under the Exchangeable Notes from and after such date shall be
payable at the rate of 20% per annum, and (ii) the Company may redeem the
Exchangeable Notes, in whole or in part, by paying a redemption price equal to
108% of the principal amount redeemed, plus accrued and unpaid interest to the
redemption date. If the Company chooses to repurchase the Warrants, it may
redeem the Exchangeable Notes, in whole, at a redemption price equal to 100% of
the principal amount outstanding, plus accrued and unpaid interest to the
redemption date.
Upon a Change of Control or a Financing Redemption Event, the Company will
be obligated to redeem the Exchangeable Notes, at the option of the holders of a
majority in principal amount of the Exchangeable Notes, in whole or in part, at
a redemption price equal to 100% of the principal amount redeemed, plus accrued
and unpaid interest to the redemption date. A "Change of Control" under the
Exchangeable Notes will occur when (i) any person becomes a beneficial owner of
33% or more of the outstanding shares of the Common Stock or has the ability to
cause 25% or more of the Company's board of directors to be composed of its
nominees, (ii) Jeffrey Goettman, John Walker and any other directors elected or
appointed to the Company's board of directors pursuant to the terms of the
Exchangeable Notes (as discussed below) cease for any reason to be members of
the board of directors and the holders of the Exchangeable Notes do not have the
ability to designate their replacements or (iii) the Company's shareholders
approve, or there is consummated without shareholder approval, (A) a merger or
consolidation of the Company in which the shareholders of the Company prior to
such transaction hold
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voting securities of the surviving entity representing 50% or less of the total
votes outstanding, (B) a plan of complete liquidation of the Company or (C) an
agreement for the sale of disposition of all or any substantial portion of the
Company's assets or a major division or subsidiary of the Company. A "Financing
Redemption Event" under the Exchangeable Notes will occur when the Company sells
equity securities in one or a series of related transactions, which taken
together, result in a total, aggregate offering price of more than $50.0
million.
The indebtedness evidenced by the Exchangeable Notes is subordinated in
right of payment to the prior payment in full, in cash, of all Senior Debt (as
defined in the Exchangeable Notes). If a default, monetary or otherwise, occurs
with respect to the Senior Debt, no payments or distributions shall be made to
Purchaser with respect to obligations under the Exchangeable Notes. If an event
of default occurs with respect to the Exchangeable Notes, the Company must pay
interest on all unpaid amounts under the Exchangeable Notes (including interest)
at a rate of interest equal to the then current rate of interest plus 2%.
So long as the Exchangeable Notes are outstanding, the Company shall not,
and shall not permit any subsidiary or affiliate to, directly or indirectly,
declare or pay any dividend on any shares of its capital stock or purchase,
redeem or otherwise acquire or retire for value any equity interest of the
Company, or any subsidiary or other affiliate of the Company. Additionally, so
long as the Exchangeable Notes are outstanding, neither the Company nor its
subsidiaries may incur, issue, assume, guarantee or otherwise become liable with
respect to any indebtedness other than the indebtedness represented by the
Exchangeable Notes, the Senior Debt, the Promissory Note, dated March 30, 2000,
payable to the Monfort Family Limited Partnership in the principal amount of
$3.0 million (the "Monfort Note") and other indebtedness in an aggregate
principal amount not exceeding $5.0 million.
As long as the Exchangeable Notes are outstanding, the Company may not
engage in any "Significant Transaction" without the prior written approval of
the holders of a majority in principal amount of the Exchangeable Notes. A
Significant Transaction means (i) one or a series of related transactions in
which the Company obtains debt financing in an aggregate amount in excess of
$1.0 million, (ii) any material acquisition or material disposition, or (iii)
any adoption of, or amendment to, any incentive compensation plan.
The Company has agreed to provide all holders of the Exchangeable Notes any
annual reports and any information, documents or other reports that it is
required to file with the SEC. The Company will also provide holders, on a
quarterly basis, with a certificate of an officer of the Company stating that
the Company is in compliance with its obligations under the Exchangeable Notes.
In addition, the Company must furnish all holders with an officer's certificate
within 90 days after the end of the Company's fiscal year ending in 2002 setting
forth the Company's consolidated net income, plus interest, taxes, losses (or
minus gains) on the sale or disposition of assets outside the ordinary course of
business, depreciation, amortization or other non-cash charges and certain
management fees, or EBITDA, for 2002. As discussed below, it is an event of
default if the Company's EBITDA for 2002 is less than $25.0 million.
The Company and its subsidiaries may not engage in transactions with an
affiliate of the Company, except on terms that are no less favorable to the
Company or the relevant subsidiary than those that could have been obtained in a
transaction with an unrelated person, other than transactions between the
Company and its wholly owned subsidiaries. The holders of at least a majority
in principal amount of the Exchangeable Notes have the right to approve any
transaction between the Company or its subsidiaries and an affiliate of the
Company having a potential value of more than $1.0 million, other than
transactions between the Company and its wholly owned subsidiaries.
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The Company will not, and will not permit any subsidiary, to create any
lien upon the Company's assets or any subsidiary or any shares of capital stock
of any subsidiary. Without the consent of the holders of at least a majority in
principal amount of the Exchangeable Notes, (i) the Company may not dispose of
assets (i) for aggregate net proceeds in any fiscal year exceeding $2.0 million,
other than sales of inventory in the ordinary course of business, or (ii) for
less than fair market value, unless such fair market value is less than $2.0
million and the consideration received is promptly applied to the purchase of
comparable assets. At least 90% of the consideration received by the Company
for any sale of assets must be in the form of cash.
The Company's board of directors must at all times be composed of no more
than 12 directors unless approved by holders of a majority in principal amount
of the Exchangeable Notes. At all times during the term of the Exchangeable
Notes, holders of a majority in principal amount of the Exchangeable Notes will
have the right to designate an aggregate of two persons for election as members
of the Company's board of directors (or up to four upon occurrence of an event
of default).
An event of default under the Exchangeable Notes will occur if:
. the Company defaults in its payment obligations under the Exchangeable
Notes;
. the Company fails to comply in any material respect with its
agreements under the Exchangeable Notes;
. the Company fails to comply in any material respect with its
agreements under the Warrants;
. any of the representations and warranties of the Company made in
connection with the Exchangeable Notes or the Purchase Agreement were
untrue when made in any respect materially adverse to the Company and
its subsidiaries taken as a whole;
. an event of default occurs under any agreement of the Company or any
subsidiary accelerating the payment of indebtedness of $500,000 or
more in the aggregate;
. final judgments for the payment of money in excess of $1.0 million are
entered against the Company or any of its subsidiaries and such
judgments remain undischarged for a period of 30 days;
. the Company or any subsidiary commences a voluntary bankruptcy,
consents to the entry of an order for relief against it in an
involuntary case, consents to the appointment of a bankruptcy
custodian for the Company or for all or substantially all of its
property, makes a general assignment for the benefit of its creditors
or generally is unable to pay its debts as they become due;
. a court enters an order under any bankruptcy law that (i) is for
relief against the Company or any of its subsidiaries in an
involuntary case, (ii) appoints a custodian of the Company or any of
its subsidiaries or for all or substantially all of the Company's
properties or (iii) orders the liquidation of the Company or any of
its subsidiaries, and the order or decree remains unstayed and in
effect for 60 days, or
. the Company does not deliver the officer's certificate setting forth
the Company's EBITDA for 2002 within 90 days of the end of the
Company's fiscal year 2002 or such 2002 EBITDA is less than $25
million.
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If an event of default (other than an event of default than involving
bankruptcy matters or the Company's 2002 EBITDA and the related officer's
certificate) occurs and is continuing, the holders of 20% in principal amount of
the Exchangeable Notes, by notice to the Company, may declare the unpaid
principal of and any accrued interest on the Exchangeable Notes to be
immediately due and payable. If the event of default involves a bankruptcy
matter as discussed above, all such amounts are immediately due and payable
without any declaration or other act on the part of any holder.
If the event of default involves 2002 EBITDA or the delivery of the related
officer's certificate as discussed above, the Company must pay in full the
principal of and accrued interest on the Exchangeable Notes to the holders by no
later than September 30, 2003. If the Company does not make such payment, the
Exchangeable Notes will thereafter be due and payable and in continuing default,
and from and after September 30, 2003 interest will accrue and be payable at 25%
per annum, compounded quarterly.
In addition, if an event of default occurs and is continuing, the Company
will, at the request of the holder of a majority in principal amount of the
Exchangeable Notes, create two vacancies on the Company's board of directors,
fill such vacancies with designees named by the holders, and take such actions
as are necessary to have such newly appointed directors elected to the board of
directors by the Company's shareholders.
Convertible Notes
The summary of the Convertible Notes set forth below is qualified in its
entirety by reference to the form of Convertible Note incorporated herein by
reference.
Under the Senior Subordinated Convertible Notes due June 30, 2006 (the
"Convertible Notes"), the Company promises to pay to Purchaser, on June 30,
2006, the principal amount of $54.0 million, plus interest on the unpaid
principal balance at the rate of 8.875% per annum, compounded quarterly. The
Convertible Notes are being issued in exchange for the March Exchangeable Notes.
Interest on the Convertible Notes will accrue and be added to the principal
amount of the Convertible Notes on the date so due, or, at the Company's option,
it may issue an accrual note for the amount of unpaid accrued interest.
The holders of the Convertible Notes may convert such notes into Common
Stock at any time with the number of shares issuable upon conversion being
determined by dividing the principal amount to be converted by the conversion
price in effect on the conversion date. Subject to certain adjustments, the
initial conversion price shall be $2.58 per share. The Convertible Notes are to
be automatically converted into shares of Common Stock if:
. the Company at the time is maintaining the listing of its Common Stock
on the Nasdaq Stock Market;
. the Company is in full compliance with all covenants under its senior
debt; and
. the average of the high and low sales prices of the common stock is
above $7.50 per share for 45 consecutive trading days or, on or after
March 30, 2003, such average is above $4.25 for 45 consecutive trading
days.
Upon a Change of Control, the Company will be obligated to redeem the
Convertible Notes, at the option of the holder of the Convertible Notes, in
whole or in part, at a redemption price equal to 100% of the principal amount
redeemed, plus accrued and unpaid interest to the redemption date and an amount
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equal to the interest, if any, which would accrue on the Convertible Notes from
the date of redemption to the occurrence of a Change of Control up to and
including March 30, 2003. A "Change of Control" under the Convertible Notes
will occur when (i) any person becomes a beneficial owner of 33% or more of the
outstanding shares of the Common Stock or has the ability to cause 25% or more
of the Company's board of directors to be composed of its nominees, (ii) the
directors elected or appointed to the Company's board of directors by the holder
of the Convertible Notes cease for any reason to constitute at least a majority
of the board of directors and the holders of the Convertible Notes do not have
the ability to designate their replacements or (iii) the Company's shareholders
approve, or there is consummated without shareholder approval, (A) a merger or
consolidation of the Company in which the shareholders of the Company prior to
such transaction hold voting securities of the surviving entity representing 50%
or less of the total votes outstanding, (B) a plan of complete liquidation of
the Company or (C) an agreement for the sale of disposition of all or any
substantial portion of the Company's assets or a major division or subsidiary of
the Company.
The indebtedness evidenced by the Convertible Notes shall be subordinated
in right of payment to the prior payment in full, in cash, of all Senior Debt.
If a default, monetary or otherwise, occurs with respect to the Senior Debt, no
payments or distributions shall be made to the holder with respect to
obligations under the Convertible Notes. If an event of default occurs with
respect to the Convertible Notes, the Company shall pay interest on all unpaid
amounts under the Convertible Notes (including interest) at the default rate of
10.875%.
So long as the Convertible Notes are outstanding, the Company shall not,
and shall not permit any subsidiary or affiliate to, directly or indirectly,
declare or pay any dividend on any shares of its capital stock or purchase,
redeem or otherwise acquire or retire for value any equity interest of the
Company, or any subsidiary or other affiliate of the Company. Additionally, so
long as the Convertible Notes are outstanding, neither the Company nor its
subsidiaries may incur, issue, assume, guarantee or otherwise become liable with
respect to any indebtedness other than the indebtedness represented by the
Convertible Notes, the Senior Debt, the Monfort Note and other indebtedness in
an aggregate principal amount not exceeding $5.0 million.
As long as the Convertible Notes are outstanding, the Company may not
engage in any Significant Transaction without the prior written approval of the
Holders of a majority in principal amount of the Notes.
The Company has agreed to provide all holders of the Convertible Notes with
any annual reports and any information, documents or other reports that it is
required to file with the SEC. The Company will also provide holders, on a
quarterly basis, with a certificate of an officer of the Company stating that
the Company is in compliance with its obligations under the Convertible Notes.
The Company and its subsidiaries may not engage in transactions with an
affiliate of the Company, except on terms that are no less favorable to the
Company or the relevant subsidiary than those that could have been obtained in a
transaction with an unrelated person, other than transactions between the
Company and its wholly owned subsidiaries. The holders of at least a majority
in principal amount of the Convertible Notes have the right to approve any
transaction between the Company or its subsidiaries and an affiliate of the
Company having a potential value of more than $1 million, other than
transactions between the Company and its wholly owned subsidiaries.
The Company will not, and will not permit any subsidiary, to create any
lien upon the Company's assets or any subsidiary or any shares of capital stock
of any subsidiary. Without the consent of the holders of at least a majority in
principal amount of the Convertible Notes, the Company may not dispose of assets
(i) for aggregate net proceeds in any fiscal year exceeding $2.0 million, other
than sales of
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inventory in the ordinary course of business, or (ii) for less than fair market
value, unless such fair market value is less than $2.0 million and the
consideration received is promptly applied to the purchase of comparable assets.
At least 90% of the consideration received by the Company for any sale of assets
must be in the form of cash.
The Company's board of directors must at all times be composed of no more
than 12 directors unless approved by holders of a majority in principal amount
of the Convertible Notes. The holder of the Convertible Notes will have the
right to nominate a number of persons for election as members of the board of
directors of the Company such that the number nominated by the holder will
compose a majority of the total number of directors.
An event of default under the Convertible Notes will occur if:
. the Company defaults in its payment obligations under the Convertible
Notes;
. the Company fails to comply in any material respect with its agreements
under the Convertible Notes;
. any of the representations and warranties of the Company made in
connection with the Convertible Notes or the Purchase Agreement were
untrue when made in any respect materially adverse to the Company and
its subsidiaries taken as a whole;
. an event of default occurs under any agreement of the Company or any
subsidiary accelerating the payment of indebtedness of $500,000 or more;
. final judgments for the payment of money in excess of $1.0 million are
entered against the Company or any of its subsidiaries and such
judgments remain undischarged for a period of 30 days;
. the Company or any subsidiary commences a voluntary bankruptcy, consents
to the entry of an order for relief against it in an involuntary case,
consents to the appointment of a bankruptcy custodian for the Company or
for all or substantially all of its property, makes a general assignment
for the benefit of its creditors or generally is unable to pay its debts
as they become due; or
. a court enters an order under any bankruptcy law that (i) is for relief
against the Company or any of its subsidiaries in an involuntary case,
(ii) appoints a custodian of the Company or any of its subsidiaries or
for all or substantially all of the Company's properties or (iii) orders
the liquidation of the Company or any of its subsidiaries, and the order
or decree remains unstayed and in effect for 60 days.
If an event of default (other than involving bankruptcy matters) occurs and
is continuing, the holders of at least a majority in principal amount of the
Convertible Notes, by notice to the Company, may declare the unpaid principal of
and any accrued interest on the Convertible Notes to be immediately due and
payable. If the event of default involves a bankruptcy matter as discussed
above, all such amounts are immediately due and payable without any declaration
or other act on the part of any holder.
Convertible Preferred Stock
The Company's Series B Convertible Preferred Stock (the "Convertible
Preferred Stock") is being issued in exchange for the July Exchangeable Notes.
The Convertible Preferred Stock will accrue
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dividends at a rate of 8.875% per annum on the per share liquidation preference
of the Convertible Preferred Stock. Dividends on the Convertible Preferred Stock
will be cumulative and will accrue on a daily basis. Accrued dividends will be
payable quarterly in arrears on January 15, April 15, July 15 and October 15 of
each year (each a "Dividend Payment Date"). On each Dividend Payment Date, all
dividends, to the extent not declared and paid during the preceding accrual
period, will be added to the liquidation preference of each share of Convertible
Preferred Stock effective as of such Dividend Payment Date and will remain a
part thereof to and including the date on which such dividend is paid.
In the event of any voluntary or involuntary liquidation, dissolution or
other winding up of the affairs of the Company, before any payment or
distribution is made to the holders of the Subordinate Stock (as defined below),
the holders of the shares of Convertible Preferred Stock will be entitled to be
paid the greater of (i) the per share liquidation preference or (ii) such per
share amount as would have been payable had each such share been converted into
Common Stock immediately prior to such liquidation, dissolution or other winding
up of the affairs of the Company.
The holders of shares of Convertible Preferred Stock may convert such
shares into Common Stock at any time with the number of shares issuable upon
conversion being determined by dividing the liquidation preference by the
conversion price in effect on the conversion date. The initial conversion price
shall be $1.80 per share. The conversion price is subject to adjustment if the
Company (i) pays a dividend or makes a distribution on its common stock or any
other Subordinate Stock in shares of its capital 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
or (iv) issues by reclassification of its common stock any shares of its capital
stock. The shares of Convertible Preferred Stock are to be automatically
converted into shares of Common Stock if:
. the Company at the time is maintaining the listing of its common stock
on the Nasdaq Stock Market;
. the Company is in full compliance with all covenants under its senior
debt and the Convertible Notes; and
. the average of the high and low sales prices of the common stock is
above $7.50 per share for 45 consecutive trading days.
So long as any shares of Convertible Preferred Stock are outstanding, the
Company will not declare, pay or set apart for payment on any Subordinate Stock
any dividends or distributions whatsoever, whether in cash, property or
otherwise, other than dividends payable in kind or payable in shares of Common
Stock with respect to Subordinate Stock other than Common Stock. "Subordinate
Stock" with respect to the Convertible Preferred Stock means all authorized
shares of Common Stock of the Company and any other stock of the Company
authorized after the date on which the Convertible Preferred Stock is issued
which has the right (subject to prior rights of any class or series of preferred
stock) to participate in the distribution of the assets and earnings of the
Company without limit as to per share amount, and any class or series of the
Company's capital stock which is not entitled to receive (i) any dividends
unless all dividends required to have been paid or declared and set apart for
payment on the Convertible Preferred Stock have been so paid or declared and set
apart for payment and (ii) any assets upon liquidation, dissolution or winding
up of the affairs of the Company until the Convertible Preferred Stock has
received the entire amount to which such stock is entitled upon such
liquidation, dissolution or winding up.
The Company has agreed to provide all holders of shares of Convertible
Preferred Stock with any annual reports and any information, documents or other
reports that it is required to file with the SEC. Each share of Convertible
Preferred Stock will have the right to vote on all matters presented to the
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holders of Common Stock for vote, in the number of votes equal at any time to
the number of shares of Common Stock into which each share of Convertible
Preferred Stock would then be convertible, and the holders of the shares of
Convertible Preferred Stock will vote with the holders of the Common Stock as a
single class.
Warrant
The summary of the Warrant set forth below is qualified in its entirety by
reference to the form of Warrant incorporated herein by reference.
The Warrant to Purchase Shares of Common Stock, par value $.01 per share,
entered into on March 30, 2000 and amended on July 12, 2000, between Purchaser
and the Company, sets forth the terms and conditions under which the holder is
entitled to purchase 3,093,154 shares of Common Stock (the "Warrant"). The
Warrant provides that the holder is entitled to purchase up to 3,093,154 shares
of Common Stock at any time during the exercise period, at an exercise price of
$.01 per share, subject to adjustment.
To exercise the Warrant, in whole or in part, the holder must deliver to
the Company (i) a notice of exercise specifying the number of shares to be
purchased and stating the method by which the holder will pay the exercise
price, and (ii) the Warrant. The exercise period shall extend from (a) the
earlier of (i) September 30, 2000 and (ii) the date on which a "Failure to
Approve the Transactions" shall occur, until (b) the earlier of (i) the date on
which a Successful Tender Offer is consummated, or (ii) the close of business on
June 30, 2010. A Failure to Approve the Transactions shall mean that the
holders of the Common Stock do not vote to approve the issuance of the
Convertible Notes and the Convertible Preferred Stock at the Special Meeting.
The exercise price is $.01 per share subject to adjustment for certain events
including:
. the Company's payment of dividends or distributions in shares of Common
Stock, convertible securities or stock purchase rights;
. the Company's subdivision of the outstanding shares of Common Stock into
a larger number of shares of Common Stock;
. the Company's combination of its outstanding shares of Common Stock into
a smaller number of shares of Common Stock;
. the Company's reorganization, reclassification or recapitalization of
its capital stock;
. the Company's consolidation or merger with or into another person; or
. the Company's effecting certain dilutive issuances of Common Stock.
During the period beginning on March 30, 2000 and ending at 5:00 p.m. New
York City time on June 24, 2000 (the "Redemption Exercise Period"), the Company
may, at its option, redeem not less than all of the Warrants for an amount equal
to the "Optional Redemption Price." The Optional Redemption Price means an
amount equal to $5 million during the first 30 days of the Redemption Exercise
Period, plus $250,000 on April 30, 2000, plus, for each successive seven day
period beyond such date, an additional $250,000 accruing on the first day of
such seven day period.
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Other Material Agreements
Voting Agreement. Pursuant to a voting agreement (the "Voting Agreement")
between Purchaser and certain shareholders of the Company having the power to
vote an aggregate of approximately 26.5 % of the outstanding Common Stock, such
shareholders have agreed to vote to approve each of the transactions
contemplated by the Purchase Agreement. The Voting Agreement will terminate
upon the earliest to occur of:
. receipt of shareholder approval for the issuance of the Convertible
Notes;
. the date on which the Company's shareholders shall vote on and fail to
approve such issuance; or
. December 31, 2000.
Registration Rights Agreement. The Company and Purchaser have entered into
a registration rights agreement, dated as of March 30, 2000 and amended as of
July 14, 2000 (the "Registration Rights Agreement"). Pursuant to the
Registration Rights Agreement, Purchaser will have the right to require the
Company to register the shares of Common Stock held by Purchaser (whether
acquired through the exercise of the Warrant, conversion of the Convertible
Notes or Convertible Preferred Stock, or purchase in the Offer or otherwise (the
"Registrable Securities")) under the Securities Act of 1933, as amended (the
"Securities Act"). Purchaser, or a permitted transferee of Registrable
Securities, must request that the registration include at least 1,500,000 shares
of Common Stock. If the Company proposes to register its securities under the
Securities Act, either for its own account or the account of others, Purchaser
will be entitled to notice of such registration and to include its shares in
such registration; no minimum amount must be included in such cases. The
underwriters for any such registration will have the right to limit the number
of such shares included in such registration, subject to certain conditions.
The Company may, for any reason, withdraw or delay such registration prior
to effectiveness of the related registration statement. Purchaser may transfer
its rights under the Registration Rights Agreement to its members. Purchaser
may also transfer Registrable Securities, and the related rights under the
Registration Rights Agreement, to any person in a transaction exempt from the
registration requirement of the Securities Act. Generally, the Company is
required to pay all costs and expenses in connection with its obligations under
the Registration Rights Agreement. The Registration Rights Agreement will
terminate on the earlier of (i) March 30, 2010 or (ii) such time as all
Registrable Securities have been sold pursuant to an effective registration
statement under the Securities Act.
Item 4. The Solicitation or Recommendation
(a) Recommendation.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY APPROVED THE PURCHASE
AGREEMENT AND THE OFFER, AND, BASED IN PART ON THE OPINION OF ITS FINANCIAL
ADVISOR, NEEDHAM & COMPANY, INC., DETERMINED THAT THE TERMS OF THE OFFER AND THE
PURCHASE AGREEMENT, WHEN TAKEN TOGETHER, ARE FAIR TO, AND IN THE BEST INTERESTS
OF, THE COMPANY AND ITS SHAREHOLDERS FROM A FINANCIAL POINT OF VIEW, AND
RECOMMENDED ACCEPTANCE OF THE OFFER AND APPROVAL AND ADOPTION OF CERTAIN TERMS
OF THE PURCHASE AGREEMENT BY THE COMPANY'S SHAREHOLDERS.
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(b) Background; Reasons for the Board's Recommendation.
Background of the Offer
Capital and Liquidity Needs. The Company has had increasing needs for
capital since the fourth quarter of 1998 as a result of increased revenues and
continued operating losses. In March 1999, the Company entered into a long-term
supply agreement with Honeywell International, Inc. While this agreement
resulted in increased revenue to the Company, it also resulted in significantly
increased working capital requirements to finance inventory and receivables.
The Company had executed a commitment letter with Wells Fargo Business Credit,
Inc., to finance these capital requirements; however, Wells Fargo chose not to
proceed with such financing. The Company also incurred significant costs
related to leasehold improvements and equipment at its new facility in Phoenix,
Arizona, where it provides manufacturing services for Honeywell under the long-
term supply agreement.
During 1999, the Company had capital expenditures of $14.4 million,
primarily related to the Honeywell agreement and the build-out of the Phoenix
facility. The capital requirements under this new agreement provided
significant challenges to the Company in 1999, due to the Company's higher debt
levels at the end of 1998, combined with its deteriorating operating performance
since the third quarter of 1998.
The Company sold a significant amount of assets during 1999 to provide
additional liquidity. The Company's services division was sold in September
1999 for net cash proceeds of approximately $28.1 million, and the Company's
Greeley, Colorado plant was sold in October 1999 for net cash proceeds of
approximately $3.8 million. Proceeds from these asset dispositions were used to
repay indebtedness and for general working capital purposes.
The Company first engaged a broker to seek financing for the Company in
September 1999.
In early October 1999, the Company engaged in discussions with Bank One
Colorado, N.A. and the other lenders under its senior credit facility with a
view to obtaining waivers of certain financial covenants with which it would be
unable to comply. Bank One stated its desire to be fully repaid by year-end.
The loan agreement was amended at the end of October to change certain financial
covenants and to provide for a new maturity date of December 30, 1999.
During October and early November 1999, the Company had discussions with an
unrelated third party that had approached it about an acquisition of the
Company. The Company and the third party were unable to reach agreement and
discussions terminated.
During November 1999, the Company advised Honeywell, then its largest
customer, of the liquidity issues it faced. Also in November 1999, the Company
obtained a $5 million subordinated loan from a director of the Company and
engaged an additional broker to obtain subordinated financing of up to $25.0
million, as well as senior debt of at least $40.0 million.
On December 1, 1999, the Company engaged Murphy Noell Capital, L.L.C.
("Murphy Noell") to obtain subordinated debt or equity financing for the Company
that also would permit the Company to obtain a new senior lender to replace the
existing senior bank group. Murphy Noell contacted Thayer Equity Investors IV,
L.P. ("Thayer") regarding a possible investment in the Company on December 5,
1999. Thayer expressed interest in a possible transaction that would involve a
change of control of the Company, not just subordinated financing.
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Throughout December, Jack Calderon, the Company's Chairman and then Chief
Executive Officer, and Stuart Fuhlendorf, then the Company's Chief Financial
Officer, visited over a dozen financing prospects, including mezzanine lenders,
senior lenders and private equity groups. The Company also resumed discussions
with Honeywell regarding manufacturing conducted at the Company's Tucson
facility. Those discussions ultimately led to the sale of the Tucson facility to
Honeywell on February 17, 2000, for net cash proceeds of approximately $12.7
million. Proceeds of the sale were used by the Company to repay indebtedness and
to pay a portion of its past-due trade payables.
The Company was unable to obtain any additional subordinated financing or
to refinance its existing senior credit facility by its December maturity date,
and the senior bank group agreed to extend the maturity date to March 30, 2000.
As part of the extension, availability under the facility was reduced to $34.0
million on January 10, 2000, and reduced again by an additional $1.0 million per
month on each of February 1, 2000 and March 1, 2000. At December 31, 1999, the
Company had trade payables in excess of $18.0 million that were outside of
established terms and many suppliers were requiring payment of past-due balances
or payment in advance for purchases of additional inventories. The Company
experienced some interruptions in production as a result of this situation.
Throughout January 2000, the Company continued discussions with possible
sources of financing. During that period, the Company received eight proposals
for subordinated indebtedness or equity financing ranging in amount from $10
million to $35 million and nine proposals for a new senior credit facility
ranging in size from $40 million to $50 million. All of the proposals for
senior financing were contingent on obtaining subordinated financing.
Negotiations with Thayer and BLUM. On January 12, 2000, representatives of
Thayer met with Messrs. Calderon, and Fuhlendorf at the Company's Phoenix
manufacturing facility. On January 14, 2000, Thayer contacted BLUM Capital
Partners, L.P. ("BLUM") to inquire about BLUM's interest in participating with
Thayer in a potential transaction involving the Company.
On January 21, 2000, BLUM indicated to Thayer its interest in jointly
pursuing such a transaction. Also on January 21, 2000, Thayer presented its
initial proposal to the Company. The proposal called for an initial investment
of approximately $35 million in the Company in exchange for the issuance by the
Company of senior subordinated notes bearing interest at a rate of 12.5% per
annum payable in kind and warrants to purchase approximately 3.1 million shares
of the Common Stock (representing approximately 19.9% of the Company's
outstanding shares) at $.01 per share. Thayer would conduct a tender offer for
approximately 9.6 million shares of the outstanding Common Stock (approximately
62.4%) at a price of $4.00 per share. Shareholder approval would also be sought
under the rules of the Nasdaq Stock Market. Upon receipt of shareholder
approval, the senior subordinated notes would become convertible into the Common
Stock at $3.00 per share, the interest rate on the notes would be reduced to 11%
per annum, the number of shares issuable upon exercise of the warrants would be
reduced to 2.5 million, and Thayer would be entitled to designate a majority of
the Company's board of directors.
The Company's board of directors met at a regularly scheduled meeting on
January 21, 2000. Representatives of Murphy Noell were present, and together
with Messrs. Calderon and Fuhlendorf, described the five best proposals for
subordinated indebtedness or equity financing that had been received by the
Company, including the initial proposal from Thayer. The board focused its
discussion on the proposal received from Thayer and requested that certain
changes be made to it, including a reduction of the interest rate to 8.25% per
annum and the termination of all warrants upon receipt of shareholder approval,
in exchange for a reduction of the conversion price of the senior subordinated
notes of $2.50. After discussion, the board authorized management to execute an
exclusivity agreement and pursue discussions with Thayer, subject to board
approval of the final transaction. On January 24, 2000, Thayer
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presented a revised proposal to the Company that responded to concerns expressed
by the Company's board of directors at the January 21st meeting.
In late January 2000, Thayer met with the Company to conduct initial due
diligence at the Company's offices, and the Company and Thayer signed an
exclusivity agreement with respect to the transaction that could be terminated
by either party after February 21, 2000 if definitive agreements had not been
entered into by that date. During the remainder of January and in February,
Thayer and BLUM and their representatives continued both legal and business due
diligence. In addition, the Company and Thayer continued discussions during
February regarding the basis on which a transaction might proceed.
On March 2, 2000, Thayer presented a revised proposal that increased the
initial investment to $45 million, increased the interest rate of the senior
subordinated notes to 15.0%, increased the interest rate on the convertible
notes to 8.625% and the conversion price to $2.55 per share and increased the
number of shares sought in the tender offer to 9.7 million.
Appointment of Special Committee. The Company's board of directors met on
March 5, 2000 to consider the revised proposal. At that time, the board
appointed a special committee to conduct further negotiations with Thayer and to
submit a recommendation to the full board of directors. The special committee
consisted of Robert K. McNamara, Chairman, Gerald J. Reid, Charles E. Hewitson,
Allen S. Braswell, Jr. and Masoud S. Shirazi, and was expressly authorized to
engage a financial advisor to deliver an opinion as to the fairness, from a
financial point of view, of the proposed transactions with Thayer to the Company
and its shareholders. The special committee met separately from the board of
directors on March 5 and March 15, 2000. On March 17, 2000, Needham & Company,
Inc. was formally engaged by the special committee to deliver a fairness opinion
on the transaction. At meetings of the special committee on March 15 and the
board of directors on March 21, 2000, Needham reported orally on its progress
toward being able to deliver a fairness opinion when requested to do so by the
special committee.
Between March 5 and March 21, 2000, Mr. McNamara and counsel conducted
negotiations with Thayer on the transaction, with emphasis on limiting or
eliminating provisions of the agreement that might have precluded the Company
from completing a competing transaction after an exclusivity agreement or
definitive agreements had been signed. By the conclusion of these negotiations,
the parties had reached an understanding that if the Company were to terminate
the agreement to accept a superior proposal, the Company would pay Thayer's
expenses and a $1.5 million termination fee, would repay the senior subordinated
note without premium, and would redeem the warrants for a payment beginning at
$5 million that would increase to $6 million based upon when the redemption
right was exercised. During this period, Mr. McNamara also contacted Bank One
to determine if there was any basis upon which the bank lending group would
extend the maturity date of the Company's senior credit facility to permit the
Company to pursue financing proposals other than that proposed by Thayer and
BLUM; he was advised there was not.
The Company and its counsel met with representatives of Thayer and BLUM and
their counsel on March 20 through 22, 2000 to negotiate definitive agreements
with respect to the transaction. On March 21, 2000, Thayer and BLUM advised the
Company that they had revised their proposal to reflect an increase of the
initial investment to $54 million, an increase of the initial interest rate on
the senior subordinated notes to 15%, a reduction of the initial conversion
price on the convertible notes and a reduction of the number of shares to be
purchased in the tender offer to 8.25 million. Thayer and BLUM conditioned
closing on resolving a dispute with Murphy Noell as to the amount payable to it
as a broker in connection with the transaction and settling or insuring over two
class action securities lawsuits that had been filed against the Company in
1998. On March 30, 2000, a preliminary settlement was reached on the two class
action lawsuits within the parameters established by Thayer and BLUM and in
early
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April 2000 the Company filed papers in appropriate courts giving notice of its
agreement to settle the cases, subject to court approval. A motion to approve
the settlement was filed in early June 2000 and is now pending. The settlement
provides for the payment by the Company of cash and the issuance of 1.3 million
shares of Common Stock into the settlement fund.
On March 21, 2000, the special committee met with the balance of the board
of directors in attendance to discuss the status of negotiations for the
transaction. Mr. Calderon reported on the revised proposal made by Thayer and
BLUM. After extensive discussion, the special committee approved continued
negotiations for the transaction on the basis of the revised proposal.
During the following week, the Company, Thayer and BLUM continued
negotiations on the terms of the transaction and the form of definitive
agreements. The special committee met on March 29, 2000 to consider the
transaction as then proposed. The balance of the board of directors was also in
attendance at that meeting. Needham orally delivered its opinion that the
issuance of the Exchangeable Notes and Warrants and the tender offer, when taken
together, are fair to the Company and its shareholders (other than Purchaser and
its affiliates), from a financial point of view. Counsel reviewed the principal
terms of the transaction with the special committee and the board of directors.
After extensive discussion, the special committee concluded that the
recapitalization transaction between the Company and Purchaser (the
"Recapitalization Transaction") as a whole was fair to and in the best interests
of the Company and its shareholders and referred the matter to the full board of
directors for approval. A meeting of the board of directors was then convened,
at which the board of directors concluded that the Recapitalization Transaction
as a whole was fair to and in the best interests of the Company and its
shareholders, approved the Recapitalization Transaction and recommend that
appropriate matters be submitted to the Company's shareholders for approval.
Documentation for the transaction was finalized on March 30, 2000. An
agreement had not been reached with Murphy Noell. Immediately prior to closing,
the Company agreed with Thayer and BLUM that the initial conversion price of the
convertible notes would be reduced to reflect any adverse determination or
settlement with respect to Murphy Noell from that agreed. Implementation of
such adjustment to the conversion price was subject to approval of the board of
directors and the special committee. The initial transaction was closed and the
Company's senior loan with Bank One was repaid on its due date.
Closing of the initial transaction was conditional upon the simultaneous
closing of a new credit facility. The Company closed a credit facility
providing for a $45.0 million revolving line of credit with a maturity date of
March 2003 with Bank of America at the same time as the transaction with
Purchaser.
Murphy Noell Settlement. The Company negotiated a settlement with Murphy
Noell effective on April 5, 2000. Payments to be made to Murphy Noell required
a reduction of the conversion price of the convertible notes from $2.60 to $2.58
under the terms of the agreement reached with Thayer and BLUM immediately prior
to closing. The board of directors met on April 9, 2000 to consider approving
the reduction. The board of directors referred the matter to the special
committee with authority to consider, and approve if appropriate, the reduction
in the conversion price of the Convertible Notes. The special committee
requested that Needham advise whether the reduced conversion price of the
Convertible Notes would have affected Needham's opinion that was delivered on
March 29, 2000. The special committee met on April 27, 2000, at which time
Needham orally confirmed that it did not believe that the establishment of the
conversion price at $2.58, had it been considered as part of its analyses in
connection with its earlier opinion, would have altered its conclusion set forth
in that opinion, as of the date of the opinion. The special committee then
authorized the reduction in the conversion rate in accordance with the previous
delegation to it by the board of directors. The form of the Convertible Notes
to be delivered was revised to reflect the reduction.
19
<PAGE>
Amended Recapitalization Transaction
Representatives of Purchaser approached Mr. Calderon on May 19, 2000,
stating their concern over, among other things, adverse changes represented by
the Honeywell's desire to see certain management changes at the Company and
their belief that the Company needed significant additional working capital. On
May 23, 2000, Mr. Calderon reported the substance of these discussions to most
members of the board of directors, who met by conference telephone. No
representatives of Purchaser were present. The group discussed implications of
Purchaser's views and possible responses by the Company.
The Company's board of directors met at a regularly scheduled meeting on
May 24, 2000. At that meeting Messrs. Goettman and Walker, members of the board
designated by Purchaser, stated that they did not believe Purchaser would be
obligated to consummate the tender offer because of material adverse changes
affecting the Company since March 30, 2000 represented by, among other things,
the concerns raised by Honeywell and the Company's need for additional working
capital. They also indicated that Purchaser would consider a revised
transaction involving additional investment in the Company and a tender offer of
reduced size. Other members of the board of directors expressed strong
disagreement that any material adverse change had occurred that would affect
consummation of the tender offer. The board of directors authorized the
formation of a group to assess the magnitude of the Company's need for
additional working capital, if any, and how it should be addressed.
Throughout the day on May 25, 2000, representatives of the Company and
Purchaser met at the Company's offices to analyze the Company's need for
additional working capital. They also discussed the amount and form of
additional investment Purchaser would be willing to make in the Company in
conjunction with a tender offer of reduced size. Members of the board of
directors met that evening and discussed the status of discussions with
Purchaser, and Mr. Calderon had discussions with Messrs. Goettman and Walker
over the Memorial Day weekend to determine if Purchaser would improve its
proposal and eliminate most conditions to consummation of the tender offer.
On the evening of May 29, 2000, the board authorized the special committee
to consider and recommend to the full board whether the Company should agree to
an additional investment from Purchaser and a reduction in the size of the
tender offer and to engage Needham as a financial advisor to address the
fairness of any revised transaction.
The Company's board of directors and special committee met again on May 30,
2000, without Messrs. Goettman and Walker, to discuss the status of discussions
between the Company and Purchaser. Mr. Calderon explained that Purchaser had
proposed to invest an additional $14 million in the Company in notes that would
be exchanged for Convertible Preferred Stock upon consummation of a Successful
Tender Offer with the maximum number of shares that could be acquired in the
tender offer being reduced to 5.625 million at the same $4.00 per share purchase
price. At that time, the parties had not reached agreement on the scope of
conditions to consummation of the tender offer.
Needham was formally engaged to render an opinion as to the fairness of the
revised transaction to the Company and its shareholders on May 31, 2000.
Between May 31, 2000 through June 5, 2000 counsel for the Company and
counsel for Purchaser negotiated a term sheet for an additional investment by
Purchaser and a tender offer of reduced size, including a detailed list of
conditions to the obligations of Purchaser to consummate the tender offer. Mr.
Calderon continued negotiations with Messrs. Goettman and Walker as to elements
of the revised
20
<PAGE>
transaction during the same period and reached an understanding about the scope
of conditions to consummation of the tender offer.
The special committee met on June 5, 2000 to consider revising the terms of
the transaction. Other members of the board of directors were also in
attendance at that meeting. Needham orally delivered its opinion that the
initial investment, the additional investment and the tender offer, when taken
together, are fair to the Company and its shareholders (other than Purchaser and
its affiliates), from a financial point of view. Counsel reviewed the principal
differences that would result from the proposed transaction with the special
committee and the board of directors. After discussion, the special committee
concluded that the revised transaction (the "Amended Recapitalization
Transaction") as a whole was fair to and in the best interests of the Company
and its shareholders and referred the matter to the full board of directors for
approval. A meeting of the board of directors was then convened, at which the
board of directors concluded that the Amended Recapitalization Transaction as a
whole was fair to and in the best interests of the Company and its shareholders,
approved the Amended Recapitalization Transaction and recommended that
appropriate matters be submitted to the Company's shareholders for approval.
The board of directors also authorized that appropriate documents evidencing the
revised transaction be prepared and executed by the Company.
The Amended Recapitalization Transaction was announced on June 6, 2000, and
definitive agreements reflecting the revised transaction were executed on July
12, 2000. Closing of the additional $14.0 million investment by Purchaser in
the Company occurred on July 14, 2000.
Reasons for the Recommendation
Following is a discussion of the various factors the Company's board of
directors considered in making its determination that the terms of the Amended
Recapitalization Transaction, including the terms of the Offer, are fair to the
Company and its shareholders from a financial point of view and its
recommendation that the Company's shareholders accept the terms of the Offer.
The Company considered the terms and conditions of the Offer as a whole with the
other transactions contemplated by the Amended Recapitalization Transaction.
On March 30, 2000, the Company completed the initial stage of the
Recapitalization Transaction when Purchaser invested $54.0 million in the
Company in exchange for $54.0 million in the Company's Senior Subordinated
Exchangeable Notes and the Warrants. On July 14, 2000, Purchaser purchased an
additional $14.0 million in Senior Subordinated Exchangeable Notes that are
exchangeable for the Convertible Preferred Stock.
The Company also believes it to be in the best interests of the Company and
its shareholders to approve the issuance of the Convertible Notes and
Convertible Preferred Stock at the Special Meeting. Shareholder approval of the
issuance of the Convertible Notes and Convertible Preferred Stock will permit
the second phase of the Recapitalization Transaction to be completed - the
exchange of the Exchangeable Notes for the Convertible Notes and Convertible
Preferred Stock, the cancellation of the Warrants and the consummation of the
Offer. Failure of shareholders to approve the issuance of the Convertible Notes
and Convertible Preferred Stock would have a material adverse effect on the
Company and its shareholders because:
. the Warrants would remain outstanding and the shareholders would
experience substantial dilution when they are exercised because the
Company would issue a substantial number of additional shares without
receiving any material additional capital;
21
<PAGE>
. the interest rate on the Exchangeable Notes would remain outstanding
and their interest rate would increase to 20% per annum; and
. Purchaser would not be obligated to consummate the Offer, even if
sufficient shares were tendered by the Company's shareholders.
If these issuances are not approved by shareholders, the Company believes
that it would find it necessary to refinance the Exchangeable Notes given the
high interest rate on such notes. In such a circumstance, the Company would
experience the additional costs, including prepayment penalties, associated with
such a refinancing, which could be substantial, and the Warrant would remain
outstanding.
As noted above under "Background of the Recapitalization Transaction," a
special committee of the board of directors, based in part on opinions of
Needham and the board of directors, also based in part on such opinion,
concluded that the Amended Recapitalization Transaction as a whole was fair to
and in the best interests of the Company and its shareholders and recommend that
the Company's shareholders approve the proposal.
In reaching these conclusions and recommendation as to the Recapitalization
Transaction, the board considered, among other things the following factors,
none of which were qualified or assigned relative weight as compared to any
other factor:
. the Company's need for capital, including the March 30, 2000 maturity
date of its senior bank facility with Bank One;
. the substantial amount of capital that Thayer and BLUM were prepared
to commit to an investment in the Company and to purchasing shares in
the tender offer;
. the extensive effort that had been made by the Company and its
representatives to obtain funding for its operations and the lack of
alternatives that were superior to the proposed transaction;
. the structure of the transaction, which permitted the Company to
receive funding to satisfy its immediate capital needs, while
permitting existing shareholders the opportunity either to tender a
substantial portion of their shares to Purchaser at a significant
premium to the trading price of the Company's common stock during the
period the tender offer price was negotiated, or to retain ownership
of those shares;
. the financial analysis and other information with respect to the
Company presented by Needham, including Needham's oral opinion, which
was subsequently confirmed in writing (and which opinion dated March
29, 2000 is attached hereto as part of Exhibit 10), that the issuance
of the Exchangeable Notes and Warrants and the Offer, when taken
together, are fair to the Company and its shareholders (other than
Purchaser and its affiliates), from a financial point of view; and
. the understanding that Thayer and BLUM have of the Company's business,
their track record with other investments and their capital resources.
In reaching these conclusions and recommendation as to the Amended
Recapitalization Transaction, the board considered, among other things the
following factors, none of which were qualified or assigned relative weight as
compared to any other factor:
22
<PAGE>
. the Company's need for additional working capital and the additional
$14 million investment by Purchaser in the Company, which represents
an additional $3.5 million being invested by Purchaser in the
aggregate after taking into account the reduced amount that Purchaser
would expend to purchase shares of common stock in a tender offer of
reduced size;
. the board's belief that Purchaser would not consummate a tender offer
under the original terms because Purchaser believed there would be a
failure to meet the tender offer conditions and that if the Company
were to engage in litigation with Purchaser, the Company's
relationship with its senior lender, with its suppliers and with
Honeywell and its other customers would be seriously jeopardized,
thereby jeopardizing the Company's continued existence;
. the board's desire to give the Company's shareholders the ability to
participate in the transaction by being able to sell shares of common
stock to Purchaser in the tender offer at a price in excess of recent
trading prices for the common stock; and
. the financial analysis and other information with respect to the
Company presented by Needham, including Needham's oral opinion, which
was subsequently confirmed in writing (and which opinion dated June 5,
2000 is attached hereto as Exhibit 10), that the initial $54.0 million
investment, the additional $14.0 million investment and the Offer,
when taken together, are fair to the Company and its shareholders
(other than Purchaser and its affiliates), from a financial point of
view.
The foregoing discussion of the information and factors considered by the
board is not intended to be exhaustive, but it does include the factors that the
board considered material to its decision to approve the Amended
Recapitalization Transaction, including the Offer. In view of the factors
considered in connection with its evaluation, the board did not find it
practicable to and did not quantify or attempt to assign relative weights to the
specific factors considered in reaching its decision. In addition, individual
members of the board may have given different weight to different factors.
Opinions of Needham & Company, Inc.
The Company retained Needham under an engagement letter to furnish
financial advisory and investment banking services with respect to the proposed
recapitalization and to render an opinion as to the fairness, from a financial
point of view, of the issuance of the March Exchangeable Notes and Warrants (the
"Initial Investment") and the tender offer to the holders of the Company's
common stock (other than Purchaser and its affiliates). Under an amendment to
the engagement letter the Company retained Needham to render an opinion as to
the fairness, from a financial point of view, of the Initial Investment, the
issuance of the July Exchangeable Notes and the tender offer (together, the
"Amended Recapitalization Transaction") to the holders of the Company's common
stock (other than Purchaser and its affiliates). The terms of the Amended
Recapitalization Transaction were determined through arm's length negotiations
between the Company and Purchaser and not by Needham.
At a meeting of the board of directors on March 29, 2000, Needham delivered
its oral opinion (subsequently confirmed in writing) that, as of that date and
based upon and subject to the assumptions and other matters described in its
written opinion, the Initial Investment and the tender offer, when taken
together, are fair to the Company and the holders of common stock (other than
Purchaser and its affiliates) from a financial point of view. On June 5, 2000,
Needham delivered its written opinion that, as of that date and based upon and
subject to the assumptions and other matters described in its written
23
<PAGE>
opinion, the transactions contemplated by the Amended Recapitalization
Transaction, when taken together, are fair to the Company and the holders of
common stock (other than Purchaser and its affiliates) from a financial point of
view. The Needham opinions are addressed to the special committee of the board,
are directed only to the financial terms of the Purchase Agreement and related
documents, and do not constitute a recommendation to any shareholder as to how
that shareholder should vote at the Special Meeting.
The complete text of the Needham opinions, which set forth the assumptions
made, matters considered, limitations on and scope of the review undertaken by
Needham, are attached to this document as Exhibit 10. The summary of the
Needham opinions set forth in this document are qualified in their entirety by
reference to the Needham opinions. You should read the Needham opinions
carefully and in their entirety for a description of the procedures followed,
the factors considered, and the assumptions made by Needham.
In arriving at its opinions, Needham, among other things:
. in connection with the March 29 opinion reviewed a draft of the
Purchase Agreement and related drafts of the forms of March
Exchangeable Notes, Convertible Notes and Warrants furnished to it on
March 28, 2000 and in connection with the June 5 opinion reviewed the
final securities purchase agreement and related forms of March
Exchangeable Notes, Convertible Notes and Warrants and the proposed
terms of the amendment to the securities purchase agreement and July
Exchangeable Notes and Convertible Preferred Stock furnished to it on
June 5, 2000;
. reviewed certain publicly available information concerning the Company
and certain other relevant financial and operating data of the Company
furnished to Needham by the Company;
. reviewed the historical stock prices and trading volumes of the common
stock;
. held discussions with members of senior management of the Company
concerning their current and future business prospects of the Company;
. reviewed and discussed with members of the management of the Company
various financial forecasts and projections prepared by management
that assume the Amended Recapitalization Transaction (except the
Initial Investment) do not occur and, in the alternative, assume the
occurrence of the Amended Recapitalization Transaction, the exchange
of the Exchangeable Notes and cancellation of the Warrants;
. compared publicly available financial data of selected companies whose
securities are traded in the public markets and that Needham deemed
relevant to similar data for the Company;
. reviewed the financial terms of selected other transactions that
Needham deemed generally relevant;
. discussed with members of the Company's management the strategic
rationale and certain other benefits to the Company resulting from an
association with the Investor; and
. performed and/or considered such other studies, analyses, inquiries
and investigations as Needham deemed appropriate.
24
<PAGE>
Needham assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by or discussed with it
for purposes of rendering its opinions and the assessment by the Company's
management of the strategic and other benefits expected to be derived from the
Amended Recapitalization Transaction. Needham assumed that the financial
forecasts relating to the Company were reasonably prepared on bases reflecting
the best currently available estimates and judgments of the Company's
management, at the time of preparation, of the future operating and financial
performance of the Company. Needham did not assume any responsibility for or
make or obtain any independent evaluation, appraisal or physical inspection of
the assets or liabilities of the Company. The Needham opinions state that they
were based on economic, monetary and market conditions existing as of their
respective dates. Needham expressed no opinion as to the value of the
Exchangeable Notes, Convertible Notes, Convertible Preferred Stock or Warrants
or the prices at which the common stock will actually trade at any time. In
addition, Needham was not asked to consider, and the Needham opinions do not
address:
. the Company's underlying business decision to engage in the Amended
Recapitalization Transaction;
. the relative merits of the Amended Recapitalization Transaction as
compared to any alternative business strategies that might exist for
the Company; or
. the effect of any other transaction in which the Company might engage.
No limitations were imposed by the Company on Needham with respect to the
investigations made or procedures followed by Needham in rendering its opinions.
Based on this information, Needham performed a variety of financial
analyses of the Amended Recapitalization Transaction. As part of its analyses,
Needham performed the following: (a) a selected companies analysis, in which
Needham compared selected operating and financial data for selected publicly
traded companies that Needham deemed relevant to similar data for the Company;
(b) a review of publicly available information concerning the financial terms of
selected transactions in the contract manufacturing industry; (c) a liquidation
analysis to analyze certain possible scenarios in the event the Amended
Recapitalization Transaction was not consummated and additional sources of
liquidity were not available to the Company; (d) an analysis of historical
trading prices and volumes for the Company's common stock and a comparison of
the Company's historical stock price performance relative to Nasdaq, the S&P 500
and selected publicly traded companies; and (e) an analysis of the premiums and
discounts implied by the proposed Amended Recapitalization Transaction and a
sensitivity analysis of selected financial data and ratios assuming completion
of the Amended Recapitalization Transaction at various levels of shares tendered
in the tender offer. Needham also considered certain issues with respect to the
Company's liquidity position.
No company, transaction or business used in any comparable analysis as a
comparison is identical to the Company or the Amended Recapitalization
Transactions. Accordingly, these analyses are not simply mathematical; rather,
they involve complex considerations and judgments concerning differences in the
financial and operating characteristics and other factors that could affect the
acquisition, public trading or other values of the comparable companies or
transactions to which they are being compared.
The summary set forth above does not purport to be a complete description
of the analyses performed by Needham in connection with the rendering of its
opinions. The preparation of a fairness opinion involves various determinations
as to the most appropriate and relevant quantitative and qualitative methods of
financial analyses and the application of those methods to the particular
25
<PAGE>
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Accordingly, Needham believes that its analyses must be
considered as a whole and that considering any portions of its analyses and of
the factors considered, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying its opinions.
In its analyses, Needham made numerous assumptions with respect to industry
performance, general business and economic and other matters, many of which are
beyond the control of the Company. Any estimates contained in these analyses
are not necessarily indicative of actual values or predictive of future results
or values, which may be significantly more or less favorable. Additionally,
analyses relating to the values of business or assets do not purport to be
appraisals or necessarily reflect the prices at which businesses or assets may
actually be sold. Accordingly, these analyses and estimates are inherently
subject to substantial uncertainty. The Needham opinions and Needham's related
analyses were only one of many factors considered by the board of directors in
its evaluation of the Amended Recapitalization Transaction and should not be
viewed as determinative of the views of the board of directors or management
with respect to the Amended Recapitalization Transaction.
In connection with the reduction of the conversion price of the Convertible
Notes from $2.60 to $2.58, the special committee requested Needham to state
whether the revised conversion price would have affected Needham's opinion.
Needham was not requested to render, and did not render, a new opinion and,
accordingly, did not update its investigations made, procedures followed or
matters considered with respect to its opinion dated March 29, 2000. Needham
issued a letter to the special committee, dated April 27, 2000, that stated that
subject to those considerations, Needham believed that the establishment of the
$2.58 conversion price, had it been considered by Needham as part of its
analyses, would not have altered its conclusion set forth in its March 29, 2000
opinion as of the date of that opinion.
Under the terms of the Needham engagement letter, the Company has paid or
agreed to pay Needham fees for rendering the Needham opinions and for financial
advisory services that the Company and Needham believe are customary in
transactions of this nature. None of Needham's fees were contingent on
consummation of the Amended Recapitalization Transaction. The Company also
agreed to reimburse Needham for its reasonable out-of-pocket expenses and to
indemnify it against specified liabilities relating to or arising out of
services performed by Needham as financial advisor to the Company.
Needham is a nationally recognized investment banking firm. As part of its
investment banking services, Needham is frequently engaged in the evaluation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of securities, private
placements and other purposes. Needham was retained by the special committee to
act as the Company's financial advisor in connection with the Transactions based
on Needham's experience as a financial advisor in mergers and acquisitions and
recapitalizations as well as Needham's familiarity with technology companies.
Needham has provided various investment banking services to the Company in the
past, for which it has received customary compensation. In the normal course of
its business, Needham may actively trade the equity securities of the Company
for its own account or for the account of its customers and, therefore, may at
any time hold a long or short position in these securities.
(c) Intent to Tender
To the best of the Company's knowledge, in the tender offer, (i) five of
the Company's directors intend to tender all of the shares of common stock held
beneficially by each such director, (ii) three of the Company's directors intend
to tender a portion of the shares of common stock held beneficially by each such
director and (iii) one of the Company's directors does not intend to tender any
shares of common stock held beneficially by such director.
26
<PAGE>
Item 5. Persons/Assets, Retained, Employed, Compensated or Used
None.
Item 6. Interest in Securities of the Subject Company
No transactions in the shares of Common Stock have been effected during the
past 60 days by the Company or, to the best of the Company's knowledge, by any
executive officer, director, affiliate or subsidiary of the Company.
Item 7. Purposes of the Transaction and Plans or Proposals
(a) Except as indicated in Items 3 and 4 above, no negotiations are being
undertaken or are underway by the Company in response to the Offer which relate
to, or would result in, (i) an extraordinary transaction, such as a merger or
reorganization, involving the Company or any subsidiary of the Company, (ii) a
purchase, sale or transfer of a material amount of assets by the Company or any
subsidiary of the Company or (iii) any material change in the present dividend
rate or policy, or indebtedness or capitalization of the Company.
(b) Except as indicated in Items 3 and 4 above, there are no transactions,
board resolutions, agreements in principle or signed contracts in response to
the Offer which relate to or would result in one or more of the matters referred
to in this Item 7.
Item 8. Additional Information
The Information Statement pursuant to Section 14(f) of the Securities
Exchange Act of 1934 attached hereto as Annex I is being furnished to the
Company's shareholders in connection with the contemplated designation by
Purchaser, pursuant to the Purchase Agreement, of certain persons to be
appointed to the Board of Directors of the Company other than at a meeting of
the Company's shareholders following the consummation of a Successful Tender
Offer.
Item 9. Exhibits
The following exhibits are filed herewith:
Exhibit 1 Offer to Purchase (incorporated by reference to Exhibit (a)(1)(i) to
the Schedule TO).*
Exhibit 2 Letter of Transmittal (incorporated by reference to Exhibit
(a)(1)(ii) to the Schedule TO).*
Exhibit 3 Securities Purchase Agreement, dated as of March 30, 2000 and as
amended on July 12, 2000, by and between the Company and Purchaser
(incorporated by reference to Appendix II to the Company's Proxy
Statement on Schedule 14A filed with the Commission on July 19,
2000).*
27
<PAGE>
Exhibit 4 Information regarding certain contracts, agreements, arrangements or
understandings between the Company and (i) its executive officers,
directors or affiliates and (ii) Purchaser or its executive
officers, directors or affiliates (incorporated by reference to the
information under the captions "Executive Compensation Information"
and "Compensation of Directors" in the Company's Proxy Statement on
Schedule 14A filed with the Commission on July 19, 2000).*
Exhibit 5.1 Form of Exchangeable Note (incorporated by reference to Exhibit 4.3
to the Company's Form 10-K for the year ended December 31, 1999).
Exhibit 5.2 Allonge to Exchangeable Note, dated July 14, 2000.*
Exhibit 6 Form of Convertible Note (attached as Exhibit A to Allonge to
Exchangeable Note).*
Exhibit 7.1 Form of Warrant (incorporated by reference to Exhibit 10.22 to the
Company's Form 10-K for the year ended December 31, 1999).
Exhibit 7.2 First Amendment to Warrant, dated July 12, 2000.*
Exhibit 8 Voting Agreement.*
Exhibit 9.1 Registration Rights Agreement.*
Exhibit 9.2 First Amendment to Registration Rights Agreement, dated July 14,
2000.*
Exhibit 10 Opinions of Needham & Company, Inc.*
________________
* Included in copies mailed to shareholders.
28
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this Statement is true, complete and correct.
EFTC CORPORATION
By: /s/ Jack Calderon
------------------------
Jack Calderon
Chairman
<PAGE>
ANNEX I
EFTC Corporation
9351 Grant Street, Sixth Floor
Denver, Colorado 80229
_________
INFORMATION STATEMENT PURSUANT
TO SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14f-1 THEREUNDER
_________
NO VOTE OR OTHER ACTION OF THE COMPANY'S SHAREHOLDERS IS REQUIRED
IN CONNECTION WITH THIS INFORMATION STATEMENT.
NO PROXIES ARE BEING SOLICITED AND
YOU ARE REQUESTED NOT TO SEND THE COMPANY A PROXY.
________
This Information Statement, which is being mailed on or about July 19, 2000 as
part of the Solicitation/Recommendation Statement on Schedule 14D-9 of EFTC
Corporation, a Colorado corporation (the "Company") to the holders of shares of
the Company's common stock, par value $.01 per share (the "Common Shares").
This Information Statement is furnished in connection with the possible
designation by Thayer-BLUM Funding, L.L.C., a Delaware limited liability company
(the "Purchaser"), of persons to the Board of Directors of the Company (the
"Board"). Such designation is to be made pursuant to a Securities Purchase
Agreement, dated as of March 30, 2000 and as amended on July 12, 2000 (the
"Purchase Agreement"), between the Company and the Purchaser.
Pursuant to the Purchase Agreement, among other things, the Purchaser
commenced a cash tender offer on July 19, 2000 to purchase up to 5,625,000
Common Shares at a price of $4.00 per Common Share, net to the seller in cash,
as described in the Purchaser's Offer to Purchase dated July 19, 2000 and the
related Letter of Transmittal (which Offer to Purchase and related Letter of
Transmittal together constitute the "Offer"). The Offer is scheduled to expire
at 12:00 midnight, New York City time, on August 22, 2000, unless extended. The
Offer is conditioned upon, among other things, there having been validly
tendered and not withdrawn prior to the expiration of the Offer 500,000 Common
Shares (the "Minimum Condition").
The terms of the Purchase Agreement, a summary of the events leading up to the
Offer and the execution of the Purchase Agreement and other information
concerning the Offer and the Purchase Agreement are contained in the Offer to
Purchase and in the Solicitation/Recommendation Statement on Schedule 14D-9 of
the Company (the "Schedule 14D-9") with respect to the Offer, copies of which
are being delivered to shareholders of the Company contemporaneously herewith.
Certain other documents (including the Purchase Agreement) were filed with the
Securities and Exchange Commission (the "SEC") as exhibits to the Schedule 14D-
9.
You are receiving this Information Statement in connection with the
anticipated appointment of persons designated by the Purchaser to a majority of
the seats on the Board of Directors of the Company. No action is required by
the shareholders of the Company in connection with the election or appointment
of the new directors designated by the Purchaser. However, Section 14(f) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the
mailing to the Company's shareholders of the
<PAGE>
information set forth in this Information Statement prior to a change in a
majority of the Company's directors otherwise than at a meeting of the Company's
shareholders.
The information contained in this Information Statement concerning the
Purchaser and the new directors appointed by the Purchaser has been furnished to
the Company by such persons, and the Company assumes no responsibility for the
accuracy or completeness of such information. The principal executive office of
the Purchaser is located at 1455 Pennsylvania Avenue, N.W., Suite 350;
Washington, D.C. 20004.
General
The Common Shares are the only class of voting securities of the Company
entitled to vote for the election of directors. Each Common Share is entitled
to one vote. As of July 17, 2000, there were 15,543,489 Common Shares
outstanding. The number of members of the Company's Board of Directors is
currently fixed at 11. The Company's Amended and Restated Articles of
Incorporation provide for a classified Board of Directors. For purposes of
determining the directors' terms of office, directors are divided into three
classes. Each director serves until the end of the three-year term of the class
to which he or she is elected, or until his or her earlier resignation or
removal
Management
The directors and executive officers of the Company as of the date of this
Information Statement are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Jack Calderon* 47 Chairman of the Board of Directors (Mr. Calderon is a Class II Director)
James K. Bass 43 Chief Executive Officer
Val M. Avery 50 Chief Information Officer
August P. Bruehlman 44 Chief Administrative Officer
Charles D. Tillett** 50 Chief Operations Officer
James A. Doran 45 Class I Director and Treasurer
Allen S. Braswell 41 Class I Director
Richard L. Monfort 45 Class I Director
Charles E. Hewitson 50 Class II Director
Robert K. McNamara 46 Class II Director
Jeffrey W. Goettman 41 Class III Director
Robert Monaco 38 Class III Director and General Manager of Personal Electronics
Gerald J. Reid 59 Class III Director
Masoud S. Shirazi 49 Class III Director
John C. Walker 38 Class III Director
</TABLE>
* Resigned as President and Chief Executive Officer effective July 17, 2000.
** Resigned effective July 28, 2000.
There are no family relationships among any of the directors and executive
officers of the Company. Set forth below is a description of the backgrounds of
such persons:
Jack Calderon, 47, has been the Company's President and Chief Executive
Officer since August 1996 and Chairman of the Board since June 1998. Mr.
Calderon has resigned as President and Chief Executive Officer of the Company,
effective July 17, 2000. Mr. Calderon will remain as Chairman of the Board.
From January 1996 to August 1996, Mr. Calderon was President of Sales Management
2
<PAGE>
International, a private consulting firm through which Mr. Calderon provided
strategic consulting to executive officers of various high-technology companies.
From 1992 to 1995, Mr. Calderon worked for Group Technologies, an electronic
contract manufacturing company. Mr. Calderon held several management positions
at Group Technologies, most recently as its Vice President and General Manager
of International Operations, before leaving to form his own consulting firm.
Mr. Calderon is a member of the Board of Directors of IPC, a trade association
connecting electronics industries. Mr. Calderon has been a director of the
Company since August 1996.
James K. Bass, 43, has been the Company's Chief Executive Officer since July
17, 2000. Prior to joining the Company, since 1996, Mr. Bass was a senior vice
president of Sony Corporation. Prior to that, Mr. Bass spent 15 years in
various manufacturing management positions at the aerospace group of General
Electric.
Val M. Avery, 50, has been the Company's Chief Information Officer since June
1998. Prior to joining the Company, from 1997 until June 1998, Mr. Avery was an
independent management consultant. From 1997 to 1996, Mr. Avery was Director of
Enterprise Solutions for Solbourne, Inc., a consulting services company. Prior
to that, from 1992 to 1996, Mr. Avery was a Senior Industry Consultant for
Oracle Corporation.
August P. Bruehlman, 44, has been the Company's Chief Administrative Officer
since August 1996 and Secretary of the Company since February 1998. Mr.
Bruehlman joined the Company in 1988 and has held several management positions,
most recently as Director of Human Resources. Mr. Bruehlman's current
responsibilities at the Company include corporate facilities and human
resources. Prior to 1988, subsequent to pursuing advanced degrees, he managed
electronics and computer training in the private and public sectors.
Charles D. Tillett, 50, has been the Company's Chief Operations Officer since
October 1998. Prior to joining the Company, from 1996 to 1998, Mr. Tillett held
a variety of positions with Avex Electronics Inc., an electronic contract
manufacturer, including Vice President of Worldwide Operations and Vice
President of Overseas Operations. Prior to his work for Avex, Mr. Tillett was
President and Chief Operating Officer for Comptronix Corporation from December
1992 to June 1996. Mr. Tillett has resigned effective July 28, 2000.
James A. Doran, 45, has been the Company's Treasurer since April 2000. Prior
to joining the Company, Mr. Doran had been a senior audit manager with Hein +
Associates, LLP, a public accounting firm, since June 1994. From 1993 to 1994
Mr. Doran was Vice President and Chief Financial Officer of Gerrity Oil & Gas
Corporation, an independent oil and gas operator in Denver, Colorado, whose
stock was listed on the New York Stock Exchange. Prior to joining Gerrity, Mr.
Doran was a shareholder of Williams, Richey & Co., P.C., an accounting and
consulting firm in Denver, Colorado, and before that was a Senior Manager with
Coopers & Lybrand. Since June 2000, Mr. Doran has been a member of the Board of
Directors of the Colorado Society of Certified Public Accountants. Mr. Doran
has been a director of the Company since 1993.
Allen S. Braswell, Jr., 41, currently serves as the President of Jabil
Global Services, a subsidiary of Jabil Circuit, Inc., which acquired EFTC
Services Group from the Company in September 1999. Mr. Braswell was Sr. Vice
President of EFTC Corporation and President of the Company's EFTC Services Group
from September 1997 until September 1999 when EFTC Services Group was acquired
by Jabil Circuit, Inc. Mr. Braswell had been President of Circuit Test, Inc.
("CTI") since October 1993 and Chief Executive Officer of CTI since October 1996
until the acquisition by the Company of CTI and related companies which became
the EFTC Services Group in September 1997. Prior to that time, Mr. Braswell had
been Executive Vice President of CTI from August 1985 until October 1993
focusing primarily on
3
<PAGE>
CTI's Sales and Marketing activities. Mr. Braswell served on CTI's Board of
Directors since its founding in 1981. Mr. Braswell has been director of the
Company since September 1997.
Richard L. Monfort, 45, served as President and Chief Operating Officer of
ConAgra Red Meat Companies from July 1989 to June 1995. From June 1995 to the
present, Mr. Monfort has been engaged in private investing activities. From
1983 until 1989, he was President of Monfort, Inc., which was subsequently
acquired by ConAgra, Inc. Mr. Monfort recently joined the board of the
University of Colorado Hospital Authority. Mr. Monfort has been a director of
Famous Dave's of America, Inc., an owner and operator of restaurants, since
March 1997. Mr. Monfort has been a director of the Company since 1993.
Charles E. Hewitson, 50, currently serves as President of OnCourse, Inc., a
private consulting firm through which Mr. Hewitson provides certain consulting
services to EFTC, and is a director of EFTC. From 1984 to April 1997, Mr.
Hewitson served as Vice President and director, and was a principal shareholder,
of Current Electronics, Inc. ("CEI"), with responsibility for human resources,
finance, accounting and manufacturing. In addition, Mr. Hewitson served as Vice
President of Current Electronics (Washington), Inc. ("CEWI"), from 1994 to
February 1997. CEI and its affiliate CEWI were acquired by EFTC in February
1997, at which time Mr. Hewitson was appointed to the Board of Directors.
Robert K. McNamara, 46, has served since August 1995 as a Managing Director
for Broadview International LLC, a merger and acquisition advisor serving the
global information technology industry. Before joining Broadview, Mr. McNamara
spent 10 years with Salomon Brothers Inc., an investment banking firm, most
recently as vice president and head of its technology group. From September
1981 to June 1985 Mr. McNamara worked at Smith Barney, Harris Upham & Co., Inc.,
an investment banking firm, as vice president, focusing on the
telecommunications equipment, computer peripherals and computer retailing market
segments. Mr. McNamara has been a director of the Company since February 1996.
Jeffrey W. Goettman, 41, has served since February 1998 as a Managing Director
for Thayer Capital Partners, a private equity investment fund based in
Washington, D.C. Before joining Thayer Capital Partners, Mr. Goettman was a
Managing Director for Robertson Stephens & Company from February 1997 until
February 1998. Mr. Goettman has been a director of Cosmotronic Corporation
since April 1998, a director of TTM Technologies, Inc., since December 1998 and
a director of Cape Success since December 1999. Mr. Goettman was elected by the
directors to the Company's board in March 2000 to fill the vacancy created by
the increase of the size of the board from ten to eleven directors. Mr.
Goettman will stand for election at the next annual meeting of the Company's
shareholders.
Robert Monaco, 38, currently serves as Vice President, General Manager and
Assistant Secretary of RM Electronics, Inc., a New Hampshire corporation doing
business as Personal Electronics, Inc. ("Personal Electronics") and a subsidiary
of the Company. Mr. Monaco co-founded Personal Electronics in 1991 and served
as its Vice President until the Company acquired Personal Electronics in March
1998. Prior to 1991, Mr. Monaco was employed by Cabletron Systems in various
capacities, most recently as its Director of Operations.
Gerald J. Reid, 59, a founder of the Company, was Chairman of the Board of
Directors from October 1990 until June 1998. Mr. Reid also periodically served
as the Company's Manufacturing Manager since that time and as President of the
Company from August 1995 to August 1996. From August 1981 until October 1990,
Mr. Reid was President and Chief Executive Officer of the Company. Before
founding the Company in 1981, he held a number of manufacturing-related
managerial positions over a 19-year career with Hewlett Packard Company ("HP"),
including Future Information Systems Task
4
<PAGE>
Force Manager, Production Control Manager, Production Section Manager and
Technical Supervisor. At the time Mr. Reid left HP to found EFTC, he held the
position of Division Materials Manager. Mr. Reid has been a director of the
Company since its inception.
Masoud S. Shirazi, 49, has been the owner of Shirazi & Associates, P.C., an
employee benefit and consulting firm in Greeley, Colorado that specializes in
benefit and estate planning, since 1976. Mr. Shirazi has been a director of the
Company since 1992.
John C. Walker, 38, has been a Partner with BLUM Capital Partners, L.P., a San
Francisco-based private equity and strategic block investment firm, since April
1997. Prior to joining BLUM Capital Partners, L.P., Mr. Walker was the Vice
President of PEXCO Holdings, Inc. from 1992 to 1997. Mr. Walker is also a
member of the Board of Directors for Smarte Carte Corporation. Mr. Walker was
elected to the Company's board in March 2000 by the directors to fill the
vacancy created by the resignation of a director. Mr. Walker will stand for
election at the next annual meeting of the Company's shareholders.
The Purchase Agreement and the terms of the Convertible Note contemplated
thereby (as discussed in the Schedule 14D-9) provide that the Company will, upon
the consummation of the Offer, give the Purchaser the right to nominate a number
of persons for election as members of the Board of Directors of the Company such
that the number nominated by the Purchaser will compose a majority of the total
number of directors on the Board of Directors. The Company will agree to call
annual shareholders' meetings for the election of directors and to recommend
that the Company's shareholders vote in favor of such persons at any such
meeting called for election of directors. It is expected that the number of the
Company's directors will be fixed at nine and that new directors designated by
the Purchaser may assume office at any time following the consummation of the
Offer.
Mr. James K. Bass was elected by the Company's Board of Directors to the Board
in connection with his being hired by the Company as its Chief Executive Officer
effective July 17, 2000. Peter Harper was hired by the Company as its Chief
Financial Officer effective July 24, 2000. Mike Eblin was hired by the Company
as its Senior Vice President of Operations effective July 24, 2000.
After the various resignations and appointments, the directors and executive
officers of the Company will be as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Jack Calderon 47 Chairman of the Board of Directors (Mr. Calderon will remain a Class
II Director)
James K. Bass 43 Class I Director and Chief Executive Officer
Peter Harper 38 Chief Financial Officer
Mike Eblin 38 Senior Vice President of Operations
Val M. Avery 50 Chief Information Officer
August P. Bruehlman 44 Chief Administrative Officer
James A. Doran 45 Treasurer
Allen S. Braswell 41 Class I Director
Richard L. Monfort 45 Class I Director
Douglas P. McCormick 31 Class II Director
Jose S. Medeiros 32 Class II Director
Jeffrey W. Goettman 41 Class III Director
John C. Walker 38 Class III Director
</TABLE>
5
<PAGE>
Set forth below is a description of the backgrounds of the new directors,
other than Mr. Goettman and Mr. Walker, who are described under "Management"
above.
Douglas P. McCormick, 31, has been a Vice President of Thayer Capital
Partners since January 1999. Prior to joining Thayer Capital Partners, Mr.
McCormick was an Associate at Morgan Stanley from June 1997 until January 1999.
Prior to joining Morgan Stanley, Mr. McCormick was a student at Harvard Business
School from September 1995 until June 1997. Mr. McCormick was an Associate at
Bankers Trust from May 1995 until September 1995. Mr. McCormick will stand for
election at the next annual meeting of the Company's shareholders.
Jose S. Medeiros, 32, has served since August 1998 as a Vice President of
RCBA Strategic Partners, L.P., which is a member of Purchaser. Before joining
RCBA Strategic Partners, L.P., Mr. Medeiros was a Vice President in the
Technology M&A group of Robertson Stephens & Company from June 1996 to August
1998. Before joining Robertson Stephens, Mr. Medeiros was an associate at
McKinsey & Company, focusing on strategy, M&A and turnaround engagements. Mr.
Medeiros will stand for election at the next annual meeting of the Company's
shareholders.
Peter Harper, 38, will join the Company as Chief Financial Officer on July
24, 2000. Prior to joining the Company, Mr. Harper was Vice President of
Finance at Iomega Corporation since 1996. Prior to joining Iomega, Mr. Harper
spent twelve years in various management positions at General Electric.
Mike Eblin, 38, will join the Company as Senior Vice President of
Operations on July 24, 2000. Prior to joining the Company, Mr. Eblin was
Director of Operations of Sony Corporation since 1995. Prior to joining Sony
Corporation, Mr. Eblin held various manufacturing management positions in the
Electronics Controls division of United Technologies and Hughes Electronics,
part of General Motors Corporation.
In addition, the Purchaser has the right to designate one additional
director such that the number of directors nominated by the Purchaser shall
comprise a majority of the Board of Directors.
Committees and Meetings
The Board of Directors has established two standing committees: an Audit
Committee and a Compensation Committee.
Audit Committee. The Audit Committee consists of six directors who are not
employees of the Company. Jeffrey W. Goettman, John C. Walker, Charles E.
Hewitson, Robert K. McNamara, Masoud S. Shirazi and Richard L. Monfort currently
serve as the members of the Audit Committee. The Audit Committee met four times
during 1999. The functions of the Audit Committee are to recommend to the Board
of Directors the appointment of independent auditors, to review the plan and
scope of any audit of the Company's financial statements and to review the
Company's significant accounting policies and other related matters.
Compensation Committee. The Compensation Committee currently consists of
seven directors who are not employees of the Company. Jeffrey W. Goettman, John
C. Walker, Charles E. Hewitson, Robert K. McNamara, Richard L. Monfort, Masoud
S. Shirazi and Gerald J. Reid currently serve as the members of the Compensation
Committee. The Compensation Committee met four times during 1999. The
functions of the Compensation Committee are to make recommendations to the Board
of Directors regarding the compensation of executive officers and to administer
the Company's Equity Incentive Plan and Stock Option Plan for Non-Employee
Directors. It also makes recommendations to the Board of
6
<PAGE>
Directors with respect to the compensation of the Chairman of the Board of
Directors and the Chief Executive Officer and approves the compensation paid to
other senior executives.
During 1999, the Board of Directors met eight times and various committees
of the Board of Directors met a total of eight times. Each director attended
more than 75% of the meetings of the Board of Directors and meetings of
committees on which such director served.
7
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information as of June 30, 2000 as to
the beneficial ownership of common stock by certain beneficial owners of more
than five percent of the common stock, each director, certain executive officers
and by all directors and executive officers as group:
<TABLE>
<CAPTION>
Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership Common Stock(1)
------------------------ -------------------- ---------------
<S> <C> <C>
Val M. Avery.............................. 14,000 (2) *
Allen S. Braswell, Jr**................... 1,794,381 (3) 11.5%
August P. Bruehlman....................... 72,133 (4) *
Jack Calderon............................. 241,448 (5) 1.5%
James A. Doran............................ 37,825 (6)(7) *
Jeffrey W. Goettman....................... 3,093,154 (8) 16.6%
Charles E. Hewitson**..................... 1,596,968 (9) 10.3%
Robert K. McNamara........................ 36,166 (10) *
Robert Monaco............................. 640,000 4.1%
Richard L. Monfort........................ 754,875 (7)(11) 4.9%
Gerald J. Reid............................ 512,352 (12) 3.3%
Masoud S. Shirazi......................... 49,675 (7)(13) *
Chuck Tillett............................. 30,000 (14) *
John C. Walker............................ -- (15) *
Deltec Asset Management Corporation....... 1,379,740 (16) 8.9%
Dimensional Fund Advisors................. 1,112,700 (17) 7.2%
Thayer-BLUM Funding, L.L.C................ 3,093,154 (18) 16.6%
All directors and executive officers as a
group, including persons named above
(14 persons).............................. 8,872,977 (19) 46.4%
</TABLE>
_____________________
* Less than one percent.
** The address of each of these persons is 9351 Grant Street, Sixth Floor,
Denver, Colorado 80229.
8
<PAGE>
(1) Based solely upon reports of beneficial ownership required to be filed with
the Securities and Exchange Commission pursuant to Rule 13d-1 under the
Securities and Exchange Act of 1934, the Company does not believe that any
other person beneficially owned, as of March 31, 2000, greater than five
percent of the outstanding common stock.
(2) Includes 14,000 shares of common stock subject to currently exercisable
options granted under the Company's Equity Incentive Plan.
(3) Includes 369,442 shares held by the Allen S. Braswell, Jr. EFTC Family
Limited Partnership, of which Allen S. Braswell Jr and his spouse, Alma L.
Braswell, are the general partners, 11,000 shares held by the Allen S.
Braswell, Sr. Trust, of which Allen S. Braswell, Sr., Allen S. Braswell,
Jr.'s father, is the trustee, 343,735 shares held by the Allen S. Braswell,
Jr. and Alma L. Braswell JTWROS, 4,000 shares held by the Allen S. and Alma
L. Braswell Family Limited Partnership, 35,000 shares held by Circuit Test
International, LP, of which Braswell Investment Corporation (Allen S.,
Braswell, Jr. is President) is a general partner and 1,031,204 shares held
by Braswell GRIT Limited Partnership of which Braswell Investment
Corporation (Allen S., Braswell, Jr. is President) is a general partner.
(4) Includes 71,633 shares subject to currently exercisable options granted
under the Company's Equity Incentive Plan.
(5) Includes 117,941 shares of common stock subject to currently exercisable,
non-qualified options granted in connection with the commencement of Mr.
Calderon's employment and 112,307 shares of common stock subject to
currently exercisable options granted pursuant to the Company's Equity
Incentive Plan.
(6) Includes 15,750 shares of common stock that are subject to currently
exercisable options under the Company's Equity Incentive Plan.
(7) Includes 20,250 shares of common stock that are subject to currently
exercisable options under the Company's Stock Option Plan for Non-Employee
Directors. Options for an additional 375 shares vest each month until
March 2001 under such plan.
(8) Mr. Goettman's address is 1455 Pennsylvania Avenue, N.W., Suite 350,
Washington D.C. 20004. Includes 3,093,154 shares of common stock subject to
exercise of the warrant issued to Thayer-BLUM Funding. See Note 18 below.
(9) Includes 10,250 shares of common stock that are subject to currently
exercisable options under the Company's Stock Option Plan for Non-Employee
Directors. Options held by such director for an additional 375 shares vest
each month until March 2001 under such plan. Also includes 528,531 shares
of common stock owned by Matthew Hewitson and 528,531 shares of common
stock owned by Gregory Hewitson, brothers of Charles Hewitson. Charles
Hewitson disclaims beneficial ownership of the shares of common stock owned
by Matthew Hewitson and Gregory Hewitson.
(10) Mr. McNamara's address is Broadview International, LLC, One Bridge Plaza,
Fort Lee, NJ 07024. Includes 20,250 shares of common stock that are
subject to currently exercisable options under the Company's Stock Option
Plan for Non-Employee Directors. Options held by such director for an
additional 333 shares vest each month until May 2000 under such plan.
Thereafter options for an additional 250 shares vest until March 2001 under
such plan. Also includes 15,000 shares of common stock owned jointly with
Irene Z. McNamara, Mr. McNamara's wife.
(11) Includes 271,500 shares held by the Monfort Family Partnership, 250,000
shares held by Rick Montera and Kay Montera JTWROS, 125,000 shares of
common stock owned by a partnership in which Mr. Monfort is the principal
investor and 87,000 shares of Common Stock owned by three of Mr. Monfort's
minor children.
(12) Includes 10,250 shares of common stock that are subject to currently
exercisable options under the Company's Stock Option Plan for Non-Employee
Directors. Options held by such director for an additional 375 shares vest
each month until March 2001 under such plan. Also includes 289,551 shares
of common stock that are held by Lucille Reid, Gerald, R. Reid's wife.
(13) Mr. Shirazi's address is Shirazi & Associates, Inc., 1770 25th Avenue,
#302, Greeley, CO 80634. Includes 300 shares of common stock owned by
several of Mr. Shirazi's minor children.
(14) Includes 30,000 shares of common stock subject to currently exercisable
options granted under the Company's Equity Incentive Plan.
(15) Mr. Walker's address is 909 Montgomery Street, Suite 400, San Francisco,
CA. 94133. Mr. Walker is a partner in RCBA Strategic Partners, L.P. See
Note 18 below.
(16) The address of Deltec Asset Management Corporation is 645 Fifth Avenue, New
York, NY 10022. Deltec reported shared dispositive power and shared
voting power with regard to 1,379,740 shares of common stock.
(17) The address of Dimensional Fund Advisors is 1299 Ocean Avenue, 11th Floor,
Santa Monica, CA 90401.
(18) Thayer-BLUM Funding was formed to hold securities of the Company. Includes
3,093,154 shares of common stock which may be purchased upon exercise of
the warrant issued to Thayer-BLUM Funding. This warrant is not currently
exercisable. A Schedule 13D relating to this issuance was jointly filed
by Thayer-BLUM Funding, L.L.C., a Delaware limited liability company (the
"Purchaser"), Thayer Equity Investors IV, L.P., a Delaware limited
partnership, TC Equity Partners IV, L.L.C., a Delaware limited liability
company, TC Manufacturing Holdings, L.L.C., a Delaware limited liability
company, TC Co-Investors IV, LLC, a Delaware limited liability company, TC
Management Partners IV, L.L.C., a Delaware limited liability company
(together each of Thayer Equity Investors IV, L.P., TC Equity Partners IV,
L.L.C., TC Manufacturing Holdings, L.L.C., TC Co-Investors IV, LLC, and TC
Management Partners IV, L.L.C., the "Thayer Entities"), RCBA Strategic
Partners, L.P., a Delaware limited partnership, BLUM Capital Partners,
L.P., a California limited partnership, Richard C. Blum & Associates, Inc.,
a California corporation, RCBA GP, L.L.C., a Delaware limited liability
company (together each of RCBA Strategic Partners, L.P., BLUM Capital
Partners, L.P., Richard C. Blum & Associates, Inc., and RCBA GP, L.L.C. the
"BLUM Entities") and Frederic V. Malek, Carl J. Rickertsen, Jeffrey W.
Goettman, Susan Gallagher and Richard C. Blum as individuals (the
"Individuals") (each of the Purchaser, the Thayer Entities, the BLUM
Entities, and the Individuals a "Reporting Person" and taken together the
"Reporting Persons"). The
9
<PAGE>
principal business offices of each of Purchaser, the Thayer Entities, and
Frederic V. Malek, Carl J. Rickertsen, Jeffrey W. Goettman and Susan
Gallagher is 1455 Pennsylvania Avenue, N.W., Suite 350, Washington D.C.
20004. The business address of each of the BLUM Entities and Richard C.
Blum is 909 Montgomery Street, Suite 400, San Francisco, CA. 94133. Thayer
Equity Investors IV, L.P. and TC Manufacturing Holdings, L.L.C. are members
of Thayer-BLUM Funding, L.L.C. TC Equity Partners IV, L.L.C. is the general
partner of Thayer Equity Investors IV, L.P. TC Co-Investors IV, LLC is the
managing member of TC Manufacturing Holdings, L.L.C. TC Management Partners
IV, L.L.C. is the managing member of TC Co-Investors IV, LLC. RCBA
Strategic Partners, L.P. is a member of Thayer-BLUM Funding, L.L.C. RCBA
GP, L.L.C. is the general partner of RCBA Strategic Partners, L.P. Each of
Frederic V. Malek, Carl J. Rickertsen, Jeffrey W. Goettman and Susan
Gallagher are members of TC Management Partners IV, L.L.C. and TC Equity
Partners IV, L.L.C. Each of the Reporting Persons reported shared
dispositive power and shared voting power as to the 3,093,154 shares of
common stock issuable upon exercise of the warrant.
(19) Of such 8,872,977 shares, as of June 30, 2000, 469,672 represent shares of
common stock subject to options that are currently exercisable or, within
60 days of June 30, 2000, will become exercisable and 3,093,154 shares
represent shares issuable upon exercise of the warrant issued to Thayer-
BLUM Funding. This warrant is not currently exercisable.
10
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth certain
information regarding the compensation paid in the last three fiscal years to
the most highly compensated executive officers of the Company.
Summary Compensation Table
--------------------------
<TABLE>
<CAPTION>
Long-Term
Name and Annual Compensation Compensation
------------------- Awards All Other
Principal Position Year Salary($) Bonus($) Options(#) Compensation($)
------------------ ---- --------- -------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Jack Calderon 1999(1) $287,894 -- -- $ 2,241(2)
Chairman, President and 1998 * $240,885 $82,500 175,000(3) $ 2,218(2)
Chief Executive Officer 1997 $200,000 $40,000 200,000 $10,147(2)
(17)
Stuart W. Fuhlendorf 1999(4) $180,019(5) -- 200,000(6) --
Vice President and Chief 1998* $178,385 $28,050 24,615(7) --
Financial Officer 1997 $ 85,000 $33,500 110,000 --
August P. Bruehlman 1999(8) $123,317 -- -- --
Chief Administrative 1998* $120,692 $21,840 14,769(9) --
Officer and Secretary 1997 $ 77,086 $ 7,800 75,000 --
Allen S. Braswell, Jr. 1999 $122,740(10) -- -- --
Senior Vice President 1998* $168,756 $14,438 60,818(11) $16,849(12)
and President of EFTC 1997(13) $ 47,115 -- 110,000 --
Services
Chuck Tillett 1999(14) $214,077 -- -- --
Chief Operations 1998(15) $ 83,970 -- 150,000 --
Officer 1997 -- -- -- --
Val Avery 1999 $130,000 -- 5,000 --
Chief Information 1998(16) $ 73,018 -- 85,000 --
Officer 1997 -- -- -- --
</TABLE>
____________________
* These officers named in this table voluntarily forfeited their salaries for
one pay period in 1998 to assist the Company's short-term liquidity
position. If they had collected their salaries for that pay period, Mr.
Calderon's salary for 1998 would have been $250,000; Mr. Fuhlendorf's
salary for 1998 would have been $185,000; Mr. Bruehlman's salary for 1998
would have been $125,000; and Mr. Braswell's salary for 1998 would have
been $175,000.
(1) Mr. Calderon voluntarily took a 15% reduction in salary during the period
beginning July 4, 1999 through October 10, 1999 to assist the Company's
short-term liquidity position. If Mr. Calderon had collected his full
salary for that period, his salary for 1999 would have been $300,000.
(2) Represents allocation of income associated with personal use of an
automobile provided by the Company.
(3) Mr. Calderon was granted 350,000 options in June 1998. These options were
canceled and Mr. Calderon was granted 175,000 new options in connection
with a repricing of options by the Company in December 1998.
(4) Mr. Fuhlendorf voluntarily took a 10% reduction in salary during the period
beginning July 4, 1999 through October 10, 1999 to assist the Company's
short-term liquidity position. If Mr. Fuhlendorf had collected his full
salary for that period, his salary for 1999 would have been $185,000.
(5) Mr. Fuhlendorf resigned from the Company effective March 27, 2000.
(6) Due to Mr. Fuhlendorf's resignation effective March 27, 2000, 165,000
options expired on March 27, 2000 and 35,000 expired on June 27, 2000.
(7) 50,000 options granted to Mr. Fuhlendorf in 1997 were canceled and 24,615
new options were granted to Mr. Fuhlendorf in connection with a repricing
of options by the Company in December 1998.
11
<PAGE>
(8) Mr. Bruehlman voluntarily took a 5% reduction in salary during the period
beginning July 4, 1999 through October 10, 1999 to assist the Company's
short-term liquidity position. If Mr. Bruehlman had collected his full
salary for that period, his salary for 1999 would have been $125,000.
(9) 30,000 options granted to Mr. Bruehlman in 1997 were canceled and 14,769
new options were granted to Mr. Bruehlman in connection with a repricing of
options by the Company in December 1998.
(10) Mr. Braswell's employment agreement with the Company was terminated on
August 31, 1999.
(11) 110,000 options granted to Mr. Braswell in 1997 were canceled and 60,818
new options were granted to Mr. Braswell in connection with a repricing of
options by the Company in December 1998.
(12) Represents payment to defray moving expenses related to Mr. Braswell's
relocation to Denver, Colorado in connection with his employment with the
Company
(13) Mr. Braswell has been employed by the Company or a subsidiary of the
Company since September 1997.
(14) Mr. Tillett voluntarily took a 10% reduction in salary during the period
beginning July 4, 1999 through October 10, 1999 to assist the Company's
short-term liquidity position. If Mr. Tillett had collected his full
salary for that period, his salary for 1999 would have been $220,000.
(15) Mr. Tillett has been the Company's Chief Operations Officer since October
1998. Mr. Tillett resigned from the Company effective July 28, 2000.
(16) Mr. Avery has been the Company's Chief Information Officer since June 1998.
(17) Mr. Calderon has resigned his positions as President and Chief Executive
Officer effective July 17, 2000.
Options Granted. The following table sets forth information concerning
options granted in 1999 to the Company's executive officers named in the Summary
Compensation Table.
Option Grants in the Last Fiscal Year
-------------------------------------
<TABLE>
<CAPTION>
Percent (%) of Potential Realizable Value at
Total Options Assumed Annual Rate of Stock
Number of Granted to Exercise Price Appreciation for Option
Options Employees Price per Expiration ------------------------------
Name Granted During 1999 Share Date 5% 10%
---- ------- ----------- ----- ---- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jack Calderon 0 -- -- -- -- --
Stuart W. 200,000 16.4 $5.00 5/17/09 (1) $110,057 $278,905
Fuhlendorf
August P. 0 -- -- -- -- --
Bruehlman
Allen S. Braswell, 0 -- -- -- -- --
Jr.
Chuck Tillett 0 -- -- -- -- --
Val Avery 5,000 0.4 $4.00 1/25/09 $ 12,578 $ 31,875
</TABLE>
___________________
* Less than 0.1%.
(1) Due to Mr. Fuhlendorf's resignation effective March 27, 2000, 165,000
options expired on March 27, 2000 and 35,000 expired on June 27, 2000.
12
<PAGE>
Option Exercises and Year End Option Values. The following table sets
forth information concerning options exercised in 1999 and outstanding options
held by the Company's executive officers named in the Summary Compensation Table
as of December 31, 1999, the end of the Company's last fiscal year.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Shares Options at In-the-Money Options at
Acquired on Value December 31, 1999(#) December 31, 1999($)
Name Exercise(#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ---------- --------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Jack Calderon -- -- 230,248 / 211,924 --/--
Stuart W. Fuhlendorf -- -- 124,781 / -- --/--
August P. Bruehlman -- -- 71,633 / 11,077 --/--
Allen S. Braswell, Jr. -- -- -- / -- --/--
Chuck Tillett -- -- 30,000 / 120,000 --/--
Val Avery -- -- 14,000 / 76,000 --/--
</TABLE>
Compliance with Section 16(a) of the Exchange Act
Under Section 16 of the Securities Exchange Act of 1934, the Company's
directors and certain of its officers, and persons holding more than ten percent
of the Company's common stock are required to file forms reporting their
beneficial ownership of the Company's common stock and subsequent changes in
that ownership with the Securities and Exchange Commission. Such persons are
also required to furnish the Company copies of forms so filed. Based upon a
review of copies of such forms filed with the Company: Mr. Braswell has not
filed a report on Form 5 relating to one transaction, Mr. Calderon was late in
filing a report on Form 4 relating to one transaction, Mr. Fuhlendorf was late
in filing a report on Form 4 relating to one transaction, Mr. McNamara has not
filed a report on Form 5 relating to one transaction and Mr. Reid has not filed
a report on Form 5 relating to one transaction.
Compensation Committee Interlocks and Insider Participation
Currently, the Compensation Committee consists of Robert K. McNamara,
Richard L. Monfort, Masoud S. Shirazi, Gerald J. Reid, Charles E. Hewitson,
Jeffrey W. Goettman and John C. Walker. Several members of the Compensation
Committee have engaged in transactions with the Company.
Director Representation of Personal Electronics. Robert K. McNamara, the
Chairman of the Compensation Committee, is a Managing Director of Broadview
International LLC ("Broadview"), an investment banking firm, and in such
capacity represented Personal Electronics in connection with its acquisition by
the Company. Broadview is an investment bank that has represented numerous
companies in connection with mergers and acquisitions in the technology sector.
Broadview received a fee of $642,500 in connection with the consummation of the
acquisition of Personal Electronics. Broadview earned a fee of $500,000 in
connection with the sale of the Company's Services Division in September 1999
and this fee has been paid in full.
Sale/Leaseback Transaction. Richard L. Monfort, a member of the
Compensation Committee, entered into a sale/leaseback transaction with the
Company. The Company sold two manufacturing facilities located in Newburg,
Oregon and Tucson, Arizona to Mr. Monfort for $10.5 million. Mr. Monfort leased
these manufacturing facilities back to the Company for a term of five years with
monthly
13
<PAGE>
payments of $90,000. At the end of the lease term, the Company had the
option to repurchase the facilities for approximately $9.4 million. In May
1999, the lease was amended to eliminate the purchase option, which resulted in
the recharacterization of the lease from a capital lease to an operating lease.
As such, the buildings and the related debt have been removed from the Company's
balance sheet.
Issuance of Subordinated Notes and Warrants. Mr. Richard L. Monfort, a
member of the Compensation Committee, purchased $15 million in aggregate
principal amount of subordinated notes issued by the Company on September 9,
1997. The subordinated notes had a maturity date of December 31, 2002 and
provided for interest at a variable rate (adjusted monthly) equal to 2.00% over
the applicable LIBOR rate. The proceeds of these notes were used to acquire
certain assets from Honeywell (formerly AlliedSignal, Inc.). In connection with
the issuance of these subordinated notes, the Company issued warrants to
purchase 500,000 shares of the Company's common stock at an exercise price of
$8.00 per share to Mr. Monfort. The warrants were exercised on October 9, 1997
resulting in net proceeds to the Company of $4.0 million. The Company prepaid
$10.0 million of the outstanding principal amount of these notes early in
December 1997 from the proceeds of a loan from the Company's senior lender. In
connection with such prepayment, the Company agreed to pay a fee of
approximately $325,000 to be paid in equal monthly increments until the maturity
of the notes.
In November 1999, Mr. Monfort purchased $5 million in aggregate principal
amount of subordinated notes issued by the Company. These notes had a
maturity date of March 30, 2000 and provided for interest at a rate of 10%.
The proceeds of these notes were used for general operating purposes. In
connection with the Purchase Agreement, the Company repaid the $10.0 million in
principal amount outstanding under both subordinated notes. In addition, the
Company paid the remaining outstanding prepayment fee of approximately $150,000
due in connection with the prepayment of the September 1997 notes and a fee of
$100,000 due upon maturity of the November 1999 note. In addition, the November
note agreement was amended to provide for issuance of $3.0 million in aggregate
principal amount of subordinated notes, with a maturity date of March 30, 2004
and bearing interest at 10%.
Transactions with Shirazi & Associates, P.C. During 1999, third parties
doing business with the Company paid Shirazi & Associates, P.C., an employee
benefit and consulting firm owned by Masoud Shirazi, one of the Company's
directors, approximately $230,000 in commissions.
Recapitalization Transaction. Mr. Goettman and Mr. Walker, each of whom
are members of the Compensation Committee, are partners in Thayer Capital
Partners and BLUM Capital Partners, respectively. Thayer-BLUM Funding, L.L.C.,
an affiliate of both Thayer Capital Partners and BLUM Capital Partners has
entered into the Purchase Agreement with the Company which provides for a
recapitalization of the Company.
Hewitson Consulting Agreements. On February 24, 1997, the Company entered
into five-year consulting agreements with Messrs. Charles E. Hewitson, Matthew
J. Hewitson and Gregory C. Hewitson. Each of these consultants is being paid
approximately $160,000 per year and reimbursed his out-of-pocket expenses
associated with the performance of his duties. Each has agreed to devote
sufficient working time, attention and energies to the business of the Company,
but not in excess of 80% of the equivalent of being engaged on a full-time
basis. The Consulting Agreements prohibit the consultant from providing
services to, or owning 5% or more of the outstanding stock of, a competitor of
the Company during the term of his engagement and for two years after the
termination of his engagement.
14
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Employment Agreements
The Company has entered into employment agreements with certain of its
directors and current and former employees, including Messrs. Braswell, Bass,
Calderon, Fuhlendorf and Monaco.
Braswell Employment Agreement. Mr. Braswell's agreement provided for him
to be employed for a term of three years, expiring on September 30, 2000, at a
base salary of $175,000. Mr. Braswell's employment agreement with the Company
terminated on August 31, 1999 in connection with his accepting employment with
Jabil Global Services, a subsidiary of Jabil Circuit, Inc., after the sale of
the Company's EFTC Services Group to Jabil. Mr. Braswell served as President of
EFTC Services Group prior to its acquisition by Jabil.
Bass Employment Agreement. Mr. Bass's agreement provides for him to be
employed as Chief Executive Officer of the Company for a term beginning on July
17, 2000 and ending on December 31, 2003, which term automatically extends for
successive one-year periods until the agreement is terminated. Mr. Bass's
agreement provides for a minimum annual base salary of $300,000 and incentive-
based bonus compensation in an amount determined by the Compensation Committee.
The Company may terminate such employment agreement with or without cause. In
case of a termination without cause, however, the Company must continue Mr.
Bass's base salary and prorated bonus compensation for a period of one year from
the date of termination. Mr. Bass's agreement also provides for an initial
award of stock options to purchase 900,000 shares of common stock at an exercise
price of $2.63 per share under the Company's 2000 Equity Stock Option Plan,
subject to approval of the plan by the Company's shareholders. Options to
purchase 450,000 shares vest over five years (20% of which vest immediately, the
remaining 80% vest incrementally over five years) and options to purchase the
remaining 450,000 shares vest based upon achieving certain benchmark internal
rates of return in the Company.
Calderon Employment Agreement. Mr. Calderon's agreement provides for him to
be employed in his current position for a term of approximately three and one-
half years ending December 31, 2001 which then automatically extends for 90-day
periods until terminated. Mr. Calderon's agreement provides for a base salary of
$300,000 for the year ended December 31, 1999 and a base salary of $350,000 for
the remaining term of the employment agreement. The Company may terminate such
employment agreement with or without cause. In case of a termination without
cause, however, the Company must continue the terminated employee's salary and
benefits for a severance period of one year. Mr. Calderon's agreement also
provides for his salary and benefits to continue for twelve months after
termination of employment if the employment agreement expires, and Mr. Calderon
does not remain an employee of the Company. Mr. Calderon's agreement also
provided for the Company to grant to Mr. Calderon non-qualified stock options to
purchase 350,000 shares of common stock at an exercise price of $16.00. Mr.
Calderon elected to reprice such options in December 1998. Such options vest in
10% increments upon the common stock of the Company achieving certain trading
levels above the exercise price. Mr. Calderon resigned from his positions as
President and Chief Executive Offer of the Company, effective July 17, 2000.
Fuhlendorf Employment Agreement. Mr. Fuhlendorf's employment agreement had
provided for him to be employed as Chief Financial Officer, for an initial term
of three years, which ended in March 1997, automatically extended for 90-day
periods until terminated. Mr. Fuhlendorf resigned from his position with the
Company, effective March 27, 2000.
15
<PAGE>
Monaco Employment Agreement. The Company had an employment agreement with
Mr. Monaco which provided for him to be employed in his current capacity as
General Manager of Personal Electronics at a base salary of $125,000 for an
initial term of two years. This contract expired on March 31, 2000 and the
parties are currently in the process of negotiating a new employment agreement.
The Company and Mr. Monaco have agreed in principle that the Company will employ
Mr. Monaco as a general manager of the Company. Mr. Monaco will receive an
annual base salary of $200,000 per year, bonus compensation in an amount based
upon mutually determined performance criteria and bonus compensation contingent
upon Mr. Monaco's continued employment. The Company has agreed to grant Mr.
Monaco options to purchase 300,000 shares of common stock at an exercise price
of $2.63 per share under the Company's 2000 Equity Stock Option Plan, subject to
approval of the plan by the Company's shareholders. Options to purchase 150,000
shares vest over five years and options to purchase the remaining 150,000 shares
vest based upon achieving certain benchmark internal rates of return.
Compensation of Directors
Directors who are not also employees of the Company receive $1,000 for each
quarter in which the director attended a meeting in person and $250 per
additional Board or committee meeting attended in person, unless such committee
meeting is held in conjunction with a meeting of the full Board of Directors.
Directors who are also employees of the Company receive no additional
compensation for serving as directors. The Company reimburses all of its
directors for reasonable travel and out-of-pocket expenses in connection with
their attendance at meetings of the Board of Directors or committees of the
Board of Directors. The Company did not pay or accrue any director fees from
July 1, 1999 through March 31, 2000. The Company has established a Stock Option
Plan for Non-Employee Directors (the "Director Plan"). Options granted under
the Director Plan have an exercise price equal to the fair market value of the
common stock on the date of grant, are subject to certain vesting periods and
expire 10 years following the date of grant.
Other Transactions
In addition, the information set forth above under the caption
"Compensation Committee Interlocks and Insider Participation" is incorporated
herein by reference.
Compensation Committee Report
The report of the Compensation Committee of the Board of Directors shall
not be deemed incorporated by reference into any filing under the Securities Act
of 1933 or under the Securities Exchange Act of 1934 by any general statement
incorporating this information statement by reference, except to the extent that
the Company specifically refers to this report as being incorporated therein by
reference, and shall not otherwise be deemed filed under such Acts.
Compensation Policies. The Company's executive compensation policies are
implemented by the Compensation Committee of the Board of Directors (the
"Committee"). The Company is committed to providing an executive compensation
program that promotes and supports the Company's goals and its long-term
business objectives. The Company's compensation programs are intended to
provide executives with incentives to contribute to the Company's successful
financial performance and to enable the Company to attract, retain and reward
highly skilled executive officers who contribute to the long-term success of the
Company. The Company has designed its executive compensation program to
implement the above policies. The Company's executive compensation program is
comprised of three elements, each of which is determined in part by corporate
performance. These elements consist of base salary, annual bonus and equity
incentive compensation.
16
<PAGE>
Base Salary Compensation. The Committee evaluates and establishes the base
salary levels of the President and Chief Executive Officer, the Chief Financial
Officer, the Chief Administrative Officer, the Chief Information Officer, the
Chief Operations Officer, and the Senior Vice Presidents of the Company. The
Committee's determinations are based on certain factors, none of which are given
more weight than any other factor, including, a survey of compensation levels
for companies with market valuations, lines of business and/or revenues
comparable to the Company, level of responsibility, performance of the Company,
including its stock price performance, and individual performance of the
executive officer.
Annual Bonus Compensation. The Company has established a Management Bonus
Plan. No bonuses were paid in 2000 to executives from the Management Bonus Plan
for 1999. The Committee has determined that for 2000, in accordance with the
Company's executive compensation policies, a bonus plan based on achieving
specific performance targets, including corporate earnings per share, and will
provide an incentive to executives to enhance the financial performance of the
Company. The 2000 Bonus Plan will provide the President and Chief Executive
Officer, the Chief Financial Officer, the Chief Administrative Officer, the
Chief Information Officer, the Chief Operations Officer, and the Senior Vice
Presidents of the Company with the opportunity to receive cash bonuses for
achieving specific performance targets as determined by the Committee.
Equity Incentive Compensation. Long-term management incentives are
provided by periodically granting stock options to executives and other
directors and managers under the Company's Equity Incentive Plan. The Committee
uses specific criteria to determine such stock option grants. In granting stock
options, the Committee considers factors that are generally the same as those
used in determining base salaries and annual bonuses. The Committee also
considers the number of options previously awarded to and held by executive
officers in determining current option grants.
COMPENSATION COMMITTEE
Robert K. McNamara, Chair
Richard L. Monfort
Masoud S. Shirazi
Gerald J. Reid
Charles E. Hewitson
Jeffrey W. Goettman
John C. Walker
Stock Price Performance Graph
The stock price performance graph shall not be deemed incorporated by
reference into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934 by any general statement incorporating this
information statement by reference, except to the extent that the Company
specifically refers to this information as being incorporated therein by
reference, and shall not otherwise be deemed filed under such Acts.
The graph below compares the cumulative return of the Company's common
stock against the Nasdaq Composite Index and an Electronic Manufacturing Service
Index, which is an index of public electronic manufacturing service providers
selected by the Company as representative of the industry in which the Company
competes. The cumulative return depicted is based upon an initial investment of
$100 over the period March 3, 1994 through December 31, 1999 and the last
reported sale price of the
17
<PAGE>
common stock as reported on the Nasdaq National Market March 3, 1994 ($7.88),
the first day on which the common stock was traded, and on the last trading day
of each year ended thereafter, including December 30, 1994 ($7.63), December 29,
1995 ($4.00), December 30, 1996 ($4.63), December 31,1997 ($16.25), December 31,
1998 ($5.063) and December 31, 1999 ($1.8125).
The Company is using the internally generated Electronic Manufacturing
Service Index (the "EMS Index") for the purpose of presenting relative stock
price performance information in the Company's proxy statements. The EMS Index
represents a smaller group of companies than the Nasdaq Electronic Component
Index and only includes electronic manufacturing service providers engaged in
business similar to the Company's. In contrast, the Nasdaq Electronic Component
Index includes companies engaged in all areas of manufacturing electronic
components, including both parts and assemblies as well as circuit boards and
finished products. Consequently, the Company believes that the electronic
manufacturing service providers that are included within the EMS Index are more
representative of the industry in which the Company competes. The Company also
believes that industry analysts use groups of companies substantially similar to
those included in the Company's EMS Index when analyzing the performance of the
Company and its competitors. In addition to the Company, the EMS Index includes
the following issuers: Benchmark Electronics, Inc., DII Group, Inc., IEC
Electronics Corp., Jabil Circuit, Inc., Plexus Corp., Sanmina Corporation, SCI
Systems, Inc. and Solectron Corporation. Altron Incorporated had been included
in the Company's EMS index in the past, but was eliminated after it was acquired
by Sanmina Corporation.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
NAME 3/3/94 12/30/94 12/29/95 12/31/96 2/31/97 12/31/98 2/31/99
----
<S> <C> <C> <C> <C> <C> <C> <C>
Nasdaq Composite
Index 100 95.84 134.10 164.55 200.15 279.47 518.66
Electronic
Manufacturing 100 76.40 95.50 119.10 215.01 309.82 419.92
Service Index
EFTC Corporation 100 101.67 53.33 61.67 216.67 67.50 24.17
</TABLE>
18
