-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UVThQZGaa7AieO2E7BzToqqSTb/n9VPJJG9NroHd8X5gxf35VqpkCEa2f5lNGolA 0g998vflWqCyVkViS+5bjQ== /in/edgar/work/20000815/0000899733-00-500023/0000899733-00-500023.txt : 20000922 0000899733-00-500023.hdr.sgml : 20000921 ACCESSION NUMBER: 0000899733-00-500023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EFTC CORP/ CENTRAL INDEX KEY: 0000916797 STANDARD INDUSTRIAL CLASSIFICATION: [3672 ] IRS NUMBER: 840854616 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23332 FILM NUMBER: 701519 BUSINESS ADDRESS: STREET 1: HORIZON TERRACE STREET 2: 9351 GRANT STREET SIXTH FL CITY: DENVER STATE: CO ZIP: 80229 BUSINESS PHONE: 3034518200 MAIL ADDRESS: STREET 1: HORIZON TERRACE STREET 2: 9351 GRANT STREET SIXTH FL CITY: DENVER STATE: CO ZIP: 80229 FORMER COMPANY: FORMER CONFORMED NAME: ELECTRONIC FAB TECHNOLOGY CORP DATE OF NAME CHANGE: 19940103 10-Q 1 0001.txt 06/30/00 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 2000 [ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________ Commission file number: 0-23332 EFTC CORPORATION (Exact name of registrant as specified in its charter) Colorado 84-0854616 -------- ---------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 9351 Grant Street, Sixth Floor Denver, Colorado 80229 (Address of principal executive offices) (303) 451-8200 (Issuer's telephone number) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ]No State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. Common Stock, par value $0.01 15,543,489 shares - ----------------------------- ----------------- (Class of Common Stock) (Outstanding at August 8, 2000) EFTC CORPORATION FORM 10-Q INDEX Page PART I. FINANCIAL INFORMATION Number(s) Item 1. Unaudited Financial Statements Consolidated Balance Sheets- June 30, 2000 and December 31, 1999 3-4 Consolidated Statements of Operations- Three and Six Months Ended June 30, 2000 and 1999 5 Consolidated Statements of Cash Flows- Six Months Ended June 30, 2000 and 1999 6-7 Notes to Consolidated Financial Statements 8-12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General 13 Results of Operations 14-18 Liquidity and Capital Resources 18-21 Special Note Regarding Forward-looking Statements 21-22 Item 3. Quantitative and Qualitative Disclosures about Market Risk 22 PART II. OTHER INFORMATION Item 1. Legal Proceedings 23-24 Item 2. Changes in Securities 24 Item 3. Defaults Upon Senior Securities 24 Item 4. Submission of Matters to a Vote of Security Holders 24 Item 5. Other Information 24 Item 6 Exhibits and Reports on Form 8-K 25 SIGNATURES 26 2 Part I. Financial Information Item 1. Financial Statements
EFTC CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in Thousands, Except Per Share Amounts) ASSETS June 30, December 31, 2000 1999 ----- ----- Current Assets: Cash and equivalents $ 309 $ 716 Trade receivables, net of allowance for doubtful accounts of $1,948 and $3,689, respectively 34,384 26,094 Income taxes receivable - 2,106 Inventories, net 85,878 60,167 Prepaid expenses and other 2,306 2,795 ------------------- ------------------ Total Current Assets 122,877 91,878 ------------------- ------------------ Property, Plant and Equipment, at cost: Leasehold improvements 3,775 2,797 Buildings and improvements 2,071 1,172 Manufacturing machinery and equipment 14,307 16,496 Furniture, computer equipment and software 12,121 12,726 ------------------- ------------------ Total 32,274 33,191 Less accumulated depreciation and amortization (11,492) (9,614) ------------------- ------------------ Net Property, Plant and Equipment 20,782 23,577 ------------------- ------------------ Intangible and Other Assets: Goodwill, net of accumulated amortization of $891 and $758, respectively 7,130 7,264 Intellectual property, net of accumulated amortization of $1,379 and $699, respectively 3,609 4,289 Debt issuance costs, net of accumulated amortization of $151 and $97, respectively 2,963 460 Inventories, deposits and other 5,582 3,661 ------------------- ------------------ Total Intangible and Other Assets 19,284 15,674 ------------------- ------------------ $ 162,943 $ 131,129 =================== ==================
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EFTC CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS, Continued (Dollars in Thousands, Except Per Share Amounts) June 30, December 31, 2000 1999 LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) ---- ---- Current Liabilities: Current maturities of long-term debt - related party $ - $ 5,018 Accounts payable 55,712 46,985 Accrued compensation and benefits 5,465 4,993 Other accrued liabilities 5,769 8,650 ------------------- ------------------ Total Current Liabilities 66,946 65,646 Long-term Liabilities: Long-term debt, net of current maturities: Related parties 3,000 4,792 Banks 30,813 33,184 Exchangeable Notes 54,000 - Accrued interest- Exchangeable Notes 2,093 - Other 7,405 6,229 ------------------- ------------------ Total Liabilities 164,257 109,851 ------------------- ------------------ Shareholders' Equity (Deficit): Preferred stock, $.01 par value. Authorized 5,000,000 shares; none issued - - Common stock, $.01 par value. Authorized 45,000,000 shares; issued and outstanding 15,543,000 shares 155 155 Additional paid-in capital 92,528 91,992 Accumulated deficit (93,997) (70,869) ------------------- ------------------ Total Shareholders' Equity (Deficit) (1,314) 21,278 ------------------- ------------------ $ 162,943 $ 131,129 =================== ==================
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EFTC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars In Thousands, Except Per Share Amounts) Quarter Ended June 30, Six-months Ended June 30, 2000 1999 2000 1999 ---- ---- ---- ---- Net Sales $ 75,944 $ 54,692 $ 139,470 $ 109,016 Cost of Goods Sold 76,220 52,833 138,417 101,015 --------- --------- ---------- ---------- Gross profit (loss) (276) 1,859 1,053 8,001 Operating Costs and Expenses: Selling, general and administrative 8,232 5,174 13,080 10,066 Impairment of long-lived assets 1,662 - 1,662 - Goodwill amortization 67 391 134 782 Recapitalization transaction costs 5 - 4,879 - --------- --------- ---------- ---------- Total operating costs and expenses 9,966 5,565 19,755 10,848 --------- --------- ---------- ---------- Operating loss (10,242) (3,706) (18,702) (2,847) Other Income (Expense): Interest expense (2,780) (1,334) (4,388) (2,598) Loss on sale of property, plant and equipment (8) - (10) - Other, net 2 52 (28) 90 --------- --------- ---------- ---------- Loss before income taxes (13,028) (4,988) (23,128) (5,355) Income Tax Benefit - 1,996 - 2,034 --------- --------- ---------- ---------- Net loss $ (13,028) $ (2,992) $ (23,128) $ (3,321) ================ ================ ================ =============== Net Loss Per Share- Basic and Diluted $ (0.84) $ (0.19) $ (1.49) $ (0.21) ================ ================ ================ =============== Weighted Average Shares Outstanding 15,543,000 15,543,000 15,543,000 15,543,000 ================ ================ ================ ===============
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EFTC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Six-months Ended June 30, 2000 and 1999 (Dollars in Thousands) 2000 1999 ---- ---- Cash Flows from Operating Activities: Net loss $ (23,128) $ (3,321) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 4,057 3,370 Amortization of debt issuance costs 625 58 Deferred income tax benefit - (2,052) Accrued interest on Exchangeable Notes 2,093 - Provision for excess and obsolete inventories 2,930 68 Provision for doubtful accounts receivable 660 27 Impairment of long-lived assets 1,662 - Loss on sale of property, plant and equipment 10 - Fair value of common stock warrants issued for services 210 - Changes in operating assets and liabilities, excluding effects of sale of assets: Decrease (increase) in: Trade receivables (8,950) (1,299) Inventories (43,360) 330 Income taxes receivable 2,106 - Prepaid expenses and other 1,749 (3,337) Increase (decrease) in: Accounts payable 1,200 2,427 Accrued compensation and benefits 472 2,643 Other accrued liabilities (1,205) (392) --------- -------- Net cash used by operating activities (58,869) (1,478) --------- -------- Cash Flows from Investing Activities: Proceeds from sale of assets 12,740 - Payment of commissions related to sale of division (500) - Capital expenditures (3,322) (8,185) --------- -------- Net cash provided (used) by investing activities 8,918 (8,185) --------- -------- Cash Flows from Financing Activities: Proceeds from long-term debt 213,288 12,533 Principal payments on long-term debt (168,559) (1,750) Payments for debt issuance costs (2,712) - Net increase in checks outstanding 7,527 - Payments under inventory financing arrangement - (1,600) Proceeds from exercise of stock options - 1 --------- -------- Net cash provided by financing activities 49,544 9,184 --------- -------- Net decrease in cash and equivalents (407) (479) Cash and Equivalents: Beginning of period 716 623 --------- -------- End of period $ 309 $ 144 ================= =================
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EFTC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued Six-months Ended June 30, 2000 and 1999 (Dollars in Thousands) 2000 1999 ---- ---- Supplemental Disclosure of Cash Flow Information: Cash paid for interest $ 1,906 $ 2,619 ================= ================= Refund received for income taxes $ 2,106 $ - ================= ================= Supplemental Schedule of Non-cash Investing and Financing Activities: Issuance of warrants to purchase common stock for debt issuance costs $ 326 $ - ================= ================= Proceeds from sale of assets placed in escrow account $ 500 $ - ================= ================= Conversion of capital lease for property, plant and equipment to an operating lease $ - $ 10,240 ================= =================
7 EFTC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in Thousands, Except Per Share Amounts) 1. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month and six-month periods ended June 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. The unaudited consolidated financial statements should be read in conjunction with the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. At June 30, 2000, the Company had outstanding checks in excess of cash balances of $7,527, which is included in accounts payable in the accompanying balance sheet. 2. Earnings Per Share Basic Earnings Per Share excludes dilution for potential common shares and is computed by dividing net income or loss by the weighted average number of common shares outstanding for the period. Diluted Earnings Per Share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Basic and Diluted Earnings Per Share are the same for the three and six-month periods ended June 30, 2000 and 1999, as all potential common share issuances were antidilutive. 3. Inventories Inventories at June 30, 2000 and December 31, 1999 consist of the following: 2000 1999 ---- ---- Purchased parts and completed subassemblies, net $ 66,353 $ 43,971 Work-in-process 17,592 13,317 Finished goods 1,933 2,879 ------------- ------------- $ 85,878 $ 60,167 ============= ============= In connection with the long-term supply agreement with Honeywell, the Company has purchased certain "life time buy" inventories that are expected to be used over a period of several years Accordingly, at June 30, 2000 and December 31, 1999, the Company classified inventories of approximately $4,800 and $3,100, respectively, as other assets. 8 EFTC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in Thousands, Except Per Share Amounts) 4. Headquarters Relocation and Change in Estimates In July 2000, the Company announced plans to relocate its corporate headquarters from Denver to Phoenix. During the second quarter of 2000, management assessed the estimated useful lives of the assets located in Denver and determined that it will not be practical to use certain assets at the Phoenix location. In June 2000, the Company also reevaluated the carrying value of intellectual property related to a customer whose business will be transitioned to a new location. The aggregate carrying value of the Denver assets and the intellectual property as of March 31, 2000 was $2,100. Accordingly, during the second quarter of 2000 the estimated useful lives of these assets were shortened to coincide with the expected period that the assets will continue to be used in the business. The impact of this change in estimate resulted in an increase in depreciation and amortization expense of $711 ($.05 per share) during the second quarter of 2000. In connection with the Denver headquarters relocation and other changes in management, the Company expects to incur up to $4,500 for severance, retention, moving costs, recruiting fees for new management and employees, and related costs. During the second quarter of 2000, the Company incurred $1,771 for these costs, and management estimates that approximately $2,700 of additional costs will be incurred during the remainder of 2000. 5. Restructuring and Sales of Assets Since the fourth quarter of 1998, the Company has taken actions to increase capacity utilization through the closure of two facilities and the sale of substantially all of the assets at two other divisions. The aggregate operating results for these divisions, derived from the Company's divisional accounting records (excluding corporate costs, interest expense and income taxes), for the three and six month periods ended June 30, 2000 and 1999 are summarized as follows:
Quarter ended June 30: Six-months ended June 30: ---------------------- ------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Net sales $ 276 $27,380 $ 11,933 $62,847 Cost of goods sold 996 26,626 13,968 58,156 ------------- -------------- ------------ ------------- Gross profit (loss) $(720) $ 754 $ (2,035) $ 4,691 ============= ============== ============ ============= Selling, general & administrative $(223) $(1,763) $ (820) $(3,830) ============= ============== ============ ============= Goodwill amortization $ -- $ (324) $ -- $ (648) ============= ============== ============ =============
Management estimates that approximately $8,000 of the net sales for the six months ended June 30, 2000 shown above relate to customers who have agreed to transition the manufacture of their products to other facilities operated by the Company. Presented below is a description of each division that was impacted by a sale or restructuring. 9 EFTC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in Thousands, Except Per Share Amounts) Sale of Tucson Assets. In December 1999, the Company commenced negotiations with Honeywell International, Inc. for the sale of inventory and equipment at the Company's facility located in Tucson, Arizona. On February 17, 2000, these assets were sold to Honeywell for $13,240. The Company recognized a $1,200 impairment charge in the fourth quarter of 1999 related to property and equipment at the Tucson facility. Southeast Operations. On September 30, 1999, the Company initiated a plan to consolidate and close its Southeast Operations in Fort Lauderdale, Florida. In connection with the restructuring, the Company recognized a charge of approximately $700 for severance costs related to approximately 200 employees who were terminated by April 2000. During the first quarter of 2000, the Company recognized charges totaling $950 for retention bonuses, relocation costs and other closure activities. During the second quarter of 2000, the Company recognized additional charges of $1,186 related to operations, impairment of equipment and final closure activities. As of June 30, 2000, the closure of this facility was complete and all severance and retention payments had been made. Sale of Services Division. On September 1, 1999, the Company sold its Services Division for approximately $28,000. In connection with this sale, the purchaser and the Company agreed to an Earn-out Contingency (the "EC"). Under the EC, if the earnings for the year ending August 31, 2000 related to this division are in excess of $4,455 ("Target Earnings"), the Company will be entitled to an additional payment equal to three times the difference between the actual earnings and Target Earnings. If actual earnings are less than Target Earnings, the Company will be required to refund an amount equal to three times the difference. The maximum amount that either party would be required to pay under the EC is $2,500; accordingly, the Company has deferred recognition of $2,500 of the consideration subject to the EC. This amount is included in other accrued liabilities in the accompanying balance sheets. Rocky Mountain Operations. In the fourth quarter of 1998, management initiated a plan to consolidate and close its Rocky Mountain Operations in Greeley, Colorado. At June 30, 2000, all of the restructuring costs had been paid and no accrual was remaining related to these restructuring activities. 6. Debt Financing Refinancing of Debt. On March 30, 2000, the Company entered into a new credit agreement with Bank of America, N.A. to refinance the Company's revolving line of credit with the Company's previous lender. The new credit facility provides for a $45,000 revolving line of credit with a maturity date of March 2003. Initially, the interest rate is the prime rate plus .5%. Total borrowings are subject to limitation based on a percentage of eligible accounts receivable and inventories, and substantially all of the Company's assets are pledged as collateral for outstanding borrowings. The credit agreement requires compliance with certain financial and non-financial covenants. At June 30, 2000, the outstanding principal balance was $30,813. On March 30, 2000, the Company also repaid outstanding notes payable in the aggregate principal amount of $6,810 (net of discount) to a director of the Company. The Company and the 10 EFTC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in Thousands, Except Per Share Amounts) director amended the terms of the remaining outstanding debt to provide for a new unsecured note in the principal amount of $3,000 that bears interest at 10% and is due March 2004. Recapitalization. On March 30, 2000, the Company completed the first stage of a recapitalization transaction with Thayer-BLUM Funding, L.L.C. ("Thayer-BLUM Funding"), an entity formed by affiliates of Thayer Capital Partners ("Thayer") and BLUM Capital Partners ("BLUM"). The first stage involved the issuance of a total of $54,000 in Senior Subordinated Exchangeable Notes (the "March Exchangeable Notes"), which was closed on March 30, 2000. On July 14, 2000, the Company issued an additional $14,000 of Senior Subordinated Exchangeable Notes (the "July Exchangeable Notes") to Thayer-BLUM Funding in the second stage of the transaction. As described below, the terms of the March and July Exchangeable Notes will be modified depending on the outcome of a Special Meeting of Shareholders to be held on August 22, 2000. The recapitalization also involves a tender offer for up to 5,625,000 shares of the Company's currently outstanding common stock at a price of $4.00 per share. Thayer-BLUM Funding designated two persons who were elected to the Company's board of directors on March 30, 2000. The March and July Exchangeable Notes initially provide for an interest rate of 15% and are accompanied by warrants to purchase 3,093,154 shares of the Company's common stock at an exercise price of $.01 per share. However, upon shareholder approval of this transaction and consummation of the tender offer with at least 500,000 shares being purchased, the warrants will not become exercisable and will expire. Accordingly, no value was assigned to the warrants since they are never expected to become exercisable. The March Exchangeable Notes will be exchanged for Senior Subordinated Convertible Notes ("Convertible Notes") upon receipt of shareholder approval and consummation of the tender offer for at least 500,000 shares. The Convertible Notes will provide for interest at 8.875%, payable in kind and may be converted into the Company's common stock at $2.58 per share, subject to adjustment. The July Exchangeable Notes will be exchanged for Convertible Preferred Stock ("Convertible Preferred Stock") upon receipt of shareholder approval and consummation of the tender offer for at least 500,000 shares. The Convertible Preferred Stock will accrue dividends, compounded quarterly, at 8.875% on the liquidation preference thereof. The liquidation preference of the Convertible Preferred Stock will initially be equal to the aggregate principal balance of the July Exchangeable Notes plus accrued interest. The Convertible Preferred Stock will be convertible into the Company's common stock at $1.80 per share, subject to adjustment. Finally, if shareholders approve the transaction and the tender offer is consummated for at least 500,000 shares, Thayer-BLUM Funding will have the right to appoint a majority of the members of the Company's board of directors and will have the right to approve any significant financings, acquisitions and dispositions. If shareholders do not approve the transaction or if less than 500,000 shares are purchased in the tender offer, then the warrants will remain in place. If shareholders do not approve the transaction, the interest rate on the March and July Exchangeable Notes will increase to 20%. The maturity date of the March and July Exchangeable Notes is June 2006. Interest would be compounded quarterly and will accrue and be added to the principal amount of the Exchangeable Notes or be payable in additional Exchangeable Notes, at the option of the Company. 11
EFTC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in Thousands, Except Per Share Amounts) Summary of Debt. At June 30, 2000 and December 31, 1999, long-term debt consists of the following: 2000 1999 ---- ---- Unsecured Senior Subordinated Exchangeable Notes, interest at 15%, due June 2006 $ 54,000 $ -- Accrued interest on Exchangeable Notes 2,093 -- Note payable to director, interest at 10%, unsecured, due March 2004 3,000 5,000 Note payable to bank under revolving line of credit, interest at the prime rate plus .5% (10.0% at June 30, 2000), collateralized by substantially all assets, due March 2003 30,813 -- Note payable to bank group under revolving line of credit, interest at the prime rate plus 2.25%, collateralized by substantially all assets, paid in March 2000 -- 33,184 Note payable to director, interest at LIBOR plus 2%, annual principal payments of $50, due December 2002, unsecured, net of discount of $90, paid in March 2000 -- 4,810 -------------- ------------------ Total 89,906 42,994 Less current maturities -- (5,018) -------------- ------------------ Long-term debt, less current maturities $ 89,906 $ 37,976 ============== ==================
12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The information set forth below contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements. See "Special Note Regarding Forward-Looking Statements" below. General EFTC Corporation ("EFTC" or the "Company") is a leading independent provider of high-mix electronic manufacturing services to original equipment manufacturers (OEMs) in the avionics, medical, communications, industrial instruments and controls, and computer-related products industries. The Company's manufacturing services consist of assembling complex printed circuit boards, cables, electro-mechanical devices, and finished products. Although management does not believe that the Company's business is affected by seasonal factors, the Company's sales and earnings typically vary from quarter to quarter due to a variety of factors. Some of the factors that impact quarterly results of operations include the level and timing of customer orders and the mix of turnkey and consignment orders. The level and timing of orders placed by a customer vary due to the customer's attempts to balance its inventory, changes in the customer's manufacturing strategy, and variation in demand for its products due to, among other things, product life cycles, competitive conditions and general economic conditions. In the past, changes in orders from customers have had a significant effect on the Company's quarterly results of operations. Other factors affecting the Company's quarterly results of operations may include, among other things, the Company's performance under the long-term supply agreement with Honeywell, price competition, disposition of divisions and closure of operating units, the ability to obtain inventory from its suppliers on a timely basis, the Company's level of experience in manufacturing a particular product, the degree of automation used in the assembly process, the efficiencies achieved by the Company through managing inventories and other assets, the timing of expenditures in anticipation of increased sales, and fluctuations in the cost of components or labor. Therefore, the Company's operating results for any particular quarter may not be indicative of the results for any future quarter of the year. The following discussion and analysis provides information that EFTC's management believes is relevant to an assessment and understanding of the Company's results of operations and financial condition. This discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere herein, as well as with the consolidated financial statements, notes thereto and the related management's discussion and analysis of financial condition and results of operations included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. 13 Results of Operations
The following table sets forth certain operating data as a percentage of net sales: Quarter Ended June 30: Six-months ended June 30: --------------------------- ------------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Net sales 100.0% 100.0% 100.0% 100.0% Cost of goods sold 100.4% 96.6% 99.2% 92.7% ------------ ----------- ------------- -------------- Gross profit (loss) (0.4%) 3.4% 0.8% 7.3% Selling, general and administrative 10.8% 9.5% 9.4% 9.2% Impairment of long-lived assets 2.2% -- 1.2% -- Goodwill amortization 0.1% 0.7% 0.1% 0.7% Recapitalization transaction costs -- -- 3.5% -- ------------ ----------- ------------- -------------- Operating loss (13.5%) (6.8%) (13.4%) (2.6%) ============ =========== ============= ==============
Quarter Ended June 30, 2000 Compared to 1999 Net Sales. Net sales for the quarter ended June 30, 2000 were $75.9 million compared to $54.7 million for the quarter ended June 30, 1999, which is an increase of 38.9%. The Company has experienced major changes in its customers and facilities since the beginning of 1999. At the start of 1999, the Company had eleven facilities. Six of these facilities were either sold or closed by June 30, 2000. However, the Company also added facilities in Phoenix and Mexico during 1999 to support the new business with Honeywell in connection with the long-term supply agreement entered into during March 1999. Approximately 50% of the Company's sales for the second quarter of 2000 were pursuant to the Honeywell agreement. However, this increased revenue under the Honeywell supply agreement was offset by the loss of revenue from the Services division that was sold on September 1, 1999, and the Company's Tucson assets that were sold on February 17, 2000. The Services division and the Tucson assets generated revenue of $15.7 million in the second quarter of 1999 compared to none in the second quarter of 2000. 14 After eliminating sales related to facilities that were either closed or sold, adjusted net sales for the second quarter of 2000 amounted to $75.9 million compared to $39.0 million for the second quarter of 1999. Substantially all of this increase of $36.9 million or 94.6% is attributable to sales generated at the Company's Phoenix location under the long-term supply agreement with Honeywell. Gross Profit. The Company's gross profit in the second quarter of 2000 was $0.3 million less than breakeven compared to gross profit of $1.9 million or 3.4% in the second quarter of 1999. This decrease in gross profit relative to results for the comparable period in 1999 is primarily attributable to the sale of assets and closure of four divisions as discussed in Note 5 to the financial statements. The four facilities subject to sale or closure accounted for $0.8 million of gross profit during the second quarter of 1999 compared to a loss of $0.7 million in the second quarter of 2000. The aggregate impact on gross profit was approximately $1.5 million between the two quarters. The decrease in gross profit during the second quarter of 2000 was also a result of charges for excess and obsolete inventories totaling $2.0 million Cost of goods sold was also impacted by higher health insurance costs of approximately $0.5 million during the second quarter of 2000 compared to 1999. During 2000, the Company has experienced higher health insurance costs due to increased claims associated with plant closures and general increases in health care costs. During the second quarter of 2000, the Company was also impacted by industry-wide parts shortages that contributed to unfavorable purchase price variance (PPV), which is a component of cost of goods sold. For the second quarter of 1999 the Company had favorable PPV of $0.7 million compared to the second quarter of 2000 when the Company had unfavorable PPV of $1.6 million. The aggregate impact between the two quarters amounted to $2.3 million. During the second quarter of 1999, margins were negatively impacted by charges of $0.4 million that were included in cost of goods sold due to inventory allowances and operating charges related to the closure of the Greeley facility. The Greeley facility was sold in the fourth quarter of 1999 and, accordingly, there were no charges included in the second quarter of 2000 for this facility. Selling, General and Administrative Expenses. Selling, general and administrative expenses ("SG & A") increased 59.1% to $8.2 million in the first quarter of 2000 compared to $5.2 million in the quarter ended June 30, 1999. SG & A expenses for the quarter ended June 30, 2000 included $1.5 million for consulting services intended to accelerate operational improvement at each of the Company's facilities. As discussed in Note 4 to the financial statements, SG & A expenses for the second quarter of 2000 include a charge of $0.7 million for accelerated depreciation and amortization of assets that will not be used after the Company relocates its corporate headquarters. The Company also recognized charges of $1.8 million for severance, recruiting and other costs associated with changes in management during the second quarter of 2000. Finally, as discussed in Note 5 to the financial statements, second quarter of 2000 results include $0.2 million for SG & A at divisions that were sold or closed by the end of June 2000. For the second quarter of 1999, the Company incurred SG & A expenses of $1.8 million related to divisions that were sold or closed after June 30, 1999. 15 After excluding all of the charges discussed above, SG & A expenses for the second quarter of 2000 amounted to $4.0 million compared to $3.4 million in the second quarter of 1999. The $0.6 million increase in SG & A in 2000 is primarily attributable to higher health insurance costs and bad debt expense in 2000. Impairment of Long-lived Assets. During the second quarter of 2000, the Company recognized an impairment charge of $1.7 million. This charge consists of $1.3 million for software that was abandoned and an additional $0.4 million for impaired equipment related to plant closures. Goodwill Amortization. Goodwill amortization for the second quarter of 2000 amounted to $0.1 million compared to $0.4 million in the second quarter of 1999. The decrease in 2000 was attributable to the sale of the Services Group on September 1, 1999, and the corresponding write-off of $36.5 million of goodwill that was included in the calculation of the 1999 loss on sale of the Services Group. Interest Expense. Interest expense increased 108.4% to $2.8 million in the second quarter of 2000 compared to $1.3 million in the same quarter of 1999. At June 30, 2000, the Company's outstanding debt was $90 million compared to $55 million at June 30, 1999. The increase in debt resulted in higher interest cost in 2000. The increased debt level in 2000 is attributable to the March 30, 2000 issuance of $54 million of Exchangeable Notes that currently accrue interest at 15%. In addition to the higher rate on the Exchangeable Notes, interest expense was also negatively impacted in 2000 by increases in the prime rate, which impacts the interest rate on the Company's revolving credit facility. Income Tax Benefit Due to significant net losses in 1999 and the first half of 2000, the Company has recorded a valuation allowance for all of its net deferred tax assets The Company has a significant net operating loss carryforward available for financial reporting and income tax purposes. However, this carryforward may be subject to reduction or limitation as a result of changes in ownership or certain consolidated return filing regulations. Six-months Ended June 30, 2000 Compared to 1999 Net Sales. Net sales for the six-months ended June 30, 2000 were $139.5 million compared to $109.0 million for the six-months ended June 30, 1999, an increase of 27.9%. The Company experienced major changes in its customers and facilities since the beginning of 1999. At the start of 1999, the Company had eleven facilities. Six of these facilities were either sold or closed by June 30, 2000. However, the Company also added facilities in Phoenix and Mexico during 1999 to support the new business with Honeywell in connection with the long-term supply agreement entered into during March 1999. Approximately 43% of the Company's sales for the second quarter of 2000 were pursuant to the Honeywell agreement. However, this increased revenue under the Honeywell supply agreement was offset by the loss of revenue from the Services division that was sold on September 1, 1999, and the Company's Tucson assets that were sold on February 17, 2000. The Services division and the Tucson assets generated revenue of $36.2 million in the first half of 1999 compared to $4.4 million in the first half of 2000. 16 After eliminating sales related to facilities that were either closed or sold, adjusted net sales for the first six months of 2000 amounted to $135.1 million compared to $72.8 million for the first six months of 1999. Substantially all of this increase of $62.3 million or 85.6% is attributable to sales generated at the Company's Phoenix location under the long-term supply agreement with Honeywell. Gross Profit. The Company realized gross profit of 0.8% in the first half of 2000 compared to gross profit of 7.3% in the first half of 1999. This decrease in gross profit relative to results for the comparable period in 1999 is primarily attributable to the sale of assets and closure of four divisions as discussed in Note 5 to the financial statements. The four facilities subject to sale or closure accounted for $4.7 million of gross profit during the first half of 1999 compared to a loss of $2.0 million for the first half of 2000. The aggregate impact on gross profit was approximately $6.7 million between the two periods. The decrease in gross profit during the first half of 2000 was also a result of charges for excess and obsolete inventories totaling $2.9 million. Furthermore, cost of goods sold was negatively impacted by higher health insurance costs of approximately $0.7 million for the first half of 2000 compared to 1999. During the first half of 2000, the Company was also impacted by industry-wide parts shortages that contributed to unfavorable purchase price variance (PPV), which is a component of cost of goods sold. For the first half of 1999 the Company had favorable PPV of $1.1 million compared to the first half of 2000 when the Company had unfavorable PPV of $1.0 million. The aggregate impact between the two periods amounted to $2.1 million. During the first half of 1999, margins were negatively impacted by charges of $1.2 million that were included in cost of goods sold due to inventory allowances and operating charges related to the closure of the Greeley facility. The Greeley facility was sold in the fourth quarter of 1999 and, accordingly, there were no charges included in the first half of 2000 for this facility. Selling, General and Administrative Expenses. Selling, general and administrative expenses ("SG & A") increased 29.9% to $13.1 million during the first half of 2000 compared to $10.1 million in the first half of 1999. SG & A expenses for the six months ended June 30, 2000 included $1.5 million for consulting services intended to accelerate operational improvement at each of the Company's facilities. As discussed in Note 4 to the financial statements, SG & A expenses for the first half of 2000 include a charge of $0.7 million for accelerated depreciation and amortization of assets that will not be used after the Company relocates its corporate headquarters. The Company also recognized charges of $1.8 million for severance, recruiting and other costs associated with changes in management during the first half of 2000. Finally, as discussed in Note 5 to the financial statements, the results for the first half of 2000 include $0.8 million for SG & A expenses at divisions that were sold or closed by the end of June 2000. For the first half of 1999, the Company incurred SG & A expense of $3.8 million related to divisions that were sold or closed subsequent to June 30, 1999. After excluding all of the charges discussed above, SG & A expense for the first half of 2000 amounted to $8.3 million compared to $6.3 million in the first half of 1999. The $2.0 million increase in SG & A in 2000 is primarily attributable to an increase in health insurance costs of $0.7 million, compensation costs of $0.4 million, and bad debt expense of $0.2 million. 17 Impairment of Long-lived Assets. During the first half of 2000, the Company recognized an impairment charge of $1.7 million. This charge consists of $1.3 million for software that was abandoned and an additional $0.4 million for impaired equipment related to plant closures. Recapitalization Transaction Costs. In connection with the recapitalization discussed in Note 5 to the financial statements, the Company incurred charges totaling $4.9 million for financial advisor fees, a fee paid to Thayer-BLUM Funding, and due diligence costs for legal, accounting and management consultants. The Company capitalized costs associated with the Senior Subordinated Exchangeable Notes and the new revolving credit agreement, and all other costs were charged to operations during the first quarter of 2000. Management expects that the Company will incur additional costs related to a special shareholders' meeting and the tender offer of approximately $0.2 million during the third quarter of 2000. Goodwill Amortization. Goodwill amortization for the first half of 2000 amounted to $0.1 million compared to $0.8 million in the first half of 1999. The decrease in 2000 was attributable to the sale of the Services Group on September 1, 1999, and the corresponding write-off of $36.5 million of goodwill that was included in the calculation of the 1999 loss on sale of the Services Group. Interest Expense. Interest expense increased 68.9% to $4.4 million in the first half of 2000 compared to $2.6 million in the same period of 1999. At June 30, 2000, the Company's outstanding debt was $90 million compared to $55 million at June 30, 1999, which is a primary contributor to the higher interest cost in 2000. The increased debt level in 2000 is attributable to the March 30, 2000 issuance of $54 million of Exchangeable Notes that currently accrue interest at 15%. In addition to the higher rate on the Exchangeable Notes, interest expense was also negatively impacted in 2000 by increases in the prime rate, which impacts the Company's revolving credit facility. Income Tax Benefit Due to significant net losses in 1999 and the first half of 2000, the Company recorded a valuation allowance for all of its net deferred tax assets. Management does not expect that a tax provision will be necessary if the Company generates earnings in 2000, since a significant net operating loss carryforward is available for financial reporting and income tax purposes. However, this carryforward may be subject to reduction or limitation as a result of changes in ownership or certain consolidated return filing regulations. Liquidity and Capital Resources Working Capital and Operating Cash Flows. At June 30, 2000, working capital totaled $55.9 million compared to $26.2 million at December 31, 1999. The increase in working capital during the first quarter of 2000 is primarily attributable to the issuance of $54 million in principal amount of the March Exchangeable Notes discussed in Note 6 to the financial statements. 18 Net cash used by operating activities for the six-months ended June 30, 2000 was $58.9 million compared to net cash used by operating activities of $1.5 million for the six-months ended June 30, 1999. During the six-months ended June 30, 2000, the Company incurred a significant operating loss that used approximately $10.9 million of cash. The Company also used cash of $43.4 million to fund an increase in inventories and $9.0 million to fund an increase in accounts receivable. During the period, the Company operating cash flows were favorably affected by collection of an income tax refund of $2.1 million, a reduction in prepaid expenses and other assets of $1.8 million, and an increase in operating payables and other accrued liabilities of $0.5 million. Receivable turns (e.g., annualized sales divided by period end accounts receivable) increased to 8.8 for the quarter ended June 30, 2000 compared to 6.2 for the quarter ended June 30, 1999. Receivable turns for the six-months ended June 30, 2000 increased to 8.1 compared to 6.2 for the six-months ended June 30, 1999. Receivable turns in 2000 have been positively impacted by thirty day payment terms provided for in the Honeywell supply agreement. Current inventories increased 42.7% to $85.9 million at June 30, 2000 from $60.2 million at December 31, 1999. Current inventory turns (i.e., annualized cost of sales divided by period end current inventory) for the three months ended June 30, 2000 indicate that the Company is turning its inventories 3.5 times per year. This is the same as the second quarter of 1999, but represents a decrease compared to the fourth quarter of 1999 and first quarter of 2000 when inventories were turning 3.8 and 3.6 times per year, respectively. Inventory turns in 2000 were negatively impacted by an increase in inventories of $30 million in connection with preparation for increased business under the Honeywell supply agreement. Inventory turns were positively impacted by the non-operating sale of inventories for $12.0 million to Honeywell related to the sale of the Tucson facility assets in the first quarter of 2000. Cash Requirements for Investing Activities. The Company used cash for capital expenditures totaling $3.3 million in the first half of 2000 (primarily related to expansion activities at the Company's Phoenix facility) compared with $8.2 million in the first half of 1999. Capital expenditures in 1999 were primarily attributable to leasehold improvements and equipment at the new facility in Phoenix in preparation for manufacturing services under the Honeywell supply agreement. During the first quarter of 2000, the Company also paid $500,000 for commissions related to the 1999 sale of the Services division. In February 2000, the Company received net proceeds of $12.7 million related to the sale of assets to Honeywell at the Company's former facility in Tucson. While the Company has not entered into any material commitments for capital expenditures, management expects to incur capital expenditures in the range of $5 million to $10 million during the second half of 2000. Financing Sources and Related Activities. In connection with the purchase of the Services Group and the assets located in Tucson and Fort Lauderdale, the Company entered into a credit facility on September 30, 1997 with a bank group led by Bank One, Colorado, N.A. This facility was refinanced with proceeds from the recapitalization described below. Sale/Leaseback Transaction. A director of the Company entered into a sale/leaseback transaction with the Company in December 1998. The Company sold two manufacturing facilities located in Newberg, Oregon and Tucson, Arizona to the director for $10.5 million. The director leased these manufacturing facilities back to the Company for a term of five years with monthly payments of $90,000. At the end of the lease term, the Company had the option to repurchase the facilities for approximately $9.4 million. In May 1999, the lease was amended to eliminate the purchase option, which resulted in the recharacterization of the lease from a capital lease to an operating lease. As such, the buildings and the related are no longer reflected on the Company's balance sheet. 19 Honeywell Supply Agreement. In March 1999, the Company entered into a long-term supply agreement with Honeywell International, Inc. While this contract provides a favorable source of revenue to the Company, it also requires significant amounts of working capital to finance inventories and receivables, and the Company was required to incur significant costs for leasehold improvements and equipment at a new facility in Phoenix, Arizona. In order to respond to liquidity issues, the Company took a series of actions in 1999 that were designed to provide ultimately the necessary capital to meet existing obligations to suppliers and banks, and to have access to financing to meet the additional working capital requirements under the new Honeywell agreement. The first significant action after obtaining the Honeywell business was on September 1, 1999, when the Services Group was sold, resulting in net cash proceeds of $28.0 million. On September 30, 1999, the Company initiated the consolidation of its Ft. Lauderdale plant into three other EFTC facilities. In October 1999, the Company sold its facility in Greeley, Colorado for proceeds of $3.8 million. Issuance of Subordinated Notes and Warrants. A director of the Company 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 the director. 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 installments until the maturity of the notes. In November 1999, the same director purchased $5 million in aggregate principal amount of subordinated notes issued by the Company. These notes had a maturity date of March 31, 2000 and provided for interest at a rate of 10%. The proceeds of these notes were used for general operating purposes. In connection with the recapitalization transaction described below, the Company repaid the entire principal amount outstanding under the September 1997 subordinated note and $2 million of the principal amount outstanding under the November 1999 subordinated note. In addition, the November note agreement was amended to reflect that $3.0 million in aggregate principal amount of subordinated notes remained outstanding, with a maturity date of March 30, 2004 and bearing interest at 10%. In addition, the Company paid the remaining outstanding prepayment fee of approximately $150,000 due in connection with the prepayment of the September 1997 note and a fee of $100,000 due upon maturity of the November 1999 note. Recapitalization. Beginning in September 1999, the Company began searching for debt and equity financing that would permit the Company to also attract a new senior lender to replace the existing bank group. As a result of these efforts, on March 30, 2000, the Company completed the first stage of a recapitalization transaction with Thayer-BLUM Funding, L.L.C. ("Thayer-BLUM Funding"), an entity formed by affiliates of Thayer Capital Partners ("Thayer") and BLUM Capital Partners ("BLUM"). The first stage involved the purchase of a total of $54 million in Senior Subordinated Exchangeable Notes (the "March Exchangeable Notes"), which was funded on March 30, 2000. On July 14, 2000, the Company issued an additional $14 million of Senior Subordinated Exchangeable Notes (the "July Exchangeable Notes") to Thayer-BLUM Funding in the second stage of the transaction. As described below, the terms of the March and July Exchangeable Notes will be modified depending on the outcome of a Special Shareholder Meeting that will be held on August 22, 2000. The recapitalization also involves a tender offer for up to 5,625,000 shares of the Company's currently outstanding common stock at a price of $4.00 per share. Thayer-BLUM Funding received the right to appoint two new members to the Company's board of directors on March 30, 2000. 20 The March and July Exchangeable Notes initially provide for an interest rate of 15% and are accompanied by warrants to purchase 3,093,154 shares of the Company's common stock at an exercise price of $.01 per share. However, upon shareholder approval of this transaction and consummation of the tender offer with at least 500,000 shares being purchased therein, the warrants will not become exercisable and will expire. Accordingly, no value was assigned to the warrants since they are never expected to become exercisable. The March Exchangeable Notes will be exchanged for Senior Subordinated Convertible Notes ("Convertible Notes") upon receipt of shareholder approval and consummation of the tender offer for at least 500,000 shares. The Convertible Notes will provide for interest at 8.875%, payable in kind and may be converted into the Company's common stock at $2.58 per share, subject to adjustment. The July Exchangeable Notes will be exchanged for Convertible Preferred Stock ("Convertible Preferred Stock") upon receipt of shareholder approval and consummation of the tender offer for at least 500,000 shares. The Convertible Preferred Stock will accrue dividends, compounded quarterly, at 8.875% on the liquidation preference thereof. The liquidation preference of the Convertible Preferred Stock will initially be equal to the aggregate principal balance of the July Exchangeable Notes plus accrued interest. The Convertible Preferred Stock will be convertible into the Company's common stock at $1.80 per share, subject to adjustment. The Company's shareholders' equity as of June 30, 2000, pro forma for the exchange of the July Exchangeable Notes for Convertible Preferred Stock, would have been $12.7 million. Finally, if shareholders approve the transaction and the tender offer is consummated for at least 500,000 shares, Thayer-BLUM Funding will have the right to appoint a majority of the members of the Company's board of directors and will have the right to approve any significant financings, acquisitions and dispositions. If shareholders do not approve the transaction or if less than 500,000 shares are purchased in the tender offer, then the warrants will remain in place. If shareholders do not approve the transaction, the interest rate on the March and July Exchangeable Notes will increase to 20%. The maturity date of the March and July Exchangeable Notes is June 2006. Interest would be compounded quarterly and will accrue and be added to the principal amount of the Exchangeable Notes or be payable in additional Exchangeable Notes, at the option of the Company. On March 30, 2000, the Company entered into a new credit agreement with Bank of America, N.A. to refinance the Company's revolving line of credit with the Company's previous lender. The new credit facility provides for a $45 million revolving line of credit with a maturity date of March 2003. Initially, the interest rate is the prime rate plus .5%. Total borrowings are subject to limitation based on a percentage of eligible accounts receivable and eligible inventories, and substantially all of the Company's assets are pledged as collateral for outstanding borrowings. The credit agreement requires compliance with certain financial and non-financial covenants. At June 30, 2000, the outstanding principal balance was $30.8 million. Based on the financing activities completed in March and July 2000, management believes the Company has adequate capital resources to fund working capital and other cash requirements during the remainder of 2000. However, depending on the timing and ability of the Company to improve operational performance, the Company may need to seek additional funds through public or private debt or equity offerings, bank borrowings, or leasing arrangements. However, no assurance can be given that, if additional financing is needed, it will be available on terms acceptable to the Company. Special Note Regarding Forward-Looking Statements Certain statements in this Report constitute "forward-looking statements" within the meaning of the federal securities laws. In addition, EFTC 21 or persons acting on its behalf sometimes make forward-looking statements in other written and oral communications. Such forward-looking statements may include, among other things, statements concerning the Company's plans, objectives and future economic prospects, estimated costs expected to be incurred related to the relocation of corporate headquarters, prospects for achieving cost savings, increased capacity utilization, increased sales and improved profitability, and other matters relating to the prospects for future operations; the success of consulting services designed to improve operational performance; and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of EFTC, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause such differences include, but are not limited to, the loss of Honeywell as a customer or Honeywell's inability to pay, or inability or unwillingness to pay in a timely manner, its outstanding receivables held by the Company, the Company's ability to pay its suppliers in a timely manner, changes in economic or business conditions in general or affecting the electronic products industry in particular, changes in the use of outsourcing by original equipment manufacturers, increased material prices and service competition within the electronic component contract manufacturing industry, changes in the competitive environment in which the Company operates, the continued growth of the industries targeted by the Company or its competitors or changes in the Company's management information needs, difficulties in managing the Company's growth or in integrating new businesses, changes in customer needs and expectations, the Company's success in retaining customers affected by the closure of Company facilities, the Company's success in limiting costs associated with such closures, the Company's ability to keep pace with technological developments, increases in interest rates (including the impact on the Exchangeable Notes if shareholders do not vote in favor of the recapitalization), governmental actions and other factors identified as "Risk Factors" or otherwise described in the Company's filings with the Securities and Exchange Commission. Item 3. Quantitative and Qualitative Disclosures about Market Risk On March 30, 2000, the Company entered into a $45 million revolving line of credit with Bank of America, N.A. The interest rate on this loan is based either on the prime rate or LIBOR rates, plus applicable margins. Therefore, as interest rates fluctuate, the Company may experience changes in interest expense that could impact financial results. The Company has not entered into any interest rate swap agreements, or similar instruments, to protect against the risk of interest rate fluctuations. Assuming outstanding borrowings of $45 million, if interest rates were to increase or decrease by 1%, the result would be an increase or decrease in annual interest expense of approximately $450,000 under this loan. Depending on the outcome of the shareholder action related to the approval of the recapitalization, the $54 million of debt will bear interest at 8.875% (if shareholder approval is obtained) which would result in an annual expense of $4.9 million, or at 20% (if shareholder approval is not obtained) which would result in annual interest expense of $11.0 million. 22 PART II. OTHER INFORMATION Item 1. Legal Proceedings Two legal proceedings, one in Colorado State court, the other in U.S. District Court, were filed against the Company and certain of its officers, directors and shareholders during September and October 1998. The proceedings arose in connection with the decrease in the trading price of the Company's common stock that occurred in August 1998 and make substantially the same allegations. While both proceedings are in the pre-trial stage and the Company therefore cannot make any assessment of their ultimate impact, the Company believes the allegations made in the proceedings to be totally without merit. Joshua Grayck, Philip and Angelique Signorelli, William McBride, Mark Norris, Michael Keister, and Aiming Kiao v. EFTC Corporation, Jack Calderon, Gerald J. Reid, Stuart W. Fuhlendorf, Brent L. Hofmeister, August P. Bruehlman, L. Reid, and Lloyd McConnell (United States District Court for the District of Colorado, Case No. 98-S-2178). Plaintiffs are shareholders of EFTC who originally filed this lawsuit on October 8, 1998. Plaintiffs filed an amended complaint on January 22, 1999. Plaintiffs allege that during the class period April 6, 1998 to August 20, 1998, defendants made false and misleading statements regarding EFTC's business performance, implementation of a new computer system, manufacturing quality systems, operating margins, relationships with its largest customers, and future prospects for earnings growth. Plaintiffs allege that defendants disseminated or approved a prospectus in connection with the Company's June 1998 secondary offering, as well as certain other press releases and financial reports which contained misrepresentations and material omissions and also concealed materially adverse financial information. The amended complaint alleges violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, as well as Section 11 of the Securities Act of 1933. In addition, plaintiffs allege that by reason of their positions as officers and/or directors of EFTC, Messrs. Calderon, Reid, Fuhlendorf and Hofmeister had the power and authority to cause EFTC to engage in the wrongful conduct alleged in the complaint. Plaintiffs allege, therefore, that EFTC and these individual defendants violated Section 20(a) of the Securities and Exchange Act of 1934 and Section 15 of the Securities Act of 1933. Plaintiffs seek the following relief: (a) certification of the complaint as a class action on behalf of all persons who purchased or otherwise acquired the common stock of EFTC between April 6, 1998 and August 20, 1998; (b) an award of compensatory and/or rescisionary damages, interest, costs and attorneys' fees to all members of the class; and (c) equitable relief available under federal and state law. Defendants deny the allegations of the amended complaint. Defendants filed a motion to dismiss the case on March 8, 1999. That motion is pending. Craig Anderson, Todd Sichelstiel, Phillip and Angelique Signorrelli, Christy J. Baldwin and Patricia Conlon v. EFTC Corporation, Jack Calderon, Gerald J. Reid, Stuart W. Fuhlendorf, Brent L. Hofmeister, August P. Bruehlman, Lucille A. Reid, Lloyd A. McConnell and Salomon Smith Barney (District Court for the County of Weld, Colorado, Case No. 99-CV-962). Plaintiffs are shareholders of EFTC who filed this lawsuit originally in the District Court for the County of Weld, Colorado. Plaintiffs allege that during the class period April 6, 1998 to August 20, 1998, defendants made false and misleading statements regarding EFTC's business performance, implementation of a new computer system, manufacturing quality systems, operating margins, relationships with its largest customers, and future prospects for earnings growth. Plaintiffs allege that defendants disseminated or approved a prospectus in connection with the Company's June 1998 secondary offering, as well as certain other press releases and financial reports which contained misrepresentations and material omissions and also concealed materially adverse financial information. The complaint 23 alleges violations of Sections 11-51-501(1)(a, b, and c) and 11-51-604(3) of the Colorado Securities Act. In addition, plaintiff alleges that by reason of their positions as officers and/or directors of EFTC, Messrs. Calderon, Reid, Fuhlendorf, Hofmeister, Bruehlman, McConnell, and Ms. Reid are controlling persons of the Company and, therefore, that these defendants violated Section 11-51-604(5) of the Colorado Securities Act. Plaintiffs also allege that defendants conduct occurred in connection with the offer, sale or purchase of the Company's securities in the secondary offering in violation of Section 11-51-604(4) of the Colorado Securities Act. Plaintiff seeks the following relief: (a) certification of the complaint as a class action on behalf of all persons who purchased or otherwise acquired the common stock of the Company between April 6, 1998 and August 20, 1998; (b) an award of compensatory and/or punitive damages, interest, costs and attorneys' fees to all members of the class; and (c) equitable relief available under state law. Defendants removed the case to federal court on January 11, 1999. The federal court remanded the case to state court on February 14, 2000. Defendants deny the allegations of the complaint. The parties to these legal proceedings have reached an agreement to settle both legal proceedings, subject to court approval. The proposed settlement provided for the Company to contribute $3.1 million and its insurer to contribute $2.9 million into a class settlement fund. In April 2000, the Company transferred $3.1 million to the class settlement fund and the Company is required to contribute 1.3 million shares of its common stock into a class settlement fund upon receipt of court approval. In April 2000, notice of the settlement was filed in both state and federal court requesting a stay of all proceedings. A motion to approve the settlement was filed in early June 2000 and is now pending. Item 2. Changes in Securities Not Applicable. Item 3. Defaults Upon Senior Securities Not Applicable. Item 4. Submission Of Matters To A Vote Of Security Holders Not Applicable. Item 5. Other Information Not Applicable. 24 Item 6. Exhibits and Reports on Form 8-K (a). Exhibits The following exhibits are filed with this report: Exhibit 4.1 Allonge to Exchangeable Note, dated July 14, 2000 (incorporated by reference to Exhibit 5.2 to the Company's Solicitation/Recommendation Statement on Schedule 14D-9 filed with the Commission on July 19, 2000). Exhibit 4.2 Senior Subordinated Exchangeable Note, dated July 14, 2000. Exhibit 4.3 Form of Convertible Note (attached as Exhibit A to Exhibit 4.1). Exhibit 4.4 Form of Articles of Amendment to the Articles of Incorporation of the Company setting forth the terms of the Company's Series B Convertible Preferred Stock. Exhibit 4.5 Amendment to Rights Agreement, dated as of July 14, 2000, by and between the Company and the Rights Agent. Exhibit 10.1 First Amendment to Securities Purchase Agreement, dated as of July 12, 2000, by and between the Company and Thayer-BLUM (incorporated by reference to Appendix II to the Company's Proxy Statement on Schedule 14A filed with the Commission on July 19, 2000). Exhibit 10.2 Employment Agreement, dated as of June 23, 2000, by and between the Company and Mr. James K. Bass. Exhibit 10.3 First Amendment to Warrant, dated July 12, 2000(incorporated by reference to Exhibit 7.2 to the Company's Solicitation/Recommendation Statement on Schedule 14D-9 filed with the Commission on July 19, 2000). Exhibit 10.4 Registration Rights Agreement, dated as of March 30, 2000, by and between the Company and Thayer-BLUM (incorporated by reference to Exhibit 9.1 to the Company's Solicitation/Recommendation Statement on Schedule 14D-9 filed with the Commission on July 19, 2000). Exhibit 10.5 First Amendment to Registration Rights Agreement, dated July 14, 2000 by and between the Company and Thayer-BLUM (incorporated by reference to Exhibit 9.2 to the Company's Solicitation/Recommendation Statement on Schedule 14D-9 filed with the Commission on July 19, 2000). Exhibit 27.1 Financial Data Schedule. (b) Reports on Form 8-K The Company filed the following Current Report on Form 8-K during the quarter ended June 30, 2000: Item Reported Date of Report Financial Statements 5. Other Events March 30, 2000 None Required 25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. EFTC CORPORATION ---------------- (Registrant) Date: August 14, 2000 /s/ James K. Bass --------------------------- James K. Bass Chief Executive Officer Date: August 14, 2000 /s/ Jack Calderon --------------------------- Jack Calderon Chairman Date: August 14, 2000 /s/ Peter W. Harper --------------------------- Peter W. Harper Chief Financial Officer Date: August 14, 2000 /s/ James A. Doran --------------------------- James A. Doran Chief Accounting Officer 26 EX-4.2 2 0002.txt SUBORDINATED EXCHANGEABLE NOTE Exhibit 4.2 THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE. IT MAY NOT BE SOLD OR OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THAT ACT AND SUCH LAWS OR UNLESS SUCH TRANSFER IS MADE PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. EFTC CORPORATION July 14, 2000 SENIOR SUBORDINATED EXCHANGEABLE NOTE DUE JUNE 30, 2006 No: 0002 U.S. $14,000,000 EFTC CORPORATION, a Colorado corporation (the "Company"), for value received, promises to pay to the order of THAYER-BLUM FUNDING, L.L.C., a Delaware limited liability company ("Holder"), or its registered successors or assigns, on June 30, 2006 (or such earlier date as this Note shall become payable), the principal amount of $14,000,000 (or such lesser or greater principal amount as is then unpaid) and to pay interest (computed on the basis of a 360-day year of twelve 30-day months) on the unpaid principal amount hereof (and on the principal balance of any PIK Note (as defined in Section 10)) at the rate of 15.00% per annum, compounded quarterly, commencing on the date hereof for this Note (and on the date of issuance for any PIK Note). 1. Payment of Principal and Interest. The principal of, together with all accrued and unpaid interest on, this Note shall be due and payable on June 30, 2006. Interest shall accrue in arrears on September 30, December 31, March 31 and June 30 of each year, commencing July 14, 2000, and be added to the principal amount of this Note or, at the option of the Company, shall be paid by issuance of a PIK Note, until the principal amount hereof (and the principal amount of any PIK Note) shall have been paid in full. Notwithstanding the foregoing, if the Shareholder Approval (as defined in that certain Securities Purchase Agreement, dated as of March 30, 2000, as amended, by and between the Company and Holder (the "Purchase Agreement")) is not obtained by September 30, 2000 (the "Approval Date"), then interest on all unpaid amounts outstanding hereunder from and after such date (or under any PIK Note) (including overdue installments of principal or interest) shall be payable at the rate of 20.00% per annum, compounded quarterly (to the extent permitted by applicable law). The Company may treat the Person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes. The principal and interest on this Note (and on any PIK Note) is payable when due in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts by federal funds bank wire transfer. Certain capitalized terms shall have the meanings specified in Section 10 hereof. This Note is issued under and pursuant to, and subject to the terms and conditions of, the Purchase Agreement. 2. Exchange. Upon the consummation of a Successful Tender Offer (as defined in the Purchase Agreement), the Notes shall automatically be exchanged for shares of Convertible Preferred Stock ("Preferred Stock"), having an aggregate liquidation preference equal to the aggregate principal amount of Notes then outstanding, plus accrued interest. The rights and preferences of the Preferred Stock shall be as set forth in articles of amendment to the Company's articles of incorporation in the form attached as Exhibit G to the Purchase Agreement. 3. Optional Redemption. If the Shareholder Approval is not obtained on or prior to the Approval Date, the Company may redeem the Notes, in whole or in part, by paying a redemption price equal to 108% of the principal amount of the Notes so being redeemed, plus accrued and unpaid interest to the redemption date. 4. Mandatory Redemption. The Company will be obligated to redeem the Notes, at the option of the Holders of a majority in principal amount of the Notes of the Holders, in whole or in part, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to the redemption date upon a Change of Control or a Financing Redemption Event (each a "Mandatory Redemption Event"). 5. Redemption Procedures. (a) If fewer than all of the principal of and accrued interest on the Notes are to be redeemed, the Company shall redeem a pro rata portion of each Note then outstanding. (b) At least 30 days but not more than 60 days before a redemption pursuant to Section 3, the Company shall mail a notice of redemption to each Holder whose Notes are to be redeemed. The notice shall: (i) identify the Notes to be redeemed and shall state the redemption date; (ii) state the redemption price; (iii) indicate, if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date, upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion will be issued; (iv) state that Notes called for redemption must be surrendered to the Company to collect the redemption price; and (v) state that interest on the Notes called for redemption ceases to accrue on and after the redemption date, unless the Company has defaulted on the payment of the redemption price. (c) In the event a Mandatory Redemption Event shall occur, at the sole option of the Holders of a majority in principal amount of the Notes, Holders may elect to have the Company mandatorily redeem Notes pursuant to Section 4 by mailing a notice of such election to the Company within 60 days of the occurrence of such Mandatory Redemption Event. The notice shall: (i) identify the Notes to be redeemed and shall state the date upon which the Mandatory Redemption Event occurred; (ii) state the redemption date (as set forth in subsection (d)); and (iii) indicate, if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date, upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion will be issued. 2 (d) The redemption date with respect to any redemption effected in the case of a Mandatory Redemption Event shall be a date not earlier than the fifth day nor later than the 30th day following the receipt by the Company of the notice thereof pursuant to Section 5(c). (e) Once notice of redemption is given, Notes called for redemption become due and payable on the redemption date at the redemption price. (f) Upon surrender of a Note that is redeemed in part, the Company shall issue a new Note equal in principal amount to the unredeemed portion of the Note surrendered. 6. Subordination. (a) Agreement to Subordinate. The Company and Holders agree that the indebtedness evidenced by this Note is subordinated in right of payment, to the extent and in the manner provided in this Section 6, to the prior payment in full, in cash, of all Senior Debt (as defined below), (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed), and that the subordination is for the benefit of the holders of Senior Debt. A distribution may consist of cash, securities or other property, by set-off or otherwise. (b) Liquidation; Dissolution; Bankruptcy. Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, in an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities: (i) holders of Senior Debt shall be entitled to receive payment in full, in cash, of all obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt) before any Holder shall be entitled to receive any payment with respect to its Note (except that Holders may receive Permitted Junior Securities); and (ii) until all obligations with respect to Senior Debt (as provided in subsection (i) above) are paid in full, in cash, any distribution to which Holders would be entitled but for this Section 6 shall be made to holders of Senior Debt (except that Holders may receive Permitted Junior Securities), as their interests may appear. (c) Default on Senior Debt. (i) The Company may not make any payment or distribution to any Holder in respect of obligations with respect to the Note and may not acquire from any Holder any loans for cash or property (other than Permitted Junior Securities) and no Holder may accept or retain any such payments until all principal and other obligations with respect to the Senior Debt have been paid in full, in cash, if: 3 (A) a default in the payment of any principal or other obligations with respect to Senior Debt occurs and is continuing beyond any applicable grace period in the agreement, indenture or other document governing such Senior Debt; or (B) a default, other than a payment default, on Senior Debt occurs and is continuing that permits holders of the Senior Debt to accelerate its maturity and the Company receives a notice of the default (a "Payment Blockage Notice"). If the Company and the Holder Representative receive from the Agent under the Credit Agreement any such Payment Blockage Notice, no subsequent Payment Blockage Notice shall be effective for purposes of this Section 6(c) unless and until at least 360 days shall have elapsed since the effectiveness of the immediately prior Payment Blockage Notice. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Company shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such nonpayment default shall have been waived for a period of not less than 180 days or unless the holder of the Senior Debt was not aware of such default. The Company may and shall resume payments on and distributions in respect of the Notes and the Holder may receive and retain the same upon the earlier of: (1) the date upon which the default is cured or waived, or (2) in the case of a default referred to in Section 6(c)(ii) hereof, 179 days pass after notice is received if the maturity of such Senior Debt has not been accelerated, if this Section 6 otherwise permits the payment or distribution at the time of such payment or distribution. (ii) No Holder may take any actions to enforce any of its available remedies upon the occurrence of a Default or an Event of Default, for a period of 90 days following the receipt by the Company and the Holder Representative of a notice from the Agent under the Credit Agreement of any default with respect to the Senior Debt; provided, that such 90 day period shall immediately end in the event (x) of a Default under Section 8(a)(i)(G) or (H), (y) the Senior Debt is accelerated in accordance with its terms, or (z) the holders of the Senior Debt act to enforce their available remedies upon the occurrence of a default on the Senior Debt. (d) Acceleration of Securities. If the Note is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Debt of the acceleration. (e) When Distribution Must Be Paid Over. In the event that Holder receives any payment of any obligations with respect to the Note at a time when such payment is prohibited by Section 6(c) hereof, such payment shall be held by the Holder in trust for the benefit of, and shall be paid forthwith over and delivered, upon written request, to, the holders of Senior Debt under the Senior Debt Documents pursuant to which Senior Debt may have been issued, as their respective interests may appear, for application to the payment of all obligations with respect to Senior Debt remaining unpaid to the extent necessary to pay such obligations in full, in cash, in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt. 4 (f) Notice by Company. The Company shall promptly notify the Holders of any facts known to the Company that would cause a payment of any obligations with respect to the Note to violate this Section 6, but failure to give such notice shall not affect the subordination of the Note to the Senior Debt as provided in this Section 6. (g) Subrogation. After all Senior Debt is paid in full, in cash, and until the Note is paid in full, the Holders shall be subrogated (equally and ratably with all other indebtedness pari passu with the Note) to the rights of holders of Senior Debt to receive distributions applicable to Senior Debt and all other rights, claims and collateral security of the holders of Senior Debt to the extent that distributions otherwise payable to the Holders have been applied to the payment of Senior Debt. A distribution made under this Section 6 to holders of Senior Debt that otherwise would have been made to the Holders is not, as between the Company, on one hand, and the Holder, on the other hand, a payment by the Company on Senior Debt. (h) Relative Rights. This Section 6 defines the relative rights of the Holders and holders of Senior Debt. Nothing in this Note shall: (a) impair, as between the Company, on one hand, and the Holders, on the other hand, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Note in accordance with its terms; (b) affect the relative rights of the Holders and creditors of the Company other than their rights in relation to holders of Senior Debt; or (c) prevent any lender from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders of Senior Debt to receive distributions and payments otherwise payable to the lenders, and except as set forth in Section 6(c)(ii) above. If the Company fails because of this Section 6 to pay principal of or interest on the Note on the Payment Date, the failure is still a Default or Event of Default. (i) Subordination May Not Be Impaired by the Company. No right of any holder of Senior Debt to enforce the subordination of the indebtedness evidenced by any loans shall be impaired by any act or failure to act by the Company or any Holder or by the failure of the Company or Holders to comply with the terms of this Note. (j) Distribution or Notice to Representative. Whenever a distribution is to be made or a notice given to holders of Senior Debt, the distribution may be made and the notice given to their representative. Upon any payment or distribution of assets of the Company referred to in this Section 6 the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any 5 certificate of such representative or of the liquidating trustee or agent or other Person making any distribution to the Holders for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Section 6. (k) Authorization to Effect Subordination. The Holders authorize and direct the Company to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Section 6. (l) Amendments. The provisions of this Section 6 shall not be amended or modified without the written consent of the holders of all Senior Debt. 7. Covenants. The Company covenants and agrees that so long as this Note shall be outstanding: (a) Payment of Notes; Satisfaction of Obligations. (i) The Company shall pay the principal of and interest on the Notes on the dates and in the manner provided in the Notes. (ii) If there has occurred and is continuing any Event of Default, defined below, under Sections 8(a)(i)(A) or 8(a)(i)(B) hereof, then to the extent lawful, the Company shall pay interest (including interest accruing after the commencement of any proceeding under any Bankruptcy Law) on all unpaid amounts outstanding under the Notes (including overdue installments of principal or interest) at a rate of interest equal to the then current rate of interest plus 2%, compounded quarterly. (iii) Subject to performance by all other parties thereto of their respective obligations thereunder, the Company shall satisfy in all material respects all of its obligations under the Transaction Documents. (b) Commission Reports, Financial Reports. The Company shall deliver to the Holders within 15 days after it files them with the Commission copies of any annual reports and any information, documents and other reports that the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. (c) Compliance Certificate. The Company shall deliver to the Holders, within 45 days after the end of each fiscal quarter and within 90 days after the end of each fiscal year of the Company an Officers' Certificate stating that a review of the activities of the Company and its subsidiaries during the preceding fiscal quarter or fiscal year has been made with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Agreement, and further stating, as to each such officer signing such certificate, that to his knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Agreement (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events 6 of Default of which he may have knowledge) and that to his knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Notes in accordance with their terms are prohibited or if such event has occurred, a description of the event. So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the Officers' Certificate accompanying the fiscal year end financial statements delivered pursuant to this Section 7 shall be accompanied by a written statement of independent public accountants (which shall be one of the "Big Five" accounting firms) that in making the examination necessary for certification of such financial statements nothing has come to their attention which would lead them to believe that the Company has violated any provisions of this Note or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. The Company will deliver to the Holders, forthwith upon becoming aware of (i) any Default or Event of Default or (ii) any event of default under any other loan agreement, mortgage, indenture or instrument referred to in Section 6, an Officers' Certificate specifying in reasonable detail such Default, Event of Default or default and the nature of any remedial or corrective action the Company proposes to take with respect thereto. (d) Stay, Extension and Usury Laws. The Company covenants and agrees (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter enforced, that may affect the covenants or the performance of its obligations under this Note; and the Company (to the extent it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holders, but will suffer and permit the execution of every such power as though no such law has been enacted. (e) Limitation on Restricted Payments. The Company shall not, directly or indirectly: (i) declare or pay any dividend on, or make any distribution to the holders (as such) in respect of, any shares of its capital stock. (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interest of the Company or any subsidiary of the Company (other than any such Equity Interest of a directly or indirectly wholly-owned subsidiary of the Company) or other Affiliate of the Company; (iii) permit any subsidiary of the Company to declare or pay any dividend on, or make any distribution to the holders (as such) in respect of, any shares of its capital stock except to the Company or another directly or indirectly wholly-owned subsidiary of the Company; or (iv) permit any subsidiary of the Company to purchase, redeem or otherwise retire for value any Equity Interests of it, the Company or any Affiliate the Company (other than any such Equity Interests owned by the Company or any other directly or indirectly wholly owned subsidiary of the Company). (f) Corporate Existence. The Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate existence of each of its subsidiaries in accordance with the respective organizational documents of each of them and the corporate rights (charter and statutory), licenses and franchises of the Company and its subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or corporate existence, if the 7 Board of Directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its subsidiaries taken as a whole and that the loss thereof will not cause a Material Adverse Effect. (g) Taxes. The Company shall, and shall cause its subsidiaries to, pay prior to delinquency all material taxes, assessments and governmental levies except as contested in good faith and by appropriate proceedings. (h) Investment Company Act; United States Real Property Holding Corporation. Neither the Company nor any of its subsidiaries shall become an investment company subject to registration under the Investment Company Act of 1940, as amended. Neither the Company nor any of its subsidiaries shall become a United States real property holding corporation as defined in Section 897(c)(2) of the Internal Revenue Code of 1986, as amended. (i) Limitation on Additional Indebtedness. The Company will not, and will not permit any of its subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become or remain directly or indirectly liable with respect to any Indebtedness other than (A) the Indebtedness represented by the Notes, (B) Senior Debt, (C) Indebtedness represented by a Promissory Note dated March 30, 2000 payable to the Monfort Family Limited Partnership I in the principal amount of $3,000,000, and (D) other Indebtedness in aggregate principal amount of no greater than $5,000,000. (j) Limitation on Transactions With Affiliates. (i) Neither the Company nor any of its subsidiaries shall sell, lease, transfer or otherwise dispose of any of its properties or assets to or purchase any property or assets from, or enter into any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, an Affiliate of the Company (but specifically excluding for these purposes Holders and their respective Affiliates) (an "Affiliate Transaction"), except on terms that are no less favorable to the Company or the relevant subsidiary than those that could have been obtained in a comparable transaction by the Company or such subsidiary from an unrelated person; provided, however, that the Company and its wholly-owned subsidiaries may engage in any sale, lease, transfer, or other disposition of property among themselves and may enter into any contract, agreement, understanding, loan, advance or guarantee among themselves. (ii) In addition, neither the Company nor any subsidiary may enter into an Affiliate Transaction or series of related Affiliate Transactions involving or having a potential value of more than $1,000,000 unless such transaction has been approved by the holders of at least a majority in principal amount of the Notes such approval not to be unreasonably withheld; provided, however, that the Company and its wholly-owned subsidiaries may engage in any sale, lease, transfer, or other disposition of property among themselves and may enter into any contract, agreement, understanding, loan, advance or guarantee among themselves. (k) Restrictions on Liens. The Company will not itself, and will not permit any subsidiary, to create or suffer to exist any Liens upon any assets of the Company or any subsidiary or any shares of capital stock of any subsidiary, in either case now owned or hereafter acquired; provided, however, that this Section 7(k) shall not prohibit the creation or continuing existence of any Permitted Liens. (l) Sale of Assets. (i) Neither the Company nor any of its subsidiaries shall, without the consent of the holders of at least a majority in principal amount of the Notes, sell, lease, convey or otherwise dispose (whether in one transaction or a series of 8 transactions) of any assets (including capital stock of any subsidiaries), other than sales of inventory in the ordinary course of business (an "Asset Sale"), if the aggregate net proceeds of all Asset Sales during any fiscal year exceed $2,000,000; excluding payments under the GECC Payment Agreement. (ii) Neither the Company nor any of its subsidiaries shall, without the consent of the holders of at least a majority in principal amount of the Notes, enter into any Asset Sale if the consideration paid is less than the fair market value of such asset; provided, however, that assets with a fair market value of not greater than $2,000,000 in the aggregate may be sold during any fiscal year without regard to the foregoing requirement if the amount of consideration received for such assets is promptly applied to the purchase of comparable assets. (iii) At least 90% of the consideration for each Asset Sale received by the Company or such subsidiary shall be in the form of cash; provided, however, that the amount of (A) any liabilities (as shown on the Company's or such subsidiary's most recent balance sheet or in the notes thereto) of the Company or any subsidiary that are assumed by the transferee of any such assets or stock sold, leased, conveyed or disposed of and (B) any notes or other obligations received by the Company or any subsidiary from such transferee that are immediately converted by the Company or such subsidiary into cash, shall be deemed to be cash for purposes of this Section 7(l)(iii). (m) Ownership of Subsidiaries. Except as permitted by Section 7(l) above, the Company shall maintain (along with one or more subsidiaries in the case of an indirect subsidiary) good and valid title to those Equity Interests of each of its subsidiaries owned by it, free and clear of any Lien other than Permitted Liens. Notwithstanding the provisions of Section 7(l) above, neither the Company nor any subsidiary shall dispose of the capital stock of any subsidiary, if, after giving effect to such disposition, the Company would own less than a majority of the outstanding economic and voting interests in such subsidiary or former subsidiary. (n) Minimum Performance Target. The Company shall furnish to the Holders an Officers' Certificate within 90 days after the end of the Company's fiscal year ending in 2002 (the "2002 EBITDA Notice"), setting forth the Company's EBITDA for its previous fiscal year. The 2002 EBITDA Notice shall be audited in accordance with GAAP and the terms of this Note by the Company's independent auditors which shall be a "Big Five" accounting firm and shall contain a written statement that, in making the examination necessary for certification of the 2002 EBITDA Notice, nothing has come to their attention which would lead them to believe that the Company's EBITDA for the fiscal year ending in 2002 is not correctly stated in the 2002 EBITDA Notice, or, if the EBITDA is incorrectly stated, the basis of their belief regarding such incorrect statement. (o) Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries. Except as otherwise provided herein or in the Senior Debt Documents, the Company will not, and will not permit any subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any subsidiary of the Company to (a) pay dividends or make any other distributions on its capital stock or any other interest or participation in, or measured by, its profits owned by, or pay any Indebtedness owed to, the Company or a subsidiary of the Company, (b) make loans or advances to the Company or a subsidiary of the Company or (c) transfer any of its properties or assets to the Company or to any subsidiary of the Company, except for such encumbrances or restrictions existing 9 under or by reason of (i) any restrictions, with respect to a subsidiary of the Company that is not a subsidiary of the Company on the date hereof, in existence at the time such Person becomes a subsidiary of the Company; or (ii) any restrictions existing under any agreement that refinances or replaces the agreements containing the restrictions in clause (i); provided that the terms and conditions of any such restrictions are no less favorable to the Holders than those under or pursuant to the agreement evidencing the Indebtedness refinanced. Nothing contained in this Section 7(p) shall prevent the Company or any of its subsidiaries from entering into any agreement permitting or providing for the incurrence of Liens otherwise permitted by Section 7(k). (p) Compliance with Laws. The Company will, and will cause its subsidiaries to, comply with all federal, state, local or foreign statutes, ordinances, governmental rules and regulations, judgments, orders and decrees to which any of them is subject, and obtain and keep in effect all licenses, permits, franchises and other governmental authorizations necessary to the ownership or operation of their respective properties or the conduct of their respective businesses, except to the extent that the failure to so comply or obtain and keep in effect would not have a Material Adverse Effect. (q) When Company May Merge, Etc. (i) The Company will not merge with or into, or sell, convey, or transfer, or otherwise dispose of all or substantially all of its property and assets (as an entirety or substantially as an entirety in one transaction or a series of related transactions) to any Person or permit any Person to merge with or into the Company, unless: (A) either the Company shall be the continuing Person or the Person (if other than the Company) formed by such consolidation or into which the Company is merged or that acquired such property and assets of the Company shall be an entity organized and validly existing under the laws of the United States of America or any state or jurisdiction thereof and shall expressly assume, by amendments to this Note, executed and delivered to Holder, all of the obligations of the Company, on this Note; (B) immediately after giving effect, on a pro forma basis, to such transaction, no Default or Event of Default shall have occurred and be continuing; and (C) the Company will have delivered to the Holders of a majority in principal amount of the Notes an Officers' Certificate and an opinion of counsel, in each case stating that such consolidation, merger or transfer and such supplemental indenture complies with this provision and that all conditions precedent provided for herein relating to such transaction have been complied with. (ii) Upon any consolidation or merger or any transfer of all or substantially all of the assets of the Company, in accordance with Section 7(q)(i), the successor Person formed by such consolidation or into which the Company is merged or to which such transfer is made, shall succeed to, be substituted for, and may exercise every right and power of the Company under this Note with the same effect as if such successor Person had been named therein as the Company and the Company shall be released from the obligations under this Note. (r) Office or Agency. The Company will maintain an office or agency in metropolitan Denver, Colorado (or in any future principal place of business of the Company with respect to which the Holder has been notified pursuant to Section 9.1 of the Purchase Agreement) where notices, presentations and demands to or upon the Company in respect of this Note may be given or made. 10 (s) Directors. The Company's Board of Directors shall at all times be composed of no more than 12 directors unless approved by Holders of a majority in principal amount of the Notes. At all times during the term of this Note, Holders of a majority in principal amount of the Notes shall have the right to designate an aggregate of two persons for election as members of the Board of Directors of the Company (or up to an aggregate of four persons pursuant to Section 8(c)(iii) upon the occurrence of an Event of Default). Holder hereby acknowledges that its two designees have been appointed to the Company's Board of Directors as of the date of the issuance of this Note. The Company agrees to put such appointees up for election at the next meeting of shareholders called for the election of directors, all in accordance with the Company's Bylaws. The Company hereby further agrees to call annual shareholders' meetings for the election of directors and to recommend that the Company's shareholders votes in favor of director-nominees of the Holders, if any, at any such meeting called for election of directors; provided, that the Board of Directors of the Company shall not be required to recommend for shareholder vote any person whom the Board of Directors has reasonably concluded after further due inquiry lacks the requisite moral fitness to sit on the Board of Directors. The Company agrees that the members of the Board of Directors nominated by the Holders shall be appointed to each committee of the Board of Directors, including, but not limited to, the compensation committee; provided, that both such persons need not be appointed to the audit committee if such appointments would cause a breach of the continued listing requirements for the Common Stock on the Nasdaq Stock Market. (t) Approval of Significant Transactions. The Company shall not engage in any Significant Transaction, without the prior written approval of the Holders of a majority in principal amount of the Notes. For purposes of this Section 7(t), a "Significant Transaction" means (i) one or a series of related transactions, in which the Company obtains debt financing (excluding the Senior Debt) in an aggregate amount in excess of $1,000,000, (ii) any Material Acquisition or Material Disposition, or (iii) any adoption of, or amendment to, any Incentive Compensation Plan. A "Material Acquisition" means any acquisition (directly or indirectly) (whether by merger, purchase of securities, purchase of assets or otherwise) by the Company or any subsidiary of the Company, involving aggregate consideration with a value of $2,000,000 or more; provided, that a Material Acquisition shall not include capital expenditures made in the ordinary course of business. A "Material Disposition" means any sale, transfer or other disposition of assets of the Company (whether by merger, sale of stock, sale of assets or otherwise) or its subsidiaries which assets either (A) have a fair market value of $2,000,000 or more, or (B) represent more than 5% of the lesser of net book value or fair market value of the tangible assets of the Company on a consolidated basis. An "Incentive Compensation Plan" means any arrangement, policy or plan of the Company providing for deferred compensation, profit-sharing bonuses, stock appreciation rights, stock purchases or other forms of incentive compensation to any director, employee, former employee, consultant, advisor or agent of the Company which by its terms results, or but for deferral would result, in cash payments by the Company to such person. (u) Certain Payments. The Company shall comply with the requirements of the Foreign Corrupt Practices Act and neither the Company nor any director, officer, agent, or employee of the Company, or any other Person associated with or acting for or on behalf of the Company shall directly or indirectly (i) make any contribution, gift, bribe, payoff, influence payment, kickback, or other payment to any governmental official, regardless of form, whether in money, property, or services (A) to obtain favorable treatment in securing business, (B) to pay for favorable treatment for business secured, or (C) to obtain special concessions 11 or for special concessions already obtained, for or in respect of the Company or any Subsidiary of the Company, (ii) make any contribution, gift, bribe, payoff, influence payment, kickback, or other payment to any person, private or public, regardless of form, whether in money, property, or services, in violation of any law, or (iii) establish or maintain any fund or asset that is not recorded in the books and records of the Company. 8. Defaults and Remedies. (a) Events of Default. (i) An "Event of Default" occurs if: (A) the Company defaults in the payment of the principal of or accrued interest on any Note when the same becomes due and payable at maturity, upon redemption or otherwise; (B) the Company fails to comply in any material respect with any of the agreements, covenants, or provisions of the Notes and the Default continues for the period and after the notice specified below; (C) the Company fails to comply in any material respect with any of the agreements, covenants, or provisions of the Warrants and the Default continues for the period and after the notice specified below; (D) if any of the representations or warranties of the Company made in or in connection with this Note or the Purchase Agreement were untrue when made in any respect materially adverse to the Company and its subsidiaries taken as a whole; (E) an event of default occurs under any loan agreement, note, mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness of the Company or any subsidiary for borrowed money (or the payment of which is guaranteed by the Company or a subsidiary), whether such Indebtedness or guarantee now exists or shall be created hereafter, which default results in the acceleration of such Indebtedness prior to its expressed maturity and the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness the maturity of which is so accelerated and has not been paid, aggregates $500,000 or more; (F) a final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against the Company or any subsidiary of the Company and such remains undischarged for a period (during which execution shall not be effectively stayed) of 30 days, provided that the aggregate of all such judgments exceeds $1,000,000; (G) The Company or any subsidiary pursuant to or within the meaning of any Bankruptcy Law: (1) commences a voluntary case, (2) consents to the entry of an order for relief against it in an involuntary case, (3) consents to the appointment of a Custodian of it or for all or substantially all of its property, 12 (4) makes a general assignment for the benefit of its creditors, or (5) generally is unable to pay its debts as the same become due; (H) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (1) is for relief against the Company or any of its subsidiaries in an involuntary case, (2) appoints a Custodian of the Company or any of its subsidiaries or for all or substantially all of its property, or (3) orders the liquidation of the Company or any of its subsidiaries, and the order or decree remains unstayed and in effect for 60 days; or (I) the 2002 EBITDA Notice is not delivered to Holder within 90 days of the end of the Company's fiscal year that ends in 2002; or (J) the 2002 EBITDA Notice indicates that the Company failed to meet the Minimum Performance Target. (ii) The term "Bankruptcy Law" means title 11, U.S. Code or any similar federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. (iii) A Default under clause (B) or (C) (other than a Default under Section 7(e), (i), (l), (m), or (q), which Default shall be an Event of Default without the notice or passage of time specified in this paragraph), (E) (other than a Default resulting from the acceleration of any indebtedness described therein, which Default shall be an Event of Default without the notice or passage of time specified in this paragraph) or (F) is not an Event of Default until the Holders of at least 20% in principal amount of the Notes notify the Company of the Default and the Company does not cure the Default within 30 days after receipt of the notice. The notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default". (b) Acceleration of Notes. (i) If an Event of Default (other than an Event of Default specified in clauses (G), (H), (I) and (J) of Section 8(a)(i)) occurs and is continuing, the Holders of 20% in principal amount of the Notes, by notice to the Company, may declare the unpaid principal of and any accrued interest on all the Notes to be due and payable. Immediately upon such declaration, the principal and interest shall be due and payable. If an Event of Default specified in clause (G) or (H) of Section 8(a)(i) occurs, such an amount shall ipso facto become and be immediately due and payable without any declaration or other act on the part of any holder. The Holders of at least a majority in principal amount of the then outstanding Notes by notice to the Company may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration. 13 (ii) If an Event of Default specified in clauses (I) or (J) of Section 8(a)(i) occurs the Company shall pay in full the principal of and accrued interest on the Notes to the Holders thereof by no later than September 30, 2003. If the Company has not paid in full all principal of and accrued interest on the Notes by September 30, 2003 the Notes shall thereafter be due and payable and in continuing Default and from and after such date interest on the Notes shall accrue and be payable at the Default Rate. (c) Other Remedies. (i) If an Event of Default occurs and is continuing, holders of the Notes may pursue any available remedy to collect the payment of principal or interest on the Notes or to enforce the performance of any provision of the Notes. (ii) A delay or omission by any holder of any Notes in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. (iii) If an Event of Default occurs and is continuing, the Company agrees, at the request of the holders of a majority in principal amount of the Notes, to have two vacancies made on the Board of Directors, to fill such two vacancies with designees named by such Holders and to take such actions as are necessary to have such newly appointed directors elected to the Board of Directors by the shareholders of the Company, including, if necessary, to call a special meeting of shareholders and to recommend the election of such directors by the shareholders. (d) Waiver of Past Defaults. The holders of at least a majority in principal amount of the then outstanding Notes by notice to the Company may waive an existing Default or Event of Default and its consequences except a continuing Default or Event of Default in the payment of the principal of or interest on any Notes. (e) Rights of Holder to Receive Payment. Notwithstanding any other provision of this Agreement, the right of any Holder of a Note to receive payment of principal and interest on the Note, on or after the respective due dates expressed in the Note, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder. (f) Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Agreement, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. 9. Modification of Notes. The Notes may be modified without prior notice to any Holder but with the written consent of the Company and the Holders of a majority in principal amount of the Notes then outstanding. The Holders of a majority in 14 principal amount of the Notes then outstanding may waive compliance by the Company with any provision of the Notes, or give any consent or approval required or provided for under the terms of the Notes, without prior notice to any Holder. However, without the consent of each Holder affected, an amendment, supplement or waiver may not (a) alter the amount of Notes whose Holders must consent to an amendment, supplement or waiver, (b) alter the rate or the time for payment of interest on any Note, (c) alter the principal or the maturity of any Note or alter the redemption or prepayment provisions with respect thereto or (d) make any Note payable in money or property other than as stated in the Notes. 10. Definitions. The terms defined in this Section 10 shall, for all purposes of this Note, have the meanings herein specified, unless the context otherwise requires. "Affiliate" means with respect to a Person, any other Person that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. Without limiting the foregoing, all directors and executive officers of a Person that is a corporation, all managing members of a Person that is a limited liability company, and all general partners of a partnership, shall be deemed Affiliates of such Person for all purposes hereunder. "Change of Control" shall be deemed to have occurred if, at any time, (i) any "person" or "group" (as such terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable) other than the Holders and each of their respective Affiliates, in the aggregate, becomes the "beneficial owners" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 33% or more of the outstanding shares of Common Stock of the Company or has the ability to cause 25% or more of the Board of Directors to be composed of its nominees, (ii) Jeffrey Goettman, John Walker and any other directors elected or appointed to the Company's Board of Directors pursuant to Section 7(s) cease for any reason to be members of Board of Directors and the Holders do not have the ability to designate their replacements or (iii) the shareholders of the Company approve, or there is consummated without stockholder approval, a merger or consolidation of the Company with any other entity in which the shareholders of the Company prior to such transaction hold voting securities of the surviving entity representing 50% or less of the total votes outstanding, a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or any substantial portion of the Company's assets or a major division or subsidiary of the Company. "Commission" means the Securities and Exchange Commission. "Company" means EFTC Corporation, a Colorado corporation. "Consolidated Interest Expense" means, for any period, all cash interest expense of the Borrower and its Subsidiaries (including, without limitation, the interest component under Capital Leases and the interest component of deferred compensation under the Retention Bonus Plan), as determined in accordance with GAAP. 15 "Consolidated Net Income" means, for any period, the aggregate of the Net Income of the Company and its consolidated subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP, provided that (i) the Net Income of any Person which is not a Subsidiary of the Company or is accounted for by the Company by the equity method of accounting shall be included in Consolidated Net Income only to the extent of the amount of dividends or distributions actually paid by such Person to the Company or a Subsidiary of the Company, (ii) the Net Income of any Person acquired by the Company in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded from Consolidated Net Income and (iii) the Net Income of any Subsidiary of the Company that is subject to restrictions, direct or indirect, on the payment of dividends or the making of distributions to the Company shall be excluded from Consolidated Net Income to the extent of such restrictions. "Net Income" of any Person shall mean the net income (loss) of such Person, determined in accordance with GAAP, excluding, however, any gain (but not loss) realized upon the sale or other disposition (including, without limitation, dispositions pursuant to sale and leaseback transactions) of any real property or equipment of such Person which is not sold or otherwise disposed of in the ordinary course of business and any gain (but not loss) realized upon the sale or other disposition of any capital stock of such Person or a subsidiary of such Person. "Credit Agreement" means the Loan and Security Agreement, dated as of March 30, 2000, by and among the Financial Institutions named therein, Bank of America, N.A., as Agent, and the Company together with any amendment, modification or replacement thereof. "Default" means any event which is, or after notice or passage of time would be, an Event of Default. "Default Rate" is 25% per annum compounded quarterly. "EBITDA" means, for any period, the sum of the Company's (i) Consolidated Net Income for such period, plus (ii) an amount which, in the determination of Consolidated Net Income for such period, has been deducted for (A) Consolidated Interest Expense, (B) total federal, state, local and foreign income, value added and similar taxes. (C) losses (or minus gains) on the sale or disposition of assets outside the ordinary course of business, (D) depreciation, amortization expense and other non-cash charges, all as determined in accordance with GAAP and (E) amounts paid in respect of management fee to the extent permitted hereunder. "Equity Interest" means any capital stock or warrants, options or other rights to acquire capital stock (but excluding any debt security which is convertible into, or exchangeable for, capital stock). "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Event of Default" shall have the meaning provided in Section 6. "Failure to Approve the Transactions" shall mean that the holders of the Common Stock of the Company do not vote to approve the Transactions at the Shareholders Meeting (as such term is defined in the Purchase Agreement). "Financing Redemption Event" means any sale or sales of equity securities by the Company made in one or a series of related transactions, which taken together, result in a total, aggregate offering price of more than $50,000,000. 16 "GAAP" means United States generally accepted accounting principles, in effect from time to time, consistently applied. "GECC Payment Agreement" means that certain Agreement, dated December 5, 1997, between General Electric Capital Corporation and the Company, regarding the GE Capital Accelerated Payment Program. "Holder" or "Noteholder" means the Person in whose name a Note is registered on the Company's books and any permitted transferee thereof. "Holder Representative" means the person designated as such by the Holders of a majority in aggregate principal amount of the Notes, with notice thereof provided in writing to the Agent under the Credit Agreement. "Indebtedness" means, as to any Person: (a) all obligations, whether or not contingent, of such Person for borrowed money (including, without limitation, reimbursement and all other obligations with respect to surety bonds, letters of credit and bankers' acceptances, whether or not matured), (b) all obligations of such Person evidenced by notes, bonds, debentures or similar instruments, (c) all obligations of such Person representing the balance of deferred purchase price of property or services, except trade accounts payable and accrued commercial or trade liabilities arising in the ordinary course of business, (d) all interest rate and currency swaps, caps, collars and similar agreements or hedging devices under which payments are obligated to be made by such Person, whether periodically or upon the happening of a contingency, (e) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (f) all obligations of such Person under leases which have been or should be, in accordance with GAAP, recorded as capital leases, (g) all obligations of such Person under operating leases in excess of $15,000,000, (h) all indebtedness secured by any Lien (other than Liens in favor of lessors under leases other than leases included in clauses (f) and (g)) on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is non-recourse to the credit of that Person, and (i) all Indebtedness of any other Person referred to in clauses (a) through (g) above, guaranteed, directly or indirectly, by that Person. "Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment, encumbrance, lien (statutory or other) or other security interest of any kind or nature whatsoever (excluding preferred stock or equity related preferences) including, without limitation, those created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor under a capital lease obligation, or any financing lease having substantially the same economic effect as any of the foregoing. "Material Adverse Effect" means any material adverse change in the assets, business or financial condition of the Company. "Minimum Performance Target" means, for fiscal year 2002, an EBITDA of $25,000,000. "Note" shall mean this Note as defined in Section 1 together with all PIK Notes issued in connection thereto. 17 "Officers' Certificate" means a certificate signed by any two officers of the Company, one of whom must be the chief executive officer, the chief financial officer or chief accounting officer of the Company. "Permitted Junior Securities" means equity interests in the Company. "Permitted Liens" means (i) Liens for taxes, governmental charges or levies which (a) are not yet due and payable, or (b) are being diligently contested in good faith by appropriate proceedings; provided, that for any such taxes being diligently contested in good faith, the Company has set aside adequate reserves, (ii) Liens imposed by law, such as mechanic's, materialman's, landlord's, warehouseman's and carrier's liens, securing obligations incurred in the ordinary course of business which are not yet overdue or which are being diligently contested in good faith by appropriate proceeding and, with respect to such obligations which are being contested, for which the Company has set aside adequate reserves, (iii) Liens securing Senior Debt, (iv) Liens which (x) secure obligations of less than $15,000,000 in the aggregate and (y) do not, individually or in the aggregate, interfere with the use and enjoyment of the property subject thereto and (z) Liens created in favor of General Electric Capital Corporation pursuant to the GECC Payment Agreement. "Person" means any individual, partnership, corporation, trust, unincorporated organization or government or agency or political subdivision thereof. "PIK Notes" means the PIK Notes issued in respect of the Notes in lieu of cash interest, each such note requiring the accrual of interest in accordance with the terms of this Note (including the issuance of additional PIK Notes in respect of such interest), commencing from the date of issuance of such note or from the date such note was deemed to have been issued, at the rate of 15.00% per annum or 20.00% per annum, as appropriate, computed on the basis of a 360-day year of twelve 30-day months, for the actual number of days elapsed and containing terms substantially identical to this Note. "Purchase Agreement" shall have the meaning provided in Section 1 hereto. The "principal" of a debt security means the principal of the security plus, when appropriate, the premium (if any) payable on the security. "Senior Debt" means (i) all indebtedness outstanding at any time under the Credit Agreement, and all hedging obligations and bank products with respect thereto, (ii) any replacement or refinancing of the Credit Agreement which provides for borrowings by the Company up to $55,000,000 in aggregate principal amount, and (iii) all obligations with respect to any of the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior Debt shall not include (x) any indebtedness of the Company to any of its subsidiaries or other affiliates, or (y) any indebtedness incurred for the purchase of goods or materials or for services obtained in the ordinary course of business (other than with the proceeds of revolving credit borrowings permitted hereby). "Senior Debt Documents" means the Credit Agreement and any comparable documents governing other senior debt, if any. "Transaction Documents" means collectively, the Purchase Agreement, the Notes, the Convertible Notes, and the Warrants. 18 11. Non-Waiver. No course of dealing between the Company and the Holder of this Note or any delay or failure on the part of the Holder hereof in exercising any rights hereunder shall operate as a waiver of any rights of any Holder hereof, except to the extent expressly waived in writing by the Holder hereof. 12. Governing Law. This Note shall be construed in accordance with and governed by the internal laws of the State of New York. 13. Successors and Assigns. All of the covenants, promises and agreements in this Note shall bind the Company's successors and assigns, whether so expressed or not. 14. Assignment. Prior to the earlier of September 30, 2000 and the Failure to Approve the Transactions (as defined in the Purchase Agreement), Holder shall not sell, assign or otherwise transfer this Note, except to an Affiliate of either of Thayer Equity Investors IV, L.P., TC Manufacturing Holdings, L.L.C. or RCBA Strategic Partners, L.P. Prior to the earlier to occur of (i) the consummation of a Successful Tender Offer (as defined in the Purchase Agreement) and (ii) the termination of the Purchase Agreement, Holder shall not sell, assign or otherwise transfer this Note, except to a Person who has become a successor obligor under the Purchase Agreement to all of the obligations of the original Holder of this Note thereunder. 15. Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provision or provisions held invalid, illegal or unenforceable shall substantially impair the remaining provisions hereof. 16. Headings. The headings of the sections and paragraphs of this Note are inserted for convenience only and shall not be deemed to constitute a part hereof. 19 IN WITNESS WHEREOF, the Company has caused this Note to be signed in its name by a duly authorized officer and to be dated as of the day and year first above written. EFTC CORPORATION By: /s/ Jack Calderon ---------------------------- Name: Jack Calderon Title: Chairman 20 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to (Insert assignee's social security or tax identification number) (Print or type assignee's name, address and zip code) and irrevocably appoint agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: _____________ Your Signature: --------------------------------- (Sign exactly as your name appears on the front of this Note) Signature Guarantee: EX-4.4 3 0003.txt ARTICLES OF AMENDMENT Exhibit 4.4 ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF EFTC CORPORATION SETTING FORTH THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF THE SERIES B CONVERTIBLE PREFERRED STOCK ------------------------- The undersigned President of EFTC CORPORATION, a Colorado corporation (the "Corporation"), certifies that pursuant to the authority contained in subparagraph (b) Article Two of its Articles of Incorporation (the "Articles of Incorporation") and in accordance with the provisions of Section 7-106-102 of the Colorado Business Corporation Act (the "CBCA") the Board of Directors of the Corporation, on July 9, 2000 duly adopted the following resolution, which resolution remains in full force and effect on the date hereof: RESOLVED, that, pursuant to the authority expressly granted to and vested in the Board of Directors of the Corporation in accordance with the provisions of its Articles of Incorporation, a series of Preferred Stock of the Corporation be and hereby is established, consisting of 15,000 shares, $.01 par value per share, to be designated the "Series B Convertible Preferred Stock" (hereinafter, "Series B Stock"); that the Board of Directors be and hereby is authorized to issue such shares of Series B Stock from time to time and for such consideration and on such terms as the Board of Directors shall determine; and that, subject to the limitations provided by law and by the Articles of Incorporation, the voting powers, preferences and relative, participating, optional and other special rights, and qualifications, limitations and restrictions thereof shall be as follows: 1 Certain Definitions. Unless the context otherwise requires, the terms defined in this Section 1 shall have, for all purposes of this resolution, the meanings herein specified (with terms defined in the singular having comparable meanings when used in the plural). "Business Day" shall mean a day other than a Saturday, a Sunday or any other day on which banking institutions in New York, New York are authorized or obligated by law to close. "Common Equity" shall mean all shares now or hereafter authorized of any class of common stock of the Corporation, however designated, including the Common Stock, and any other stock of the Corporation, howsoever designated, authorized after the Initial Issue Date, which has the right (subject always to prior rights of any class or series of preferred stock) to participate in the distribution of the assets and earnings of the Corporation without limit as to per share amount. "Common Stock" shall mean the common stock of the Corporation. "Conversion Date" shall have the meaning set forth in Section 4.1(b) below. "Conversion Price" shall have the meaning set forth in Section 4.1(a) below. "Conversion Value" shall be an amount per share of Series B Stock equal to the Liquidation Price of such share. "Credit Agreement" means the Loan and Security Agreement, dated as of March 30, 2000, by and among the Financial Institutions named therein, Bank of America, N.A., as Agent, and the Company together with any amendment, modification or replacement thereof. "Dividend Payment Date" shall have the meaning set forth in Section 2(a) below. "Dividend Period" shall mean each quarterly period from and including any Dividend Payment Date (or, in the case of the first Dividend Period, including the Initial Issue Date) to but not including the next successive Dividend Payment Date. "Initial Issue Date" shall mean the date that shares of Series B Stock are first issued by the Corporation. "Liquidation Price" shall mean $1,000 per share of Series B Stock (adjusted for stock splits, subdivisions, combinations and similar transactions), plus all accrued and unpaid dividends payable in respect of such share of Series B Stock pursuant to Sections 2(a) and 2(b). "Senior Debt" means (i) all indebtedness outstanding at any time under the Credit Agreement, and all hedging obligations and bank products with respect thereto, (ii) any replacement or refinancing of the Credit Agreement which provides for borrowings by the Company up to $55,000,000 in 2 aggregate principal amount and (iii) all obligations with respect to any of the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior Debt shall not include (x) any indebtedness of the Company to any of its subsidiaries or other affiliates, or (y) any indebtedness incurred for the purchase of goods or materials or for services obtained in the ordinary course of business (other than with the proceeds of revolving credit borrowings permitted hereby). "Subordinate Stock" shall mean the Common Equity and any class or series of capital stock of the Corporation, however designated, 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 Series B Stock pursuant to Section 2(a) shall 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 Corporation until the Series B Stock shall have received the entire amount to which such stock is entitled upon such liquidation, dissolution or winding up. "Trading Price" means, on any day, the average of the high and low reported sales prices regular way of a share of Common Stock on such day (if such day is a trading day, and if such day is not a trading day, on the trading day immediately preceding such trading day) on the Nasdaq Stock Market. "Trading Price Conversion Event" shall be deemed to occur if (a) the Company at the time is maintaining the listing of its Common Stock on the Nasdaq Stock Market, (b) the Company is in full compliance with all covenants under the Senior Debt and the Company's Senior Subordinated Convertible Note due June 30, 2006 and (c) the Common Stock has a Trading Price at or above $7.50 per share for 45 consecutive trading days. 2 Dividends. (a) Subject to the preferential rights of the holders of any class or series of capital stock of the Corporation ranking senior to the Series B Stock as to dividends the holders of the Series B Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available therefor, cumulative cash dividends, in preference and priority to dividends on any Subordinate Stock, that shall accrue on the Liquidation Price of each share of the Series B Stock at the rate of 8.875% per annum, from and including the Initial Issue Date of such share to and including the date on which the Liquidation Price (plus unpaid dividends as described in Section 3 hereof) of such share is made available for payment pursuant to Section 3, or such share is converted pursuant to Section 4. Accrued dividends on the Series B Stock shall be payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year (each a "Dividend Payment Date"), to the holders of record of the Series B Stock as of the close of business on the applicable record date (each, a "Record Date"), which will be the 1st day of the calendar month in which the applicable Dividend Payment Date falls or such other date designated by the Board of Directors that is not more than 30 nor less than 10 days prior to such Dividend Payment Date. Dividends shall be fully cumulative and shall accrue on a daily basis based on a 365- or 366-day year, as the case may be, without regard to the occurrence of a Dividend Payment and whether or not such dividends have been declared and whether or not there are any unrestricted funds of the Corporation legally available for the payment of dividends. Whenever the Board of Directors declares any dividend pursuant to this Section 2(a), notice of the 3 applicable Record Date and related Dividend Payment Date shall be given, not more than 45 days nor less than 10 days prior to such Record Date, to the holders of record of the Series B Stock at their respective addresses as the same appear on the books of the Corporation or are supplied by them in writing to the Corporation for the purpose of such notice. (b) On each Dividend Payment Date, all dividends with respect to each share of Series B Stock, to the extent not declared and paid during the immediately preceding Dividend Period for any reason (whether or not such unpaid dividends have been earned or declared or there are any unrestricted funds of the Corporation legally available for the payment of dividends), shall be added to the Liquidation Price of such share effective as of such Dividend Payment Date and shall remain a part thereof to and including the date on which such dividend is paid or the Liquidation Price of such share is made available for payment pursuant to Section 3. Accrued dividends (or dividends accrued thereon) which have been added to the Liquidation Price of any share of Series B Stock may be subsequently declared and paid in cash, in whole or in part, on any Dividend Payment Date. (c) So long as any shares of Series B Stock shall be outstanding, the Corporation shall 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 shares of the class or series upon which such dividends are declared or paid, or payable in shares of Common Stock with respect to Subordinate Stock other than Common Stock, together with cash in lieu of fractional shares), nor shall any Subordinate Stock be purchased, redeemed or otherwise acquired by the Corporation or any of its subsidiaries of which it owns not less than a majority of the outstanding voting power, nor shall any monies be paid or made available for a sinking fund for the purchase or redemption of any Subordinate Stock, without the prior written consent of the holders of the outstanding shares of Series B Stock required pursuant to Section 6(c) and unless all dividends to which the holders of Series B Stock shall have been entitled pursuant to Sections 2(a) and 2(b) shall have been (i) paid or (ii) declared and a sum of money, in the case of dividends payable in cash, sufficient for the payment thereof has been set apart. (d) In the event that full dividends are not paid or made available to the holders of all outstanding shares of Series B Stock and funds available for payment of dividends shall be insufficient to permit the payment in full to holders of all such stock of the full preferential amounts to which they are then entitled, then the entire amount available for payment of dividends shall be distributed ratably among all such holders of Series B Stock in proportion to the full amount to which they would otherwise be respectively entitled. (e) Notwithstanding anything contained herein to the contrary, no dividends on shares of Series B Stock shall be declared by the Board of Directors of the Corporation or paid or set apart for payment by the Corporation at such time if such declaration or payment shall be restricted or prohibited by law. 3 Distributions Upon Liquidation, Dissolution or Winding Up. In the event of any voluntary or involuntary liquidation, dissolution or other winding up of the 4 affairs of the Corporation, before any payment or distribution shall be made to the holders of Subordinate Stock, the holders of Series B Stock shall be entitled to be paid out of the assets of the Corporation in cash, or, if the Corporation does not have sufficient cash on hand to pay such amounts, property of the Corporation at its fair market value as determined by the Board of Directors of the Corporation, the greater of (i) the Liquidation Price per share of Series B Stock, or (ii) such amount per share of Series B Stock as would have been payable had each such share been converted into Common Stock pursuant to Section 4 immediately prior to such liquidation, dissolution or other winding up of the affairs of the Corporation. Immediately preceding such liquidation, dissolution or winding up, adjustment shall be made for accrued but unpaid dividends. 4 Conversion Rights. 4.1 Conversion at the Option of the Holder. (a) Each holder of Series B Stock may, at its option, convert each share of Series B Stock held by such holder into such number of fully paid and non-assessable shares of Common Stock as determined by dividing the Conversion Value by the Conversion Price (subject to appropriate adjustment in accordance with Section 4.3). No additional consideration shall be paid by a holder of Series B Stock upon exercise of such conversion rights. Upon such conversion, the rights of the holders of converted Series B Stock with respect to the shares of Series B Stock so converted shall cease. The conversion price at which shares of Common Stock shall be deliverable upon conversion of Series B Stock without the payment of additional consideration by the holder thereof shall initially be $1.80 (the "Conversion Price"). (b) To convert Series B Stock in accordance with this Section 4.1, a holder must (i) surrender the certificate or certificates evidencing the shares of Series B Stock to be converted, duly endorsed in a form satisfactory to the Corporation, at the office of the Corporation or transfer agent for the Series B Stock, (ii) notify the Corporation at such office that he elects to convert Series B Stock, and the number of shares he wishes to convert, (iii) state in writing the name or names in which he wishes the certificate or certificates for shares of Common Stock to be issued, and (iv) pay any transfer or similar tax with respect to the transfer of the shares of Series B Stock converted, if required. The date on which the holder satisfies the foregoing requirements shall be the "Conversion Date." As soon as practical but in any event within five (5) Business Days of the Conversion Date, the Corporation shall deliver a certificate for the number of shares of Common Stock issuable upon the conversion and a new certificate representing the unconverted portion, if any, of the shares of Series B Stock represented by the certificate or certificates surrendered for conversion. The person in whose name the Common Stock certificate is registered shall be treated as the shareholder of record on and after the Conversion Date. Adjustment (or cash payment, if applicable) shall be made for accrued and unpaid dividends, as of the Conversion Date, on converted shares of Series B Stock. If the last day on which Series B Stock may be converted is not a Business Day, Series B Stock may be surrendered for conversion on the next succeeding day that is a Business Day. 5 (c) If a holder converts shares of Series B Stock, the Corporation shall pay any documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock upon the conversion; provided, however, that pursuant to Section 4.1 (b) the holder shall pay any such tax which is due because the shares are issued in a name other than the holder's name. 4.2 Automatic Conversion. Upon the occurrence of a Trading Price Conversion Event, each share of Series B Stock held by such holder shall automatically be converted into such number of fully paid and non-assessable shares of Common Stock as determined by dividing the Conversion Value by the Conversion Price (subject to appropriate adjustment in accordance with Section 4.3). No additional consideration shall be paid by a holder of Series B Stock upon automatic conversion. Upon such conversion, the rights of the holders of converted Series B Stock with respect to the shares of Series B Stock so converted shall cease. 4.3 Certain Matters With Respect to Conversion. (a) The Corporation has reserved and shall continue to reserve out of its authorized but unissued Common Stock or its Common Stock held in treasury enough shares of Common Stock to permit the conversion of the Series B Stock in full. All shares of Common Stock which may be issued upon conversion of Series B Stock shall be duly authorized, validly issued, fully paid and nonassessable. The Corporation shall comply with all securities laws regulating the offer and delivery of shares of Common Stock upon conversion of Series B Stock and will list such shares on each national securities exchange on which the Common Stock is listed. (b) If the Corporation: (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; then an appropriate and proportionate adjustment shall be made to the number of shares into which each share of Series B Stock is convertible so that immediately after the occurrence of such event the holders of Series B Stock shall be entitled to receive the same number and kind of shares of capital stock of the Company upon conversion of the Series B Stock as such holders would have received if converted immediately prior to such dividend, distribution, 6 subdivision, combination or reclassification. The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date of a subdivision, combination or reclassification. Such adjustment shall be made successively whenever any event listed above shall occur. (c) No adjustment in the number of shares of Common Stock into which each share of Series B Stock is convertible need be made unless the adjustment would require an increase or decrease of at least one-half of one percent 0.5% in the number of shares of Common Stock into which each share of Series B Stock is convertible. Any adjustments that are not made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 4.3 shall be made to the nearest cent or to the nearest 1/100th of a share, as the case may be. (d) No adjustment in the number of shares of Common Stock into which each share of Series B Stock is convertible need be made under this Section 4.3 for (i) rights to purchase Common Stock pursuant to a Corporation plan for reinvestment of dividends or interest, or (ii) any change in the par value or no par value of the Common Stock. If an adjustment is made to the number of shares of Common Stock into which each share of Series B Stock is convertible upon the establishment of a record date for a distribution subject to Section 4.3 above and if such distribution is subsequently canceled, the number of shares of Common Stock into which each share of Series B Stock is convertible then in effect shall be readjusted, effective as of the date when the Board of Directors of the Corporation determines to cancel such distribution, to the number of shares of Common Stock into which each share of Series B Stock is convertible as would have been in effect if such record date had not been fixed. No adjustment need be made under Section 4.3 if the Corporation issues or distributes to each holder of Series B Stock at least the number of shares of Common Stock, evidences of indebtedness, assets, rights, options or warrants referred to in such paragraph which each holder would have been entitled to receive had Series B Stock been converted into Common Stock prior to or simultaneously with the happening of such event or the record date with respect thereto. (e) Whenever the number of shares of Common Stock into which each share of Series B Stock is convertible is adjusted, the Corporation shall promptly mail to holders of Series B Stock, first class, postage prepaid, a notice of the adjustment. The Corporation shall file with the transfer agent, if any, for Series B Stock a certificate from the Corporation's independent public accountants briefly stating the facts requiring the adjustment and the manner of computing it. (f) If: (i) the Corporation takes any action that would require an adjustment pursuant to Section 4.3; (ii) the Corporation consolidates or merges with, or transfers all or substantially all of its assets to, another corporation, and stockholders of the Corporation must approve the transaction; or 7 (iii) there is a dissolution or liquidation of the Corporation; a holder of Series B Stock may want to convert such stock into shares of Common Stock prior to the record date for or the effective date of the transaction so that it may receive the rights, warrants, securities or assets which a holder of shares of Common Stock on that date may receive. Therefore, the Corporation shall mail to such holders, first class, postage prepaid, a notice stating the proposed record or effective date, as the case may be. The Corporation shall mail the notice at least fifteen (15) days before such date. (g) If the Corporation is party to a consolidation or merger which reclassifies or changes its Common Stock or to the sale of all or substantially all of the assets of the Corporation, upon consummation of such transaction the Series B Stock shall automatically become convertible into the kind and amount of securities, cash or other assets which the holder of Series B Stock would have owned immediately after the sale, consolidation or merger, if such holder had converted Series B Stock immediately before the effective date of the transaction, and an appropriate adjustment (as determined by the Board of Directors of the Corporation) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the holders of Series B Stock, to the end that the provisions set forth herein (including provisions with respect to changes in and other adjustment of the number of shares of Common Stock into which each share of Series B Stock is convertible) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other securities or property thereafter deliverable upon the conversion of Series B Stock. If this Section 4.3(g) applies, Section 4.3(b) does not apply. (h) In any case in which this Section 4.3 shall require that an adjustment as a result of any event become effective from and after a record date, the Corporation may elect to defer until after the occurrence of such event the issuance to the holder of any shares of Series B Stock converted after such record date and before the occurrence of such event of the additional shares of Common Stock issuable upon such conversion over and above the shares issuable immediately prior to adjustment. 5 Voting Rights. (a) Except as otherwise set forth in this Section 5 (including without limitation the voting provisions set forth in Section 5(b)) or as otherwise required by law, each share of Series B Stock issued and outstanding (or issued by way of stock dividend in respect thereof, or any securities issued in substitution thereof) shall have the right to vote on all matters presented to the holders of the 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 Series B Stock would then be convertible, and the holders of the Series B Stock shall vote with the holders of the Common Stock as a single class. 8 (b) The rights of the holders of the Series B Stock may be exercised either at a special meeting of the holders of Series B Stock, called as hereinafter provided, or at any annual meeting of stockholders held for the purpose of electing directors. (c) A special meeting of the holders of Series B Stock for purposes of voting on matters with respect to which the holders of such shares are entitled to vote as a class may be called by the Secretary of the Corporation or by a holder of Series B Stock designated in writing by the holders of record of twenty percent (20%) of the shares of Series B Stock then outstanding. Such meeting may be called at the expense of the Corporation. At any meeting of the holders of Series B Stock, the presence in person or by proxy of the holders of a majority of the shares of Series B Stock then outstanding shall constitute a quorum of the Series B Stock. 6 Information Rights. So long as any shares of the Series B Stock are outstanding, the Corporation covenants and agrees as follows: 6.1 Financial Statements and Other Information. The Corporation shall deliver to the holders of Series B Stock within 15 days after it files them with the Securities and Exchange Commission (the "Commission") copies of any annual reports and any information, documents and other reports that the Corporation is required to file with the Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended. 6.2 Right to Inspection, Etc. The Corporation shall, upon reasonable prior written notice, make available to any holder of at least 5% of the then outstanding Series B Stock (i) all corporate and business financial records of the Corporation and its subsidiaries, if any, for inspection and copying at the Corporation's offices by any officer, employee, agent, attorney or accountant designated by each such holder; and (ii) the officers and employees of the Corporation and its subsidiaries and its independent accountants for interviews by each such holder of Series B Stock (or any of such designees of such holder) concerning the affairs and finances of the Corporation and its subsidiaries, if any. Such inspection, copying, and interviews may be made by each such holder of Series B Stock (or any of such holder's designees) at any time during normal business hours or at such other times as may be reasonably requested, but in no event more than once a quarter. 9 Each such holder of Series B Stock and its agents and representatives, in exercising its rights of inspection, copying, interviewing and attendance of board meetings hereunder, shall maintain the confidentiality of all financial and other confidential information of the Corporation acquired by it in exercising such rights and shall use such information right fairly, and in compliance with applicable state and federal securities laws. This right shall not apply to or be assignable to any person or entity that competes with the Corporation or that would obtain a competitive advantage from disclosure of such information. 7 Exclusion of Other Rights. Except as may otherwise be required by law, the shares of Series B Stock shall not have any preferences, limitations and relative rights, other than those specifically set forth in this resolution (as such resolution may be amended from time to time) and in the Articles of Incorporation of the Corporation. 8 Headings of Subdivisions. The headings of the various subdivisions hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof. 9 Severability of Provisions. If any preferences, limitations and relative rights of the Series B Stock and qualifications, limitations and restrictions thereof set forth in this resolution (as such resolution may be amended from time to time) is invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other preferences, limitations and relative rights of Series B Stock and qualifications, limitations and restrictions thereof set forth in this resolution (as so amended) which can be given effect without the invalid, unlawful or unenforceable preferences, limitations and relative rights of Series B Stock and qualifications, limitations and restrictions thereof shall, nevertheless, remain in full force and effect, and no preferences, limitations and relative rights of Series B Stock and qualifications, limitations and restrictions thereof herein set forth shall be deemed dependent upon any other such preferences, limitations and relative rights of Series B Stock and qualifications, limitations and restrictions thereof unless so expressed herein. 10 IN WITNESS WHEREOF, the Corporation has caused this certificate to be duly executed by an authorized officer and attested by its Secretary, this ___ day of ______________. EFTC CORPORATION By: -------------------------------------------------- Name: Title: Attest: Secretary 10 EX-4.5 4 0004.txt AMENDMENT TO RIGHTS AGREEMENT Exhibit 4.5 SECOND AMENDMENT TO RIGHTS AGREEMENT This Second Amendment to Rights Agreement is entered into as of July 14, 2000 between EFTC Corporation, a Colorado Corporation ("EFTC") and Computershare Trust Company, Inc., formally known as American Securities Transfer & Trust, Inc. (the "Rights Agent"). RECITALS EFTC and the Rights Agent are parties to a Rights Agreement dated as of February 25, 1999, as amended on March 30, 2000 (the "Amended Rights Agreement") and wish to amend same. AGREEMENT The Parties agree as follows: 1. Section 1(a)(iii) of the Amended Rights Agreement shall be amended to read in its entirety as follows: "(iii) none of (x) Thayer-BLUM Funding, L.L.C., a Delaware limited liability company (the "Purchaser"), (y) any of its permitted assigns under the Securities Purchase Agreement, dated as of March 30, 2000, as amended on July 12, 2000, and as further amended from time to time (as amended, the "Purchase Agreement"), by and between the Company and the Purchaser, nor (z) any Person whose Beneficial Ownership of the Company's Common Stock is derivative of the Beneficial Ownership of any such Persons shall be an Acquiring Person hereunder;" 2. In all other respects the Amended Rights Agreement is ratified and confirmed. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. EFTC CORPORATION By: /s/ Jack Calderon Name: Jack Calderon Title: Chairman COMPUTERSHARE TRUST COMPANY, INC. By: /s/ Laura Sisneros Name: Laura Sisneros Title: Vice President By: /s/ Kellie Gwinn Name: Kellie Gwinn Title: Sr. Vice President 2 EX-10.2 5 0005.txt EMPLOYMENT AGREEMENT Exhibit 10.3 EMPLOYMENT AGREEMENT THIS AGREEMENT is made and entered into this 23rd day of June, 2000, by and between James Bass ("Executive") and EFTC Corporation, a Colorado corporation (the "Company"). WITNESSETH: WHEREAS, Executive and the Company deem it to be in their respective best interests to enter into an agreement providing for the Company's employment of Executive pursuant to the terms herein stated; NOW, THEREFORE, in consideration of the premises and the mutual promises and agreements contained herein, it is hereby agreed as follows: 1. Effective Date. This Agreement shall be effective as of July 17, 2000, which date shall be referred to herein as the "Effective Date." 2. Position and Duties. (a) The Company hereby agrees to employ Executive and Executive hereby agrees to accept his employment as Chief Executive Officer of the Company for the "Term of Employment" (as defined in Section 5). In this capacity, Executive shall devote his reasonable best efforts to the performance of the services customarily incident to such office and position and to such other services of an executive nature as may be reasonably requested by the Board of Directors (the "Board") of the Company, which may include services for one or more subsidiaries or affiliates of the Company. Executive shall in his capacity as an employee and officer of the Company be directly responsible to and obey the reasonable and lawful directives of the Board. (b) Executive shall use his reasonable best efforts during the Term of Employment to protect, encourage, and promote the interests of the Company. 3. Compensation. (a) Base Salary. The Company shall pay to Executive during the Term of Employment a minimum salary at the rate of three hundred thousand dollars ($300,000) per calendar year. Such salary shall be payable in accordance with the Company's normal payroll procedures. Executive's annual salary, as set forth above or as it may be increased from time to time by the Board in its sole discretion, shall be referred to hereinafter as "Base Salary." (b) Bonus Compensation. Upon execution and delivery of this Agreement by both parties, the Company shall pay Executive a signing bonus of $50,000 which shall be paid on July 17, 2000 but otherwise in accordance with the Company's normal payroll procedures. In addition to the Base Salary, for each fiscal year of the Company, or portion thereof, during the Term of Employment, Executive shall be eligible to participate in an incentive-based bonus compensation program (the "Bonus Compensation") in an amount determined by the Compensation Committee of the Board (the "Compensation Committee"), and consistent with other comparable executives of the Company and its affiliated companies. The amount, if any, of such Bonus Compensation for each such fiscal year shall be determined based upon the Company's attainment of performance goals presented to the Board of Directors or the Compensation Committee of the Board of Directors by Executive and the Company's Chief Financial Officer and approved by the Board of Directors or the Compensation Committee. Performance goals shall be based on the Company's earnings before interest expenses, taxes, and amortization costs (adjusted to reflect working capital carrying costs and capital spending) and on targets for returns on invested capital to be determined by the Board of Directors. Without limiting the foregoing, the amount of Bonus Compensation to be paid in respect of any such fiscal year shall be up to an amount of not less than $250,000 for meeting agreed upon performance amounts with additional amounts payable for exceeding such performance goals by set threshold amounts. 4. Benefits. During the Term of Employment: (a) Executive shall be eligible to participate in any life, health, dental and long-term disability insurance programs, pension and retirement programs, leave of absence and other fringe benefit programs made available to senior executive employees of the Company from time to time, and Executive shall be entitled to receive such other fringe benefits as may be granted to him from time to time by the Compensation Committee. (b) Executive shall be entitled to four weeks paid vacation per each full year during the Term of Employment; provided that Executive may be provided with additional paid vacation as provided by the Board (or its designee) in its sole discretion. (c) Executive shall be eligible to participate in the 2000 Equity Stock Option Plan and such other equity based or incentive compensation plans or programs as may be adopted by the Company from time to time (collectively, the "Equity Plan") for its senior executives, at such level and in such amounts as may be determined by the Board in its sole discretion, subject to the terms and conditions of the Equity Plan and any applicable award agreements; provided that Executive shall receive an initial award of options to purchase shares of common stock of the Company substantially on the terms set forth on Exhibit A hereto. (d) The Company shall reimburse Executive for reasonable business expenses incurred in performing Executive's duties and promoting the business of the Company, including, but not limited to, reasonable entertainment expenses, travel and lodging expenses, following presentation of documentation in accordance with the Company's business expense reimbursement policies. (e) The Company shall reimburse Executive for reasonable moving expenses incurred by Executive as a result of his move to the Phoenix, Arizona area in connection with his employment by the Company following presentation of documentation thereof; provided, that such expenses shall not exceed $60,000 in the aggregate; and, provided further, that the reimbursement of any non-deductible expenses for state or federal income tax purposes shall be "grossed up" in sufficient amount to cause Executive to be fully reimbursed even after payment of all applicable income taxes. In addition, the Company shall 2 advance to Executive a relocation bridge loan (the "Bridge Loan") in an amount not to exceed Two Hundred Thousand Dollars ($200,000) to be applied by Executive to the purchase of a new home in the Phoenix metropolitan area. The Bridge Loan shall be for a term not to exceed one year and shall accrue interest at the rate of eight percent (8.0%) per annum. 5. Term; Termination of Employment. As used herein, the phrase "Term of Employment" shall mean the period commencing on the Effective Date and, except as otherwise specifically provided below, ending on December 31, 2003 which shall automatically renew for periods of one year unless one party gives written notice to the other at least 90 days prior to the end of the then current term that the Agreement shall not be further extended. Notwithstanding the foregoing, the Term of Employment shall expire on the first to occur of the following: (a) Termination by the Company without Cause or Resignation for Good Reason. Notwithstanding anything to the contrary in this Agreement, whether express or implied, (i) the Company may, at any time, terminate Executive's employment for any reason other than Cause (as defined below) by giving Executive at least 60 days' prior written notice of the effective date of termination and (ii) the Executive may resign for Good Reason (as defined below) by giving the Company at least 60 days' prior written notice of the effective date of termination. In the event Executive's employment hereunder is terminated by the Company other than for Cause or Executive resigns for Good Reason, the Company shall, in accordance with the Company's customary payroll practices, continue to pay to Executive: x. Base Salary and y. a pro-rated Bonus Compensation for the year in which such termination occurs, based on performance to the date of termination during the period commencing on the effective date of such termination and ending on the first anniversary of the effective date of such termination; provided, that notwithstanding the foregoing Executive shall not be eligible to receive any Bonus Compensation pursuant to this Section 5(a) for a termination occurring in any calendar year unless the date of termination occurs on or after June 30 of such calendar year. (b) Termination for Cause. The Company shall have the right to terminate Executive's employment at any time for Cause by giving Executive written notice of the effective date of termination (which effective date may, except as otherwise provided below, be the date of such notice). If the Company terminates Executive's employment for Cause, Executive shall be paid his unpaid Base Salary through the date of termination and the Company shall have no further obligation hereunder from and after the effective date of such termination. (c) Certain Definitions. For purposes of this Agreement: (i) "Cause" shall mean: (A) Fraud, misappropriation, embezzlement, or other act of material misconduct by Executive against the Company or any of its affiliates; (B) Executive's conviction of or plea of guilty or nolo contendere to a felony; 3 (C) Executive's breach of any material term of this Agreement including without limitation Section 6 which, if such breach is curable without material harm to the Company, remains uncured for a period of thirty (30) days following written notice by the Company to Executive of such breach; or (D) Executive's willful refusal or failure to act on any reasonable and lawful directive or order from the Board which is material to the business of the Company and which remains uncured for a period of thirty (30) days following written notice by the Company to Executive describing such refusal or failure to act. (ii) "Good Reason" shall mean: (A) A material breach of a material term of this Agreement by the Company; (B) Any material adverse change in Executive's job title, duties, responsibilities or authority; (C) Failure of the Company to pay Base Salary or Bonus Compensation when due under this Agreement; or (D) Executive shall, without his consent, not be a member of the Board; provided, however, that none of the events described in this Section 5(c)(ii) shall constitute Good Reason unless Executive shall have notified the Company in writing describing the events which constitute Good Reason and then only if the Company shall have failed to cure such event within ten (10) days after the Company's receipt of such written notice. (d) Termination on Account of Death. In the event of Executive's death while in the employ of the Company, his employment hereunder shall terminate on the date of his death and Executive shall be paid (x) his unpaid Base Salary through the date of termination and (y) any unpaid Bonus Compensation for the prior year. In addition, any other benefits payable on behalf of Executive shall be determined under the Company's insurance and other compensation and benefit plans and programs then in effect in accordance with the terms of such programs. (e) Resignation by Executive without Good Reason. In the event that Executive's employment with the Company is voluntarily terminated by Executive for any reason other than for Good Reason, Executive shall be paid (x) his unpaid Base Salary through the date of termination and (y) any unpaid Bonus Compensation for the prior year, and the Company shall have no further obligation hereunder from and after the effective date of termination. Executive shall give the Company at least 60 days' advance written notice of his intention to terminate his employment hereunder. (f) Termination on Account of Disability. To the extent not prohibited by The Americans With Disabilities Act of 1990 or other applicable law, if, as a result of Executive's incapacity due to physical or mental illness (as determined in good faith by a physician acceptable to the Company and Executive), Executive shall have been absent from the full-time performance of his duties with the Company for 120 consecutive days during any twelve (12) month period or if a physician acceptable to the Company advises the Company that it is likely that Executive will be unable to return to the full-time performance of his duties 4 for 120 consecutive days during the succeeding twelve (12) month period, his employment may be terminated for "Disability." During any period that Executive fails to perform his full-time duties with the Company as a result of incapacity due to physical or mental illness, he shall continue to receive his Base Salary, Bonus Compensation and other benefits provided hereunder, together with all compensation payable to him under the Company's disability plan or program or other similar plan during such period, until Executive's employment hereunder is terminated pursuant to this Section 5(f). In the event of a Disability, Executive's benefits shall be determined under the Company's retirement, insurance, and other compensation and benefit plans and programs then in effect, in accordance with the terms of such programs and to the extent permitted by applicable law. (g) No Mitigation of Damages. In the event of any termination of Executive's employment hereunder, Executive shall not be required to seek other employment to mitigate damages, and any income earned from Executive from other employment or self-employment shall not be offset against any obligations of the Company under this Agreement. 6. Confidential Information, Non-Solicitation and Non-Competition. (a) During the Term of Employment and for a period of eighteen months following the date Executive ceases to be employed by the Company for any reason (the "Non- Compete Period"), Executive shall not, directly or indirectly, engage in, work for, consult or provide advice or assistance to any Named Competitor (as defined below) within the United States and its territories and protectorates. "Named Competitor" shall mean any company that derives more than 50% of its annual revenues from the provision of high mix electronic manufacturing services to original equipment manufacturers in the computer peripherals, medical equipment, industrial controls, telecommunications equipment and electronic instrumentation industries. Executive further agrees that during the Non-Compete Period he will not give material assistance or encouragement to any other person in carrying out any activity that would be prohibited by the provisions of this Section 6 if such activity were carried out by Executive, or give any assistance or encouragement to any other person in carrying out any such activity for the purpose of competing against the Company, and, in particular, Executive agrees that he will not induce any employee of the Company to carry out any such activity; provided, however, that the "beneficial ownership" by Executive, either individually or as a member of a "group," as such terms are used in Rule 13d of the General Rules and Regulations under the Exchange Act, of not more than five percent (5%) of the voting stock of any publicly held corporation shall not be a violation of this Agreement. Notwithstanding the foregoing, this Section 6(a) shall not apply if Executive is terminated by the Company prior to January 17, 2001, for any reason other than for Cause. (b) Executive agrees that, during the Term of Employment, and for a period of eighteen months thereafter, he will not, directly or indirectly, solicit or contact any customer or supplier of the Company on behalf of any Named Competitor or in any way interfere with the Company's relationship with any customer or supplier of the Company. 5 (c) Executive agrees that, during the Term of Employment, and for a period of eighteen months thereafter, he will not, directly or indirectly, solicit or recruit any employee of the Company for the purpose of being employed by him or by any Named Competitor. (d) Executive and the Company expressly agree that the Company will or would suffer irreparable injury if Executive were to violate any provision of this Section 6 and that the Company would by reason of such violation be entitled to injunctive relief in a court of appropriate jurisdiction. (e) If it is determined by a court of competent jurisdiction in any state that any restriction in this Section 6 is excessive in duration or scope or is unreasonable or unenforceable under the laws of that state, it is the intention of the parties that such restriction may be modified or amended by the court to render it enforceable to the maximum extent permitted by the law of that state. 7. Taxes. All payments to be made to Executive under this Agreement will be subject to any applicable withholding of federal, state and local income and employment taxes. 8. Miscellaneous. This Agreement shall also be subject to the following miscellaneous considerations: (a) Executive and the Company each represent and warrant to the other that he or it has the authorization, power and right to deliver, execute, and fully perform his or its obligations under this Agreement in accordance with its terms. (b) This Agreement contains a complete statement of all the arrangements between the parties with respect to Executive's employment by the Company, this Agreement supersedes all prior and existing negotiations and agreements between the parties concerning Executive's employment, and this Agreement can only be changed or modified pursuant to a written instrument duly executed by each of the parties hereto. (c) If any provision of this Agreement or any portion thereof is declared invalid, illegal, or incapable of being enforced by any court of competent jurisdiction, the remainder of such provisions and all of the remaining provisions of this Agreement shall continue in full force and effect. (d) This Agreement shall be governed by and construed in accordance with the internal laws of the State of Arizona, except to the extent preempted by federal law or to the extent federal law is expressly made applicable under this Agreement. (e) The Company may assign this Agreement to any direct or indirect subsidiary or parent of the Company or joint venture in which the Company has an interest, or any successor (whether by merger, consolidation, spin-off, purchase or otherwise) to all or substantially all of the stock, assets or business of the Company or any subsidiary or parent of the Company, and this Agreement shall be binding upon and inure to the benefit of such successors and assigns. Except as expressly provided herein, Executive may not sell, transfer, assign, or pledge any of his rights or interests pursuant to this Agreement. 6 (f) Any rights of Executive hereunder shall be in addition to any rights Executive may otherwise have under benefit plans, agreements, or arrangements of the Company to which he is a party or in which he is a participant, including, but not limited to, any Company-sponsored employee benefit plans. (g) For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States certified or registered mail, return receipt requested, postage prepaid. All notices to Executive shall be addressed to Executive at the address contained in the Company's records concerning the Executive. All notices to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company. (h) Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. (i) Failure to insist upon strict compliance with any of the terms, covenants, or conditions hereof shall not be deemed a waiver of such term, covenant, or condition, nor shall any waiver or relinquishment of, or failure to insist upon strict compliance with, any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. (j) This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. (k) The Company shall indemnify Executive to the fullest extent permitted by the laws of the State of Arizona, as in effect at the time of the subject act or omission, and he will be entitled to the protection of any insurance policies that the Company may elect to maintain generally for the benefit of its directors and officers against all liabilities, damages, costs, charges and expenses, including reasonable attorneys' fees, incurred or sustained by him in connection with any action, suit or proceeding to which he may be made a party by reason of his being or having been a director, officer or employee of the Company or any of its affiliates or his having served any other enterprise, plan or trust as director, officer, employee or fiduciary at the request of the Company. The provisions of this Section 8(k) shall survive any termination of Executive's employment or any termination of this Agreement. 9. Resolution of Disputes. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted in Phoenix, Arizona in accordance with the rules of the American Arbitration Association governing employment disputes as then in effect. The Company and Executive hereby agree that the arbitrator will not have the authority to award punitive damages, damages for emotional distress or any other damages that are not contractual in nature. Judgment may be entered on the 7 arbitrator's award in any court having jurisdiction. The fees and expenses of the American Arbitration Association and the arbitrator shall be borne by the Company. Notwithstanding the foregoing, the Company shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction, even if the arbitrator shall not yet have made any findings or awards, to prevent any continuation of any violation of the provisions of Section 6, and Executive consents that such restraining order or injunction may be granted without the necessity of the Company's posting any bond except to the extent otherwise required by applicable law 10. Attorneys' Fees. (a) Upon invoice in conformity with the Company's customary practices, the Company shall pay Executive the amount of all reasonable legal fees incurred by Executive in connection with the negotiation of this Agreement; provided, that such expenses shall not exceed $4,000 in the aggregate. (b) If any suit or action is filed by any party to enforce this Agreement or otherwise with respect to the subject matter of this Agreement, each party shall be responsible to pay the attorneys fees and costs incurred by such party in preparation or in prosecution or defense of such suit or action; provided, however, that the court or adjudicator may in its sole discretion allocate attorneys fees and costs to Executive. [signature page follows] 8 * * * * * * * * IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. EXECUTIVE: EFTC CORPORATION /s/ James Bass By: /s/ Jack Calderon - ------------- -------------------- James Bass Title: Chairman Address: 113 Laurel Court Latrobe, PA 15650 9 EXHIBIT A Option Award Term Sheet Shares: 900,000 shares at an exercise price of $2.63 per share. This award is to be made pursuant to the Company's 2000 Stock Option Plan. Vesting: Time based: 450,000 options will time vest over 5 years, with 90,000 vesting immediately upon execution and delivery of the Employment Agreement and the commencement of Executive's employment in Phoenix on July 17, 2000 and 72,000 vesting on each anniversary thereof. Performance based: 450,000 options will vest on a sliding, linear scale based on the following benchmark internal rates of return in the Company, as determined by Thayer-BLUM Funding, L.L.C., which the Company and the Executive believe represent an accurate measure of the Company's performance: 100% vest with IRR greater than or equal to 40%. 50% vest with IRR greater than or equal to 30%. 0% vest with IRR less than or equal to 20%. EX-27.1 6 0006.txt
5 1,000 3-MOS DEC-31-2000 JUN-30-2000 309,000 0 36,332,000 1,948,000 85,878,000 122,877,000 32,274,000 11,942,000 162,943,000 66,946,000 59,093,000 0 0 155,000 (1,469,000) 162,943,000 75,944,000 75,944,000 76,220,000 76,220,000 9,966,000 0 2,780,000 (13,028,000) 0 (13,028,000) 0 0 0 (13,028,000) (.84) (.84)
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