-----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, EuDErAL3RRJiqCe5WGUa5Off4s9X4ks1c5TsDT846hHCNL/TJDdOPbyV83GWsDsB lfCMG+Ziie0Me/m+m8Zssg== 0000916797-97-000014.txt : 19970329 0000916797-97-000014.hdr.sgml : 19970329 ACCESSION NUMBER: 0000916797-97-000014 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELECTRONIC FAB TECHNOLOGY CORP CENTRAL INDEX KEY: 0000916797 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 840854616 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-23332 FILM NUMBER: 97567668 BUSINESS ADDRESS: STREET 1: 7251 WEST 4TH ST CITY: GREELEY STATE: CO ZIP: 80634-9763 BUSINESS PHONE: 3033533100 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from__________to _________ Commission File Number 0-23332 ELECTRONIC FAB TECHNOLOGY CORP. (Exact name of registrant as specified in its charter) COLORADO (State or other jurisdiction of incorporation of organization) 84-0854616 (I.R.S. Employer Identification No.) 7251 West 4th St Greeley , Colorado (Address of principal executive offices) 80634 (Zip Code) Registrant's telephone number, including area code: (970) 353-3100 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months ( or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[ ] As of March 14, 1997, the number of outstanding shares of Common Stock was 5,922,660. As of such date, the aggregate market value of the shares of Common Stock held by non-affiliates, based on the closing price of the Common Stock on the Nasdaq National Market, was approximately $11,962,530. DOCUMENTS INCORPORATED BY REFERENCE Part III of this Form 10-K is incorporated by reference to the Company's Proxy Statement for its 1997 Annual Meeting of Stockholders to be held May 28, 1997. PART I Item 1. Business The information set forth below contains "forward looking statements" within the meaning of the federal securities laws, including statements regarding opportunities for growth from expanded use of contract manufacturing by OEMs, the Company's new strategic business plan and development of its new management information system, the trend toward turnkey manufacturing, the Company's expectations regarding increases in the numbers of assemblies ordered by customers, and other statements of expectations, beliefs, plans, and similar expressions concerning matters that are not historical facts. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements. General Electronic Fab Technology Corp. (the "Company" or "EFTC"), formed in 1981, is an independent provider of electronic manufacturing services to original equipment manufacturers ("OEMs") in the computer peripherals, medical equipment, industrial controls, telecommunications equipment and electronic instrumentation industries. The Company's manufacturing services consist of assembling complex printed circuit boards (using both surface mount and pin-through-hole technologies), cables, electro-mechanical devices and finished products. The Company also provides computer-aided testing of printed circuit boards, subsystems and final assemblies. In certain instances, the Company completes the assembly of its customers' products at the Company's facilities by integrating printed circuit boards and electro- mechanical devices into other components of the customers products. Most of the Company's sales are generated from turnkey contracts, whereby the Company provides the components and other materials used in the assembly process, as well as value-added services. A lesser amount of the Company's sales is made on a consignment basis, whereby the Company, using components provided by the customer, provides only assembly and post-assembly testing services. The Company focuses on a market niche of complex, mid-volume industrial electronic products, where high levels of responsiveness and flexibility are most valuable to customers. In 1994, the Company completed a new 52,000 square foot manufacturing facility in Greeley, Colorado and acquired two new surface mount technology production lines. In 1995, the Company began a process to replace its existing management information systems and, following a reevaluation of the project and resultant changes in it, the Company expects the completion date to be in the third quarter of 1997. On August 5, 1996, the board hired Mr. Jack Calderon as the new President and Chief Executive Officer of the Company. After a short period of cost restructuring and internal reorganization, Mr. Calderon implemented a program named "the 100 Week Journey of Progress," which included five key corporate goals: (i) become the recognized leader in high-mix electronic contract manufacturing; (ii) become a multi-sited manufacturer; (iii) double revenues; (iv) provide a broader range of service to a broader customer base; and (v) outperform competitors in return-on-equity, cash flow and sales growth. Among the strategies to meet such goals, the Company adopted an acquisition strategy centered on finding companies that are favorably located geographically, which will strengthen the Company financially and are focused on the same high-mix strategy as the Company. As an additional part of its corporate restructuring in the third quarter of 1996, the Company developed and implemented an innovative manufacturing methodology, Asynchronous Process Manufacturing ("APM"). APM involves the combination of high-speed manufacturing equipment, sophisticated information systems and standardized process teams to produce small quantities of products more flexibly and more quickly through the factory to market. The Company implemented APM for all its customers as part of the Company's new strategy to deliver manufacturing solutions for high-mix products in high speed modes. The Company's new high-mix market focus concentrates on offering solutions to OEMs in the medical, instrumentation and high-end storage industries, as well as certain segments of the communications industry. See "Manufacturing Services" below. On February 24, 1997, the Company acquired two affiliated entities, Current Electronics, Inc., an Oregon Corporation, and Current Electronics (Washington), Inc., a Washington Corporation, for total consideration of approximately $10.3 million, consisting of 1,980,000 shares of Company common stock and approximately $4.9 million in cash. The Company will record goodwill of approximately $6.5 million in connection with the acquisition, which will be amortized over 30 years. The combined revenues for Current Electronics, Inc. and Current Electronics (Washington), Inc. for the fiscal year ended September 30, 1996 was approximately $32.5 million. In connection with the business combination, the Company renegotiated its line of credit to increase maximum borrowings to $15,000,000 and extended the maturity date to June 1998. In addition, the Company obtained a 90 day bridge loan in the amount of $4.9 million, the proceeds from which were used to pay the cash consideration related to the acquisition, as discussed above. At December 31, 1996, the Company had 398 employees and four fully-automated surface mount technology lines. Manufacturing Services in the Electronics Industry The electronic manufacturing services industry emerged in the United States in the 1970's. By subcontracting their manufacturing operations, OEMs can realize productivity gains because fewer in-house employees are needed to produce products, and manufacturing capacity and capabilities increase without capital investment. Four key developments have spurred the growth in the electronics manufacturing services industry: surface mount technology ("SMT"), turnkey manufacturing, concurrent engineering and outsourcing in the electronics industry. Surface Mount Technology. In SMT production, electronic components are attached and soldered directly onto the surface of a circuit board rather than inserted through holes. This process differs from pin-through-hole technology, where electronic components, such as integrated circuits, are attached to printed circuit boards by means of pins, also known as leads, that are inserted into pre-drilled holes on a circuit board, and are then soldered to complete the circuitry. SMT components are smaller, can be spaced more closely together and, unlike pin-through-hole components, can be placed on both sides of a circuit board. This allows for product miniaturization, while enhancing the electronic properties of the circuit. Because the SMT manufacturing process is fully automated, it results in lower labor costs and higher quality output than pin-through-hole manufacturing. Turnkey Manufacturing. Traditionally OEMs provided most components and other materials needed to complete a job on a consignment basis to electronics contract manufacturers ("ECMs"). Coincident with the trend toward SMT, OEMs began to shift the responsibility for material procurement to ECMs. This concept came to be known as "turnkey manufacturing." Turnkey manufacturing benefits OEMs in several ways. It allows an OEM's purchasing agents to focus on procurement of fewer parts, making it easier to coordinate the timing of future deliveries. In many cases, turnkey manufacturing reduces material costs because ECMs can combine the purchasing needs of customers when negotiating volume pricing agreements with suppliers. Turnkey manufacturing also frees working capital of OEMs that would otherwise be tied up in raw material inventory. Concurrent Engineering. In an effort to gain greater efficiency in material procurement and manufacturing, OEMs are giving contractors greater input on such design issues as board layout, component selection, production methods, and the preparation of assembly drawings and test schematics. With such "concurrent engineering," also known as "design for manufacturability," OEMs can tap the contract manufacturer's expertise at the outset to minimize manufacturing bottlenecks. Outsourcing. To improve performance, many OEMs are concentrating resources on their "core competencies," or those business activities that give them a strategic advantage in the marketplace. Non-core activities are eliminated or outsourced. Many OEMs have determined that manufacturing is not one of their corecompetencies and are outsourcing their manufacturing to ECMs. In addition, utilization of outside contract manufacturers by OEMs enables the OEMs to focus their efforts on research, product design and development, and marketing. Other significant benefits of using ECM services include: reduced time to market, reduced capital investment, access to leading-edge manufacturing technology, improved inventory management and improved purchasing power. The Company believes that many OEMs now view contract manufacturers as an integral part of their business and manufacturing strategy rather than as a back-up source to in-house manufacturing capacity during peak periods. The types of services now being outsourced have also grown. OEMs are outsourcing more design engineering, distribution and after-sale support, in addition to material procurement, manufacturing and testing. Strategy The Company's objective is to be a leading provider of electronic contract manufacturing services exclusively focusing on the needs of high-mix OEM customers in its targeted markets. In pursuing this objective, the Company has created a new strategic business plan, its "100-Week Vision," with five key goals: (i) become the recognized leader in high-mix contract manufacturing; (ii) become a multi-sited manufacturer; (iii) double revenues; (iv) provide a broader range of service to a broader customer base; and (v) outperform competitors in return-on-equity, cash flow and sales growth. Creating and maintaining long-term relationships with customers by providing high quality, cost-effective manufacturing services marked by a high degree of responsiveness and flexibility. The central tenet of the Company's operating philosophy is customer service, characterized by high quality, flexibility and responsiveness to the needs of the customer. The Company maximizes the level of service provided to customers by using (i) total quality management to assure that the Company realizes the full value of its human resources, (ii) APM, (iii) computer-integrated manufacturing to allow the Company to track the progress and costs of each project on a real-time basis and to respond quickly and effectively to customer inquiries and changes and (iv) create new services such as fixed price prototype and point-of-use inventory. For a more detailed discussion of the Company's manufacturing operations, see "Manufacturing Services" below. Focusing on a market niche of complex, high-mix products. The Company provides contract manufacturing services to established producers of electronic products. The Company focuses primarily on high-mix OEMs in the medical, instrumentation, and high end data storage industries, as well as certain segments of the communication industry. High levels of quality, responsiveness and flexibility tend to be of most value to OEMs in these industries. Management believes that there are many OEMs in these industries with high-mix product requirements that could benefit from using, or expanding their use of, contract manufacturers, and therefore represent significant opportunities for the Company's growth. Given its focus, the Company does not compete for the manufacture of low cost, high volume printed circuit boards for use in personal computers, automotive or other consumer related products. Increasing profitability by emphasizing turnkey manufacturing and concurrent engineering and expanding the breadth of services offered. Management believes that expanding the scope of its relationships with its customers leads to greater stability of its customer base and increased profit opportunities. The Company has been successful in converting most of its customers (over 90%) from consignment manufacturing to turnkey manufacturing and emphasizes turnkey relationships in its negotiations with new customers. Although turnkey manufacturing generally results in a lower gross profit percentage compared to consignment sales, the Company is attempting to improve margins by reengineering several critical business processes in order to achieve improved efficiencies. In addition, the Company works to expand its relationships with existing customers by emphasizing concurrent engineering and other services. The Company frequently works with its customers to develop and utilize advanced engineering to improve product quality, to reduce cost and to gain early access to new product introductions. This positions the Company to negotiate the price of new projects rather than being submitted to a competitive bid process. These concurrent engineering activities include: design for manufacturability; design for testability; and component applications engineering. Further diversifying its markets by pursuing opportunities in a variety of industries and geographic areas. Management has sought to balance the benefits of industry segment specialization with industry concentration risks by focusing on four market segments: medical, instrumentation, high-end data storage and communications. Management believes that, by addressing multiple markets, the Company is less susceptible to downturns in any single OEM industry, while limiting the total number of markets allows the Company to offer more precisely tailored solutions to address the particular needs of each different market. In addition, management believes that having manufacturing facility sites in several locations allows, the Company to better serve customers and puts the Company in a better position to compete for new customers. As part of the revision of the Company's strategy in the third quarter of 1996, the Company adopted an acquisition strategy that focuses on acquiring high-mix ECMs with favorable geographic locations and earnings. Critical business processes and management information systems . In the third quarter of 1996, the Company refocused its strategy to exclusively serve high-mix OEMs. As part of this refocusing, the Company revised certain of its business and manufacturing processes with the goal of creating a sustainable competitive advantage. At the center of the Company's new strategy was the introduction of APM. APM standardizes processes so that any circuit board can be assembled by a variety of different production lines. APM allows for short cycle time manufacture of a wide variety of products. Management believes that the Company's ability to manufacture high-mix products at high speed creates certain competitive advantages. The Company's computer information technology enables APM to function effectively. In August 1995, the Company began reviewing certain business and manufacturing processes in a "reengineering" effort to modify and restructure those processes in order to improve operations and competitiveness. The processes reviewed focused on core competencies of materials acquisition, scheduling and project quoting. The Company is reengineering its materials acquisition processes by focusing on methods to optimize purchasing power by identifying materials that are used across customer lines. Also, the Company is consolidating vendors in order to achieve greater corporate purchasing power. The Company believes that with these efforts the Company will obtain greater leverage in material pricing and that the Company will become more competitive when bidding for turnkey business. The Company also is developing methods to improve project quoting and bidding processes. The Company believes that by improving turn-around time on customer quotes and by better tracking actual costs against customer quotes, the Company will better control costs and more accurately predict and manage its operating margins. In addition, the Company is introducing scheduling improvements to allow for more accurate schedule and production processes and to create a more coordinated production effort than in the past. As part of the introduction of APM during the third quarter of 1996, the Company incorporated performance measurements and incentives into the APM process in order to provide management with the ability to more effectively incent employees' performance. Concurrent with the redesign of these business processes, the Company has commenced development of a new management information system. The Company anticipates that it will purchase new software from third party vendors, develop certain software internally and purchase new hardware in connection with the development of this new management information system. The Company has hired consultants to assist in the design and implementation of the management information system. The reengineering and management information system projects were scheduled for completion in the latter part of 1996. Because of the Company's reorganization, initiated by Jack Calderon in the third quarter of 1996, the project was reevaluated and some changes were made in the overall project direction in order to implement APM. The management information system project is now scheduled for completion in the third quarter of 1997. The Company can give no assurances that it will meet it targeted completion date for implementation of the reengineered business processes and the new management information system or that such processes and management information system ultimately will be successful in enabling the Company to create a sustainable competitive advantage and to improve efficiencies. Manufacturing Services The Company's turnkey manufacturing services consist of assembling complex printed circuit boards (using both surface mount and pin-through-hole interconnection technologies), cables, electro-mechanical devices and finished products. The Company also provides computer-aided testing of printed circuit boards, subsystems and final assemblies. In certain instances, the Company completes the assembly of its customers' products at the Company's facilities by integrating printed circuit boards and electro-mechanical devices into other components of the customer's products. The Company also provides manufacturing services on a consignment basis, whereby the Company, using components provided by the customer, provides only assembly and post-assembly testing services. The Company obtained ISO 9002 certification in 1994, an international quality standard for manufacturing and distribution management systems. In the third quarter of 1996, the Company introduced a new manufacturing methodology, Asynchronous Process Manufacturing. APM is an innovative combination of high-speed manufacturing equipment, sophisticated information systems and standardized process teams designed to manufacture mixtures of small quantities of products more flexibly and faster. The Company implemented APM for all its customers as part of restructuring strategy to focus the Company exclusively on delivering manufacturing solutions for high-mix products in high-speed modes. Implementation of APM required a complete redesign of the Company's manufacturing operations, reorganizing personnel into process teams and revising documentation. The physical moves were completed in September, and by the end of October, APM was fully implemented. High-mix manufacturing involves a discontinuous series of products fed through assembly in a start-stop manner, heretofore incompatible with high-velocity techniques. APM is an alternative to both traditional continuous (synchronous) flow processing ("CFM"), the predominant method used in high-volume manufacturing, and batch processing often used in smaller scale manufacturing. Until now, the combination of high-mix and high-speed has been viewed as difficult, if not impossible, by many high-mix manufacturers. CFM techniques used by high-volume, high-speed ECMs cannot accommodate high-mix product assembly without sacrificing speed, while smaller ECMs, capable of producing a wide variety of products, cannot afford top quality high-speed manufacturing assets or keep up with OEM's growing product demand. The Company's new high-mix-speed model, APM, is able to process products rapidly through the use of a combination of new discontinuous flow methods for differing product quantities and the Company's fast surface mount assembly systems, test equipment and wide-pipe, high-velocity production lines. A hybrid of CFM and batch production techniques, APM sets optimal process parameters and maximizes velocity in producing smaller lot quantities. By designating teams to set up off-line feeders, standardizing loading methods regardless of product complexity, and most importantly, by improving employee motivation, the Company's application of APM has decreased set-up and cycle times, standardized work centers, allowed processing of smaller lot sizes and increased the Company's productivity. The Company has the capability to perform in-circuit and functional testing, as well as environmental stress screening. In-circuit tests verify that components have been properly inserted and that the electrical circuits are complete. Functional tests determine if a board or system assembly is performing to customer specifications. Environmental tests determine how a component will respond to varying environmental factors such as different temperatures and power surges. These tests are usually conducted on a sample of finished components although some customers may require testing of all products to be purchased by that customer. Usually, the Company either designs or procures test fixtures and then develops its own test software. The change from pin-through-hole technology to SMT is leading to further changes in test technology. The Company seeks to provide customers with highly sophisticated testing services that are at the forefront of current test technology. Because the density and complexity of electronic circuitry constantly is increasing, the Company seeks to utilize developing test technology in its automated test equipment and inspection systems in order to provide superior services to its customers. The Company also participates in product design by providing its customers "concurrent engineering" or "design for manufacturability" services. The Company's applications engineering group interacts with the customer's engineers early in the design process to reduce variation and complexity in new designs and to increase the Company's ability to use automated production technologies. Application engineers are also responsible for assuring that a new design can be properly tested at a reasonable cost. Engineering input in component selection is also essential to assure that a minimum number of components are used, that components can be used in automated assembly and that components are readily available and cost efficient. The Company also offers customers a quick-turnaround, turnkey prototype service. Customers and Marketing The Company seeks to serve a sufficiently large number of customers to avoid dependence on any one customer or industry. Nevertheless, historically, a substantial percentage of the Company's net sales have been to a small number of customers, the loss of any of which would adversely affect the Company. To that extent, the Company's success depends on the success of its customers, which depends substantially on the growth of the high-end data storage devices, medical equipment, communications and electronic instrumentation industries. In 1996, two of the Company's customers, Exabyte and Ohmeda (BOC Group), each accounted for more than 10% of the Company's net sales and together represented 36.5% of net sales. In 1996, the Company's ten largest customers accounted for 75.9% of net sales. In 1995, three of the Company's customers, Hewlett Packard Company and subsidiaries ("HP")and, Ohmeda (BOC Group) each accounted for more than 10% of the Company's net sales and together represented 53.1% of net sales. In 1995, the Company's ten largest customers accounted for 79.4% of net sales. In 1994, four of the Company's customers, Colorado Memory Systems, Inc., HP, XEL Communications, and Ohmeda, each accounted for more than 10% of the Company's net sales and together represented 76.3% of net sales. In 1994, the Company's ten largest customers accounted for 90.2% of net sales. The following table represents the Company's net sales by industry segment in excess of 10%: 1996 1995 1994
Computer peripherals 12.3% 50.7% 57.5% Medical equipment 35.4% 27.5% 19.2% High-end storage devices 41.0% * * Telecommunications * * 17.9% * Less than 10% of net sales
Backlog The Company's backlog was $28.5 million at December 31, 1996, compared to $32.5 million at December 31, 1995. Backlog generally consists of purchase orders believed to be firm that are expected to be filled within the next six months. Since orders and commitments may be rescheduled or canceled and customers' desired lead times may vary, backlog does not necessarily reflect the timing or amount of future sales. The Company generally seeks to deliver its products within four to eight weeks of obtaining purchase orders, which tends to minimize backlog. Competition The contract manufacturing services provided by the Company are available from many independent sources. The Company also competes with in-house manufacturing operations of current and potential customers. The Company competes with numerous domestic and foreign ECMs, including SCI Systems, Inc., Solectron Corporation, Benchmark Electronics, Inc., The DII Group, Inc., Plexis, Reptron, and others. The Company also faces competition from its current and potential customers, who are continually evaluating the relative merits of internal manufacturing versus contract manufacturing for various products. Certain of the Company's competitors have broader geographic breadth than the Company. Many of such competitors are more established in the industry and have substantially greater financial, manufacturing or marketing resources than the Company. In addition, several contract manufacturers have established manufacturing facilities in foreign countries. The Company believes that foreign manufacturing facilities are more important for contract manufacturers that focus on high-volume consumer electronic products, and do not afford a significant competitive advantage in the Company's targeted market for complex, mid-volume products for which greater flexibility in specifications and lead times is required. The Company believes that the principal competitive factors in its targeted market are quality, reliability, ability to meet delivery schedules, technological sophistication, geographic location and price. Suppliers The Company uses numerous suppliers of electronic components and other materials for its operations. The Company works with customers and suppliers to minimize the effect of any component shortages. Some components used by the Company have been subject to industry-wide shortages, and suppliers have been forced to allocate available quantities among their customers. The Company's inability to obtain any needed components during periods of allocations could cause delays in shipments to the Company's customers and could adversely affect results of operations. The Company works at mitigating the risks of component shortages by working with customers to delay delivery schedules or by working with suppliers to provide the needed components using just-in-time inventory programs. Although in the future the Company may experience periodic shortages of certain components, the Company believes that an overall trend toward greater component availability is developing in the industry. Patents and Trademarks The Company does not hold any patent or trademark rights. Management does not believe that patent or trademark protection is material to the Company's business. Governmental Regulation The Company's operations are subject to certain federal, state and local regulatory requirements relating to environmental, waste management, health and safety matters, and there can be no assurance that material costs and liabilities will not be incurred in complying with those regulations or that past or future operations will not result in exposure to injury or claims of injury by employees or the public. To meet various legal requirements, the Company has modified its circuit board cleaning processes to eliminate the use of substantially all chlorofluorocarbons and now uses aqueous (water-based) methods in its cleaning processes. Some risk of costs and liabilities related to these matters is inherent in the Company's business, as with many similar businesses. Management believes that the Company's business is operated in substantial compliance with applicable environmental, waste management, health and safety regulations, the violation of which could have a material adverse effect on the Company. In the event of violation, these regulations provide for civil and criminal fines, injunctions and other sanctions and, in certain instances, allow third parties to sue to enforce compliance. In addition, new, modified or more stringent requirements or enforcement policies could be adopted that may adversely affect the Company. The Company periodically generates and temporarily handles limited amounts of materials that are considered hazardous waste under applicable law. The Company contracts for the off-site disposal of these materials. Employees As of December 31, 1996, the Company employed 398 persons, of whom 335 were engaged in manufacturing and operations, 32 in material handling and procurement, 6 in marketing and sales and 25 in finance and administration , and the Company engaged the full-time services of 16 temporary laborers through employment agencies in manufacturing and operations. None of the Company's employees is subject to a collective bargaining agreement. Management believes that the Company's relationship with its employees is good. Item 2. Description of Property The Company's executive offices and manufacturing facilities are located in two facilities totaling 100,000 sq. ft. on approximately 19 acres owned by the Company in Greeley, Colorado. The Company believes the facilities are in good condition. The properties are subject to a deed of trust securing indebtedness of $3,060,000 as of December 31, 1996. Item 3. Legal Proceedings The Company has no material pending legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of security holders during the fourth quarter of 1996. PART II Item 5. Market for Common Equity and Related Stockholder Matters. The Company's Common Stock is quoted on the Nasdaq National Market under the symbol "EFTC". On March 24, 1997, there were approximately 253 shareholders of record of the Common Stock of the Company. The following table sets forth the high and low sale prices for the Company's Common Stock, as reported on the Nasdaq National Market, for the quarters presented. 1996 Sale Prices 1995 Sale Prices High Low High Low
First Quarter $5 1/8 $3 3/4 $7 5/8 $5 Second Quarter 4 7/8 3 5/8 8 1/4 5 Third Quarter 4 1/4 3 1/2 8 5 3/8 Fourth Quarter 4 7/8 2 3/4 5 7/8 3 1/2
Dividends The Company has never paid dividends on its Common Stock and does not anticipate that it will do so in the foreseeable future. The future payments of dividends, if any, on the Common Stock is within the discretion of the Board of Directors and will depend on the Company's earnings, capital requirements, financial condition and other relevant factors. The Company's loan agreements prohibit payment of dividends without the lender's consent. Item 6. Selected Financial Data. The following selected financial data as of December 31, 1996 and 1995, and for each of the years in the three-year period ended December 31, 1996, are derived from the audited financial statements of the Company included as part of this report on Form 10-K and should be read in conjunction with such financial statements and the notes thereto. The data presented below as of December 31, 1994, 1993, and 1992, and for each of the years in the two-year period ended December 31, 1993, are derived from financial statements of the Company not included in this report. Year ended December 31, 1996 1995 1994 1993 1992 (In thousands, except per sharedata) Statement of Income Data: Net Sales . . . . . . . . . . . . . . . $56,880 $49,220 $52,541 $29,817 $17,294 Cost of goods sold . . . . . . . . . . . 53,980 45,325 47,123 25,689 15,129 Gross profit . . . . . . . . . . . . . . 2,900 3,895 5,419 4,128 2,165 Impairment of fixed assets . . . . . . . 726 - - - - Selling, general and administrative expenses . . . . . . . 4,196 3,093 2,395 1,842 1,452 Operating income (loss). . . . . . . . . (2,022) 802 3,024 2,286 713 Interest expense . . . . . . . . . . . . (526) (399) (175) (237) (227) Other, net . . . . . . . . . . . . . . . 83 78 109 (12) 8 Income (loss) before income taxes. . . . (2,465) 481 2,958 2,037 494 IncomE tax expense (benefit) . . . . . . (872) 127 1,041 736 174 Net income (loss). . . . . . . . . . . . ($1,593) $ 354 $ 1,917 $ 1,301 $ 320 Income(loss) per common and common equivalent share. . . . . . . . . . . ($.40) $.09 $.53 $.52 $.13 Weighted average shares outstanding . . . . . . . . . . . . . 3,942 3,962 3,627 2,483 2,417
December 31, 1996 1995 1994 1993 1992 (In thousands) Balance Sheet Data: WorKing capital. . . . . . . . . $8,508 $ 9,868 $ 6,744 $ 2,404 $1,423 Total assets . . . . . . . . . . 22,870 24,984 23,479 11,172 6,703 Notes payable and current portion of long-term debt . . 1,970 170 170 544 444 Long-term debt, net of current portion . . . . . . . 2,890 3,060 3,230 2,540 2,736 Shareholders' equity . . . . . . 13,922 15,509 14,989 3,547 2,090
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The information set forth below contains "forward looking statements" within the meaning of the federal securities laws, including statements regarding opportunities for growth from expanded use of contract manufacturing by OEMs, the Company's new strategic business plan and development of its new management information system, the trend toward turnkey manufacturing, the Company's expectations regarding increases in the numbers of assemblies ordered by customers, and other statements of expectations, beliefs, plans, and similar expressions concerning matters that are not historical facts. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements. General The Company has provided electronic manufacturing services to its customers since 1981. Since 1981, there has been a general shift in the nature and scope of the Company's services and the makeup of the relative components of its sales. Within the electronic manufacturing services industry in general and as experienced by the Company, there has been a significant shift from consignment business to turnkey business. For consignment projects the Company charges only for value-added labor and manufacturing costs and uses materials provided by the customer. Turnkey projects require the Company to provide value-added labor, incur manufacturing costs and acquire components and other materials used in the assembly process. In addition, turnkey projects generally offer higher net sales and higher gross profits than consignment projects as the sales and costs of components and other materials are included in the results of the Company's operations. However, the gross profit percentage earned on materials sales is generally lower than that earned on assembly services, resulting in a trend over time toward a lower gross profit percentage as turnkey sales increase. The growth in turnkey sales has also required the Company to increase its investment in working capital, particularly as it relates to inventory and accounts receivable. The percentage of net sales attributable to sales of materials under turnkey contracts increased from 58.4% in 1992 to 79.8% in 1996. The Company's results of operations are affected by a number of factors, including the level and timing of customer orders, the mix of turnkey and consignment orders, the degree of automation used in the manufacturing process, fluctuations in material costs, the overhead efficiencies achieved by the Company in managing the costs of its operations, price competition, the Company's level of experience in manufacturing a particular product, and the timing of expenditures in anticipation of increased sales. Inflation has not been a significant factor in the results of the Company's operations because the Company's price quotations for turnkey jobs are generally good for only 90 days and the Company is entitled to pass on certain cost increases under some of its turnkey contracts. The following table sets forth certain operating data as a percentage of net sales: Year Ended December 31, 1996 1995 1994 Net Sales. . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% Gross Profit . . . . . . . . . . . . . . 5.1 7.9 10.3 Impairment of fixed assets . . . . . . . 1.3 --- --- Selling, general and administrative expenses. . . . . . . . . . . . . . . 7.4 6.3 4.6 Operating income (loss). . . . . . . . . (3.6) 1.6 5.7 Interest expense . . . . . . . . . . . . (.9) (.8) (.3) Other, net . . . . . . . . . . . . . . . 0.2 0.2 0.2 Income (loss) before income taxes. . . . (4.3) 1.0 5.6 Income tax expense (benefit) . . . . . . (1.5) .3 2.0 Net Income (loss). . . . . . . . . . . . (2.8) .7 3.6
Results of Operations 1996 Compared to 1995 Net sales. Net sales are net of discounts and are recognized upon shipment of an order to a customer. Net sales in 1996 increased 15.6% to $56,880,067 from $49,220,070 in 1995. The increase in net sales is due primarily to increased material sales associated with electro-mechanical assembly (box-build) to one customer. The top ten customers in 1996 accounted for 75.9 % of total sales volume, as compared to 79.4% in 1995. Gross profit. Gross profit equals net sales less cost of goods sold ( such as salaries, leasing costs, and depreciation charges related to production operations) and non-direct, variable manufacturing costs (such as supplies and employee benefits). Gross profit in 1996 decreased 25.5% from 1995 to $2,900,000. Gross profit as a percentage of net sales for 1996 was 5.1% compared to 7.9% in 1995. One reason for the decline in gross profit is related to restructuring charges of $479,029 that were included in cost of goods sold in the third quarter of 1996. Without the restructuring, gross profit would have been $3,379,029 or 5.9% of net sales. These restructuring charges were severance expenses related to a decrease in workforce, write down of inventory related to changes in the Company's customer mix, and expenses related to the reorganization of the manufacturing floor and manufacturing process. Selling General and Administrative Expenses. Selling, general and administrative expenses ("SGA expense") consist primarily of non-manufacturing salaries, sales commissions, and other general expenses. SGA expense for 1996 increased by 35.6% over 1995 to $4,195,784. The increase is due to restructuring charges for severance expenses related to reduction of workforce and other expenses related to organizational changes in the amount of $922,404 in the third quarter of 1996. Excluding the restructuring charges, the SGA expense would have been $3,273,380 an increase of $179,980 or 5.8% over 1995. This increase was due primarily to increased sales commissions and related expenses associated with the sales growth from 1995 to 1996 levels as noted above. As a percentage of net sales, SGA expense increased to 7.4% in 1996 from 6.3% in 1995. Without the restructuring charges, SGA expenses would have been 5.8% of net sales for the year ended 1996. Impairment of fixed assets. During the third quarter of 1996, the Company incurred a write down associated with impaired assets in the amount of $725,869. Statement of Financial Accounting Standards No.121 "Accounting for the impairment of long-lived assets and for long-lived assets to be disposed of," requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets and certain identifiable intangibles to be disposed of should be reported at the lower of carrying amount or fair value less cost to sell. The Company went through a corporate restructuring in the third quarter of 1996 which included a workforce reduction and a change in the way product is manufactured which resulted in certain assets no longer being used in operations. Certain software that will no longer be used, as well as excess equipment that is now held for sale, were written down to fair value in accordance with Statement No. 121. Operating Income. Operating income in 1996 decreased 352.3% to a loss of $2,021,653 from income of $801,321. Operating income as a percent of sales decreased to (3.6%) in 1996 from 1.6% in 1995. The decrease in operating income was primarily attributable to the restructuring charges and impairment of fixed assets noted above in the amount of $2,127,302. Excluding the restructuring charges, the Company would have had operating income of $105,649 or .2% of net sales for 1996. The decrease, excluding the restructuring charges, was related to product mix changes and related overhead expenses to put new programs in place as well as increased variable selling costs associated with higher sales volumes in the first two quarter of 1996. Interest expense. Interest expense in 1996 increased 31.7% from 1995 to $525,854. Borrowing due to increases in inventory and accounts receivable levels is the primary reason for the increase in interest expense. Income tax expense. The Company's effective income tax rate for 1996 was 35.4% compared to 26.3% for 1995. Tax expense for 1995 was lower due to certain research expenditures incurred in 1992, 1993, 1994 for which the Company claimed federal tax credits. The Company is also located in a state enterprise zone. The Company receives state tax credits for capital expenditures and increases in the number of Company employees. As sales increase, these state tax credits will have a relatively smaller effect on the Company's effective income tax rate. 1995 Compared to 1994 Net Sales. Net sales in 1995 decreased 6.3% to $49,220,070 from $52,541,842 in 1994. In 1995, three of EFTC's largest customers decreased orders by approximately $13.6 million when compared to 1994 levels. One customer moved into a larger facility and decided to decrease its outsourced manufacturing requirements. The decrease in orders from the other two customers was due to the Company's inability to be competitive on material pricing because of not being able take advantage of volume buying. In 1994 such two customers accounted for approximately $23.6 million of revenues compared to approximately $10 million in 1995. The top ten customers in 1995 accounted for 79.4% of total sales volume, as compared to 90.2% in 1994. A significant portion of the lost revenues attributable to the decrease in orders was replaced with new sources of revenue during 1995. For example, the Company replaced 10 assemblies related to the $13.6 million decrease in orders with approximately 140 new assemblies in 1995, thus decreasing the Company's dependence on any particular high-volume assemblies and lowering the volatility of orders from certain customers. Gross Profit. Gross profit in 1995 decreased 27.0% from 1994 to $3,894,721. Gross profit as a percentage of net sales for 1995 was 7.9% , compared to 10.3% in 1994. The decrease in gross profit is attributable to several factors. First, the company made investments in equipment and facilities at the end of 1994 and the beginning of 1995. As a result of such investments, depreciation expense increased by $743,579 to $1,716,841 in 1995 from $973,262 in 1994. The decrease in customer orders, as described above, negatively impacted gross profit in 1995. Also, during the course of the year, material shortages created upward pressure on prices and impacted gross margins. Selling, General and Administrative Expenses. Selling, general and administrative expenses ("SGA expense") consist primarily of non-manufacturing salaries, sales commissions and other general expenses. SGA expense for 1995 increased by 25.2% over 1994 to $3,093,400. The increase is primarily the result of non-recurring costs related to corporate re-structuring in the third quarter, consulting fees related to corporate reengineering processes, increased selling expenses related to a new sales office in Texas and a new sales representative in California, and increased administrative expenses related to being a publicly-held company. As a percentage of net sales, SGA expense increased to 6.3% in 1995 from 4.6% in 1994. Operating Income. As a result of the factors described above, operating income in 1995 decreased 73.5% from 1994 to $801,321. Operating income as a percentage of net sales decreased from 5.7% in 1994 to 1.6% in 1995. Interest Expense. Interest expense in 1995 increased 56.1% from 1994 to $399,389. The increase was attributable to the Company's use of bank debt to fund increases in inventory and accounts receivable which were related to the previously mentioned change in product mix. Also, the Company acquired approximately $2.5 million in property and equipment in 1995 which was financed with short term debt. As discussed below under " Liquidity and Capital Resources", the Company completed a sale-leaseback transaction in December of 1995. The Company used the proceeds of the sale leaseback transaction to retire $3.3 million of short term debt. Income Tax Expense. The Company's effective income tax rate for 1995 was 26.3% compared to 35.2% for 1994. The decrease in the effective tax rate is primarily attributable to certain research expenditures incurred in 1992, 1993, 1994 and 1995 for which the Company claimed federal tax credits. Also, the Company's facilities are located in a state enterprise zone. The Company receives state tax credits for capital expenditures and increases in the number of Company employees. Quarterly results. The following table presents unaudited quarterly operating data for the most recent eight quarters for the two years ended December 31,1996. The information includes all adjustments, consisting only of normal recurring adjustments, that the Company considers necessary for a fair presentation thereof. Although management does not believe that the Company's business is materially affected by seasonal factors, the Company's sales and earnings may vary from quarter to quarter, depending primarily upon the timing of customer orders and product mix. Therefore, the Company's operating results for any particular quarter may not be indicative of the results for any future quarter or year. Quarter Ended Mar 31, Jun 30, Sep 30, Dec 31, Mar 31, Jun 30, Sep 30, Dec 31, 1995 1995 1995 1995 1996 1996 1996 1996 (In thousands, except per share data) Net Sales. . . . . . . . . . . $12,119 $12,330 $11,692 $13,080 $15,003 $15,941 $13,632 $12,304 Cost of goods sold . . . . . . 11,173 11,009 11,072 12,072 14,403 15,177 13,096 11,304 Gross profit . . . . . . . . . 946 1,321 620 1,008 600 764 536 1,000 Impairment of fixed assets . . - - - - - - 726 - Selling, general and administrative expenses . . 724 790 844 735 812 845 1,747 792 Operating income (loss). . . . 222 531 (224) 273 (212) (81) (1,937) 208 Interest expense and other, net . . . . . . . . . . . . (32) (70) (90) (129) (102) (123) (141) (77) Income (loss) before income taxes . . . . . . . . . . . 190 461 (314) 144 (314) (204) (2,078) 131 Income tax expense (benefit). . . . . . . . . . . 65 161 (101) 2 (126) (75) (719) 48 Net income (loss). . . . . . . $ 125 $ 300 $ (213) $ 142 $ (188) $ (129) ($1,359) $ 83 Income (loss) per common and common equivalent share. . . $ .03 $ .08 $ (.05) $ .04 $(.05) $ (.03) $ (.34) $ .02 Weighted average shares outstanding . . . . . . . . 3,947 3,973 3,961 3,953 3,958 3,955 3,968 3,942
Liquidity and Capital Resources At December 31, 1996, working capital totaled $8,413,069 compared to $9,867,843 at December 31,1995, a decrease of $1,454,774 or 14.7%. Working capital in 1995 increased due to a sale-leaseback transaction which closed in December 1995, whereby the Company sold equipment at a sales price of $3,678,014 and retired short-term debt in the amount of $3,310,000. The subsequent decrease in working capital in 1996 is attributable primarily to the purchase of fixed assets and long-term debt retirement. Cash provided by operations in 1996 was $35,667 compared to cash used by operations of $933,589 in 1995. Cash used by operations in 1994 was $697,176. Accounts receivable decreased 22.4% to $3,866,991 at December 31, 1996 from $4,982,450 at December 31, 1995. Receivable turns (i.e. net sales divided by year-end accounts receivable) for 1996 and 1995 were 14.7 and 9.9, respectively. Inventories decreased 7.2% to $9,146,505 on December 31, 1996 from $9,859,414 at December 31, 1995. Inventory turns (i.e. annualized cost of sales divided by current inventory) for 1996 and 1995 were 5.9 and 4.6, respectively. Inventory turns have increased primarily because of new projects that were being introduced towards the end of 1995. Inventory increases in the early stages of new turnkey business which may create delays and decrease the turning of inventory until the new assemblies are in full production. The Company used cash from investing activities of $2,028,865 in 1996, compared to providing cash of $1,265,525 in 1995. The Company used cash from investing activities in 1994 of $9,035,395. The Company used cash to purchase capital equipment totally $2,374,403 in 1996 compared with $2,473,819 in 1995. In 1995 the Company received cash from the sale of equipment primarily from the sale-leaseback transaction mentioned above of $3,739,344. In 1994 capital equipment consisting primarily of manufacturing and computer equipment in the amount of $5,346,016 and $3,689,379 for the construction of a new manufacturing facility and an additional parcel of land to allow for future expansion was purchased. The capital equipment was purchased with proceeds from the Company's initial public offering. On October 2, 1996, the Company renegotiated its revolving line of credit in the amount of $10,000,000 with a maturity date of June 5, 1997. The amount outstanding was $1,800,000 at December 31,1996. Interest on borrowings under this credit facility accrues at the Bank One Prime rate plus .25% (8.5% at December 31.1996). The credit facility was collateralized by substantially all of the Company's assets, other than real estate. The Company also has a term loan that is secured by deeds of trust on both of the Company's buildings and land. The term of the loan is seven years with a 20 year amortization. Principal payments of $85,000 are semi-annual with monthly payments of interest. The loan floats at the Citibank prime rate plus 1% (9.25% at December 31, 1996) with a cap of 9.5%. The rate is adjusted annually on September 15th. The balance due on the loan was $3,060,000 at December 31,1996. Subsequent to year end 1996, on February 24,1997, the Company renegotiated its revolving line of credit, negotiated a 90 day bridge loan and incurred additional equipment debt in conjunction with the merger of Current Electronics, Inc. and the acquisition of Current Electronics (Washington), Inc. The revolving line of credit was increased to $15,000,000 and has a maturity date of June 5,1998. Interest on this credit facility accrues at the Bank One Prime rate plus .25% (8.5% on February 24,1997). The credit facility is collateralized by substantially all of the Company's assets, other than real estate. The loan agreement from this facility contains restrictive covenants relating to capital expenditures, borrowings and payment of dividends, and certain financial statement ratios. The credit facility may be withdrawn/canceled at the bank's option under certain conditions such as default or in the event the Company experiences a material negative change in financial condition. The short term bridge facility was for $4,900,000 and has a maturity date of May 24,1997. The interest rate accrues at the Bank One Prime rate plus .25% (8.5% on February 24,1997). The proceeds from this loan were used to pay the cash portion of the consideration to be paid in the merger and acquisition noted above. The Company has engaged in discussions for the issuance of convertible debt or preferred stock, the proceeds of which would be used to repay the bridge facility. The bridge facility was conditioned on the Company's receipt of a third party committment for the purchase of the convertible debt or preferred stock which has been obtained. The Company also issued a $1,800,000 five year note with a maturity date of April 5, 2002. The interest rate will be 8.95% per annum. The Company will pay this loan in 60 regular monthly payments of $36,983 and one final payment of $41,983. These payments include both principal and interest. The proceeds of this loan were used to pay off equipment debt of Current Electronics, Inc as per the merger agreement. The Company may require additional capital to finance enhancements to, or expansions of, its manufacturing capacity or to finance mergers and acquisitions in accordance with its business strategy. Management believes that the need for working capital will continue to grow at a rate generally consistent with the growth of the Company's operation. The Company may seek additional funds, from time to time, through public or private debt or equity offerings, bank borrowing, or leasing arrangements, although no assurance can be given that financing will be available on terms acceptable to the Company Item 8. Financial Statements and Supplementary Data. The Company's financial statements and notes thereto are included elsewhere in this report on Form 10-K, commencing on page F-1. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. The information concerning the directors and executive officers of the Company is incorporated herein by reference to the section entitled PROPOSAL 1- ELECTION OF DIRECTORS in the Company's definitive Proxy Statement with respect to the Company's Annual Meeting of Shareholders (the "Proxy Statement"). Item 11. Executive Compensation. The section labeled "Compensation of Directors and Executive Officers" appearing in the Company's Proxy Statement is incorporated herein by reference, except for such information as need not be incorporated by reference under rules promulgated by the Securities and Exchange Commission. Item 12. Security Ownership of Certain Beneficial Owners and Management. The section labeled "Security Ownership of Directors and Executive Officers and Certain Beneficial Owners" appearing in the Company's Proxy Statement is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. The section labeled "Certain Relationships and Related Transactions" appearing in the Company's Proxy Statement is incorporated herein by reference. Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) 1. Financial Statements- The financial statements listed in the index to Financial Statements, which appears on page F-1, are filed as part of this annual report. 2. Exhibits- The following exhibits are filed as part of this annual report. Exhibits. 2.1(5) -- Agreement and Plan of Merger among Electronic Fab Technology Corp., Current Merger Corp., and Current Electronic, Inc., dated as of January 15, 1997. 2.2(5) -- Share Purchase Agreement, dated as of January 15, 1997, among the Company and the shareholders of Current Electronics ( Washington), Inc. 3.1(1) -- Amended and Restated Articles of Incorporation of the Company filed December 22, 1993. 3.2(1) -- Articles of Amendment to the Articles of Incorporation of the Company. 3.3(1) -- Amended and Restated Bylaws of the Company. 4.1(1) -- The Amended and Restated Articles of Incorporation, Bylaws, and Articles of Amendment to the Articles of Incorporation of the Company are included as Exhibits 3.1, 3.2 and 3.3, respectively. 10.1 -- Electronic Fab Technology Corp. Equity Incentive Plan. 10.2 -- Electronic Fab Technology Corp. Stock Option Plan for Non-Employee Directors. 10.3(1) -- 1993 Incentive Stock Option Plan. 10.4(1) -- 1989 Stock Option Plan. 10.5 -- Form of Business Loan Agreement dated February 24, 1997, and Form of Commercial Security Agreement dated February 24,1997 between the Company and Bank One, Greeley, N. A., and Promissory Notes dated February 24, 1997 payable to Bank One Greeley, N. A., in the principal amounts of $15,000,000, $4,900,000 and $1,800,000. 10.6(1) -- Master Equipment Lease Agreement dated June 7, 1993, between the Company and KeyCorp Leasing Ltd. 10.6A(1) -- Amendment, dated January 24, 1994 to Master Equipment Lease Agreement between the Company and KeyCorp Leasing Ltd. 10.6B(1) -- Amendment, dated August 30, 1993, to Master Equipment Lease Agreement between the Company and KeyCorp Leasing Ltd. 10.6C(2) -- Amendment dated January 27, 1995, to Master Equipment Lease dated June 7, 1993, between the Company and KeyCorp Leasing Ltd. 10.7(1) -- Form of Employment Agreement entered into between the Company and each of Stuart Fuhlendorf, and George Lawrence. 10.8(3) -- 1995 EFTC Management Bonus Plan 10.9(3) -- 1996 Senior Staff Management Bonus Plan. 10.10(3) -- 1996 EFTC Executive Officer Bonus Plan. 10.11(1) -- Form of Registration Rights Agreements between the Company and the shareholders of the Company party thereto. 10.12(5) -- Registration Rights Agreement, dated as of February 24, 1997, among the Company, Charles E. Hewitson, Matthew J. Hewittson, Gregory C. Hewitson and certain other parties. 10.13(4) -- Master Equipment Lease Agreement dated December 6, 1995, between the Company and KeyCorp Leasing Ltd. 10.14 -- Form of Consulting Agreement entered into by the Company and each of Charles E. Hewitson, Matthew J. Hewitson and Gregory C. Hewitson. 10.15(5) -- Indemnification Agreement, dated as of February 24,1997, among certain shareholders of Current Electronics, Inc., the shareholders of Current Electronics (Washington), Inc. and the Company. 10.16 -- Employment Agreement entered into between the Company and Jack Calderon. 10.17 -- Consulting Agreement between the Company and Gerald J. Reid. 23.1 -- Consent of KPMG Peat Marwick LLP. 24.1 -- Form of Powers of Attorney. ________________________________________________________________________ (1)Incorporated by reference the Company's Registration Statement on Form SB-2 under the Securities Act of 1933, File No. 33-73392-D. (2)Incorporated by reference the Company's 10-KSB for the fiscal year ended December 31,1994. (3)Management compensation plan. (4)Incorporated by the Company's 10-K for the fiscal year ended December 31,1995. (5)Incorporated by reference to the Company's Current Report on Form 8-K, dated March 5, 1997. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Greeley, State of Colorado, on this 27th day of March, 1997. ELECTRONIC FAB TECHNOLOGY CORP., a Colorado corporation Stuart W. Fuhlendorf Stuart W. Fuhlendorf Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934 , the Registrant has caused this Report to be signed by the following persons in the capacities and on the dates indicated. Signature Position Held Date With the Registrant * Chairman of the March 27, 1997 Gerald J. Reid Board of Directors * President and Director March 27, 1997 Jack Calderon * Director March 27, 1997 Lloyd A. McConnell * Chief Financial Officer and March 27, 1997 Stuart W. Fuhlendorf Director * Controller (Principal March 27, 1997 Brent L. Hofmeister Accounting Officer) * Director March 27, 1997 Lucille A. Reid * Director March 27, 1997 David W. Van Wert * Director March 27, 1997 Darrayl Cannon * Director March 27, 1997 Masoud S. Shirazi * Director March 27, 1997 Robert McNamara * Director March 27, 1997 James A. Doran * Director March 27, 1997 Richard L. Monfort * Director March 27, 1997 Charles Hewitson * Director March 27, 1997 Gregory Hewitson * Director March 27, 1997 Matthew Hewitson * By: Stuart W. Fuhlendorf Stuart W. Fuhlendorf Attorney-in-fact Electronic Fab Technology Corp. Financial Statements December 31, 1996 and 1995 (With Independent Auditors' Report Thereon) ELECTRONIC FAB TECHNOLOGY CORP. Index to Financial Statements Independent Auditors' Report . . . . . . . . . . . . . F-2 Balance Sheets December 31, 1996 and 1995 . . . . . F-3 Statements of Operations Years Ended December 31, 1996, 1995 and 1994. . . . . . . . . . . . . . . . . . . F-5 Statements of Shareholders' Equity Years Ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . F-6 Statements of Cash Flows Years Ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . F-7 Notes to Financial Statements . . . . . . . . . . . . F-9 Independent Auditors' Report The Board of Directors Electronic Fab Technology Corp.: We have audited the accompanying balance sheets of Electronic Fab Technology Corp. as of December 31, 1996 and 1995, and the related statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Electronic Fab Technology Corp. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Denver, Colorado January 20, 1997, except as to note 12, which is as of February 24, 1997 ELECTRONIC FAB TECHNOLOGY CORP. Balance Sheets December 31, 1996 and 1995
Assets (Note 3) 1996 1995 Current assets: Cash and cash equivalents $ 123,882 481,086 Trade receivables, less allowance for doubtful accounts of $20,000 in 1996 and 1995 3,866,991 4,982,450 Inventories (note 2) 9,146,505 9,859,414 Income taxes receivable 616,411 74,922 Deferred income taxes (note 5) 427,059 145,538 Prepaid expenses and other 69,196 382,928 Total current assets 14,250,044 15,926,338 Property, plant and equipment (note 3): Land 662,098 662,098 Building 4,889,467 4,874,571 Machinery and equipment 5,084,114 5,870,194 Furniture and fixtures 1,756,588 1,433,113 12,392,267 12,839,976 Less accumulated depreciation (3,872,443) (3,949,163) Net property, plant and equipment 8,519,824 8,890,813 Other assets, net 99,773 167,148 $ 22,869,641 24,984,299
(Continued) ELECTRONIC FAB TECHNOLOGY CORP. Balance Sheets, Continued
Current liabilities: Line of credit with bank (note 3) $1,800,000 - Accounts payable 2,320,871 4,986,757 Accrued compensation payable 682,881 529,636 Other accrued expenses 767,803 372,102 Current portion of long-term debt (note 3) 170,000 170,000 Total current liabilities 5,741,555 6,058,495 Long-term debt, less current portion (note 3) 2,890,000 3,060,000 Deferred income taxes (note 5) 315,859 356,606 Shareholders' equity (note 7): Preferred stock, $.01 par value. Authorized 5,000,000 shares; none issued or outstanding - - Common stock, $.01 par value. Authorized 45,000,000 shares; issued and outstanding 3,942,660 and 3,940,860 shares in 1996 and 1995 39,427 39,409 Additional paid-in capital 10,187,180 10,181,204 Retained earnings 3,695,620 5,288,585 Total shareholders' equity 13,922,227 15,509,198 Commitments and contingencies (notes 4 and 8) $ 22,869,641 24,984,299 See accompanying notes to financial statements.
ELECTRONIC FAB TECHNOLOGY CORP. Statements of Operations Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994 Net sales $ 56,880,067 49,220,070 52,541,842 Cost of goods sold (note 10) 53,980,067 45,325,349 47,123,066 Gross profit 2,900,000 3,894,721 5,418,776 Selling, general and administrative expenses (note 10) 4,195,784 3,093,400 2,395,164 Impairment of fixed assets (note 10) 725,869 - - Operating income (loss) (2,021,653) 801,321 3,023,612 Other income (expense): Interest expense (525,854) (399,389) (175,400) Interest income 5,624 3,700 78,933 Gain on sale of assets 50,012 49,533 - Other, net 26,792 25,491 31,187 (443,426) (320,665) (65,280) Income (loss) before income taxes (2,465,079) 480,656 2,958,332 Income tax expense (benefit) (note 5) (872,114) 126,518 1,041,415 Net income (loss) $ (1,592,965) 354,138 1,916,917 Income (loss) per share (.40) .09 .53 Weighted average shares outstanding 3,942,139 3,962,261 3,626,845 See accompanying notes to financial statements.
ELECTRONIC FAB TECHNOLOGY CORP. Statements of Shareholders' Equity Years Ended December 31, 1996, 1995 and 1994
Additional Total Common stock paid-in Retained shareholders' Shares Amount capital earnings equity Balances at January 1, 1994 2,368,500 $ 23,685 505,316 3,017,530 3,546,531 Initial public offering, net of offering costs of $1,320,749 1,419,660 14,197 9,312,700 - 9,326,897 Stock options exercised 102,950 1,029 198,019 - 199,048 Net income - - - 1,916,917 1,916,917 Balances at December 31, 1994 3,891,110 38,911 10,016,035 4,934,447 14,989,393 Stock options exercised 49,750 498 165,169 - 165,667 Net income - - - 354,138 354,138 Balances at December 31, 1995 3,940,860 39,409 10,181,204 5,288,585 15,509,198 Stock options exercised 1,800 18 5,976 - 5,994 Net loss - - - (1,592,965) (1,592,965) Balances at December 31, 1996 3,942,660 $ 39,427 10,187,180 3,695,620 13,922,227 See accompanying notes to financial statements.
ELECTRONIC FAB TECHNOLOGY CORP. Statements of Cash Flows Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994 Cash flows from operating activities: Net income (loss) $(1,592,965) 354,138 1,916,917 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation 1,281,628 1,716,841 973,262 Deferred income tax expense (benefit) (322,268) (15,745) 121,385 Loss (gain) on sale and impairment of fixed assets, net 1,101,475 (49,533) - Deferred gain on sale leaseback 16,751 (106,088) - Changes in operating assets and liabilities: Trade receivables 1,115,459 (1,123,927) (1,378,102) Inventories 712,909 (2,380,040) (2,839,405) Income taxes receivable (541,489) (10,267) (64,655) Prepaid expenses and other 313,732 (333,461) (302) Other assets 67,375 (96,971) 147,640 Accounts payable and accrued expenses (2,116,940) 1,111,464 426,084 Net cash provided (used) by operating activities 35,667 (933,589) (697,176) Cash flows from investing activities: Purchase of property, plant and equipment (2,374,403) (2,473,819) (9,035,395) Proceeds from sale of equipment 345,538 3,739,344 - Net cash provided (used) by investing activities (2,028,865) 1,265,525 (9,035,395) Cash flows from financing activities: Stock options exercised 5,994 165,667 199,048 Issuance of common stock - - 9,326,897 Net borrowings (payments) on notes payable 1,800,000 - (300,000) Proceeds from long-term debt - - 3,400,000 Principal payments on long-term debt (170,000) (170,000) (2,783,770) Net cash provided (used) by financing activities 1,635,994 (4,333) 9,842,175 Increase (decrease) in cash and cash equivalents (357,204) 327,603 109,604 Cash and cash equivalents: Beginning of year 481,086 153,483 43,879 End of year $ 123,882 481,086 153,483
(Continued) ELECTRONIC FAB TECHNOLOGY CORP. Statements of Cash Flows, Continued
1996 1995 1994 Supplemental disclosures of cash flow information - Cash paid during the period for: Interest $ 517,502 387,045 238,884 Income taxes paid (refunded), net $ (8,010) 152,530 1,596,475 See accompanying notes to financial statements.
ELECTRONIC FAB TECHNOLOGY CORP. Notes to Financial Statements December 31, 1996 and 1995 (1) Business and Significant Accounting Policies (a) Business Electronic Fab Technology Corp. (the "Company"), is an independent provider of electronic manufacturing services to original equipment manufacturers in the computer peripherals, medical equipment, industrial controls, telecommunications equipment and electronic instrumentation industries predominantly in the Colorado/Rocky Mountain region. The Company's manufacturing services consist of assembling complex printed circuit boards (using both surface mount and pin-through- hole technologies), cables, electro-mechanical devices and finished products. The Company also provides computer aided testing of printed circuit boards, subsystems and final assemblies. (b) Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents include highly liquid investments with original maturities of three months or less. Inventories Inventories are stated at the lower of average cost or market, using weighted average cost. Property, Plant and Equipment Property, plant and equipment are stated at cost. Maintenance and repairs are charged to expense as incurred. Depreciation is computed using straight-line and accelerated methods based on estimated useful lives ranging from 31 to 39 years for buildings and 5 to 10 years for furniture and fixtures and machinery and equipment. Impairment of Long-Lived Assets The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, effective January 1, 1996. This Statement requires the long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is generally measured by a comparison of the carrying amount of an asset to future net cash flows to be expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair values of the assets. Adoption of this statement did not have a material impact on the Company's financial position, results of operations or liquidity. In connection with the Company's restructuring in August 1996, the Company recorded a provision for impairment of certain fixed assets of $725,869. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Revenue Recognition The Company recognizes revenue upon shipment of an order to a customer. Income (Loss) Per Share Income per share is computed using weighted average number of shares outstanding during the year and, if significant, common equivalent shares. Common equivalent shares consist of stock options, determined using the treasury stock method, and are not significant in 1994 and 1995 and are antidilutive in 1996. Stock-based Compensation The Company accounts for its employee stock compensation plans as prescribed under Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. Pro forma disclosures of net income and earnings per share required by Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-based Compensation, are included in note 6 to the financial statements. ELECTRONIC FAB TECHNOLOGY CORP. Notes to Financial Statements, Continued (2) Inventories Inventories at December 31 are summarized as follows: 1996 1995 Purchased parts and completed subassemblies $ 7,640,712 8,051,648 Work-in-process 1,256,570 1,807,766 Finished goods 249,223 - $ 9,146,505 9,859,414
(3) Debt The Company has a revolving line of credit with a bank which provides for borrowings up to the lesser of $10,000,000 or the borrowing base, as defined in the line of credit agreement. At December 31, 1996, the borrowing base was $7,255,831. The line of credit is secured by substantially all of the Company's assets, including inventories, trade receivables, furniture, fixtures, machinery and equipment. Interest is at the bank's prime rate plus .25% (8.50% at December 31, 1996). Subsequent to December 31, 1996, the line of credit was renegotiated as discussed in note 12. The line of credit agreement contains restrictive covenants relating to capital expenditures, borrowings, and payment of dividends and provides that the agreement may be withdrawn or cancelled at the bank's option under certain conditions such as default or in the event the Company experiences a material negative change in its financial condition. Long-term debt at December 31 consists of the following: 1996 1995 Note payable to a bank with interest at 1% above Citibank's prime rate adjusted annually, (initial rate of 7.25% through September 15, 1996, and 9.25% at December 31, 1996). Interest is payable monthly with semi-annual principal payments of $85,000, maturing September 15, 2001, collateralized by a first deed of trust on buildings and land $ 3,060,000 3,230,000 Less current portion (170,000) (170,000) Long-term debt, less current portion $ 2,890,000 3,060,000
ELECTRONIC FAB TECHNOLOGY CORP. Notes to Financial Statements, Continued Annual maturities of long-term debt are as follows at December 31, 1996: 1997 $ 170,000 1998 170,000 1999 170,000 2000 170,000 2001 2,380,000 $ 3,060,000 This credit facility may be also withdrawn or cancelled at the bank's option under certain conditions such as default or in the event the Company experiences a material negative change in its financial condition. (4) Leases The Company has noncancelable operating leases for equipment that expire in various years through 2002. Lease expense on these operating leases amounted to $1,215,623, $578,958, and $736,153 for the years ended December 31, 1996, 1995 and 1994, respectively. At December 31, 1996, future minimum lease payments for operating leases are as follows: 1997 $ 1,225,670 1998 1,203,447 1999 1,181,259 2000 881,586 2001 771,320 Thereafter 152,680 $ 5,415,962 (5) Income Taxes Income tax expense (benefit) for the years ended December 31 is comprised of the following: 1996 1995 1994 Current: Federal $(549,846) 142,263 880,392 State - - 39,638 (549,846) 142,263 920,030 Deferred: Federal (196,440) (13,635) 105,115 State (125,828) (2,110) 16,270 (322,268) (15,745) 121,385 $(872,114) 126,518 1,041,415
ELECTRONIC FAB TECHNOLOGY CORP. Notes to Financial Statements, Continued Actual income tax expense (benefit) for the years ended December 31 differs from the amounts computed using the statutory tax rate of 34% as follows: 1996 1995 1994 Computed tax at the expected statutory rate $(838,126) 163,423 1,005,833 Increase (decrease) in income taxes resulting from: Research and development tax credits - (40,000) - State tax, net of federal benefit and state tax credits (83,046) (1,392) 36,900 Other, net 49,058 4,487 (1,318) Income tax expense (benefit) $(872,114) 126,518 1,041,415
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below: 1996 1995 Deferred tax assets-current: Accrued vacation $ 76,064 83,375 Restructuring charges 186,434 - Deferred gain on sale leaseback 36,088 39,571 State net operating loss carryforward, expires 2011 95,420 - Other 33,053 22,592 Total deferred tax assets current $ 427,059 145,538 Deferred tax liability noncurrent: Accelerated depreciation of property, plant and equipment $(315,859) (356,606)
Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets recorded at December 31, 1996. (6) Stock Options The Company has three stock option or equity incentive plans; (1) the 1993 Incentive Stock Options Plan (the "1993 Plan"), (2) the Electronic Fab Technology Corp. Equity Incentive Plan (the "Equity Incentive Plan") and (3) the Electronic Fab Technology Corp. Stock Option Plan for Non-employee Directors (the "Non-employee Directors Plan"). ELECTRONIC FAB TECHNOLOGY CORP. Notes to Financial Statements, Continued (6) Stock Options (continued) Options to purchase 180,000 shares of common stock at an exercise price of $3.33 have been granted under the 1993 Plan. These options generally vest over a five-year period and expire April 22, 2003. The Equity Incentive Plan provides for the grant of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock and stock units. Substantially all employees are eligible for the grant of awards. This plan was amended to increase the maximum number of shares of common stock that can be granted under this Plan to 250,000. The Non-Employee Directors Plan provides for a one-time grant to acquire 5,000 shares of common stock to each member of the Board of Directors who is not also an employee. Shares available for grant under this plan total 80,000. The following summarizes activity of the plans for the three years ended December 31, 1996: Weighted average Number of exercise price options per share Balance, January 1, 1994 247,500 $ 2.75 Granted 169,000 7.74 Exercised (102,950) 1.93 Balance, December 31, 1994 313,550 5.11 Granted 69,500 5.30 Exercised (49,750) 3.33 Canceled (70,600) 6.37 Balance, December 31, 1995 262,700 5.87 Granted 375,200 4.04 Exercised (1,800) 3.33 Canceled (75,600) 6.64 Balance, December 31, 1996 560,500 4.55 At December 31, 1996: Options exercisable 183,410 5.49 Shares available for future grants 92,300
The Company applies the provisions of APB Opinion 25 and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its fixed stock options plans in 1996, 1995 and 1994. ELECTRONIC FAB TECHNOLOGY CORP. Notes to Financial Statements, Continued (6) Stock Options (continued) The weighted average fair value of options granted during 1996 and 1995 were $4.15 and $4.92, respectively. In estimating the fair value of options, the Company used the Black-Scholes option-pricing model with the following assumptions used for grants for the respective years ended December 31: 1996 1995 Dividend yield 0.00% 0.00% Expected volatility 60.00% 60.00% Risk-free interest rates 6.00% 6.00% Expected lives (years) 4.00 3.00
Had compensation cost for the Company's three stock-based compensation plans been determined using the fair values at the grant dates for awards under those plans consistent with SFAS 123, the Company's pro forma net income (loss) and income (loss) per share would have been as follows: 1996 1995 Net income (loss): As reported $(1,592,965) 354,138 Pro forma (1,731,259) 329,963 Income (loss) per share: As reported (0.40) 0.09 Pro forma (0.44) 0.08
The above pro forma disclosures are not necessarily representative of the effect on the reported net income for future periods because options vest over several years, and additional awards are made each year. In addition, compensation cost for options granted prior to January 1, 1995 has not been considered. ELECTRONIC FAB TECHNOLOGY CORP. Notes to Financial Statements, Continued The following table summarizes information about fixed stock options outstanding at December 31, 1996: Weighted Average Weighted Weighted Remaining Average Average Range of Number Contractual Exercise Number Exercise Exercise Prices Outstanding Life Price Exercisable Price $ 3.33 to 3.635 192,000 8.43 $ 3.45 37,800 $ 3.45 $ 4.00 to 4.125 222,500 9.50 4.12 58,750 4.12 $ 5.00 to 5.50 56,000 8.87 5.18 9,160 5.18 $ 7.25 to 7.625 90,000 7.65 7.57 77,700 7.57 560,500 8.77 $ 4.55 183,410 4.55
(7) Fair Values of Financial Instruments The carrying amounts of the Company's financial instruments at December 31, 1996 and 1995 are deemed to approximate estimated fair values. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying amounts of cash and cash equivalents, trade receivables, accounts payable and accrued liabilities approximate fair value because of the short maturity of these instruments. The carrying amounts of notes payable and long-term debt approximate fair value because of the variable nature of the interest rates of these instruments. (8) Employee Benefit Plans During 1990, the Company established a 401(k) Savings Plan covering substantially all employees. The Company matches 50% of an employee's contribution to a maximum of 2% of the employee's compensation. Additional profit sharing contributions to the plan are at the discretion of the Board of Directors. During the years ended December 31, 1996, 1995 and 1994, contributions by the Company to the Plan were approximately $108,000, $106,000 and $90,000, respectively. The Company also maintains a Profit and Gain Sharing Plan through which a percentage of net income before taxes is allocated to the plan. During the years ended December 31, 1995 and 1994, contributions by the Company to the plan were approximately $97,150 and $487,000, respectively. No contribution was made in 1996. During 1996, the Company established an employee incentive plan based upon employee productivity, transaction accuracy and profitability and contributed approximately $210,000 to the plan. ELECTRONIC FAB TECHNOLOGY CORP. Notes to Financial Statements, Continued (9) Transactions with Related Parties The Company purchased approximately 10 acres of land for aggregate consideration of $500,000 from Tech Center Properties, a general partnership, in March 1994. The Company constructed an additional facility on the land. A director of the Company is related to a 50% partner of Tech Center Properties. (10) Restructuring In the third quarter of fiscal 1996, management initiated a plan to restructure the Company's manufacturing operations and various administrative functions, including a change in the manufacturing process and a reorganization of the sales department. The restructuring plan involved the termination of 142 employees and is expected to be completed by August 1997. A provision for the restructuring of $2,127,000 was charged to expense in the statement of operations for the year ended December 31, 1996, including approximately $324,000 relating to employee termination benefits and approximately $726,000 for the impairment of fixed assets. Of the total restructuring charge, $922,000 is included in selling, general and administrative expenses relating to employee termination benefits and consulting fees and $479,000 is included in cost of goods sold relating to the write-off of certain inventories. (11) Business and Credit Concentrations The Company operates in the electronic manufacturing services segment of the electronics industry. The Company's customers are located in the United States, primarily in the Colorado/Rocky Mountain region, and sales and accounts receivable are concentrated with customers principally in the computer peripherals and medical equipment industries. The Company has a policy to regularly monitor the credit worthiness of its customers and provides for uncollectible amounts if credit problems arise. Customers may experience adverse financial difficulties, including those that may result from industry developments, which may increase bad debt exposure to the Company. In addition, the electronics manufacturing services industry has experienced component supply shortages in the past. Should future component supply shortages occur, the Company may experience reduced net sales and profitability. Sales to significant customers as a percentage of total net sales for the years ended December 31 were as follows: 1996 1995 1994 Exabyte 20.8% - - Ohmeda (BOC Group) 15.7% 15.3% 16.5% Hewlett Packard Company 26.4% 37.8% 43.3% XEL Communications .9% 8.7% 16.5%
As of December 31, 1996, accounts receivable from Exabyte and Ohmeda represented 28.3% and 13.6% of total accounts receivable, respectively. ELECTRONIC FAB TECHNOLOGY CORP. Notes to Financial Statements, Continued (12) Business Combination On February 24, 1997, the Company acquired two affiliated entities, Current Electronics, Inc., an Oregon Corporation, and Current Electronics (Washington), Inc., a Washington Corporation, for total consideration of approximately $10.3 million, consisting of 1,980,000 shares of Company common stock and approximately $4.9 million in cash. The Company will record goodwill of approximately $6.5 million in connection with the acquisition, which will be amortized over 30 years. The combined revenues for the two companies for the fiscal year ended September 30, 1996 was approximately $32.5 million. In connection with the business combination, the Company renegotiated its line of credit to increase maximum borrowings to $15,000,000 and extended the maturity date to June 1998. In addition, the Company obtained a 90-day bridge loan in the amount of $4,900,000, the proceeds from which were used to pay the cash consideration related to the acquisition, as discussed above. EX-10.1 2 ELECTRONIC FAB TECHNOLOGY CORP. EQUITY INCENTIVE PLAN as amended and restated January 20, 1997 ELECTRONIC FAB TECHNOLOGY CORP. EQUITY INCENTIVE PLAN ARTICLE I INTRODUCTION 1.1 Establishment. Effective December 22, 1993, Electronic Fab Technology Corp., a Colorado corporation (hereinafter referred to, together with its Affiliated Corporations (as defined in subsection 2.1(a)) as the "Company" except where the context otherwise requires), established the Electronic Fab Technology Corp. Equity Incentive Plan (the "Plan") for certain key employees of the Company. Article XVI of the Plan provides that the Board may amend the Plan from time to time. The Plan is hereby amended and restated, effective January 20, 1997, subject to shareholder approval (the "Effective Date"). The Plan permits the grant of stock options, restricted stock awards, stock appreciation rights, stock units and other stock grants to certain key employees of the Company. 1.2 Purposes. The purposes of the Plan are to provide the key employees selected for participation in the Plan with added incentives to continue in the service of the Company and to create in such employees a more direct interest in the future success of the operations of the Company by relating incentive compensation to the achievement of long-term corporate economic objectives, so that the income of the key employees is more closely aligned with the income of the Company's shareholders. The Plan is also designed to attract key employees and to retain and motivate participating employees by providing an opportunity for investment in the Company. ARTICLE II DEFINITIONS 2.1 Definitions. The following terms shall have the meanings set forth below: (a) "Affiliated Corporation" means any corporation or other entity (including but not limited to a partnership) that is affiliated with Electronic Fab Technology Corp. through stock ownership or otherwise and is treated as a common employer under the provisions of Sections 414(b) and (c) of the Code, together with any parent or subsidiary of the Company as defined in Section 424 of the Code. (b) "Award" means an Option, a Restricted Stock Award, a Stock Appreciation Right, a Stock Unit, grants of Stock pursuant to Article XI or other issuances of Stock hereunder. (c) "Board" means the Board of Directors of the Company. (d) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (e) "Committee" means a committee consisting of members of the Board who are empowered hereunder to take actions in the administration of the Plan. The Committee shall be so constituted at all times as to permit the Plan to comply with Section 162(m) of the Code and Rule 16b-3 or any successor rule promulgated under the Securities Exchange Act of 1934 (the "1934 Act"). Members of the Committee shall be appointed from time to time by the Board, shall serve at the pleasure of the Board and may resign at any time upon written notice to the Board. (f) "Disabled" or "Disability" shall have the meaning given to such terms in Section 22(e)(3) of the Code. (g) "Eligible Employees" means those key employees (including, without limitation, officers and directors who are also employees) of the Company or any division thereof, upon whose judgment, initiative and efforts the Company is, or will become, largely dependent for the successful conduct of its business. (h) "Fair Market Value" of a share of Stock shall be the last reported sale price of the Stock on the Nasdaq National Market on the day the determination is to be made, or if no sale took place on such day, the average of the closing bid and asked prices of the Stock on the Nasdaq National Market on such day, or if the market is closed on such day, the last day prior to the date of determination on which the market was open for the transaction of business, as reported by Nasdaq. If, however, the Stock should be listed or admitted for trading on a national securities exchange, the Fair Market Value of a share of the Stock shall be the last sales price, or if no sales took place, the average of the closing bid and asked prices on the day the determination is to be made, or if the market is closed on such day, the last day prior to the date of determination on which the market was open for the transaction of business, as reported in the principal consolidated transaction reporting system for the principal national securities exchange on which the Stock is listed or admitted for trading. If the Stock is not listed or traded on NASDAQ or on any national securities exchange, the Fair Market Value for purposes of the grant of Options under the Plan shall be determined by the Committee in good faith in its sole discretion. (i) "Incentive Option" means an Option designated as such and granted in accordance with Section 422 of the Code. (j) "Non-Qualified Option" means any Option other than an Incentive Option. (k) "Option" means a right to purchase Stock at a stated or formula price for a specified period of time. Options granted under the Plan shall be either Incentive Options or Non-Qualified Options. (l) "Option Certificate" shall have the meaning given to such term in Section 7.2 hereof. (m) "Option Holder" means a Participant who has been granted one or more Options under the Plan. (n) "Option Price" means the price at which shares of Stock subject to an Option may be purchased, determined in accordance with subsection 7.2(b). (o) "Participant" means an Eligible Employee designated by the Committee from time to time during the term of the Plan to receive one or more of the Awards provided under the Plan. (p) "Restricted Stock Award" means an award of Stock granted to a Participant pursuant to Article VIII that is subject to certain restrictions imposed in accordance with the provisions of such Section. (q) "Share" means a share of Stock. (r) "Stock" means the common stock of the Company. (s) "Stock Appreciation Right" means the right, granted by the Committee pursuant to the Plan, to receive a payment equal to the increase in the Fair Market Value of a Share of Stock subsequent to the grant of such Award. (t) "Stock Unit" means a measurement component equal to the Fair Market Value of one share of Stock on the date for which a determination is made pursuant to the provisions of this Plan. 2.2 Gender and Number. Except when otherwise indicated by the context, the masculine gender shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural. ARTICLE III PLAN ADMINISTRATIONARTICLE IIIPLAN ADMINISTRATION The Plan shall be administered by the Committee. In accordance with the provisions of the Plan, the Committee shall, in its sole discretion, select the Participants from among the Eligible Employees, determine the Awards to be made pursuant to the Plan, the number of Stock Units, Stock Appreciation Rights or shares of Stock to be issued thereunder and the time at which such Awards are to be made, fix the Option Price, period and manner in which an Option becomes exercisable, establish the duration and nature of Restricted Stock Award restrictions, establish the terms and conditions applicable to Stock Units, and establish such other terms and requirements of the various compensation incentives under the Plan as the Committee may deem necessary or desirable and consistent with the terms of the Plan. The Committee shall determine the form or forms of the agreements with Participants that shall evidence the particular provisions, terms, conditions, rights and duties of the Company and the Participants with respect to Awards granted pursuant to the Plan, which provisions need not be identical except as may be provided herein. The Committee may from time to time adopt such rules and regulations for carrying out the purposes of the Plan as it may deem proper and in the best interests of the Company. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any agreement entered into hereunder in the manner and to the extent it shall deem expedient and it shall be the sole and final judge of such expediency. No member of the Committee shall be liable for any action or determination made in good faith. The determinations, interpretations and other actions of the Committee pursuant to the provisions of the Plan shall be binding and conclusive for all purposes and on all persons. ARTICLE IV STOCK SUBJECT TO THE PLAN 4.1 Number of Shares. The number of shares of Stock that are authorized for issuance under the Plan in accordance with the provisions of the Plan and subject to such restrictions or other provisions as the Committee may from time to time deem necessary shall not exceed 995,000. This authorization may be increased from time to time by approval of the Board and by the shareholders of the Company if, in the opinion of counsel for the Company, shareholder approval is required. Shares of Stock that may be issued upon exercise of Options, or Stock Appreciation Rights, that are issued as Restricted Stock Awards, that are issued with respect to Stock Units, and that are issued as incentive compensation or other stock grants under the Plan shall be applied to reduce the maximum number of shares of Stock remaining available for use under the Plan. The Company shall at all times during the term of the Plan and while any Options or Stock Units are outstanding retain as authorized and unissued Stock at least the number of shares from time to time required under the provisions of the Plan, or otherwise assure itself of its ability to perform its obligations hereunder. 4.2 Other Shares of Stock. Any shares of Stock that are subject to an Option that expires, or that is forfeited or for any reason is terminated unexercised, and any shares of Stock withheld for the payment of taxes or received by the Company as payment of the exercise price of an Option shall automatically become available for use under the Plan. 4.3 Adjustments for Stock Split, Stock Dividend, Etc. If the Company shall at any time increase or decrease the number of its outstanding shares of Stock or change in any way the rights and privileges of such shares by means of the payment of a stock dividend or any other distribution upon such shares payable in Stock, or through a stock split, subdivision, consolidation, combination, reclassification or recapitalization involving the Stock, then in relation to the Stock that is affected by one or more of the above events, the numbers, rights and privileges of the following shall be increased, decreased or changed in like manner as if they had been issued and outstanding, fully paid and nonassessable at the time of such occurrence: (i) the shares of Stock as to which Awards may be granted under the Plan and (ii) the shares of the Stock then included in each outstanding Award granted hereunder. 4.4 Other Distributions and Changes in the Stock. If (a) the Company shall at any time distribute with respect to the Stock assets or securities of persons other than the Company (excluding cash or distributions referred to in Section 4.3), or (b) the Company shall at any time grant to the holders of its Stock rights to subscribe pro rata for additional shares thereof or for any other securities of the Company, or (c) there shall be any other change (except as described in Section 4.3) in the number or kind of outstanding shares of Stock or of any stock or other securities into which the Stock shall be changed or for which it shall have been exchanged, and if the Committee shall in its discretion determine that the event described in subsection (a), (b), or (c) above equitably requires an adjustment in the number or kind of shares subject to an Option or other Award, an adjustment in the Option Price or the taking of any other action by the Committee, including without limitation, the setting aside of any property for delivery to the Participant upon the exercise of an Option or the full vesting of an Award, then such adjustments shall be made, or other action shall be taken, by the Committee and shall be effective for all purposes of the Plan and on each outstanding Option or Award that involves the particular type of stock for which a change was effected. Notwithstanding the foregoing provisions of this Section 4.4, pursuant to Section 8.3 below, a Participant holding Stock received as a Restricted Stock Award shall have the right to receive all amounts, including cash and property of any kind, distributed with respect to the Stock upon the Participant's becoming a holder of record of the Stock. 4.5 General Adjustment Rules. No adjustment or substitution provided for in this Article IV shall require the Company to sell a fractional share of Stock under any Option, or otherwise issue a fractional share of Stock, and the total substitution or adjustment with respect to each Option and other Award shall be limited by deleting any fractional share. In the case of any such substitution or adjustment, the total Option Price for the shares of Stock then subject to an Option shall remain unchanged but the Option Price per share under each such Option shall be equitably adjusted by the Committee to reflect the greater or lesser number of shares of Stock or other securities into which the Stock subject to the Option may have been changed, and appropriate adjustments shall be made to other Awards to reflect any such substitution or adjustment. 4.6 Determination by the Committee, Etc. Adjustments under this Article IV shall be made by the Committee, whose determinations with regard thereto shall be final and binding upon all parties thereto. ARTICLE V CORPORATE REORGANIZATION 5.1 Reorganization. Upon the occurrence of any of the following events, if the notice required by Section 5.2 shall have first been given, the Plan and all Options then outstanding hereunder shall automatically terminate and be of no further force and effect whatsoever, and other Awards then outstanding shall be treated as described in Sections 5.2 and 5.3, without the necessity for any additional notice or other action by the Board or the Company: (a) the merger or consolidation of the Company with or into another corporation or other reorganization (other than a reorganization under the United States Bankruptcy Code) of the Company (other than a consolidation, merger, or reorganization in which the Company is the continuing corporation and which does no result in any reclassification or change of outstanding shares of Stock); or (b) the sale or conveyance of the property of the Company as an entirety or substantially as an entirety (other than a sale or conveyance in which the Company continues as holding company of an entity or entities that conduct the business or business formerly conducted by the Company); or (c) the dissolution or liquidation of the Company. 5.2 Required Notice. At least 30 days' prior written notice of any event described in Section 5.1 shall be given by the Company to each Option Holder and Participant unless (a) in the case of the events described in clauses (a) or (b) of Section 5.1, the Company, or the successor or purchaser, as the case may be, shall make adequate provision for the assumption of the outstanding Options or the substitution of new options for the outstanding Options on terms comparable to the outstanding Options except that the Option Holder shall have the right thereafter to purchase the kind and amount of securities or property or cash receivable upon such merger, consolidation, other reorganization, sale or conveyance by a holder of the number of Shares that would have been receivable upon exercise of the Option immediately prior to such merger, consolidation, sale or conveyance (assuming such holder of Stock failed to exercise any rights of election and received per share the kind and amount received per share by a majority of the non-electing shares), or (b) the Company, or the successor or purchaser, as the case may be, shall make adequate provision for the adjustment of outstanding Awards (other than Options) so that such Awards shall entitle the Participant to receive the kind and amount of securities or property or cash receivable upon such merger, consolidation, other reorganization, sale or conveyance by a holder of the number of Shares that would have been receivable with respect to such Award immediately prior to such merger, consolidation, other reorganization, sale or conveyance (assuming such holder of Stock failed to exercise any rights of election and received per share the kind and amount received per share by a majority of the non-electing shares). The provisions of this Article V shall similarly apply to successive mergers, consolidations, reorganizations, sales or conveyances. Such notice shall be deemed to have been given when delivered personally to a Participant or when mailed to a Participant by registered or certified mail, postage prepaid, at such Participant's address last known to the Company. 5.3 Acceleration of Exercisability. Participants notified in accordance with Section 5.2 may exercise their Options at any time before the occurrence of the event requiring the giving of notice (but subject to occurrence of such event), regardless of whether all conditions of exercise relating to length of service, attainment of financial performance goals or otherwise have been satisfied. Upon the giving of notice in accordance with Section 5.2, all restrictions with respect to Restricted Stock and other Awards shall lapse immediately, all Stock Units shall become payable immediately and all Stock Appreciation Rights shall become exercisable. Any Options, Stock Appreciation Rights or Stock Units that are not assumed or substituted under clauses (a) or (b) of Section 5.2 that have not been exercised prior to the event described in Section 5.1 shall automatically terminate upon the occurrence of such event. 5.4 Limitation on Payments. If the provisions of this Article V would result in the receipt by any Participant of a payment within the meaning of Section 280G of the Code and the regulations promulgated thereunder and if the receipt of such payment by any Participant would, in the opinion of independent tax counsel of recognized standing selected by the Company, result in the payment by such Participant of any excise tax provided for in Sections 280G and 4999 of the Code, then the amount of such payment shall be reduced to the extent required, in the opinion of independent tax counsel, to prevent the imposition of such excise tax; provided, however, that the Committee, in its sole discretion, may authorize the payment of all or any portion of the amount of such reduction to the Participant. ARTICLE VI PARTICIPATION Participants in the Plan shall be those Eligible Employees who, in the judgment of the Committee, are performing, or during the term of their incentive arrangement will perform, vital services in the management, operation and development of the Company or an Affiliated Corporation, and significantly contribute, or are expected to significantly contribute, to the achievement of long-term corporate economic objectives. Participants may be granted from time to time one or more Awards; provided, however, that the grant of each such Award shall be separately approved by the Committee, and receipt of one such Award shall not result in automatic receipt of any other Award. Upon determination by the Committee that an Award is to be granted to a Participant, written notice shall be given to such person, specifying the terms, conditions, rights and duties related thereto. Each Participant shall, if required by the Committee, enter into an agreement with the Company, in such form as the Committee shall determine and which is consistent with the provisions of the Plan, specifying such terms, conditions, rights and duties. Awards shall be deemed to be granted as of the date specified in the grant resolution of the Committee, which date shall be the date of any related agreement with the Participant. In the event of any inconsistency between the provisions of the Plan and any such agreement entered into hereunder, the provisions of the Plan shall govern. ARTICLE VII OPTIONS 7.1 Grant of Options. Coincident with or following designation for participation in the Plan, a Participant may be granted one or more Options. The Committee in its sole discretion shall designate whether an Option is an Incentive Option or a Non-Qualified Option. The Committee may grant both an Incentive Option and a Non-Qualified Option to an Eligible Employee at the same time or at different times. Incentive Options and Non-Qualified Options, whether granted at the same time or at different times, shall be deemed to have been awarded in separate grants and shall be clearly identified, and in no event shall the exercise of one Option affect the right to exercise any other Option or affect the number of shares for which any other Option may be exercised, except as provided in subsection 7.2(j). An Option shall be considered as having been granted on the date specified in the grant resolution of the Committee. 7.2 Stock Option Certificates. Each Option granted under the Plan shall be evidenced by a written stock option certificate (an "Option Certificate"). An Option Certificate shall be issued by the Company in the name of the Participant to whom the Option is granted (the "Option Holder") and in such form as may be approved by the Committee. The Option Certificate shall incorporate and conform to the conditions set forth in this Section 7.2 as well as such other terms and conditions that are not inconsistent as the Committee may consider appropriate in each case. (a) Number of Shares. Each Option Certificate shall state that it covers a specified number of shares of Stock, as determined by the Committee. Notwithstanding any other provision of this Plan, the maximum number of shares of Stock to be granted subject to Options to any one Participant during the term of this Plan shall be 300,000 shares of Stock. (b) Price. The price at which each share of Stock covered by an Option may be purchased shall be determined in each case by the Committee and set forth in the Option Certificate, but in no event shall the price be less than 100 percent of the Fair Market Value of the Stock on the date the Option (both Incentive and Non-Qualified) is granted. (c) Duration of Options; Restrictions on Exercise. Each Option Certificate shall state the period of time, determined by the Committee, within which the Option may be exercised by the Option Holder (the "Option Period"). The Option Period must end, in all cases, not more than ten years from the date the Option is granted. The Option Certificate shall also set forth any installment or other restrictions on Option exercise during such period, if any, as may be determined by the Committee; however, no Option may be exercised for at least six months after the date of grant. Each Option shall become exercisable (vest) over such period of time, if any, or upon such events, as determined by the Committee. (d) Termination of Employment, Death, Disability, Etc. The Committee may specify the period, if any, after which an Option may be exercised following termination of the Option Holder's employment. The effect of this subsection 7.2(d) shall be limited to determining the consequences of a termination and nothing in this subsection 7.2(d) shall restrict or otherwise interfere with the Company's discretion with respect to the termination of any individual's employment. If the Committee does not otherwise specify, the following shall apply: (i) If the employment of the Option Holder terminates for any reason other than death or Disability within six months after the date the Option is granted or if the employment of the Option Holder is terminated within the Option Period for "cause", as determined by the Company, the Option shall thereafter be void for all purposes. As used in this subsection 7.2(d), "cause" shall mean a gross violation, as determined by the Company, of the Company's established policies and procedures. (ii) If the Option Holder becomes Disabled, the Option may be exercised by the Option Holder, or in the case of death by the persons specified in subsection (iii) of this subsection 7.2(d), within one year following his or her Disability (provided that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of the Option Holder's termination of employment because of Disability. (iii) If the Option Holder dies during the Option Period while still employed or within the one year period referred to in (ii) above or the three-month period referred to in (iv) below, the Option may be exercised by those entitled to do so under the Option Holder's will or by the laws of descent and distribution within one year following the Option Holder's death, (provided that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of the Option Holder's death. (iv) If the employment of the Option Holder by the Company is terminated (which for this purpose means that the Option Holder is no longer employed by the Company or by an Affiliated Corporation) within the Option Period for any reason other than cause, Disability or the Option Holder's death, and such termination occurs more than six months after the Option is granted, the Option may be exercised by the Option Holder within three months following the date of such termination (provided that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of termination of employment. (e) Transferability. Each Option shall not be transferable by the Option Holder except by will or pursuant to the laws of descent and distribution. Each Option is exercisable during the Option Holder's lifetime only by him or her, or in the event of disability or incapacity, by his or her guardian or legal representative. (f) Consideration for Grant of Option. Each Option Holder agrees to remain in the employment of the Company, at the pleasure of the Company, for a continuous period of at least one year after the date the Option is granted, at the salary rate in effect on the date of such agreement or at such changed rate as may be fixed, from time to time, by the Company. Nothing in this paragraph shall limit or impair the Company's right to terminate the employment of any employee. (g) Exercise, Payments, Etc. (i) Manner of Exercise. The method for exercising each Option granted hereunder shall be by delivery to the Company of written notice specifying the number of Shares with respect to which such Option is exercised. The purchase of such Shares shall take place at the principal offices of the Company within thirty days following delivery of such notice, at which time the Option Price of the Shares shall be paid in full by any of the methods set forth below or a combination thereof. Except as set forth in the next sentence, the Option shall be exercised when the Option Price for the number of shares as to which the Option is exercised is paid to the Company in full. If the Option Price is paid by means of a broker's loan transaction described in subsection 7.2(g)(ii)(D), in whole or in part, the closing of the purchase of the Stock under the Option shall take place (and the Option shall be treated as exercised) on the date on which, and only if, the sale of Stock upon which the broker's loan was based has been closed and settled, unless the Option Holder makes an irrevocable written election, at the time of exercise of the Option, to have the exercise treated as fully effective for all purposes upon receipt of the Option Price by the Company regardless of whether or not the sale of the Stock by the broker is closed and settled. A properly executed certificate or certificates representing the Shares shall be delivered to or at the direction of the Option Holder upon payment therefor. If Options on less than all shares evidenced by an Option Certificate are exercised, the Company shall deliver a new Option Certificate evidencing the Option on the remaining shares upon delivery of the Option Certificate for the Option being exercised. (ii) The exercise price shall be paid by any of the following methods or any combination of the following methods at the election of the Option Holder, or by any other method approved by the Committee upon the request of the Option Holder: (A) in cash; (B) by certified, cashier's check or other check acceptable to the Company, payable to the order of the Company; (C) by delivery to the Company of certificates representing the number of shares then owned by the Option Holder, the Fair Market Value of which equals the purchase price of the Stock purchased pursuant to the Option, properly endorsed for transfer to the Company; provided however, that no Option may be exercised by delivery to the Company of certificates representing Stock, unless such Stock has been held by the Option Holder for more than six months; for purposes of this Plan, the Fair Market Value of any shares of Stock delivered in payment of the purchase price upon exercise of the Option shall be the Fair Market Value as of the exercise date; the exercise date shall be the day of delivery of the certificates for the Stock used as payment of the Option Price; or (D) by delivery to the Company of a properly executed notice of exercise together with irrevocable instructions to a broker to deliver to the Company promptly the amount of the proceeds of the sale of all or a portion of the Stock or of a loan from the broker to the Option Holder required to pay the Option Price. (h) Date of Grant. An Option shall be considered as having been granted on the date specified in the grant resolution of the Committee. (i) Withholding. (i) Non-Qualified Options. Upon exercise of an Option, the Option Holder shall make appropriate arrangements with the Company to provide for the amount of additional withholding required by Sections 3102 and 3402 of the Code and applicable state income tax laws, including payment of such taxes through delivery of shares of Stock or by withholding Stock to be issued under the Option, as provided in Article XV. (ii) Incentive Options. If an Option Holder makes a disposition (as defined in Section 424(c) of the Code) of any Stock acquired pursuant to the exercise of an Incentive Option prior to the expiration of two years from the date on which the Incentive Option was granted or prior to the expiration of one year from the date on which the Option was exercised, the Option Holder shall send written notice to the Company at its principal office in Greeley, Colorado (Attention: Corporate Secretary) of the date of such disposition, the number of shares disposed of, the amount of proceeds received from such disposition and any other information relating to such disposition as the Company may reasonably request. The Option Holder shall, in the event of such a disposition, make appropriate arrangements with the Company to provide for the amount of additional withholding, if any, required by Sections 3102 and 3402 of the Code and applicable state income tax laws. (j) Issuance of Additional Option. If an Option Holder pays all or any portion of the exercise price of an Option with Stock, or pays all or any portion of the applicable withholding taxes with respect to the exercise of an Option with Stock that has been held by the Option Holder for more than a period, not shorter than six months, to be determined by the Committee, the Committee may, in its sole discretion, grant to such Option Holder a new Option covering the number of shares of Stock used to pay such exercise price and/or withholding tax. The new Option shall have an Option Price per share equal to the Fair Market Value of a share of Stock on the date of the exercise of the Option and shall have the same terms and provisions as the exercised Option, except as otherwise determined by the Committee in its sole discretion. 7.3 Restrictions on Incentive Options. (a) Initial Exercise. The aggregate Fair Market Value of the Shares with respect to which Incentive Options are exercisable for the first time by an Option Holder in any calendar year, under the Plan or otherwise, shall not exceed $100,000. For this purpose, the Fair Market Value of the Shares shall be determined as of the date of grant of the Option. (b) Ten Percent Shareholders. Incentive Options granted to an Option Holder who is the holder of record of 10% or more of the outstanding Stock of the Company shall have an Option Price equal to 110% of the Fair Market Value of the Shares on the date of grant of the Option and the Option Period for any such Option shall not exceed five years. 7.4 Shareholder Privileges. No Option Holder shall have any rights as a shareholder with respect to any shares of Stock covered by an Option until the Option Holder becomes the holder of record of such Stock, and no adjustments shall be made for dividends or other distributions or other rights as to which there is a record date preceding the date such Option Holder becomes the holder of record of such Stock, except as provided in Article IV. ARTICLE VIII RESTRICTED STOCK AWARDS 8.1 Grant of Restricted Stock Awards. Coincident with or following designation for participation in the Plan, the Committee may grant a Participant one or more Restricted Stock Awards consisting of Shares of Stock. The number of Shares granted as a Restricted Stock Award shall be determined by the Committee. 8.2 Restrictions. A Participant's right to retain a Restricted Stock Award granted to him under Section 8.1 shall be subject to such restrictions, including but not limited to his continuous employment by the Company or an Affiliated Corporation for a restriction period specified by the Committee or the attainment of specified performance goals and objectives, as may be established by the Committee with respect to such Award. The Committee may in its sole discretion require different periods of employment or different performance goals and objectives with respect to different Participants, to different Restricted Stock Awards or to separate, designated portions of the Stock shares constituting a Restricted Stock Award. In the event of the death or Disability of a Participant, or the retirement of a Participant in accordance with the Company's established retirement policy, all employment period and other restrictions applicable to Restricted Stock Awards then held by him shall lapse with respect to a pro rata part of each such Award based on the ratio between the number of full months of employment completed at the time of termination of employment from the grant of each Award to the total number of months of employment required for such Award to be fully nonforfeitable, and such portion of each such Award shall become fully nonforfeitable. The remaining portion of each such Award shall be forfeited and shall be immediately returned to the Company. In the event of a Participant's termination of employment for any other reason, any Restricted Stock Awards as to which the employment period or other restrictions have not been satisfied (or waived or accelerated as provided herein) shall be forfeited, and all shares of Stock related thereto shall be immediately returned to the Company. 8.3 Privileges of a Shareholder, Transferability. A Participant shall have all voting, dividend, liquidation and other rights with respect to Stock in accordance with its terms received by him as a Restricted Stock Award under this Article VIII upon his becoming the holder of record of such Stock; provided, however, that the Participant's right to sell, encumber, or otherwise transfer such Stock shall be subject to the limitations of Section 13.2. 8.4 Enforcement of Restrictions. The Committee shall cause a legend to be placed on the Stock certificates issued pursuant to each Restricted Stock Award referring to the restrictions provided by Sections 8.2 and 8.3 and, in addition, may in its sole discretion require one or more of the following methods of enforcing the restrictions referred to in Sections 8.2 and 8.3: (a) Requiring the Participant to keep the Stock certificates, duly endorsed, in the custody of the Company while the restrictions remain in effect; or (b) Requiring that the Stock certificates, duly endorsed, be held in the custody of a third party while the restrictions remain in effect. ARTICLE IX STOCK UNITS A Participant may be granted a number of Stock Units determined by the Committee. The number of Stock Units, the goals and objectives to be satisfied with respect to each grant of Stock Units, the time and manner of payment for each Stock Unit, and the other terms and conditions applicable to a grant of Stock Units shall be determined by the Committee. ARTICLE X STOCK APPRECIATION RIGHTS RIGHTS 10.1 Persons Eligible. The Committee, in its sole discretion, may grant Stock Appreciation Rights to Eligible Employees. 10.2 Grant. The Committee shall determine at the time of the grant of a Stock Appreciation Right the time period during which the Stock Appreciation Right may be exercised, which period may not commence until six months after the date of grant. 10.3 Exercise. A Stock Appreciation Right shall entitle a Participant to receive a number of shares of Stock (without any payment to the Company, except for applicable withholding taxes), cash, or Stock and cash, as determined by the Committee in accordance with Section 10.4 below. If a Stock Appreciation Right is issued in tandem with an Option, except as may otherwise be provided by the Committee, the Stock Appreciation Right shall be exercisable during the period that its related Option is exercisable. A Participant desiring to exercise a Stock Appreciation Right shall give written notice of such exercise to the Company, which notice shall state the proportion of Stock and cash that the Participant desires to receive pursuant to the Stock Appreciation Right exercised. Upon receipt of the notice from the Participant, the Company shall deliver to the person entitled thereto (i) a certificate or certificates for Stock and/or (ii) a cash payment, in accordance with Section 10.4 below. The date the Company receives written notice of such exercise hereunder is referred to in this Article X as the "exercise date". The delivery of Stock or cash received pursuant to such exercise shall take place at the principal offices of the Company within 30 days following delivery of such notice. 10.4 Number of Shares or Amount of Cash. Subject to the discretion of the Committee to substitute cash for Stock, or Stock for cash, the amount of Stock which may be issued pursuant to the exercise of a Stock Appreciation Right shall be determined by dividing: (a) the total number of shares of Stock as to which the Stock Appreciation Right is exercised, multiplied by the amount by which the Fair Market Value of the Stock on the exercise date exceeds the Fair Market Value of a share of Stock on the date of grant of the Stock Appreciation Right, by (b) the Fair Market Value of the Stock on the exercise date; provided, however, that fractional shares shall not be issued and in lieu thereof, a cash adjustment shall be paid. In lieu of issuing Stock upon the exercise of a Stock Appreciation Right, the Committee in its sole discretion may elect to pay the cash equivalent of the Fair Market Value of the Stock on the exercise date for any or all of the shares of Stock that would otherwise be issuable upon exercise of the Stock Appreciation Right. 10.5 Effect of Exercise. If a Stock Appreciation Right is issued in tandem with an Option, the exercise of the Stock Appreciation Right or the related Option will result in an equal reduction in the number of corresponding Options or Stock Appreciation Rights which were granted in tandem with such Stock Appreciation Rights and Options. 10.6 Termination of Employment. Upon the termination of employment of a Participant, any Stock Appreciation Rights then held by such Participant shall be exercisable within the time periods, and upon the same conditions with respect to the reasons for termination of employment, as are specified in Section 7.2(d) with respect to Options. ARTICLE XI OTHER COMMON STOCK GRANTS From time to time during the duration of this Plan, the Board may, in its sole discretion, adopt one or more incentive compensation arrangements for Participants pursuant to which the Participants may acquire shares of Stock, whether by purchase, outright grant, or otherwise. Any such arrangements shall be subject to the general provisions of this Plan and all shares of Stock issued pursuant to such arrangements shall be issued under this Plan. ARTICLE XII CHANGE IN CONTROL 12.1 In General. Upon a change of control in the Company as defined in Section 12.2, then (a) all options shall become immediately exercisable in full during the remaining term thereof, and shall remain so, whether or not the Participants to whom such Options have been granted remain employees of the Company or an Affiliated Corporation; (b) all restrictions with respect to outstanding Restricted Stock Awards shall immediately lapse; (c) all Stock Units shall become immediately payable; and (d) all other Awards shall immediately become exercisable or shall vest, as the case may be, without any further action or passage of time. 12.2 Definition. For purposes of this Plan, a "change in control" shall be deemed to have occurred if (a) a person (as such term is used in Section 13(d) of the 1934 Act) becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act) of shares of the Company or the Company's successor having 30% or more of the total number of votes that may be cast for the election of directors of the Company without the prior approval of at least a majority of the members of the Company's Board of Directors unaffiliated with such person (unless such person beneficially owns shares with at least 15% of such votes on the Effective Date), or (b) individuals who constitute the directors of the Company at the beginning of a 24-month period cease to constitute at least two-thirds of all directors at any time during such period, unless the election of any new or replacement directors was approved by a vote of at least a majority of the members of the Company's Board of Directors in office immediately prior to such period and of the new and replacement directors so approved. ARTICLE XIII RIGHTS OF EMPLOYEES; PARTICIPANTS 13.1 Employment. Nothing contained in the Plan or in any Award granted under the Plan shall confer upon any Participant any right with respect to the continuation of his employment by the Company or any Affiliated Corporation, or interfere in any way with the right of the Company or any Affiliated Corporation, subject to the terms of any separate employment agreement to the contrary, at any time to terminate such employment or to increase or decrease the compensation of the Participant from the rate in existence at the time of the grant of an Award. Whether an authorized leave of absence, or absence in military or government service, shall constitute a termination of employment shall be determined by the Committee at the time. 13.2 Nontransferability. No right or interest of any Participant in an Option, a Stock Appreciation Right, a Restricted Stock Award (prior to the completion of the restriction period applicable thereto), a Stock Unit, or other Award granted pursuant to the Plan, shall be assignable or transferable during the lifetime of the Participant, either voluntarily or involuntarily, or subjected to any lien, directly or indirectly, by operation of law, or otherwise, including execution, levy, garnishment, attachment, pledge or bankruptcy. In the event of a Participant's death, a Participant's rights and interests in Options, Stock Appreciation Rights, Restricted Stock Awards, other Awards, and Stock Units shall, to the extent provided in Articles VII, VIII, IX, X and XI, be transferable by will or the laws of descent and distribution, and payment of any amounts due under the Plan shall be made to, and exercise of any Options may be made by, the Participant's legal representatives, heirs or legatees. If in the opinion of the Committee a person entitled to payments or to exercise rights with respect to the Plan is disabled from caring for his affairs because of mental condition, physical condition or age, payment due such person may be made to, and such rights shall be exercised by, such person's guardian, conservator or other legal personal representative upon furnishing the Committee with evidence satisfactory to the Committee of such status. 13.3 No Plan Funding. Obligations to Participants under the Plan will not be funded, trusteed, insured or secured in any manner. The Participants under the Plan shall have no security interest in any assets of the Company or any Affiliated Corporation, and shall be only general creditors of the Company. ARTICLE XIV GENERAL RESTRICTIONS 14.1 Investment Representations. The Company may require any person to whom an Option, Stock Appreciation Right, Restricted Stock Award, Stock Unit, or Stock is granted, as a condition of exercising such Option or Stock Appreciation Right, or receiving such Restricted Stock Award, Stock Unit, or Stock, to give written assurances in substance and form satisfactory to the Company and its counsel to the effect that such person is acquiring the Stock for his own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with Federal and applicable state securities laws. 14.2 Compliance with Securities Laws. Each Option, Stock Appreciation Right, Restricted Stock Award, Stock Unit, and Stock grant shall be subject to the requirement that, if at any time counsel to the Company shall determine that the listing, registration or qualification of the shares subject to such Option, Stock Appreciation Right, Restricted Stock Award, Stock Unit, or Stock grant upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, is necessary as a condition of, or in connection with, the issuance or purchase of shares thereunder, such Option, Stock Appreciation Right, Restricted Stock Award, Stock Unit or Stock grant may not be accepted or exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the Committee. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration or qualification. 14.3 Changes in Accounting Rules. Notwithstanding any other provision of the Plan to the contrary, if, during the term of the Plan, any changes in the financial or tax accounting rules applicable to Options, Stock Appreciation Rights, Restricted Stock Awards, Stock Units or other Awards shall occur which, in the sole judgment of the Committee, may have a material adverse effect on the reported earnings, assets or liabilities of the Company, the Committee shall have the right and power to modify as necessary, any then outstanding and unexercised Options, Stock Appreciation Rights, outstanding Restricted Stock Awards, outstanding Stock Units and other outstanding Awards as to which the applicable employment or other restrictions have not been satisfied. ARTICLE XV OTHER EMPLOYEE BENEFITS The amount of any compensation deemed to be received by a Participant as a result of the exercise of an Option or Stock Appreciation Right, the sale of shares received upon such exercise, the vesting of any Restricted Stock Award, distributions with respect to Stock Units, or the grant of Stock shall not constitute "earnings" or "compensation" with respect to which any other employee benefits of such employee are determined, including without limitation benefits under any pension, profit sharing, life insurance or salary continuation plan. ARTICLE XVI PLAN AMENDMENT, MODIFICATION AND TERMINATION The Board may at any time terminate, and from time to time may amend or modify the Plan provided, however, that no amendment or modification may become effective without approval of the amendment or modification by the shareholders if shareholder approval is required to enable the Plan to satisfy any applicable statutory or regulatory requirements, or if the Company, on the advice of counsel, determines that shareholder approval is otherwise necessary or desirable. No amendment, modification or termination of the Plan shall in any manner adversely affect any Options, Stock Appreciation Rights, Restricted Stock Awards, Stock Units, Stock or other Award theretofore granted under the Plan, without the consent of the Participant holding such Options, Stock Appreciation Rights, Restricted Stock Awards, Stock Units, Stock or other Awards. ARTICLE XVII WITHHOLDING 17.1 Withholding Requirement. The Company's obligations to deliver shares of Stock upon the exercise of any Option, or Stock Appreciation Right, the vesting of any Restricted Stock Award, payment with respect to Stock Units, or the grant of Stock shall be subject to the Participant's satisfaction of all applicable federal, state and local income and other tax withholding requirements. 17.2 Withholding With Stock. At the time the Committee grants an Option, Stock Appreciation Right, Restricted Stock Award, Stock Unit, other Award, or Stock, it may, in its sole discretion, grant the Participant an election to pay all such amounts of tax withholding, or any part thereof, by electing to transfer to the Company, or to have the Company withhold from shares otherwise issuable to the Participant, shares of Stock having a value equal to the amount required to be withheld or such lesser amount as may be elected by the Participant. All elections shall be subject to the approval or disapproval of the Committee. The value of shares of Stock to be withheld shall be based on the Fair Market Value of the Stock on the date that the amount of tax to be withheld is to be determined (the "Tax Date"). Any such elections by Participants to have shares of Stock withheld for this purpose will be subject to the following restrictions: (a) All elections must be made prior to the Tax Date. (b) All elections shall be irrevocable. (c) If the Participant is an officer or director of the Company within the meaning of Section 16 of the 1934 Act ("Section 16"), the Participant must satisfy the requirements of such Section 16 and any applicable Rules thereunder with respect to the use of Stock to satisfy such tax withholding obligation. ARTICLE XVIII REQUIREMENTS OF LAW 18.1 Requirements of Law. The issuance of Stock and the payment of cash pursuant to the Plan shall be subject to all applicable laws, rules and regulations. 18.2 Federal Securities Law Requirements. If a Participant is an officer or director of the Company within the meaning of Section 16, Awards granted hereunder shall be subject to all conditions required under Rule 16b-3, or any successor rule promulgated under the 1934 Act, to qualify the Award for any exception from the provisions of Section 16(b) of the 1934 Act available under that Rule. Such conditions shall be set forth in the agreement with the Participant which describes the Award or other document evidencing or accompanying the Award. 18.3 Governing Law. The Plan and all agreements hereunder shall be construed in accordance with and governed by the laws of the State of Colorado. ARTICLE XIX DURATION OF THE PLAN Unless sooner terminated by the Board of Directors, the Plan shall terminate on December 21, 2003 and no Option, Stock Appreciation Right, Restricted Stock Award, Stock Unit, other Award or Stock shall be granted, or offer to purchase Stock made, after such termination. Options, Stock Appreciation Rights, Restricted Stock Awards, other Awards, and Stock Units outstanding at the time of the Plan termination may continue to be exercised, or become free of restrictions, or paid, in accordance with their terms. Dated: January 20, 1997 ELECTRONIC FAB TECHNOLOGY CORP. ATTEST: By: Lloyd McConnell By: Jack Calderon Secretary President and Chief Executive Officer TABLE OF CONTENTS Page ARTICLE I - INTRODUCTION 1 1.1 Establishment 1 1.2 Purposes 1 ARTICLE II - DEFINITIONS 1 2.1 Definitions 1 2.2 Gender and Number 3 ARTICLE III - PLAN ADMINISTRATION 3 ARTICLE IV - STOCK SUBJECT TO THE PLAN 4 4.1 Number of Shares 4 4.2 Other Shares of Stock 4 4.3 Adjustments for Stock Split, Stock Dividend, Etc. 4 4.4 Other Distributions and Changes in the Stock 5 4.5 General Adjustment Rules 5 4.6 Determination by the Committee, Etc. 5 ARTICLE V - CORPORATE REORGANIZATION 6 5.1 Reorganization 6 5.2 Required Notice 6 5.3 Acceleration of Exercisability 6 5.4 Limitation on Payments 7 ARTICLE VI - PARTICIPATION 7 ARTICLE VII - OPTIONS 8 7.1 Grant of Options 8 7.2 Stock Option Certificates 8 7.3 Restrictions on Incentive Options 11 7.4 Shareholder Privileges 12 ARTICLE VIII - RESTRICTED STOCK AWARDS 12 8.1 Grant of Restricted Stock Awards 12 8.2 Restrictions 12 8.3 Privileges of a Shareholder, Transferability 12 8.4 Enforcement of Restrictions 13 ARTICLE IX - STOCK UNITS 13 ARTICLE X - STOCK APPRECIATION RIGHTS 13 10.1 Persons Eligible 13 10.2 Grant 13 10.3 Exercise 13 10.4 Number of Shares or Amount of Cash 14 10.5 Effect of Exercise 14 10.6 Termination of Employment 14 ARTICLE XI - OTHER COMMON STOCK GRANTS 14 ARTICLE XII - CHANGE IN CONTROL 15 12.1 In General 15 12.2 Definition 15 ARTICLE XIII - RIGHTS OF EMPLOYEES; PARTICIPANTS 15 13.1 Employment 15 13.2 Nontransferability 15 13.3 No Plan Funding 16 ARTICLE XIV - GENERAL RESTRICTIONS 16 14.1 Investment Representations 16 14.2 Compliance with Securities Laws 16 14.3 Changes in Accounting Rules 16 ARTICLE XV - OTHER EMPLOYEE BENEFITS 17 ARTICLE XVI - PLAN AMENDMENT, MODIFICATION AND TERMINATION 17 ARTICLE XVII - WITHHOLDING 17 17.1 Withholding Requirement 17 17.2 Withholding With Stock 18 ARTICLE XVIII - REQUIREMENTS OF LAW 18 18.1 Requirements of Law 18 18.2 Federal Securities Law Requirements 18 18.3 Governing Law 18 ARTICLE XIX - DURATION OF THE PLAN 18 EX-10.2 3 ELECTRONIC FAB TECHNOLOGY CORP. STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS as amended and restated January 20, 1997 ELECTRONIC FAB TECHNOLOGY CORP. STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS The Board of Directors (the "Board") of Electronic Fab Technology Corp., a Colorado Corporation (the "Company"), established the Electronic Fab Technology Corp. Stock Option Plan for Non-Employee Directors (the "Plan"), effective December 22, 1993. Section 5.2 of the Plan provides that the Board may amend the Plan from time to time. The Plan is hereby amended and restated, effective January 20, 1997, subject to shareholder approval (the "Effective Date"). PURPOSES The purposes of the Plan are to provide to certain directors of the Company who are not also employees of the Company added incentive to continue in the service of the Company and a more direct interest in the future success of the operations of the Company by granting to such directors options ("Options") to purchase shares of the common stock (the "Stock") of the Company upon the terms and conditions described below. ARTICLE I GENERAL 1.1 Definition. For purposes of the Plan and as used herein, a "non-employee director" is an individual who (a) is a member of the Board and (b) is not an employee of the Company. For purposes of the Plan, an employee is an individual whose wages are subject to the withholding of federal income tax under section 3401 of the Internal Revenue Code of 1986, as amended from time to time (the "Code"). A non-employee director to whom an Option is granted is referred to herein as a "Holder." 1.2 Nature of Options. The Options granted hereunder shall be options that do not satisfy the requirements of section 422 of the Code. ARTICLE II OPTIONS 2.1 Participation. Each non-employee director on the Effective Date and each non-employee director elected thereafter shall be eligible to receive Options to purchase Stock in accordance with Section 2.2 on the terms and conditions herein described. 2.2 Grant. (a) Grant. The Board, in its sole discretion, may grant Options to individual non-employee directors. The Board shall have full discretion as to the number and date of the grant of Options and may grant Options covering different numbers of shares of Stock to different directors. (b) Date of Grant. The date on which a non-employee director receives an Option hereunder is referred to as the date of grant of such Option. (c) Option Certificates. Each Option granted under the Plan shall be evidenced by a written stock option certificate (an "Option Certificate") issued in the name of the non-employee director to whom the Option is granted. The Option Certificate shall incorporate and conform to the terms and conditions set forth herein. 2.3 Terms. Options issued pursuant to the Plan shall have the following terms and conditions in addition to those set forth elsewhere herein: (a) Number. Each non-employee director shall receive under the Plan Options to purchase the number of shares of Stock determined by the Board, subject to adjustment as provided in Article III. Such grants shall be effective at the times specified in Section 2.2. (b) Price. The price at which each share of Stock covered by the Option may be purchased by each non-employee director shall be the Fair Market Value (as defined in Section 5.5) of the Stock on the date of grant, subject to adjustment as provided in Article III. (c) Duration of Options. The period within which each Option may be exercised shall expire ten years from the date the Option is granted (the "Option Period"), unless terminated sooner pursuant to subsection (d) below or fully exercised prior to the end of such period. (d) Termination of Service, Death, Etc. The Option shall terminate in the following circumstances if the Holder ceases to be a director of the Company: (i) If the Holder is removed as a director of the Company during the Option Period for cause, the Option shall be void thereafter for all purposes. (ii) If the Holder ceases to be a director of the Company on account of disability within the meaning of Section 22(e)(3) of the Code, the Option may be exercised by the Holder (or, in case of death thereafter, by the persons specified in Section 2.3(d)(iii)) within one year following the date on which the Holder ceased to be a director (if otherwise within the Option Period), but not thereafter. In any such case, the Option may be exercised as to all shares of Stock specified therein, notwithstanding Section 2.3(g). (iii) If the Holder dies during the Option Period while still serving as a director or within the three-month period referred to in Section 2.3(d)(iv) below, the Option may be exercised by those entitled to do so under the Holder's will or by the laws of descent and distribution within one year following the Holder's death (if otherwise within the Option Period), but not thereafter. In any such case, the Option may be exercised as to all shares of Stock specified therein, notwithstanding Section 2.3(g). (iv) If the Holder ceases to be a director within the Option Period for any reason other than removal for cause, disability or death, the Option may be exercised by the Holder within three months following the date of such termination (if otherwise within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date the Holder ceased to be a director. (e) Transferability, Exercisability. Each Option granted under the Plan shall not be transferable by a Holder other than by will or the laws of descent and distribution and shall be exercisable during the Holder's lifetime only by the Holder or, in the event of disability or incapacity, by the Holder's guardian or legal representative. Notwithstanding any other provision of the Plan, no Option may be exercised unless and until the Plan is approved by the shareholders of the Company in accordance with Section 5.4. (f) Exercise, Payments, Etc. (i) The method for exercising each Option granted shall be by delivery to the Company of written notice specifying the number of shares with respect to which the Option is exercised. The purchase of Stock pursuant to the Option shall take place at the principal office of the Company within thirty days following delivery of such notice, at which time the purchase price of the Stock shall be paid in full by any of the methods set forth in Section 2.3(f)(ii) or a combination thereof. If the purchase price is paid by means of a broker's loan transaction as described in clause(C) of Section 2.3(f)(ii), in whole or in part, the closing of the purchase of the Stock under the Option shall take place on the date on which, and only if, the sale of Stock upon which the broker's loan was based has been closed and settled, unless the Holder makes an irrevocable written election, at the time of exercise of the Option, to have the exercise treated as fully effective for all purposes upon receipt of the purchase price by the Company regardless of whether or not the sale of the Stock by the broker is closed and settled. A properly executed certificate or certificates representing the Stock shall be delivered to the Holder upon payment therefor. If Options on less than all shares evidenced by an Option Certificate are exercised, the Company shall deliver a new Option Certificate evidencing the Option on the remaining shares on delivery of the outstanding Option Certificate for the Option being exercised. (ii) The exercise price shall be paid by any of the following methods or any combination of such methods, at the option of the Holder: (A) cash; (B) certified, cashier's or other check acceptable to the Company, payable to the order of the Company; or (C) delivery to the Company of irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds required to pay the purchase price of the Stock; or (D) delivery to the Company of certificates representing the number of shares of Stock then owned by the Holder, the Fair Market Value of which (determined as of the date the notice of exercise is delivered to the Company) equals the price of the Stock to be purchased pursuant to the Option, properly endorsed for transfer to the Company. No Option may be exercised by delivery to the Company of certificates representing Stock that has been held by the Option Holder for less than six months or such other period as shall be sufficient for the Company to avoid, if possible, the recognition of expense with respect to the Option for accounting purposes. (g) Service Required for Exercise. Except as set forth in Sections 2.3(d), 4.3, 4.4 and 5.4, each Option shall become exercisable in increments after each month of continuous service by the Holder as a non-employee director of the Company commencing with the twelfth month of continuous service from the date of grant. The number of shares as to all or part of which the Option may be exercised after twelve months of continuous service as a non-employee director after the date of grant shall be 1/4 (12/48) of the total number of shares covered by the Option, with an additional 1/48 being exercisable after each additional month of continuous service as a non-employee director through the 48th month of continuous service. Except as set forth in Sections 2.3(d), 4.3 and 4.4, the Option shall not be exercisable as to any shares as to which the continuous service requirement has not been satisfied, regardless of the circumstances under which the Holder ceased to be a director. The number of shares as to which the Option may be exercised shall be cumulative, so that once the Option becomes exercisable as to any shares it shall continue to be exercisable as to those shares until expiration or termination of the Option as provided in the Plan. ARTICLE III AUTHORIZED STOCK 3.1 The Stock. The total number of shares of Stock as to which Options may be granted pursuant to the Plan shall be 160,000 in the aggregate. The number of shares of Stock authorized for grant hereunder shall be adjusted in accordance with the provisions of Section 3.2. Shares of Stock underlying expired or cancelled and unexercised Options shall again be available for grant under the Plan. The Company shall at all times reserve a sufficient number of shares of Stock, or otherwise assure itself of its ability to perform its obligations hereunder. 3.2 Adjustments for Stock Split, Stock Dividend, Etc. If the Company shall at any time increase or decrease the number of its outstanding Shares by means of payment of a stock dividend or any other distribution upon such Shares payable in Stock, or through a stock split, subdivision, consolidation, combination, reclassification or recapitalization involving the Stock, or change in any way the rights and privileges of such Shares, then the numbers, rights and privileges of the following shall be increased, decreased or changed in like manner as if the corresponding Shares had been issued and outstanding, fully paid and nonassessable at the time of such occurrence: (a) the Shares as to which Options may be granted under the Plan; and (b) the Shares then subject to each outstanding Option. Upon any occurrence described in this Section 3.2, the total Option Price under each then outstanding Option shall remain unchanged but shall be apportioned ratably over the increased or decreased number of Shares subject to the Option. 3.3 Adjustments for Certain Distributions of Property. If the Company shall at any time distribute with respect to its Stock assets or securities of other persons (excluding cash dividends or distributions payable out of capital surplus and dividends or other distributions referred to in Sections 3.2 or 3.4), then the Option Price of outstanding Options shall be adjusted to reflect the fair market value of the assets or securities distributed, the Company shall provide for the delivery upon exercise of such Options of cash in an amount equal to the fair market value of the assets or securities distributed or a combination of such actions shall be taken, all as determined by the Committee in its discretion. Fair market value of the assets or securities distributed for this purpose shall be as determined by the Committee. 3.4 Distributions of Capital Stock and Indebtedness. If the Company shall at any time distribute with respect to its Stock shares of its capital stock (other than Stock) or evidences of indebtedness, then a proportionate part of such capital stock and evidences of indebtedness shall be set aside for each outstanding Option and, upon the exercise of such Option, delivered to the Option Holder. 3.5 No Rights as Shareholder. An Option Holder shall have none of the rights of a shareholder with respect to the Shares subject to an Option until such Shares are transferred to the Option Holder upon the exercise of such Option. Except as provided in this Article III, no adjustment shall be made for dividends, rights or other property distributed to shareholders (whether ordinary or extraordinary) for which the record date is prior to the date such Shares are so transferred. 3.6 Fractional Shares. No adjustment or substitution provided for in this Article III shall require the Company to issue a fractional share. The total substitution or adjustment with respect to each Option shall be limited by deleting any fractional share. ARTICLE IV CORPORATE REORGANIZATION; CHANGE OF CONTROL 4.1 Reorganization. Upon the occurrence of any of the following events, if the notice required by Section 4.2 shall have first been given, the Plan and all Options then outstanding hereunder shall automatically terminate and be of no further force and effect whatsoever, without the necessity for any additional notice or other action by the Board or the Company: (a) the merger or consolidation of the Company with or into another corporation (other than a consolidation or merger in which the Company is the continuing corporation and which does not result in any reclassification or change of outstanding shares of Stock); or (b) the sale or conveyance of the property of the Company as an entirety or substantially as an entirety (other than a sale or conveyance in which the Company continues as a holding company of an entity or entities that conduct the business or businesses formerly conducted by the Company); or (c) the dissolution or liquidation of the Company. 4.2 Required Notice. At least 30 days' prior written notice of any event described in Section 4.1 shall be given by the Company to each Holder, unless in the case of the events described in clauses (a) or (b) of Section 4.1, the Company, or the successor or purchaser, as the case may be, shall make adequate provision for the assumption of the outstanding Options or the substitution of new options for the outstanding Options on terms comparable to the outstanding Options except that the Holder of each Option then outstanding shall have the right thereafter to purchase the kind and amount of shares of stock or other securities or property or cash receivable upon such merger, consolidation, sale or conveyance by a holder of the number of shares of Stock that would have been receivable upon exercise of the Option immediately prior to such merger, consolidation, sale or conveyance (assuming such holder of Stock failed to exercise any rights of election and received per share the kind and amount received per share by a majority of the non-electing shares). The provisions of this Article IV shall similarly apply to successive mergers, consolidations, sales or conveyances. Such notice shall be deemed to have been given when delivered personally to a Holder or when mailed to a Holder by registered or certified mail, postage prepaid, at such Holder's address last known to the Company. 4.3 Acceleration of Exercisability. Subject to Section 5.4, Holders notified in accordance with Section 4.2 may exercise their Options at any time before the occurrence of the event requiring the giving of notice (but subject to occurrence of such event), regardless of whether all conditions of exercise relating to length of service as a director have been satisfied. 4.4 Change of Control. If a Change in Control (as defined below) occurs, all Options shall become exercisable in full, regardless of whether all conditions of exercise relating to continuous service have been satisfied. A "Change in Control" is deemed to have occurred if (a) a person (as such term is used in Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange Act")) becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of shares of the Company or the Company's successor having 30% or more of the total number of votes that may be cast for the election of directors of the Company without the prior approval of at least a majority of the members of the Board unaffiliated with such person (unless such person beneficially owns shares with at least 15% of such votes on the Effective Date), or (b) individuals who constitute the directors of the Company at the beginning of a 24-month period cease to constitute at least two-thirds of all directors at any time during such period, unless the election of any new or replacement directors was approved by a vote of at least a majority of the members of the Board in office immediately prior to such period and of the new and replacement directors so approved. Notwithstanding anything to the contrary in this Section 4.4, no Option will become exercisable by virtue of the occurrence of a Change in Control if the Holder of that Option or any group of which that Holder is a member is the person whose acquisition constituted the Change in Control. ARTICLE V GENERAL PROVISIONS 5.1 Expiration. The Plan shall terminate whenever the Board adopts a resolution to that effect. After termination, no additional Options shall be granted under the Plan, but the Company shall continue to recognize Options previously granted. 5.2 Amendments, Etc. The Board may from time to time amend, modify, suspend or terminate the Plan. Nevertheless, no such amendment, modification, suspension or termination shall impair any Option theretofore granted under the Plan or deprive any Holder of any shares of Stock that he may have acquired through or as a result of the Plan without the consent of the Holder. The Company shall obtain the approval of shareholders to any amendment or modification of the Plan to the extent required by Rule 16b-3 under the Exchange Act ("Rule 16b-3") (or any successor applicable rule) or by the listing requirements of the National Association of Securities Dealers, Inc. or any stock exchange on which the Company's securities are quoted or listed for trading. 5.3 Treatment of Proceeds. Proceeds from the sale of Stock pursuant to Options granted under the Plan shall constitute general funds of the Company. 5.4 Effectiveness. This Plan shall be effective on the Effective Date, subject to approval by the shareholders of the Company in accordance with applicable law within 12 months before or after the Effective Date. If the shareholders of the Company do not approve the Plan as specified above, the Plan as in effect prior to this amendment and restatement shall remain in effect. 5.5 Fair Market Value. The "Fair Market Value" of a share of Stock shall be the last reported sale price of the Stock on the NASDAQ National Market System on the day the determination is to be made, or if no sale took place on such day, the average of the closing bid and asked prices of the Stock on the NASDAQ National Market System on such day, or if the market is closed on such day, the last day prior to the date of determination on which the market was open for the transaction of business, as reported by NASDAQ. If, however, the Stock should be listed or admitted for trading on a national securities exchange, the Fair Market Value of a share of the Stock shall be the last sales price, or if no sales took place, the average of the closing bid and asked prices on the day the determination is to be made, or if the market is closed on such day, the last day prior to the date of determination on which the market was open for the transaction of business, as reported in the principal consolidated transaction reporting system for the principal national securities exchange on which the Stock is listed or admitted for trading. If the Stock is not listed or traded on NASDAQ or on any national securities exchange, the Fair Market Value for purposes of the grant of Options under the Plan shall be determined by the Committee in good faith in its sole discretion. 5.6 Section Headings. The Section headings are included herein only for convenience, and they shall have no effect on the interpretation of the Plan. 5.7 Severability. If any article, section, subsection or specific provision is found to be illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of the Plan, and the Plan shall be construed and enforced as if such illegal and invalid provision had never been set forth in the Plan. 5.8 Rule 16b-3. This Plan is intended to comply with the requirements of Rule 16b-3 and any successor applicable rule so that grants under the Plan will not affect the status of non-employee directors as disinterested persons for purposes of Rule 16b-3 and that such grants will otherwise satisfy the requirements of Rule 16b-3. To the extent the Plan does not conform to such requirements, it shall be deemed amended to so conform without any further action on the part of the Board of Directors or shareholders. Amended and restated as of January 20, 1997. ELECTRONIC FAB TECHNOLOGY CORP. By: Jack Calderon President and Chief Executive Officer TABLE OF CONTENTS Page ARTICLE I - GENERAL 1 1.1 Definition 1 1.2 Nature of Options 1 ARTICLE II - OPTIONS 1 2.1 Participation 1 2.2 Grant 2 2.3 Terms 2 ARTICLE III - AUTHORIZED STOCK 4 3.1 The Stock 4 3.2 Adjustments for Stock Split, Stock Dividend, Etc. 4 3.3 Adjustments for Certain Distributions of Property 5 3.4 Distributions of Capital Stock and Indebtedness 5 3.5 No Rights as Shareholder 5 3.6 Fractional Shares 5 ARTICLE IV - CORPORATE REORGANIZATION; CHANGE OF CONTROL 5 4.1 Reorganization 5 4.2 Required Notice 6 4.3 Acceleration of Exercisability 6 4.4 Change of Control 6 ARTICLE V - GENERAL PROVISIONS 7 5.1 Expiration 7 5.2 Amendments, Etc. 7 5.3 Treatment of Proceeds 7 5.4 Effectiveness 7 5.5 Fair Market Value 7 5.6 Section Headings 7 5.7 Severability 8 5.8 Rule 16b-3 8 EX-10.5 4 PROMISSORY NOTE Principal $15,000,000.00 Loan Date 02-24-1997 Maturity 06-05-1998 Loan No Call collateral Account 2755863331 Officer 309 Initials References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item Borrower: ELECTRONIC FAB TECHNOLOGY CORP., COLORADO CORPORATION 7251 WEST 4TH STREET GREELEY, CO 80634 Lender: BANK ONE, COLORADO, N.A. DOWNTOWN GREELEY BANKING CENTER 2696 SOUTH COLORADO BLVD. DENVER, CO 80222 Principal Amount: $15,000,000.00 Initial Rate: 8.500% Date of Note: February 24, 1997 PROMISE TO PAY. ELECTRONIC FAB TECHNOLOGY CORP., A COLORADO CORPORATION ( Borrower ) promises to pay to BANK ONE, COLORADO, N.A. ( Lender ), or order, In lawful money of the United States of America, the principal amount of Fifteen Million & 00/100 Dollars ($15,000,000.00) or so much as may be outstanding, together with Interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance. PAYMENT. Borrower will pay this loan In one payment of all outstanding principal plus all accrued unpaid interest on June 5,1998. In addition, Borrower will pay regular monthly payments of accrued unpaid Interest beginning April 5, 1997, and all subsequent Interest payments are due on the same day of each month after that Interest on this Note is computed on a 365/360 simple interest basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Borrower will pay Lender at Lenders address shown above or at such other place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to accrued unpaid interest, then to principal, and any remaining amount to any unpaid collection costs and late charges. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an index which is the LENDER S PRIME RATE (the index). PRIME RATE IS THE LENDER S BASE LENDING RATE AS ANNOUNCED BY THE LENDER FROM TIME TO TIME AT ITS SOLE DISCRETION. AT ANY GIVEN TIME, THE LENDER MAY MAKE LOANS, AT, ABOVE, OR BELOW ITS PRIME RATE. Lender will tell Borrower the current Index rate upon Borrowers request. Borrower understands that Lender may make loans based on other rates as well. The interest rate change will not occur more often than each DAY. The Index currently Is 8250% per annum. The Interest rate to be applied to the unpaid principal balance of this Note will be at a rate of 0.250 percentage points over the Index, resulting In an Initial rate of 8.500% per annum. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. In any event, even upon full prepayment of this Note, Borrower understands that Lender is entitled to a minimum interest charge of $25.00. Other than Borrower s obligation to pay any minimum interest charge, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrowers obligation to continue to make payments of accrued unpaid interest. Rather, they will reduce the principal balance due. DEFAULT. Borrower will be in default if any of the following happens: (a) Borrower fails to make any payment when due. (b) Borrower breaks any promise Borrower has made to Lender, or Borrower fails to comply with or to perform when due any other term, obligation, covenant, or condition contained in this Note or any agreement related to this Note, or in any other agreement or loan Borrower has with Lender. (c) Borrower defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, In favor of any other creditor or person that may materially affect any of Borrower s property or Borrower s ability to repay this Note or perform Borrower s obligations under this Note or any of the Related Documents. (d) Any representation or statement made or furnished to Lender by Borrower or on Borrower s behalf is false or misleading in any material respect either now or at the time made or furnished. (e) Borrower becomes insolvent, a receiver is appointed for any part of Borrowers property, Borrower makes an assignment for the benefit of creditors, or any proceeding is commenced either by Borrower or against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries to take any of Borrowers property on or in which Lender has a lien or security interest. This includes a garnishment of any of Borrower s accounts with Lender. (g) Any guarantor dies or any of the other events described in this default section occurs with respect to any guarantor of this Note. (h) A material adverse change occurs in Borrowers financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired. LENDER S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance on this Note and all accrued unpaid interest immediately due, without notice, and then Borrower will pay that amount. Upon default, including failure to pay upon final maturity, Lender, at its option, may also, il permitted under applicable law, do one or both of the following: (a) increase the variable interest rate on this Note to 25.000% per annum, and (b) add any unpaid accrued interest to principal and such sum will bear interest therefrom until paid at the rate provided in this Note (including any increased rate). The interest rate will not exceed the maximum rate permitted by applicable law. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower also will pay Lender that amount. This includes, subject to any limits under applicable law, Lenders attorneys fees and Lender s legal expenses whether or not there is a lawsuit, including attorneys fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law. This Note has been delivered to Lender and accepted by Lender In the State of Colorado. It there Is a lawsuit, Borrower agrees upon Lender s request to submit to the jurisdiction of the courts of WELD County, the State of Colorado. Lender and Borrower hereby waive the right to any jury trial tn any action, proceeding, or counterclaim brought by either Lender or Borrower against the other. This Note shall be governed by and construed In accordance with the laws of the State of Colorado. RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrowers right, title and interest in and to, Borrowers accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on this Note against any and all such accounts. LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note, as well as directions for payment from Borrowers accounts, may be requested orally or In writing by Borrower or by an authorized person. Lender may, but need not, require that all oral requests be confirmed in writing. Borrower agrees to be liable for all sums either: (a) advanced in accordance with the instructions of an authorized person or (b) credited to any of Borrowers accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lenders internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (a) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note; (b) Borrower or any guarantor ceases doing business or is insolvent- (c) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor s guarantee of this Note or any other loan with Lender; or (d) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender. GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, protest and notice of dishonor. Upon any change in the terms of this Nob, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender s security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. 02-24-1997 PROMISSORY NOTE Page 2 Loan No (Continued) PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE. BORROWER: ELECTRONIC FAB TECHNOLOGY CORP., A COLORADO CORPORATION By: JACK CALDERON JACK CALDERON, PRESIDENT & CEO By: STUART W. FUHLENDORF STUART W. FUHLENDORF, CFO & TREASURER PROMISSORY NOTE Principal $4,900,000.00 Loan Date 02-24-1997 Maturity 05-24-1997 Loan No Call collateral Account 2755863331 Officer 309 Initials References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item Borrower: ELECTRONIC FAB TECHNOLOGY CORP., A COLORADO CORPORATION 7251 WEST 4TH STREET GREELEY, CO 80634 Lender: BANK ONE, COLORADO, N.A. DOWNTOWN GREELEY BANKING CENTER 2696 SOUTH COLORADO BLVD. DENVER, CO 80222 Principal Amount: $4,900,000.00 Initial Rate: 8.500% Date of Note: February 24, 1997 PROMISE TO PAY. ELECTRONIC FAB TECHNOLOGY CORP., A COLORADO CORPORATION ( Borrower ) promises to pay to BANK ONE, COLORADO, N.A. ( Lender ), or order, In lawful money of the United States of America, the principal amount of Four Million Nine Hundred Thousand & 00/100 Dollars ($4,900,000.00), together with Interest on the unpaid outstanding principal balance from February 24, 1997, until paid in full. PAYMENT. Borrower will pay this loan In one principal payment of $4,900,000.00 plus interest on May 24, 1997. This payment due May 24, 1997, will be for all principal and accrued interest not yet paid. Interest on this Note is computed on a 365/360 simple interest basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Borrower will pay Lender at Lenders address shown above or at such other place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to accrued unpaid interest, then to principal, and any remaining amount to any unpaid collection costs and late charges. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an index which is the LENDER S PRIME RATE (the index). PRIME RATE IS THE LENDER S BASE LENDING RATE AS ANNOUNCED BY THE LENDER FROM TIME TO TIME AT ITS SOLE DISCRETION. AT ANY GIVEN TIME, THE LENDER MAY MAKE LOANS, AT, ABOVE, OR BELOW ITS PRIME RATE. Lender will tell Borrower the current Index rate upon Borrowers request. Borrower understands that Lender may make loans based on other rates as well. The interest rate change will not occur more often than each DAY. The Index currently Is 8.250% per annum. The Interest rate to be applied to the unpaid principal balance of this Note will be at a rate of 0.250 percentage points over the Index, resulting In an Initial rate of 8.500% per annum. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full prepayment of this Note, Borrower understands that Lender is entitled to a minimum interest charge of $25.00. Other than Borrower s obligation to pay any minimum interest charge, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrowers obligation to continue to make payments under the payment schedule. Rather, they will reduce the principal balance due. DEFAULT. Borrower will be in default if any of the following happens: (a) Borrower fails to make any payment when due. (b) Borrower breaks any promise Borrower has made to Lender, or Borrower fails to comply with or to perform when due any other term, obligation, covenant, or condition contained in this Note or any agreement related to this Note, or in any other agreement or loan Borrower has with Lender. (c) Borrower defaults under any Ioan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, In favor of any other creditor or person that may materially affect any of Borrower s property or Borrower s ability to repay this Note or perform Borrower s obligations under this Note or any of the Related Documents. (d) Any representation or statement made or furnished to Lender by Borrower or on Borrower s behalf is false or misleading in any material respect either now or at the time made or furnished. (e) Borrower becomes insolvent, a receiver is appointed for any part of Borrowers property, Borrower makes an assignment for the benefit of creditors, or any proceeding is commenced either by Borrower or against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries to take any of Borrowers property on or in which Lender has a lien or security interest. This includes a garnishment of any of Borrower s accounts with Lender. (g) Any guarantor dies or any of the other events described in this default section occurs with respect to any guarantor of this Note. (h) A material adverse change occurs in Borrowers financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired. LENDER S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance on this Note and all accrued unpaid interest immediately due, without notice, and then Borrower will pay that amount. Upon default, including failure to pay upon final maturity, Lender, at its option, may also, il permitted under applicable law, do one or both of the following: (a) increase the variable interest rate on this Note to 25.000% per annum, and (b) add any unpaid accrued interest to principal and such sum will bear interest therefrom until paid at the rate provided in this Note (including any increased rate). The interest rate will not exceed the maximum rate permitted by applicable law. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower also will pay Lender that amount. This includes, subject to any limits under applicable law, Lenders attorneys fees and Lender s legal expenses whether or not there is a lawsuit, including attorneys fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated postjudgment collection services. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law. This Note has been delivered to Lender and accepted by Lender In the State of Colorado. If there Is a lawsuit, Borrower agrees upon Lender s request to submit to the jurisdiction of the courts of WELD County, the State of Colorado. Lender and Borrower hereby waive the right to any jury trial to any action, proceeding, or counterclaim brought by either Lender or Borrower against the other. This Note shall be governed by and construed In accordance with the laws of the State of Colorado. RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrowers right, title and interest in and to, Borrowers accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on this Note against any and all such accounts. GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, protest and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender s security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE. BORROWER: ELECTRONIC FAB TECHNOLOGY CORP., A COLORADO CORPORATION By: Jack Calderon JACK CALDERON, PRESIDENT & CEO By: Stuart W. Fuhlendorf STUART W. FUHLENDORF, CFO & TREASURER PROMISSORY NOTE Principal $1,800,000.00 Loan Date 02-24-1997 Maturity 04-05-2002 Loan No Call collateral Account 2755863331 Officer 309 Initials References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item Borrower: ELECTRONIC FAB TECHNOLOGY CORP., A COLORADO CORPORATION 7251 WEST 4TH STREET GREELEY, CO 80634 Lender: BANK ONE, COLORADO, N.A. DOWNTOWN GREELEY BANKING CENTER 2696 SOUTH COLORADO BLVD. DENVER, CO 80222 Principal Amount: $1,800,000.00 Initial Rate: 8.950% Date of Note: February 24, 1997 PROMISE TO PAY. ELECTRONIC FAB TECHNOLOGY CORP., A COLORADO CORPORATION ( Borrower ) promises to pay to BANK ONE, COLORADO, N.A. ( Lender ), or order, In lawful money of the United States of America, the principal amount of One Million Eight Hundred Thousand & 00/100 Dollars ($1,800,000.00), together with Interest on the unpaid outstanding principal balance from February 24, 1997, until paid in full. PAYMENT. Subject to any payment changes resulting from changes in the index, Borrower willpay this loan in 60 regualr payments of $36,983.00 each and one irregular last payment estimated at $41,346.99. Borrower's first payment is due April 5, 1997, and all subsequent payments are due on the same day of each month after that. Borrowr's final payment due April 5, 2002, will be for all principal and all accrued interest not yet paid. Payments include principal and interest. Interest on this Note is computed on a 365/360 simple interest basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Borrower will pay Lender at Lenders address shown above or at such other place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to accrued unpaid interest, then to principal, and any remaining amount to any unpaid collection costs and late charges. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an independent index which is the Weekly Average Yield on United States Treasury Securities adjusted to a constant maturity of (5) five years, as made available by the Federal Reserve Board (the "Index"). The Index is not necessarily the lowest rate charged by Lender on its loans. If the Index becomes unavailable during the term of this loand, Lender may designate a substitute index after notice to Borrower. Lender will tell Borrower the current Index rate upon Borrower's request. Borrower understands that Lender may make loans based on other rates as well. The interest rate change will not occur more often than each Five years. The Index currently is 6.200% per annum. The interest rate to be applied to the unpaid principal balance of this Note will be at a rate of 2.750 percentage points over the Index, resulting in an initial rate of 8.950% per annum. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. Whenever increases occur in the interest rate, Lender, at its option, may do one or more of the following: (a) increase Borrower's payments to ensure Borrower's loan will pay off by its original final maturity date, (b) increase Borrower's payments to cover accruing interest, (c) increase the number of Borrower's payments, and (d) continue Borrower's payments at the same amount and increase Borrower's final payment. PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment(whether voluntary or as a result of default), except as other wise required by law. In any event, even upon full prepayment of this Note, Borrower understands that Lender is entitled to a minimum interest charge of $25.00. Other than Borrower s obligation to pay any minimum interest charge, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrowers obligation to continue to make payments under the payment schedule. Rather, they will reduce the principal balance due and may result in Borrower making fewer payments. DEFAULT. Borrower will be in default if any of the following happens: (a) Borrower fails to make any payment when due. (b) Borrower breaks any promise Borrower has made to Lender, or Borrower fails to comply with or to perform when due any other term, obligation, covenant, or condition contained in this Note or any agreement related to this Note, or in any other agreement or loan Borrower has with Lender. (c) Borrower defaults under any Ioan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, In favor of any other creditor or person that may materially affect any of Borrower s property or Borrower s ability to repay this Note or perform Borrower s obligations under this Note or any of the Related Documents. (d) Any representation or statement made or furnished to Lender by Borrower or on Borrower s behalf is false or misleading in any material respect either now or at the time made or furnished. (e) Borrower becomes insolvent, a receiver is appointed for any part of Borrowers property, Borrower makes an assignment for the benefit of creditors, or any proceeding is commenced either by Borrower or against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries to take any of Borrowers property on or in which Lender has a lien or security interest. This includes a garnishment of any of Borrower s accounts with Lender. (g) Any guarantor dies or any of the other events described in this default section occurs with respect to any guarantor of this Note. (h) A material adverse change occurs in Borrowers financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired. LENDER S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance on this Note and all accrued unpaid interest immediately due, without notice, and then Borrower will pay that amount. Upon default, including failure to pay upon final maturity, Lender, at its option, may also, if permitted under applicable law, do one or both of the following: (a) increase the variable interest rate on this Note to 25.000% per annum, and (b) add any unpaid accrued interest to principal and such sum will bear interest therefrom until paid at the rate provided in this Note (including any increased rate). The interest rate will not exceed the maximum rate permitted by applicable law. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower also will pay Lender that amount. This includes, subject to any limits under applicable law, Lenders attorneys fees and Lender s legal expenses whether or not there is a lawsuit, including attorneys fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated postjudgment collection services. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law. This Note has been delivered to Lender and accepted by Lender In the State of Colorado. If there Is a lawsuit, Borrower agrees upon Lender s request to submit to the jurisdiction of the courts of WELD County, the State of Colorado. Lender and Borrower hereby waive the right to any jury trial to any action, proceeding, or counterclaim brought by either Lender or Borrower against the other. This Note shall be governed by and construed In accordance with the laws of the State of Colorado. RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrowers right, title and interest in and to, Borrowers accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on this Note against any and all such accounts. GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, protest and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender s security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE. BORROWER: ELECTRONIC FAB TECHNOLOGY CORP., A COLORADO CORPORATION By: Jack Calderon JACK CALDERON, PRESIDENT & CEO By: Stuart W. Fuhlendorf STUART W. FUHLENDORF, CFO & TREASURER COMMERCIAL SECURITY AGREEMENT Principal Loan date 02-24-1997 Maturity 05-24-1997 Loan No Call collateral Account 2755863331 Officer 309 Initials References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Borrower: ELECTRONIC FAB TECHNOLOGY CORP., A COLORADO CORPORATION 7251 WEST 4TH STREET GREELEY, CO 80634 Lender: BANK ONE, COLORADO, N.A. DOWNTOWN GREELEY BANKING CENTER 2696 SOUTH COLORADO BLVD. DENVER, CO 80222 Grantor: ELECTRONIC FAB TECHNOLOGY CORP., A COLORADO CORPORATION, CURRENT ELECTRONICS (WASHINGTON), INC., A WASHINGTON CORPORATION and CURRENT ELECTRONICS, INC., AN OREGON CORPORATION f/k/a CURRENT MERGER CORP. THIS COMMERCIAL SECURITY AGREEMENT 15 entered Into among ELECTRONIC FAB TECHNOLOGY CORP., A COLORADO CORPORATION (referred to below as "Borrower"); ELECTRONIC FAB TECHNOLOGY CORP., A COLORADO CORPORATION, CURRENT ELECTRONICS (WASHINGTON), INC., A WASHINGTON CORPORATION and CURRENT ELECTRONICS, INC., AN OREGON CORPORATION f/k/a CURRENT MERGER CORP. (referred to below Individually and collectively as "Grantor"); and BANK ONE, COLORADO, N.A. {referred to below as "Lender"). For valuable consideration, Grantor grants to Lender a security Interest In the Collateral to secure the Indebtedness and agrees that Lender shall have tho rights stated In this Agreement with respect to the Collateral, In addition to all other rights which Lender may have by law. DEFINITIONS. The following words shall have the following meanings when used In this Agreement. Terms not otherwise defined In this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. All references to dollar amounts shall mean amounts in lawful money of the United States of America. Agreement. The word "Agreement means this Commercial Security Agreement, as this Commercial Security Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Commercial Security Agreement from time to time. Borrower. The word "borrower" means each and every person or entity signing the Note, including without limitation ELECTRONIC FAB TECHNOLOGY CORP., A COLORADO CORPORATION. Collateral. The word "Collateral means the following described property of Grantor, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located: All Inventory, chattel paper, accounts, equipment, general Intangibles and fixtures, together with the following specifically described property: INCLUDING ALL CONTRACT RIGHTS In addition, the word "Collateral" includes all the following, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located: (a) All attachments, accessions, accessories, tools, parts, supplies, increases, and additions to and all replacements of and substitutions for any property described above. (b) All products and produce of any of the property described in this Collateral section. (c) All accounts, general intangibles, instruments, rents, monies, payments, and all other rights, arising out of a sale, lease, or other disposition of any of the property described in this Collateral section. (d) All proceeds (including insurance proceeds) from the sale, destruction, loss, or other disposition of any of the property described In this Collateral section. (e) All records and data relating to any of the property described in this Collateral section, whether in the form of a writing, photograph, microfilm, microfiche, or electronic media, together with all of Grantor's right, title, and Interest in and to all computer software required to utilize, create, maintain, and process any such records or data on electronic media. Fixtures are and will be located on the following described real estate: SEE THE ATTACHED EXHIBIT "B" FOR COMPLETE LEGAL DESCRIPTION OF FIXTURES. The record owners of the real property are HEWITSON 1 PROPERTIES, INC., HHH PROPERTIES, INC. and D & D SCHMITZ INVESTMENTS, INC.,, Event of Default. The words event of Default" mean and include without limitation any of the Events of Default set forth below in the section titled events of Default." Grantor. The word "Grantor" means ELECTRONIC FAB TECHNOLOGY CORP., A COLORADO CORPORATION, CURRENT ELECTRONICS (WASHINGTON), INC., A WASHINGTON CORPORATION and CURRENT ELECTRONICS, INC., AN OREGON CORPORATION f/k\a CURRENT MERGER CORP.. Any Grantor who signs this Agreement, but does not sign the Note, is signing this Agreement only to grant a security interest in Grantor's Interest in the Collateral to Lender and is not personally liable under the Note except as otherwise provided by contract or law (e.g., personal liability under a guaranty or as a surety). Guarantor. The word wGuarantor" means and includes without limitation each and all of the guarantors, sureties, and accommodation parties in connection with the Indebtedness Indebtedness. The word lndebtedness" means the indebtedness evidenced by the Note, including all principal and interest, together with all other indebtedness and costs and expenses for which Grantor or Borrower is responsible under this Agreement or under any of the Related Documents. In addition, the word "Indebtedness" includes all other obligations, debts and liabilities, plus interest thereon, of Borrower, w any one or more of them, to Lender, as well as all claims by Lender against Borrower, or any one or more of them, whether existing now or later; whether they are voluntary or involuntary, due or not due, direct or indirect, absolute or contingent, liquidated or unliquidated; whether Borrower may be liable Individually or Jointly with others; whether Borrower may be obligated as guarantor, surety accommodation party or otherwise whether recovery upon such indebtedness may be or hereafter may become barred by any statute of limitations; and whether such indebtedness may be or hereafter may become otherwise unenforceable. Lender. The word "lender" means BANK ONE, COLORADO, NA., its successors and assigns. Note. The word "Note" means the note or credit agreement dated February 24, 1997, In the principal amount of $4,900,000.00 from Borrower to Lender, together with all renewals of, extensions of, modifications of, refinancing of, consolidations of and substitutions for the nob or credit agreement. Related Documents. The words rRelated Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, and all other Instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness. BORROWER'S WAIVERS AND RESPONSIBILITIES. Except as otherwise required under this Agreement or by applicable law, (a) Borrower agrees that Lender need not tell Borrower about any action or inaction Lender takes In connection with this Agreement; (b) Borrower assumes the responsibility for being and keeping Informed about the Collateral; and (c) Borrower waives any defenses that may arise because of any action or inaction of Lender, including without limitation any failure of Lender to realize upon the Collateral or any delay by Lender in realizing upon the Collateral; and Borrower agrees to remain liable under the Note no matter what action Lender takes or fails to take under this Agreement. GRANTOR'S REPRESENTATIONS AND WARRANTIES. Grantor warrants that: (a) this Agreement is executed at Borrower's request and not at the request of Lender; (b) Grantor has the full right, power and authority to enter into this Agreement and to pledge the Collateral to Lender; (c) Grantor has established adequate means of obtaining from Borrower on a continuing basis Information about Borrower's financial condition; and (d) Lender has made no representation to Grant about Borrower or Borrower's creditworthiness. GRANTOR'S WAIVERS. Grantor waives all requirements of presentment, protest, demand, and notice of dishonor or non-payment to Grantor Borrower, or any other party to the Indebtedness or the Collateral. Lender may do any of the following with respect to any obligation of any Borrower without first obtaining the consent of Grantor: (a) grant any extension of time for any payment, (b) grant any renewal, (c) permit any modification of payment terms or other terms, or (d) exchange or release any Collateral or other security. No such act or failure to act shall affect Lender's rights against Grantor or the Collateral. 02-24-1997 COMMERCIAL SECURITY AGREEMENT Page 2 Loan No (Continued) If now or hereafter (a) Borrower shall be or become insolvent, and (b) the Indebtedness shall not at all times until paid be fully secured by collateral pledged by Borrower, Grantor hereby forever waives and relinquishes in favor of Lender and Borrower, and their respective successors, any claim or right to payment Grantor may now have or hereafter have or acquire against Borrower, by subrogation or otherwise, so that at no time shall Grantor be or become a creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any successor provision of the Federal bankruptcy laws. RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory security interest in and hereby assigns, conveys, delivers, pledges, and transfers all of Grantor s right, title and interest in and to Grantor s accounts with Lender (whether checking, savings, or some other account), including all accounts held jointly with someone else and all accounts Grantor may open in the future, excluding, however, all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Grantor authorizes Lender, to the extent permitted by applicable law, to charge or setoff all Indebtedness against any and all such accounts. OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows: Perfection of Security Interest. Grantor agrees to execute such financing statements and to take whatever other actions are requested by Lender to perfect and continue Lenders security interest In the Collateral. Upon request of Lender, Grantor will deliver to Lender any and all of the documents evidencing or constituting the Collateral, and Grantor will note Lenders interest upon any and all chattel paper if not delivered to Lender for possession by Lender. Grantor hereby appoints Lender as its irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect or to continue the security interest granted in this Agreement. Lender may at any time, and without further authorization from Grantor, file a carbon, photographic or other reproduction of any financing statement or of this Agreement for use as a financing statement. Grantor will reimburse Lender for all expenses for the perfection and the continuation of the perfection of Lender s security interest In the Collateral. Grantor promptly will notify Lender before any change in Grantors name including any change to the assumed business names of Grantor. This Is a continuing Security Agreement and will continue In effect even though all or any part of the Indebtedness Is paid In full and even though for a period of time Borrower may not be Indebted to Lender. No Violation. The execution and delivery of this Agreement will not violate any law or agreement governing Grantor or to which Grantor is a party, and its articles or agreements relating to entity incorporation, organization or existence do not prohibit any term or condition of this Agreement. Enforceability of Collateral. To the extent the Collateral consists of accounts, chattel paper, or general intangibles, the Collateral is enforceable in accordance with its terms, is genuine, and complies with applicable laws concerning form, content and manner of preparation and execution, and all persons appearing to be obligated on the Collateral have authority and capacity to contract and are in fact obligated as they appear to be on the Collateral. At the time any account becomes subject to a security interest in favor of Lender, the account shall be a good and valid account representing an undisputed, bona fide indebtedness incurred by the account debtor, for merchandise held subject to delivery instructions or theretofore shipped or delivered pursuant to a contract of sale, or for services theretofore performed by Grantor with or for the account debtor; there shall be no setoffs or counterclaims against any such account; and no agreement under which any deductions or discounts may be claimed shall have been made with the account debtor except those disclosed to Lender in writing. Location of the Collateral. Grantor, upon request of Lender, will deliver to Lender in form satisfactory to Lender a schedule of real properties and Collateral locations relating to Grantors operations, including without limitation the following: (a) all real property owned or being purchased by Grantor; (b) all real property being rented or leased by Grantor; (c) all storage facilities owned, rented, leased, or being used by Grantor; and (d) all other properties where Collateral is or may be located. Except in the ordinary course of its business, Grantor shall not remove the Collateral from its existing locations without the prior written consent of Lender. Removal of Collateral. Grantor shall keep the Collateral (or to the extent the Collateral consists of intangible property such as accounts the records concerning the Collateral) at Grantor s address shown above, or at such other locations as are acceptable to Lender. Some or all of the Collateral may be located at the real property described above. Except in the ordinary course of its business, including the sales of inventory, Grantor shall not remove the Collateral from its existing locations without the prior written consent of Lender. To the extent that the Collateral consists of vehicles, or other titled property, Grantor shall not take or permit any action which would require application for certificates of title for the vehicles outside the State of Colorado, without the prior written consent of Lender. Transactions Involving Collateral. Except for inventory sold or accounts collected in the ordinary course of Grantor s business, Grantor shall not sell, offer to sell, or otherwise transfer or dispose of the Collateral. While Grantor Is not in default under this Agreement, Grantor may sell inventory, but only in the ordinary course of its business and only to buyers who qualify as a buyer in the ordinary course of business. A sale in the ordinary course of Grantors business does not include a transfer in partial or total satisfaction of a debt or any bulk sale. Grantor shall not pledge, mortgage, encumber or otherwise permit the Collateral to be subject to any lien, security Interest, encumbrance, or charge, other than the security interest provided for in this Agreement, without the prior written consent of Lender. This includes security interests even If Junior in right to the security interests granted under this Agreement. Unless waived by Lender, all proceeds from any disposition of the Collateral (for whatever reason) shall be held in trust for Lender and shall not be commingled with any other funds; provided however, this requirement shall not constitute consent by Lender to any sale or other disposition. Upon receipt, Grantor shall immediately deliver any such proceeds to Lender. Title. Grantor represents and warrants to Lender that it holds good and marketable title to the Collateral, free and clear of all liens and encumbrances except for the lien of this Agreement. No financing statement covering any of the Collateral is on file in any public office other than those which reflect the security Interest created by this Agreement or to which Lender has specifically consented. Grantor shall defend Lender s rights in the Collateral against the claims and demands of all other persons. Collateral Schedules and Locations. As often as Lender shall require, and insofar as the Collateral consists of accounts and general intangibles, Grantor shall deliver to Lender schedules of such Collateral, including such Information as Lender may require, including without limitation names and addresses of account debtors and agings of accounts and general intangibles. Insofar as the Collateral consists of inventory and equipment, Grantor shall deliver to Lender, as often as Lender shall require, such lists, descriptions, and designations of such Collateral as Lender may require to identify the nature, extent, and location of such Collateral. Such information shall be submitted for Grantor and each of its subsidiaries or related companies. Maintenance and Inspection of Collateral. Grantor shall maintain all tangible Collateral in good condition and repair. Grantor will not commit or permit damage to or destruction of the Collateral or any part of the Collateral. Lender and its designated representatives and agents shall have the right at all reasonable times to examine, inspect, and audit the Collateral wherever located. Grantor shall immediately notify Lender of all cases involving the return, rejection, repossession, loss or damage of or to any Collateral; of any request for credit or adjustment or of any other dispute arising with respect to the Collateral; and generally of all happenings and events affecting the Collateral or the value or the amount of the Collateral. Taxes, Assessments and Liens. Grantor will pay when due all taxes, assessments and liens upon the Collateral, its use or operation, upon this Agreement, upon any promissory note or notes evidencing the Indebtedness, or upon any of the other Related Documents. Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender s interest in the Collateral is not Jeopardized in Lenders sole opinion. If the Collateral is subjected to a lien which is not discharged within fifteen (15) days, Grantor shall deposit with Lender cash, a sufficient corporate surety bond or other security satisfactory to Lender in an amount adequate to provide for the discharge of the lien plus any interest, costs, attorneys fees or other charges that could accrue as a result of foreclosure or sale of the Collateral. In any contest Grantor shall defend itself and Lender and shall satisfy any final adverse Judgment before enforcement against the Collateral. Grantor shall name Lender as an additional obligee under any surety bond furnished in the contest proceedings. Compliance With Governmental Requirements. Grantor shall comply promptly with all laws, ordinances, rules and regulations of all governmental authorities, now or hereafter in effect, applicable to the ownership, production, disposition, or use of the Collateral. Grantor may contest In good faith any such law, ordinance or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Lenders Interest in the Collateral, in Lenders opinion, is not jeopardized. Hazardous Substances. Grantor represents and warrants that the Collateral never has been, and never will be so long as this Agreement remains a lien on the Collateral, used for the generation, manufacture, storage, transportation, treatment, disposal, release or threatened release of any hazardous waste or substance, as those terms are defined in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No 90-499 ( SARA ), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or Federal laws, rules, or regulations adopted pursuant to any of the foregoing. The terms "hazardous waste" and "hazardous substance" shall also include, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos. The representations and warranties contained herein are based on Grantors due diligence in investigating the Collateral for hazardous wastes and substances. Grantor hereby (a) releases and waives any future claims against Lender for indemnity or contribution in the event Grantor becomes liable for cleanup or other costs under any such laws, and (b) agrees to indemnify and hold harmless Lender against any and alt claims and losses resulting from a breach of this provision of this Agreement. This obligation to indemnify shall survive the payment of the Indebtedness and the satisfaction of this Agreement. Maintenance of Casualty Insurance. Grantor shall procure and maintain all risks insurance, including without limitation fire, theft and liability coverage together with such other Insurance as Lender may require with respect to the Collateral, In form, amounts, coverages and basis reasonably acceptable to Lender and issued by a company or companies reasonably acceptable to Lender. Grantor, upon request of Lender,02-24-1997 COMMERCIAL SECURITY AGREEMENT Page 3 Loan No (Continued) will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, Including stipulations that coverages will not be cancelled or diminished without at least ten (10) days' prior written notice to Lender and not including any disclaimer of the insurer's liability for failure to give such a notice. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Grantor or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest, Grantor will provide Lender with such loss payable or other endorsements as Lender may require. If Grantor at any time fails to obtain or maintain any insurance as required under this Agreement, Lender may (but shall not be obligated to) obtain such insurance as Lender deems appropriate, including if it so chooses "single interest insurance," which will cover only Lender's interest in the Collateral. Application of Insurance Proceeds. Grantor shall promptly notify Lender of any loss or damage to the Collateral. Lender may make proof of loss if Grantor fails to do so within fifteen (15) days of the casualty. All proceeds of any insurance on the Collateral, including accrued proceeds thereon, shall be held by Lender as part of the Collateral. It Lender consents to repair or replacement of the damaged or destroyed Collateral, Lender shall, upon satisfactory proof of expenditure, pay or reimburse Grantor from the proceeds for the reasonable cost of repair or restoration. If Lender does not consent to repair or replacement of the Collateral, Lender shall retain a sufficient amount of the proceeds to pay all of the Indebtedness, and shall pay the balance to Grantor. Any proceeds which have not been disbursed within six (6) months after their receipt and which Grantor has not committed to the repair or restoration of the Collateral shall be used to prepay the Indebtedness. Insurance Reserves. Lender may require Grantor to maintain with Lender reserves for payment of insurance premiums, which reserves shall be created by monthly payments from Grantor of a sum estimated by Lender to be sufficient to produce, at least fifteen (15) days before the premium due date, amounts at least equal to the insurance premiums to be paid. If fifteen (15) days before payment is due, the reserve funds are insufficient, Grantor shall upon demand pay any deficiency to Lender. The reserve funds shall be held by Lender as a general deposit and shall constitute a noninterest-bearing account which Lender may satisfy by payment of the insurance premiums required to be paid by Grantor as they become due. Lender does not hold the reserve funds in trust for Grantor, and Lender is not the agent of Grantor for payment of the insurance premiums required to be paid by Grantor. The responsibility for the payment of premiums shall remain Grantor's sole responsibility. Insurance Reports. Grantor, upon request of Lender, shall furnish to Lender reports on each existing policy of insurance showing such information as Lender may reasonably request including the following: (a) the name of the insurer; (b) the risks Insured; (c) the amount of the policy, (d) the property insured, (e) the then current value on the basis of which insurance has been obtained and the manner of determining that value; and (f) the expiration date of the policy. In addition, Grantor shall upon request by Lender (however not more often than annually) have an independent appraiser satisfactory to Lender determine, as applicable, the cash value or replacement cost of the Collateral. GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except as otherwise provided below with respect to accounts, Grantor may have possession of the tangible personal property and beneficial use of all the Collateral and may use it in any lawful manner not inconsistent with this Agreement or the Related Documents, provided that Grantor's right to possession and beneficial use shall not apply to any Collateral where possession of the Collateral by Lender is required by law to perfect Lender's security interest in such Collateral. Until otherwise notified by Lender, Grantor may collect any of the Collateral consisting of accounts. At any time and even though no Event of Default exists, Lender may exercise its rights to collect the accounts and to notify account debtors to make payments directly to Lender for application to the Indebtedness. If Lender at any time has possession of any Collateral. whether before or after an Event of Default, Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral if Lender takes such action for that purpose as Grantor shall request or as Lender, in Lender's sole discretion, shall deem appropriate under the circumstances, but failure to honor any request by Grantor shall not of Itself be deemed to be a failure to exercise reasonable care. Lender shall not be required to take any steps necessary to preserve any rights in the Collateral against prior parties, nor to protect, preserve or maintain any security interest given to secure the Indebtedness. EXPENDITURES BY LENDER. if not discharged or paid when due, Lender may (but shall not be obligated to) discharge or pay any amounts required to be discharged or paid by Grantor under this Agreement, including without limitation all taxes, liens, security interests, encumbrances, and other claims, at any time levied or placed on the Collateral. Lender also may (but shall not be obligated to) pay all costs for insuring, maintaining and preserving the Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Grantor. All such expenses shall become a part of the Indebtedness and at Lender's option, will (a) be payable on demand, (b) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (i) the term of any applicable insurance policy or (ii) the remaining term of the Note, or (c) be treated as a balloon payment which will be due and payable at the Note's maturity. This Agreement also will secure payment of these amounts. Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon the occurrence of an Event of Default. EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: Default on Indebtedness. Failure of Borrower to make any payment when due on the Indebtedness. Other Defaults. Failure of Grantor or Borrower to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or failure of Borrower to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower. Default In Favor of Third Parties. Should Borrower or any Grantor default under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents. False Statements. Any warranty, representation or statement made or furnished to Lender by or on behalf of Grantor or Borrower under this Agreement, the Note or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished. Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral documents to create a valid and perfected security interest or lien) at any time and for any reason. Insolvency. The dissolution or termination of Grantor or Borrower's existence as a going business, the insolvency of Grantor or Borrower, the appointment of a receiver for any part of Grantor or Borrower's properly, any assignment for the benefit of creditors, any type of creditor workout or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Grantor or Borrower. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding self-help repossession or any other method, by any creditor of Grantor or Borrower or by any governmental agency against the Collateral or any other collateral securing the Indebtedness. This includes a garnishment of any of Grantor or Borrower's deposit accounts with Lender. Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or such Guarantor dies or becomes incompetent. Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired. RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this Agreement, at any time thereafter, Lender shall have all the rights of a secured party under the Colorado Uniform Commercial Code. In addition and without limitation, Lender may exercise any one or more of the following rights and remedies: Accelerate Indebtedness. Lender may declare the entire Indebtedness, including any prepayment penalty which Borrower would be required to pay, Immediately due and payable, without notice. Assemble Collateral. Lender may require Grantor to deliver to Lender all or any portion of the Collateral and any and all certificates of title and other documents relating to the Collateral. Lender may require Grantor to assemble the Collateral and make it available to Lender at a place to be designated by Lender. Lender also shall have full power to enter upon the property of Grantor to take possession of and remove the Collateral. If the Collateral contains other goods not covered by this Agreement at the time of repossession, Grantor agrees Lender may take such other goods, provided that Lender makes reasonable efforts to return them to Grantor after repossession. Sell the Collateral. Lender shall have full power to sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof in its own name or that of Grantor. Lender may sell the Collateral at public auction or private sale. Unless the Collateral threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender will give Grantor reasonable notice of the time after which any private sale or any other Intended disposition of the Collateral is to be made. The requirements of reasonable notice shall be met If such notice is given at least ten (10) days before the time of the sale or disposition. All expenses relating to the disposition of the Collateral, including without limitation the expenses of retaking, holding, insuring, preparing for sale and selling the Collateral, shall become a part of the Indebtedness secured by this Agreement and shall be payable on demand, with Interest at the Note rate from date of expenditure until repaid. Appoint Receiver. To the extent permitted by applicable law, Lender shall have the following rights and remedies regarding the appointment of a receiver: (a) Lender may haw a receiver appointed as a maker of right, (b) the receiver may be an employee of Lender and may serve without bond, and (c) all fees of the receiver and his or her attorney shall become part of the Indebtedness secured by this Agreement and shall be payable on demand, with interest at the Note rate from date of expenditure until repaid. The receiver may be appointed by a court of competent jurisdiction upon ex parte application and without notice, notice being expressly waived. 02-24-1997 COMMERCIAL SECURITY AGREEMENT Loan No (Continued) Page 4 Collect Revenues Apply Accounts. Lender either itself or through a receiver may collect the payments rents income and revenues from the Collateral. Lender may at any time in its discretion transfer any Collateral into its own name or that of its nominee and receive the payments rents income and revenues therefrom and hold the same as security for the Indebtedness or apply it to payment of the Indebtedness in such order of preference as Lender may determine. Insofar as the Collateral consists of accounts general intangibles insurance policies instruments chattel paper choses in action or similar property Lender may demand collect receipt for settle compromise adjust sue for foreclose or realize on the Collateral as Lender may determine whether or not Indebtedness or Collateral is then due. For these purposes Lender may on behalf of and in the name of Grantor receive open and dispose of mail addressed to Grantor- change any address to which mail and payments are to be sent; and endorse notes checks drafts money orders documents of title instruments and items pertaining to payment shipment or storage of any Collateral. To facilitate collection Lender may notify account debtors and obligors on any Collateral to make payments directly to Lender. Obtain Deficiency. If Lender chooses to sell any or all of the Collateral Lender may obtain a Judgment against Borrower for any deficiency remaining on the Indebtedness due to Lender after application of all amounts received from the exercise of the rights provided in this Agreement Borrower shall be liable for a deficiency even if the transaction described In this subsection is a sale of accounts or chattel paper. Other Rights and Remedies. Lender shall have all the rights and remedies of a secured creditor under the provisions of the Uniform Commercial Code as may be amended from time to time. tn addition Lender shall have and may exercise any or all other rights and remedies it may have available at law in equity or otherwise. Cumulative Remedies. All of Lenders rights and remedies whether evidenced by this Agreement or the Related Documents or by any other writing shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy and an election to make expenditures or to take action to perform an obligation of Grantor or Borrower under this Agreement after Grantor or Borrower s failure to perform shall not affect Lender s right to declare a default and to exercise its remedies. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement: Amendments. This Agreement together with any Related Documents constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. Applicable Law. This Agreement has been delivered to Lender and accepted by Lender in the State of Colorado. If there is a lawsuit Grantor and Borrower agree upon Lender s request to submit to the Jurisdiction of the courts of the State of Colorado. Lender Grantor and Borrower hereby waive the right to any Jury trial in any action proceeding or counterclaim brought by either Lender Grantor or Borrower against the other This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado. Attorneys Fees; Expenses. Grantor and Borrower agree to pay upon demand all of Lenders costs and expenses including attorneys fees and Lenders legal expenses incurred in connection with the enforcement of this Agreement. Lender may pay someone else to help enforce this Agreement and Grantor and Borrower shall pay the costs and expenses of such enforcement. Costs and expenses include Lender s attorneys fees and legal expenses whether or not there is a lawsuit including attorneys fees and legal expenses for bankruptcy proceedings (and including efforts to modify or vacate any automatic stay or injunction) appeals and any anticipated post-Judgment collection services. Grantor and Borrower also shall pay all court costs and such additional fees as may be directed by the court. Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. Multiple Parties; Corporate Authority. All obligations of Grantor and Borrower under This Agreement shall be Joint and several and all references lo Borrower shall mean each and every Borrower and all references to Grantor shall mean each and every Grantor. This means that each of the Borrowers signing below is responsible for all obligations in this Agreement. Notices. All notices required to be given under this Agreement shall be given in writing may be sent by telefacsimilie and shall be effective when actually delivered or when deposited with a nationally recognized overnight courier or deposited in the United States mail flrst class postage prepaid addressed to the party to whom the notice is to be given at The address shown above. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties specifying that the purpose of the notice is to change the partys address. To the extent permitted by applicable law if there is more than one Grantor or Borrower notice to any Grantor or Borrower will constitute notice to all Grantor and Borrowers. For notice purposes Grantor and Borrower will keep Lender informed at all times of Grantor and Borrower s current address(es). Power of Attorney. Grantor hereby appoints Lender as its true and lawful attorney-in-fact Irrevocably with full power of substitution to do the following: (a) to demand collect receive receipt for sue and recover all sums of money or other property which may now or hereafter become due owing or payable from the Collateral; (b) to execute sign and endorse any and all claims instruments receipts checks drafts or warrants issued in payment for the Collateral; (c) to settle or compromise any and all claims arising under the Collateral and in the place and stead of Grantor to execute and deliver its release and settlement for the claim; and (d) to file any claim or claims or to take any action or institute or take part in any proceedings either in its own name or in the name of Grantor or otherwise which In the discretion of Lender may seem to be necessary or advisable. This power is given as security for the Indebtedness and the authority hereby conferred is and shall be irrevocable and shall remain in full force and effect until renounced by Lender. Severability. If a court of competent Jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance such finding shall not render that provision Invalid or unenforceable as to any other persons or circumstances. If feasible any such offending provision shall be deemed to be modified to be within the limits of enforceability or validity; however if the offending provision cannot be so modified it shall be stricken and all other provisions of this Agreement in all other respects shall remain valid and enforceable. Successor Interests. subject to the limitations set forth above on transfer of the Collateral this Agreement shall be binding upon and inure to the benefit of the parties their successors and assigns. Waiver. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender s right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender nor any course of dealing between Lender and Grantor shall constitute a waiver of any of Lenders rights or of any of Grantors obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender. EXHIBIT B . An exhibit titled exhibit B is attached to this Agreement and by this reference is made a part of this Agreement Just as if all the provisions terms and conditions of the Exhibit had been fully set forth in this Agreement. 02-24 1997 COMMERCIAL SECURITY AGREEMENT Page 5 Loan No (Continued) BORROWER AND GRANTOR ACKNOWLEDGE HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT, AND BORROWER AND GRANTOR AGREE TO ITS TERMS. THIS AGREEMENT IS DATED FEBRUARY 24,1997. BORROWER: ELECTRONIC FAB TECHNOLOGY CORP., A COLORADO CORPORATION By: Jack Calderon JACK CALDERON, PRESIDENT & CEO By: Stuart W. Fuhlendorf STUART W. FUHLENDORF, CFO & TREASURER GRANTOR: ELECTRONIC FAB TECHNOLOGY CORP., A COLORADO CORPORATION By: Jack Calderon JACK CALDERON, PRESIDENT & CEO By: Stuart W. Fuhlendorf STUART W. FUHLENDORF, CFO & TREASURER CURRENT ELECTRONICS (WASHINGTON), INC., A WASHINGTON CORPORATION By: Jack Calderon JACK CALDERON, PRESIDENT & CEO By: Stuart W. Fuhlendorf STUART W. FUHLENDORF, VICE PRESIDENT CURRENT ELECTRONICS AN OREGON CORPORATION f/k/a CURRENT MERGER CORP. By: Jack Calderon JACK CALDERON, PRESIDENT & CEO By: Stuart W. Fuhlendorf STUART W. FUHLENDORF, VICE PRESIDENT EXHIBIT "B" Principal $ Loan Date 02-24-1997 Maturity 05-24-1997 Loan No Call Collateral Account 2755863331 Officer 309 Initials References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Borrower: ELECTRONIC FAB TECHNOLOGY CORP., A COLORADO CORPORATION 7251 WEST 4TH STREET GREELEY, CO 80634 Lender: BANK ONE, COLORADO, N.A. DOWNTOWN GREELEY BANKING CENTER 2696 SOUTH COLORADO BLVD. DENVER, CO 80222 This EXHIBIT "B" Is attached to and by this reference Is made a part of each Security Agreement, dated February 24,1997, and executed In connection with a loan or other financial accommodations between BANK ONE, COLORADO, N.A. and ELECTRONIC FAB TECHNOLOGY CORP., A COLORADO CORPORATION. ADDRESS OF LOCATION LEGAL PROPERTY DESCRIPTION 1) 101 N. ELLIOTT LOT 7, BLOCK 1, FLIGHTWAY INDUSTRIAL PARK NEWBERG, OREGON 97132 TO THE CITY OF NEWBERG, YAMHILL COUNTY, OREGON 2) 120 S. ELLIOTT LOT 6, BLOCK 2, FLIGHTWAY INDUSTRIAL PARK NEWBERG, OR 97132 TO THE CITY OF NEWBERG, YAMHILL COUNTY, OREGON 3) 125 S. ELLIOTT LOT 9, BLOCK 1, FLIGHTWAY INDUSTRIAL PARK NEWBERG, OR 97132 TO THE CITY OF NEWBERG, YAMHILL COUNTY, OREGON 4) 115 S. ELLIOTT LOT 8, BLOCK 1, FLIGHTWAY INDUSTRIAL PARK NEWBERG, OR 97132 TO THE CITY OF NEWBERG, YAMHILL COUNTY, OREGON 5) 7966 ANDREWS STREET NE MOSES LAKE, WA 98837 THIS EXHIBIT "B" IS EXECUTED ON FEBRUARY 24, 1997. X Jack Calderon X Stuart W. Fuhlendorf LENDER: BANK ONE, COLORADO, N.A. By: Sam Leeper Authorized Officer LASEP. PR0, Reg. U.S. Pat. S T.M. Olt., Ver. 3.22b (c) 1997 CFI ProServices, Iric. All rights reserved. {CO-a80 F3.22 ELE2_KB2.LN C3.0VL BUSINESS LOAN AGREEMENT Principal $ Loan Date 02-24-1997 Maturity 06-05-1998 Loan No Call Collateral Account 2755863331 Officer 309 Initials References in the shaded area are For Lender's use only and do not limit the applicability of this document to any particular loan or Item. Borrower: ELECTRONIC FAB TECHNOLOGY CORP., A COLORADO CORPORATION 7251 WEST 4TH STREET GREELEY, CO 80634 Lender: BANK ONE, COLORADO, N.A. DOWNTOWN GREELEY BANKING CENTER 2696 SOUTH COLORADO BLVD. DENVER, CO 80222 THIS BUSINESS LOAN AGREEMENT between ELECTRONIC FAB TECHNOLOGY CORP., A COLORADO CORPORATION ( Borrower ) and BANK ONE, COLORADO, N.A. ("Lender) Is made and executed on the following terms and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender tor a commercial loan or loans and other financial accommodations, Including those which may be described on any exhibit or schedule attached to this Agreement. All such loans and financial accommodations, together with all future loans and financial accommodations from Lender lo Borrower, are referred to In this Agreement Individually as the Loan and collectively as the Loans. Borrower understands and agrees that: (a) In granting, renewing, or extending any Loan, Lender Is relying upon Borrower s representations, warranties, and agreements, as sel forth In this Agreement; (b) the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender s sole judgment and discretion; and (c) all such Loans shall be and shall remain subject to the following terms and conditions of this Agreement. TERM. This Agreement shall be effective as of February 24,1997, and shall continue thereafter until all Indebtedness of Borrower to Lender has been performed in full and the parties terminate this Agreement in writing. DEFINITIONS. The following words shall have the following meanings when used in this Agreement. Terms not otherwise defined in this Agreement shall have the meanings attributed to such terms In the Uniform Commercial Code. All references to dollar amounts shall mean amounts in lawful money of the United States of America. Agreement. The word "Agreement" means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time. Borrower. The word "Borrower" means ELECTRONIC FAB TECHNOLOGY CORP., A COLORADO CORPORATION. The word "Borrower also includes, as applicable, all subsidiaries and affiliates of Borrower as provided below in the paragraph titled Subsidiaries and Affiliates." CERCLA. The word "CERCLA means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended. Cash Flow. The words "Cash Flow" mean net income after taxes, and exclusive of extraordinary gains and income, plus depreciation and amortization. Collateral. The word "Collateral means and includes without limitation all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factors lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise. Debt. The word debt means all of Borrowers liabilities excluding Subordinated Debt. ERISA. The word "ERISA"" means the Employee Retirement Income Security Act of 1974, as amended. Event of Default. The words "Event of Default mean and include without limitation any of the Events of Default set forth below in the section titled "EVENTS OF DEFAULT. Grantor. The word Grantor means and includes without limitation each and all of the persons or entities granting a Security Interest in any Collateral for the Indebtedness, Including without limitation all Borrowers granting such a Security Interest. Guarantor. The word Guarantor means and Includes without limitation each and all of the guarantors, sureties, and accommodation parties in connection with any Indebtedness. Indebtedness. The word Indebtedness" means and includes without limitation all Loans, together with all other obligations, debts and liabilities of Borrower to Lender, or any one or more of them, as well as all claims by Lender against Borrower, or any one or more of them; whether now or hereafter existing, voluntary or involuntary, due or not due, absolute or contingent, liquidated or unliquidated; whether Borrower may be liable individually or Jointly with others; whether Borrower may be obligated as a guarantor, surety, or otherwise; whether recovery upon such Indebtedness may be or hereafter may become barred by any statute of limitations; and whether such Indebtedness may be or hereafter may become otherwise unenforceable. Lender. The word "Lender" means BANK ONE, COLORADO, N A., its successors and assigns. Liquid Assets. The words "Liquid Assets" mean Borrower s cash on hand plus Borrower s readily marketable securities. Loan. The word "Loan" or "Loans means and includes without limitation any and all commercial loans and financial accommodations from Lender to Borrower, whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time. Note. The word Note means and includes without limitation Borrower s promissory note or notes, if any, evidencing Borrower s Loan obligations In flavor of Lender, as well as any substitute, replacement or refinancing note or notes therefor. Permitted Liens. The words "Permitted Liens mean: (a) liens and security interests securing Indebtedness owed by Borrower to Lender; (b) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith; (c) liens of materialmen, mechanics, warehousemen, or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (d) purchase money liens or purchase money security Interests upon or in any property acquired or held by Borrower in the ordinary course of business to secure Indebtedness outstanding on the date of this Agreement or permitted to be incurred under the paragraph of this Agreement titled Indebtedness and Liens; (e) liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by the Lender in writing; and (f) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of Borrower s assets. Related Documents. The words "Related Documents mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness. Security Agreement. The words Security Agreement mean and include without limitation any agreements, promises, covenants, arrangements understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest. Security Interest. The words "Security Interest mean and include without limitation any type of collateral security, whether in the form of a lien, charge, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factor s lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise. SARA. The word Sara means the Superfund Amendments and Reauthorization Act of 1986 as now or hereafter amended. Subordinated Debt. The words Subordinated Debt mean indebtedness and liabilities of Borrower which have been subordinated by written agreement to Indebtedness owed by Borrower to Lender in form and substance acceptable to Lender. Tangible Net Worth. The words "Tangible Net Worth mean Borrowers total assets excluding all intangible assets (I.e., goodwill, trademarks, patents, copyrights, organizational expenses, and similar Intangible Items, but including leaseholds and leasehold improvements) less total Debt. Working Capital. The words Working Capital mean Borrower s current assets, excluding prepaid expenses, less Borrower s current liabilities. CONDITIONS PRECEDENT TO EACH ADVANCE. Lenders obligation to make the Initial Loan Advance and each subsequent Loan Advance under this Agreement shall be subject to the fulfillment to Lenders satisfaction of all of the conditions set forth In this Agreement and In the Related Documents. Loan Documents. Borrower shall provide to Lender in form satisfactory to Lender the following documents for the Loan: (a) the Note, (b) Security Agreements granting to Lender security interests in the Collateral, (c) Financing Statements perfecting Lenders Security Interests, (d) 02-24-1997 BUSINESS LOAN AGREEMENT Loan No (Continued) Page 2 evidence of insurance as required below; and (e) any other documents required under this Agreement or by Lender or its counsel Including without limitation any guaranties described below. Borrowers Authorization. Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions duly authorizing the execution and delivery of this Agreement the Note and the Related Documents and such other authorizations and other documents and instruments as Lender or its counsel in their sole discretion may require. Payment of Fees and Expenses. Borrower shall have paid to Lender all fees charges and other expenses which are then due and payable as specified in this Agreement or any Related Document. Representations and Warranties. The representations and warranties set forth in this Agreement in the Related Documents and in any document or certificate delivered to Lender under this Agreement are true and correct. No Event of Default. There shall not exist at the time of any advance a condition which would constitute an Event of Default under this Agreement. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender as of the date of this Agreement as of the date of each disbursement of Loan proceeds as of the date of any renewal extension or modification of any Loan and at all times any Indebtedness exists: Organization. Borrower is a corporation which is duly organized validly existing and in good standing under the laws of the State of Colorado and is validly existing and in good standing in all states in which Borrower is doing business. Borrower has the full power and authority to own its properties and to transact the businesses in which It is presently engaged or presently proposes to engage. Borrower also is duly qualified as a foreign corporation and is in good standing in all states in which the failure to so qualify would have a material adverse effect on its businesses or financial condition. Authorization. The execution, delivery and performance of this Agreement and all Related Documents by Borrower to the extent to be executed delivered or performed by Borrower have been duly authorized by all necessary action by Borrower; do not require the consent or approval of any other person regulatory authority or governmental body; and do not conflict with result in a violation of or constitute a default under (a) any provision of its articles of incorporation or organization or bylaws or any agreement or other Instrument binding upon Borrower or (b) any law governmental regulation court decree or order applicable to Borrower. Financial Information. Each financial statement of Borrower supplied to Lender truly and completely disclosed Borrowers financial condition as of the date of the statement and there has been no material adverse change in Borrowers financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed In such financial statements. Legal effect. THIS Agreement constitutes and any instrument or agreement required hereunder to be given by Borrower when delivered will constitute legal valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms. Properties. Except as contemplated by this Agreement or as previously disclosed in Borrower s financial statements or in writing to Lender and as accepted by Lender and except for property tax liens for taxes not presently due and payable Borrower owns and has good title to all of Borrowers properties free and clear of all Security Interests and has nol executed any security documents or financing statements relating to such properties. All of Borrower s properties are titled In Borrower s legal name and Borrower has not used or filed a financing statement under any other name for at least the last five (5) years. Hazardous Substances. The terms hazardous waste hazardous substance disposal release and threatened release as used in this Agreement shall have the same meanings as set forth in the "CERCLA SARA the Hazardous Materials Transportation Act 49 U.S.C. Section 1801 et seq. the Resource Conservation and Recovery Act 42 U.S.C. Section 6901 et seq. or other applicable slate or Federal laws rules or regulations adopted pursuant to any of the foregoing. Except as disclosed to and acknowledged by Lender In writing Borrower represents and warrants that: (a) During the period of Borrowers ownership of the properties there has been no use generation manufacture storage treatment disposal release or threatened release of any hazardous waste or substance by any person on under about or from any of the properties. (b) Borrower has no knowledge of or reason to believe that there has been (i) any use generation manufacture storage treatment disposal release or threatened release of any hazardous waste or substance on under about or from the properties by any prior owners or occupants of any of the properties or (li) any actual or threatened litigation or claims of any kind by any person relating to such matters. (c) Neither Borrower nor any tenant contractor agent or other authorized user of any of the properties shall use generate manufacture store treat dispose of or release any hazardous waste or substance on under about or from any of the properties; and any such activity shall be conducted in compliance with all applicable federal state and local laws regulations and ordinances including without limitation those laws regulations and ordinances described above. Borrower authorizes Lender and its agents to enter upon the properties to make such inspections and tests as Lender may deem appropriate to determine compliance of the properties with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower s expense and for Lender s purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrowers due diligence in ~~investigating the properties for hazardous waste and hazardous substances. Borrower hereby (a) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any such laws and (b) agrees to indemnify and hold harmless Lender against any and all claims losses liabilities damages penalties and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use generation manufacture storage disposal release or threatened release occurring prior to Borrower s ownership or interest in the properties whether or not the same was or should have been known to Borrower. The provisions of this section of the Agreement including The obligation lo indemnify shall survive the payment of the Indebtedness and the termination or expiration of this Agreement and shall not be affected by Lenders acquisition of any interest in any of the properties whether by foreclosure or otherwise. Litigation and Claims. No litigation claim investigation administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened and no other event has occurred which may materially adversely affect Borrowers financial condition or properties other than litigation claims or other events if any that have been disclosed to and acknowledged by Lender in writing. Taxes. To the best of Borrower s knowledge all tax returns and reports of Borrower that are or were required to be filed have been filed and all taxes assessments and other governmental charges have been paid in full except those presently being or to be contested by Borrower In good faith in the ordinary course of business and for which adequate reserves have been provided. Lien Priority. Unless otherwise previously disclosed to Lender in writing Borrower has not entered into or granted any Security Agreements or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrowers Loan and Note that would be prior or that may in any way be superior to Lenders Security Interests and rights in and to such Collateral. Binding Effect. This Agreement the Note all Security Agreements directly or indirectly securing repayment of Borrower s Loan and Note and all of the Related Documents are binding upon Borrower as well as upon Borrowers successors representatives and assigns and are legally enforceable in accordance with their respective terms. Commercial Purposes. Borrower intends to use the Loan proceeds solely for business or commercial related purposes. Employee Benefit Plans. Each employee benefit plan as to which Borrower may have any liability complies in all material respects with all applicable requirements of law and regulations and (i) no Reportable Event nor Prohibited Transaction (as defined In ERISA) has occurred with respect to any such plan (ii) Borrower has not withdrawn from any such plan or initiated steps to do so (iii) no steps have been taken to terminate any such plan and (iv) there are no unfunded liabilities other than those previously disclosed to Lender In writing. Location of Borrower s Offices and Records. Borrower s place of business or Borrower s Chief executive office if Borrower has more than one place of business Is located at 7251 WEST 4TH STREET GREELEY CO 80634. Unless Borrower has designated otherwise in writing this location Is also the office or offices where Borrower keeps its records concerning The Collateral. Information. All Information heretofore or contemporaneously herewith furnished by Borrower to Lender for the purposes of or in connection with this Agreement or any transaction contemplated hereby is and all Information hereafter furnished by or on behalf of Borrower to Lender will be true and accurate in every material respect on the date as of which such information is dated or certified; and none of such Information is or will be incomplete by omitting to state any material fact necessary to make such Information not misleading. Survival of Representations and Warranties. Borrower understands and agrees that Lender without independent Investigation is relying upon the above representations and warranties in extending Loan Advances lo Borrower. Borrower further agrees that the foregoing representations and warranties shall be continuing in nature and shall remain in full force and effect until such time as Borrowers Indebtedness shall be paid in full or until this Agreement shall be terminated In the manner provided above whichever is the last to occur. AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect Borrower will: Litigation. Promptly Inform Lender in writing of (a) all material adverse changes In Borrowers financial condition and (b) all existing and all threatened litigation claims Investigations administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor. Financial Records. Maintain its books and records In accordance with generally accepted accounting principles applied on a consistent basis, 02 24-1997 BUSINESS LOAN AGREEMENT Loan No (Continued) Page 3 and permit Lender to examine and audit Borrower s books and records at all reasonable times. Additional Information. Furnish such additional information and statements, lists of assets and liabilities, agings of receivables and payables, inventory schedules, budgets, forecasts, tax returns, and other reports with respect to Borrowers financial condition and business operations as Lender may request from time to time. S Financial Covenants and Ratios. Comply with the following covenants and ratios: Except as provided above, all computations made to determine compliance with the requirements contained in this paragraph shall be made in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct. Insurance. Maintain fire and other risk insurance, public liability Insurance, and such other insurance as Lender may require with respect to Borrowers properties and operations, in form, amounts, coverages and with insurance companies reasonably acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be canceled or diminished without at least ten (10) days prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such loss payable or other endorsements as Lender may require. Insurance Reports. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including without limitation the following: (a) the name of the insurer; (b) the risks insured; (c) the amount of the policy; (d) the properties insured; (e) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (f) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually) Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower. Guaranties. Prior to disbursement of any Loan proceeds, furnish executed guaranties of the Loans in favor of Lender, on Lender s forms, and in the amounts and by the guarantors named below: Guarantors Amounts CURRENT ELECTRONICS (WASHINGTON), INC., A WASHINGTON CORPORATION Unlimited CURRENT ELECTRONICS, INC., AN OREGON CORPORATION f/k/a CURRENT MERGER CORP. Unlimited Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements. Loan Proceeds. Use all Loan proceeds solely for Borrowers business operations, unless specifically consented to the contrary by Lender in writing. Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and obligations, including without limitations all assessments taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrowers properties, income, or profits. Provided however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long ss (a) the legality of the same shall be contested in good faith by appropriate proceedings, and (b) Borrower shall have established on its books adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with generally accepted accounting practices. Borrower, upon demand of Lender, will furnish to Lender evidence of payment of the assessments, taxes, charges, levies, liens and claims and will authorize the appropriate governmental official to deliver to Lender at any time a written statement of any assessments, taxes, charges, levies, liens and claims against Borrower s properties, income, or profits. Performance. Perform and comply with all terms, conditions, and provisions set forth in this Agreement and in the Related Documents in a timely manner, and promptly notify Lender if Borrower learns of the occurrence of any event which constitutes an Event of Default under this Agreement or under any of the Related Documents. Operations. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs In a reasonable and prudent manner and in compliance with all applicable federal, state and municipal laws, ordinances, rules and regulations respecting its properties, charters, businesses and operations, including without limitation, compliance with the Americans With Disabilities Act and with all minimum funding standards and other requirements of ERISA and other Iaws applicable to Borrowers employee benefit plans. Inspection. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrowers other properties and to examine or audit Borrowers books, accounts, and records and to make copies and memoranda of Borrowers books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower s expense. Compliance Certificate. Unless waived in writing by Lender, provide Lender at least annually and at the time of each disbursement of Loan proceeds with a certificate executed by Borrowers chief financial officer, or other officer or person acceptable to Lender, certifying that the representations and warranties set forth in this Agreement are true and correct ss of the date of the certificate and further certifying that, as of the date of the certificate, no Event of Default exists under this Agreement. Environmental Compliance and Reports. Borrower shall comply in all respects with all environmental protection federal, state and local laws, statutes, regulations and ordinances; not cause or permit to exist, as a result of an intentional or unintentional action or omission on its part or on the part of any third party. on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrowers part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources. Additional Assurances. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests. NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender: Indebtedness and Liens. (a) Except for trade debt incurred in the normal course of business and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, including capital leases, (b) except as allowed as a Permitted Lien, sell transfer, mortgage, assign, pledge, lease, grant a security Interest in, or encumber any of Borrowers assets, or (c) sell with recourse any of Borrowers accounts, except to Lender. Continuity of Operations. (a) Engage in any business activities substantially different than those in which Borrower is presently engaged, (b) cease operations, liquidate, merge, transfer, acquire w consolidate with any other entity, change ownership, change Its name, dissolve or transfer or sell Collateral out of the ordinary course of business, (c) pay any dividends on Borrower s stock (other than dividends payable in its stock) provided, however that notwithstanding the foregoing, but only so long as no Event of Default has occurred and is continuing or would result from the payment of dividends, if Borrower is a Subchapter S Corporation (ss defined in the Internal Revenue Code of 1986, ss amended), Borrower may pay cash dividends on its stock to its shareholders from time to Time in amounts necessary to enable the shareholders to pay income taxes and make estimated income tax payments to satisfy their liabilities under federal and state law which arise solely from their status ss Shareholders of a Subchapter S Corporstion because of their ownership of shares of stock of Borrower, or (d) purchase or Retire any of Borrower s outstanding shares or alter or amend Borrowers capital structure. Loans, Acquisitions and Guaranties. (a) Loan, Invest in or advance money or assets, (b) purchase, create or acquire any interest in any other enterprise or entity, or (c) incur any obligation as surety or guarantor other than in the ordinary course of business. CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if: (a) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (b) Borrower or any Guarantor becomes Insolvent, hies a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (c) there occurs a material adverse change in Borrowers financial condition, In the financial condition of any Guarantor, or In the value of any Collateral securing any Loan; or (d) any Guarantor seeks, claims or otherwise attempts to limit, modify, or revoke such Guarantor s guaranty of the Loan or any other loan with Lender. 02-24-1997 BUSINESS LOAN AGREEMENT Loan No (Continued) Page 4 EXHIBIT A . An exhibit, titled "EXHIBIT A"," Is attached to this Agreement and by this reference is made a part of this Agreement just as if all the provisions, terms and conditions of the Exhibit had been fully set forth in this Agreement. RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security Interest In, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrowers right, title and interest in and to, Borrowers accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however ail IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts. EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: Default on Indebtedness. Failure of Borrower to make any payment when due on the Loans. Other Defaults. Failure of Borrower or any Grantor to comply with or to perform when due any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents, or failure of Borrower to comply with or to perform any other term, obligation, covenant or condition contained in any other agreement between Lender and Borrower. Default In Favor of Third Parties. Should Borrower or any Grantor default under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrowers property or Borrowers or any Grantors ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents. False# Statements. Any warranty, representation or statement made or furnished to Lender by or on behalf of Borrower or any Grantor under this Agreement or the Related Documents is false or misleading in any material respect at the time made or furnished, or becomes false or misleading at any time thereafter. Detective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any Security Agreement to create a valid and perfected Security Interest) at any time and for any reason. Insolvency. The dissolution or termination of Borrower s existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrowers property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help repossession or any other method, by any creditor of Borrower, any creditor of any Grantor against any collateral securing the Indebtedness, or by any governmental agency. This includes a garnishment, attachment, or levy on or of any of Borrower s deposit accounts with Lender. Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness. Change In Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower. Adverse Change. A material adverse change occurs In Borrowers financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired. EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make Loan Advances or disbursements), and, at Lenders option, all indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender s rights and remedies shalt be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender s right to declare a default and to exercise its rights and remedies. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement: Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. Applicable Law. This Agreement has been delivered to Lender and accepted by Lender In the State of Colorado. If there Is a lawsuit, Borrower agrees upon Lender s request to submit to the jurisdiction of the courts of Weld County, the State of Colorado. Lender and Borrower hereby waive the right to any jury trial In any action, proceeding, or counterclaim brought by either Lender or Borrower against the other. This Agreement shall be governed by and construed In accordance with The laws of the State of Colorado. Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. Multiple Parties; Corporate Authority. All obligations of Borrower under this Agreement shall be joint and several, and all references to Borrower shall mean each and every Borrower. This means that each of the Borrowers signing below Is responsible for all obligations In this Agreement. Consent lo Loan Participation. Borrower agrees and consents to Lenders sale or transfer, whether now or later, of one or more participation interests in the Loans to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating lo The Loan, and Borrower hereby waives any rights to privacy it may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation Interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests In the Loans and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrowers obligation under the Loans irrespective of the failure or insolvency of any holder of any Interest in the Loans. Borrower further agrees that the purchaser of any such participation interests may enforce its interests Irrespective of any personal claims or defenses that Borrower may have against Lender. Costs and Expenses. Borrower agrees to pay upon demand all of Lenders expenses, Including without limitation attorneys fees, incurred in connection with the preparation, execution, enforcement, modification and collection of this Agreement or in connection with the Loans made pursuant to this Agreement. Lender may pay someone else to help collect the Loans and to enforce this Agreement, and Borrower will pay that amount. This includes, subject to any limits under applicable law, Lender s attorneys fees and Lender s legal expenses, whether or not there is a lawsuit, including attorneys fees for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated postjudgment collection services. Borrower also will pay any court costs, in addition to all other sums provided by law. Notices. All notices required to be given under this Agreement shall be given in writing, may be sent by telefacsimilie, and shall be effective when actually delivered or when deposited with a nationally recognized overnight courier or deposited in the United States mail, first class, postage prepaid, addressed to the party to whom the notice is to be given at the address shown above. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party s address. To the extent permitted by applicable law, if there is more than one Borrower, notice to any Borrower will constitute notice to all Borrowers. For notice purposes, Borrower will keep Lender informed at all times of Borrower s current address(es). Severability. If a court of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances. If feasible, any such offending provision shall be deemed to be modified to be within the limits of enforceability or validity; however, If The offending provision cannot be so modified, it shall be stricken and all other provisions of this Agreement in all other respects shall remain valid and enforceable. Subsidiaries and Affiliates of Borrower. To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the word ""Borrower" as used herein shall include all subsidiaries and affiliates of Borrower. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any subsidiary or affiliate of Borrower. Successors and Assigns. All covenants and agreements contained by or on behalf of Borrower shall bind its successors and assigns and shall, inure to the benefit of Lender, Its successors and assigns. Borrower shall not, however, have the right to assign its rights under this Agreement or any Interest therein, without the prior written consent of Lender. Survival. All warranties, representations, and covenants made by Borrower in this Agreement or in any certificate or other Instrument delivered by Borrower to Lender under this Agreement shall be considered to have been relied upon by Lender and will survive the making of the loan and delivery to Lender of the Related Documents, regardless of any investigation made by Lender or on Lender s behalf. 02-24-1997 BUSINESS LOAN AGREEMENT Loan No Page 5 (continued) Time is of the Essence. Time Is of The essence In The performance of this Agreement. Waiver. Lender shall nol be deemed lo have waived any rights under This Agreement unless such waiver Is given in writing and signed by Lender. No delay or omission on The part of Lender In exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender s right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender nor any course of dealing between Lender and Borrower or between Lender and any Grantor shall constitute a waiver of any of Lenders rights or of any obligations of Borrower or of any Grantor as lo any future transactions. Whenever the consent of Lender Is required under This Agreement The granting of such consent by Lender In any Instance shall not constitute continuing consent in subsequent Instances where such consent is required and In all cases such consent may be granted or withheld In The sole discretion of Lender. BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF FEBRUARY 24 1997. BORROWER(S): ELECTRONIC FAB TECHNOLOGY CORP., A COLORADO CORPORATION By: Jack Calderon JACK CALDERON, PRESIDENT AND CEO By: Stuart W. Fuhlendorf STUART W. FUHLENDORF, CFO & TREASIRER CURRENT ELECTRONICS (WASHINGTON) INC., A WASHINGTON CORPORATION By: Jack Calderon JACK CALDERON, PRESIDENT & CEO By: Stuart W. Fuhlendorf STUART W. FUHLENDORF, VICE PRESIDENT CURRENT ELECTRONICS, INC., AN OREGON CORPORATION f/k/a/ CURRENT MERGER CORP. By: Jack Calderon JACK CALDERON, PRESIDENT & CEO By: Stuart W. Fuhlendorf STUART W. FUHLENDORF, VICE PRESIDENT LENDER: BANK ONE, COLORADO, N.A. By: Sam Leeper Authorized Officer LASERPRO,Reg.U.S.Pal.&T.M.Oll.,Ver.3.22bp)1997CFIProServlcer,lnc. Allrlghlarererved.lCO-C40F3.22ELE1_KB2,LNC3.0VLl EX-10.14 5 CONSULTING AGREEMENT THIS CONSULTING AGREEMENT (this "Agreement"), dated as of February 24, 1997, is between ELECTRONIC FAB TECHNOLOGY CORP., a Colorado corporation ("Parent"), ____________, an Oregon corporation ("Vendor") and _______ Hewitson ("Initial Consultant"). RECITAL Parent, Current Merger Corp., an Oregon corporation, and Current Electronics, Inc., an Oregon corporation, have entered into the Agreement and Plan of Merger, dated January 15, 1997, pursuant to which Current Electronics, Inc. was merged with and into Current Merger Corp. This Agreement is executed and delivered pursuant to Article VIII of that agreement and sets forth the terms on which Parent engages Vendor to provide the services of Consultant. AGREEMENT NOW, THEREFORE, in consideration of the foregoing, and of the representations, warranties, covenants and agreements contained herein, the parties hereto agree as follows: A. Definitions. The following terms shall have the following meanings as used in this Agreement: "Company" means Parent, its successors and assigns, and any of its present or future subsidiaries, and persons controlled by, controlling or under common control with it. "Consultant" means the person approved by Parent that has been assigned by Vendor to perform the services hereunder. "Vendor" has the meaning set forth in the opening statement to this Agreement. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules and regulations of the Securities and Exchange Commission thereunder. "Expiration Date" has the meaning set forth in Section 5. "Parent" has the meaning set forth in the opening statement to this Agreement. "Participate In" means directly or indirectly, for his own benefit or for, with or through any other person or entity, own, manage, operate, control, lend money to or participate in the ownership, management, operation or control of, or be connected as a director, officer, employee, partner, consultant, agent, independent contractor or otherwise with, or acquiesce in the use of his name in. "Proprietary Information" means information disclosed to or known or developed by Vendor or Consultant about the Company's plans, strategies, prospects, products, processes and services, including information and materials relating to the Company's products, manufacturing procedures and techniques and information relating to the Company's research, development, inventions, manufacture, purchasing, accounting, engineering, marketing, merchandising and selling, but excluding information that Vendor or Consultant establishes, by competent proof, (i) was known, other than under an obligation of confidentiality or binder of secrecy, to Vendor or Consultant prior to the engagement of Vendor by the Company to provide the services of Consultant or as a result of Consultant's employment by Current Electronics, Inc. or Current Electronics (Washington), Inc.; (ii) has passed into the public domain prior to or after its development by or for the Company other than through acts or omissions attributable to Vendor or Consultant; or (iii) was subsequently obtained other than under an obligation of confidentiality or binder of secrecy from a third party not acquiring the information under an obligation of confidentiality from the disclosing party. A. Representations and Warranties of Vendor. (a) Vendor is a corporation duly organized and validly existing under the laws of its state of incorporation, has full corporate power to own its properties and to carry on its business as now being conducted and as proposed to be conducted and is duly qualified to do business and is in good standing in each jurisdiction in which the failure to do so would have a material adverse effect on Vendor. Vendor is not in violation of any of the provisions of its articles of incorporation or bylaws or equivalent organizational documents. (b) Vendor has the full corporate power and authority to enter into this Agreement and take all actions contemplated hereby. The execution and delivery of this Agreement and all actions contemplated hereby have been duly authorized by all necessary corporate action on the part of Vendor. This Agreement has been duly executed and delivered by Vendor and constitutes the valid and binding obligation of Vendor enforceable against Vendor in accordance with its terms. The execution and delivery of this Agreement by Vendor does not, and the actions contemplated hereby will not, conflict with or violate any provision of the articles of incorporation or bylaws of the Vendor. A. Engagement; Duties. The Company and Vendor hereby agree that Vendor will provide the services of Consultant who will faithfully and to the best of his ability perform such services and duties for the Company as the Chief Executive Officer of the Company reasonably may request. For the Initial Consultant, Consultant's services and duties for which compensation is to be paid to the Vendor under Section 4 will not include services deemed by the Company to be part of his participation or services as a member of the Company's board of directors. Consultant will devote sufficient working time, attention and energies to the business of the Company necessary to perform the services to be provided hereunder, but in any event not in excess of 80% of the equivalent of being engaged on a full time basis. Neither Vendor nor Consultant will at any time discredit the Company or any of its products and services. Vendor and Consultant acknowledge that Vendor has been engaged by the Company as an independent contractor and that, as such, Vendor will be responsible for making appropriate filings and payments to the Internal Revenue Service and state taxing authorities. Except for involvement in personal investments, provided such involvement does not require any significant personal services, Vendor will cause Consultant not to engage, and Consultant agrees not to engage, in any other business activity or activities that require significant personal services by Consultant or that, in the judgment of the Company, may conflict with the proper performance of Vendor's duties hereunder and Vendor agrees to require Consultant to similarly limit his or her activities. A. Compensation; Benefits; Expenses. (a) As compensation for Consultant's services hereunder, the Company will pay Vendor $159,300 per year (prorated for partial years) for each year during the term of this Agreement, payable monthly in arrears or as the parties hereto may otherwise agree. (b) The Company will reimburse Vendor for the reasonable out-of-pocket expenses incurred by Consultant at the request of the Company in the performance of his duties hereunder and such other expenses as may be approved by the Company, in each case upon presentation to the Company of an itemized accounting of such expenses with reasonable supporting data. A. Term. This Agreement shall be effective on the date hereof and, unless earlier terminated in accordance with Section 6, shall expire five years from the date hereof (the "Expiration Date"). If this Agreement terminates or expires, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of the parties hereto, except as otherwise provided herein and except the provisions of this Section 5 and Sections 7, 8, 9 and 10 will remain in full force and effect and survive any termination or expiration of this Agreement. A. Termination. (a) If the Initial Consultant or any successor Consultant dies and a replacement Consultant acceptable to Parent is not appointed promptly, the Company will pay Vendor the compensation that would otherwise have been payable to him for the month in which the Consultant's death occurs, and this Agreement will be deemed terminated on the last day of such month. (b) If the Initial Consultant or any successor Consultant is prevented from performing his duties by reason of illness or incapacity for the period set forth in Schedule A and a replacement Consultant acceptable to Parent is not appointed promptly, the Company may suspend the payment of compensation to Vendor during the period Consultant is so prevented from performing his duties and may terminate this Agreement if his condition is determined to be permanent. (c) The Company may terminate this Agreement at any time, with cause, by giving written notice of termination to Vendor, with a copy of such notice to Consultant. For purposes of this Agreement, "cause" means any one or more of the following: (i) gross negligence or willful misconduct that is materially injurious to the Company; (ii) conduct on the part of Consultant or Vendor that would constitute a felony or other crime of moral turpitude where committed; (iii) material failure by Consultant to perform assigned services and duties under this Agreement, which failure continues for at least 30 days after notice in writing thereof is given by the Company; or (iv) breach or threatened breach by Consultant or Vendor of any provision of Section 7 or 8. (d) (i) The Company may terminate this Agreement at any time, without cause, by giving written notice of termination to Vendor and Consultant. In connection with any termination by the Company pursuant to this Section 6(d), except as set forth below in clauses (ii) of this Section 6(d), the Company will not be obligated to pay any amount to Vendor other than the amounts specified in Section 4(a) that have accrued through the date of termination. The Company will make a termination payment to Vendor in connection with a termination under this Section 6(d) if and only if the conditions set forth below in Section 6(d)(ii) are satisfied, in which event the amount of termination payments will be determined pursuant to Section 6(d)(ii). (ii) In order to receive termination payments under this Section 6(d), Vendor and Consultant must sign releases, in form and substance reasonably satisfactory to the Company, fully releasing the Company (and its officers, directors, shareholders, employees and agents) from any claim or cause of action that Vendor or Consultant may have against the Company or such other persons relating in any way to this Agreement or the consulting relationship of Vendor and Consultant with the Company, through the date of such releases. If applicable, the releases will be signed at such times as are reasonably requested by the Company in order for the releases to be fully effective under state and federal age discrimination laws and other laws that may impose similar requirements, and, except to the extent that Consultant may exercise his rights as a shareholder of the Company or Consultant's obligations as a director of the Company may otherwise require, will prohibit Consultant and Vendor from making any communications or taking other acts that may injure the business, goodwill or reputation of the Company or its officers, directors, shareholders, employees or agents. The Company will then begin making termination payments at such time as any revocation period set forth in the release will have expired. The amount of the termination payments payable under this Section 6(d) will equal the amounts that Vendor would have received had this Agreement remained in effect through the Expiration Date. Any payments pursuant to this Section 6(d) will be paid in equal monthly installments through the Expiration Date. Non-Disclosure of Information. (a) Except as specifically permitted by the Company in writing and as is required for Consultant to perform his services and duties hereunder, Vendor and Consultant will not, during or prior to two years after the term of this Agreement, disclose any Proprietary Information to any person or entity for any purpose or use or permit the use of any Proprietary Information. In addition, Vendor and Consultant will not, during and for two years after the termination or expiration hereof, undertake on behalf of any other person or entity any commercial project, employment or consultancy that would result in use or disclosure of Proprietary Information or that would appear to involve such use or disclosure unless the Company shall have consented in writing to such undertaking, employment or consultancy. The Company may require that Vendor and Consultant and any person or entity proposing to engage Vendor or Consultant in such a capacity provide appropriate written assurances regarding the avoidance of any such conflict. (b) Upon the termination or expiration of this Agreement, Vendor and Consultant will deliver to the Company all notes, letters, prints, drawings, records, forms, contracts, studies, reports, appraisals, financial data, lists of names or other customer data, and any other articles or papers, computer tapes and materials that have come into their possession by reason of Vendor's engagement by the Company to provide the services of Consultant or Consultant's prior employment by the Company's subsidiaries, whether or not prepared by him, and Vendor and Consultant will not retain memoranda or copies of any of those items. (c) Vendor and Consultant acknowledges that Proprietary Information of the Company is unique and a valuable asset of the Company, the loss or unauthorized disclosure or use of which would cause the Company irreparable harm. A. Covenants Not to Compete or Interfere. (a) In view of the unique and valuable services of Consultant which Vendor has been engaged by the Company to provide to the Company and Consultant's and Vendor's current and future knowledge of the Company's Proprietary Information, Vendor and Consultant will not, (i) during the term hereof and (ii) for two years after the termination or expiration hereof (or, if this Agreement is terminated under Section 6(d) and Vendor receives termination payments, during the period such payments are received), Participate In the electronic contract manufacturing business and any other business in which the Company is engaged, or has taken material steps to be engaged, at the time of such termination or expiration. Notwithstanding the foregoing, Vendor or Consultant will not be deemed to Participate In a business merely because Vendor or Consultant owns less than 5% of the outstanding stock of a corporation (measured in voting power or equity), if, at the time of its acquisition by Vendor or Consultant, such stock is listed on a national securities exchange or is reported on the Nasdaq National Market. (b) During the period specified in Section 8(a) and in no event less than two years after any termination or expiration of this Agreement, Vendor and Consultant will not (i) directly or indirectly cause or attempt to cause any employee of the Company to leave the employ of the Company; (ii) in any way interfere with the relationship between the Company and any of its employees, customers or suppliers; (iii) directly or indirectly hire any employee of the Company to work for any entity of which Consultant is an officer, director, employee, consultant, independent contractor or owner of an equity or other financial interest; or (iv) interfere or attempt to interfere with any transaction in which the Company was involved during the term of this Agreement. (c) If any restriction contained in this Section 8 is deemed to be invalid, illegal or unenforceable by a court of competent jurisdiction by reason of its duration, geographical scope or otherwise, then such provision will be deemed reduced in extent, duration, geographical scope or otherwise by the minimum reduction necessary to cause the restriction to be enforceable. Injunctive Relief. Vendor and Consultant acknowledge that the breach or threatened breach by Vendor or Consultant of any of the provisions of Section 7 or 8 would cause the Company irreparable harm. Upon the breach or threatened breach of any of the provisions of Section 7 or 8, the Company will be entitled to an injunction, without bond, restraining Vendor or Consultant from committing such breach. This right shall not be construed to limit the Company's ability to obtain any other remedies available to it for such breach or threatened breach, including the recovery of damages. General Provisions. (a) Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. (b) This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado (without regard to the principles of conflicts of law thereof). Except as otherwise provided herein, in the event that any provision of this Agreement, or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. Except as otherwise provided herein, the parties hereto further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. (c) All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or mailed by registered or certified mail, return receipt requested, or sent via facsimile, with confirmation of receipt, to the parties hereto at the following address or at such other address for a party hereto as shall be specified by notice hereunder: (i) if to the Company, to: Electronic Fab Technology Corp. 7241 West 4th Street Greeley, Colorado 80634 Attention: Stuart W. Fuhlendorf Facsimile No.: (303) 892-4306 with a copy to: Holme Roberts & Owen LLP 1700 Lincoln, Suite 4100 Denver, Colorado 80203 Attention: Francis R. Wheeler Facsimile No.: (303) 866 0200 (ii) If to Vendor: (iii) If to Consultant: (d) Except as otherwise provided herein, no party hereto may assign its rights or delegate its obligations under this Agreement. The Company may assign its rights and delegate its obligations under this Agreement to any affiliate of the Company or to any person or entity that acquires all or substantially all of the business of the Company whether through merger, purchase of assets, purchase of stock or otherwise. This Agreement will be binding upon and inure to the benefit of the parties and their respective legal representatives, heirs, and permitted successors and assigns. (e) This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, both written and oral, among the parties hereto with respect to the subject matter hereof (f) This Agreement may be amended or modified in writing by the parties hereto. (g) When a reference is made in this Agreement to a Section, such reference shall be to a Section of this Agreement unless otherwise indicated. The words "include," "includes" and "including" when used herein shall be deemed in each case to be followed by the words "without limitation." The Section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. (h) The parties hereto acknowledge that they have been represented by counsel during the negotiation, preparation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document. (i) This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties hereto and delivered to the other parties hereto, it being understood that all parties hereto need not sign the same counterpart. (j) In the event of any proceeding to enforce this Agreement, the prevailing party shall be entitled to receive from the losing party all reasonable costs and expenses, including the reasonable fees of attorneys, accountants and other experts, incurred by the prevailing party in investigating and prosecuting (or defending) such action at trial or upon any appeal. (k) Any successor Consultant to the Initial Consultant shall execute a copy of this Agreement agreeing to be bound by the terms hereof. IN WITNESS WHEREOF, the parties hereto have duly executed this Consultant's Agreement as of the date first written above. Parent: ELECTRONIC FAB TECHNOLOGY CORP. By: _______________________________ Vendor: [NAME] By: ______________________________ Initial Consultant: _____________________________________ EX-10.16 6 EMPLOYMENT AGREEMENT This Agreement is entered into as of July 10, 1996, between Electronic Fab Technology Corp., a Colorado corporation (the "Company"), and Jack Calderon ("Executive"), to be effective upon commencement of Executive's employment by the Company on August 5, 1996. The parties agree as follows: A. Employment. The Company agrees to employ Executive and Executive agrees to be employed by the Company on the terms set forth in this Agreement. A. Capacity and Duties. Executive shall be employed by the Company as its Chief Executive Officer or in such other executive capacity as the board of directors shall determine. During his employment, Executive shall perform the duties and bear the responsibilities commensurate with his position and shall serve the Company faithfully and to the best of his ability, under the direction of the Company's board of directors. Executive shall devote his entire working time, attention and energies to the business of the Company. His actions shall at all times be such that they do not discredit the Company or its products and services. Except for his involvement in personal investments, provided such involvement does not require any significant services on his part, Executive shall not engage in any other business activity or activities that require significant personal services by Executive or that, in the judgment of the board of directors, may conflict with the proper performance of Executive's duties hereunder. A. Compensation. 1. Salary. For all services rendered by Executive, the Company shall pay Executive during the term of this Agreement a salary of at least $200,000 per annum, payable in arrears in the same manner as the Company generally pays its employees' salaries. The amount of the salary may be increased at the discretion of the Company's board of directors, although Executive shall not have any right to an increase. 1. Bonus. Executive may also receive a bonus of up to 50% of Executive's annual salary as described in Section 3(a) based upon performance criteria to be established by the board of directors with respect to each calendar year. If this Agreement is terminated (other than under Section 5(c) or 5(d)), Executive shall receive, within 90 days after the end of the calendar year in which such termination occurs, a pro rata portion of such bonus, if any, that accrues with respect to such calendar year based on the period during such year that the Executive was employed by the Company prior to termination. 1. Benefits. The Company also shall provide Executive, during the term of this Agreement, with the benefits of such life and medical insurance plans, profit sharing plans and other employee fringe benefit plans as shall be provided generally to employees of the Company and for which Executive may be eligible under the terms of such plans. Nothing in this Agreement shall require the Company to adopt or maintain any such employee benefit plans. 1. Stock Options. The Company shall grant to Executive non-qualified stock options to purchase 200,000 shares of Company common stock with an exercise price equal to the last closing sale price of the Company's stock on the Nasdaq National Market on the business day preceding the date of this Agreement. The vesting schedule of the options shall be as follows: a. 50,000 shares shall vest upon the date Executive's employment commences; a. 25,000 shares shall vest when the price of the Company's stock averages $6.00 per share or higher for 20 out of the last 30 trading days; a. 25,000 shares shall vest when the price of the Company's stock averages $8.00 per share or higher for 20 out of the last 30 trading days; a. 50,000 shares shall vest when the price of the Company's stock averages $10.00 per share or higher for 20 out of the last 30 trading days; and a. 50,000 shares shall vest when the price of the Company's stock averages $12.00 per share or higher for 20 out of the last 30 trading days. Notwithstanding the vesting schedule set forth above, all options shall fully vest in the event of a Change in Control, as defined in Section 5(d), or if Executive remains employed with the Company, at the end of seven years of continuous employment. If employment of the Executive is terminated for reasons other than set forth in Section 5(c), Executive or those entitled under his will or by the laws of descent may exercise the options within three months following the date of termination but not thereafter. Only options that had become exercisable on or before the date of termination may be exercised within the three month period. The stock options granted hereby shall be evidenced by such stock option certificates or agreements that incorporate provisions of the Company's stock option plan not inconsistent with the foregoing as the Company determines to be appropriate. To the extent that the foregoing grants under the Company's stock option plan require shareholder approval, the Company shall use its best efforts to obtain such approval at the Company's next annual meeting of shareholders. 1. Sick Leave, Vacation. During the term of this Agreement, except as otherwise provided in Section 5(b), Executive shall be entitled to sick leave consistent with the Company's customary sick leave policy and to four weeks vacation per year, which shall be taken at times mutually satisfactory to the Company and Executive. 1. Company Car. The Company shall provide to Executive for his use during the term of this Agreement a car having a purchase price not to exceed $35,000. The Company shall pay all registration and licensing fees and maintenance and insurance costs for such car. 1. Relocation. Executive shall reside in Greeley, Colorado while employed with the Company. The Company shall pay Executive $20,000 as a one-time lump sum payment to defer the costs of Executive moving to Greeley. Executive shall repay this amount if Executive is employed by the Company for a period less than one year and voluntarily resigned from the Company. 1. Expenses. During the term of this Agreement, the Company shall reimburse Executive for all reasonable out-of-pocket expenses incurred by Executive in connection with the business of the Company and in the performance of his duties under this Agreement upon presentation to the Company of an itemized accounting of such expenses with reasonable supporting data. A. Term. 1. General. Unless sooner terminated in accordance with Section 5, this Agreement shall have a two year term after the effective date of this Agreement. This Agreement shall continue thereafter from three-month period to three-month period until either party gives notice to the other at least 30 days prior to the end of the original or then current renewal term of his or its intention that this Agreement shall terminate at the end of such term. Sections 6, 7, 8 and 9 shall remain in full force and effect for the periods specified in such sections notwithstanding the termination of this Agreement. 1. Severance. If this Agreement terminates (other than due to a termination under Section 5), and (i) the parties do not enter into a new employment agreement and (ii) Executive does not remain as an employee of the Company for at least six months after such termination, then the Company shall (x) pay Executive severance compensation consisting of a six months' base salary and (y) continue for six months after termination of Executive's employment by the Company, to the extent possible under the Company's then-existing benefit plans, all other benefits that were in place at the time of the expiration of this Agreement. A. Termination. 1. Death. If Executive dies during the term of this Agreement, the Company shall pay his estate the compensation that would otherwise have been payable to him for the month in which his death occurs, and this Agreement shall terminate on the last day of such month. 1. Disability. If during the term of this Agreement Executive is prevented from performing his duties by reason of illness or incapacity for a continuous period of 120 days, the Company may terminate this Agreement on 30 days' prior notice to Executive or his duly appointed legal representative. For purposes of this Section 5(b), a period of illness or incapacity shall be deemed "continuous" notwithstanding Executive's performance of his duties during such period for continuous periods of less than 15 days in duration. 1. Cause. The Company may terminate this Agreement at any time, with notice simultaneous with the termination, for cause, with the prior approval of the Company's board of directors. For purposes of this Agreement, cause shall be defined as one or more of the following: a. willful misconduct that is materially injurious to the Company as determined by a majority of the Company's board of directors (excluding if Executive is then a director); a. conduct that would constitute a felony or other crime of moral turpitude where committed; a. failure to perform material required duties and obligations of the Company under this Agreement, which failure materially, adversely affects the Company and continues for at least 30 days after notice in writing thereof is given by the board of directors (excluding Executive); and a. a material breach by Executive during the term of this Agreement of Section 6, 7 or 8 below. 1. At the Company's Election. The Company may terminate this Agreement at any time with the prior approval of the board of directors, without cause, by giving 30 days' written notice of termination to Executive. On the effective date of any termination pursuant to this Section 5(d), the Company shall pay Executive a severance payment equal to the amount that Executive would have received had this Agreement remained in effect for the Severance Period (as defined below) and shall allow Executive to participate during the Severance Period, at the Company's expense, in such employee welfare plans as are generally made available during such period to the Company's employees. The Company shall be deemed to have terminated Executive's employment pursuant to this Section 5(d) if Executive terminates such employment after a material reduction of his responsibilities, other benefits or the facilities or assistance at his disposal (other than a reduction that is part of an overall change for the Company's employees, is not disproportionately detrimental to Executive and occurs before any Change in Control (as defined below)) or a change of more than 15 miles in location of the principal executive offices of the Company or of Executive's primary office. a. In order to receive a severance payment under this Section 5(d), the Executive must (A) resign from the Board of Directors, if he is then a member of it, and (B) sign a release, in form and substance reasonably satisfactory to the Company, fully releasing the Company (and its officers, directors, shareholders, employees and agents) from any claim or cause of action that the employee may have against the Company or such other persons relating in any way to this Agreement, the Executive's employment by the Company or any other aspect of the Executive's relationship with the Company, through the date of such release. The release shall be signed at such times as are reasonably requested by the Company in order for the release to be fully effective under state and federal age discrimination laws and other laws that may impose similar requirements, and shall prohibit Executive from making any communications or taking other acts that may injure the business, goodwill or reputation of the Company or its officers, directors, shareholders, employees or agents. The Company may defer making severance payments until such time as any revocation periods set forth in the release have expired. a. For purposes of this Section 5(d): (A) if no Change in Control (as defined below) shall have occurred before a termination under this Section 5(d), the Severance Period shall be the greater of one year or what would have been the remaining term of this Agreement had it not been terminated; and (B) if a Change in Control shall have occurred before a termination under this Section 5(d), then the Severance Period shall be the greater of one year or what would have been the remaining term of this Agreement had it not been terminated. A "Change of Control" shall be deemed to have occurred if (i) a person (as such term is used in Section 13(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act")) becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act) of shares of the Company or the Company's successor having 30% or more of the total number of votes that may be cast for the election of directors of the Company without the prior approval of at least a majority of the members of the Company's board of directors unaffiliated with such person (unless such person beneficially owned shares with at least 15% of such votes on the date of this Agreement), or (ii) individuals who constitute the directors of the Company at the beginning of a 24-month period cease to constitute at least 2/3 of all directors at any time during such period, unless the election of any new or replacement directors was approved by a vote of at least a majority of the members of the Company's board of directors in office immediately prior to such period and of the new and replacement directors so approved. Notwithstanding the foregoing, no Change in Control will be deemed to have occurred if Executive or any group of which Executive is a member is the person whose acquisition constituted the Change in Control. 1. General Provisions Regarding Severance. Any payment pursuant to Section 4(b) or 5(d) shall be paid, at the Company's election, either in equal monthly installments over a six-month period (for a payment under Section 4(b)) or the Severance Period (for a payment under Section 5(d)) or in one lump sum (in which case the Company shall pay to Executive in a lump sum its estimated cost of providing employee benefits over the remaining period and the Company's obligation to provide such benefits under Section 4(b) shall terminate). Any such payment shall be "grossed up," if necessary, so that Executive is left after the payment of any excise tax imposed under Sections 280G and 4999 of the Internal Revenue Code of 1986 (or any successor statute) in connection with any benefits received upon termination with the amount he would have had if such excise tax had not been imposed on Executive. A. Confidential Information. 1. Confidentiality. Executive acknowledges that the trade secrets, know-how and proprietary processes of the Company and its confidential business plans, strategies, concepts, prospects and financial data (collectively, "Confidential Information") are valuable, unique assets of the Company. Executive shall not, during or after the term of this Agreement, disclose any of the Confidential Information (unless already generally known to and available for use by the public other than as a result of a violation by Executive of this Section 6 or as required by law) to any person or entity for any purpose, nor shall Executive use or permit the use of any Confidential Information except, in either case, as is required for Executive to perform his duties as an employee of the Company. 1. Surrender or Destruction. Executive will, upon termination of his employment with the Company, deliver to the Company all records, forms, contracts, studies, reports, appraisals, financial data, lists of names or other customer data, and any other articles or papers, computer tapes and materials that have come into his possession by reason of his employment with the Company, whether or not prepared by him, and he shall not retain memoranda or copies of any of those items. A. Covenants Not to Compete or Interfere. 1. Scope. In view of the unique and valuable executive services that Executive has been retained to render to the Company and Executive's current and future knowledge of the customers, trade secrets and other proprietary information relating to the business of the Company and its customers and suppliers, Executive agrees that during the period he is an employee of the Company and for one year after any termination of this Agreement by the Company for cause or any voluntary termination by Executive of his employment by the Company, he will not Participate In (as defined below) the business of electronic contract manufacturing within the United States of America. 1. Definition. For purposes of this Section 7, "Participate In"means "directly or indirectly, for his own benefit or for, with or through any other person, firm or corporation, own, manage, operate, control, lend money to or participate in the ownership, management, operation or control of, or be connected as a director, officer, employee, partner, consultant, agent, independent contractor or otherwise with, or acquiesce in the use of his name in." Notwithstanding the foregoing, Executive shall not be deemed to Participate In a business merely because he owns less than 5% of the outstanding stock of a corporation (measured in voting power or equity), if, at the time of its acquisition by Executive, such stock is listed on a national securities exchange or is reported on Nasdaq. If any restriction contained in this Section 7 is deemed to be invalid, illegal or unenforceable by reason of its duration, geographical scope or otherwise, then such provision shall be deemed reduced in extent, duration, geographical scope or otherwise by the minimum reduction necessary to cause the restriction to be enforceable. 1. Noninterference. During the period specified in Section 7(a) of this Agreement, Executive shall not (i) directly or indirectly cause or attempt to cause any employee of the Company to leave the employ of the Company, (ii) in any way interfere with the relationship between the Company and any employee, customer or supplier, (iii) directly or indirectly hire any employee of the Company to work for any organization of which Executive is an officer, director, employee, consultant, independent contractor or owner of an equity or other financial interest, or (iv) interfere or attempt to interfere with any transaction in which the Company was involved during the term of this Agreement or his employment. 1. Executive Representation. Executive represents to the Company that at this time he is not a party to any other employment agreement and is not subject to any other covenant not to compete. A. Intellectual Property. 1. Executive agrees to assign to the Company, or to any person or entity designated by the Company, the entire right, title and interest of the Executive in and to all inventions, ideas, discoveries and improvements (collectively, "Inventions"), whether patented or unpatented, and material subject to copyright, made or conceived by the Executive, solely or jointly, that arise out of or are related to research conducted by, for or under the direction of the Company, or that relate to methods, apparatuses, designs, products, processes or devices, sold, leased, used or under consideration or development by the Company at the time of such Invention. Executive further acknowledges that all copyrightable materials developed or produced by Executive within the scope of his employment by the Company constitute works made for hire. 1. Executive shall communicate promptly and disclose to the Company, in such form as the Company may reasonably request, all information, details and data pertaining to any such inventions, ideas, discoveries and improvements described in paragraph 5(a) above. A. Injunctive Relief. Upon an actual or threatened breach by Executive of Section 6 or Section 7 of this Agreement, the Company shall be entitled to an injunction restraining Executive from such breach. Nothing in this Agreement shall limit the Company's ability to obtain any other remedies, including damages for such actual or threatened breach. A. Waiver of Breach. A waiver by the Company of a breach of any provision of this Agreement by Executive shall not be construed as a waiver of any breach of another provision or subsequent breach of the same provision. A. Severability. The invalidity or unenforceability in any application of any provision in this Agreement will not affect the validity or enforceability of any other provision or of such provision in any other application. A. Notices. All communications, requests, consents and other notices provided for in this Agreement shall be in writing and shall be deemed given if and when delivered personally by hand, sent by facsimile at the appropriate number indicated below with electronic confirmation of receipt, or mailed by first class mail, postage prepaid, addressed as follows: a. If to the Company: Electronic Fab Technology Corp. 7251 West Fourth Street Greeley, Colorado 80634-9763 Facsimile No. (303) 893-5009 with a copy to: Holme Roberts & Owen LLC 1700 Lincoln Suite 4200 Denver, Colorado 80203 Attn: John F. Knoeckel, Esq. Facsimile No. (303) 866-0200 a. If to Executive: or to such other address or facsimile number as either party may designate by notice pursuant to this Section 12. A. Governing Law. This Agreement shall be governed by Colorado law. A. Assignment. The Company may assign its rights and delegate its obligations under this Agreement to any affiliate of the Company or to any acquirer of substantially all of the business of the Company whether through merger, purchase of assets, purchase of stock or otherwise. Otherwise, neither party may assign any rights or delegate any duties under this Agreement. This Agreement shall be binding upon and inure to the benefit of the parties and their respective legal representatives, heirs, and permitted successors and assigns. A. Entire Agreement. This Agreement sets forth the entire agreement and understanding of the parties and supersedes all prior understandings, agreements or representations by the parties, written or oral, that relate to the subject matter of this Agreement. A. Amendments. No provision of this Agreement may be amended or waived except by an instrument in writing signed by the party sought to be charged with the amendment or waiver. Executed as of the date set forth on page 1. ELECTRONIC FAB TECHNOLOGY CORP. By Stuart W. Fuhlendorf Jack Calderon Jack Calderon EX-10.17 7 CONSULTING AGREEMENT This Consulting Agreement is entered into as of August 23, 1996, between Electronic Fab Technology Corp., a Colorado corporation (the "Company"), and Gerald J. Reid (the "Consultant"). The parties agree as follows: A. Engagement. The Company hereby agrees to engage Consultant and the Consultant hereby accepts such engagement on the terms and conditions set forth in this Agreement. A. Duties. (a) Consultant shall provide technical assistance and personal services to the Company from time to time as requested by the Chief Executive Officer of the Company. The Consultant shall be available for up to 40 hours a week to provide such services, but shall provide only such services as are requested by the Chief Executive Officer of the Company and are reasonably acceptable to the Consultant. (b) Consultant agrees not to provide any services for or on behalf of the Company except those explicitly described above or those specifically requested by the Chief Executive Officer of the Company. Consultant will not represent to any third parties that he has any other ability to act for or on behalf of the Company. (c) Consultant shall provide all office space and equipment as necessary to fulfill his duties under this Agreement. Consultant shall perform his obligations under this Agreement as an independent contractor, not as an employee. Consultant shall be responsible for all tax withholding and estimated tax or other tax payments attributable to this Agreement. A. Term. The initial term of this Agreement shall begin on the date of this Agreement and shall terminate one year from the date of this Agreement. The Consultant may extend the term of this Agreement for up to three additional consecutive one-year periods by giving written notice of extension to the Company at least 15 days before the end of the previous one-year period. Notwithstanding the foregoing, this Agreement shall be terminated as of the date set forth below upon the occurrence of any of the following events: 1. immediately if the Consultant dies (except as specified in Section 4(d)); 1. six months after such time as the closing sale price of the Company's common stock on the NASDAQ trading system shall be $8 per share or higher for at least 20 of any 30 consecutive trading days; 1. 30 days after the aggregate number of shares of the Company's common stock sold by Consultant or his wife after the date of this Agreement shall equal or exceed 500,000; or 1. such time as any person or group (as defined in Section 13(d) under the Securities Exchange Act of 1934), excluding the Consultant and his spouse, shall acquire beneficial ownership of shares with a majority of the voting power of the Company's outstanding stock entitled to vote generally in elections of directors. For these purposes, the term "group" shall be defined, and beneficial ownership shall be determined, as provided in Section 13(d) of the Securities Exchange Act of 1934 and regulations of the Securities and Exchange Commission under such section. A. Compensation. Consultant shall receive the following compensation for his availability and services hereunder: 1. Simultaneously with and as consideration for the execution and delivery of this Agreement, the Company is (i) making a one-time payment to Consultant of $100,000 cash and (ii) transferring and assigning to Consultant the Jeep Grand Cherokee owned by the Company that has been made available previously for Consultant's use. All costs of insuring, maintaining and operating that vehicle will be at the Consultant's expense. 1. The Company shall pay to Consultant fees of $100,000 per year. This amount shall be paid biweekly in arrears. If at any time the total number of shares of the Company's common stock sold by Consultant and his wife on or after the date of this Agreement exceeds 100,000, then the compensation due Consultant under this Section 4(a) shall be reduced by the amount of all proceeds received by Consultant or his wife from the sale of such shares in excess of 100,000 (net of all sales commissions and other selling expenses). Such reduction shall be effected by withholding any payments until the total amount withheld equals such excess proceeds. If more shares are then sold, further compensation will be withheld on each occasion in the same manner. However, under no circumstances will Consultant be required to return any compensation already paid to him. 1. Throughout the term of this Agreement, Consultant will continue to receive health, dental and vision insurance as is generally made available by the Company to its employees, at no expense to Consultant. This insurance shall cover both Consultant and his wife. If Consultant dies, his wife will still be entitled as a third-party beneficiary to receive such health insurance through the fourth anniversary of the date of this Agreement. 1. The Company shall reimburse Consultant for all expenses reasonably incurred by the Consultant in performing his duties under this Agreement, as such duties are approved by the Company's Chief Executive Officer. A. Confidential Information. Consultant acknowledges that the trade secrets, know-how and proprietary processes of the Company and its confidential business plans, strategies, concepts, prospects and financial data (collectively, "confidential information") are valuable, unique assets of the Company. Consultant shall not, during or after the term of this Agreement, disclose any of the confidential information (unless already generally known to and available for use by the public other than as a result of a violation by Consultant of this Section 6 or as required by law) to any person or entity for any purpose, nor shall Consultant use or permit the use of any confidential information except, in either case, as is required for Consultant to perform his duties under this Agreement. A. Covenants Not to Compete or Interfere. 1. Scope. In view of the unique and valuable consulting services that Consultant has been retained to render to the Company and Consultant's current and future knowledge of the customers, trade secrets and other proprietary information relating to the business of the Company and its customers and suppliers, Consultant agrees that during the term of this Agreement and for one year thereafter, he will not Participate In (as defined below) the business of electronic contract manufacturing. 1. Definition. For purposes of this Section 6, "Participate In"means "directly or indirectly, for his own benefit or for, with or through any other person, firm or corporation, own, manage, operate, control, lend money to or participate in the ownership, management, operation or control of, or be connected as a director, officer, employee, partner, Consultant, agent, independent contractor or otherwise with, or acquiesce in the use of his name in." Notwithstanding the foregoing, Consultant shall not be deemed to Participate In a business merely because he owns less than 5% of the outstanding stock of a corporation (measured in voting power or equity), if, at the time of its acquisition by Consultant, such stock is listed on a national securities exchange or is reported on NASDAQ. In addition, Consultant's ownership of stock of the Company will not violate this Section 6. If any restriction contained in this Section 6 is deemed to be invalid, illegal or unenforceable by reason of its duration, geographical scope or otherwise, then such provision shall be deemed reduced in extent, duration, geographical scope or otherwise by the minimum reduction necessary to cause the restriction to be enforceable. 1. Noninterference. During the period specified in Section 6(a) of this Agreement, Consultant shall not (i) directly or indirectly cause or attempt to cause any employee of the Company to leave the employ of the Company, (ii) in any way interfere with the relationship between the Company and any employee, customer or supplier, (iii) directly or indirectly hire any employee of the Company to work for any organization of which Consultant is an officer, director, employee, Consultant, independent contractor or owner of an equity or other financial interest, or (iv) interfere or attempt to interfere with any transaction in which the Company was involved during the term of this Agreement or his employment. A. Intellectual Property. 1. Consultant agrees to assign to the Company, or to any person or entity designated by the Company, the entire right, title and interest of the Consultant in and to all inventions, ideas, discoveries and improvements (collectively, "Inventions"), whether patented or unpatented, and material subject to copyright, made or conceived by the Consultant, solely or jointly, that arise out of or are related to research conducted by, for or under the direction of the Company, or that relate to methods, apparatuses, designs, products, processes or devices, sold, leased, used or under consideration or development by the Company at the time of such Invention. Consultant further acknowledges that all copyrightable materials developed or produced by Consultant within the scope of his employment by the Company constitute works made for hire. 1. Consultant shall communicate promptly and disclose to the Company, in such form as the Company may reasonably request, all information, details and data pertaining to any such inventions, ideas, discoveries and improvements described in paragraph 7(a) above. A. Injunctive Relief. Upon an actual or threatened breach by Consultant of Section 5, 6 or 7 of this Agreement, the Company shall be entitled to an injunction restraining Consultant from such breach. Nothing in this Agreement shall limit the Company's ability to obtain any other remedies, including damages for such actual or threatened breach. A. Waiver of Breach. A waiver by the Company of a breach of any provision of this Agreement by Consultant shall not be construed as a waiver of any breach of another provision or subsequent breach of the same provision. A. Severability. The invalidity or unenforceability in any application of any provision in this Agreement will not affect the validity or enforceability of any other provision or of such provision in any other application. A. Notices. All communications, requests, consents and other notices provided for in this Agreement shall be in writing and shall be deemed given if and when delivered personally by hand, sent by telecopy at the appropriate number indicated below with electronic confirmation of receipt, or mailed by first class mail, postage prepaid, addressed as follows: a. If to the Company: Electronic Fab Technology Corp. 7251 West Fourth Street Greeley, Colorado 80634-9763 Facsimile No. (303) 893-5009 with a copy to: Holme Roberts & Owen LLC 1700 Lincoln Suite 4200 Denver, Colorado 80203 Attn: John F. Knoeckel, Esq. Facsimile No. (303) 866-0200 a. If to Consultant: Gerald J. Reid 2150 Reservoir Road Greeley, Colorado 80631 or to such other address or telecopy number as either party may designate by notice pursuant to this Section 11. A. Governing Law. This Agreement shall be governed by Colorado law. A. Assignment. The Company may assign its rights and delegate its obligations under this Agreement to any affiliate of the Company or to any acquirer of substantially all of the business of the Company whether through merger, purchase of assets, purchase of stock or otherwise. Otherwise, neither party may assign any rights or delegate any duties under this Agreement. This Agreement shall be binding upon and inure to the benefit of the parties and their respective legal representatives, heirs, and permitted successors and assigns. A. Entire Agreement. This Agreement sets forth the entire agreement and understanding of the parties and supersedes all prior understandings, agreements or representations by the parties, written or oral, that relate to the subject matter of this Agreement. In particular, the parties hereby terminate Consultant's Employment Agreement with the Company dated as of February 28, 1994, and Consultant shall not be entitled to any severance or other payments or benefits, and shall have no obligations, under such terminated agreement. Consultant hereby resigns all positions he may hold with the Company other than his membership on the Board of Directors, his position as Chairman of the Board and the position as outside consultant described in Section 2. A. Amendments. No provision of this Agreement may be amended or waived except by an instrument in writing signed by the party sought to be charged with the amendment or waiver. Executed as of the date set forth on page 1. ELECTRONIC FAB TECHNOLOGY CORP. By Stuart W. Fuhlendorf Gerald J. Reid Gerald J. Reid EX-23.1 8 Consent of Independent Auditors The Board of Directors Electronic Fab Technology Corp.: We consent to the incorporation by reference in the registration statements (Nos. 33-77938 and 33-92418) on Form S-8 of Electronic Fab Technology Corp. of our report dated January 20, 1997, except as to note 12, which is as of February 24, 1997, relating to the balance sheets of Electronic Fab Technology Corp. as of December 31, 1996 and 1995, and the related statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996, which report appears in the 1996 annual report on Form 10-K of Electronic Fab Technology Corp. KPMG Peat Marwick LLP Denver, Colorado March 24, 1997 EX-24.1 9 POWER OF ATTORNEY Each person whose signature appears below appoints Stuart W. Fuhlendorf, his or her attorney-in-fact, with full power of substitution, for him or her in any and all capacities, to sign an annual report to be filed with the Securities and Exchange Commission (the "Commission") on Form 10-K for the year ended December 31, 1996, by Electronic Fab Technology, Corp., a Colorado corporation , and all amendments thereto, and to file the same, with all exhibits thereto, with the Commission; granting unto said attorney-in-fact full power and authority to perform any other act on behalf of the undersigned required to be done in the premises, hereby ratifying and confirming all that said attorney-in-fact may lawfully do or cause to be done by virtue hereof. Date: March 27, 1997 Gerald J. Reid Gerald J. Reid Date: March 27, 1997 Jack Calderon Jack Calderon Date: March 27, 1997 Lloyd A. McConnell Lloyd A. McConnell Date: March 27, 1997 Stuart W. Fuhlendorf Stuart W. Fuhlendorf Date: March 27, 1997 Brent L. Hofmeister Brent L. Hofmeister Date: March 27, 1997 Lucille A. Reid Lucille A. Reid Date: March 27, 1997 David W. Van Wert David W. Van Wert Date: March 27, 1997 Darrayl Cannon Darrayl Cannon Date: March 27, 1997 Masoud S. Shirazi Masoud S. Shirazi Date: March 27, 1997 Robert McNamara Robert McNamara Date: March 27, 1997 James A. Doran James A. Doran Date: March 27, 1997 Richard L. Monfort Richard L. Monfort Date: March 27, 1997 Charles Hewitson Charles Hewitson Date: March 27, 1997 Gregory Hewitson Gregory Hewitson Date: March 27, 1997 Matthew Hewitson Matthew Hewitson EX-27 10
5 YEAR DEC-31-1996 DEC-31-1996 123882 0 3886991 20000 9146505 14250044 12392267 3872443 22869641 5741555 2890000 0 0 39427 13882800 22869641 56880067 56880067 53980067 53980067 4921653 0 525854 (2465079) (872114) (1592965) 0 0 0 (1592965) (.40) (.40)
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