10-Q

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

      (Mark One)

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: APRIL 1, 2001
[   ]	TRANSITION REPORT PURSUANT SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________

Commission file number: 0-23332

EFTC CORPORATION
(Exact name of registrant as specified in its charter)

Colorado	84-0854616
(State or other jurisdiction of	(IRS Employer
incorporation or organization)	Identification No.)

2501 West Grandview Road
Phoenix, Arizona 85023
(Address of principal executive offices)

(602) 789-6600
(Issuer’s telephone number)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [   ] No

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.

Common Stock, par value $0.01	15,983,989 shares
(Class of Common Stock)	(Outstanding at April 30, 2001)

TABLE OF CONTENTS

Part I. Financial Information
Item 1. Unaudited Financial Statements
	Consolidated Balance Sheets-December 31, 2000 and April 1, 2001
	Consolidated Statements of Operations- Quarter Ended March 31, 2000 and April 1, 2001
	Consolidated Statements of Cash Flows-Quarter Ended March 31, 2000 and April 1, 2001
	Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
	General
	Merger Agreement
	Results of Operations
	Liquidity and Capital Resources
	Special Note Regarding Forward-Looking Statements
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission Of Matters To A Vote Of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EX-10.25

EFTC CORPORATION

FORM 10-Q

INDEX

		Page
		Number(s)
PART I. FINANCIAL INFORMATION
Item 1	Unaudited Financial Statements
	Consolidated Balance Sheets-
	December 31, 2000 and April 1, 2001	3-4
	Consolidated Statements of Operations-
	Quarter Ended March 31, 2000 and April 1, 2001	5
	Consolidated Statements of Cash Flows-
	Quarter Ended March 31, 2000 and April 1, 2001	6-7
	Notes to Consolidated Financial Statements	8-9
Item 2	Management's Discussion and Analysis of Financial
	Condition and Results of Operations
	General	10
	Merger Agreement	10
	Results of Operations	11-12
	Liquidity and Capital Resources	13-14
	Special Note Regarding Forward-looking Statements	14
Item 3	Quantitative and Qualitative Disclosures about Market Risk	15
PART II. OTHER INFORMATION
Item 1	Legal Proceedings	15
Item 2	Changes in Securities	15
Item 3	Defaults Upon Senior Securities	15
Item 4	Submission of Matters to a Vote of Security Holders	15
Item 5	Other Information	15-16
Item 6	Exhibits and Reports on Form 8-K	16
SIGNATURES		17

2

Part I. Financial Information

Item 1. Unaudited Financial Statements

EFTC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)

				December 31,			April 1,
				2000			2001
			ASSETS
Current Assets:
	Cash and equivalents			$	43		$	61
	Trade receivables, net of allowance for doubtful accounts of $1,671 and $2,228, respectively				42,270			33,613
	Receivable from sale of assets				500			—
	Inventories, net				82,220			81,504
	Prepaid expenses and other				1,380			2,140
			Total Current Assets		126,413			117,318
Property, Plant and Equipment, at cost:
	Leasehold improvements				4,249			4,256
	Buildings and improvements				2,127			2,158
	Manufacturing machinery and equipment				15,432			15,294
	Furniture, computer equipment and software				13,149			13,480
		Total			34,957			35,188
	Less accumulated depreciation and amortization				(14,581	)		(15,907	)
			Net Property, Plant and Equipment		20,376			19,281
Intangible and Other Assets:
	Goodwill, net of accumulated amortization of $1,025 and $1,092, respectively				6,997			6,930
	Intellectual property, net of accumulated amortization of $2,403 and $2,507, respectively				2,585			2,481
	Debt issuance costs, net of accumulated amortization of $811 and $969, respectively				2,470			2,312
	Deposits and other				731			727
			Total Intangible and Other Assets		12,783			12,450
				$	159,572		$	149,049

The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.

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EFTC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, Continued
(Dollars in Thousands, Except Per Share Amounts)

			December 31,			April 1,
			2000			2001
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
	Accounts payable		$	39,944		$	40,082
	Outstanding checks in excess of cash balances			5,471			10,272
	Accrued compensation and benefits			7,463			5,857
	Other accrued liabilities			1,498			2,163
		Total Current Liabilities		54,376			58,374
Long-term Liabilities:
	Long-term debt, net of current maturities:
		Banks		28,559			9,671
		Convertible Notes, including accrued interest		59,093			60,404
		Related parties		3,000			3,000
	Other			339			229
		Total Liabilities		145,367			131,678
Shareholders’ Equity:
	Preferred stock, $.01 par value. Authorized 5,000,000 shares; issued and outstanding 14,233 shares of Series B Convertible Preferred Stock			14,683			15,009
	Common stock, $.01 par value. Authorized 75,000,000 shares; issued and outstanding 15,933,489 and 15,980,989 shares, respectively			159			160
	Additional paid-in capital related to common stock			93,222			93,033
	Settlement obligation to issue 910,000 shares of common stock			2,303			2,303
	Deferred stock compensation cost			(280	)		(262	)
	Accumulated deficit			(95,882	)		(92,872	)
		Total Shareholders’ Equity		14,205			17,371
			$	159,572		$	149,049

The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.

4

EFTC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars In Thousands, Except Per Share Amounts)

			For the Quarter Ended
			March 31,			April 1,
			2000			2001
Net Sales			$	63,526		$	107,486
Cost of Goods Sold				62,197			97,576
		Gross profit		1,329			9,910
Operating Costs and Expenses:
	Selling, general and administrative expenses			4,848			4,934
	Recapitalization transaction costs			4,874			—
	Goodwill amortization			67			67
		Total operating costs and expenses		9,789			5,001
		Operating income (loss)		(8,460	)		4,909
Other Income (Expense):
	Interest expense			(1,608	)		(1,906	)
	Gain (loss) on sale of assets			(2	)		4
	Other, net			(30	)		3
		Income (loss) before income taxes		(10,100	)		3,010
Income Tax Benefit (Expense)				—			—
		Net income (loss)	$	(10,100	)	$	3,010
Net Income (Loss) Applicable to Common Shareholders:
	Basic		$	(10,100	)	$	2,665
	Diluted		$	(10,100	)	$	4,302
Net Income (Loss) Per Share Applicable to Common Shareholders:
	Basic		$	(0.65	)	$	0.16
	Diluted		$	(0.65	)	$	0.09
Number of Shares Used for Computation:
	Basic			15,543,000			16,872,000
	Diluted			15,543,000			47,977,000

The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.

5

EFTC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)

				For the Quarter Ended
				March 31,			April 1,
				2000			2001
Cash Flows from Operating Activities:
	Net income (loss)			$	(10,100	)	$	3,010
	Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
			Depreciation and amortization		1,700			1,501
			Amortization of debt issuance costs		474			158
			Impairment of property, plant and equipment		—			618
			Accrued interest on convertible notes		—			1,311
			Provision for excess and obsolete inventories		1,031			1,330
			Provision for doubtful accounts receivable		321			518
			Loss (gain) on sale of assets		2			(4	)
			Stock-based compensation and services expense		210			18
			Changes in operating assets and liabilities, net of effects of sale of business:
			Decrease (increase) in:
			Trade receivables		31			8,139
			Inventories		(25,934	)		(614	)
			Prepaid expenses and other		1,024			(688	)
			Increase (decrease) in:
			Accounts payable		4,491			138
			Accrued compensation and benefits		(1,054	)		(1,606	)
			Other accrued liabilities		5,925			555
			Net cash provided (used) by operating activities		(21,879	)		14,384
Cash Flows from Investing Activities:
		Proceeds from sale of assets			12,740			504
		Payment of commissions related to sale of business			(100	)		—
		Capital expenditures			(1,170	)		(919	)
			Net cash provided (used) by investing activities		11,470			(415	)
Cash Flows from Financing Activities:
		Proceeds from long-term debt			121,861			100,885
		Principal payments on long-term debt			(108,184	)		(119,773	)
		Payments for debt issuance costs			(165	)		—
		Increase in outstanding checks in excess of cash balances			—			4,801
		Proceeds from exercise of stock options			—			136
			Net cash provided (used) by financing activities		13,512			(13,951	)
			Net increase in cash and equivalents		3,103			18
Cash and Equivalents:
		Beginning of period			716			43
		End of period		$	3,819		$	61

The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.

6

EFTC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(Dollars in Thousands)

			For the Quarter Ended
			March 31,		April 1,
			2000		2001
Supplemental Disclosure of Cash Flow Information:
		Cash paid for interest	$	1,416	$	512
		Cash paid (received) for income taxes	$	—	$	—
Supplemental Schedule of Non-cash Investing and
	Financing Activities:
		Proceeds from sale of assets placed in escrow account	$	500	$	—
		Issuance of warrants to purchase common stock for debt issuance costs	$	326	$	—

The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.

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EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)

1. Basis of Presentation

Effective January 1, 2001, the Company changed its fiscal year from a calendar year to the Sunday closest to December 31. Similarly, the Company’s quarterly financial reporting ends on the Sunday closest to the last day of each calendar quarter, which was April 1, 2001 for the first quarter of 2001. This change did not have a material effect on the comparability between the first quarter of fiscal 2000 and 2001.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in conformity with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the quarter ended April 1, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. The unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.

2. Earnings Per Share

Basic Earnings Per Share excludes dilution for potential common shares and is computed by dividing net income or loss by the weighted average number of common shares outstanding for the period. Diluted Earnings Per Share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Basic and diluted Earnings Per Share are the same for the quarter ended March 31, 2000, as all potential common shares were antidilutive. For the quarter ended April 1, 2001, diluted Earnings per Share gives effect to shares issuable upon conversion of the Company’s Convertible Notes and Convertible Preferred Stock, using the if-converted method. Under the if-converted method, it is assumed that conversion occurred at the beginning of the quarter, and that the Company would not have been required to incur interest and dividends on the Convertible Notes and Convertible Preferred Stock, respectively.

3. Inventories

Inventories at December 31, 2000 and April 1, 2001 consist of the following:

	2000		2001
Purchased parts and completed subassemblies	$	65,905	$	67,265
Work-in-process		14,284		12,250
Finished goods		2,031		1,989
	$	82,220	$	81,504

8

EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)

4. Restructuring and Sale of Assets

Since the fourth quarter of 1998, the Company has taken actions to increase capacity utilization through the closure of facilities and the sale of assets. The aggregate operating results related to these locations, derived from the Company’s divisional accounting records (excluding corporate costs, interest and income taxes), for the first quarter of 2000 are summarized as follows:

Net sales		$	14,510
Cost of goods sold			15,429
	Gross profit (loss)	$	(919	)
Selling, general and administrative expenses		$	(682	)

Management estimates that approximately $11,000 of the net sales shown above relate to customers who have agreed to transition the manufacture of their products to other facilities operated by the Company. Following is a description of each location that was impacted by a sale or restructuring during the first quarter of 2000.

Sale of Tucson Assets. In December 1999, the Company commenced negotiations with Honeywell International, Inc. for the sale of inventory and equipment at the Company’s facility located in Tucson, Arizona. On February 17, 2000, these assets were sold to Honeywell for a purchase price of $13,240.

Southeast Operations. On September 30, 1999, the Company initiated a plan to consolidate and close its Southeast Operations in Fort Lauderdale, Florida. In connection with the restructuring, the Company recognized a charge of approximately $700 for severance costs related to approximately 200 employees who were terminated by April 2000. During the first quarter of 2000, the Company recognized charges totaling $950 for retention bonuses, relocation costs and other closure activities. The closure was substantially complete by the end of the second quarter of 2000 and all severance and retention costs were paid in 2000.

5. Debt Financing

At December 31, 2000 and April 1, 2001, long-term debt consisted of the following:

		2000		2001
Senior Subordinated Convertible Notes, interest at 8.875%, due June 2006		$	59,093	$	60,404
Note payable to director, interest at 10%, unsecured, due March 2004			3,000		3,000
Note payable to bank under revolving line of credit, interest at the prime rate plus .5% (8.5% at April 1, 2001), collateralized by substantially all assets, due March 2003			28,559		9,671
	Total long-term debt	$	90,652	$	73,075

9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

      The information set forth below contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements. See "—Special Note Regarding Forward-Looking Statements.”

General

      EFTC Corporation (the “Company”) is a provider of electronic manufacturing services to original equipment manufacturers. The Company focuses on high-mix solutions that target the aerospace, industrial controls and instrumentation, medical equipment, semiconductor capital equipment, networking and telecommunications equipment industries. The Company’s manufacturing services consist of assembling complex printed circuit boards (using both surface mount and pin-through-hole technologies), cables, electro-mechanical devices and finished products. High mix manufacturing involves processing printed circuit board assemblies in small-lots (25-100 assemblies per production run) in a flexible manufacturing environment.

      The following discussion and analysis provides information that EFTC’s management believes is relevant to an assessment and understanding of the Company’s results of operations and financial condition. This discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere herein, as well as with the consolidated financial statements, notes thereto and the related management’s discussion and analysis of financial condition and results of operations included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.

Merger Agreement

      As discussed in Part II, Item 5 of this Report, in May 2001 the Company signed a definitive merger agreement with K*TEC Electronics Holding Corporation, an electronic manufacturing services company based in Sugar Land, Texas. K*TEC is controlled by an affiliate of Thayer-BLUM Funding, L.L.C., the Company’s principal shareholder. A special committee of independent directors negotiated terms of the merger agreement on behalf of the minority shareholders of EFTC.

      Following completion of the transaction, EFTC and K*TEC will be wholly owned subsidiaries of a newly formed holding company, whose common stock is expected to be traded on the Nasdaq National Market. In connection with the signing of the merger agreement, Thayer-BLUM Funding, L.L.C. agreed to convert the Series B preferred stock and the senior convertible notes of EFTC into common stock on or before May 31, 2001.

      The current directors of EFTC will serve as the directors of the holding company following the merger. Consummation of the proposed business combination is subject to a number of closing conditions, including approval by EFTC’s shareholders. Consequently, there can be no assurance that the business combination will be consummated. If the merger is consummated, management expects that it will be accounted for as a reorganization of entities under common control.

10

Results of Operations

      The Company’s results of operations are affected by several factors, primarily the level and timing of customer orders (especially orders from Honeywell). The level and timing of orders placed by a customer vary due to the customer’s attempts to balance its inventory, changes in the customer’s manufacturing strategy, and variation in demand for its products due to, among other things, product life cycles, competitive conditions and general economic conditions. In the past, changes in orders from customers have had a significant effect on the Company’s quarterly results of operations. Other factors affecting the Company’s quarterly results of operations may include, among other things, the Company’s performance under the agreement with Honeywell, price competition, disposition of divisions and closure of operating units, the ability to obtain inventory from its suppliers on a timely basis, the Company’s level of experience in manufacturing a particular product, the degree of automation used in the assembly process, the efficiencies achieved by the Company through managing inventories and other assets, the timing of expenditures in anticipation of increased sales, and fluctuations in the cost of components or labor.

      The following table sets forth certain operating data as a percentage of net sales:

		For the Quarter Ended
		March 31,			April 1,
		2000			2001
Net sales			100.0	%		100.0	%
Cost of goods sold			97.9	%		90.8	%
	Gross profit		2.1	%		9.2	%
Selling, general and administrative			7.6	%		4.6	%
Recapitalization transaction costs			7.7	%		—
Goodwill amortization			0.1	%		0.1	%
	Operating income (loss)		(13.3	%)		4.5	%

      Net Sales. Net sales for the first quarter of 2000 were $63.5 million compared to $107.5 million in the first quarter of 2001, which is an increase of 69.2%. Substantially all of the increase in revenue during the first quarter of 2001 was attributable to increased sales under the Honeywell agreement at the Company’s Phoenix facility. However, this increased revenue was offset by the loss of revenue from the Tucson assets that were sold on February 17, 2000 and which contributed sales of approximately $4 million in the first quarter of 2000.

      Management expects the positive year over year trends in revenues and profits to continue in the second quarter of 2001 due to the addition of new customers and improved operational execution. However, the Company is experiencing order softness from some of its customers and second quarter revenues and profits may decline up to approximately 15% from first quarter of 2001 results. The Company is not able to provide guidance beyond the second quarter due to the uncertainty in the markets served by many of its customers.

Gross Profit. The Company had gross profit of 2.1% in the first quarter of 2000 compared to gross profit of 9.2% in the first quarter of 2001. The improvement in gross profit during the first quarter of 2001 is primarily attributable to an overall improvement in capacity utilization at the Company’s facilities. This improvement was driven by changes initiated in 1999 and the first half of 2000 related to the closure of the Ft. Lauderdale facility and the sale of the assets of the Tucson facility. The Ft. Lauderdale and Tucson facilities generated a combined gross profit deficiency of $0.9 million during the first quarter of 2000.

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Gross profit for the first quarter of 2000 was also negatively impacted by $0.8 million related to the transition of additional manufacturing services under the Honeywell agreement in the first quarter of 2000.

      During the first quarter of 2001, the Company assessed certain long-lived assets for impairment related to the planned move to a new facility in the Northeast, and the abandonment of software that is no longer expected to be used. Accordingly, the Company recognized impairment expense of $0.6 million that is included in cost of goods sold in 2001.

      Selling, General and Administrative Expenses. Selling, general and administrative expenses (“SG & A”) increased 1.8% to $4.9 million in the first quarter of 2001 compared to $4.8 million in the first quarter of 2000. Despite the significant increase in sales, SG & A expenses have remained stable, primarily due to the elimination of costs as a result of the closure of the Denver headquarters in the fourth quarter of 2000, and $0.7 million of SG & A eliminated in connection with the closure of the Ft. Lauderdale and Tucson facilities.

      Recapitalization Transaction Costs. In connection with the March 2000 recapitalization, the Company incurred charges totaling $4.9 million for financial advisor fees, a fee paid to Thayer-BLUM Funding, and due diligence costs for legal, accounting and management consultants. The Company capitalized costs associated with the Senior Subordinated Exchangeable Notes and the new revolving credit agreement, and all other costs were charged to operations during the first quarter of 2000.

      Interest Expense. Interest expense increased 18.5% to $1.9 million in the first quarter of 2001 compared to $1.6 million in the same quarter of 2000. The increase in 2001 was primarily attributable to an increase in the Company’s weighted average borrowings to $78.6 million compared to $38.7 million in the first quarter of 2000. The increased debt level in 2001 is attributable to the August 2000 issuance of Convertible Notes that bear interest at 8.875%. The Convertible Notes had an outstanding principal balance of $60.4 million at April 1, 2001. During the first quarter of 2000, interest expense included $0.4 million of accelerated amortization of debt issuance costs in connection with amendments to the previous bank credit agreement.

      Interest expense for the second quarter of 2001 is expected to decrease from first quarter levels since Thayer-BLUM Funding, L.L.C. has agreed to convert the Convertible Notes to common stock by May 31, 2001 as one of the conditions of the Merger Agreement with K*TEC Electronics Holding Corporation, as discussed in Part II, Item 5 of this Report on Form 10-Q.

      Income Tax Benefit. Due to significant net losses in 1999 and 2000, the Company recorded a valuation allowance for all of its net deferred tax assets. An income tax provision was not recorded for the earnings generated in the first quarter of 2001 as the amount that otherwise would have been provided was offset by a decrease in the valuation allowance for net deferred tax assets. Utilization of the Company’s net operating loss carryforwards is subject to limitation as a result of the change in ownership of the Company that occurred during 2000. Accordingly, if the Company continues to generate taxable earnings in future periods, these net operating losses may not be sufficient to eliminate the Company’s entire current income tax liability.

Liquidity and Capital Resources

      The Company’s working capital at April 1, 2001 totaled $58.9 million compared to $72.0 million at December 31, 2000. At April 1, 2001, borrowings on the Company’s $45.0 million

12

revolving credit facility were approximately $9.7 million and unused availability equaled approximately $35.3 million under the credit facility.

      Cash Flows from Operating Activities. Net cash provided by operating activities for the first quarter of 2001 was $14.4 million, compared with net cash used in operating activities of $21.9 million in the first quarter of 2000. The difference between the Company’s net income in the first quarter of 2000 of $3.0 million and its $14.4 million operating cash flow was primarily attributable to an $8.1 million decrease in trade receivables, $1.7 million of depreciation and amortization expense, a $1.3 million provision for excess and obsolete inventories, and a $1.3 million increase in accrued interest on convertible debt, partially offset by a decrease of $1.6 million in accrued compensation and benefits.

      Days Sales Outstanding (based on annualized sales for the quarter and net trade receivables outstanding at the end of the quarter) decreased to 29 days for the first quarter of 2001, compared to 37 days for the first quarter of 2000. Days Sales Outstanding for the first quarter of 2001 were affected favorably by a new financing program for a substantial portion of the Company’s receivables whereby the receivables are generally collected in 10 days in exchange for a discount of 0.5%.

      Inventories decreased 0.9% to $81.5 million at April 1, 2001, compared to $82.2 million at December 31, 2000. For the first quarter of 2001, inventory turns (i.e., annualized revenue divided by period end inventory) amounted to 5.3 times per year. This compares to 3.6 times for the first quarter of 2000. During 2000, one of the Company’s biggest challenges involved financing the higher levels of inventories required to support increased sales at the Phoenix facility. During the last half of 1999 and much of 2000, these difficulties worsened because of industry-wide shortages of components that ultimately delayed shipment of finished goods to customers. By the fourth quarter of 2000, the component shortages had diminished and the Company had generally improved its inventory management practices, which contributed to improved inventory turns in 2001 compared to 2000.

      Cash Flows from Investing Activities. Net cash used in investing activities in the first quarter of 2001 was $0.4 million compared with net cash provided by investing activities of $11.5 million in the first quarter of 2000. The Company’s investing cash flows in the first quarter of 2001 reflect $0.9 million in capital expenditures (primarily for new manufacturing equipment), partially offset by $0.5 million of proceeds from the sale of assets.

      The Company recently entered into a 10-year operating lease that provides for annual payments of approximately $0.6 million for a new manufacturing facility in Lawrence, Massachusetts. This facility will replace the Company’s current leased facility in Wilmington, Massachusetts that provided for annual payments of approximately $0.7 million. The Company anticipates that capital expenditures in the second and third quarter of 2001 will include approximately $1.5 million in initial leasehold improvement costs in connection with the new facility. In addition, the Company expects to incur capital expenditures of up to $0.7 million during the second quarter of 2001 for the purchase of computer hardware, including servers, routers, and switches, in connection with upgrading its management information systems at corporate headquarters.

13

      Cash Flows from Financing Activities. Net cash used in financing activities in the first quarter of 2001 was $14.0 million, compared with net cash provided by financing activities of $13.5 million in the first quarter of 2000. The Company’s financing cash flows in the first quarter of 2001 reflect a net reduction in borrowings under the Company’s revolving line of credit of $18.9 million, partially offset by a $4.8 million increase in outstanding checks in excess of cash balances.

      Management believes the Company has adequate capital resources to fund working capital and other cash requirements during 2001. At April 1, 2001, the Company had unused availability of approximately $35.3 million under its revolving credit facility. However, depending on the timing and ability of the Company to improve operational performance, the Company may need to seek additional funds through public or private debt or equity offerings, bank borrowings or leasing arrangements.

Special Note Regarding Forward-Looking Statements

      Certain statements in this Report constitute “forward-looking statements” within the meaning of the federal securities laws. Additional written or oral forward-looking statement may be made by the Company from time to time, in press releases, annual or quarterly reports to shareholders, filings with the Securities and Exchange Commission, presentations or otherwise. Such forward-looking statements may include, among other things, statements concerning the Company’s plans, objectives and future economic prospects, prospects for achieving cost savings, future capacity utilization, future sales, profitability and capital expenditures, the Company’s proposed merger with K*TEC Electronics Holding Corporation, and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts.

      Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of EFTC, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause such differences include, but are not limited to, the dependence on Honeywell; risks associated with EFTC’s acquisition strategy and integration of acquired companies; integration of management, information, operating and financial systems; control by the Company’s majority shareholder; new management team; diversion of management attention; and other factors detailed in the Company’s filings with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.

      Readers are cautioned not to place undue reliance on any forward-looking statements contained herein, which speak only as of the date hereof. These statements reflect EFTC’s current expectations, and EFTC does not undertake to update or revise these forward-looking statements, even if experience or future changes make it clear that any projected results expressed or implied in this or other company statements will not be realized.

14

Item 3. Quantitative and Qualitative Disclosures about Market Risk

      On March 30, 2000, the Company entered into a $45 million revolving line of credit agreement with Bank of America, N.A. The interest rate under this agreement is based either on the prime rate or LIBOR rate, plus applicable margins. Therefore, as interest rates fluctuate, the Company may experience changes in interest expense that will impact financial results. The Company has not entered into any interest rate swap agreements, or similar instruments, to protect against the risk of interest rate fluctuations. Assuming outstanding borrowings of $45 million, if interest rates were to increase or decrease by 1%, the result would be an increase or decrease in annual interest expense of $450,000.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

      Not Applicable.

Item 2. Changes in Securities and Use of Proceeds

      Not Applicable.

Item 3. Defaults Upon Senior Securities

      Not Applicable.

Item 4. Submission Of Matters To A Vote Of Security Holders

      Not Applicable.

Item 5. Other Information

      On May 2, 2001, EFTC Corporation (“EFTC”); K*TEC Electronics Holding Corporation, formerly known as K*TEC Electronics Corporation (“K*TEC”); Thayer-BLUM Funding II, L.L.C. (“TBF II”); and Express EMS Corporation (“Parent”), a newly formed wholly owned subsidiary of EFTC, entered into an Agreement and Plan of Merger (the “Merger Agreement”), providing for, among other things, the merger of two wholly owned subsidiaries of Parent with and into EFTC and K*TEC, respectively. K*TEC is a privately held electronic manufacturing services company based in Sugar Land, Texas. K*TEC is 100% owned by TBF II, an affiliate of Thayer-BLUM Funding L.L.C. (“TBF”), EFTC’s principal shareholder. TBF currently controls approximately 56% of the outstanding voting stock of EFTC. A special committee of independent directors negotiated the terms of the Merger Agreement on behalf of the minority shareholders of EFTC.

      On May 3, 2001, the parties to the Merger Agreement agreed to substitute TBF II as a party to the K*TEC Merger (as such term is defined in the Merger Agreement). Such substitution is reflected in the Amended and Restated Agreement and Plan of Merger dated as of May 3, 2001 by and among EFTC, K*TEC, TBF II and Parent (the “Amended and Restated Merger Agreement”).

15

      In connection with the signing of the Merger Agreement, the Company entered into a stockholder agreement, as amended (the “Stockholder Agreement”), with TBF, TBF II and Parent that provides that TBF will convert the senior convertible notes and the Series B preferred stock of EFTC held by TBF into common stock on or before May 31, 2001. These conversions are expected to result in the issuance of approximately 32.2 million additional shares of common stock to TBF, which is expected to increase its voting control to approximately 78%. Pursuant to the Stockholder Agreement, TBF agreed to vote all its shares of EFTC common stock in favor of the business combination.

      Pursuant to the Amended and Restated Merger Agreement, Parent will form two new wholly owned subsidiaries, which will merge with and into EFTC and TBF II, respectively. Following completion of the transactions, EFTC and TBF II will be wholly owned subsidiaries of Parent, whose common stock is expected to be traded on the Nasdaq National Market. Based upon the Amended and Restated Merger Agreement’s exchange ratios, it is expected that the member of TBF II will receive approximately 55% of Parent’s capital stock, while EFTC shareholders will receive approximately 45% of the shares. Following consummation of the proposed business combination, TBF and its affiliates are expected to own approximately 88% of the outstanding capital stock of Parent.

      Consummation of the proposed business combination is subject to a number of closing conditions. Consequently, there can be no assurance that the business combination will be consummated.

Item 6. Exhibits and Reports on Form 8-K

(a). Exhibits

      The following exhibits are filed with this report:

*Exhibit 10.25 Commercial/ Industrial Lease effective April 1, 2001 between the Company and H.J. Brooks, LLC

* Filed herewith.

(b). Reports on Form 8-K

      The Company did not file any reports on Form 8-K during the quarter ended April 1, 2001.

16

SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

		EFTC CORPORATION
		(Registrant)
Date:	May 15, 2001	/s/ James K. Bass
		James K. Bass
		Chief Executive Officer
Date:	May 15, 2001	/s/ Peter W. Harper
		Peter W. Harper
		Chief Financial Officer
Date:	May 15, 2001	/s/ James A. Doran
		James A. Doran
		Chief Accounting Officer

17

INDEX TO EXHIBITS

Exhibits
*Exhibit 10.25	Commercial/ Industrial Lease effective April 1, 2001 between the Company and H.J. Brooks, LLC

* Filed herewith.

EX-10.25

   1
                                                                 Exhibit 10.25







                           COMMERCIAL/INDUSTRIAL LEASE

                                       for

                                EFTC CORPORATION

                                       at

                         104 Glenn Street, Lawrence, MA
   2
                                TABLE OF CONTENTS

  1.  REFERENCE DATA .........................................   5
      1.1  Definitions .......................................   5
           (a)  Commencement Date ............................   5
           (b)  Termination Date .............................   5
           (c)  Term .........................................   5
           (d)  Execution Deadline Date ......................   5
      1.2  Options ...........................................   5
      1.3  Property ..........................................   5
      1.4  Building ..........................................   5
      1.5  Leased Premises ...................................   5
      1.6  Tenant's Pro Rata Share ...........................   5
      1.7  Permitted Use .....................................   5
      1.8  Base Rent .........................................   5
      1.9  Additional Rent ...................................   6
      1.10 Landlord's Notice/Mailing Address .................   6
      1.11 Tenant's Notice/Mailing Address ...................   6
      1.12 Tenant's Trade Name ...............................   6
      1.13 Tenant's Emergency Contact ........................   6
      1.14 Broker ............................................   6
      1.15 Security Deposit ..................................   6
      1.16 Landlord's Work ...................................   6
      1.17 Tenant's Work .....................................   6
      1.18 Signage ...........................................   6
      1.19 Required Insurance ................................   6
      1.20 Access to Premises ................................   6

 2.   TERM OF LEASE ..........................................   6
      2.1  Initial Term ......................................   6
      2.2  Option Period .....................................   7

 3.   COMMENCEMENT DATE ......................................   7

 4.   USE ....................................................   7

 5.   LANDLORD DELIVERY AND IMPROVEMENT OF PREMISES ..........   7

 6.   BASE RENT ..............................................   7

 7.   ADDITIONAL RENT ........................................   8
      7.1 Payment of Additional Rent .........................   8
      7.2 Contribution to Taxes ..............................   8
      7.3 Contribution to Operating Costs ....................   8
      7.4 Contribution to Insurance ..........................   9
      7.5 Share of Additional Rent ...........................   9
      7.6 Cap on Operating Costs .............................  10
      7.7 Increase in Taxes ..................................  10
      7.8 Increase in Insurance ..............................  10

 8.   CHANGE IN SCOPE OF TAXATION ............................  10

 9.   INSURANCE ..............................................  10

10.   UTILITIES/DUMPSTER .....................................  11

11.   REPAIRS ................................................  11

12.   REQUIREMENTS OF PUBLIC AUTHORITIES .....................  12

13.   LANDLORD'S RIGHT TO CURE ...............................  12

14.   DESTRUCTION ............................................  12

15.   INDEMNIFICATION ........................................  13


                                       2
   3
16.   NON-LIABILITY OF LANDLORD ..............................  13

17.   ALTERATIONS ............................................  13

18.   TENANT'S SIGNS .........................................  13

19.   ACCESS TO PREMISES .....................................  13

20.   ASSIGNMENT AND SUBLETTING ..............................  14

21.   COVENANT AGAINST LIENS .................................  14

22.   SUBORDINATION ..........................................  14

23.   SECURITY DEPOSIT .......................................  14

24.   CONDEMNATION ...........................................  15

25.   SURRENDER BY TENANT AT END OF TERM .....................  16

26.   DEFAULT BY TENANT ......................................  16

27.   QUIET ENJOYMENT ........................................  19

28.   CERTIFICATES BY TENANT .................................  19

29.   NOTICES ................................................  19

30.   CAPTIONS ...............................................  19

31.   COVENANTS AND CONDITIONS ...............................  19

32.   WAIVER OF SUBROGATION ..................................  19

33.   DEFINITION OF LANDLORD .................................  20

34.   BROKERAGE REPRESENTATION ...............................  20

35.   LEASE YEAR .............................................  20

36.   HAZARDOUS MATERIALS ....................................  20

37.   DELAYS .................................................  21

38.   COVENANTS OF FURTHER ASSURANCES ........................  21

39.   ENTIRE AGREEMENT .......................................  21

40.   GOVERNING LAW ..........................................  21

41.   BIND AND INSURE CLAUSE .................................  21

42.   ROOF RIGHTS    .........................................  21



Exhibits:


EXHIBIT A BUILDING/LEASED PREMISES/PROPERTY PLAN/PARKING......  23

EXHIBIT B LANDLORD'S WORK ....................................  24

EXHIBIT C TENANT'S WORK/LOADING DOCKS...........................25

                                       3
   4
EXHIBIT D TENANT'S SIGNS .......................................26

EXHIBIT E OPERATING BUDGET .....................................27

EXHIBIT F TENANTS PERSONAL PROPERTY     ........................28



























                                       4
   5
                          L E A S E    A G R E E M E N T

         THIS AGREEMENT, made this ___ day of April, 2001 between H.J. Brooks,
LLC a duly formed limited liability company with a principal place of business
at 9 Red Roof Lane, Salem, NH, 03079 ("Landlord") and EFTC Corporation a duly
formed Colorado corporation with a place of business at 2501-1 W. Grandview
Road, Phoenix, AZ 85023 ("Tenant").

                               W I T N E S S E T H

         In consideration of the mutual covenants and agreements in this Lease,
Landlord leases to Tenant and Tenant leases from Landlord, the Leased Premises.

   1. REFERENCE DATA.

         1.1 Definitions:

         a)  Commencement Date: April 1, 2001

         b)  Termination Date: March 31, 2011

         c)  Term: Ten (10) years

         d)  Rent Commencement Date: August 1, 2001

         e)  Additional Rent Commencement Date: April 1, 2001

         1.2 Options to Extend: Two periods of five (5) years each.

         1.3 Property: 94-104 Glenn Street, Lawrence, MA consisting of
approximately 12 +/- acres, containing 207,000 square feet in three Buildings,
as further described herein and as more particularly shown on the plan annexed
hereto as Exhibit A.

         1.4 Building: Steel-frame concrete block structure on the Property,
containing approximately 103,000 rentable square feet, as further described
herein and as more particularly shown on the plan annexed hereto.

         1.5 Leased Premises: Approximately 73,000 square feet of rentable space
in the Building, located on the first floor thereof, as all is more particularly
shown on the plan annexed hereto, together with non-exclusive use of the
Property's common areas and exclusive use to the trash compactor located
adjacent to the building just outside of the Leased Premises.

         Tenant's Pro Rata Share: Percentage that the rentable square footage of
Leased Premises bears to the rentable square footage of the Building, subject to
further adjustment as more particularly provided elsewhere herein. Currently
calculated at: 70.9% of the Building and 35.3% of the Property.

         1.7 Permitted Use: Office / Electronics Light Manufacturing including
without limitation assembly and soldering of electrical components; electrical
testing of assemblies; assembly of modules into assemblies; electrical and
mechanical testing of assemblies packaging and shipment of circuit card and unit
assemblies.

         1.8  Base Rent:

                     LEASE YEAR            ANNUALLY        MONTHLY
                     ----------            --------        -------

                     Year 1-2             $474,500.00     $39,541.67
                     Year 3-8             $511,000.00     $42.583.33
                     Year 9-10            $547,500.00     $45,625.00


                                       5
   6
         1.9 Additional Rent: 2001 Annual Estimate - $130,250.00

During the calendar year in which the Term begins, in addition to the Base Rent
payments, Tenant shall pay Landlord the sum of $10,854.17 per month on account
of Additional Rent. Such provisional Additional Rent payment is calculated to be
the Tenant's Pro Rata Share of the Landlord's estimated Operating Budget, as
such is more particularly provided in Exhibit E annexed hereto and made a part
hereof. The Additional Rent to be paid by Tenant shall be adjusted from time to
time, all as more particularly provided elsewhere in this Lease.

         1.10 Landlord's Notice/Mailing Address:
                                H.J. Brooks, LLC
                                9 Red Roof Lane
                                Salem, NH 03079

         1.11 Tenant's Notice/Mailing Address:
                                EFTC Corporation
                                2501-1 W. Grandview Road
                                Phoenix, AZ 85023

         1.12 Tenant's Trade Name: EFTC Corporation

         1.13 Tenant's Emergency Contact: Mr. James Dubois

         1.14 Brokers: Staubach Company and Oddo, Inc.

         1.15 Security Deposit: $39,540.00

         1.16 Landlord's Work: As set forth in Exhibit B annexed hereto and made
a part hereof.

         1.17 Tenant's Work: As set forth in Exhibit C annexed hereto and made a
part hereof.

         1.18 Signage: Tenant shall be entitled to maintain signs, as provided
in Exhibit D annexed hereto and made a part hereof.

         1.19 Required Insurance:

             (a) $2,000,000.00 for injury to or death of one person

             (b) $2,000,000.00 for any one occurrence

             (c) $2,000,000.00 for property damage

         1.20 Access: Tenant shall have access to the Building at all times.

         1.21 Parking: Tenant shall have exclusive use to two hundred fifty
(250) parking spaces including twelve (12) spaces at the entrance of the Leased
Premises for visitor and handicapped designation located in the parking area as
shown on the sketch attached hereto and made a part hereof as Exhibit B.

   2. TERM OF LEASE.

         2.1 Initial Term. Landlord leases to Tenant and Tenant leases from
Landlord the Leased Premises for the Term plus any partial month if this Lease
is dated other than the first of any month, to commence on the Commencement Date
and to expire on the Termination Date or on such other date as may be provided
in this Lease. This Lease shall not commence and this instrument shall be void
unless at least one counterpart has been fully executed by Tenant and delivered
to Landlord and at least one counterpart has been fully executed by Landlord and
delivered to Tenant.

         2.2 Option Period. Provided that the Lease has not been terminated for
Tenant's default and that Tenant is not then in default beyond any applicable
grace or notice period, then Tenant at its option, exercised by written notice
to the


                                       6
   7
Landlord not less than one hundred eighty (180) days prior to the expiration of
the then-current term, may extend the Term for the number and length of
immediately successive period(s) specified in Section 1 under the same terms and
conditions herein set forth, except that the Base Rental rate shall be adjusted
to reflect the then fair market rental rate as of the date for the expiration of
the then-current term. However, in no event shall the Base Rental rate for the
option period be less that the Base Rental rate for the last year of the
original Term. In the event that Landlord and Tenant are unable to agree upon
the Base Rental rate for the Option Period within thirty (30) days following
Landlord's receipt of Tenant's election to exercise the option to extend, the
fair market rental rate shall be determined by a board of three (3) licensed
real estate brokers, one of whom shall be named by Landlord, one of whom shall
be named by Tenant, and the two (2) appointed shall select the third. Each real
estate broker so selected shall be licensed in the jurisdiction in which the
Building is located as a real estate broker specializing in the field of
commercial leasing, having no less than ten years' experience in such field, and
recognized as ethical and reputable within the field. Landlord and Tenant agree
to make their appointments promptly within ten (10) days following the
expiration of the thirty (30) day period. The two (2) brokers selected by
Landlord and Tenant respectively shall select a third broker within ten (10)
days after they both have been appointed, and each broker, within fifteen (15)
days following the date the third broker is selected, shall submit his or her
determination of the fair market rental rate. The fair market rental rate shall
be the mean of the two (2) closest rental rate determinations. Landlord and
Tenant shall each pay the fee of the broker selected by it, and they shall
equally share the payment of the fee of the third broker.

   3. COMMENCEMENT DATES. The Term shall commence on the Commencement Date. The
Tenant's obligation to pay Base Rent shall begin on the Rent Commencement Date.
The Tenant's obligation to pay Additional Rent shall begin on the Additional
Rent Commencement Date.

   4. USE. The Tenant shall use the Leased Premises only for the Permitted Use.
The use of the Leased Premises by Tenant, however, is expressly subject to all
applicable zoning ordinances and rules and regulations of any governmental
authority, instrumentality, board or bureau having jurisdiction over the Leased
Premises, and the reasonable rules and regulations adopted by Landlord for the
Property from time to time. In no event shall the reasonable rules and
regulations adopted by Landlord in any way limit the permitted use and such
rules and regulations shall be enforced even handedly as between all tenants in
the Building.

   5. LANDLORD DELIVERY AND IMPROVEMENT OF PREMISES. Landlord hereby covenants
and agrees to deliver possession of the Leased Premises to Tenant on the
Commencement Date. Landlord shall complete Landlord's Work including without
limitation, repairs to any and all structural non-structural elements and the
interior of the Premises, together with all electrical, plumbing and other
mechanical installations therein, to insure that such elements are in good order
and repair prior to the Commencement Date. Landlord represents and warrants
that, as of the Commencement Date the Building and the Leased Premises are in
compliance with all applicable federal, state and local laws, ordinances
directives and codes.

   6. BASE RENT.

         6.1 Tenant agrees to pay to Landlord Base Rent during the Term. Equal
monthly installments of Base Rent shall be made promptly in advance on the first
day of each and every month during the Term beginning on the Rent Commencement
Date, including extensions if applicable without demand and, except as expressly
provided herein, without offset or deduction, together with such Additional Rent
(payable beginning on the Additional Rent Commencement Date) and other charges
required to be paid by Tenant under this Lease. Payment of Base Rent and
Additional Rent shall be made at the office of Landlord at the address first set
forth above, or to such other party and at such other place as may be
specifically required by this Lease or as Landlord may designate in writing from
time to time.

         6.2 No payment by Tenant or receipt by Landlord of a lesser amount than
the Base Rent or Additional Rent stipulated in this lease shall be deemed to be
other


                                       7
   8
than on account of the earliest stipulated rent, nor shall any endorsement or
statement on any check or payment, or any writing accompanying the check or
payment of such rent, be deemed an accord and satisfaction, and Landlord may
accept such check or payment without prejudice to Landlord's right to recover
the balance of such rent or pursue any other remedy in this lease provided.

   7. ADDITIONAL RENT.

         7.1 Payment of Additional Rent. "Additional Rent" payable by Tenant
shall include Tenant's Pro Rata Share of the costs, assessments and expenses
listed in this Section, in addition to other charges defined in this Lease as
Additional Rent.

         7.2 Contribution to Taxes. Tenant will pay to Landlord, Tenant's Pro
Rata Share of all real estate taxes, betterments and assessments ("Taxes")
charged against the Building and the Property, or any taxes assessed in lieu
thereof, each year of the Term or any extension or renewal thereof and
proportionately for any part of a fiscal year. This contribution to Taxes shall
be pro-rated should this Lease be in effect with respect to only a portion of
any fiscal tax year. If Landlord obtains an abatement of any such excess Taxes,
such abatement shall be refunded to Tenant. Furthermore, Tenant, at its sole
cost and expense, shall have the right (but not the obligation) to institute
proceedings to reduce the assessed value of the Premises or any other protest or
tax refund proceeding. Landlord agrees to cooperate with Tenant in connection
therewith, and to execute and deliver, in Tenant's or Landlord's name, any
documents or papers reasonably required to prosecute such proceeding. Tenant
shall keep Landlord informed with respect to the status of such proceedings. For
any refund received by Landlord or Tenant as a result of a favorable ruling from
an appeal initiated by Tenant of a tax assessment for any fiscal tax year for
which Tenant paid Taxes, Tenant shall be entitled to one hundred percent (100%)
of such refund.

         7.3 Contribution to Operating Costs. Tenant shall pay to Landlord
Tenant's Pro Rata Share of the Operating Costs of the Building and the Property
during the Term of this Lease, including any extension and renewal periods. For
the purposes of this Lease, "Operating Costs" shall include all costs and
expenses for the following services as they relate to the common areas of the
Property and the Building, if and to the extent provided by Landlord:

       operating, equipping , controlling traffic, policing, lighting, cleaning,
       maintaining, repairing, and restoring the common areas of the Property,
       including all utility lines, pipes and conduits, and drainage, septic and
       sewage systems serving the Property; repairing and maintaining the
       heating and air conditioning system servicing the Property, sweeping,
       snow plowing, sanding, refuse removal and wages, unemployment taxes,
       social security taxes and workmen's compensation insurance premiums for
       employees directly involved in the Building's maintenance and management,
       fees for required licenses and permits, and supplies.

To the extent that Tenant contracts directly for such services, the cost for
such services shall not be included in the definition of Operating Costs.
Furthermore, notwithstanding anything to the contrary contained in this Section
7.3, Operating Costs shall not include: any expenses for which Landlord actually
receives reimbursement from insurance, condemnation awards, other tenants or any
other source; costs incurred to correct defects in the initial design or
construction of the base Building and Building systems; costs of a capital
nature, including but not limited to, capital improvements, capital repairs, and
the purchase or leasing of capital equipment and capital tools; any fines or
penalties incurred in connection due to violations by Landlord of any applicable
governmental rule, law or regulation not occasioned by Tenant or any of its
employees or agents; amounts paid to any person, firm, or corporation related to
or otherwise affiliated with Landlord which are in excess of arm's-length
competitive prices paid in Lawrence, Massachusetts, for the services or goods
provided; payments of principal or interest on any mortgages or ground leases ;
leasing commissions; and costs incurred to correct defects in the initial design
and construction of the Building and Building systems, or any taxes including
without limitation income, excise or franchise taxes assessed against Landlord
which are not connected to Tenant's use of the Premises, Landlord's legal


                                       8
   9
fees incurred in connection with leasing or enforcement of other leases in the
Building and any service provided to a tenant on the Property which is not
offered to other tenants and cost of Landlord's Work.

         7.4 Contribution to Insurance. Tenant shall pay to Landlord Tenant's
Pro Rata Share of insurance costs, which shall include all premiums for
commercial (comprehensive) general public liability, property damage, casualty,
rent loss, and other insurance maintained by Landlord with respect to the
Building and Property in accordance with Section 9.3 below.

         7.5 Share of Additional Rent. Landlord shall reasonably estimate
Tenant's Pro Rata Share of annual Additional Rent for Operating Costs, Insurance
and Taxes for each calendar year during the Term and Tenant shall pay with each
monthly installment of Base Rent, as Additional Rent, an amount equal to
one-twelfth of the total of Tenant's Pro Rata Share of such annual Additional
Rent for Operating Costs, Insurance and Taxes. Landlord's estimate of the
initial Additional Rent payments are stated in Section 1 of this Lease. Landlord
may adjust the estimate from time to time during each calendar year as Landlord
receives actual bills or receives information of costs incurred or to be
incurred. If total payments made by Tenant based on the estimate exceed actual
Additional Rent as finally determined for the calendar year in question, then
any overpayment shall be returned to the Tenant within thirty (30) days. If
total payments based on the estimates are less than the actual amount of
Tenant's Pro Rata Share, then Tenant shall pay to Landlord the full amount of
the deficiency within thirty (30) days after receiving written notice from
Landlord of the amount of such deficiency. Upon Tenant's request (which may be
exercised no more than once per calendar year), Landlord shall provide Tenant
with copies of the major invoices for charges included in Additional Rent for
Operating Costs, Insurance and Taxes for the immediately preceding calendar
year. If Tenant believes that any payments for Operating Costs were made that
are not permitted pursuant to this Section 7 or were made in error, due to
calculation or otherwise, then Tenant may provide Landlord with written notice
of its objections to or inquiries about such charges. If Landlord is unable to
satisfy Tenant's inquiries or if Landlord and Tenant are unable to resolve
Tenant's objections and agree upon the charges in question within thirty (30)
days after Landlord's receipt of Tenant's notice, Tenant shall have the right to
employ a certified public accountant to inspect and/or audit Landlord's books
records relating to the calculation of Operating Costs. If Tenant so elects to
employ such accountant, Tenant shall provide not less than ten (10) days' notice
to Landlord of the date upon which the accountant desires to examine Landlord's
books and records. Landlord shall make the relevant books and records available
to such accountant at a mutually agreeable location in the Town of Methuen.
Tenant's accountant shall deliver a written report of such audit to Landlord and
Tenant within thirty (30) days after the conclusion of the accountant's
examination. Landlord's accountant and Tenant's accountant shall attempt to
reconcile their differences within thirty (30) days thereafter and shall provide
notice of such reconciliation to Landlord and Tenant. Upon final determination
thereof, if it is determined that the amounts paid by Tenant to Landlord for
Operating Costs exceeded the amounts to which Landlord was entitled hereunder,
Landlord shall credit the amount of such excess payments against payments of
estimated Operating Costs next becoming due and payable hereunder after the date
Landlord receives notice of final determination of the error; provided, however,
if the Term shall have expired or been terminated, Landlord shall refund such
excess to Tenant within thirty (30) days after its receipt of notice of the
final determination. If it is determined that the amounts paid by Tenant to
Landlord for Operating Costs were less than the amounts to which Landlord was
entitled hereunder, Tenant shall pay the amount of such shortfall to Landlord
within thirty (30) days after its receipt of notice of the final determination.
Each party shall bear their own respective costs and expenses related to such
audit.

         7.6 Cap on Operating Costs. The actual or estimated Operating Costs,
Insurance and Taxes for the calendar year containing the Commencement Date are
stated in Exhibit E. Landlord agrees that the subsequent annual estimate of
Operating Costs, shall not increase by more than three percent (3%) over the
then prior year's actual Operating Costs.

                                       9
   10
         7.7 Increase in Taxes. In addition to Tenant's contribution to Taxes,
Tenant shall pay as Additional Rent all increases in Taxes attributed to
additions and improvements to the Leased Premises made by or on behalf of Tenant
(exclusive of building standard improvements provided by Landlord at Landlord's
expense). This element of Additional Rent may be included in Tenant's monthly
installments of Additional Rent or, at Landlord's option, separately billed to
Tenant by written notice to Tenant, in which case Tenant shall pay the billed
amount within thirty (30) days of notice.

         7.8 Increase in Insurance. The Tenant shall not use or occupy the
Leased Premises or any part thereof or suffer or permit the same to be used or
occupied for any business or purpose deemed extra hazardous on account of fire
or otherwise, and if by reason of the use and occupancy of the Leased Premises,
the rate of fire insurance on the Building shall be increased, the Tenant will,
on demand, pay to the Landlord the amount of such increase.

   8. CHANGE IN SCOPE OF TAXATION.

         8.1 If during the Term the method or scope of taxation prevailing on
the date of last execution of this Lease shall be altered, modified or enlarged
so as to cause the method of taxation to be changed, in whole or in part, so
that in substitution for the real estate taxes now assessed there may be, in
whole or in part, a capital levy or other imposition based on the value of the
Leased Premises, or the rents received, or some other form of assessment based
in whole or in part on some other valuation of the Property, then and in such
event, the substituted tax or imposition shall be payable and discharged by
Tenant in the manner required pursuant to such law promulgated which authorizes
such change in the scope of taxation, and as required by the terms and
conditions of this Lease.

         8.2 No provision contained in this Lease shall require Tenant to pay
any franchise, estate, inheritance, succession, capital levy or transfer tax of
Landlord, or federal income or state income tax (but not state income tax if in
whole or partial substitution for real property taxes), or excess profits or
revenue tax.


   9. INSURANCE.

         9.1 Landlord shall keep the Building and the entire Leased Premises
insured against loss or damage by fire and such other risks for full replacement
valve of the Building.

         9.2 Tenant shall obtain and maintain broad form commercial
(comprehensive) general liability insurance (including but not limited to
insurance against assumed or contractual liability under this Lease) with
respect to the Leased Premises and its appurtenances, naming Landlord as
additional insured, in amounts not less than the Required Insurance.

         9.3 Tenant shall obtain and maintain all risks property and casualty
insurance, including theft coverage, written at replacement cost value and with
replacement cost endorsement, covering Tenant's contents, trade fixtures,
machinery, equipment and furnishings within the Leased Premises.

         9.4 Tenant shall deliver to Landlord the policies or certificates of
the insurance required by this Lease, issued by insurance companies authorized
to do business in the state in which the Property is located and are A.M. Best
Rated "A-X" or better, prior to the Commencement Date and, as necessary, prior
to the expiration of the policy it renews. Each policy of insurance shall
contain a provision by which the insurer agrees that the policy will not be
canceled, materially changed or not renewed without Landlord's receiving at
least thirty (30) days prior written notice from the insurer to Landlord.

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   10. UTILITIES/DUMPSTER. Tenant shall have the right, at its own cost and
expense, to contract for and directly pay all utility meter and service charges
it incurs, including but not limited to those for gas, sewer, electricity, waste
removal, and any deposits required by utility suppliers with respect to the
Leased Premises if such service is separately metered or provided to Tenant. To
the extent that Tenant shall so contract directly for such services, the cost of
such services shall not be included in Operating Costs.

   11. REPAIRS.

         11.1 Tenant shall have the responsibility to keep and maintain the
Leased Premises in a good and complete state of repair and condition at all
times except for ordinary wear and tear resulting from Tenant's use and
occupancy and except as otherwise provided in this Lease. Notwithstanding the
foregoing sentence to the contrary, Landlord shall be responsible at its sole
cost and expense (unless such maintenance and/or repair is caused by Tenant's
negligent acts) for maintenance and repair of the structural portions including
without limitation footings, foundations, floor slab, structural walls, columns
and beams and all roof areas of the Building including without limitation the
roof membrane. Landlord shall also keep in good working order and repair the
Building's systems including without limitation electrical system and plumbing
systems to the point that they enter the Leased Premises, and common areas
including access ways, drive ways, parking areas located on the Property.

         Except as otherwise provided herein, Tenant shall maintain the Leased
Premises and be responsible for all repairs and replacements of every kind and
character, to any plumbing fixtures, lamps and ballasts, and any hardware items
necessary to preserve and maintain the Leased Premises and its appurtenances
(excluding those areas for which Landlord is responsible as provided herein).

         In addition, Tenant shall replace in the Leased Premises all glass,
including plate glass, damaged or destroyed by any actions of Tenant over the
Term of this Lease. All the foregoing repairs and replacements whether performed
by Landlord or Tenant, including Landlord's Work, shall (a) be performed in a
good and workmanlike manner, (b) the of first-class quality, (c) not diminish
the overall value of the Leased Premises, and (d) be subject to Landlord's prior
written approval (except in cases of emergency), such approval not to be
unreasonably delayed, conditioned, or withheld. All repairs and replacements and
other property attached to or used in connection with the Leased Premises by or
on behalf of Tenant (other than removable trade fixtures, furniture and
equipment and those items listed on Exhibit F attached; hereto and made a part
hereof (collectively, "Tenant's Personal Property.") shall become the property
of Landlord without payment on the termination of this Lease. Landlord
represents and warrants that all non-structural elements and the interior of the
Premises, together with all electrical, plumbing and other mechanical
installations therein, including, but not limited to, heating and air
conditioning equipment are in good order and repair.

         11.2 Tenant will procure all necessary permits before making any
repairs, installations, alterations, additions, improvements or removals.
Landlord will cooperate with Tenant in obtaining such permits. Tenant will make
all repairs, installations, alterations, improvements and removals in a good and
workmanlike manner, in conformity with all laws, ordinances and regulations of
all public authorities and all insurance inspections or rating bureaus having
jurisdiction, and so that the structure of the Building will not be endangered
or impaired. Tenant will repair all damage caused by or resulting from any such
repairs, installations, alterations, additions, improvements or removals,
including, but without limitation, the filling of holes. Tenant will pay
promptly when due all charges for labor and materials in connection with any
work done by Tenant on the Leased Premises so that the Property shall at all
times be free of liens and shall immediately discharge any such liens filed by
any contractor retained by Tenant.

         11.3 Tenant shall be responsible for minor repairs and preventive
maintenance of the HVAC system serving the Leased Premises. The Landlord shall
be responsible, for any major repairs (greater than $500 per occurrence) and
capital replacement of the HVAC system servicing the Leased Premises.

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   12. REQUIREMENTS OF PUBLIC AUTHORITIES. Tenant and Landlord shall suffer no
waste or injury in or about the Leased Premises and shall comply with all
federal, state, county and municipal laws, ordinances and regulations applicable
to the structure, use and occupancy of the Leased Premises. In addition, Tenant
and Landlord respectively shall effect the correction, prevention and abatement
of violations or other grievances in, upon or connected with the Leased Premises
or the building, as applicable and shall also promptly comply with all rules,
orders and regulations of the Board of Fire Underwriters.

   13. LANDLORD'S RIGHT TO CURE. During reasonable business hours, upon at least
twenty-four (24) hours' prior notice (except in case of emergency) and when
accompanied by a representative of Tenant, Landlord and its agents and workmen
shall have the right to enter into and upon the Leased Premises at all
reasonable times for the purpose of inspection and examination of the state of
repair and condition thereof. In case of an emergency Landlord shall contact The
Emergency Contact.

       If Tenant fails to maintain the Leased Premises as required herein or
make any required repairs after reasonable notice (or prior to notice in case of
emergency), Landlord may, but shall not be obligated to, make such repairs as
shall be necessary as a consequence of any failure of Tenant to meet its
obligations under this Lease. The making of any such repairs by Landlord shall
not constitute a waiver by Landlord of any right or remedy provided by this
lease upon Tenant's default in the making of such repairs.

   14. DESTRUCTION. If the Leased Premises or the Building, at any time during
the term, are damaged in whole or in part by fire, flood, tornado or by the
elements, or by Act of God, or by the public enemy or otherwise, Tenant shall
give prompt written notice to Landlord.

       If the Leased Premises or the Building are substantially damaged, then
this Lease and the Term, at the election of the Landlord, shall either terminate
or if Landlord shall elect to rebuild and restore the Building, this Lease shall
continue in full force and effect. Landlord agrees to notify Tenant of its
election within thirty (30) days following Tenant's notice or Landlord's
discovery of such damage. Upon its election to restore, if Landlord can not
reasonably expect to complete restoration within ninety (90) days following the
expiration of Landlord's thirty (30) day period to notify Tenant of its election
to resolve, then Landlord shall so notify Tenant, and Tenant shall have the
right to terminate this Lease. Base Rent, Additional Rent and other charges
payable under the Lease shall be equitably abated during the period of
Landlord's restoration or repair.

       If the Leased Premises or the Building are damaged but not substantially
damaged, or if Landlord elects to restore the Building after substantial damage,
Landlord shall repair the damage and restore the Leased Premises to
substantially the same condition as existed immediately prior to the damage with
reasonable dispatch but no such restoration or repair shall in any event be
completed later than one hundred twenty (120) days following Tenant's notice or
Landlord's discovery of damage. In the event Landlord is unable to complete said
restoration or repair within said one hundred twenty (120) days Tenant shall
have the right to terminate this Lease. However, Landlord's obligation to
restore does not include restoring leasehold improvements or Tenant's fixtures,
equipment and property.

       If Landlord gives Tenant a termination notice, this Lease and the Term
shall terminate on the date specified in the termination notice, with the same
effect as though that date were the scheduled Termination Date, and Base Rent,
Additional Rent and other charges payable under this Lease shall be apportioned
and paid up to the date of the damage, and any prepaid unearned rent or other
charges shall forthwith be repaid by Landlord to Tenant. If Tenant gives
Landlord a termination notice this Lease shall terminate on the date specified
and any prepaid unearned rent or other charges, including without limitation the
security deposit shall forthwith be repaid by Landlord.

       Notwithstanding anything to the contrary contained in this Section 14, in
the event the Leased Premises is substantially damaged and Landlord should elect
to


                                       12
   13
terminate this Lease as provided herein, upon receipt of Landlord's written
notice of its election to terminate, Tenant, within fifteen (15) days following
receipt of such notice may, at its option, elect, by the giving of written
notice to Landlord, to continue this Lease and rebuild the Leased Premises to
substantially the same condition as existed immediately prior to the damage at
its sole cost and expense provided such repairs can be completed within ninety
(90) days following Tenant's notice to Landlord of such election. A
proportionate share of Base Rent, and Additional Rent and other charges payable
under the Lease shall be abated during the repair order period. Upon Landlord's
receipt of Tenant's notice to continue this Lease Landlord's notice of
termination shall be deemed null and void and Tenant shall be entitled to all
insurance proceeds received or to be received by Landlord on account of such
substantial damage.

       "Substantially damaged" for the purposes of this Section shall be defined
as damage to the Building in excess of fifty percent (50%) of either the
rentable floor area or the Building's replacement cost.

       Notwithstanding the foregoing, if insurance proceeds recovered shall be
insufficient to restore the Leased Premises in accordance with this Section, and
Landlord elects to rebuild, then Landlord promptly shall notify Tenant of the
estimated amount of such insufficiency. Within fifteen (15) days after receiving
Landlord's written notice pursuant to the preceding sentence, Tenant will notify
Landlord of Tenant's election either: (i) to pay such insufficiency to Landlord,
in which case, Landlord will rebuild; or (ii) not to pay such insufficiency, in
which case, unless Landlord elects to rebuild notwithstanding the insufficiency,
this Lease will terminate as of the date on which the damage or destruction
occurred, and rent and other charges will be apportioned and paid to that
termination date, and any prepaid unearned rent and other charges and security
deposit will be repaid to Tenant. Tenant shall be entitled to an abatement of
rent for the period during which the Leased Premises are rendered untenantable
for the Permitted Use. If only a part of the Building is rendered untenantable
for the Permitted Use, the rent shall be reduced proportionately.

       If the Building is so damaged that it is necessary in Landlord's sole
discretion, to demolish the Building for restoration or reconstruction, Landlord
may demolish the Building, in which case rent shall be abated as though the
Building were substantially damaged.

   15. INDEMNIFICATION. Tenant agrees to indemnify Landlord and save Landlord
harmless from and against any and all claims, actions, damages, liabilities and
expenses (including attorney's fees) in connection with loss of life, personal
injury and/or damage to property to the extent arising from or out of the
occupancy or use of the Leased Premises or any part thereof to the extent such
damage or loss is caused by any negligent act or omission or intentional
misconduct of Tenant, its employees, agents or invitees.

       Landlord agrees to indemnify Tenant and save Tenant harmless from and
against any and all claims, actions, damages, liabilities and expenses
(including attorney's fees) in connection with loss of life, personal injury
and/or damage to property to the extent arising from or out of the occupancy or
use of the Leased Premises or any part thereof to the extent such damage or loss
is caused by any negligent act or omission or intentional misconduct of
Landlord, its employees, agents or invitees.

   16. NON-LIABILITY OF LANDLORD. Landlord shall not be liable for any damage or
injury which may be sustained by Tenant or any other person resulting from acts,
conduct or omissions on the part of Tenant or of Tenant's agents, employees,
guests, licensees, invitees, assignees or successors.

   17. ALTERATIONS. Except for that work specifically shown on Exhibit C
attached hereto and incorporated herein as Tenant's Work, Tenant covenants and
agrees that it will not make any improvements, changes, installations,
renovations, additions or alterations in and about the Leased Premises during
any twelve (12) month period in excess of any aggregate cost of $12,000.00
without the prior written consent of Landlord which consent shall not be
unreasonably delayed, conditioned or withheld.

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Tenant covenants and agrees that it will not make any structural improvements,
changes, installations, renovations, additions or alterations in and about the
Leased Premises of any kind whatsoever, without first obtaining the prior
written consent of Landlord, which consent shall not be unreasonably withheld,
conditioned or delayed.

   18. TENANT'S SIGNS. Tenant may maintain the signs permitted in Section 1 and
in accordance with Exhibit D attached hereto. Tenant's signage shall comply with
all laws, ordinances and regulations of any governmental authority having
jurisdiction.

   19. ACCESS TO PREMISES. Upon twenty-four (24) hours' prior notice (except in
case of emergency) and when accompanied by a representative of Tenant, Tenant
shall permit Landlord or its agents to enter the Leased Premises to show the
Leased Premises to lenders, appraisers, and possible purchasers, and within nine
(9) months prior to the Termination Date to persons wishing to rent the Leased
Premises. Within six months (6) following the Termination Date, Tenant shall
permit the usual "To Let" and "For Sale" signs to be placed on the Leased
Premises and to remain thereon without hindrance or molestation.

   20. ASSIGNMENT AND SUBLETTING. Provided Tenant is not in default, Tenant
shall have the right to assign this Lease, or to sublet the whole or any part of
the Leased Premises to any parent company, subsidiary, affiliate or related
corporate entity, any entity resulting from the merger of consolidation of
Tenant, or any person or entity acquiring all or substantially all of Tenant's
assets, stock or other interests of Tenant, without Landlord's prior consent.
Tenant shall have the right to sublease or assign all or any portion of the
Leased Premises to unrelated entities, subject only to Landlord's prior written
consent, which consent shall not be unreasonably withheld, conditioned or
delayed. Tenant shall use reasonable efforts to provide written notice to
Landlord at least sixty days (60) prior to such assignment or sublet. Tenant
shall, at all times remain liable for full performance of each and every
covenant of this Lease on the part of the Tenant to be performed.

   21. COVENANT AGAINST LIENS. Tenant agrees that it shall not encumber, or
suffer or permit to be encumbered, the Leased Premises or the fee thereof by any
lien, charge or encumbrance, and Tenant shall have no authority to mortgage or
hypothecate this Lease in any way whatsoever.

   22. SUBORDINATION. This Lease shall be subject and subordinate at all times
to the lien the existing mortgages and of mortgages which hereafter may be made
a lien on the Leased Premises, provided that, so long as the Tenant is not in
default in the payment of Rent or Additional Rent or in the performance of any
of the material terms of the Lease beyond any notice or grace periods provided
herein, the Tenant's possession of the Leased Premises and the Tenant's rights
and privileges under the Lease shall not be diminished or interfered with by any
Mortgagee. Tenant agrees to execute any and all instruments reasonably required
to effect such subordination upon request of Landlord or any mortgagee in
interest.

       In the event that any mortgage is foreclosed for any reason and the
Mortgagee succeeds to the interest of Landlord under this lease, Tenant shall be
bound to the Mortgagee under all the terms of this Lease for the balance of the
Term thereof, with all the same force and effect as if the Mortgagee were the
Landlord under the Lease, and the Tenant hereby attorns to the Mortgagee as its
Landlord, such attornment to be effective and self-operative immediately
(without the necessity of the execution of any further instrument on the part of
either of the parties hereto) upon the Mortgagee succeeding to the interest of
the Landlord under the Lease. The respective rights and obligations of the
Tenant and the Mortgagee upon such attornment shall be, to the extent of the
then remaining balance of the term of the Lease, the same as now set forth
therein, it being the intention of the parties hereto for this purpose to
incorporate by reference this Lease into any such mortgage with the same force
and effect as is set forth at length herein.

       In the event that any mortgage is foreclosed for any reason and the
Mortgagee succeeds to the interest of Landlord under this lease, the Mortgagee
shall be bound to the Tenant under all the terms of this Lease for the balance
of the Term, and the Tenant shall, from and after such event, have the same
remedies against the Mortgagee for the breach of an agreement contained in the
Lease that the Tenant might have had


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   15
under the Lease against the prior Landlord hereunder. Subject to the provisions
elsewhere contained, in no event shall the Mortgagee be liable for any act or
omission of any prior Landlord of which it did not receive notice from Tenant,
be subject to any offsets or defenses which the Tenant may have against any
prior Landlord of which it did not receive notice from Tenant, or be bound by
any Rent or Additional Rent which the Tenant might have paid to any prior
Landlord for more than the current month which was not received by such
mortgagee including without limitation the security deposit.

       At Landlord's request, from time to time, Tenant agrees to execute and
deliver to Landlord estoppel certificates in a form which may be reasonably
required by Landlord or its mortgagee.

       The rights and obligations of the Tenant and the Mortgagee hereunder
shall bind and inure to the benefit of their respective successors and assigns.
Upon request therefor, Landlord shall make its best efforts to provide Tenant
with a fully executed non-disturbance agreement from the Landlord's lender.

   23. SECURITY DEPOSIT. Upon execution of this Lease, Tenant shall deposit the
Security Deposit with Landlord as security for the full and faithful performance
of this Lease by Tenant. Within thirty (30) days of termination of this Lease,
and providing Tenant is not in default hereunder and has performed all of the
covenants and conditions of this Lease, Landlord shall return the unused portion
of the Security Deposit to Tenant. Tenant covenants and agrees that it shall not
assign, pledge, hypothecate, mortgage or otherwise encumber the aforementioned
security during the term of this Lease. Landlord shall have the right to
commingle the security deposit with its general funds and said security shall
not be required to be segregated, nor shall the security deposit bear interest.
Landlord shall have the right to apply said security to the payment or offset of
any Base Rent, Additional Rent or other expense resulting from a default by
Tenant or otherwise arising under this Lease, and in such event Landlord shall
give Tenant prior written notice of any application of said security and Tenant
shall forthwith restore the security fund to its original amount.

   24. CONDEMNATION.

         24.1 If the entire Leased Premises (or a material portion of the
parking area or reasonable access to the Leased Premises) is taken by eminent
domain, the amount awarded for compensation for the Leased Premises taken,
including all improvements, changes, additions and alterations made by Tenant,
shall be paid to Landlord. Tenant shall be entitled to claim, prove and receive
in the condemnation proceeding such awards as may be allowed for fixtures and
other equipment installed and paid for by Tenant. Further, Landlord shall pay to
Tenant from Landlord's awards when fully received (if not separately awarded to
Tenant) an amount equal to the unamortized cost of tenant improvements paid for
by Tenant (calculated by multiplying the reasonable cost of tenant improvements
paid for by Tenant by a fraction the numerator of which is the number of expired
months in the initial term of this Lease at the time the Lease terminates
because of the taking, and the denominator of which is the total number of
months in the initial term; provided the amount so paid by Landlord to Tenant in
no event exceeds fifty percent (50%) of the reasonable cost of the tenant
improvements paid for by Tenant.) This Lease shall terminate as of the date
title to all of the Leased Premises shall vest in the taking body, and Landlord
and Tenant shall thereupon be released of and from all obligations and
liabilities to each other accruing under this Lease. Tenant shall pay all Base
Rent and Additional Rent accrued up to the termination, and if any rent has been
paid in advance, Landlord shall return the surplus together with the Security
Deposit.

         24.2 If a part of the Leased Premises or parking area (but less than
the entire Leased Premises or material portion of the parking area, and the part
remaining is reasonably adequate for the operation of Tenant's business) is
taken by eminent domain, then there shall be a reduction in the Base Rent in
relation to the fair rental value of that part of the Leased Premises so taken
as compared with the rental value for the entire Leased Premises, and this Lease
shall continue in full force and effect for the balance of the term as if the
taking had not occurred. The amount awarded for compensation for the part of the
Leased Premises so taken shall be


                                       15
   16
paid to Landlord, and Tenant expressly grants to Landlord the entire amount of
the award or compensation, expressly disclaiming all right, title and interest
therein, and agrees that it shall have no claim for any damages or loss against
Landlord by reason of such condemnation or taking. Following such a partial
taking, Landlord or Tenant, at Landlord's election, shall restore the Leased
Premises as required to render the same reasonably adequate for the operation of
Tenant's business and if applicable Landlord shall reimburse Tenant for its
reasonable costs, but only to the extent of available and proportional
compensation proceeds received by Landlord.

         24.3 In the event that a portion of the Leased Premises is so taken and
the remainder of the Leased Premises is not reasonably adequate for the
operation of Tenant's business, then either Landlord or Tenant may terminate
this Lease (without penalty) as of the date of such taking by written notice to
the other party within thirty (30) days of formal notice of such taking and if
any rent has been paid in advance, Landlord shall return the surplus together
with the Security Deposit.

         24.4 If the temporary use of the whole or any part of the Leased
Premises shall be taken by eminent domain, or by agreement between Tenant and
those authorized to exercise such right, Tenant shall give prompt written notice
thereof to Landlord. In such event the term of this Lease shall not be reduced
or affected in any way and Tenant shall continue to pay in full the Base Rent,
Additional Rent and other charges herein reserved without reduction or abatement
and Tenant shall be entitled to receive for itself any award or payment made for
such use, provided, however, that in the event such period or temporary use
shall extend beyond the Termination Date, the award or payment shall be ratably
apportioned between Landlord and Tenant.

         24.5 The terms "condemnation", taking" or similar terms as herein used
shall mean the acquisition by a public or quasi-public authority having the
right to take the same by condemnation or eminent domain or otherwise,
regardless of whether such taking is the result of actual condemnation or of
voluntary conveyance by Landlord.

         24.6 Tenant agrees to execute and deliver any instruments as may be
deemed reasonably necessary by Landlord to expedite any condemnation proceeding
or to effectuate a property transfer of title to such governmental or other
public authority, agency, body or public utility seeking to take or acquire the
Leased Premises of any portion thereof.

   25. SURRENDER BY TENANT AT END OF TERM.

         25.1. Tenant shall surrender possession of the Leased Premises and
remove all goods and improvements and other personal property in the possession
of Tenant, by whomsoever owned, (collectively "Goods and Improvements") at the
end of the Term of this Lease, or at such other time as Landlord may be entitled
to re-enter and take possession of the Leased Premises pursuant to any provision
of this Lease.

         25.2 All improvements, additions, installations, renovations, changes
or alterations in the Leased Premises (except trade fixtures, furniture,
equipment and Tenant's Personal Property) shall remain in the Leased Premises
and be surrendered upon the expiration of the Term.

         25.3 Holding Over. If Tenant or anyone claiming under Tenant shall
remain in possession of the Premises or any part thereof after the expiration of
the term of this Lease without any agreement in writing between the Landlord and
Tenant with respect thereto, the person remaining in possession shall be deemed
a month-to-month tenant at a rental rate equal to one hundred and twenty-five
percent (125%) of the rent in effect upon the date of such expiration or
termination until the tenancy is terminated in a manner provided by law.

   26. DEFAULT BY TENANT.

         26.1 If before or during the term of this Lease there shall occur any
of the following events ("Events of Default"):

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   17
         (a) if Tenant shall make a general assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts as they
become due, or shall file a petition in bankruptcy, or shall be adjudicated
insolvent, or shall file a petition seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, or shall file an answer admitting
or not contesting the material allegations of a petition against it in any such
proceeding, or shall seek or consent to or acquiesce in the appointment of any
trustee, receiver or liquidator of Tenant or any material part of its assets; or

         (b) if there is an entry of an order for relief, or, in the absence of
an order for relief, if, within sixty (60) days after the commencement of any
proceeding against Tenant seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, such proceeding shall not have been
dismissed, or if, within sixty (60) days after the appointment without the
consent or acquiescence of Tenant of any trustee, receiver or liquidator of
Tenant or of any material part of its assets, such appointment shall not have
been vacated; or

         (c) if the interest of Tenant in the Leased Premises shall be sold
under execution or other legal process, or

         (d) if Tenant shall fail to pay any installment of Base Rent or
Additional Rent within ten (10) business days after written notice by Landlord
that the installment of rent has not been paid when due (provided, however, that
Landlord shall not have any obligation to give this notice to Tenant more than
twice in any twelve (12) month period and any further failure to pay shall be an
Event of Default with no opportunity for cure); or

         (e) if Tenant shall fail to perform or observe any requirement,
obligation, agreement, covenant or condition of this Lease, other than the
payment of any installment of Base Rent or Additional Rent, and the failure
shall continue for thirty (30) days after Landlord gives Tenant notice thereof,
or if the failure cannot be remedied within thirty (30) days, then for a
reasonable time thereafter, provided Tenant commences to remedy such failure
within the thirty (30) day period and prosecutes the same to completion with
diligence (provided, however, that Landlord shall not have any obligation to
give notice of default of the same nature to Tenant more than twice in any
twelve (12) month period and any further default of the same nature shall be an
Event of Default with no opportunity for cure); or

         (f) if any representations or warranty contained in this Lease shall
prove to be incorrect in any material respect on the date upon which it was
made, then at any time following any of such events of default, Landlord,
without waiving any other rights herein available to Landlord at law or in
equity, may either (1) give Tenant written notice of termination of this Lease,
or (2) without terminating this Lease, give Tenant written notice of Landlord's
intention to reenter and take possession of the Leased Premises, with legal
process.

       The giving of either of such notices to Tenant shall terminate Tenant's
right to possession of the Leased Premises under this Lease without prejudice,
however, to the rights of Landlord to exercise all other available legal
remedies and without discharging Tenant from any of its liabilities hereunder.

         26.2 Upon the occurrence of any one or more Event of Default, Landlord,
at any time, thereafter, at Landlord's option, may give to Tenant a ten (10)
days' notice of termination of this Lease and, in the event such notice is
given, this Lease and the term hereof shall come to an end and expire (whether
or not said term shall have commenced) upon the expiration of said ten (10) days
with the same effect as if the date of expiration of said ten (10) days were the
expiration date of this Lease, but Tenant shall remain liable for damages as
provided in this Article.

       If Tenant shall default in the payment when due of any installment of
rent or in the making of any other payment herein required and such default
shall continue for a period of ten (10) days after written notice by Landlord to
Tenant of such


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default, or if this Lease and the term hereof shall expire and come to an end as
hereinabove provided, then:

         (a) Landlord, must make a reasonable attempt to relet the whole or any
part or parts of the Leased Premises either in the name of the Landlord or
otherwise, to such tenant or tenants, for such term or terms ending before, on,
or after the expiration date of this Lease, at such rent which is the fair
market rent for that property at the time and which will reasonably mitigate the
loss caused by Tenant's vacancy. Landlord, at Landlord's option, may make such
repairs, replacements, alterations, additions, improvements, decorations and
other physical changes in and to the Leased Premises as Landlord, in Landlord's
reasonable discretion, considers advisable or necessary in connection with any
such reletting or proposed reletting, however, Tenant will only be responsible
for these costs to the extent such were repairs beyond reasonable wear and tear.

       If this Lease and the term hereof shall expire and come to an end as
provided in this Article, or by or under any summary proceeding or any other
action or proceeding then, in any of said events;

         (aa) Tenant pay to Landlord all rent and other charges payable under
this Lease by Tenant to Landlord to the date upon which this Lease and the term
hereof shall have expired and come to an end or to the date of re-entry upon the
Leased Premises by Landlord, whichever event occurs first, except Tenant's rent
shall be mitigated to the extent that the premises are relet and Landlord
collects rent.

         (bb) Tenant shall also be liable for and shall pay to Landlord, as
damages, any deficiency (referred to as "Deficiency") between the rent reserved
in this Lease for the period which otherwise would have constituted an unexpired
portion of the term hereof (which period shall be calculated as if there was no
right of the Landlord to terminate this Lease in advance of the expiration date
of the term hereof) and the net amount, if any, of rents collected under any
reletting effected pursuant to the provisions of this Article for any part of
such period (first deducting from the rents collected under any such reletting
all of Landlord's reasonable expenses in connection with the termination of this
Lease or Landlord's re-entry upon the Leased Premises and with such reletting,
including, all repossession costs, brokerage commissions, legal expenses, and
attorney's fees. Any such Deficiency shall be paid in monthly installments by
Tenant on the days specified in this Lease for payment of monthly installments
of rent. Landlord shall be entitled to recover from Tenant each monthly
Deficiency as the same shall arise, and no suit to collect the amount of the
Deficiency for any month shall prejudice Landlord's right to collect the
Deficiency for any subsequent month by a similar proceeding; and

         (cc) Tenant shall in no event be entitled to any rents collected or
payable under any reletting, except that such rents shall be considered payment
of rent owed by Tenant, whether or not such rent shall exceed the rent reserved
in this Lease.

         26.3 Landlord may sue for and collect any amounts which may be due
pursuant to the provisions of preceding subsection of this Lease from time to
time as Landlord may elect, but no such suit shall bar or in any way prejudice
the rights of Landlord to enforce the collection of amounts due at any time or
times thereafter by a like or similar proceeding.

         26.4 No remedy herein conferred upon or reserved to Landlord is
intended to be exclusive of any other remedy herein or by law provided, but each
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute. The
receipt and acceptance by Landlord of rent with knowledge of the default by
Tenant in any of Tenant's obligations under this Lease shall not be deemed a
waiver by Landlord of such default. Nothing contained in this Lease shall limit
or prejudice the right of Landlord to prove for and obtain in proceedings for
bankruptcy or insolvency an amount equal to the maximum allowed by any statute
or rule of law in effect at the time when, and governing the proceedings in
which, the damages are to be proved, whether or not the amount be greater, equal
to, or less than the amount of the loan or damages referred to above.

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         26.5 No waiver by Landlord of any Event of Default or any default by
Tenant in any covenant, agreement or obligation under this Lease shall operate
to waive or affect any subsequent Event of Default or default in any covenant,
agreement or obligation hereunder, nor shall any forbearance by Landlord to
enforce a right or remedy upon an Event of Default or any such default be a
waiver of any of its rights and remedies with respect to such or any subsequent
default or in any other manner operate to the prejudice of Landlord.

   27. QUIET ENJOYMENT. Landlord further covenants that Tenant, on paying the
rental and performing the covenants and conditions contained in this Lease,
shall and may peaceably and quietly have, hold, and enjoy the Leased Premises
for the term aforesaid, without any manner of hindrance or molestation from
Landlord or anyone claiming under Landlord, subject, however, to the terms of
this Lease and any instruments having a prior lien. Landlord represents and
warrants that it is the fee simple owner of the Property including the Leased
Premises and that it has full right, power and authority to enter into this
Lease.

   28. CERTIFICATES BY TENANT. Tenant and Landlord each agree on behalf of the
other at any time and from time to time during the Term of this Lease, within
ten (10) days after written request from the other party, to execute,
acknowledge and deliver to the other party or to a third party a statement in
writing certifying that this Lease is unmodified and in full force and effect
(or if there have been modifications, that the same is in full force and effect
as modified and stating the modifications, and the dates to which the Base Rent,
Additional Rent and other charges have been paid in advance, if any, and stating
whether or not, to the best it's knowledge of the other party is in default in
the performance of any covenant, agreement or condition contained in this Lease,
and, if so, specifying each such default of which such party may have knowledge.
Such third party shall have the right to rely upon the contents of any such
written statement of Tenant or Landlord.

   29. NOTICES. All notices shall be made in writing and served by in hand
delivery with written receipt, or by certified mail, return receipt requested,
or by Express Mail or by a recognized overnight courier such as Federal Express.
All notices shall be served at the respective address stated in the first
grammatical paragraph of this Lease, or at such other address as either party
may designate for itself from time to time by notice in the manner stated in
this section. A notice shall be deemed served on the earlier of actual delivery
or tender of delivery at the notice address on a business day during ordinary
business hours.

   30. CAPTIONS. The captions to the sections of this Lease are inserted only as
a matter of convenience and for reference and in no way define, limit or
describe the scope of intent of this Lease or any part thereof nor in any way
affect this Lease or any part thereof.

   31. COVENANTS AND CONDITION. All of the terms and provisions of this Lease
shall be deemed and construed to be "covenants" and "conditions" to be performed
by the respective parties and though words specifically expressing or importing
covenants and conditions were used in each separate term and provision hereof.

   32. WAIVER OF SUBROGATION. Landlord and Tenant each hereby releases the
other, its officers, directors, employees and agents, from any and all liability
or responsibility (to the other or any one claiming through or under them by way
of subrogation or otherwise) for any loss or damage to property covered by valid
and collectible fire insurance with standard extended coverage endorsement, even
if such fire or other casualty shall have been caused by the fault or negligence
of the other party, or anyone for whom such party may be responsible. However,
this release shall be applicable and in force and effect only with respect to
loss or damage (a) actually recovered from an insurance company and (b)
occurring during such time as the releasor's fire or extended coverage insurance
policies shall contain a clause or endorsement to the effect that any such
release shall not adversely affect or impair said policies or prejudice the
right of the releasor to recover hereunder. Landlord and Tenant each agrees that
any fire and extended coverage insurance policies will include such a clause or
endorsement as long as the same shall be obtainable without extra cost, or, if
extra cost shall be charged therefore, so long as the other party


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pays such extra cost. If extra cost shall be chargeable therefore, each party
shall advise the other thereof and of the amount of the extra cost, and the
other party, at its election may pay the same, but shall not be obligated to do
so.

   33. DEFINITION OF LANDLORD. The term "Landlord" shall mean and include only
the then owner of the fee title of the Leased Premises. On transfer by Landlord
of the fee title to the Leases Premises, Landlord shall give Tenant written
notice of the name and address of Landlord's transferee. In such event, the then
Landlord shall be automatically freed and relieved from and after the date of
such transfer of title of all personal liability with respect to the performance
under this Lease, provided that (i) any such transfer and conveyance by Landlord
is expressly subject to the assumption by the grantee or transferee of the
obligations of this Lease and (ii) Landlord shall deliver the security deposit
to such grantee or transferee.

   34. BROKERAGE REPRESENTATION. Landlord and Tenant each represent and warrant
that it has had no dealings or conversations with any real estate broker in
connection with the negotiation and execution of this Lease, except the brokers
specified in Section 1. Landlord and Tenant each agree to indemnify the other
against all liabilities arising from any claim of any real estate brokers not
listed in Section 1 of this Lease, including cost of counsel fees, resulting
from the respective acts of Landlord and Tenant.

   35. LEASE YEAR. "Lease Year" means a period of twelve consecutive calendar
months. The first Lease Year shall commence on the Commencement Date (or, if the
Commencement Date is not the first day of a calendar month, then the first day
of the following calendar month) and each succeeding Lease Year shall commence
on the anniversary date of the first Lease Year. Any reference in this Lease to
a Lease Year which is not a full twelve (12) months shall, unless the context
clearly indicates otherwise, be deemed a "Partial Lease Year."

   36. HAZARDOUS MATERIALS. For the purposes of this Lease "Environmental Laws"
means any applicable federal, state or local law (including statutes,
regulations, rules, orders, licenses, or permits) intended to protect the
environment or human health or safety and shall include but not be limited to
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et. seq.; the Hazardous Materials
Transportation Act, as amended, 49 U.S.C. Section 1801 et. seq.; the Resources
Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901 et. seq..
"Hazardous Materials" means any substance, material or waste regulated under any
Environmental Law, but shall not include office and cleaning supplies handled in
compliance with applicable laws. "Release" means any spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
dumping, or disposing into the environment (including, without limitation, the
abandonment or discarding of barrels, containers and other closed receptacles
containing any Hazardous Material) or the Building.

   If, at any time during the Term, a Release or a threat of Release of
Hazardous Materials, shall be found at, on, in or under the Leased Premises or
at, on, in or under the Property or Building then, in such event:

               (i) with regard to any Release or a threat of Release of
            Hazardous Materials that Landlord or the Landlord's agents,
            employees, guests, licensees, invitees, assignees, or predecessor in
            title or successors or any prior tenants or their agents, employees,
            existing lessee's other tenants guests, licensees, invitees,
            assignees, or successors shall have caused, Landlord shall assess,
            remove and/or remediate same, as required by and in compliance with
            all applicable Environmental Laws, and at Landlord's sole cost and
            expense; and Landlord agrees to defend, indemnify, and hold Tenant
            harmless from and against any and all costs, damages, expenses,
            losses and/or liabilities (including reasonable attorney's fees and
            court costs) which Tenant may suffer as a result of any claim, suit
            or action regarding any such Hazardous Materials (whether alleged or
            real). and/or regarding the assessment, removal and clean-up of
            same.

               (ii) with regard to any Release or a threat of Release of
            Hazardous Materials caused by Tenant, its assignees, licensees,
            subtenants or invitees, Tenant shall remove and/or remediate same,
            as required by and in compliance


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            with all applicable Environmental Laws, and at Tenant's sole cost
            and expense; and Tenant agrees to defend, indemnify, and hold
            Landlord harmless from and against any and all costs, damages,
            expenses, losses and/or liabilities (including reasonable attorney's
            fees) which Landlord may suffer as a result of any claim, suit or
            action regarding any such Hazardous Materials (whether alleged or
            real) and/or regarding the assessment, removal and clean-up of same.

            (iii) Landlord represents and warrants that as of the date hereof
            there is no and there has been no, and Landlord has received no
            notice from any governmental authority regarding any hazardous
            materials present on the Property, any past or present generation,
            recycling, re use, sale, storage handling transport and/or disposal
            of any hazardous materials on the Property in violation of
            Environmental Laws or any failure to comply with any Environmental
            Laws.

37. DELAYS. In any case where Landlord or Tenant is required to do any act,
delays caused by or resulting from Act of God, force majeure, war, civil
commotion, fire or other casualty, labor difficulties, shortages of labor,
materials or equipment, or other causes beyond a party's reasonable control
shall not be counted in determining the time for completion of performance,
whether such time be designated by a fixed date, a fixed time or "a reasonable
time." In any case where work is to be paid for out of insurance proceeds or
condemnation awards, due allowance shall be made, both to the party required to
perform the work and to the party required to make the payment, for delays in
the collection of the proceeds and awards, but except as expressly provided
herein, in no event shall the provisions of this Section affect Tenant's
obligation to pay rent.

38. COVENANTS OF FURTHER ASSURANCES. If, in connection with obtaining financing
for the Leased Premises, a lender shall request reasonable modifications in this
Lease as a condition to such financing, Tenant will not withhold, delay or defer
its written consent, provided that such modifications do not materially
adversely affect the leasehold interest hereby created or Tenant's use and
enjoyment of the Leased Premises, or increase Tenant's responsibilities with
respect to the Leased Premises.

   39. ENTIRE AGREEMENT. This Lease contains the entire agreement between the
parties and shall not be modified in any manner except by an instrument in
writing executed by the parties.

   40. GOVERNING LAW. This Lease shall be governed by and construed in
accordance with the laws of the state in which the Leased Premises are located.

   41. BIND AND INURE CLAUSE. The terms, covenants and conditions of this Lease
shall be binding upon and inure to the benefit of each of the parties, and their
respective successors and assigns.

   42. ROOF RIGHTS. Tenant shall have the right to install communication
equipment on the roof of the Building at no additional charge during the initial
and any renewal terms of the Lease, provided that 1) Landlord has reasonable
approval rights (to include structural and aesthetic considerations); 2) Tenant
agrees to screen, if necessary by local code; 3) Tenant complies to with all
local ordinances regarding same; 4) Tenant indemnifies Landlord against any
damage to the roof associated with the installation or maintenance; 5) Tenant
shall be responsible for all costs associated with the installation, maintenance
and removal of the equipment; and 6) the equipment is to be installed for the
sole and exclusive use by the Tenant.



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Executed as a sealed instrument, all as of the day and year first above written.

LANDLORD:                                           TENANT:
H.J. Brooks Limited Liability Company               EFTC Corporation
by Harold B. Limited Liability Company




By:  ___________________________               By:  ____________________________
           Hereto duly authorized                     Hereto duly authorized




   -------------------------------                ------------------------------
    Printed Name and Title                           Printed Name and Title







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                                    EXHIBIT A
                     BUILDING/LEASED PREMISES/PROPERTY PLAN









































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                                    EXHIBIT B
                                 LANDLORD'S WORK


Landlord will resurface parking lot & re-stripe parking spaces




                                       24
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                                    EXHIBIT C
                                   TENANT WORK


           Landlord, will permit Tenant and Tenant's agents to enter the Leased
Premises in order that Tenant may make the Leased Premises ready for Tenant's
use and occupancy. Tenant agrees that any such entry into and occupation of the
Leased Premises shall be deemed to be under all of the terms, covenants,
provisions of the Lease, and further agrees that Landlord shall not be liable in
any way for any injury, loss, or damage that may occur to any of Tenant's
property placed or installations made in the Leased Premises. Tenant agrees to
protect, defend, indemnify, and save harmless Landlord from all liabilities,
costs, damages, fees, and expenses arising out of or in connection with the
activities of Tenant or its agents, contractors, suppliers, or workmen in or
about the Leased Premises or the Building other than resulting from Landlord's
negligence or intentional misconduct.

           Tenant shall provide to Landlord copies of any plans, specifications,
and descriptions of Tenant's intended work for Landlord's review and approval.
Such approval shall not be unreasonably delayed, conditioned or withheld.

           In the event Tenant employs contractors to do work in the Leased
Premises, Tenant shall secure and pay for Workmen's Compensation, Employer's
Liability Insurance, and Comprehensive General Liability insurance in forms and
amounts acceptable to Landlord. All policies shall be endorsed to include
Landlord and its employees and agents as additional insured parties. Certified
copies of such policies shall be delivered to Landlord prior to Tenant
commencing any work in the Leased Premises.







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                                    EXHIBIT D
                                 TENANT'S SIGNS

Tenant may install any signage allowed by local building code, including a sign
on the Building. Location of signage to be mutually agreed upon by Landlord and
Tenant.








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                                    EXHIBIT E
                                OPERATING BUDGET


Estimate of Tenant's Pro Rata Share of Operating Costs for the Building for the
year in which Term begins:



                               2001 Estimate

Real Estate Taxes               $66,300.00
Building Insurance                6,600.00
Common Area Maint.                2,000.00
Landscaping/Snowplow             29,600.00
Management Fees                  14,800.00
Capital Reserve                  10,950.00
                                 ---------

   Total                       $130,250.00





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