-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QqBl63UVJYlksTt8kbpKRN2Sz04dI5VlfP3yakKgS4aXMG/S5fTnCdmeP3D28IPc VwP3FjYZMMbsuZTmrJdTng== 0001035704-97-000296.txt : 19971023 0001035704-97-000296.hdr.sgml : 19971023 ACCESSION NUMBER: 0001035704-97-000296 CONFORMED SUBMISSION TYPE: S-2 PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19971022 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELECTRONIC FAB TECHNOLOGY CORP CENTRAL INDEX KEY: 0000916797 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 840854616 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-2 SEC ACT: SEC FILE NUMBER: 333-38433 FILM NUMBER: 97698915 BUSINESS ADDRESS: STREET 1: 7251 WEST 4TH ST CITY: GREELEY STATE: CO ZIP: 80634-9763 BUSINESS PHONE: 3033533100 S-2 1 FORM S-2 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21, 1997 FILE NO. 333- ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM S-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- EFTC CORPORATION (Exact name of registrant as specified in its charter) COLORADO 84-0854616 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) STUART W. FUHLENDORF VICE PRESIDENT AND CHIEF FINANCIAL OFFICER 9351 GRANT STREET EFTC CORPORATION DENVER, COLORADO 80229 9351 GRANT STREET (303) 451-8200 DENVER, COLORADO 80229 (Address, including zip code, and telephone number, (303) 451-8200 including area code, of registrant's principal (Address, including zip code, and telephone number, executive offices) including area code, of agent for service)
Copies to: FRANCIS R. WHEELER, ESQ. ALLAN G. SPERLING, ESQ. HOLME ROBERTS & OWEN LLP CLEARY, GOTTLIEB, STEEN & HAMILTON 1700 LINCOLN, STE. 4100 ONE LIBERTY PLAZA DENVER, COLORADO 80203 NEW YORK, NEW YORK 10006 (303) 861-7000 (212) 225-2000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. [ ] If the Registrant elects to deliver its latest annual report to security holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1) of the Form, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration number of the earlier registration statement for the same offering. [ ] - --------------------- If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] - --------------------- If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE
============================================================================================================================ PROPOSED PROPOSED MAXIMUM MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE FEE - ---------------------------------------------------------------------------------------------------------------------------- Common Stock, $0.01 par value per share..... 4,600,000 $15.375 $70,725,000 $21,429.68 ============================================================================================================================
(1) Includes 600,000 shares subject to Underwriters' overallotment option. (2) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(c) under the Securities Act of 1933. The registration fee has been calculated based upon the average of the high and low sales prices of the Company's Common Stock as reported on the Nasdaq National Market on October 17, 1997. --------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BY ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION OCTOBER 21, 1997 PROSPECTUS 4,000,000 SHARES EFTC CORPORATION EFTC CORPORATION LOGO COMMON STOCK ($0.01 PAR VALUE) Of the 4,000,000 shares of Common Stock, $0.01 par value per share (the "Common Stock"), of EFTC Corporation (the "Company" or "EFTC") offered hereby, 3,500,000 shares are being offered by the Company and 500,000 shares are being offered by certain shareholders of the Company (the "Selling Shareholders"). The Company will not receive any of the proceeds from the sale of shares by the Selling Shareholders. See "Selling Shareholders." The Common Stock is quoted on the Nasdaq National Market under the symbol "EFTC." The last reported sale price of the Common Stock on October 20, 1997, as reported by the Nasdaq National Market, was $16.00 per share. See "Price Range of Common Stock." SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------------------------------------------ PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO PUBLIC DISCOUNT COMPANY(1) SELLING SHAREHOLDERS Per Share..................... $ $ $ $ Total(2)...................... $ $ $ $ - ------------------------------------------------------------------------------------------------------------------
(1) Before deducting offering expenses estimated to be $ , all of which will be payable by the Company. (2) The Company and the Selling Shareholders have granted the Underwriters a 30-day option to purchase up to 600,000 additional shares of Common Stock at the Price to Public, less the Underwriting Discount, solely to cover over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discount, Proceeds to Company and Proceeds to Selling Shareholders will be $ , $ , $ and $ , respectively. See "Underwriting." The shares of Common Stock are offered subject to receipt and acceptance by the Underwriters, to prior sale and to the Underwriters' right to reject any order in whole or in part and to withdraw, cancel, or modify the offer without notice. It is expected that delivery of the shares will be made at the office of Salomon Brothers Inc, Seven World Trade Center, New York, New York, or through the facilities of The Depository Trust Company, on or about , 1997. SALOMON BROTHERS INC J.C. BRADFORD & CO. PACIFIC CREST SECURITIES INC. The date of this Prospectus is , 1997. 3 At the Company's annual meeting held on May 28, 1997, the shareholders voted to change the name of the Company from "Electronic Fab Technology Corp." to "EFTC Corporation." The principal executive offices of the Company are located at 9351 Grant Street, Sixth Floor, Denver, Colorado 80229. ------------------------ THIS PROSPECTUS CONTAINS FORWARD LOOKING STATEMENTS, AS DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (THE "PSLRA"), THAT INVOLVE KNOWN AND UNKNOWN RISKS, INCLUDING, WITHOUT LIMITATION, STATEMENTS CONTAINING THE WORDS "BELIEVES," "ANTICIPATES," "ESTIMATES," "EXPECTS," "MAY" AND WORDS OF SIMILAR IMPORT OR STATEMENTS OF MANAGEMENT'S OPINION. IN ADDITION, THIS PROSPECTUS CONTAINS, ON PAGES 3, 27 AND 28, FORECASTS OF FUTURE GROWTH IN MARKETS SERVED BY THE COMPANY. THESE FORECASTS WERE PREPARED BY ENTITIES THAT ARE NOT AFFILIATED WITH THE COMPANY OR THE UNDERWRITERS AND ARE BASED ON ASSUMPTIONS FORMULATED BY SUCH ENTITIES WITHOUT CONSULTATION WITH THE COMPANY OR THE UNDERWRITERS. SEE "CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS" FOR A DISCUSSION OF CERTAIN RISKS AND THEIR POTENTIAL IMPACT ON THE FORWARD LOOKING STATEMENTS AND FORECASTS CONTAINED HEREIN. CERTAIN PERSONS PARTICIPATING IN THE OFFERING MADE HEREBY MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." IN CONNECTION WITH THIS OFFERING, CERTAIN OF THE UNDERWRITERS (AND SELLING GROUP MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING." 2 4 PROSPECTUS SUMMARY The following summary should be read in conjunction with, and is qualified in its entirety by, the more detailed information and Consolidated Financial Statements (including the notes thereto) appearing elsewhere in this Prospectus. The term "Company" refers to EFTC Corporation and its wholly-owned subsidiaries--Current Electronics, Inc. ("CEI"), Circuit Test, Inc. ("CTI"), Airhub Service Group L.C. ("Airhub") and CTI International, L.C. ("CTI LLC") and CTLLC Acquisition Corp. ("Acquisition Corp." ). CEI's affiliate, Current Electronics (Washington) Inc. ("CEWI"), has recently been merged into CEI. CEI and, with respect to any period prior to its merger into CEI, CEWI are hereinafter referred to as the "CE Companies." CTI, Airhub, CTI LLC and Acquisition Corp. are hereinafter referred to as the "CTI Companies." Unless otherwise indicated, the information in this Prospectus assumes that the Underwriters' over-allotment option will not be exercised. Investors should carefully consider the information set forth in "Risk Factors," beginning at page 8. THE COMPANY GENERAL The Company is a leading independent provider of "high-mix" electronic manufacturing services and repair and warranty services to original equipment manufacturers ("OEMs"). The Company's manufacturing services focus on a market niche of "high-mix" electronic products--products that are characterized by small lot sizes with differences in configuration from each lot size to the next--with an emphasis on high-speed production. Following its recent acquisition of the CTI Companies, the Company now also provides "hub-based" repair and warranty services that are marketed as part of the logistics service offerings of the two largest transportation companies that specialize in overnight delivery services in the United States. These "hub-based" services are provided principally through facilities located inside such transportation companies' national sorting, warehouse and logistics hub facilities (the "Overnight Delivery Hubs") in Memphis, Tennessee and Louisville, Kentucky. The Company's ten largest customers on a pro forma revenue basis for the first nine months of 1997, taking into account the Company's recently completed acquisitions, would have been: Exabyte Corporation, AlliedSignal Inc., Apple Computer, Inc., Hewlett-Packard Company, Ohmeda Inc., ADC Telecommunications, International Business Machines Corporation, Gateway 2000, Inc., Sony Corp of America, Inc. and ESI Automation Inc. INDUSTRY OVERVIEW Outsourcing of electronic manufacturing services continues to grow as OEMs increasingly focus on their core competencies of designing and marketing their products. According to Technology Forecasters, an independent market research firm, the worldwide market for electronic manufacturing services is expected to grow from $60 billion in 1996 to $140 billion in 2000, representing a compound annual growth rate of 24%. The Company believes that the growth of outsourcing combined with the increasing number of types of electronic products that have emerged over the last decade is fundamentally changing the nature of the electronic manufacturing industry. In particular, the Company believes that OEMs are offering, and in the future will increasingly offer, electronic products that are customized to the diverse specifications of end users and therefore OEMs will require more services from electronic manufacturing service providers. The Company believes that such additional services will include high-mix manufacturing capability, "box-build" and "build-to-order" ("BTO") capabilities, inventory and logistics management, and integrated repair and warranty services. STRATEGY The Company's objective is to be a leading provider of electronic manufacturing services exclusively focused on the needs of high-mix OEM customers in its targeted markets. The Company believes its customers are increasingly focused on improved inventory management, reduced time to market, BTO 3 5 production, access to leading-edge manufacturing technology and reduced capital investment. The Company's strategy is to provide a unique set of capabilities derived from its two key core competencies: "High-mix" manufacturing competence. The Company's high-mix manufacturing competence is based on the Company's capabilities in small-lot processing at high production speeds, and allows the Company to produce high-mix products with high levels of responsiveness and flexibility to changes in customers' needs. The nature of high-mix products historically makes them difficult to manufacture at high production speeds or with a high level of responsiveness. "Hub-based" repair and warranty services. The Company provides its customers with enhanced services through the integration of the Company's repair and warranty services with the facilities of the overnight delivery service providers located at the Overnight Delivery Hubs. This integration enables the Company to simplify inventory and logistics management for its customers and to provide high-speed fulfillment of repair and warranty service orders. The two overnight delivery service providers market the Company's repair and warranty services as part of their own logistics services offerings. The Company is developing plans to use the high-speed order fulfillment advantages of the hub-based facilities to provide a platform from which the Company can provide BTO services. ACQUISITIONS Through the Acquisitions (as defined below) completed in 1997, the Company has expanded its operations from one manufacturing facility in Colorado at the beginning of 1997 to seven facilities throughout the United States at September 30, 1997. The Acquisitions, described below, have strategically expanded the Company's breadth of high-mix service offerings to include concurrent engineering, subassembly manufacturing, next-day delivery of assemblies and warranty and post-warranty repair services.
DATE OF COMPANY / ASSETS ACQUISITION ACQUIRED DESCRIPTION - ----------- ---------------- ----------- September 1997......... CTI Companies The Company acquired three repair and warranty (the "CTI Merger") services sites, including two located at the Overnight Delivery Hubs. August and September 1997....... AlliedSignal Assets (the The Company subleased a production facility, "AlliedSignal Asset acquired related equipment and inventory and hired Purchase") personnel located in Ft. Lauderdale, Florida. The Company has agreed to acquire, subject to certain contingencies, the inventory and equipment, and has hired personnel located in Tucson, Arizona. February 1997.......... CE Companies The Company acquired two manufacturing facilities (the "CE Merger") located in Newberg, Oregon and Moses Lake, Washington.
For further descriptions of the CTI Merger, the AlliedSignal Asset Purchase and the CE Merger (collectively, the "Acquisitions"), see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- The Company -- Recent Developments." The Company operates manufacturing facilities in four plants located in Colorado, Oregon, Washington and Florida and has one new and one replacement plant under construction. For further descriptions of the Company's properties, see "Business and Properties -- Description of Property." The Company's repair and warranty services are carried out in three locations: Memphis, Tennessee, Louisville, Kentucky and Tampa, Florida. At September 30, 1997, the Company had 1,779 employees. 4 6 SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION The following tables present for the Company (i) summary consolidated historical financial data as of and for each of the three years ended December 31, 1996, as of and for the nine months ended September 30, 1997 and for the nine months ended September 30, 1996; (ii) unaudited pro forma financial data for the year ended December 31, 1996 and the nine months ended September 30, 1997 reflecting the consummation of the CTI Merger and the CE Merger, as described elsewhere herein; and (iii) unaudited pro forma adjusted financial data for the year ended December 31, 1996 and the nine months ended September 30, 1997 and unaudited adjusted financial data as of September 30, 1997 adjusted for the issuance of Common Stock being offered hereby and the related use of proceeds from such offering. The summary consolidated historical financial data set forth below as of September 30, 1997, and December 31, 1996 and 1995 and for the three years ended December 31, 1996 and the nine months ended September 30, 1997 have been derived from the Company's financial statements audited by KPMG Peat Marwick LLP included elsewhere in this Prospectus. The summary consolidated historical financial data as of December 31, 1994 is derived from financial statements not included or incorporated by reference herein. The summary historical financial data set forth below for the nine months ended September 30, 1996 have been derived from unaudited financial statements of the Company that have been prepared on the same basis as the audited financial statements and, in the opinion of the Company, reflect all adjustments necessary (consisting only of normal recurring adjustments) for the fair presentation of the Company's results of operations for the period. All of the financial data set forth below is qualified in its entirety by and should be read in conjunction with such financial statements and the notes thereto and the Company's "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus. The results of operations of the Company for the interim period ended September 30, 1997 are not necessarily indicative of the results to be expected for the entire year. 5 7
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ----------------------------------------- ---------------------------------------------------- PRO FORMA PRO PRO FORMA PRO AS ADJUSTED FORMA AS ADJUSTED FORMA 1997(3) 1997(2) 1997 1996 1996(3) 1996(2) 1996(1) 1995 1994 ----------- ------- ------- ------- ----------- -------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Net sales.............. $98,020 $98,020 $64,973 $44,576 $115,910 $115,910 $56,880 $49,220 $52,542 Cost of sales.......... 81,766 81,766 56,740 42,676 100,590 100,590 53,980 45,325 47,123 ------- ------- ------- ------- -------- -------- ------- ------- ------- Gross profit......... 16,254 16,254 8,233 1,900 15,320 15,320 2,900 3,895 5,419 Selling, general and administrative expense.............. 14,110 14,110 5,126 3,403 13,240 13,240 4,196 3,094 2,396 Amortization of goodwill............. 1,012 1,012 157 -- 1,349 1,349 -- -- -- Impairment of fixed assets............... -- -- -- 726 726 726 726 -- -- ------- ------- ------- ------- -------- -------- ------- ------- ------- Operating income (loss)............. 1,132 1,132 2,950 (2,229) 5 5 (2,022) 801 3,023 ------- ------- ------- ------- -------- -------- ------- ------- ------- Other income (expense): Interest expense..... -- (2,873) (1,054) (384) -- (3,275) (526) (399) (175) Other income, net.... 1,197(4) 1,197(4) 1,206(4) 17 83 83 83 79 110 ------- ------- ------- ------- -------- -------- ------- ------- ------- 1,197 (1,676) 152 (367) 83 (3,192) (443) (320) (65) ------- ------- ------- ------- -------- -------- ------- ------- ------- Income (loss) before income taxes....... 2,329 (544) 3,102 (2,596) 88 (3,187) (2,465) 481 2,958 Income tax expense (benefit)............ 885 (207) 1,133 (920) 32 (1,078) (872) 127 1,041 ------- ------- ------- ------- -------- -------- ------- ------- ------- Net income (loss).... $ 1,444 $ (337) $ 1,969 $(1,676) $ 56 $ (2,109) $(1,593) $ 354 $ 1,917 ======= ======= ======= ======= ======== ======== ======= ======= ======= Income (loss) per common share, fully diluted.............. $ .12 $ (.04) $ .32 $ (.42) $ .01 $ (.27) $ (.40) $ .09 $ .53 ======= ======= ======= ======= ======== ======== ======= ======= ======= Weighted average common and common equivalent shares outstanding... 11,578 8,078 6,219 3,968 11,281 7,781 3,942 3,962 3,627 ======= ======= ======= ======= ======== ======== ======= ======= =======
SEPTEMBER 30, 1997 ----------------------- DECEMBER 31, AS ------------------------- ADJUSTED(7) ACTUAL(6) 1996 1995 1994(5) ----------- --------- ------ ------ ------- ) (IN THOUSANDS BALANCE SHEET DATA: Working capital............................................. $ 25,200 $ 411 $8,508 $9,868 $6,744 Goodwill.................................................... 46,360 40,360 -- -- -- Total assets................................................ 123,646 117,646 22,870 24,984 23,479 Total debt.................................................. 11,424 57,514 4,860 3,230 3,400 Stockholder's equity........................................ 82,276 30,186 13,922 15,509 14,989
- --------------- (1) As part of a corporate restructuring, the Company expensed $2.1 million for restructuring costs in the third quarter of 1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (2) Pro forma for the acquisitions of the CE Companies and the CTI Companies as if these acquisitions had occurred on January 1, 1996 for pro forma statement of operations data purposes. See "Unaudited Pro Forma Condensed Combined Financial Statements." (3) Pro forma assuming the offering made hereby and the Acquisitions had occurred on January 1, 1996, and a portion of the proceeds were used to repay certain debt on that date, resulting in a decrease in interest expense of $2.9 million and $3.3 million for the nine months ended September 30, 1997 and the year ended December 31, 1996, respectively. (4) Includes gain on the sale of a building used in the Company's manufacturing operations of approximately $1.2 million. (5) The Company received net proceeds of $9.3 million from its initial public offering in March 1994. (6) The Company acquired the CE Companies in February 1997 for total consideration of approximately $10.9 million consisting of 1,980,000 shares of the Company's Common Stock and $5.5 million in cash, including approximately $0.6 million of transaction costs, and the CTI Companies on September 30, 1997 for $29.3 million consisting of 1,858,975 shares of the Company's Common Stock and $20.5 million in cash, including approximately $1.0 million of transaction costs. In addition, the Company acquired certain net assets of AlliedSignal in August and September 1997. See "Management's Discussion and Analysis -- Recent Developments." (7) Adjusted to reflect the issuance of shares in the offering made hereby, net of related expenses, and the application of the proceeds as described in "Use of Proceeds." 6 8 THE OFFERING Common Stock Offered by the Company............................. 3,500,000 Shares Common Stock Offered by the Selling Shareholders...................... 500,000 Shares Common Stock to be Outstanding After the Offering(1)..................... 11,854,135 Shares Use of Proceeds..................... (i) to make a $6 million contingent payment to the previous owners of certain of the CTI Companies; (ii) to retire a term loan of approximately $20 million; (iii) to pay down a revolving loan which, as of September 30, 1997, had outstanding borrowings of $22.5 million and (iv) to pay a portion of the $15 million outstanding principal amount of the Company's Subordinated Notes (as defined herein). See "Use of Proceeds." Nasdaq National Market Symbol....... "EFTC" - --------------- (1) Includes 7,812,135 shares outstanding as of September 30, 1997, 2,000 shares issued pursuant to the exercise of options from September 30, 1997 to the date of this Prospectus, 500,000 shares issued on October 9, 1997 upon the exercise of certain warrants and 40,000 shares issuable upon exercise of options that are expected to be exercised by certain Selling Shareholders in connection with the offering made hereby. Does not include 1,849,000 shares of Common Stock issuable upon exercise of additional outstanding options and 80,000 shares of Common Stock issuable upon exercise of outstanding warrants. See "Description of Capital Stock and Other Securities." 7 9 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND FORECASTS Certain statements in this Prospectus, including statements contained in the Summary, and under the captions "Business and Properties," "Managements' Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Prospectus constitute "forward-looking statements" within the meaning of the PSLRA, that involve known and unknown risks, including, without limitation, statements containing the words "believes," "anticipates," "estimates," "expects," "may" and words of similar import or statements of management's opinion. In addition, this Prospectus contains, on pages 3, 27 and 28, forecasts of future growth in markets served by the Company. These forecasts were prepared by entities that are not affiliated with the Company or the Underwriters and are based on assumptions formulated by such entities without consultation with the Company or the Underwriters. The aforementioned forward-looking statements, forecasts and assumptions involve known and unknown risks, uncertainties and other factors that may cause the actual results, market performance or achievements of the Company, growth of the electronic manufacturing services industry, or growth of the electronic hardware maintenance market to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements or forecasts. Important factors that could cause such differences include, but are not limited to, changes in economic or business conditions in general or affecting the electronic products industry in particular, changes in the use of outsourcing by OEMs, increased material prices and service competition within the electronic component contract manufacturing and repair industries, changes in the competitive environment in which the Company operates, the continued growth of the industries targeted by the Company or its competitors, or changes in the Company's management information needs, changes in customer needs and expectations and the Company's ability to keep pace with technological developments and governmental actions. RISK FACTORS In addition to the other information contained in this Prospectus, prospective investors should consider carefully the following information before making an investment in the Common Stock offered hereby. MANAGEMENT OF GROWTH; GEOGRAPHIC EXPANSION The Company has experienced rapid growth since February 1997 and intends to pursue continued growth through internal expansion and acquisitions. The Company's rapid growth has placed, and could continue to place, a significant strain on the Company's management information, operating and financial systems. In order to maintain and improve results of operations, the Company's management will be required to manage growth and expansion effectively. The Company's need to manage growth effectively will require it to continue to implement and improve its management information, operating and financial systems and internal controls, to develop the management skills of its managers and supervisors and to train, motivate and manage its employees. There can be no assurance that the Company's historical revenue growth will continue. The Company's failure to effectively manage growth could adversely affect the Company's results of operations. See "-- Acquisition Strategy" and "-- Uncertainties Relating to the Integration of CTI Companies." In 1997, the Company has acquired, and undertaken the construction of, facilities in several locations and the Company may acquire or build additional facilities from time to time in the future. The Company's results of operations could be adversely affected if its new facilities do not achieve growth sufficient to offset increased expenditures associated with growth of operations and geographic expansion. Should the Company increase its expenditures in anticipation of a future level of sales which does not materialize, its results of operations would be adversely affected. As the Company continues to expand, it may become more difficult to manage geographically-dispersed operations. There can be no assurance that the Company will successfully manage other plants it may acquire or build in the future. 8 10 ACQUISITION STRATEGY The Company has actively pursued in the past, and expects to actively pursue in the future, acquisitions in furtherance of its strategy of aggressively expanding its operations, geographic markets, service offerings, customer base and revenue base. Acquisitions, including the CTI Merger, the AlliedSignal Asset Purchase and the CE Merger, involve numerous risks, including difficulties in the integration of the operations, technologies and products and services of the acquired companies and assets, the diversion of management's attention and the Company's financial resources from other business activities, the potential to enter markets in which the Company has no or limited prior experience and where competitors in such markets have stronger market positions and the potential loss of key employees and customers of the acquired companies. In addition, during the integration of an acquired company, the financial performance of the Company will be subject to the risks commonly associated with an acquisition, including the financial impact of expenses necessary to realize benefits from the acquisition and the potential for disruption of operations. Acquisitions by the Company have in the past been financed with substantial borrowings. Although the Company intends to use the net proceeds of the offering made hereby to retire a significant portion of its outstanding indebtedness, the Company may incur significant amounts of indebtedness in connection with future acquisitions, other transactions or funding expansions of the Company's operations. Future acquisitions may also involve potentially dilutive issuances of equity securities. There can be no assurance that the Company will be able to identify suitable acquisition opportunities, to consummate acquisitions successfully or, with respect to recent or future acquisitions, integrate acquired personnel and operations into the Company successfully. The Company currently has no understandings or commitments with respect to any future acquisition transactions. UNCERTAINTIES RELATING TO THE INTEGRATION OF THE CTI COMPANIES In addition to the general risks described under "-- Acquisition Strategy," the acquisition of the CTI Companies presents other specific risks. The acquisition of the CTI Companies represents a significant expansion of the Company's operations into markets in which, prior to the CTI Merger, the Company's management team had limited prior experience. The Company's management team now includes management personnel and employees of the CTI Companies who have not previously worked with the Company. The Company's effort to successfully enter the electronics repair and warranty business will depend on the ability of this new, combined management team to work together effectively and on the Company's ability to retain key personnel of the CTI Companies. The Company's future success is also dependent upon its ability to effectively integrate the CTI Companies into the Company. There can be no assurance as to the timing or amount of any marketing opportunities or revenue increases that may be realized as the result of the acquisition of the CTI Companies. Further, there can be no assurance that the CTI Merger will enhance the Company's competitive position and business prospects. The diversion of management attention, the inability to satisfy the foregoing needs and any other difficulties encountered in the integration process could have an adverse effect on the Company's business, results of operations and financial condition. DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS; RELATIONSHIPS WITH TRANSPORTATION PROVIDERS The Company has historically relied on a small number of customers to generate a significant percentage of its revenue. On a pro forma basis taking into account the Acquisitions, in the first nine months of 1997, three of the Company's customers each accounted for more than 10% of the Company's net revenues and the Company's ten largest customers accounted for 67.9% of the Company's net revenue. In 1996, two of the Company's customers each accounted for more than 10% of the Company's net revenues and the Company's ten largest manufacturing customers represented 76.9% of net revenue. The Company expects that AlliedSignal Inc. ("AlliedSignal"), which is one of the Company's 9 11 ten largest customers, will account in 1998 for a significantly larger portion of the Company's net revenue than it has historically. The loss of AlliedSignal as a customer would, and the loss of any other significant customer could, have a material adverse effect on the Company's financial condition and results of operations. If the Company's efforts to expand its customer base are not successful, the Company will continue to depend upon a relatively small number of customers for a significant percentage of its net sales. There can be no assurance that current customers, including AlliedSignal, or future customers of the Company will not terminate their manufacturing arrangements with the Company or significantly change, reduce or delay the amount of manufacturing services ordered from the Company. Ohmeda, Inc. ("Ohmeda")which has been one of the Company's ten largest customers, has announced future plans to consolidate its outside manufacturing arrangements with another electronic contract manufacturer. See "-- Absence of Long-Term Manufacturing Contacts." In addition, the Company may from time to time hold significant accounts receivable from sales to certain customers. The insolvency or other inability of a significant customer to pay outstanding receivables could have a material adverse effect on the Company's results of operations and financial condition. The Company's repair and warranty operations are built around their principal locations at the Overnight Delivery Hubs of the two largest transportation companies that specialize in overnight delivery services in the United States and are integrated with the logistics operations of these overnight delivery service providers and participate in joint marketing programs to customers of these overnight delivery service providers. The Company believes that the location of its repair facilities at the Overnight Delivery Hubs is a significant competitive advantage for the Company's repair and warranty service offerings and a majority of the Company's repair and warranty service customers come from joint marketing efforts with such transportation providers. The Company does not, however, have any long-term contracts or other arrangements with these overnight delivery service providers, each of which could elect to cancel the Company's lease, to cease providing scheduling accommodations or to cease joint marketing efforts with the Company at any time. If the Company ceased to be allowed to share facilities and marketing arrangements with either or both of these overnight delivery service providers, there can be no assurance that alternate arrangements could be made by the Company to preserve such advantages and the Company could lose significant numbers of repair customers. In addition, work stoppages or other disruptions in the transportation network may occur from time to time which may affect these transportation providers. Such events could have a material adverse effect on the Company's business and results of operations. ABSENCE OF LONG-TERM MANUFACTURING CONTRACTS As is typical in the electronic manufacturing services industry, the Company frequently does not obtain long-term purchase orders or commitments from its customers, but instead works with them to develop nonbinding forecasts of the future volume of orders. Based on such nonbinding forecasts, the Company makes commitments regarding the level of business that it will seek and accept, the timing of production schedules and the levels and utilization of personnel and other resources. A variety of conditions, both specific to each individual customer and generally affecting each customer's industry, may cause customers to cancel, reduce or delay orders that were either previously made or anticipated. Generally, customers may cancel, reduce or delay purchase orders and commitments without penalty, except, in some cases, for payment for services rendered, materials purchased and, in limited circumstances, charges associated with such cancellation, reduction or delay. Significant or numerous cancellations, reductions or delays in orders by customers would have a material adverse effect on the Company's business, financial condition and results of operations. IMPLEMENTATION OF NEW INFORMATION SYSTEM The Company is implementing a new management information system (the "MIS System"), based on commercially available Oracle software products, that is designed to track and control all aspects of its manufacturing services. Among other things, the implementation of the MIS System includes the conversion of the Company's Automated Execution System ("AES"), which is a customized software package designed to meet the needs of the Company's "Asynchronous Processing Manufacturing" 10 12 ("APM") process, into software compatible with the MIS System. The Company currently expects to complete the implementation of the MIS System by December 1997 at the Company's Rocky Mountain facility. Thereafter, the Company intends to implement the MIS System at its other facilities as soon as practicable. There can be no assurance, however, that the MIS System can be properly installed at the Rocky Mountain facility or any other facility of the Company. Furthermore, there can be no assurance that, if installed, the MIS System will operate as designed or provide the Company's operations any additional efficiency. If the MIS System fails to operate as designed, the Company's operations could be disrupted by lost orders resulting in lost customers or by inventory shortfalls and overages and the Company could be compelled to write-off the development costs of such software. Such disruptions or events could adversely affect results of operations and the implementation of the Company's strategy. See "Business and Properties -- Strategy" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." PROTECTION OF KNOW-HOW AND TRADE SECRETS APM and the supporting AES software represent and, are expected to continue to represent, a critical part of the Company's high-mix manufacturing strategy. The use, by third parties, of the concepts or processes, developed by the Company, that comprise APM is not legally restricted. In addition, the Company has a non-exclusive license to use the AES software that, in conjunction with other commercially available software programs and databases, coordinates the APM process. The APM process is therefore subject to replication by a competitor willing to invest the resources to do so and the AES software is therefore available from third parties having rights thereto. To protect its know-how and processes related to APM, the Company primarily relies upon a combination of nondisclosure agreements and other contractual provisions, as well as the confidentiality and loyalty of its employees. However, there can be no assurance that these steps will be adequate to prevent a competitor from replicating the APM process or that a competitor will not independently develop know-how or processes similar or superior to the Company's APM process. The adoption by its competitors of a process that is similar to, or superior to, the Company's APM process would likely result in a material increase in competition faced by the Company for its targeted market of high-mix OEMs. DEVELOPMENT OF PLAN FOR BUILD-TO-ORDER The Company's strategy includes the development of a business plan to integrate its existing and newly-acquired businesses in order to offer BTO services, oriented around a hub-based distribution system, to its customers. This plan represents an expansion into a new line of business with which the Company has no operating experience and will require capital expenditures, certain operational changes and integration of the AES software throughout all of the Company's facilities. There can be no assurance that the Company will successfully implement this plan or market these services and the failure to do so could change the Company's business and growth strategies and adversely affect the Company's long-term business prospects. See "Business and Properties -- Strategy" and "Business and Properties -- Services." VARIABILITY OF QUARTERLY RESULTS OF OPERATIONS The Company's quarterly results of operations are affected by several factors, primarily the level and timing of customer orders and the mix of turnkey and consignment orders. The level and timing of orders placed by a customer vary due to the customer's attempts to balance its inventory, changes in the customer's manufacturing strategy and variation in demand for its products due to, among other things, product life cycles, competitive conditions and general economic conditions. In the past, changes in orders from customers have had a significant effect on the Company's quarterly results of operations. Other factors affecting the Company's quarterly results of operations may include, among other things, the Company's success in integrating the businesses of the CTI Companies and the CE Companies and the operations acquired in the AlliedSignal Asset Purchase, costs relating to the expansion of operations including development of the Company's plan to develop a BTO business, price competition, the 11 13 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 in managing inventories and other assets, the timing of expenditures in anticipation of increased sales and fluctuations in the cost of components or labor. Any of these factors could adversely affect the Company's quarterly results of operations. See "-- Acquisition Strategy," "-- Uncertainties Relating to the Integration of the CTI Companies" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." COMPETITION Contract Manufacturing. Competition in the electronic manufacturing services industry is intense. The Company competes against numerous domestic and foreign manufacturers, including SCI Systems, Inc., Solectron Corporation, Benchmark Electronics, Inc., DII Group, Inc., Plexus Corp., Reptron Electronics, Inc., and others, many of which are substantially larger or have greater financial or operating resources than the Company. Many of the Company's competitors are more established in the industry and have substantially greater manufacturing, financial, engineering and marketing resources than the Company. The Company also faces competition from the manufacturing operations of its current and potential customers, which are continually evaluating the relative merits of internal manufacturing versus outsourcing. Certain of the Company's competitors have broader geographic breadth than the Company. In addition, several contract manufacturers have established manufacturing facilities in foreign countries. The Company believes that foreign manufacturing facilities are more important for contract manufacturers that focus on high-volume consumer electronic products, and do not afford a significant competitive advantage in the Company's targeted market for complex, mid-volume products for which greater flexibility in specifications and lead times is required. The Company believes that the principal competitive factors in its targeted market are quality, reliability, ability to meet delivery schedules, technological sophistication, geographic location and price. Repair and Warranty Services. The Company also has a number of competitors in the repair and warranty services industry, including Cerplex Group, Inc., Aurora Electronics, Inc., Logistics Management, Inc., Sequel, Inc., Data Exchange Corp., DecisionOne Holdings Corp., and others. In addition, the Company competes with certain OEMs that provide repair and warranty services for their own products. Some of the Company's competitors in the repair and warranty services industry are more established in the industry and have substantially greater financial, engineering and marketing resources than the Company. The Company believes that its location within the Overnight Delivery Hubs gives it a significant competitive advantage. However, a competitor can, and in some cases has, gained similar advantages by locating a repair facility in close proximity to the Overnight Delivery Hubs. The Company also faces competition from its current and potential customers, which are continually evaluating the relative merits of providing repair and warranty services internally versus outsourcing. The Company believes that the principal competitive factors in its targeted repair and warranty services market are quality, reliability, ability to meet delivery schedules and price. TECHNOLOGICAL CHANGE The electronic manufacturing services industry is characterized by rapidly changing technology. The Company believes that its future success will depend on its ability to keep pace with technological changes in order to meet customer needs. The Company could be required to make substantial capital expenditures to acquire equipment embodying any new technology necessary to serve the needs of its customers. See "Business and Properties -- Industry Overview," "Business and Properties -- Strategy" and "Business and Properties -- Services." INVENTORY RISK; LIMITED AVAILABILITY OF COMPONENTS AND MANUFACTURING EQUIPMENT In the first nine months of 1997, substantially all of the Company's net sales were derived from turnkey sales. In turnkey manufacturing, the Company provides materials as well as manufacturing 12 14 services and often bears the risk of fluctuations in materials costs, scrap and excess inventory, which could adversely affect the Company's gross profit margins. In addition, some materials used by the Company have been subject to industry-wide shortages and suppliers have been forced to allocate available quantities among their customers. In addition, work stoppages or other disruptions in transportation services may occur from time to time which may affect availability of materials. The Company's inability to obtain any needed materials during periods of allocations, work stoppages or disruptions in transportation services could cause delays in shipments to the Company's customers, and could also adversely affect results of operations. Significant lead times also are involved in acquiring certain equipment used in the Company's manufacturing process. Although the Company has increased its manufacturing capacity in response to the expansion of its customer base, there can be no assurance that the Company will have sufficient capacity at any given time to meet its customers' demands if such demands exceed anticipated levels. ENVIRONMENTAL COMPLIANCE The Company's operations and properties are subject to certain federal, state and local regulatory requirements relating to environmental, waste management, health and safety matters. Some risk of costs and liabilities related to these matters is inherent in the Company's business, as with many other businesses. In the event of violation, these regulations provide for civil and criminal fines, injunctions and other sanctions and, in certain instances, allow third parties to sue to enforce compliance. In addition, new, modified or more stringent requirements or enforcement policies could be adopted that may adversely affect the Company. In certain cases, the Company could be liable for environmental clean-up and other costs resulting from actions of others occurring on or near the Company's properties or, even if not liable, the Company could find itself forced to defend against assertions of potential liability for the actions of others. There can be no assurance that material costs and liabilities will not be incurred in complying with those regulations or in defending against any such liability, or that past or future operations will not result in exposure to injury or claims of injury by employees or the public. CONCENTRATION OF OWNERSHIP Upon completion of this offering and including shares issuable upon exercise of vested options, the officers and directors of the Company will continue to own (assuming the exercise of all currently vested options held by them) approximately 48.0% of the Company's Common Stock then outstanding. Consequently, the officers and directors will continue to be able to exercise substantial control over the election of the Company's directors, the outcome of corporate actions requiring shareholder approval, the business and affairs of the Company and future direction of the Company. The concentration of the ownership of the Common Stock among the Company's directors is likely to delay or prevent a change of control of the Company without the consent of such directors. See "Principal Shareholders" and "Selling Shareholders." SHARES ELIGIBLE FOR FUTURE SALES Sales of a substantial number of shares of Common Stock in the public market after this offering could adversely affect the market price of the Common Stock. Without consideration of the contractual rights and prohibitions described below, there is also a substantial number of shares of Common Stock that are eligible for sale in public markets pursuant to Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), or will become so eligible, in the near future. In addition, substantial numbers of shares of Common Stock are issuable upon exercise of outstanding options issued by the Company and the Company has registered, under the Securities Act, the resale of 1,155,000 shares of Common Stock issuable upon exercise of options granted to employees under the Company's 1989 Stock Option Plan, 1993 Incentive Stock Option Plan, Equity Incentive Plan and Stock Option Plan for Non-Employee Directors (collectively, the "Stock Option Plans"). Shortly after completion of the offering made hereby, the Company intends to file a registration statement on Form S-8 to register under the Securities Act the resale of an additional 1,140,000 shares of Common Stock reserved for issuance under 13 15 the Stock Option Plans. Moreover, certain of the Company's shareholders have certain contractual rights to cause the Company to register their shares for resale or to require the inclusion of their shares in registration statements otherwise filed by the Company. The Company, the Company's directors and executive officers and the Selling Shareholders have agreed with the Underwriters not to make certain sales or dispositions of shares of Common Stock or securities convertible or exercisable for Common Stock for a period of 180 days (and in some cases 360 days) after the date of this Prospectus without the prior written consent of Salomon Brothers Inc. Salomon Brothers Inc may, in its sole discretion at anytime without notice, consent to an early termination of such agreements. See "Shares Eligible for Future Sales." VOLATILITY RISK FACTOR The Company's Common Stock has experienced significant price volatility historically, and such volatility may continue to occur in the future. Factors such as announcements of large customer orders, order cancellations, new product introductions by the Company or competitors or general conditions in the electronics industry, as well as variations in the Company's actual or anticipated results of operations, may cause the market price of the Company's Common Stock to fluctuate significantly. Furthermore, the stock market has experienced extreme price and volume fluctuations in recent years, often for reasons unrelated to the operating performance of the specific companies. These broad market fluctuations may materially adversely affect the price of the Company's Common Stock. There can be no assurance that the market price of the Company's Common Stock will not experience significant fluctuations in the future, including fluctuations that are unrelated to the Company's performance. ANTI-TAKEOVER PROVISIONS Several provisions of the Company's Articles of Incorporation and Bylaws could deter or delay unsolicited takeovers or delay or prevent changes in control or management of the Company, including transactions in which shareholders might otherwise receive a premium for their shares over then current market prices. In addition, such provisions could limit the ability of shareholders to approve transactions that they may deem to be in their best interests. See "Description of Capital Stock and Other Securities." 14 16 USE OF PROCEEDS The net proceeds to the Company from the sale of the shares of Common Stock being offered hereby, after deducting underwriting discounts and estimated offering expenses, are estimated to be approximately $52.1 million ($53.6 million if the Underwriters' over-allotment option is exercised in full) assuming a public offering price of $16.00 (the last reported sales price of the Common Stock on the Nasdaq National Market on October 20, 1997). Such proceeds will be used by the Company as follows: (i) to make a $6.0 million contingent payment to the previous owners of certain of the CTI Companies that becomes due upon completion of the offering made hereby; (ii) to retire a term loan of approximately $20 million; (iii) to pay down the Company's revolving credit facility, which as of September 30, 1997, had outstanding borrowings of approximately $22.5 million; and (iv) to pay a portion of the outstanding subordinated notes in the principal amount of $15 million (the "Subordinated Notes") held by Richard L. Monfort. The term loan and the revolving loan (collectively, the "Bank One Loan") were incurred pursuant to a Credit Agreement, dated as of September 30, 1997, among the Company and Bank One, Colorado, N.A. ("Bank One") and the Subordinated Notes were issued and sold pursuant to a Note Agreement, dated as of September 5, 1997 between the Company and Richard L. Monfort. Both the Bank One Loan and the Subordinated Notes were incurred in connection with the CTI Merger and the AlliedSignal Asset Purchase. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources," for a description of the terms, including interest rates, of the Bank One Loan and the Subordinated Notes. PRICE RANGE OF COMMON STOCK The Common Stock is quoted on the Nasdaq National Market under the symbol "EFTC." The following table sets forth, for the periods indicated, the high and low closing sales prices of the Common Stock as reported on the Nasdaq National Market.
HIGH LOW ---- ---- YEAR ENDING DECEMBER 31, 1997: Fourth Quarter (through October 20, 1997)................... $16 $13 3/4 Third Quarter............................................... 14 5/16 8 5/8 Second Quarter.............................................. 8 1/2 4 5/8 First Quarter............................................... 6 3/4 4 3/4 YEAR ENDED DECEMBER 31, 1996: Fourth Quarter.............................................. 4 7/8 2 3/4 Third Quarter............................................... 4 1/4 3 1/2 Second Quarter.............................................. 4 7/8 3 5/8 First Quarter............................................... 5 1/8 3 3/4 YEAR ENDED DECEMBER 31, 1995: Fourth Quarter.............................................. 5 7/8 3 1/2 Third Quarter............................................... 7 7/8 5 3/8 Second Quarter.............................................. 8 1/4 5 First Quarter............................................... 7 5/8 5 1/4
On October 20, 1997, the last reported closing sale price for the Common Stock on the Nasdaq National Market was $16.00. As of October 9, 1997, there were approximately 247 shareholders of record of the Common Stock. 15 17 DIVIDEND POLICY The Company does not intend to pay cash dividends on the Common Stock in the foreseeable future. The Company instead intends to retain its earnings for use in the operation and expansion of its business. Any future cash dividends would depend on future earnings, capital requirements, the Company's financial condition and other factors deemed relevant by the Board of Directors. Under the terms of the Bank One Loan, the Company may not pay dividends without the consent of Bank One. See the description of the Bank One Loan in "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." CAPITALIZATION The following table sets forth the consolidated capitalization of the Company as of September 30, 1997, and as adjusted to reflect (i) the sale of 3,500,000 shares of Common Stock offered by the Company hereby and (ii) the application of the estimated net proceeds to the Company therefrom, as described under "Use of Proceeds." The following table should be read in conjunction with the Consolidated Financial Statements of the Company and the related notes and other financial information included elsewhere in this Prospectus.
AT SEPTEMBER 30, 1997 ---------------------- ACTUAL AS ADJUSTED ------- ----------- (IN THOUSANDS) Debt: Revolving credit facility................................. $22,514 $ -- Current portion of long term debt......................... 2,275 -- ------- ------- Total current debt................................ 24,789 -- Long term debt, less current portion...................... 32,725 11,424 ------- ------- Total debt........................................ 57,514 11,424 ------- ------- Shareholders' equity: Preferred Stock, $0.01 par value, 5,000,000 shares authorized, none issued and outstanding................ -- -- Common Stock, $0.01 par value, 45,000,000 shares authorized; 7,812,135 shares issued and outstanding and 11,312,135 shares as adjusted(1)....................... 78 113 Additional paid-in-capital................................ 24,443 76,498 Retained earnings......................................... 5,665 5,665 ------- ------- Total shareholders' equity........................ 30,186 82,276 ------- ------- Total capitalization.............................. $87,700 $93,700 ======= =======
- --------------- (1) Does not include 1,849,000 shares of Common Stock issuable upon exercise of outstanding options, 2,000 shares issued pursuant to the exercise of options from September 30, 1997 to the date of this Prospectus, 80,000 shares issuable upon exercise of outstanding warrants, 40,000 shares issuable upon exercise of additional options that are expected to be exercised by certain Selling Shareholders in connection with the offering made hereby, or 500,000 shares issued on October 9, 1997 upon the exercise of certain warrants for total proceeds to the Company of $4 million. 16 18 SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA The following tables present for the Company (i) selected consolidated historical financial data as of and for each of the five years ended December 31, 1996, as of and for the nine months ended September 30, 1997 and for the nine months ended September 30, 1996; (ii) unaudited pro forma financial data for the year ended December 31, 1996 and the nine months ended September 30, 1997 reflecting the consummation of the CTI Merger and the CE Merger, as described elsewhere herein; and (iii) unaudited pro forma adjusted financial data for the year ended December 31, 1996 and the nine months ended September 30, 1997 and unaudited adjusted financial data as of September 30, 1997 adjusted for the issuance of Common Stock being offered hereby and the related use of proceeds from such offering. The selected consolidated historical financial data set forth below as of September 30, 1997 and December 31, 1996 and 1995 and for the three years ended December 31, 1996 and the nine months ended September 30, 1997 have been derived from the Company's financial statements audited by KPMG Peat Marwick LLP included elsewhere in this Prospectus. The selected consolidated historical financial data as of December 31, 1994, 1993 and 1992 and for the two years ended December 31, 1993 is derived from financial statements not included or incorporated by reference herein. The selected historical financial data set forth below for the nine months ended September 30, 1996 have been derived from unaudited financial statements of the Company that have been prepared on the same basis as the audited financial statements and, in the opinion of the Company, reflect all adjustments necessary (consisting only of normal recurring adjustments) for the fair presentation of the Company's results of operations for the period. All of the financial data set forth below is qualified in its entirety by and should be read in conjunction with such financial statements and the notes thereto and the Company's "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus. The results of operations of the Company for the interim period ended September 30, 1997 are not necessarily indicative of the results to be expected for the entire year. 17 19
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31 ----------------------------------------- ---------------------- PRO FORMA PRO PRO FORMA PRO AS ADJUSTED FORMA AS ADJUSTED FORMA 1997(3) 1997(2) 1997 1996 1996(3) 1996(2) ----------- ------- ------- ------- ----------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Net sales................... $98,020 $98,020 $64,973 $44,576 $115,910 $115,910 Cost of sales............... 81,766 81,766 56,740 42,676 100,590 100,590 ------- ------- ------- ------- -------- -------- Gross profit.............. 16,254 16,254 8,233 1,900 15,320 15,320 Selling, general and administrative expense................... 14,110 14,110 5,126 3,403 13,240 13,240 Amortization of goodwill.... 1,012 1,012 157 -- 1,349 1,349 Impairment of fixed assets.................... -- -- -- 726 726 726 ------- ------- ------- ------- -------- -------- Operating income (loss)... 1,132 1,132 2,950 (2,229) 5 5 ------- ------- ------- ------- -------- -------- Other income (expense): Interest expense.......... -- (2,873) (1,054) (384) -- (3,275) Other income, net......... 1,197(4) 1,197(4) 1,206(4) 17 83 83 ------- ------- ------- ------- -------- -------- 1,197 (1,676) 152 (367) 83 (3,192) ------- ------- ------- ------- -------- -------- Income (loss) before income taxes............ 2,329 (544) 3,102 (2,596) 88 (3,187) Income tax expense (benefit)................. 885 (207) 1,133 (920) 32 (1,078) ------- ------- ------- ------- -------- -------- Net income (loss)......... $ 1,444 $ (337) $ 1,969 $(1,676) $ 56 $ (2,109) ======= ======= ======= ======= ======== ======== Income (loss) per common share, fully diluted...... $ .12 $ (.04) $ .32 $ (.42) $ .01 $ (.27) ======= ======= ======= ======= ======== ======== Weighted average common and common equivalent shares outstanding............... 11,578 8,078 6,219 3,968 11,281 7,781 ======= ======= ======= ======= ======== ======== YEAR ENDED DECEMBER 31, ----------------------------------------------- 1996(1) 1995 1994 1993 1992 ------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Net sales................... $56,880 $49,220 $52,542 $29,817 $17,294 Cost of sales............... 53,980 45,325 47,123 25,688 15,129 ------- ------- ------- ------- ------- Gross profit.............. 2,900 3,895 5,419 4,129 2,165 Selling, general and administrative expense................... 4,196 3,094 2,396 1,843 1,452 Amortization of goodwill.... -- -- -- -- -- Impairment of fixed assets.................... 726 -- -- -- -- ------- ------- ------- ------- ------- Operating income (loss)... (2,022) 801 3,023 2,286 713 ------- ------- ------- ------- ------- Other income (expense): Interest expense.......... (526) (399) (175) (237) (227) Other income, net......... 83 79 110 (12) 8 ------- ------- ------- ------- ------- (443) (320) (65) (249) (219) ------- ------- ------- ------- ------- Income (loss) before income taxes............ (2,465) 481 2,958 2,037 494 Income tax expense (benefit)................. (872) 127 1,041 736 174 ------- ------- ------- ------- ------- Net income (loss)......... $(1,593) $ 354 $ 1,917 $ 1,301 $ 320 ======= ======= ======= ======= ======= Income (loss) per common share, fully diluted...... $ (.40) $ .09 $ .53 $ .52 $ .13 ======= ======= ======= ======= ======= Weighted average common and common equivalent shares outstanding............... 3,942 3,962 3,627 2,483 2,417 ======= ======= ======= ======= =======
SEPTEMBER 30, 1997 ----------------------- DECEMBER 31, AS ------------------------------------------- ADJUSTED(7) ACTUAL(6) 1996 1995 1994(5) 1993 1992 ----------- --------- ------ ------ ------- ------ ------ ) (IN THOUSANDS BALANCE SHEET DATA: Working capital........................................... $ 25,200 $ 411 $8,508 $9,868 $6,744 $2,404 $1,423 Goodwill.................................................. 46,360 40,360 -- -- -- -- -- Total assets.............................................. 123,646 117,646 22,870 24,984 23,479 11,172 6,703 Total debt................................................ 11,424 57,514 4,860 3,230 3,400 3,084 3,180 Stockholder's equity...................................... 82,276 30,186 13,922 15,509 14,989 3,547 2,090
- --------------- (1) As part of a corporate restructuring, the Company expensed $2.1 million for restructuring costs in the third quarter of 1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (2) Pro forma for the acquisitions of the CE Companies and the CTI Companies as if these acquisitions had occurred on January 1, 1996 for pro forma statement of operations data purposes. See "Unaudited Pro Forma Condensed Combined Financial Statements." (3) Pro forma assuming the offering made hereby and the Acquisitions had occurred on January 1, 1996, and a portion of the proceeds were used to repay certain debt on that date, resulting in a decrease in interest expense of $2.9 million and $3.3 million for the nine months ended September 30, 1997 and the year ended December 31, 1996, respectively. (4) Includes gain on the sale of a building used in the Company's manufacturing operations of approximately $1.2 million. (5) The Company received net proceeds of $9.3 million from its initial public offering in March 1994. (6) The Company acquired the CE Companies in February 1997 for total consideration of approximately $10.9 million consisting of 1,980,000 shares of the Company's Common Stock and $5.5 million in cash, including approximately $0.6 million of transaction costs, and the CTI Companies on September 30, 1997 for $29.3 million consisting of 1,858,975 shares of the Company's Common Stock and $20.5 million in cash, including approximately $1.0 million of transaction costs. In addition, the Company acquired certain net assets of AlliedSignal in August and September 1997. See "Management's Discussion and Analysis -- Recent Developments." (7) Adjusted to reflect the issuance of shares in the offering made hereby, net of related expenses, and the application of the proceeds as described in "Use of Proceeds." 18 20 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 PSLRA. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements. See "Cautionary Statement Regarding Forward-Looking Statements." THE COMPANY GENERAL The Company is a leading independent provider of high-mix electronic manufacturing services to OEMs in the aerospace and avionics, medical, communications, industrial instruments and controls and computer-related products industries. The Company's manufacturing services consist of assembling complex printed circuit boards, cables, electro-mechanical devices and finished products. The CTI Companies provide repair and warranty services to OEMs in the communications and computer industries. The Company's quarterly results of operations are affected by several factors, primarily the level and timing of customer orders and the mix of turnkey and consignment orders. The level and timing of orders placed by a customer vary due to the customer's attempts to balance its inventory, changes in the customer's manufacturing strategy and variation in demand for its products due to, among other things, product life cycles, competitive conditions and general economic conditions. In the past, changes in orders from customers have had a significant effect on the Company's quarterly results of operations. Other factors affecting the Company's quarterly results of operations may include, among other things, the Company's success in integrating the businesses of the CTI Companies and the CE Companies and the operations acquired in the AlliedSignal Asset Purchase, costs relating to the expansion of operations including development of the Company's plan to develop a BTO business, price competition, 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 in managing inventories and other assets, the timing of expenditures in anticipation of increased sales and fluctuations in the cost of components or labor. In the third quarter of 1996, the Company introduced Asynchronous Process Manufacturing, a new manufacturing methodology, at its Rocky Mountain facility. APM is an innovative combination of high-speed manufacturing equipment, sophisticated information systems and standardized process teams designed to manufacture mixtures of small quantities of products more flexibly and faster. APM allows for the building of small lots in very short cycle times and increases throughput by decreasing setup time, standardizing work centers and processing smaller lot sizes. The Company has done this by designating teams to set up off-line feeders and standardizing loading methods regardless of product complexity. APM has allowed the Company to increase productivity by producing product with fewer people which ultimately reduces costs and increases gross profit. The Company completed implementing APM at its Rocky Mountain facility in October 1996 and has begun implementing APM at its existing Newberg, Oregon facility, but will not complete that implementation until after its new manufacturing facility under construction in Newberg, Oregon is completed. The Company also plans to implement APM at its other facilities, at appropriate times. RECENT DEVELOPMENTS During the first nine months of 1997, the Company has completed the CE Merger, the AlliedSignal Asset Purchase and the CTI Merger, all of which have effected the Company's results of operations and financial condition in 1997. CE Merger. On February 24, 1997, the Company acquired two companies, CEI and its affiliate CEWI, for approximately $10.9 million consisting of 1,980,000 shares of Common Stock and approximately 19 21 $5.5 million in cash, which included approximately $0.6 million of transaction costs. The Company recorded goodwill of approximately $8.0 million, which will be amortized over 30 years. The combined revenues for the CE Companies for the fiscal year ended September 30, 1996 was approximately $32.5 million. In connection with this transaction, the Company renegotiated its line of credit and obtained a 90-day bridge loan in the amount of $4.9 million (which was subsequently repaid), the proceeds from which were used to pay the cash consideration related to the CE Merger, as discussed above. See "-- Liquidity and Capital Resources." AlliedSignal Asset Purchase. In August and September 1997, the Company completed the initial elements of two transactions with AlliedSignal pursuant to which the Company acquired certain inventory and equipment located in Ft. Lauderdale, Florida, subleased the portion of AlliedSignal's facility where such inventory and equipment was located and employed certain persons formerly employed by AlliedSignal at that location. The Company also hired certain persons formerly employed by AlliedSignal in Tucson, Arizona and agreed with AlliedSignal to provide the personnel and management services necessary to operate a related facility on behalf of AlliedSignal on a temporary basis. Subject to the satisfaction of the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, the Company has agreed to acquire AlliedSignal's inventory and equipment located at AlliedSignal's Tucson, Arizona facility. The Company has agreed to purchase from a third party a production facility in Tucson, Arizona that is currently being renovated. Upon completion of such renovations (expected for the first quarter of 1998), the Company will move that inventory and equipment and related employees to its own facility and will begin its own production there. The aggregate purchase price of all the assets to be acquired by the Company from AlliedSignal is expected to approximate $15 million, of which $10.9 million had been paid through September 30, 1997. The Florida facility is currently used, and the Arizona facility will initially be used, to produce electronic assemblies for AlliedSignal. The Company is also seeking to use the Florida and Arizona facilities to provide services for customers other than AlliedSignal. The Company has agreed to pay AlliedSignal one percent of gross revenue for all electronic assemblies and parts made for a customer other than AlliedSignal at the Arizona or Florida facilities through December 31, 2001. CTI Merger. On September 30, 1997, the Company acquired the CTI Companies for approximately $29.3 million in cash and debt assumption, 1,858,975 shares of the Company's Common Stock and a $6 million contingent payment payable upon closing of this offering. The Company recorded goodwill of approximately $32.4 million, which will be amortized over 30 years. In connection with this acquisition, the Company entered into the Bank One Loan and issued the Subordinated Notes in an aggregate principal amount of $15 million. See "-- Liquidity and Capital Resources." In many respects, the CTI Companies and the Company are financially and operationally complementary businesses. This tends to give management at the CTI Companies more alternatives when making decisions that affect profit margins and overall operations. The CTI Companies have historically turned receivables at a slower rate and inventories at approximately the same rate as the Company. In 1996, the CTI Companies turned receivables at an approximate rate of 57 days or 6 times a year and turned inventories every 79 days or approximately 5 times a year. In 1996, the Company turned receivables at an approximate rate of 25 days or approximately 14 times a year and turned inventories every 62 days or approximately 6 times a year. The Company, after the CTI Merger, expects its receivables and inventory to turn over at a slower rate due to the inclusion of the CTI Companies. The Company is involved in the front end of many OEMs' new-product introductions and is subject to production fluctuations relating to the OEMs' product demands. The CTI Companies' repair and warranty service is dependent on the size of the products installed base. Thus, the Company's production of a particular product is related to overall product life cycle and length of demand for such product. The CTI Companies' repair and warranty service is dependent on the size of the installed base and extent of use of such product. Historically, the CTI Companies have generated gross profit percentages of approximately 30%. This is significantly higher than the Company's historic gross profit percentages which have ranged from 20 22 approximately 5% to 10% from 1994 to 1996. This is due to the high value-added content of the CTI Companies' operations. The Company expects the overall impact of combining operations of the CTI Companies with the Company to be higher overall gross, operational and net profit percentages due to the CTI Companies' overall higher profitability levels as a percentage of sales. This is based on historic results, and there is no guarantee that these trends will continue. RESULTS OF OPERATIONS The following table sets forth certain operating data as a percentage of net sales:
NINE MONTHS ENDED SEPTEMBER 30 YEAR ENDED DECEMBER 31, ----------------- ------------------------- 1997 1996 1996 1995 1994 ------ ------ ----- ----- ----- Net sales........................... 100.0% 100.0% 100.0% 100.0% 100.0% Gross profit........................ 12.7 4.3 5.1 7.9 10.3 Selling, general and administrative expenses.......................... 7.9 7.7 7.4 6.3 4.6 Goodwill............................ 0.3 -- -- -- -- Impairment of fixed assets.......... -- 1.6 1.3 -- -- ----- ----- ----- ----- ----- Operating income (loss)............. 4.5 (5.0) (3.6) 1.6 5.7 Interest expense.................... (1.6) (0.9) (0.9) (0.8) (0.3) Other, net.......................... 1.9 -- 0.2 0.2 0.2 ----- ----- ----- ----- ----- Income (loss) before income taxes... 4.8 (5.8) (4.3) 1.0 5.6 Income tax expense (benefit)........ 1.8 (2.0) (1.5) 0.3 2.0 ----- ----- ----- ----- ----- Net Income (loss)................... 3.0 (3.8) (2.8) 0.7 3.6 ===== ===== ===== ===== =====
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30, 1996 Net Sales. The Company's net sales increased by 45.8% to $65.0 million during the first nine months of 1997, from $44.6 million for the first nine months of 1996. The increase in net sales is due primarily to the inclusion of the operations from the CE Companies, acquired on February 24, 1997, the inclusion of the operations of the Company's Fort Lauderdale facility, acquired from AlliedSignal on August 11, 1997, and increased orders from existing customers. Gross Profit. Gross profit increased by 333.3% to $8.2 million during the first nine months of 1997, from $1.9 million during the first nine months of 1996. The gross profit margin for the first nine months of 1997 was 12.7% compared to 4.3% for the first nine months of 1996. The increase in gross profit percentage is related to (i) the operations of the CE Companies, which have historically had a higher gross profit percentage and (ii) the adoption of APM in the later part of 1996 in the Rocky Mountain facility which has resulted in greater operating efficiencies. In addition, as revenues have increased, fixed overhead costs such as labor costs and depreciation have been absorbed in cost of goods resulting in higher margins. Finally, the Company incurred a restructuring charge in cost of goods of $0.5 million in the third quarter of fiscal 1996, primarily related to severance pay and the write-off of inventory associated with the restructuring of the Company's customer base, which accentuated the difference in gross profit between the first nine months of 1996 and 1997. Selling, General and Administrative Expenses. Selling, general and administrative ("SGA") expenses increased by 50.6% to $5.1 million for the first nine months of 1997 compared with $3.4 million for the same period for the first nine months of 1996. As a percentage of net sales, SGA expense increased to 7.9% in the first nine months of 1997 from 7.7% in the same period of 1996. The Company incurred a restructuring charge of $0.9 million in the third quarter of 1996, primarily from severance pay for terminated employees at the Rocky Mountain facility. Without the restructuring charge, SGA expense for the first nine months of 1996 would have been 5.6% of sales. The increase in SGA expenses is primarily 21 23 due to the inclusion of the CE Companies' SGA expenses, SGA expenses related to the Company's Fort Lauderdale, Florida facility, and increased investment in information technology and marketing. Impairment of Fixed Assets. During the third quarter of 1996, the Company incurred a write down associated with impaired assets in the amount of $725,869. See "-- 1996 Compared to 1995 -- Impairment of Fixed Assets." Operating Income. Operating income increased to $3.0 million for the first nine months of 1997 from a loss of $2.2 million for the first nine months of 1996. Operating income as a percentage of net sales increased to 4.5% in the first nine months of 1997 from negative 5.0% in the same period of 1996. The increase in operating income is attributable to the CE Merger, increased efficiencies associated with APM, and the acquisition and operation of the Fort Lauderdale, Florida facility. Without the $2.1 million write down in the third quarter of 1996, the nine-month 1996 operating loss would have been $0.1 million, and the operating profit margin would have been approximately breakeven. Interest Expense. Interest expense was $1.1 million for the first nine months of 1997 as compared to $0.4 million for the same period in 1996. The increase in interest is primarily the result of the incurrence of debt associated with the CE Merger and the AlliedSignal Asset Purchase in Arizona and Florida, and increased operating debt used to finance both inventories and receivables for the Company in the first nine months of fiscal 1997. Income Tax Expense. The effective income tax rate for the first nine months of fiscal 1997 was 36.5% compared to 35.4% from the same period a year earlier. This percentage can fluctuate because relatively small dollar amounts tend to move the rate significantly as estimates change. The Company expects that the rate will be higher in the upcoming quarters. This higher anticipated effective tax rate is due to the impact of the nondeductible goodwill component of the CTI Merger and CE Merger. 1996 Compared to 1995 Net Sales. Net sales in 1996 increased 15.6% to $56.9 million from $49.2 million in 1995. The increase in net sales is due primarily to increased material sales associated with a box-build project for one customer. The top ten customers in 1996 accounted for 77.6% of total sales volume, as compared to 80.4% in 1995. Gross Profit. Gross profit in 1996 decreased 25.5% from 1995 to $2.9 million. Gross profit as a percentage of net sales for 1996 was 5.1% compared to 7.9% in 1995. One reason for the decline in gross profit is related to restructuring charges of $0.5 million that were included in cost of goods sold in the third quarter of 1996. Without the restructuring, gross profit would have been $3.4 million or 5.9% of net sales. These restructuring charges were severance expenses related to a decrease in workforce, write down of inventory related to changes in the Company's customer mix, and expenses related to the reorganization of the manufacturing floor and manufacturing process in connection with the implementation of APM. Selling, General and Administrative Expenses. SGA expense for 1996 increased by 35.6% over 1995 to $4.2 million. The increase is due to restructuring charges for severance expenses related to reduction in workforce and other expenses related to organizational changes in the amount of $0.9 million in the third quarter of 1996. Excluding the restructuring charges, the SGA expense would have been $3.3 million which is an increase of $179,980 or 5.8% over 1995. This increase was due primarily to increased sales commissions and related expenses associated with the sales growth from 1995 to 1996 levels as noted above. As a percentage of net sales, SGA expense increased to 7.4% in 1996 from 6.3% in 1995. Without the restructuring changes, SGA expenses would have been 5.8% of net sales for the year ended 1996. Impairment of Fixed Assets. During the third quarter of 1996, the Company incurred a write down associated with impaired assets in the amount of $0.7 million. Statement of Financial Accounting Standards No. 121 "Accounting for the impairment of long-lived assets and for long-lived assets to be disposed of," requires that long-lived assets and certain identifiable intangibles to be held and used by 22 24 an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets and certain identifiable intangibles to be disposed of should be reported at the lower of carrying amount of fair value less cost to sell. The Company went through a corporate restructuring in the third quarter of 1996 which included a workforce reduction and the implementation of APM which resulted in certain assets no longer being used in operations. Certain software that will no longer be used, as well as excess equipment that was sold, were written down to fair value in accordance with Statement No. 121. Operating Income. Operating income in 1996 decreased 352.3% to a loss of $2.0 million from income of $801,321 in 1995. Operating income as a percent of sales decreased to negative 3.6% in 1996 from 1.6% in 1995. The decrease in operating income was primarily attributable to the restructuring charges and impairment of fixed assets noted above in the amount of $2.1 million. Excluding the restructuring charges, the Company would have had operating income of $0.1 million or 0.2% of net sales for 1996. The decrease, excluding the restructuring charges, was related to product mix changes and related overhead expenses to put new programs in place as well as increased variable selling costs associated with higher sales volumes in the first two quarters of 1996. Interest Expense. Interest expense in 1996 increased 31.7% from 1995 to $0.5 million. Borrowing due to increases in inventory and accounts receivable levels is the primary reason for the increase in interest expense. Income Tax Expense. The Company's effective income tax rate for 1996 was 35.4% compared to 26.3% for 1995. Tax expense for 1995 was lower due to certain research expenditures incurred in 1992, 1993, 1994 and 1995 for which the Company claimed federal tax credits. The Company's Rocky Mountain facility is also located in a State of Colorado enterprise zone. The Company receives state tax credits for capital expenditures and increases in the number of Company employees but, as sales increase, these state tax credits will have a relatively smaller effect on the Company's effective income tax rate. 1995 Compared to 1994 Net Sales. Net sales in 1995 decreased 6.3% to $49.2 million from $52.5 million in 1994. In 1995, revenues generated from sales to three of the Company's largest customers decreased by approximately $13.5 million when compared to 1994 levels. One customer moved into a larger facility and decided to decrease its outsourced manufacturing requirements. The decrease in orders from the other two customers was due to the Company's inability to be competitive on material pricing because of the Company's inability to take advantage of volume buying. In 1994, these three customers accounted for approximately $23.6 million of revenues compared to approximately $10 million in 1995. The top ten customers in 1995 accounted for 80.4% of total sales volume, as compared to 91.3% in 1994. The Company replaced a significant portion of the lost revenues attributable to the decrease in orders with new sources of revenue during 1995. Gross Profit. Gross profit in 1995 decreased 28.1% from 1994 to $3.9 million. Gross profit as a percentage of net sales for 1995 was 7.9%, compared to 10.3% in 1994. These decreases are attributable to several factors. First, the overall number of different assemblies ordered annually by customers increased by 200 assemblies from 703 assemblies at December 31, 1994 to 903 assemblies at December 31, 1995. At December 31, 1993, the Company had approximately 619 assemblies. The increase in the number of assemblies resulted in a decrease in efficiency manifested in increased costs related to the start-up of manufacturing of such new assemblies and other costs. Such start-up costs primarily consisted of increased labor costs due to difficulties in scheduling large numbers of assemblies, including costs for new personnel, training, overtime and increased rework costs. The Company also experienced increases in other manufacturing costs, including increased costs of production planning, documentation, engineering and scrap costs. Second, the Company made investments in equipment and facilities at the end of 1994 and the beginning of 1995. Due to such investments, depreciation expense increased by $0.7 million to $1.7 million in 1995 from $1.0 million in 1994. Third, during 1995, periodic material shortages created upward pressure on material prices and affected manufacturing schedules which had a negative impact on gross margins. 23 25 Selling, General and Administrative Expenses. SGA expense for 1995 increased by 29.2% over 1994 to $3.1 million. The increase is primarily the result of non-recurring costs related to corporate re-structuring in the third quarter, consulting fees related to corporate reengineering processes, increased selling expenses related to a new sales office in Texas and a new sales representative in California, and increased administrative expenses related to being a publicly-held company. As a percentage of net sales, SGA expense increased to 6.3% in 1995 from 4.6% in 1994. Operating Income. As a result of the factors described above, operating income in 1995 decreased 73.5% in 1994 to $0.8 million. Operating income as a percentage of net sales decreased from 5.7% in 1994 to 1.6% in 1995. Interest Expense. Interest expense in 1995 increased 127.7% from 1994 to $399,389. The increase was attributable the Company's use of bank debt to fund increases in inventory growth and accounts receivable which were related to the previously mentioned change in product mix. Also, the Company acquired approximately $2.5 million in property and equipment in 1995, which was financed with short term debt. As discussed below under "Liquidity and Capital Resources," the Company received cash from a sale-leaseback transaction in December 1995 of $3.7 million. In addition, the Company retired approximately $3.3 million of short-term debt, in December 1995. Income Tax Expense. The Company's effective income tax rate for 1995 was 26.3% compared to 35.2% for 1994. The decrease in the effective tax rate is primarily attributable to certain research expenditures incurred in 1992, 1993, 1994 and 1995 for which the Company will claim federal tax credits. Also, the Company's facilities are located in a state enterprise zone. The Company receives state tax credits for capital expenditures and increases in the number of Company employees. As sales and earnings increase, these state tax credits will have a relatively smaller effect on the Company's effective income tax rate. LIQUIDITY AND CAPITAL RESOURCES At September 30, 1997, working capital totaled $411,296. Working capital at December 31, 1996 was $8.5 million compared to $9.9 million at December 31, 1995 and $6.7 million at December 31, 1994. The increase in working capital from 1994 to 1995 is attributable primarily to a sale-leaseback transaction which closed in December 1995. The Company sold equipment at a sales price of $3.7 million and retired short-term debt in the amount of $3.3 million in December 1995. The subsequent decrease in working capital in 1996 is attributable primarily to the purchase of fixed assets and long-term debt retirement. The decrease in working capital in the first nine months of 1997 is attributable to the increased borrowings under the Company's line of credit associated with the CTI Merger. Cash used in operations for the first nine months of 1997 was $12.3 million compared to $0.5 million in the same period last year. Cash provided by operations in 1996 was $35,667 compared to cash used in operations of $0.9 million in 1995 and $0.7 million in 1994. The AlliedSignal Asset Purchase in Florida and Arizona and the CTI Merger resulted in a significant use of funds, particularly in the purchase of inventory and equipment in the third quarter of 1997. The increase in cash used in operations in 1995 is attributable primarily to increases in accounts receivable and inventories. Accounts receivable increased 434.9% to $18.3 million at September 30, 1997 from $3.4 million at September 30, 1996. Accounts receivable decreased 22.4% to $3.9 million at December 31,1996 from $5.0 million at December 31, 1995, and increased 29.1% at December 31, 1995 from $3.9 million at December 31, 1994. A comparison of receivable turns (i.e., annualized sales divided by current accounts receivable) for the first nine months of 1997 and the first nine months of 1996 is 4.7 and 17.4 turns, respectively. The 1997 receivable turn is distorted because the sales for the first quarter of 1997 includes only one month and four days of the CE Companies' revenues. The balance sheet of the Company as of September 30, 1997, includes the consolidation of the CTI Companies and the AlliedSignal Asset Purchase, but there has been no corresponding revenue recognition from the CTI Merger and only one month and 20 days of the revenues from the operations in Fort Lauderdale, Florida and Tucson, Arizona. Receivable turns for 1996, 1995 and 1994 were 14.7, 9.9 and 13.6, respectively. Inventories increased 258.1% to $32.8 million at 24 26 September 30, 1997 from $10.1 million at September 30, 1996. Inventories decreased 7.2% to $9.1 million on December 31, 1996 from $9.9 million on December 31, 1995 and increased 31.8% on December 31, 1995 from $7.5 million on December 31, 1994. A comparison of inventory turns (i.e., annualized cost of sales divided by current inventory) for the first nine months of fiscal 1997 and 1996 shows a decrease to 2.3 from 5.6, respectively. The 1997 inventory turns are distorted because the cost of sales for the first quarter includes only one month and four days of the CE Companies' costs. Also the 1997 third quarter ending balance sheet includes the consolidation of the CTI Companies and the AlliedSignal Asset Purchase, but there has been no corresponding revenue recognition from the CTI Companies and only one month and 20 days of costs of running the Fort Lauderdale, Florida and Tuscon, Arizona operations. Inventory turns for 1996, 1995 and 1994 were 5.9, 4.6 and 6.3, respectively. Inventory increases in the early stages of new turnkey business may create delays and decrease the turning of inventory until the new assemblies are in full production. The Company used cash to purchase capital equipment totaling $6.4 million in the first nine months of 1997, compared with $2.1 million in the same period last year. The Company also used cash to purchase the CE Companies and CTI Companies, as explained earlier, in the amount of $24.6 million. Proceeds from long-term borrowings of $35.0 million were used to help fund the purchase of the CE Companies and CTI Companies. The Company used cash from investing activities of $2.0 million in 1996, compared to providing cash of $1.3 million in 1995 and using cash of $9.0 million in 1994. The Company used cash to purchase capital equipment totaling $2.4 million in 1996, compared with $2.5 million in 1995. In 1995, the Company received cash from the sale of equipment primarily from the sale-leaseback transaction mentioned above of $3.7 million. In 1994, capital equipment consisting primarily of manufacturing and computer equipment in the amount of $5.3 million was purchased. In addition, $3.7 million was spent for the construction of a new manufacturing facility and the purchase of an additional parcel of land to allow for future expansion. The capital equipment was purchased with proceeds from the Company's initial public offering in 1994. In connection with the CTI Merger and the AlliedSignal Asset Purchase, the Company entered into the Bank One Loan comprised of a $25 million revolving line of credit, maturing on September 30, 2000 and a $20 million term loan maturing on September 30, 2002. The proceeds of the Bank One Loan were used for (i) funding the CTI Merger and (ii) repayment of the then-existing Bank One line of credit, bridge facility and equipment loan. The Bank One Loan bears interest at a rate based on either the LIBOR or Bank One prime rate plus applicable margins ranging from 3.25% to 0.50% for the term facility and 2.75% to 0.00% for the revolving facility. Borrowings on the revolving facility are subject to limitation based on the value of the available collateral. The Bank One Loan is collateralized by substantially all of the Company's assets, including real estate and all of the outstanding capital stock and memberships of the Company's subsidiaries, whether now owned or later acquired. The agreement for the Bank One Loan contains covenants restricting liens, capital expenditures, investments, borrowings, payment of dividends, mergers and acquisitions and sale of assets. In addition, the loan agreement contains financial covenants restricting maximum annual capital expenditures, recapturing excess cash flow and requiring maintenance of the following ratios: (i) maximum senior debt to EBITDA (as defined in the agreement for the Bank One Loan); (ii) maximum total debt to EBITDA; (iii) minimum fixed charge coverage; (iv) minimum EBITDA to interest; and (v) minimum tangible net worth requirement with periodic step-up. As of September 30, 1997, the borrowing availability under the Bank One Loan was approximately $2.5 million. In addition to the Bank One Loan, the Company has issued the Subordinated Notes in the aggregate principal amount of $15 million, with a maturity date of December 31, 2002 and bearing a rate of the London Inter-Bank Offered Rate, adjusted monthly ("LIBOR"), plus 2.00% in order to fund the AlliedSignal Asset Purchase. The Subordinated Notes are payable in four annual installments of $50,000 and one final payment of $14.8 million at maturity, but may be prepaid in whole or in part at the option of the Company at any time. All payments and prepayments in respect of the Subordinated Notes are fully subordinated to all payments in respect of the Bank One Loan. The Subordinated Notes are accompanied by warrants for 500,000 shares of the Company's Common Stock at an exercise price of $8.00 (the 25 27 "Warrants"). The Warrants were exercised on October 9, 1997. The holder of the Subordinated Notes is Richard L. Monfort, a director of the Company. See "Certain Relationships and Related Transactions." The Company has begun construction of a new manufacturing facility in Oregon to replace its present facility located in Oregon at an approximate cost of $5.8 million. The Company will fund this from operational cash flow and, to the extent necessary, available lines of credit. The Company intends to use the proceeds from the offering made hereby to make a $6 million contingent payment to the previous owners of certain of the CTI Companies and to repay all or part of the Bank One Loan. See "Use of Proceeds." The Company may require additional capital to finance enhancements to, or expansions of, its manufacturing capacity in accordance with its business strategy. Management believes that the need for working capital will continue to grow at a rate generally consistent with the growth of the Company's operations. The Company may seek additional funds, from time to time, through public or private debt or equity offerings, bank borrowing or leasing arrangements; however, no assurance can be given that financing will be available on terms acceptable to the Company. New Accounting Standard. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share" ("SFAS 128") which revised the calculation and presentation provisions of Accounting Principles Board Opinion 15 and related interpretations. SFAS 128 is effective for the Company's fiscal year ending December 31, 1997 and retroactive application is required. The Company believes the adoption of SFAS 128 will not have a material effect on its determination of earnings per share. 26 28 BUSINESS AND PROPERTIES GENERAL The Company is a leading independent provider of high-mix electronic manufacturing services ("EMS") and repair and warranty services to OEMs. The Company's manufacturing services focus on a market niche of high-mix electronic products -- products that are characterized by small lot sizes with differences in configuration from each lot size to the next -- with an emphasis on high-speed production. Following its recent acquisition of the CTI Companies, the Company now also provides hub-based repair and warranty services that are marketed as part of the logistics service offerings of the two largest companies that specialize in overnight delivery services in the United States. These hub-based services are provided principally through facilities located inside the Overnight Delivery Hubs in Memphis, Tennessee and Louisville, Kentucky. Through a series of acquisitions completed in 1997, the Company has expanded its operations from one manufacturing facility in Colorado at the beginning of 1997 to seven facilities throughout the United States at September 30, 1997. Additionally, these Acquisitions have strategically expanded the Company's breadth of high-mix service offerings to include concurrent engineering, subassembly manufacturing, next-day delivery of assemblies and warranty and post-warranty repair services. The Acquisitions are expected to provide the Company with new opportunities to develop programs to help its existing customers reduce inventory, and allow the Company to cross-market its services to the CTI Companies' existing customer base. See "Prospectus Summary -- Acquisitions" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- The Company -- Recent Developments." INDUSTRY OVERVIEW Electronics Manufacturing Services. The electronic manufacturing services industry emerged in the United States in the 1970s and began to grow rapidly in the 1980s. By subcontracting their manufacturing operations, OEMs realized productivity gains by reducing manufacturing capacity and the number of in-house employees needed to manufacture products. As a result, capital that such OEMs would have otherwise devoted to manufacturing operations became available for other activities, such as product development and marketing. Over time, OEMs have determined that manufacturing is not one of their core competencies, leading them to outsource an increasing percentage, and in some cases all, of their manufacturing to EMS providers. The Company believes that many OEMs now view EMS providers as an integral part of their business and manufacturing strategy rather than as a back-up source to in-house manufacturing capacity during peak periods. The types of services now being outsourced have also grown. The Company believes that OEMs are outsourcing more design engineering, distribution and after-sale support, in addition to material procurement, manufacturing and testing. Technology Forecasters, an independent market research firm, has forecasted that the worldwide market for electronic contract manufacturing services is expected to grow from $60 billion in 1996 to $140 billion in 2000, representing a compound annual growth rate of 24%. Repair and Warranty Services. OEMs are also under pressure to control their warranty and service costs without allowing customer service to suffer. This pressure has increased as warranty periods have grown longer and product life-cycles have grown shorter. As with manufacturing services, many OEMs have determined that handling repair and warranty service and providing repair services after warranty expiration are not within their core competencies. Outsourcing allows the OEMs to focus their efforts on product research, design, development and marketing. OEMs can also obtain other benefits from the use of outside repair service providers, including reduced spares inventory, faster turns on inventory and improved customer service for products during the warranty period as well as after expiration of the warranty period. The Company's hub-based service centers allow OEMs and their customers accelerated repair cycles by eliminating transportation legs to and from the shipper to the repair facilities. Dataquest, an independent market research firm, forecasts that worldwide electronic hardware maintenance market revenues will increase from $87.4 billion in 1995 to $106 billion in 2000. In addition, Dataquest estimates that the three segments that the Company's repair and warranty services are focused on -- personal 27 29 computers, workstations and data communications equipment -- will grow from $19.4 billion in 1995 to $28 billion in 2000. Industry Trends. The Company believes that the growth of outsourcing combined with the increasing number of types of electronic products that have emerged over the last decade have significantly increased the variety of electronic manufacturing services required by OEMs. Management also believes that more OEMs from diverse industries are outsourcing manufacturing. The proliferation of electronic products in such diverse fields as digital avionics, electronic medical diagnostics and treatment, communications, industrial controls and instrumentation and computers has placed increasing demands on EMS providers to adapt to new requirements specific to different product types. Similarly, the increasing diversity of the industries served by their OEM customers is placing increased demands on EMS providers to expand their value-added capabilities or more narrowly focus on a particular set of OEMs from particular industry groups. These demands include unique time to market models, manufacturing methods, technologies, quality criteria, and logistic needs, resulting in an increasing need for EMS providers to specialize their services. The Company believes that the key competitive trends in the industry may be summarized as follows: COMPETITIVE TRENDS
YESTERDAY TODAY AND TOMORROW --------- ------------------ Contract manufacturers as generalists Contract manufacturers as specialists Quality (key differentiator) Quality (prerequisite) Manufacturing (only competency) Integrated value added services (in addition to manufacturing) Just-in-time (parts procurement) Just-in-time (complete process) Manufacture printed circuit boards Manufacture complete products Build-to-forecast Build-to-order Typical warranty periods (90 days to Typical warranty periods (three to five one year) years)
The Company believes that OEMs are offering, and in the future will increasingly offer, electronic products that are customized to specifications of OEMs on a "box-build" basis and to the specifications of end users on a BTO basis. In "box-build" services, the manufacturer assembles parts and components, some of which may be purchased from other manufacturers, into a finished product that meets the OEM's specifications. BTO services are box-build services in which the lot size may frequently consist of a single unit and is customized to the specifications of an end user. Typically, these products have some basic, mass-produced parts and special parts that are combined in numerous configurations to form highly customized products. The Company believes EMS providers seeking to participate in this BTO market niche will be required to build these products as orders are received from OEMs to permit such OEMs to reduce their inventory costs and to meet end-users' desires for fast order fulfillment. The Company is pursuing a specialization strategy within the EMS industry that focuses on providing a broad range of high-mix manufacturing and repair and warranty services with an emphasis on high-speed production and repair. The Company believes that OEMs that have historically been volume producers, but who are now shifting to BTO business models, will also be attracted to EFTC's integrated assembly, logistic, and repair capabilities at the Overnight Delivery Hubs. Management believes that the Company's exclusive focus on high-mix production techniques will serve the needs of traditional OEMs and is also well-suited for the BTO market. All of the Company's systems are oriented toward small-lot processing from cable assembly, to card assembly, to box-build, to repair and warranty services. It is the Company's strategy to enter the BTO market at the box-build level. The Company will outsource all mass-produced items to commodity suppliers and manufacture the complex high-mix items at one of the Company's regional facilities. Final BTO assembly will be done 28 30 within the Overnight Delivery Hubs in Memphis and Louisville where the Company currently offers repair and warranty services. This strategy positions the Company to offer OEMs a simplified, more cost effective logistic solution to the delivery of their products. By locating its repair and warranty services within the Overnight Delivery Hubs, the Company believes it can reduce inventory pipelines, minimize transportation legs and gain more time to respond to customer needs. STRATEGY The Company's objective is to be a leading provider of electronic manufacturing services exclusively focused on the needs of high-mix OEM customers in its targeted markets. The Company believes its customers are increasingly focused on improved inventory management, reduced time to market, BTO production, access to leading-edge manufacturing technology and reduced capital investment. The Company's strategy is to offer customers select service offerings which utilize the Company's core competency of small-lot processing and logistics benefits arising from the unique positioning of its repair and warranty services and, in the future, BTO services within the Overnight Delivery Hubs. The Company believes that this strategy will offer OEMs the most efficient model to deliver BTO products. The Company's strategy is to create a broad geographic presence, to provide innovative manufacturing solutions, to provide a broad range of manufacturing services including, in the future, BTO services and to help OEMs simplify inventory and logistics management. Broad Geographic Presence. Electronic component manufacturing requires close coordination of design and manufacturing efforts. The Company's strategy to achieve that coordination is to provide front-end design in manufacturability, engineering services, design for test engineering services, prototypes, and complex high-mix production through regional facilities located close to OEM engineering centers. This proximity allows for faster product introduction and greater use of concurrent engineering. In pursuit of its manufacturing strategy, the Company has made acquisitions in Oregon, Washington, Arizona and Florida. To pursue its integrated repair and warranty strategy, the Company has acquired the CTI Companies, a repair and warranty services organization located within the Overnight Delivery Hubs in Memphis, Tennessee, Louisville, Kentucky and Tampa, Florida. The Company believes that this configuration of sites allows the Company to provide flexible, time-critical services to its customers. See "-- Description of Property." Innovative Manufacturing Solutions. The Company has designed APM to improve cycle times in the manufacture of high-mix products. APM allows for the building of small lots in very short cycle times by moving products asynchronously across standardized processes. The Company is continuing to refine APM with the goal of reducing average manufacturing cycle time to two days. See "-- Services -- Asynchronous Process Manufacturing." The Company has also innovated additional services customized to meet the specialized needs of high-mix OEMs such as its Total Solution Prototype Services ("TSPS"), the industry's first fixed-price turnkey prototype service, its Component Obsolescence Program ("COP") and its "Point-of-Use Stocking Program" ("PUP"). Broad Range of Manufacturing Services. The Company's regional plants are actively involved in customer's new product introductions. As each newly built or acquired facility is integrated into the Company's operations, each is expected to have "design for manufacturability" ("DFM"), "design for test" ("DFT"), prototype, circuit card and cable assembly capabilities and to incorporate APM for the manufacture of high-mix products. See "-- Services -- Design and Testing Services." The CTI Companies' facilities based at the Overnight Delivery Hubs now enable the Company to provide "design for serviceability" capabilities and to market the CTI Companies' repair and warranty services as complements to the Company's broad range of manufacturing services. See "--Services--Repair and Warranty Services." Provide Build-To-Order Services. The Company believes it has the necessary skills and processes and is developing the integration plan necessary to establish BTO capability for completed computers and instruments and systems at its facilities based in the Overnight Delivery Hubs. Locating this activity at the Overnight Delivery Hubs is intended to allow the Company's OEM customers to effect delivery of 29 31 products to their customers with the fewest legs of transportation and the simplest logistic channel, thereby reducing the OEMs' inventory investments. The Company expects to manufacture complex high-mix circuit cards at its regional sites, out-source high-volume commodities to mass producers and conduct final assembly and test at its Overnight Delivery Hubs. See "-- Services -- Build-to-Order Services." Simplified Logistics and Inventory Management. The Company seeks to differentiate itself from its competitors by offering the customer service offerings that utilize logistic benefits resulting from the positioning of the Overnight Delivery Hubs. By taking advantage of the movement of goods through the Overnight Delivery Hubs and the timing of the arrival and departure of planes from the Overnight Delivery Hubs, the Company believes it will be well-positioned within the industry to minimize: (1) the number of transportation legs incurred in the overall movement of goods; (2) the total inventory pipelines required for final build of goods in a BTO model; and (3) the inventory pipeline required to support a rapid repair and warranty service. See "-- Services -- Repair and Warranty Services." SERVICES Manufacturing Services Overview. The Company's turnkey manufacturing services consist of assembling complex printed circuit boards (using both surface mount and pin-through-hole interconnection technologies), cables, electromechanical devices and finished products. The Company also provides computer-aided testing of printed circuit boards, subsystems and final assemblies. In certain instances, the Company completes the assembly of its customers' products at the Company's facilities by integrating printed circuit boards and electro-mechanical devices into other components of the customer's products. The Company obtained, from the International Organization of Standards, ISO 9002 certification in 1994. The Company offers customer-select service offerings which utilize the Company's core competency of small-lot processing and logistic benefits due to the position of its repair and warranty service operations within the Overnight Delivery Hubs. The Company is developing plans to offer BTO services in the future which would be based at the Overnight Delivery Hubs. In addition, the Company has also innovated additional services customized to meet the needs of OEMs that develop and sell high-mix products. These include APM, TSPS, PUP and COP. Asynchronous Process Manufacturing. In the third quarter of 1996, the Company introduced Asynchronous Process Manufacturing, a new manufacturing methodology, at its Rocky Mountain facility. APM is an innovative combination of high-speed manufacturing equipment, sophisticated information systems and standardized process teams designed to manufacture mixtures of small quantities of products faster and with more flexibility. APM allows for the building of small lots in very short cycle times. The Company is continuing to refine APM with the goal of reducing manufacturing cycle time for high-mix circuit cards to two days. The Company plans to implement APM at all of its facilities and for all of its customers as part of a strategy to focus the Company exclusively on manufacturing high-mix products. APM implementation requires a complete redesign of the Company's manufacturing operations, reorganizing personnel into process teams and revising documentation. At the Company's Rocky Mountain facility, the physical moves were completed in September 1996 and by the end of October 1996 APM was fully implemented. The Company has begun implementing APM at its existing Newberg, Oregon facility, but will not complete that implementation until after its new manufacturing facility under construction in Newberg, Oregon is completed. The Company also plans to implement APM at its other facilities, at appropriate times. APM improves throughput of certain assembly processes over traditional continuous (synchronous) flow processing ("CFM"), which is the predominant method used in high-volume manufacturing. With APM, the Company is able to process products rapidly using a combination of new discontinuous flow methods for differing product quantities, fast surface mount assembly systems, test equipment and high-volume, high-speed production lines. In the APM model, materials are moved through the production queue at high-speed and not in a continuous or linear order as under CFM. Instead, materials are moved 30 32 though the assembly procedure in the most efficient manner, using a computer algorithm developed for the Company's operations, with all sequences controlled by a computerized information system. High-mix manufacturing using APM involves a discontinuous series of products fed through assembly in a start-stop manner, heretofore incompatible with high-speed techniques. APM is an alternative to both CFM and batch processing often used in smaller scale manufacturing. Until now, the combination of small lots with numerous differences in configuration from each lot to the next and high-speed manufacturing has been viewed as difficult, if not impossible, by many high-mix manufacturers. The Company believes that CFM techniques used by high-volume, high-speed ECMs cannot accommodate high-mix product assembly without sacrificing speed, while smaller ECMs, capable of producing a wide variety of products, often find it difficult to afford high-quality, high-speed manufacturing assets or to keep up with OEMs' growing product demand. Under CFM, all assembly occurs on the same line, thereby slowing down the process with non-value-added operations. Under APM, all non-value-added operations are performed in the most efficient manner, off-line, thereby keeping the assembly process moving. A hybrid of CFM and batch production techniques, APM sets optimal process parameters and maximizes velocity in producing smaller lot quantities. By designating teams to set up off-line feeders, standardizing loading methods regardless of product complexity, and most importantly, improving employee motivation, the Company's application of APM has decreased set-up and cycle times, standardized work centers, allowed processing of smaller lot sizes and increased the Company's productivity. APM VS. CFM FLOW CHART Design and Testing Services. The Company also participates in product design by providing its customers "concurrent engineering" or "design for manufacturability" services. The Company's applications engineering group interacts with the customer's engineers early in the design process to reduce variation and complexity in new designs and to increase the Company's ability to use automated 31 33 production technologies. Application engineers are also responsible for assuring that a new design can be properly tested at a reasonable cost. Engineering input in component selection is also essential to assure that a minimum number of components are used, that components can be used in automated assembly and that components are readily available and cost efficient. The Company also offers customers a quick-turnaround, turnkey prototype service. The Company has the capability to perform in-circuit and functional testing, as well as environmental stress screening. In-circuit tests verify that components have been properly inserted and that the electrical circuits are complete. Functional tests determine if a board or system assembly is performing to customer specifications. Environmental tests determine how a component will respond to varying environmental factors such as different temperatures and power surges. These tests are usually conducted on a sample of finished components although some customers may require testing of all products to be purchased by that customer. Usually, the Company designs or procures test fixtures and then develops its own test software. The change from pin-through-hole technology to surface mount technology is leading to further changes in test technology. The Company seeks to provide customers with highly sophisticated testing services that are at the forefront of current test technology. Because the density and complexity of electronic circuitry constantly are increasing, the Company seeks to utilize developing test technology in its automated test equipment and inspection systems in order to provide superior services to its customers. Repair and Warranty Services. The Company has recently acquired the CTI Companies, a hub-based, component-level repair organization focused on the personal computer and communications industries. The CTI Companies pioneered the "end-of-runway" or "airport-hub-based" repair strategy and are the only providers with operations inside and integrated with the operations of the Overnight Delivery Hubs. The Company believes that through the CTI Companies' long tenure in the industry, high-quality technical capabilities, logistically advantageous site locations, and strong relationships with transportation industry leaders, the CTI Companies have developed an optimized "service spares pipeline," allowing lower OEM costs and improving end-user service levels. The Company's repair service offering complements the transportation logistics services marketing efforts of the two principal transportation providers at the Overnight Delivery Hubs, who work with the Company in providing access to large OEM accounts. The Company has exercised tight cost control on costs by using a flexible, part-time labor pool and leveraging the sales and marketing efforts of these transportation and logistics service providers. Additionally, beyond the requisite piece-part inventory for repairs, the Company carries minimal OEM inventory and is thus less exposed to inventory obsolescence than many competitors. The Company's repair and warranty division has developed superior brand equity with high levels of service achievable through product and vendor repair specialization. The Company believes that, through its experience of perfecting an integrated service and logistics model, it has erected a barrier to entry for potential competitors who might also seek to locate repair and warranty service centers at the Overnight Delivery Hubs. Moreover, the Company believes the CTI Companies have succeeded in increasing certain customers' service spare part inventory turnover rates significantly. The experiences of the CTI Companies with those customers provide evidence to demonstrate to potential OEM customers the cost savings associated with significant increases in service spare inventory turnover. The Company's repair and warranty services handle various types of equipment, including monitors, PC boards, routers, laptops, printers, scanners, fax machines, pen-based products, PDAs, and keyboards. The Company works with its customers on "advance exchange" programs, whereby end users receive overnight replacement of their broken components, which are in turn repaired by the Company and replaced into the OEMs' "service spares inventory pipeline" for future redistribution. The Company thus assists OEM customers in increasing inventory turns, reducing spares inventory, lowering overall costs, accelerating repair cycles, and improving customer service. Customer service is improved through both quicker turnaround time for in-warranty claims, as well as having the Company support end-customers with out-of-warranty claims and end-of-life products. 32 34 Build-to-Order Services. The Company believes OEMs are shifting their focus to increase demand for customized products. In the past, electronic products were typically mass produced, sold through distributors to retailers who, in turn, sell to the mass market. Currently, the Company believes there will be an increased need for custom producers who build to a custom order received directly from an end user through telephone or Internet ordering systems. For example, several computer manufacturers have begun to market computers directly to, and to receive orders directly from, end-users. The products are then rapidly custom-built and delivered to the end-user. Custom products are by definition high-mix in that they are built in small lots and produced in a wide variety of configurations. Management believes that the Company's core competency of small-lot processing using its APM model will permit the Company to begin providing BTO services. The Company is developing a plan to begin BTO manufacturing, which includes these elements: - high-mix circuit cards and subassemblies will be manufactured at one of its regional sites, - commodity high-volume cards and subassemblies will be outsourced to volume commodity producers, - the Company's high-mix products and outsourced commodities will be delivered to its BTO facilities located within Overnight Delivery Hubs, - orders will be received at the Overnight Delivery Hubs, and - final product will be assembled at facilities currently used for repair/service utilizing the APM model and delivered to the end user. Management believes that this infrastructure, combined with its APM model, will provide OEMs a cost-advantageous model to serve their BTO needs. The Company can give no assurance, however, that it will begin BTO service or that the Company will successfully attract customers to utilize this new offering. CUSTOMERS AND MARKETING The Company seeks to serve traditional high-mix OEMs and OEMs that produce high-volume products and need high-mix repair and warranty services, which by their nature are high-mix services, or plan to implement high-mix BTO strategies. The Company has recently reorganized its manufacturing marketing efforts to focus on the following markets: (1) aerospace and avionics; (2) medical devices; (3) communications; (4) industrial controls and instrumentation; and (5) computer-related products. Each segment has or will have a marketing manager located at the corporate center in Denver. The marketing manager's responsibility is to understand their market, to know which companies are the market share leaders, to know which are the emerging growth companies within the sector, and to know what new products and technologies are being introduced into that sector. From that data, the marketing manager develops a target account list and appropriate strategies and tactics for pursuing those accounts. Regional sales managers located at each of the Company's regional sites will assist the marketing managers. The regional sales managers are responsible for identifying and pursuing accounts within their region that fit the Company's targeted outlets. This interlocked or "webbed" sales and marketing organization positions the Company to pursue accounts on both a national and regional basis. In addition, a key part of the Company's repair and warranty services marketing strategy is to continue to utilize the sales force of the two transportation providers located in the Overnight Delivery Hubs to sell the Company's repair and warranty services as an integral part of the logistics service offerings of these transporation providers. 33 35 The following table represents the Company's net sales for manufacturing services by industry segment:
NINE MONTHS 1997 1996 1995 ----------- ----- ----- Aerospace and Avionics............................ 17.0% 0.0% 0.0% Medical........................................... 17.9% 29.3% 31.0% Communications.................................... 10.7% 1.5% 9.1% Industrial Controls and Instrumentation........... 23.7% 12.6% 9.1% Computer-Related.................................. 29.5% 54.4% 49.0% Other............................................. 1.2% 2.2% 1.8% ----- ----- ----- 100.0% 100.0% 100.0%
The Company's customer base for manufacturing services includes Exabyte Corporation, Ohmeda, AlliedSignal, Hewlett-Packard Company ("HP"), ADC Telecommunications, and Sony Corp of America, Inc. ("Sony"). The relationships are typically long-term with most over five years old. A small number of customers has historically represented a substantial percentage of the Company's net manufacturing sales. As a result, the success of the Company's manufacturing services operations depends to some degree on the success of its largest customers. See "Risk Factors -- Dependence on a Limited Number of Customers; Relationships With Transportation Providers." The Company's customer base for repair and warranty services includes 25 of the largest PC and electronics OEMs, including International Business Machines Corporation, Dell Computer Corporation, Gateway 2000, Inc., HP, Bay Networks, Inc. Ascend Communications Inc., Cisco Systems Inc. and Sony. The relationships are typically long-term with most over five years old. The relationships span OEM component suppliers, OEM component customers, and system, desktop and network vendors, as well as direct marketers and channel players. As with the Company's manufacturing services, a small number of customers historically has represented a substantial percentage of the Company's net repair and warranty services sales. As a result, the success of the Company's repair and warranty services operations depends to some degree on the success of its largest customers. See "Risk Factors -- Dependence on a Limited Number of Customers; Relationships With Transportation Providers." 34 36 DESCRIPTION OF PROPERTY As part of the Company's strategy to have a broad geographic presence and locate its facilities in regions with a substantial or growing number of OEMs' design and engineering facilities, the Company has made several acquisitions and made significant capital investments in its manufacturing facilities.
YEAR LOCATION ACQUIRED SIZE OWNED/LEASED(1) SERVICES -------- -------- ---- --------------- -------- Denver, Colorado 1997 10,000 square feet Leased(2) Executive Offices Rocky Mountains 1991 52,000 square feet Owned(3) Manufacturing Greeley, Colorado (84,000 square feet, (being expanded) as expanded) Newberg, Oregon 1997 47,000 square feet Leased(4) Manufacturing (existing) Newberg, Oregon 1998 65,000 square feet Owned(5) Manufacturing (under construction) (expected) Moses Lake, Washington 1997 20,000 square feet Leased(6) Manufacturing Ft. Lauderdale, Florida 1997 95,000 square feet Subleased(7) Manufacturing Tucson, Arizona 1998 65,000 square feet Owned(8) Manufacturing (being remodeled) (expected) Memphis, Tennessee 1997 155,000 square feet Leased(9) Offices, repair and warranty Louisville, Kentucky 1997 130,000 square feet Subleased and Repair and Leased(10) warranty Tampa, Florida 1997 55,000 square feet Owned and Repair and Leased(11) warranty
The Company believes its facilities are in good condition. - --------------- (1) Pursuant to the terms of the Bank One Loan, substantially all of the Company's owned and leased property is subject to liens and other security interests in favor of Bank One, and any other lenders from time to time under the Bank One Loan. (2) This lease will expire on December 31, 1999. (3) This facility is located on approximately 10 acres of land owned by the Company in Greeley, Colorado. The Company plans to remodel and to expand this facility by adding approximately 32,000 square feet at an aggregate cost of approximately $1.8 million. This construction is expected to be completed by January 30, 1998. The Company has recently sold the other building that had been located on its campus in Greeley, Colorado for approximately $2.4 million. (4) This facility includes several buildings on a campus, all of which are leased from Mr. Charles Hewitson, Mr. Gregory Hewitson and Mr. Matthew Hewitson, each of whom is a director of the Company. See "Certain Relationships and Related Transactions -- Leases." These leases are on a month-to-month basis and will be terminated when the Company moves to its new facility. See footnote 5 below. (5) The Company has purchased approximately 12 acres of land from an unaffiliated third party and is building a 65,000 square foot facility in Newberg, Oregon at an aggregate cost of approximately $5.8 million. The Company expects this new facility to be completed by March 31, 1998. Upon completion of this new facility, the Company will relocate its Newberg operations from the leased facility. 35 37 (6) This facility is leased from Mr. Charles Hewitson, Mr. Gregory Hewitson and Mr. Matthew Hewitson, each of whom is a director of the Company. See "Certain Relationships and Related Transactions -- Leases." This lease expires on November 30, 1997, but the Company expects to continue such arrangement. (7) In connection with the Florida portion of the AlliedSignal Asset Purchase, the Company has entered into a subleasing arrangement with AlliedSignal for a 95,000 square foot portion of a building in turn leased by AlliedSignal. (8) In connection with the Tucson portion of the AlliedSignal Asset Purchase, the Company, through a qualified intermediary as part of a tax-free like-kind exchange, has agreed to purchase from an unaffiliated third party approximately 20 acres of land and a 65,000 square foot building in Tucson, Arizona for $1.8 million. The Company is remodeling the existing building at an expected cost of $1.0 million. The Company expects the remodeling to be completed in January 1998. Title to the land and building will pass to the Company once the remodeling is substantially completed. (9) The Company leases a 75,000 square foot facility and an 80,000 square foot facility, both used for office space, warehouse space and repair services, from unaffiliated third parties. The leases will expire on February 28, 2001 and June 30, 2001, respectively. (10) The Company subleases an 80,000 square foot facility from one of the transportation providers that operates one of the Overnight Delivery Hubs, and this lease is terminable upon 90 days notice by either party. The Company also leases a 50,000 square foot facility from an unaffiliated third party and this lease will expire on May 31, 2000. (11) The Company leases a 15,000 square foot facility from Allen S. Braswell, Sr., who is a director of the Company. This lease is a month-to-month arrangement. See "Certain Relationships and Related Transactions -- Leases." The Company expects this arrangement to end in March 1998. The Company also owns a 30,000 square foot building, and the Company has leased a 10,000 square foot facility from an unaffiliated third party. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS SMI. Sales Management International, Inc. ("SMI") was formed in 1987 by Mr. Jack Calderon, President, Chief Executive Officer and a director of the Company, Mr. Allen S. Braswell, Sr., the Chairman of CTI and Mr. Allen S. Braswell, Jr., the President and Chief Executive Officer of CTI. SMI, acting as sales agent for CTI, secured a large contract from IBM to repair computer monitors and received a commission of 2% of revenues derived from such contract. In November 1990, CTI's Board of Directors passed a resolution stating that in the event of a change of control of CTI, SMI would receive 2% of the purchase price or $0.5 million, whichever is less. The total proceeds received by SMI as the result of the consummation of the CTI Merger was $0.5 million, of which Mr. Calderon received $166,667, representing his 33.3% interest. Since his employment with the Company, Mr. Calderon has not received any other compensation from SMI. Leases. CTI leases a portion of its repair facilities in Tampa, Florida from Allen S. Braswell, Sr. a director of the Company. The Company leases approximately 15,000 square feet and the monthly lease cost is $3.44 per square foot and $300 per month for taxes. The building is used for repair operations and storage. The Company expects such arrangement to end in March 1998. The Company currently leases a manufacturing facility in Newberg, Oregon from Mr. Charles Hewitson, Mr. Gregory Hewitson and Mr. Matthew Hewitson, each of whom is a director of the Company. The Company expects, upon completion of its new facility which is currently under construction, to relocate its Newberg operations from the leased facility to the new facility and to terminate such lease. The Company also leases a manufacturing facility in Moses Lake, Washington from the Hewitsons and the Company expects to continue such arrangement. Contingent Payment. In connection with the CTI Merger, the Company agreed to pay Allen S. Braswell, Sr., Allen S. Braswell, Jr. (each a director of the Company) and other members of their families, 36 38 who were the indirect owners of the membership interests in Airhub and CTI LLC, on a pro rata basis, up to $6.0 million in three annual installments, subject to the achievement by the CTI Companies of certain goals relating to earnings before interest and taxes and subject to certain other conditions. Such agreement also provided for payment to the members of Airhub and CTI LLC of $6.0 million minus any earnout payments made or due and payable, in the event of either (i) a change in control of the Company; (ii) a public offering of the Company's Common Stock; or (iii) a private offering of the Company's Common Stock with aggregate net proceeds to the Company of not less than $40 million. Accordingly such $6.0 million contingent payment will become payable upon completion of the offering made hereby. See "Use of Proceeds." Director Representation of the CTI Companies. Mr. Robert K. McNamara, a director of the Company, is a Managing Director of Broadview, an investment banking firm, and in such capacity represented the CTI Companies in connection with the CTI Merger. Broadview is an investment bank that has represented numerous companies in connection with mergers and acquisitions in the technology sector. Broadview received a fee of approximately $900,000 in connection with the consummation of the CTI Merger. The previous owners of certain of the CTI Companies have agreed to pay Broadview an additional fee of $60,000 upon receipt of the $6.0 million contingent payment referred to above. See "-- Contingent payment." Issuance of Subordinated Notes. Mr. Richard L. Monfort, a member of the Company's Board of Directors, purchased $15 million in aggregate principal amount of Subordinated Notes issued by the Company on September 9, 1997. The Subordinated Notes have a five-year maturity and bear interest at a variable rate (adjusted monthly) equal to 2.00% over the applicable LIBOR rate. The principal amount of the Subordinated Notes mature in four annual installments of $50,000 (commencing on the first anniversary of their issuance) and a final payment for the balance at maturity. In connection with the issuance of the Subordinated Notes, on October 6, 1997, the Company issued Warrants to purchase 500,000 shares of the Company's Common Stock at an exercise price of $8.00 per share to Mr. Monfort. The Warrants were exercised on October 9, 1997. The foregoing information supplements the information appearing under the caption "Certain Relationships and Related Transactions" in the Company's Proxy Statement for its Annual Meeting, dated April 29, 1997, which is incorporated by reference into the Company's Annual Report on Form 10-K for the year ended December 31, 1996. UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION The following unaudited pro forma condensed financial information is based upon the historical financial statements of the Company, the historical combined financial statements of the CE Companies and the historical combined financial statements of the CTI Companies. The unaudited condensed combined pro forma statements of operations for the nine months ended September 30, 1997 and the year ended December 31, 1996 assume the CE Companies and CTI Companies business combinations occurred on January 1, 1996 and include the historical operations of the Company and the CTI Companies for those periods and the CE Companies for the period from January 1, 1997 to February 24, 1997 and the year ended September 30, 1996, adjusted for the pro forma effects of the business combinations. The following unaudited condensed pro forma financial information has been prepared based upon assumptions deemed appropriate by the Company and are not necessarily indicative of the consolidated financial position or results of operations if the business combination had been consummated on the assumed dates and are not necessarily indicative of the actual results of the future operations of the combined companies. 37 39 EFTC CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1997
CE COMPANIES PRO FORMA CTI COMPANIES CE PRO FORMA COMBINED WITH CTI PRO FORMA PRO FORMA EFTC COMPANIES ADJUSTMENTS CE COMPANIES COMPANIES ADJUSTMENTS COMBINED ----------- ---------- ------------ ------------- ----------- ------------- ----------- Net sales.................. $64,973,220 $4,475,732 $ $69,448,952 $28,571,264 $ -- $98,020,216 Cost of goods sold......... 56,739,734 4,025,431 (7,604)(3) 60,757,561 21,008,847 -- 81,766,408 ----------- ---------- --------- ----------- ----------- ----------- ----------- Gross profit............. 8,233,486 450,301 7,604 8,691,391 7,562,417 -- 16,253,808 Selling, general and administrative expenses................. 5,126,226 1,368,366 -- 6,494,592 11,515,139 (3,900,000)(6) 14,109,731 Amortization of goodwill... 156,716 -- 44,645(1) 201,361 -- 810,651(1) 1,012,012 ----------- ---------- --------- ----------- ----------- ----------- ----------- Operating income (loss)................. 2,950,544 (918,065) (37,041) 1,995,438 (3,952,722) 3,089,349 1,132,065 ----------- ---------- --------- ----------- ----------- ----------- ----------- Other income (expense): Interest expense......... (1,054,448) (30,889) (77,901)(2) (1,163,238) (400,604) (1,309,640)(2) (2,873,482) Other income, net........ 1,205,756 (17,273) -- 1,188,483 8,825 -- 1,197,308 ----------- ---------- --------- ----------- ----------- ----------- ----------- 151,308 (48,162) (77,901) 25,245 (391,779) (1,309,640) (1,676,174) ----------- ---------- --------- ----------- ----------- ----------- ----------- Income (loss) before income taxes........... 3,101,852 (966,227) (114,942) 2,020,683 (4,344,501) 1,779,709 (544,109) Income tax expense (benefit)................ 1,132,824 (362,354) (38,189)(4) 732,281 -- (939,042)(5) (206,761) ----------- ---------- --------- ----------- ----------- ----------- ----------- Net income (loss)........... $ 1,969,028 $(603,873) $ (76,753) $ 1,288,402 $(4,344,501) $ 2,718,751 $ (337,348) =========== ========== ========= =========== =========== =========== =========== Income per common share, fully diluted............ $ 0.32 $ (0.04) =========== =========== Weighted average common and common equivalent shares outstanding.............. 6,218,528 1,858,975 8,077,503 =========== =========== ===========
See Notes to Unaudited Pro Forma Condensed Combined Financial Information. 38 40 EFTC CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996
PRO FORMA CE COMBINED COMPANIES WITH CE PRO FORMA CE CTI PRO FORMA EFTC COMPANIES ADJUSTMENTS COMPANIES COMPANIES ADJUSTMENTS ----------- ----------- ------------ ------------- ------------- ----------- Net sales.................... $56,880,067 $32,520,438 $ -- $89,400,505 $26,509,725 $ -- Cost of goods sold........... 53,980,067 27,075,305 (45,626)(3) 81,009,746 19,580,340 -- ----------- ----------- --------- ----------- ----------- ----------- Gross profit............... 2,900,000 5,445,133 45,626 8,390,759 6,929,385 -- Selling, general and administrative expenses.... 4,195,784 2,792,814 -- 6,988,598 6,251,364 -- Amortization of goodwill... -- -- 267,869(1) 267,869 -- 1,080,868(1) Impairment of fixed assets... 725,869 -- -- 725,869 -- -- ----------- ----------- --------- ----------- ----------- ----------- Operating income (loss)................... (2,021,653) 2,652,319 (222,243) 408,423 678,021 (1,080,868) ----------- ----------- --------- ----------- ----------- ----------- Other income (expense): Interest expense........... (525,854) (101,192) (467,407)(2) (1,094,453) (434,345) (1,746,187)(2) Other income, net.......... 82,428 9,345 -- 91,773 (9,112) -- ----------- ----------- --------- ----------- ----------- ----------- (443,426) (91,847) (467,407) (1,002,680) (443,457) (1,746,187) ----------- ----------- --------- ----------- ----------- ----------- Income (loss) before income taxes.................... (2,465,079) 2,560,472 (689,650) (594,257) 234,564 (2,827,055) Income tax expense (benefit).................. (872,114) 754,000 (68,284)(4) (186,398) -- (891,074) ----------- ----------- --------- ----------- ----------- ----------- Net income (loss).......... $(1,592,965) $ 1,806,472 $(621,366) $ (407,859) $ 234,564 $(1,935,981) =========== =========== ========= =========== =========== =========== Income (loss) per common share, fully diluted....... $ (0.40) =========== Weighted average common and common equivalent shares outstanding................ 3,942,139 1,980,000 1,858,975 =========== =========== =========== PRO FORMA COMBINED ------------ Net sales.................... $115,910,230 Cost of goods sold........... 100,590,086 ------------ Gross profit............... 15,320,144 Selling, general and administrative expenses.... 13,239,962 Amortization of goodwill... 1,348,737 Impairment of fixed assets... 725,869 ------------ Operating income (loss)................... 5,576 ------------ Other income (expense): Interest expense........... (3,274,985) Other income, net.......... 82,661 ------------ (3,192,324) ------------ Income (loss) before income taxes.................... (3,186,748) Income tax expense (benefit).................. (1,077,472) ------------ Net income (loss).......... $ (2,109,276) ============ Income (loss) per common share, fully diluted....... $ (0.27) ============ Weighted average common and common equivalent shares outstanding................ 7,781,114 ============
See Notes to Unaudited Pro Forma Condensed Combined Financial Information. 39 41 EFTC CORPORATION NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (A) BASIS OF PRESENTATION On February 24, 1997, the Company acquired two affiliated entities, Current Electronics, Inc., an Oregon Corporation, and Current Electronics (Washington), Inc., a Washington Corporation, for total consideration of approximately $10.9 million, consisting of 1,980,000 shares of Company common stock and approximately $5.5 million in cash which included approximately $600,000 of transaction costs. The Company recorded goodwill of approximately $8.0 million in connection with the acquisition, which is being amortized over 30 years. On September 30, 1997, the Company acquired three affiliated companies, Circuit Test, Inc., Airhub Service Group L.C. and CTI International, L.C. for approximately $29.3 million consisting of 1,858,975 shares of the Company's common stock and approximately $20.5 million in cash. In addition, the Company will make a $6 million contingent payment payable upon closing of a public offering of securities. The Company recorded goodwill of approximately $32.4 million, which will be amortized over 30 years. The acquisitions were accounted for using the purchase method of accounting for business combinations. Actual adjustments may differ from those presented herein upon finalization of the purchase accounting. (B) PRO FORMA ADJUSTMENTS The following pro forma adjustments have been made to the accompanying pro forma condensed financial information: 1. To record amortization of goodwill resulting from the acquisitions over a 30-year period. 2. To record interest expense on additional borrowings for the acquisitions at an assumed interest rate of 8.5% per annum. 3. Elimination of depreciation expense relating to certain leasehold improvements that were abandoned after consummation of the CE Companies acquisition. 4. To record income tax expense for the taxable income of CEWI, an S Corporation, net of the effect of the pro forma adjustments. 5. To record income tax expense for taxable income of CTI, an S Corporation, and CTI LLC and Airhub, net of the income tax effect of the pro forma adjustments. 6. To eliminate nonrecurring bonuses and commissions paid by the CTI Companies in connection with the CTI Merger in the amount of approximately $3.9 million. 40 42 MANAGEMENT The following are the members of the Company's Board of Directors and the Company's executive officers:
NAME AGE TITLE(S) ---- --- -------- Gerald J. Reid(1)............... 56 Director and Chairman of the Board Jack Calderon................... 44 Director, President and Chief Executive Officer of the Company Stuart W. Fuhlendorf............ 35 Director and Chief Financial Officer of the Company Lloyd A. McConnell.............. 45 Director and Director of Engineering Allen S. Braswell, Sr........... 60 Director Allen S. Braswell, Jr........... 39 Director Darrayl E. Cannon(2)............ 50 Director James A. Doran(3)............... 42 Director Charles E. Hewitson............. 48 Director Gregory C. Hewitson............. 50 Director Matthew J. Hewitson............. 46 Director Robert K. McNamara(2)(3)........ 43 Director Richard L. Monfort(1)(2)........ 43 Director Lucille A. Reid................. 57 Director Masoud S. Shirazi(2)(3)......... 46 Director David W. Van Wert(1)(2)(3)...... 59 Director August P. Bruehlman............. 42 Chief Administrative Officer
- --------------- (1) Member of committee to reduce number of directors (2) Member of Compensation Committee (3) Member of Audit Committee The number of members of the Company's Board of Directors is currently fixed at 16. The Company's Amended and Restated Articles of Incorporation provide for a classified Board of Directors. For purposes of determining the directors' terms of office, directors are divided into three classes. The Class I directors, whose terms expire at the 1998 annual meeting of shareholders, except as described below, include Lucille A. Reid, James A. Doran, Richard L. Monfort, Gregory C. Hewitson and Allen S. Braswell, Jr. The Class II directors, whose terms expire at the 1999 annual meeting of shareholders, except as described below, include Jack Calderon, Darrayl E. Cannon, Lloyd A. McConnell, David W. Van Wert, Matthew J. Hewitson and Allen S. Braswell, Sr. The Class III directors whose terms expire at the 2000 annual meeting of shareholders include Gerald J. Reid, Masoud S. Shirazi, Stuart W. Fuhlendorf, Robert K. McNamara and Charles E. Hewitson. On September 2, 1997, the Board of Directors determined that the proper number of directors for the Company is nine or fewer and voted to create a committee to study the current composition of the Board and to develop a plan to reduce the number of members on the Board of Directors to nine by February 1998. Acting pursuant to the Company's Articles of Incorporation and Bylaws, the Board elected Allen S. Braswell, Sr. and Allen S. Braswell, Jr. as Class II and Class I directors, respectively, on September 30, 1997. In connection with the consummation of the Company's acquisition of CTI Companies, which were owned by the Braswells, the Company agreed to take such action as may be necessary to cause the Braswells to be elected to serve as directors upon the effectiveness of the CTI Merger. The Company's Bylaws provide that each of the Braswells shall hold office until the 1998 annual meeting of shareholders and until his successor shall have been elected and qualified. 41 43 Following are brief descriptions of the business experience of the Company's directors and executive officers: Gerald J. Reid, 56, a founder of the Company, has been Chairman of the Board since October 1990. Mr. Reid also periodically served as the Company's Manufacturing Manager since that time and has served as President of the Company from August 1995 until August 1996 when he retired as an executive of the Company. From August 1981 until October 1990, Mr. Reid was President and Chief Executive Officer of the Company. Before founding the Company in 1981, he held a number of manufacturing-related managerial positions over a 19-year career with HP, including Future Information Systems Task Force Manager, Production Control Manager, Production Section Manager and Technical Supervisor. At the time Mr. Reid left HP to found the Company, he held the position of Division Materials Manager. Mr. Reid has been a director of the Company since its inception. Jack Calderon, 44, has been the Company's President and Chief Executive Officer since August 1996. From January 1996 to August 1996, Mr. Calderon was President of SMI, a private consulting firm through which Mr. Calderon provided strategic consulting to executive officers of various high-technology companies. From 1989 to 1996, Mr. Calderon worked for Group Technologies, an electronic contract manufacturing company. Mr. Calderon held several management positions at Group Technologies, most recently as its Vice President and General Manager of International Operations. Mr. Calderon currently authors a column on electronic contract manufacturing for Circuitree Magazine and is on the Board of Directors of Interconnecting and Packaging Electronic Circuits, a trade association for electronic manufacturing services companies. Mr. Calderon received a B.A. in economics from Case Western Reserve University and his Juris Doctorate from The American University. Mr. Calderon has been a director of the Company since August 1996. Stuart W. Fuhlendorf, 35, has been the Company's Chief Financial Officer since January 1993. Prior to joining the Company, Mr. Fuhlendorf held a number of financial management positions in the aerospace and gaming industries. Mr. Fuhlendorf holds an M.B.A. from the University of San Diego and a B.A. from the University of Northern Colorado. Mr. Fuhlendorf has been a director of the Company since October 1995. Lloyd A. McConnell, 45, is the Company's Director of Engineering and has been the Company's Secretary and a Vice President since May 1994. Mr. McConnell served as the Company's Applications Engineering Coordinator from March 1993 to July 1995 and as Manager of the Engineering Department from July 1995 to October 1995. From March 1991 to March 1993, Mr. McConnell was the Company's Quality Assurance Manager. Mr. McConnell served as the Company's Engineering Manager from 1987 to 1991 and from 1982 to 1987 as Sales Manager. Prior to 1982, Mr. McConnell was employed in a variety of manufacturing engineering positions with Eisenman Enterprises, Raincat Irrigation Systems and the U.S. Navy. Mr. McConnell has been a director of the Company since 1984. Allen S. Braswell, Sr., 60, was Chairman of the Board of Directors of CTI until the consummation of the CTI Merger in September 1997, and had served on the Board of Directors of CTI since founding the Company in 1981. Mr. Braswell served as Chief Executive Officer of CTI from 1981 until October 1996. Prior to founding CTI in 1981, Mr. Braswell was Director of Engineering at Honeywell's Tampa, Florida division for five years and, prior to that, had held a variety of management positions with Honeywell. Mr. Braswell began his employment with Honeywell in 1963 as an engineer on the Saturn Space program. Mr. Braswell received his B.S.E.E. from Georgia Institute of Technology in June 1962. Mr. Braswell has been director of the Company since September 1997. Allen S. Braswell, Jr., 39, is currently Vice President and Secretary of CTI. Mr. Braswell had been President of CTI since October 1993 and Chief Executive Officer of CTI since October 1996 until the consummation of the CTI Merger in September 1997. Prior to that time, Mr. Braswell had been Executive Vice President of CTI from August 1985 until October 1993 focusing primarily on the Company's Sales and Marketing activities. Mr. Braswell has served on CTI's Board of Directors since its founding in 1981. From May 1982 until August 1985 Mr. Braswell practiced with the law firm of Tanney, Forde, Donahey, and Eno L.P. Mr. Braswell received his B.S. in business administration with a concentration in finance 42 44 from the University of Florida in March of 1980, and his Juris Doctorate from the University of Florida College of Law in May 1982. Mr. Braswell has been director of the Company since September 1997. Darrayl E. Cannon, 50, has served as Vice President of Operations for Dialogic Corporation, a leading computer telephony company, since September 1995. Mr. Cannon has a total of 28 years experience in the computer industry. Mr. Cannon served from 1989 to 1995 in several positions at McDATA Corporation, a data communications company and subsidiary of EMC Corporation, including, Vice President Quality Assurance & Manufacturing, Vice President Development & Production and Business Unit Manager. From 1975 to 1989, Mr. Cannon held a variety of positions at NCR Corporation, including Director of NCR Power Systems, Director of Operations and Director of Manufacturing. Prior to 1975, Mr. Cannon was a design and manufacturing engineer for Magnavox Corporation. Mr. Cannon has been a director of the Company since May 1996. James A. Doran, 42, has been a senior audit manager with Hein & Associates, LLP, a public accounting firm, since July 1994. From 1993 to 1994, Mr. Doran was Senior Vice President and Chief Financial Officer and a director of Gerrity Oil & Gas Corporation, an independent oil and gas operator in Denver, Colorado, whose stock was listed on the New York Stock Exchange. Prior to joining Gerrity, Mr. Doran was a shareholder of Williams, Richey & Co., P.C., an accounting and consulting firm in Denver, Colorado, and before that was a Senior Manager with Coopers & Lybrand. Mr. Doran has been a director of the Company since 1993. Charles E. Hewitson, 48, currently serves as President of OnCourse, Inc., a private consulting firm through which Mr. Hewitson provides certain consulting services to the Company, and is a director of the Company. From 1984 to February 1997, Mr. Hewitson served as Vice President and director, and was a principal shareholder, of CEI, with responsibility for human resources, finance, accounting and manufacturing. In addition, Mr. Hewitson served as Vice President of CEWI, from 1994 to February 1997. CEI and its affiliate CEWI were acquired by the Company in February 1997, at which time Mr. Hewitson was appointed to the Board of Directors of the Company. Gregory C. Hewitson, 49, currently serves as President of Corporate Solutions, Inc., a private consulting firm through which Mr. Hewitson provides certain consulting services to the Company and is a director of the Company. From 1984 to February 1997, Mr. Hewitson served as President of CEI and CEWI, and was a principal shareholder of CEI, with responsibility for developing and leading a sales and marketing team, directing a leadership team which dealt with daily operational issues and developing strategic plans for the growth of CEI. CEI and its affiliate CEWI were acquired by the Company in February 1997, at which time Mr. Hewitson was appointed to the Board of Directors of the Company. Matthew J. Hewitson, 46, currently serves as President of Matt Hewitson Consulting, Inc., a private consulting firm through which Mr. Hewitson provides certain consulting services to the Company, and is a director of the Company. From 1984 to February 1997, Mr. Hewitson served as Secretary and Treasurer, and was a principal shareholder, of CEI, with responsibility for engineering, facilities, manufacturing and equipment. CEI and its affiliate CEWI were acquired by the Company in February 1997, at which time Mr. Hewitson was appointed to the Board of Directors of the Company. Robert K. McNamara, 43, has served since August 1995 as a Managing Director for Broadview, a merger and acquisition advisor serving the global information technology industry. Before joining Broadview, Mr. McNamara spent 10 years with Salomon Brothers Inc, most recently as vice president and head of its technology group. From September 1981 to June 1985 Mr. McNamara worked at Smith Barney, Harris Upham & Co., Inc. as vice president, focusing on the telecommunications equipment, computer peripherals and computer retailing market segments. From September 1976 to June 1979, Mr. McNamara served in the International Banking Group of Chemical Bank, Brussels, Belgium. Mr. McNamara has been a director of the Company since February 1996. Richard L. Monfort, 43, served as President and Chief Operating Officer of ConAgra Red Meat Companies from July 1989 to June 1995. From 1983 until 1989, he was President of Monfort, Inc., which was subsequently acquired by ConAgra, Inc. Mr. Monfort recently joined the board of directors of the 43 45 University of Colorado Hospital Authority. Mr. Monfort has been a director of Famous Dave's of America, Inc., an owner and operator of restaurants, since March 1997. Mr. Monfort has been a director of the Company since 1993. Lucille A. Reid, 57, a founder of the Company, served as the Company's Customer Support/Manufacturing Specifications Manager from October 1990 to August 1995 when she became Director of Manufacturing. Mrs. Reid served as Director of Manufacturing until August 1996, when she retired from day-to-day operations of the Company. From 1982 to 1990 Mrs. Reid served as the Company's Manufacturing Manager. Before founding the Company in 1981, Mrs. Reid held various positions for 14 years at HP, her last position being Manufacturing Specifications Supervisor. Mrs. Reid's other positions at HP included Project Coordinator, Production Control Supervisor and Production Supervisor. Mrs. Reid has been a director of the Company since its inception. Masoud S. Shirazi, 46, is an entrepreneur and President of Shirazi and Associates, Inc., a benefit and consulting firm in Greeley, Colorado, specializing in benefit and estate planning since 1976. Mr. Shirazi serves as a director of Union Colony Bank. Mr. Shirazi has been a director of the Company since 1992. David W. Van Wert, 59, is President and Chief Executive Officer of Van Wert Associates Consulting, Inc., a management consulting firm he founded. From June 1993 to August 1995, Mr. Van Wert was President and Chief Operating Officer of Townsends, Inc., an agribusiness company in Millsboro, Delaware. In addition to founding and running his management consulting firm, Mr. Van Wert has held a variety of management and executive positions for 32 years in the meat and poultry processing industries. Mr. Van Wert has been a director of the Company since 1989. Gerald J. Reid and Lucille A. Reid are married. Charles E. Hewitson, Gregory C. Hewitson and Matthew J. Hewitson are brothers. Allen S. Braswell, Sr. and Allen S. Braswell, Jr. are father and son. There are no other family relationships among the Company's Directors. OTHER EXECUTIVE OFFICER August P. Bruehlman, 42, has been the Company's Chief Administrative Officer since August 1996. Mr. Bruehlman joined the Company in 1988 and has held several management positions, most recently as Director of Human Resources. Mr. Bruehlman's current responsibilities at the Company include corporate facilities, human resources and information systems. Prior to 1988, subsequent to pursuing advanced degrees, he managed electronics and computer training in the private and public sectors. 44 46 PRINCIPAL SHAREHOLDERS The following table sets forth certain information as of October 9, 1997, as to the beneficial ownership of Common Stock by beneficial owners of more than five percent of the Company's Common Stock, each director, certain executive officers and by all directors and executive officers as a group:
AFTER OFFERING(1) ------------------------------- NAME OF BENEFICIAL OWNER, PERCENT OF PERCENT OF NUMBER OF SHARES PERCENT OF DIRECTOR OR COMMON STOCK COMMON OF COMMON STOCK COMMON EXECUTIVE OFFICER BENEFICIALLY OWNED STOCK BENEFICIALLY OWNED STOCK ------------------------- ------------------ ---------- ------------------ ---------- Gerald J. Reid(2).............. 520,000 5.6% 420,000 3.3% Lucille A. Reid(2)............. 580,000 6.3% 480,000 3.8% Jack Calderon(3)............... 262,500(15) 2.9% 255,000 2.0% Lloyd A. McConnell(3).......... 582,250(16) 6.3% 502,250 4.0% Stuart W. Fuhlendorf(3)........ 90,000(17) * 85,000 * James A. Doran(4).............. 9,034(18) * 9,034 * Richard L. Monfort(5).......... 655,834(18)(19) 7.1% 655,834 5.2% David W. Van Wert(6)........... 63,054(18)(20) * 63,054 * Darrayl Cannon(7).............. 3,750(23) * 3,750 * Robert K. McNamara(8).......... 3,750(23) * 3,750 * Masoud S. Shirazi(9)........... 31,634(18) * 31,634 * Charles E. Hewitson(10)........ 660,000 7.2% 600,000 4.7% Gregory C. Hewitson(11)........ 660,000 7.2% 600,000 4.7% Matthew J. Hewitson(12)........ 660,000 7.2% 600,000 4.7% Allen S. Braswell, Sr.(13)..... 1,374,939(24) 14.9% 1,374,939 10.8% Allen S. Braswell, Jr.(14)..... 369,442(25) 4.0% 369,442 2.9% August P. Bruehlman(3)......... 64,500(21) * 57,000 * All directors and executive officers as a group, including persons named above (17 persons)................. 6,579,923(22) 71.6% 6,068,289 47.8%
- --------------- * Less than one percent. (1) After giving effect to the issuance of 3,500,000 shares of the Company's Common Stock in the offering made hereby and, as applicable, the sale of shares by the Selling Shareholders. (2) Mr. and Mrs. Reid's address is 2150 Reservoir Road, Greeley, CO 80631. (3) Messrs. Calderon, McConnell, Fuhlendorf and Bruehlman's address is EFTC Corporation, 9351 Grant Street, Sixth Floor, Denver, CO 80229. (4) Mr. Doran's address is Hein & Associates, LLP, 717 17th Street, Denver, CO 80202-3330. (5) Mr. Monfort's address is 3519 Holman Court, Greeley, CO 80632. (6) Mr. Van Wert's address is 14227 West Dusty Trail Blvd., Sun City West, AZ 85375. (7) Mr. Cannon's address is Dialogic Corp., 1515 Route 10, Parsippany, NJ 07054. (8) Mr. McNamara's address is Broadview Associates, One Bridge Plaza, Fort Lee, NJ 07024. (9) Mr. Shirazi's address is Shirazi & Associates, P.O. Box 5315, Greeley, CO 80632. (10) Mr. Charles Hewitson's address is 2513 NE 136th Street, Vancouver, WA 98683. (11) Mr. Gregory Hewitson's address is 15905 Oswego Shore Court, Lake Oswego, OR 97034. (12) Mr. Matthew Hewitson's address is 13801 SE 35th Street, Vancouver, WA 98683. (13) Mr. Allen Braswell, Sr.'s address is 1 Willow Road, Unit B, Waynesville, NC 28786 (14) Mr. Allen Braswell, Jr.'s address is Circuit Test, Inc., 4601 Cromwell Ave., Memphis, TN 38118. 45 47 (15) Includes 200,000 shares of Common Stock issuable upon exercise of currently exercisable, non-qualified options granted in connection with the commencement of Mr. Calderon's employment and 60,000 shares of Common Stock subject to currently exercisable options granted pursuant to the Company's Equity Incentive Plan. (16) Includes 12,000 shares of Common Stock issuable upon exercise of currently exercisable options granted pursuant to the Company's Equity Incentive Plan, 70,000 shares of Common Stock that are beneficially owned by Mr. McConnell and are held in the August 1994 McConnell Charitable Remainder Trust and 250 shares of Common Stock owned by Mr. McConnell's wife. (17) Includes 82,700 shares of Common Stock issuable upon exercise of currently exercisable options granted under the Employee Plan and 7,200 shares of Common Stock subject to options that are exercisable under the Company's 1993 Stock Option Plan. (18) Includes 8,334 shares of Common Stock issuable upon exercise of currently exercisable options under the Company's Stock Option Plan for Non-Employee Directors. (19) Includes 100,000 shares of Common Stock owned by a partnership in which Mr. Monfort is the principal investor, 1,000 shares of Common Stock owned by Christine Monfort, Mr. Monfort's wife, and 27,000 shares of Common Stock owned by three of Mr. Monfort's minor children. (20) Includes 17,720 shares of Common Stock owned jointly with Sally B. Van Wert, Mr. Van Wert's wife. (21) Includes 52,000 shares issuable upon exercise of currently exercisable options granted under the Company's Equity Incentive Plan and 12,000 shares subject to currently exercisable options granted under the Company's 1993 Stock Option Plan. (22) Of such 6,584,923 shares, as of October 9, 1997, an aggregate of 5,205,147 shares were outstanding and held of record by directors and officers of the Company and the remaining 1,379,776 represent shares of Common Stock issuable upon exercise of options or warrants that are currently exercisable or, within 60 days of October 9, 1997, will become exercisable. (23) Includes 3,750 shares of Common Stock issuable upon exercise of currently exercisable options under the Company's Stock Option Plan for Non-Employee Directors. (24) Includes 1,374,939 shares of Common Stock that are owned by the Allen S. Braswell, Sr. Grantor Retained Income Trust of which Mr. Braswell, Sr. is the beneficiary of the income generated by the trust and Mr. Braswell, Jr. is the beneficiary of a portion of the principal of the trust. (25) Includes 331,092 shares of Common Stock owned by the Allen S. Braswell, Jr./Alma L. Braswell JTWROS. Does not include 1,374,939 shares of Common Stock owned by the Allen S. Braswell, Sr. Grantor Retained Income Trust of which Mr. Braswell, Jr. is the beneficiary of a portion of the principal of the trust. 46 48 SELLING SHAREHOLDERS The following table sets forth certain information as of October 9, 1997 regarding the Selling Shareholders and the beneficial ownership of shares of Common Stock offered by the Selling Shareholders pursuant to this Prospectus.
NUMBER OF SHARES OF NUMBER OF SHARES OF COMMON STOCK COMMON STOCK NAME OF SELLING SHAREHOLDER BENEFICIALLY OWNED BEING OFFERED(1) --------------------------- ------------------- ------------------- Gerald J. Reid(2)..................................... 520,000(6) 100,000 Lucille A. Reid(2).................................... 580,000(6) 100,000 Lloyd A. McConnell(2)................................. 582,250(6) 80,000 Charles E. Hewitson(2)................................ 660,000(6) 60,000 Gregory C. Hewitson(2)................................ 660,000(6) 60,000 Matthew J. Hewitson(2)................................ 660,000(6) 60,000 Jack Calderon(2)...................................... 262,500(6) 7,500 August P. Bruehlman(2)................................ 64,500(6) 7,500 Robert Child(3)....................................... 35,000(7) 7,500 Brian Tracey(4)....................................... 44,200(8) 7,500 Stuart W. Fuhlendorf(2)............................... 90,000(6) 5,000 Brent L. Hofmeister(5)................................ 22,350(9) 5,000
- --------------- (1) If the Underwriters over-allotment option is exercised in full, each Selling Shareholder has agreed to sell an additional number of shares of Common Stock equal to the number of shares set forth in this column as being offered by such shareholder. (2) For a description of positions held with the Company, see "Management." (3) Mr. Child is the Company's Vice President of Materials. (4) Mr. Tracey is the Company's Vice President of Sales and Marketing. (5) Mr. Hofmeister is the Company's Corporate Controller. (6) For a description of the beneficial ownership of these shares of Common Stock, see "Principal Shareholders." For the number of shares of Common Stock beneficially owned and percent of Common Stock owned after giving effect to the issuance of 3,500,000 shares of the Company's Common Stock and the sale of shares by the Selling Shareholder, see "Principal Shareholders". (7) Includes 35,000 shares subject to currently exercisable options granted under the Company's Equity Incentive Plan. After giving effect to the issuance of 3,500,000 shares of the Company's Common Stock and the sale of 7,500 shares of Common Stock in this offering, Mr. Child will beneficially own 27,500 shares of Common Stock which is less than 1% of the outstanding Common Stock of the Company. (8) Includes 44,000 shares subject to currently exercisable options granted under the Company's Equity Incentive Plan. After giving effect to the issuance of 3,500,000 shares of the Company's Common Stock and the sale of 7,500 shares of Common Stock in this offering, Mr. Tracey will beneficially own 36,500 shares of Common Stock which is less than 1% of the outstanding Common Stock of the Company. (9) Includes 22,250 shares subject to currently exercisable options granted under the Company's Equity Incentive Plan. After giving effect to the issuance of 3,500,000 shares of the Company's Common Stock and the sale of 5,000 shares of Common Stock in this offering, Mr. Hofmeister will beneficially own 17,250 shares of Common Stock which is less than 1% of the outstanding Common Stock of the Company. 47 49 DESCRIPTION OF CAPITAL STOCK AND OTHER SECURITIES The Company's authorized capital stock consists of 45,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock, each with a par value of $0.01 per share. As of October 9, 1997, there were 8,313,135 shares of Common Stock outstanding, held of record by 247 persons, and no Preferred Stock was outstanding. Upon completion of this offering, and after the exercise of certain options before the closing of this offering, there will be 11,854,135 shares of Common Stock (exclusive of shares subject to outstanding options and warrants) and no shares of Preferred Stock outstanding. The following summary description of the Company's capital stock does not purport to be complete and is qualified in its entirety by reference to the Company's Articles of Incorporation and Bylaws and to Colorado law. See "Available Information." COMMON STOCK Holders of Common Stock are entitled to one vote for each share of Common Stock held of record on all matters submitted to a vote of shareholders. Accordingly, holders of a majority of the shares of Common Stock entitled to vote in any election of directors may elect all of the directors standing for election. Subject to preferences for any outstanding Preferred Stock, holders of Common Stock are entitled to receive ratably such dividends as the Board of Directors may declare out of funds legally available for that purpose. In the event of a liquidation, dissolution, or winding up of the Company, holders of Common Stock are entitled to share ratably all assets remaining after payment of liabilities and the liquidation preference of any outstanding Preferred Stock. Holders of Common Stock have no preemptive rights. All of the outstanding shares of Common Stock are, and the Common Stock to be sold in this Offering will be, duly authorized, validly issued, fully paid and nonassessable. American Securities Transfer, Inc., is the transfer agent and registrar for the Common Stock. PREFERRED STOCK The Company is authorized to issue 5,000,000 shares of Preferred Stock. Subject to the limitations prescribed by law, the Board of Directors is authorized to divide the Preferred Stock into series and to fix and determine the relative rights and preferences of the shares of any series so established. The authority of the Board with respect to each series shall, to the extent allowed by the Colorado Corporate Code or any successor statute include, without limitation, the express authority to establish and fix the following: the number of shares and designation of any series of Preferred Stock and the dividend rights and terms, dividend rate, conversion rights and terms, voting rights, redemption rights and terms, liquidation preferences and sinking fund or reserve account terms of any series of Preferred Stock. Any such Preferred Stock could have economic and other rights senior to the Common Stock, so that the issuance of such Preferred Stock could adversely affect the market value of the Common Stock. The issuance of Preferred Stock may also have the effect of delaying, deferring or preventing a change in control of the Company without any action by the shareholders. The Company has no current plans to issue any such shares of Preferred Stock. CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS Certain provisions of the Company's Articles of Incorporation and Bylaws summarized below may have an anti-takeover effect and may delay, defer or prevent a tender offer or takeover attempt that a shareholder might consider in his or her best interest, including attempts that might result in a premium over the market price for the shares held by shareholders. See "Risk Factors -- Anti-Takeover Provisions." The Company's Articles of Incorporation provide for a classified Board of Directors. For purposes of determining their terms, directors are divided as evenly as possible into three classes, with elections for each class every three years on a staggered basis. See "Management." 48 50 In addition to the provisions described above, the Company's Articles of Incorporation and Bylaws provide (i) that vacancies on the Board of Directors may be filled only by the remaining directors (unless the Board approves the filling of such vacancies by the shareholders or there are no directors remaining, in which case the shareholders shall fill any such vacancies), (ii) that any action required or permitted to be taken by the shareholders of the Company may be taken only at a duly called annual or special meeting of the shareholders of the Company, and may not be taken by consent in writing or otherwise except upon the unanimous consent of all shareholders entitled to vote thereon, (iii) that special meetings of the Company's shareholders may be called only by the Company's Chairman of the Board, President or Board of Directors pursuant to a resolution approved by the affirmative vote of a majority of the directors then in office, (iv) that the Company may not engage in certain business combinations with, in general, a person who is the beneficial owner of 10% or more of the Company's outstanding voting stock (with certain exceptions relating to persons who held Common Stock on December 9, 1993) without the authorization or approval, or the affirmative vote of holders of at least 80% of the outstanding shares and a majority of the shares not beneficially owned by the interested shareholder in each case voting together as a single class or the satisfaction of certain price, consideration and procedural requirements, (v) that the shareholders or the Company may adopt, amend, or repeal Bylaws only with the approval of holders of at least 80% of the shares, (vi) removal of any director requires the affirmative vote of the holders of at least 80% of the outstanding shares, (vii) for an advance notice procedure for the nomination, other than by or at the direction of the Board of Directors or a committee of the Board of Directors, of candidates for election as directors as well as for other shareholder proposals to be considered at annual meetings of shareholders, and (viii) that, except as otherwise required by law, no shareholder may nominate a person for election to the Board of Directors at a special meeting unless the special meeting is called for the election of directors and the shareholder satisfies the requirements for nominating directors. In general, notice of intent to nominate a director or raise business at such meetings must be received by the Company not less than 60 nor more than 90 days before the meeting, and must contain certain information concerning the person to be nominated or the matters to be brought before the meeting and concerning the shareholder submitting the proposal. The affirmative vote of the holders of at least 80% of the outstanding shares is generally required to amend or repeal, or adopt any provision inconsistent with, the provisions described in this paragraph or to provide for cumulative voting. SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the offering made hereby, there will be 11,854,135 shares of Common Stock outstanding (exclusive of shares subject to outstanding options and warrants). Of these shares, all of the 4,000,000 shares to be sold in this offering and an additional 5,870,310 previously issued shares will be freely tradable without restriction under the Securities Act, by persons who are not "affiliates" of the Company as that term is defined in Rule 144 under the Securities Act. The remaining 5,983,825 shares are "restricted securities" as that term is defined under the Securities Act or are held by affiliates of the Company (the "Non-Trading Shares") and may not be sold in the absence of registration under the Securities Act or an exemption therefrom, including the exemptions contained in Rule 144 and Rule 701 under the Securities Act, and may not be sold except in accordance with the lockup agreement described below. The Company, its directors and executive officers and the Selling Shareholders have agreed (the "Lockup Agreement") with the Underwriters not to make certain sales or dispositions of shares of Common Stock or securities convertible or exercisable for Common Stock for a period of 180 days (or, in the case of Gerald J. Reid, Lucille A. Reid, Lloyd A. McConnell, Charles E. Hewitson, Matthew J. Hewitson, Gregory C. Hewitson, Allen S. Braswell, Sr. and Allen S. Braswell, Jr., for a period of 360 days) after the date of this Prospectus without the prior written consent of Salomon Brothers Inc, subject to certain exceptions. See "Underwriting." Salomon Brothers Inc may, in its sole discretion at any time without notice, consent to an early termination of the Lockup Agreement with respect to some or all of the shares subject thereto. 49 51 Upon termination of the 180-day lockup period, approximately 221,220 of the Non-Trading Shares will be eligible for sale, and upon the termination of the 360-day lockup period, approximately 4,946,631 of the Non-Trading Shares will be eligible for sale, in each case subject to the requirements of Rule 144. In addition, the directors, officers and Selling Shareholders who have agreed to 180-day or 360-day lockup periods hold currently exercisable options to purchase 336,386 shares of Common Stock, 324,386 of which may be sold following the expiration of the 180-day lockup period, and 12,000 of which may be sold following the expiration of the 360-day lockup period, under the registration statements on Form S-8 described below. In general, under Rule 144 as currently in effect, if at least one year has elapsed since the later of the date of acquisition of "restricted securities" from the Company or from an "affiliate" of the Company, the acquiror or subsequent holder thereof will be entitled to sell, within any three-month period, a number of shares that does not exceed the greater of one percent of the shares of Common Stock then outstanding or the average weekly trading volume of the Common Stock during the four calendar weeks preceding the sale of such shares. Sales under Rule 144 are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about the Company. If (i) at least two years have elapsed since the later of the date of acquisition of any "restricted securities" from the Company or from an "affiliate" of the Company and (ii) the acquiror or subsequent holder thereof is deemed not to have been an "affiliate" of the Company at any time during the preceding three months, such person will be entitled to sell such shares under Rule 144 immediately without regard to the volume limitations, manner of sale provisions, public information requirements or notice requirements described above. The Company also has reserved 2,295,000 shares of Common Stock for issuance under its Equity Incentive Plan and its Stock Option Plan for Non-Employee Directors (collectively, the "Plans"). Options to purchase 1,152,700 of such shares have been issued under the Plans and 879,776 of such options have vested and remain outstanding. The resale of 1,155,000 shares of Common Stock issuable upon exercise of such options has been registered on Form S-8 and, shortly after the offering made hereby, the Company intends to file registration statements on Form S-8 to register the resale of the remaining 1,140,000 shares of Common Stock reserved for issuance under the Company's Stock Option Plans. In addition, 43,800 shares are reserved for issuance upon the exercise of the options issued and outstanding under the Company's 1993 Stock Option Plan, which is now closed. The resale of such shares has also been registered by the Company on Form S-8. Under the terms and subject to the conditions of certain registration rights agreements, certain of the Company's shareholders, including certain Selling Shareholders, and certain of their transferees, are entitled to rights with respect to registration under the Securities Act of their shares of Common Stock not sold in the offering made hereby. If the Company proposes to register any of its securities under the Securities Act, either for its account or for the account of other security holders, the Company is required, subject to certain conditions, to use its best efforts to include in such registration the registrable securities held by those shareholders entitled to registration rights. In addition, subject to certain conditions, such shareholders may require the Company to file registration statements under the Securities Act with respect to the registrable securities of the Company held by them. The Company's directors, officers, Selling Shareholders and certain other shareholders holding registration rights have waived such rights with respect to the registration of the Common Stock being offered hereby. Furthermore, each of the Company's directors officers and Selling Shareholders who have entered into Lockup Agreements have also effectively waived the ability to exercise any such registration rights until the expiration of the applicable lockup period. No assurances can be given with respect to the effect, if any, of future public sales of restricted shares of Common Stock or the availability of restricted shares of Common Stock for sale in the public market. Sales of substantial amounts of Common Stock in the public market could adversely affect prevailing market prices. 50 52 UNDERWRITING Subject to the terms and conditions set forth in the Underwriting Agreement, the Company and the Selling Shareholders have agreed to sell to each of the Underwriters named below (the "Underwriters"), and each of the Underwriters, for whom Salomon Brothers Inc, J.C. Bradford & Co. and Pacific Crest Securities Inc. are acting as representatives (the "Representatives"), has severally agreed to purchase from the Company and the Selling Shareholders the respective number of shares of Common Stock set forth opposite its name below:
NUMBER OF SHARES PURCHASED FROM ----------------------------- THE SELLING UNDERWRITERS THE COMPANY SHAREHOLDERS ------------ ----------- ------------ Salomon Brothers Inc .............................. J.C. Bradford & Co. ............................... Pacific Crest Securities Inc. ..................... Total.................................... ----- -----
In the Underwriting Agreement, the several Underwriters have agreed, subject to the terms and conditions set forth therein, to purchase all of the above-listed shares of Common Stock if any such shares are purchased. In the event of a default by any Underwriter, the Underwriting Agreement provides that, in certain circumstances, the purchase commitments of the nondefaulting Underwriters may be increased or the Underwriting Agreement may be terminated. The Company and the Selling Shareholders have been advised by the Representatives that the several Underwriters propose initially to offer the above-listed shares to the public at the price to public set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to other dealers. After the initial public offering, the public offering price and such concession may be changed. The Company and the Selling Shareholders have granted the Underwriters an option, exercisable during the 30-day period after the date of this Prospectus, to purchase up to 100,000 and 500,000 additional shares of Common Stock, respectively, at the same price per share as the initial 4,000,000 shares of Common Stock to be purchased by the several Underwriters. The Underwriters may exercise such option only to cover over-allotments, if any, incurred in connection with the sale of the shares of Common Stock made hereby. To the extent that the Underwriters exercise such option, each Underwriter will have a firm commitment, subject to certain conditions, to purchase the same proportion of the additional shares as the number of shares of Common Stock set forth opposite such Underwriter's name in the table above bears to the total number of shares of Common Stock initially offered by the Underwriters. The Company has agreed with the Underwriters not to offer, sell or contract to sell, or otherwise directly or indirectly dispose of (whether by actual disposition or effective economic disposition due to cash settlement or otherwise), or announce the offering of, any other shares of Common Stock or any securities convertible into, or exchangeable for, shares of Common Stock, for a period of 180 days following the date of this Prospectus. The Company may, however, issue Common Stock upon the exercise of options outstanding on the date of this Prospectus. The directors and executive officers of the Company and the Selling Shareholders of the Company have agreed with the Underwriters not to offer, sell, contract to sell, pledge or otherwise dispose of, or file a registration statement with the Commission in respect of, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act") with respect to, any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for such capital stock, or publicly announce an intention to effect any such transaction, for a period of 180 days (or, in the case of 51 53 Gerald J. Reid, Lucille A. Reid, Lloyd A. McConnell, Charles E. Hewitson, Matthew J. Hewitson, Gregory C. Hewitson, Allen S. Braswell, Sr. and Allen S. Braswell, Jr., for a period of 360 days) following the date of this Prospectus without the prior written consent of Salomon Brothers Inc, other than (i) any shares of Common Stock offered hereby, (ii) any option or warrant or the conversion of a security outstanding on the date of, and described in, this Prospectus and (iii) shares of Common Stock disposed of as bona fide gifts approved by Salomon Brothers Inc. In connection with the offering made hereby, certain Underwriters and selling group members and their respective affiliates may engage in transactions that stabilize, maintain or otherwise affect the market price of the Common Stock. Such transactions may include stabilization transactions effected in accordance with Rule 104 of Regulation M under the Exchange Act, pursuant to which such persons may bid for or purchase Common Stock for the purpose of stabilizing its market price. The Underwriters may also engage in passive market making transactions in the Common Stock in accordance with Rule 103 of Regulation M. The Underwriters also may create a short position for the account of the Underwriters by selling more Common Stock in connection with the offering made hereby than they are committed to purchase from the Company and the Selling Shareholders, and in such case may purchase Common Stock in the open market following completion of the offering made hereby to cover all or a portion of such short position. The Underwriters may also cover all or a portion of such short position, up to 600,000 shares of Common Stock, by exercising the Underwriters' over-allotment option referred to above. In addition, Salomon Brothers Inc, on behalf of the Underwriters, may impose "penalty bids" under contractual arrangements with the Underwriters whereby it may reclaim from an Underwriter (or dealer participating in the offering made hereby), for the account of other Underwriters, the selling concession with respect to Common Stock that is distributed in the offering made hereby but subsequently purchased for the account of the Underwriters in the open market. Any of the transactions described in this paragraph may result in the maintenance of the price of the Common Stock at a level above that which might otherwise prevail in the open market. None of the transactions described in this paragraph is required, and, if they are undertaken, they may be discontinued at any time. As permitted by Rule 103 under Regulation M, the Underwriters (and selling group members) that are market makers ("passive market makers") in the Common Stock may make bids for or purchases of Common Stock in the Nasdaq National Market until such time, if any, when a stabilizing bid for such securities has been made. Rule 103 generally provides that a passive market maker (i) may not make net daily purchases of the Common Stock in excess of the greater of (1) 200 shares and (2) 30% of its average daily trading volume in such securities for the two full consecutive calendar months immediately preceding the filing date of the registration statement of which this Prospectus forms a part, (ii) may not effect transactions or display bids for the Common Stock at a price that exceeds the highest independent bid for the Common Stock by persons who are not passive market makers (iii) may not display bids of a size that exceed the lesser of (1) the minimum quotation size for the Common Stock and (2) the remaining purchase capacity under clause (i) above and (iv) must identify its bids as such. Each Underwriter will represent and agree in the Underwriting Agreement that (i) it has not offered or sold, and, prior to the expiration of the period ending six months after the date of this Prospectus, will not offer or sell any of the shares offered hereby to persons in the United Kingdom, except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or as agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom, within the meaning of the Public Offers of Securities Regulations 1995 (the "Regulations"), (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the shares offered hereby in, from or otherwise involving the United Kingdom, and (iii) it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issue of the shares offered hereby to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such document may otherwise lawfully be issued or passed on. 52 54 The Underwriting Agreement provides that the Company and the Selling Shareholders will indemnify the several Underwriters against certain liabilities and expenses, including liabilities under the Securities Act, or contribute to payments that the Underwriters may be required to make in respect thereof. LEGAL MATTERS The legality of the securities offered hereby will be passed on for the Company by Holme Roberts & Owen LLP, Denver, Colorado. Certain legal matters in connection with the sale of such securities will be passed on for the Underwriters by Cleary, Gottlieb, Steen & Hamilton, New York, New York. EXPERTS The consolidated financial statements of EFTC Corporation as of September 30, 1997 and December 31, 1996 and 1995 and for the nine months ended September 30, 1997 and each of the three years in the period ended December 31, 1996 have been included and incorporated by reference herein and in the registration statement in reliance on the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere and incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. The combined financial statements of Circuit Test, Inc. and affiliates as of December 31, 1996 and 1995 and for each of the three years in the period ended December 31, 1996 have been included herein and in the registration statement in reliance on the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The combined financial statements of Current Electronics, Inc. and Current Electronics Washington, Inc. as of September 30, 1996 and 1995 and for each of the three years in the periods ended September 30, 1996, 1995 and 1994, included in this prospectus and elsewhere in this form S-2 Registration Statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. AVAILABLE INFORMATION The Company has filed with the Commission a registration statement on Form S-2 (the "Registration Statement," which term encompasses all amendments, exhibits, annexes and schedules thereto) under the Securities Act with respect to the Common Stock offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all the information set forth in the Registration Statement, to which reference is hereby made. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement and the exhibits thereto, reference is hereby made to the exhibit for a more complete description of the matter involved, and each statement made herein shall be deemed qualified in its entirety by such reference. The Company is subject to the informational requirements of the Exchange Act and in accordance therewith files periodic reports, proxy and information statements and other information filed with the Commission. The Registration Statement filed by the Company with the Commission, as well as such reports, proxy and information statements and other information filed by the Company with the Commission, are available at the web site that the Commission maintains at http:\\www.sec.gov and can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission located at 7 World Trade Center, New York, New York 10048, and the Chicago Regional Office, Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material, when filed, may also be obtained from the Public Reference Section of the 53 55 Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Common Stock is quoted on the Nasdaq National Market and such reports, proxy and information statements and other information concerning the Company are available at the offices of the Nasdaq National Market located at 1735 K Street, N.W., Washington, D.C. 20006. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE Incorporated by reference in this Prospectus are (i) the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, (ii) the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997 and June 30, 1997 and (iii) the Company's Current Reports on Form 8-K dated March 5, 1997 (as amended by a Current Report on Form 8-K/A dated May 2, 1997), dated August 26, 1997 and dated October 15, 1997, filed previously with the Commission pursuant to Section 13 of the Exchange Act. Any statement contained in a document incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person, including any beneficial owner of Common Stock, to whom a copy of this Prospectus has been delivered, on the written or oral request of such person, a copy of any or all of the foregoing documents incorporated by reference in this Prospectus, other than exhibits to such documents unless such exhibits are specifically incorporated by reference into the information that this Prospectus incorporates. Written or oral requests for such copies should be directed to EFTC Corporation, 9351 Grant Street, Sixth Floor, Denver, Colorado 80229 (telephone: (303) 451-8200). 54 56 INDEX TO FINANCIAL STATEMENTS EFTC CORPORATION AND SUBSIDIARIES INDEPENDENT AUDITORS' REPORT.............................. F-2 CONSOLIDATED BALANCE SHEETS -- September 30, 1997 and December 31, 1996 and 1995............................. F-3 CONSOLIDATED STATEMENTS OF OPERATIONS -- Nine Months Ended September 30, 1997 and 1996 (Unaudited) and Years Ended December 31, 1996, 1995 and 1994....................... F-4 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY -- Nine Months Ended September 30, 1997 and Years Ended December 31, 1996, 1995 and 1994....................... F-5 CONSOLIDATED STATEMENTS OF CASH FLOWS -- Nine Months Ended September 30, 1997 and 1996 (Unaudited) and Years Ended December 31, 1996, 1995 and 1994....................... F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................ F-7 CIRCUIT TEST, INC. AND AFFILIATES INDEPENDENT AUDITORS' REPORT.............................. F-18 COMBINED BALANCE SHEETS -- June 30, 1997 (Unaudited), December 31, 1996 and 1995............................. F-19 COMBINED STATEMENTS OF OPERATIONS -- Six Months Ended June 30, 1997 and 1996 (Unaudited) and Years Ended December 31, 1996, 1995 and 1994................................ F-20 COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY -- Six Months Ended June 30, 1997 (Unaudited) and Years Ended December 31, 1996, 1995 and 1994....................... F-21 COMBINED STATEMENTS OF CASH FLOWS -- Six Months Ended June 30, 1997 and 1996 (Unaudited) and Years Ended December 31, 1996, 1995 and 1994................................ F-22 NOTES TO COMBINED FINANCIAL STATEMENTS.................... F-23 CURRENT ELECTRONICS, INC. AND CURRENT ELECTRONICS (WASHINGTON), INC. REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS................. F-36 COMBINED BALANCE SHEETS -- December 31, 1996 (unaudited) and September 30, 1996 and 1995........................ F-38 COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS -- Three Months Ended December 31, 1996 (unaudited) and Years Ended September 30, 1996, 1995 and 1994............................................... F-39 COMBINED STATEMENTS OF CASH FLOWS -- Three Months Ended December 31, 1996 (unaudited) and Years Ended September 30, 1996, 1995 and 1994................................ F-40 NOTES TO COMBINED FINANCIAL STATEMENTS.................... F-41
F-1 57 INDEPENDENT AUDITORS' REPORT The Board of Directors EFTC Corporation: We have audited the accompanying consolidated balance sheets of EFTC Corporation and subsidiaries as of September 30, 1997 and December 31, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity and cash flows for the nine months ended September 30, 1997 and for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of EFTC Corporation and subsidiaries as of September 30, 1997 and December 31, 1996 and 1995, and the results of their operations and their cash flows for the nine months ended September 30, 1997 and for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Denver, Colorado October 17, 1997 F-2 58 EFTC CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 AND 1995 ASSETS (Note 4)
DECEMBER 31, SEPTEMBER 30, -------------------------- 1997 1996 1995 ------------- ----------- ----------- Current assets: Cash and cash equivalents.......................... $ 2,226,217 $ 123,882 $ 481,086 Trade receivables (less allowance for doubtful accounts of $194,480 in 1997 and $20,000 in 1996 and 1995)........................................ 18,296,809 3,866,991 4,982,450 Inventories (note 3)............................... 32,754,622 9,146,505 9,859,414 Income taxes receivable............................ -- 616,411 74,922 Deferred income taxes (note 6)..................... 492,037 427,059 145,538 Prepaid expenses and other......................... 701,841 69,196 382,928 ------------ ----------- ----------- Total current assets........................ 54,471,526 14,250,044 15,926,338 ------------ ----------- ----------- Property, plant and equipment: Land............................................... 590,195 662,098 662,098 Buildings and improvements......................... 4,646,183 4,889,467 4,874,571 Machinery and equipment............................ 14,694,330 5,084,114 5,870,194 Furniture and fixtures............................. 2,638,107 1,756,588 1,433,113 Construction in progress........................... 1,735,280 -- -- ------------ ----------- ----------- 24,304,095 12,392,267 12,839,976 Less accumulated depreciation...................... (6,451,618) (3,872,443) (3,949,163) ------------ ----------- ----------- Net property, plant and equipment........... 17,852,477 8,519,824 8,890,813 Goodwill net of accumulated amortization of $156,807........................................... 40,359,749 -- -- Other assets, net.................................... 4,962,140 99,773 167,148 ------------ ----------- ----------- Total Assets................................ $117,645,892 $22,869,641 $24,984,299 ============ =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Line of credit with bank (note 4).................. $ 22,513,915 $ 1,800,000 $ -- Accounts payable................................... 21,125,734 2,320,871 4,986,757 Acquisition costs payable.......................... -- -- -- Income taxes payable............................... 491,930 -- -- Accrued compensation............................... 6,282,244 682,881 529,636 Other accrued liabilities.......................... 1,371,407 767,803 372,102 Current portion of long-term debt (note 4)......... 2,275,000 170,000 170,000 ------------ ----------- ----------- Total current liabilities................... 54,060,230 5,741,555 6,058,495 ------------ ----------- ----------- Long-term debt, net of current portion (note 4): Related party...................................... 14,950,000 -- -- Others............................................. 17,775,000 2,890,000 3,060,000 ------------ ----------- ----------- Total long-term debt, net of current portion................................... 32,725,000 2,890,000 3,060,000 Deferred income taxes (note 6)....................... 674,264 315,859 356,606 ------------ ----------- ----------- Total liabilities.................................... 87,459,494 8,947,414 9,475,101 ------------ ----------- ----------- Shareholders' equity (note 7): Preferred stock, $.01 par value. Authorized 5,000,000 shares; none issued or outstanding..... -- -- -- Common stock, $.01 par value. Authorized 45,000,000 shares; issued and outstanding 7,812,135, 3,942,660 and 3,940,860 shares, respectively..... 78,121 39,427 39,409 Additional paid-in capital......................... 24,443,629 10,187,180 10,181,204 Retained earnings.................................. 5,664,648 3,695,620 5,288,585 ------------ ----------- ----------- Total shareholders' equity.................. 30,186,398 13,922,227 15,509,198 ------------ ----------- ----------- Commitments and contingencies (notes 4 and 9)........ Total liabilities and stockholders' equity.................................... $117,645,892 $22,869,641 $24,984,299 ============ =========== ===========
See accompanying notes to consolidated financial statements. F-3 59 EFTC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 AND YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ------------------------------------------- ----------------------------------------------------------- 1997 1996 1996 1995 1994 ---------------------- ------------------ ----------------- ------------------ ------------------ (UNAUDITED) Net sales............... $64,973,220 $44,576,291 $56,880,067 $49,220,070 $52,541,842 Cost of goods sold (note 11)................... 56,739,734 42,676,203 53,980,067 45,325,349 47,123,066 ----------- ----------- ----------- ----------- ----------- Gross profit.......... 8,233,486 1,900,088 2,900,000 3,894,721 5,418,776 Selling, general and administrative expenses (note 11).... 5,126,226 3,403,090 4,195,784 3,093,400 2,395,164 Amortization of goodwill.............. 156,716 -- -- -- -- Impairment of fixed assets (note 11)...... -- 725,869 725,869 -- -- ----------- ----------- ----------- ----------- ----------- Operating income (loss)............. 2,950,544 (2,228,871) (2,021,653) 801,321 3,023,612 ----------- ----------- ----------- ----------- ----------- Other income (expense): Interest expense...... (1,054,448) (384,511) (525,854) (399,389) (175,400) Interest income....... -- -- 5,624 3,700 78,933 Gain (loss) on sale of assets............. 1,152,430 (12,723) 50,012 49,533 -- Other, net............ 53,326 29,812 26,792 25,491 31,187 ----------- ----------- ----------- ----------- ----------- 151,308 (367,422) (443,426) (320,665) (65,280) ----------- ----------- ----------- ----------- ----------- Income (loss) before income taxes....... 3,101,852 (2,596,293) (2,465,079) 480,656 2,958,332 Income tax expense (benefit) (note 6).............. 1,132,824 (920,203) (872,114) 126,518 1,041,415 ----------- ----------- ----------- ----------- ----------- Net income (loss)..... $ 1,969,028 $(1,676,090) $(1,592,965) $ 354,138 $ 1,916,917 =========== =========== =========== =========== =========== Income (loss) per common and common equivalent share: Primary............... $ .34 $ (.42) $ (.40) $ .09 $ .53 =========== =========== =========== =========== =========== Fully diluted......... $ .32 $ (.42) $ (.40) $ .09 $ .53 =========== =========== =========== =========== =========== Weighted average common and common equivalent shares outstanding: Primary............... 5,854,460 3,968,417 3,942,139 3,962,261 3,626,845 =========== =========== =========== =========== =========== Fully diluted......... 6,218,528 3,968,417 3,942,139 3,962,261 3,626,845 =========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements. F-4 60 EFTC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY NINE MONTHS ENDED SEPTEMBER 30, 1997 AND YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
COMMON STOCK TOTAL ------------------- ADDITIONAL PAID-IN RETAINED SHAREHOLDERS' SHARES AMOUNT CAPITAL EARNINGS EQUITY --------- ------- ------------------ ---------- ------------- BALANCES AT JANUARY 1, 1994..... 2,368,500 $23,685 505,316 3,017,530 3,546,531 Initial public offering, net of offering costs of $1,320,749.................... 1,419,660 14,197 9,312,700 -- 9,326,897 Stock options exercised......... 102,950 1,029 198,019 -- 199,048 Net income...................... -- -- -- 1,916,917 1,916,917 --------- ------- ---------- ---------- ---------- BALANCE, DECEMBER 31, 1994...... 3,891,110 38,911 10,016,035 4,934,447 14,989,393 Stock options exercised......... 49,750 498 165,169 -- 165,667 Net income...................... -- -- -- 354,138 354,138 --------- ------- ---------- ---------- ---------- BALANCE, DECEMBER 31, 1995...... 3,940,860 $39,409 10,181,204 5,288,585 15,509,198 Stock options exercised......... 1,800 18 5,976 -- 5,994 Net loss........................ -- -- -- (1,592,965) (1,592,965) --------- ------- ---------- ---------- ---------- BALANCE, DECEMBER 31, 1996...... 3,942,660 $39,427 10,187,180 3,695,620 13,922,227 Issuance of common stock in business combinations......... 3,838,975 38,389 14,143,793 -- 14,182,182 Stock options exercised......... 30,500 305 112,656 -- 112,961 Net income...................... -- -- -- 1,969,028 1,969,028 --------- ------- ---------- ---------- ---------- BALANCE, SEPTEMBER 30, 1997..... 7,812,135 $78,121 24,443,629 5,664,648 30,186,398 ========= ======= ========== ========== ==========
See accompanying notes to consolidated financial statements. F-5 61 EFTC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 AND YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NINE MONTHS ENDED SEPTEMBER 30 YEAR ENDED DECEMBER 31, -------------------------- --------------------------------------- 1997 1996 1996 1995 1994 ------------ ----------- ----------- ----------- ----------- (UNAUDITED) Cash flows from operating activities: Net income (loss).............................. $ 1,969,028 $(1,676,090) $(1,592,965) $ 354,138 $ 1,916,917 Adjustments to reconcile net income (loss) to net cash provided, (used) by operating activities: Depreciation and amortization................ 1,417,407 999,454 1,281,628 1,716,841 973,262 Deferred income tax expense (benefit)........ 554,958 (10,103) (322,268) (15,745) 121,385 Gain (loss) on sale and impairment of property, plant and equipment, net......... (1,149,638) 1,181,000 1,101,475 (49,533) -- Other, net................................... -- -- 16,751 (106,088) -- Changes in operating assets and liabilities net of the effects of acquisitions: Trade receivables.......................... (9,774,725) 1,561,968 1,115,459 (1,123,927) (1,378,102) Inventories................................ (15,535,734) (287,678) 712,909 (2,380,040) (2,839,405) Income taxes receivable.................... 616,411 (909,753) (541,489) (10,267) (64,655) Income taxes payable....................... 491,930 -- -- -- -- Prepaid expenses and other current assets.................................. (358,147) 250,848 313,732 (333,461) (302) Other assets............................... (3,871,536) 121,824 67,375 (96,971) 147,640 Accounts payable and other accrued liabilities............................. 13,291,195 (1,692,182) (2,116,940) 1,111,464 426,084 ------------ ----------- ----------- ----------- ----------- Net cash provided (used) by operating activities............................ (12,348,851) (460,712) 35,667 (933,589) (697,176) ------------ ----------- ----------- ----------- ----------- Cash flows from investing activities: Purchase of property, plant and equipment...... (6,418,212) (2,135,969) (2,374,403) (2,473,819) (9,035,395) Proceeds from sale of equipment................ 2,419,820 10,157 345,538 3,739,344 -- Net assets acquired in business combinations, net of cash acquired of $1.6 million......... (24,595,172) -- -- -- -- ------------ ----------- ----------- ----------- ----------- Net cash provided (used) by investing activities............................ (28,593,564) (2,125,812) (2,028,865) 1,265,525 (9,035,395) ------------ ----------- ----------- ----------- ----------- Cash flows from financing activities: Stock options exercised........................ 112,960 5,994 5,994 165,667 199,048 Issuance of common stock for cash.............. -- -- -- -- 9,326,897 Borrowings (payments) on lines of credit and short-term notes payable, net................ 20,713,915 2,300,000 1,800,000 -- (300,000) Proceeds from long-term debt................... 41,700,000 -- -- -- 3,400,000 Principal payments on long-term debt........... (18,644,625) (170,000) (170,000) (170,000) (2,783,770) Payment of financing costs..................... (837,500) -- -- -- -- ------------ ----------- ----------- ----------- ----------- Net cash provided (used) by financing activities............................ 43,044,750 2,135,994 1,635,994 (4,333) 9,842,175 ------------ ----------- ----------- ----------- ----------- Increase (decrease) in cash and cash equivalents........................... 2,102,335 (450,530) (357,204) 327,603 109,604 Cash and cash equivalents: Beginning of period............................ 123,882 481,086 481,086 153,483 43,879 ------------ ----------- ----------- ----------- ----------- End of period.................................. $ 2,226,217 $ 30,556 $ 123,882 $ 481,086 $ 153,483 ============ =========== =========== =========== =========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest..................................... $ 1,054,448 $ 374,960 $ 517,502 $ 387,045 $ 238,884 ============ =========== =========== =========== =========== Income taxes paid (refunded), net............ $ (402,392) $ 12,728 $ (8,010) $ 152,530 $ 1,596,475 ============ =========== =========== =========== =========== Common stock issued in business combinations... $ 14,182,182 $ -- $ -- $ -- $ -- ============ =========== =========== =========== ===========
See accompanying notes to consolidated financial statements F-6 62 EFTC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 AND 1995 (1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Business EFTC Corporation (the "Company"), is an independent provider of electronic manufacturing services to original equipment manufacturers in the computer peripherals, medical equipment, industrial controls, telecommunications equipment and electronic instrumentation industries. The Company's manufacturing services consist of assembling complex printed circuit boards (using both surface mount and pin-through-hole technologies), cables, electro-mechanical devices and finished products. The Company also provides computer aided testing of printed circuit boards, subsystems and final assemblies and "hub based" repair and warranty services. Basis of Presentation The accompanying consolidated financial statements include the accounts of EFTC Corporation and its wholly-owned subsidiaries since their date of formation or acquisition, as described in note 2. All intercompany balances and transactions have been eliminated in consolidation. The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The financial statements for the nine months ended September 30, 1996 are unaudited but, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the financial condition, results of operations and cash flows. Information recorded in the notes to financial statements that relate to the interim unaudited financial statements is also unaudited. The operating results for the nine months ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. Cash and Cash Equivalents Cash and cash equivalents include highly liquid investments with original maturities of six months or less. Inventories Inventories are stated at the lower of weighted average cost or market. Property, Plant and Equipment Property, plant and equipment are stated at cost. Maintenance and repairs are charged to expense as incurred. Depreciation is computed using straight-line and accelerated methods over estimated useful lives ranging from 31 to 39 years for buildings, and 5 to 10 years for furniture and fixtures and machinery and equipment. Intangible Assets Intangible assets consist of goodwill and acquired intellectual property which are amortized using the straight-line method over the estimated useful lives of 30 and 10 years, respectively. Acquired intellectual property consists of circuit board assembly designs and specifications in the amount of $1.1 million, net of accumulated amortization of $7,000, and is included in other noncurrent assets. F-7 63 EFTC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 AND 1995 Impairment of Long-Lived Assets The Company adopted the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121), effective January 1, 1996. SFAS 121 requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is generally measured by a comparison of the carrying amount of an asset to future net cash flows to be expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair values of the assets. Adoption of this statement effective January 1, 1996 did not have a material impact on the Company's consolidated financial position, results of operations or liquidity. In connection with the Company's restructuring in August 1996, the Company recorded a provision for impairment of certain fixed assets of $725,869. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Revenue Recognition The Company recognizes revenue upon shipment to customers. Income (Loss) Per Share Income per share is computed based on the weighted average number of shares and common equivalent shares outstanding during the year. Common equivalent shares totaling 414,068 are included in the computation for the nine months ended September 30, 1997 and consist of stock options, determined using the treasury stock method. Common equivalent shares were not significant or antidilutive for all other periods included in the accompanying consolidated financial statements. Stock-based Compensation The Company accounts for its employee stock compensation plans as prescribed under Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Pro forma disclosures of net income and earnings per share required by Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-based Compensation," are included in note 7 to the financial statements. (2) BUSINESS COMBINATIONS AND ASSET ACQUISITIONS On September 30, 1997, the Company acquired three affiliated companies, Circuit Test, Inc., Airhub Service Group L.C. and CTI International, L.C. (the CTI Companies) for approximately $29.3 million consisting of 1,858,975 shares of the Company's common stock and approximately $20.5 million in cash which includes approximately $1 million of transaction costs. In addition, the Company will make a $6 million contingent payment payable upon closing of a public offering of securities. The Company recorded goodwill of approximately $32.4 million, which will be amortized over 30 years. The acquisition F-8 64 EFTC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 AND 1995 was accounted for using the purchase method of accounting for business combinations and, accordingly, the accompanying consolidated financial statements include the results of operations of the acquired businesses since the date of acquisition. In August and September 1997, the Company completed the initial elements of two transactions with AlliedSignal Inc. (AlliedSignal) pursuant to which the Company acquired certain inventory and equipment located in Ft. Lauderdale, Florida, subleased the facility where such inventory and equipment was located and employed certain persons formerly employed by AlliedSignal at that location. The Company also hired certain persons formerly employed by AlliedSignal in Arizona and agreed with AlliedSignal to provide the personnel and management services necessary to operate a related facility on behalf of AlliedSignal on a temporary basis. Subject to the satisfaction of the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, the Company will acquire AlliedSignal's inventory and equipment located at the Arizona facility. The aggregate purchase price of all the assets to be acquired by the Company from AlliedSignal is expected to approximate $15.0 million, of which $10.9 million had been paid through September 30, 1997. The Company has also agreed to pay AlliedSignal one percent of gross revenue for all electronic assemblies and parts made for customers other than AlliedSignal at the Arizona or Florida facilities through December 31, 2006. On February 24, 1997, the Company acquired two affiliated entities, Current Electronics, Inc., an Oregon Corporation, and Current Electronics (Washington), Inc., a Washington Corporation (the CE Companies), for total consideration of approximately $10.9 million, consisting of 1,980,000 shares of Company common stock and approximately $5.5 million in cash which included approximately $600,000 of transaction costs. The Company recorded goodwill of approximately $8.0 million in connection with the acquisition, which is being amortized over 30 years. The acquisition was accounted for using the purchase method of accounting for business combinations and, accordingly, the accompanying consolidated financial statements include the results of operations of the acquired businesses since the date of acquisition. The following unaudited pro forma information assumes that the acquisitions of the CTI Companies and the CE Companies had occurred on January 1, 1996 (in thousands):
NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------- ------------ Revenue................................................. $ 98,020 $115,910 Net loss................................................ (337) (2,109) Loss per share, fully diluted........................... (.04) (.27)
The above pro forma information is not necessarily indicative of future results. F-9 65 EFTC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 AND 1995 (3) INVENTORIES Inventories are summarized as follows:
DECEMBER 31, SEPTEMBER 30, ------------------------ 1997 1996 1995 ------------- ---------- ---------- Finished goods............................ $ 408,648 $ 249,223 $ -- Purchased parts and completed subassemblies........................... 13,263,807 7,640,712 8,051,648 Work-in-process........................... 19,082,167 1,256,570 1,807,766 ----------- ---------- ---------- $32,754,622 $9,146,505 $9,859,414 =========== ========== ==========
(4) DEBT During September 1997, the Company issued $15 million of subordinated notes to a director and stockholder of the Company. The subordinated notes bear interest at LIBOR plus 2% (7.63% at September 30, 1997) and are payable in four annual installments of $50,000 and one final payment of $14.8 million in September 2002. Payments on the notes are subordinate to the Company's senior bank debt. The subordinated notes also include warrants to acquire 500,000 shares of the Company's common stock at $8.00 per share. The warrants were issued in October 1997, were valued at approximately $500,000 using the Black-Scholes pricing model, and such amount has been recorded as debt discount and is being amortized to interest expense over the term of the notes. The warrants were exercised on October 9, 1997 for total proceeds of $4 million. Long-term debt to others consists of the following:
DECEMBER 31, SEPTEMBER 30, ------------------------ 1997 1996 1995 ------------- ---------- ---------- Notes payable to banks(a)................. $20,000,000 $ -- $ -- Note payable to a bank with interest at 1% above Citibank's prime rate adjusted annually (initial rate of 7.25% through September 15, 1996, and a rate of 9.25% at December 31, 1996). Interest is payable monthly with semi-annual principal payments of $85,000, maturing September 15, 2001, collateralized by a first deed of trust on buildings and land, paid in 1997...................... -- 3,060,000 3,230,000 Less current portion...................... (2,225,000) (170,000) (170,000) ----------- ---------- ---------- Long-term debt to others, net of current portion................................. $17,775,000 $2,890,000 $3,060,000 =========== ========== ==========
- --------------- (a) In connection with the CTI Companies business combination and the AlliedSignal asset acquisition, the Company entered into a new loan agreement comprised of a $25 million revolving line of credit, renewable on an annual basis until September 30, 2000, and a $20 million term loan maturing on September 30, 2002. The proceeds of the new loan agreement were used for (i) funding the CTI merger and (ii) repayment of the existing line of credit and bridge facility and equipment loan. Borrowings under the agreement bear interest at a rate based on either LIBOR or the prime rate plus F-10 66 EFTC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 AND 1995 applicable margins ranging from 0.50% to 3.25% for the term facility (8.5% at September 30, 1997) and 0% to 2.75% for the revolving facility (8.5% at September 30, 1997). Borrowings on the revolving facility are subject to limitation based on the value of the available collateral and are included in current liabilities in the accompanying consolidated balance sheet. The loan agreement is collateralized by substantially all of the Company's assets. The loan agreement contains restrictive covenants relating to capital expenditures, limitation on investments, borrowings, payment of dividends, mergers and acquisitions, as well as the maintenance of certain financial ratios. The revolving facility requires a commitment fee of 0.5% per annum on any unused portion. As of September 30, 1997, the borrowing availability under the agreement was approximately $2.5 million. This credit facility may be also withdrawn or canceled at the bank's option under certain conditions such as default or in the event the Company experiences a material negative change in its financial condition. Annual maturities of long-term debt, including the subordinated notes, are as follows at September 30, 1997: 1998........................................................ $ 2,275,000 1999........................................................ 3,745,000 2000........................................................ 4,330,000 2001........................................................ 4,850,000 2002........................................................ 19,800,000 ----------- $35,000,000 ===========
(5) LEASES The Company has noncancelable operating leases for equipment that expire in various years through 2002. Lease expense on these operating leases amounted to $1,283,673, $993,400, $1,215,623, $578,958, and $736,153 for the nine months ended September 30, 1997 and 1996 and years ended December 31, 1996, 1995 and 1994, respectively. At September 30, 1997, future minimum lease payments for operating leases are as follows: 1998........................................................ $2,078,708 1999........................................................ 1,866,227 2000........................................................ 1,388,774 2001........................................................ 1,036,511 2002........................................................ 577,079 ---------- Total future minimum lease payments.................... $6,947,299 ==========
In December 1995, the Company entered into a sale-leaseback transaction for equipment of approximately $3.6 million. The gain on this transaction totaled $106,088 which was deferred and is being amortized over the remaining life of the lease, which is approximately 6 years. F-11 67 EFTC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 AND 1995 (6) INCOME TAXES The current and deferred components of income tax expense (benefit) are as follows:
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ----------------------- --------------------------------- 1997 1996 1996 1995 1994 ---------- ----------- --------- -------- ---------- (UNAUDITED) Current: Federal............. $ 491,218 $(580,165) $(549,846) $142,263 $ 880,392 State............... 86,648 -- -- -- 39,638 ---------- --------- --------- -------- ---------- 577,866 (580,165) (549,846) 142,263 920,030 Deferred: Federal............. 511,064 (207,272) (196,440) (13,635) 105,115 State............... 43,894 (132,766) (125,828) (2,110) 16,270 ---------- --------- --------- -------- ---------- 554,958 (340,038) (322,268) (15,745) 121,385 ---------- --------- --------- -------- ---------- $1,132,824 $(920,203) $(872,114) $126,518 $1,041,415 ========== ========= ========= ======== ==========
Actual income tax expense (benefit) differs from the amounts computed using the statutory tax rate of 34% as follows:
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ------------------------ --------------------------------- 1997 1996 1996 1995 1994 ---------- ----------- --------- -------- ---------- (UNAUDITED) Computed tax at the expected statutory rate.................... $1,054,630 $(882,740) $(838,126) $163,423 $1,005,833 Increase (reduction) in income taxes resulting from: Research and development tax credits.......... -- -- -- (40,000) -- State tax, net of federal benefit and state tax credits.... 57,188 (87,625) (83,046) (1,392) 36,900 Amortization of nondeductible goodwill............. 48,293 -- -- -- -- Other, net.............. (27,287) 50,162 49,058 4,487 (1,318) ---------- --------- --------- -------- ---------- Income tax expense (benefit).......... $1,132,824 $(920,203) $(872,114) $126,518 $1,041,415 ========== ========= ========= ======== ==========
F-12 68 EFTC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 AND 1995 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
SEPTEMBER 30, DECEMBER 31, ------------- --------------------- 1997 1996 1995 ------------- --------- --------- Deferred tax assets -- current: Accrued vacation.......................... $ 142,343 $ 76,064 $ 83,375 Restructuring charges..................... 95,000 186,434 -- Deferred gain on sale leaseback........... 31,991 36,088 39,571 State net operating loss carryforward, expires 2011........................... 94,553 95,420 -- Allowance for doubtful accounts........... 74,662 7,600 7,600 Other..................................... 53,488 25,453 14,992 --------- --------- --------- Total deferred tax assets -- current............... $ 492,037 $ 427,059 $ 145,538 ========= ========= ========= Deferred tax liability -- noncurrent: Accelerated depreciation of property, plant and equipment.................... $(237,404) $(315,859) $(356,606) Like-kind exchange of building for income tax purposes........................... (436,860) -- -- --------- --------- --------- Total deferred tax liability -- noncurrent...................... $(674,264) $(315,859) $(356,606) ========= ========= =========
Management believes that it is more likely than not that future operations will generate sufficient taxable income to realize the deferred tax assets. (7) STOCK OPTIONS AND WARRANTS The Company has three stock option or equity incentive plans: the 1993 Incentive Stock Options Plan (the "1993 Plan"), the Electronic Fab Technology Corp. Equity Incentive Plan (the "Equity Incentive Plan") and the Electronic Fab Technology Corp. Stock Option Plan for Non-employee Directors (the "Non-employee Directors Plan"). Options to purchase 180,000 shares of common stock at an exercise price of $3.33 have been granted under the 1993 Plan. These options generally vest over a five-year period and expire April 22, 2003. The Equity Incentive Plan provides for the grant of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock and stock units. Substantially all employees are eligible for the grant of awards. This plan was amended to increase the maximum number of shares of common stock that can be granted under this Plan to 1,995,000. The Non-Employee Directors Plan provides for options to acquire shares of common stock to members of the Board of Directors who are not also employees. A total of 300,000 shares are available for grant under this plan. The Company has also issued 692,500 nonqualified options to officers and employees. Options generally vest over 7 years and vesting may accelerate based on increases in the market price of the Company's stock. F-13 69 EFTC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 AND 1995 The following summarizes activity of the plans for the three years and nine months ended September 30, 1997.
WEIGHTED AVERAGE EXERCISE NUMBER OF PRICE OPTIONS PER SHARE --------- ---------------- Balance, January 1, 1994................................. 247,500 $2.75 Granted................................................ 169,000 7.74 Exercised.............................................. (102,950) 1.93 --------- Balance, December 31, 1994............................... 313,550 5.11 Granted................................................ 69,500 5.30 Exercised.............................................. (49,750) 3.33 Canceled............................................... (70,600) 6.37 --------- Balance, December 31, 1995............................... 262,700 5.87 Granted................................................ 375,200 4.04 Exercised.............................................. (1,800) 3.33 Canceled............................................... (75,600) 6.64 --------- Balance, December 31, 1996............................... 560,500 4.55 Granted................................................ 1,435,000 9.94 Exercised.............................................. (30,150) 3.71 Canceled............................................... (76,350) 5.28 --------- Balance, September 30, 1997.............................. 1,889,000 8.63 ========= At September 30, 1997: Options exercisable.................................... 658,000 ========= Shares available for future grants..................... 1,142,300 =========
The Company applies the provisions of APB Opinion 25 and related interpretations in accounting for its plans. Accordingly, because the Company grants options at fair value, no compensation cost has been recognized for its fixed stock option plans in 1997, 1996, 1995 and 1994. The weighted average fair value of options granted during the nine months ended September 30, 1997 and the years ended December 31, 1996 and 1995 were $4.97, $4.15 and $4.92, respectively. In estimating the fair value of options, the Company used the Black-Scholes option-pricing model with the following assumptions.
NINE MONTHS YEAR ENDED ENDED DECEMBER 31, SEPTEMBER 30, -------------- 1997 1996 1995 ------------- ----- ----- Dividend yield........................................ 0.00% 0.00% 0.00% Expected volatility................................... 70.00% 60.00% 60.00% Risk-free interest rates.............................. 6.40% 6.00% 6.00% Expected lives (years)................................ 3.00 4.00 3.00
F-14 70 EFTC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 AND 1995 If compensation cost for the Company's three stock-based compensation plans had been determined using the fair values at the grant dates for awards under those plans consistent with SFAS 123, the Company's pro forma net income (loss) and income (loss) per share would have been as follows:
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------ 1997 1996 1995 ------------- ------------ --------- Net income (loss): As reported.................................. $1,969,028 $(1,592,965) $354,138 Pro forma.................................... (162,478) (1,731,259) 329,963 Primary income (loss) per share: As reported.................................. $ 0.34 $ (0.40) $ 0.09 Pro forma.................................... (0.03) (0.44) 0.08 Fully diluted income (loss) per share: As reported.................................. $ 0.32 $ (0.40) $ 0.09 Pro forma.................................... (0.03) (0.44) 0.08
The above pro forma disclosures are not necessarily representative of the effect on the historical net income for future periods because options vest over several years, and additional awards are made each year. In addition, compensation cost for options granted prior to January 1, 1995 has not been considered. The following table summarizes information regarding fixed stock options outstanding at September 30, 1997:
WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE --------------- ----------- ----------- -------- ----------- -------- $3.33 to 5.00.................... 410,500 8.44 $3.98 408,136 $3.98 $5.25 to 9.50.................... 681,000 9.18 5.97 345,390 5.97 $9.50 to 11.00................... 165,000 9.81 9.60 63,000 9.60 $11.75 to 14.31.................. 632,500 10.00 14.22 63,250 14.22 --------- ------- 1,889,000 9.35 8.62 879,776 8.62 ========= =======
The Company also has 80,000 warrants outstanding which were issued to the underwriter in connection with the Company's initial public offering in 1994. The warrants are exercisable at $9.00 per share and expire in 1999. None of the warrants have been exercised as of September 30, 1997. (8) FAIR VALUES OF FINANCIAL INSTRUMENTS The carrying amounts of the Company's financial instruments at September 30, 1997 and December 31, 1996 and 1995 are deemed to approximate estimated fair values. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying amounts of cash and cash equivalents, trade receivables, accounts payable and accrued liabilities approximate fair value because of the short maturity of these instruments. The carrying amounts of notes payable and long-term debt approximate fair value because of the variable nature of the interest rates of these instruments. F-15 71 EFTC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 AND 1995 (9) EMPLOYEE BENEFIT PLANS The Company has a 401(k) Savings Plan covering substantially all employees, whereby the Company matches 50% of an employee's contributions to a maximum of 2% of the employee's compensation. Additional profit sharing contributions to the plan are at the discretion of the Board of Directors. During the nine months ended September 30, 1997 and 1996 and the years ended December 31, 1996, 1995 and 1994, contributions from the Company to the Plan were approximately $92,000, $85,000, $108,000, $106,000 and $90,000, respectively. The Company also had a Profit and Gain Sharing Plan by which a percentage of net income before taxes was allocated to the plan. During the years ended 1995 and 1994, contributions from the Company to the plan were approximately $97,150 and $487,000, respectively. No contributions were made during the nine months ended September 30, 1997 and 1996 and the year ended December 31, 1996 as the plan was discontinued. During 1996, the Company established an employee incentive plan based upon employee productivity, transaction accuracy and profitability and contributed approximately $210,000 to the plan in 1996 and $125,000 during the nine months ended September 30, 1997. (10) TRANSACTIONS WITH RELATED PARTIES Included in accrued compensation as of September 30, 1997, is $500,000 of commissions payable to an entity in which individuals who are stockholders, officers and directors of the Company have a majority ownership interest. The Company purchased approximately 10 acres of land for aggregate consideration of $500,000 from Tech Center Properties, a general partnership, in March 1994. The Company constructed an additional facility on the land. A director of the Company is related to a 50% partner of Tech Center Properties. (11) RESTRUCTURING In the third quarter of 1996, management initiated a plan to restructure the Company's manufacturing operations and various administrative functions, including a change in the manufacturing process and a reorganization of the sales department. Restructuring charges of $2,127,000 were charged to operations for the year ended December 31, 1996. The restructuring plan involved the termination of 142 employees consisting of approximately 90 direct manufacturing employees and 52 indirect overhead positions. The total severance related costs approximated $615,000. The Company changed its manufacturing strategy to focus on high-mix production and developed its Asynchronous Process Manufacturing (APM) concept. Software development costs unrelated to the Company's new manufacturing strategy but related to previous manufacturing processes developed by consultants were written off in the approximate amount of $442,000. As part of the Company's 1996 restructuring, inventory allowances, totaling approximately $344,000, were recorded to provide for future losses to be incurred related to the separation of certain customers who did not meet the Company's new manufacturing strategy. In addition, due to changes in the manufacturing process which eliminated the use of various equipment, property, plant and equipment was written off in the amount of $726,000 in accordance with SFAS No. 121. The restructuring charge was allocated to cost of goods sold, selling, general and administrative expenses and impairment of fixed assets in the amounts of approximately $479,000, $922,000 and $726,000, respectively. The restructuring has been completed and no liabilities associated with the restructuring remain at September 30, 1997. F-16 72 EFTC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 AND 1995 (12) BUSINESS AND CREDIT CONCENTRATIONS The Company operates in the electronic manufacturing services segment of the electronics industry. The Company's customers are primarily located in the United States and sales and accounts receivable are concentrated with customers principally in the computer peripherals and medical equipment industries. The Company has a policy to regularly monitor the credit worthiness of its customers and provides for uncollectible amounts if credit problems arise. Customers may experience adverse financial difficulties, including those that may result from industry developments, which may increase bad debt exposure to the Company. In addition, the electronics manufacturing services industry has experienced component supply shortages in the past. Should future component shortages occur, the Company may experience reduced net sales and profitability. Sales to significant customers as a percentage of total net sales were as follows:
NINE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ------------------ ------------------ 1997 1996 1996 1995 1994 ---- ----------- ---- ---- ---- (UNAUDITED) Exabyte................................... 19.0% 17.6% 20.8% -- -- Ohmeda (BOC Group)........................ 10.4% 15.1% 15.7% 15.3% 16.5% Hewlett Packard Company................... 9.0% 27.3% 26.4% 37.8% 43.3% Kentrox................................... 8.61% -- -- -- -- Allied Signal............................. 16.6% -- -- -- --
The businesses acquired in the CTI Companies business combination focus on repair and warranty operations which are located at the principal locations of the overnight delivery hubs of two overnight package transportation providers and are integrated with the logistics operations of these transportation providers and participate in joint marketing programs to customers of these transportation providers. If the Company ceased to be allowed to share facilities and marketing arrangements with either or both of these major transportation providers, there can be no assurance that alternate arrangements could be made by the Company to preserve such advantages and the Company could lose significant numbers of repair customers. In addition, work stoppages or other disruptions in the transportation network may occur from time to time which may affect these transportation providers. F-17 73 INDEPENDENT AUDITORS' REPORT The Board of Directors Circuit Test, Inc. and Affiliates: We have audited the accompanying combined balance sheets of Circuit Test, Inc. and affiliates as of December 31, 1996 and 1995, and the related combined statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Circuit Test, Inc. and affiliates as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. As discussed in note 1(a), the companies included in the combined financial statements changed in 1996. Our audits were made for the purpose of forming an opinion on the combined financial statements taken as a whole. The combining information in the accompanying schedules is presented for purposes of additional analysis of the combined financial statements rather than to present the financial position, results of operations and cash flows of the individual companies. The combining information has been subjected to the auditing procedures applied in the audits of the combined financial statements and, in our opinion, is fairly stated in all material respects in relation to the combined financial statements taken as a whole. KPMG PEAT MARWICK LLP Memphis, Tennessee July 11, 1997 F-18 74 CIRCUIT TEST, INC. AND AFFILIATES COMBINED BALANCE SHEETS ASSETS (NOTE 2)
DECEMBER 31, JUNE 30, ------------------------- 1997 1996 1995 ----------- ----------- ---------- (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents................................. $ 367,350 $ 1,490,336 $ 758,087 Accounts receivable, net of allowance for doubtful accounts of $544,830 in 1997, $544,830 in 1996 and $181,675 in 1995 (note 6)............................... 5,050,110 4,110,743 3,750,733 Inventory................................................. 3,704,089 4,242,152 2,467,679 Prepaid expenses and other current assets................. 391,814 8,847 21,599 ----------- ----------- ---------- TOTAL CURRENT ASSETS................................ 9,513,363 9,852,078 6,998,098 ----------- ----------- ---------- Property and equipment, at cost: Land, buildings and improvements.......................... 605,409 605,409 685,134 Leasehold improvements.................................... 686,071 655,029 626,226 Machinery and equipment................................... 3,459,098 2,845,745 1,731,370 Furniture and fixtures.................................... 425,946 382,440 280,011 Vehicles.................................................. 137,074 137,074 157,817 ----------- ----------- ---------- 5,313,598 4,625,697 3,480,558 Less accumulated depreciation and amortization.......... 1,639,285 1,400,285 1,293,583 ----------- ----------- ---------- NET PROPERTY AND EQUIPMENT.......................... 3,674,313 3,225,412 2,186,975 Other assets, net........................................... 112,830 96,245 60,079 ----------- ----------- ---------- TOTAL ASSETS........................................ $13,300,506 $13,173,735 $9,245,152 =========== =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of notes payable (note 2).............. $4,728,752 $ 4,256,293 $2,869,360 Accounts payable.......................................... 1,447,489 3,935,078 1,755,099 Accrued expenses.......................................... 2,599,119 1,069,762 949,866 Due to related parties.................................... (137,391) 260,377 397,813 Shareholder loans (note 3)................................ 943,000 1,135,871 975,871 ----------- ----------- ---------- TOTAL CURRENT LIABILITIES........................... 9,580,969 10,657,381 6,948,009 Long-term portion of notes payable (note 2)................. 148,229 594,509 239,882 ----------- ----------- ---------- TOTAL LIABILITIES................................... $9,729,198 $11,251,890 $7,187,891 ----------- ----------- ---------- STOCKHOLDERS' EQUITY: Circuit Test, Inc. common stock, $.01 par value; 50,000 shares authorized; 5 shares issued and outstanding...... $ 1 $ 1 $ 1 Circuit Test, Inc. non-voting common stock, $.01 par value; 50,000 shares authorized; 12,162 and 9,995 shares issued and outstanding at 1996 and 1995, respectively... 121 121 99 Airhub Service Group, L.C. members' deficit: Allen S. Braswell, Jr................................... (70,800) (70,800) -- Circuit Test International Limited Partnership.......... (70,800) (70,800) -- Circuit Test International L.C. members' equity: Allen S. Braswell, Jr................................... 4,330 4,330 4,330 Circuit Test International Limited Partnership.......... 4,330 4,330 4,330 Additional paid-in capital................................ 147,498 147,498 17,500 Retained earnings......................................... 3,556,628 1,907,165 2,031,001 ----------- ----------- ---------- TOTAL STOCKHOLDERS' EQUITY.......................... 3,571,308 1,921,845 2,057,261 Commitments, contingencies and related party transactions (notes 3, 4 and 5) TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......... $13,300,506 $13,173,735 $9,245,152 =========== =========== ==========
See accompanying notes to combined financial statements. F-19 75 CIRCUIT TEST, INC. AND AFFILIATES COMBINED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, -------------------------- -------------------------------------- 1997 1996 1996 1995 1994 ------------ ----------- ----------- ----------- ---------- ) (UNAUDITED Net revenues (note 6)....... $19,895,878 $9,754,621 $26,509,725 $16,183,590 $9,028,587 Costs of revenues........... 13,288,642 7,495,668 19,580,340 10,799,490 6,310,630 ----------- ---------- ----------- ----------- ---------- GROSS PROFIT...... 6,607,236 2,258,953 6,929,385 5,384,100 2,717,957 Selling, general and administrative expenses... 3,946,054 2,834,812 6,251,364 3,793,320 2,524,796 Interest expense, net....... 262,152 191,871 434,345 291,061 111,250 Other expense............... 11,565 -- 9,112 -- -- ----------- ---------- ----------- ----------- ---------- NET INCOME........ $ 2,387,465 $ (767,730) $ 234,564 $ 1,299,719 $ 81,911 =========== ========== =========== =========== ==========
See accompanying notes to combined financial statements F-20 76 CIRCUIT TEST, INC. AND AFFILIATES COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
CIRCUIT TEST CIRCUIT TEST, INC. AIRHUB SERVICE GROUP, L.C. INTERNATIONAL, L.C. ---------------------------- ----------------------------- ----------------------------- NON- CIRCUIT TEST CIRCUIT TEST VOTING VOTING ADDITIONAL INTERNATIONAL INTERNATIONAL COMMON COMMON PAID-IN ALLEN S. LIMITED ALLEN S. LIMITED STOCK STOCK CAPITAL BRASWELL, JR. PARTNERSHIP BRASWELL, JR. PARTNERSHIP ------ ------ ---------- ------------- ------------- ------------- ------------- Balances at December 31, 1993.................. $ 1 $ 99 $ 17,500 $ -- $ -- $4,300 $4,300 Distributions to stockholders.......... -- -- -- -- -- -- -- Net income (loss)....... -- -- -- -- -- -- -- --- ---- -------- -------- -------- ------ ------ Balances at December 31, 1994.................. 1 99 17,500 -- -- 4,300 4,300 Net income (loss)....... -- -- -- -- -- -- -- --- ---- -------- -------- -------- ------ ------ Balances at December 31, 1995.................. 1 99 17,500 -- -- 4,330 4,330 Sale of stock........... -- 22 129,998 -- -- -- -- Allocation of net deficit to members at date of transfer...... -- -- -- (70,800) (70,800) -- -- Distributions to stockholders.......... -- -- -- -- -- -- -- Net income (loss)....... -- -- -- -- -- -- -- --- ---- -------- -------- -------- ------ ------ Balances at December 31, 1996.................. 1 121 147,498 (70,800) (70,800) 4,330 4,330 Distributions to stockholders.......... -- -- -- -- -- -- -- Net income (loss)....... -- -- -- -- -- -- -- --- ---- -------- -------- -------- ------ ------ Balances at June 30, 1997.................. $ 1 $122 $147,498 $(70,800) $(70,800) $4,330 $4,330 === ==== ======== ======== ======== ====== ====== RELATED EARNINGS ------------------------------------------------------------------------ AIRHUB CIRCUIT TEST TOTAL CIRCUIT SERVICE INTERNATIONAL, STOCKHOLDERS' TEST, INC. GROUP, L.C. L.C. TOTAL EQUITY ----------- ----------- -------------- ----------- ------------- Balances at December 31, 1993.................. $ 2,227,684 $ -- $ (505,291) $ 1,772,393 $ 1,748,653 Distributions to stockholders.......... (1,073,022) -- -- (1,073,022) (1,073,022) Net income (loss)....... 372,735 -- (290,824) 81,911 81,911 ----------- --------- ---------- ----------- ----------- Balances at December 31, 1994.................. 1,527,397 -- (796,115) 731,282 757,542 Net income (loss)....... 355,566 (141,600) 1,085,753 1,299,719 1,299,719 ----------- --------- ---------- ----------- ----------- Balances at December 31, 1995.................. 1,882,963 (141,600) 289,638 2,031,001 2,057,261 Sale of stock........... -- -- -- -- 130,020 Allocation of net deficit to members at date of transfer...... -- 141,600 -- 141,600 -- Distributions to stockholders.......... -- -- (500,000) (500,000) (500,000) Net income (loss)....... (189,383) (107,545) 531,492 234,564 234,564 ----------- --------- ---------- ----------- ----------- Balances at December 31, 1996.................. 1,693,580 (107,545) 321,130 1,907,165 1,921,845 Distributions to stockholders.......... -- (31,000) (707,000) (738,000) (738,000) Net income (loss)....... 935,079 665,943 786,443 2,387,465 2,387,465 ----------- --------- ---------- ----------- ----------- Balances at June 30, 1997.................. $ 2,628,658 $ 385,798 $ 400,572 $ 3,415,028 $ 3,571,308 =========== ========= ========== =========== ===========
See accompanying notes to combined financial statements. F-21 77 CIRCUIT TEST, INC. AND AFFILIATES COMBINED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, ------------------------ ------------------------------------ 1997 1996 1996 1995 1994 ----------- ---------- ---------- ---------- ---------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income........................................ $ 2,387,465 $ (767,730) $ 234,564 $1,299,719 $ 81,911 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization................... 234,999 185,815 344,203 296,669 252,579 Increase in accounts receivable, net............ (939,367) (568,323) (360,010) (2,381,058) (430,908) (Increase) decrease in inventory................ 538,063 361,836 (1,774,473) (1,073,683) (560,235) Decrease (increase) in prepaid expenses and other assets.................................. (399,552) (291,280) (23,414) (15,620) 102,603 (Decrease) increase in accounts payable......... (2,487,589) (412,555) 2,179,979 1,327,841 265,409 (Decrease) increase in accrued expenses......... 1,529,357 429,501 119,896 482,517 133,998 Change in due to (from) related parties......... (397,768) -- (137,436) (114,321) 242,458 ----------- ---------- ---------- ---------- ---------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES................................ 465,608 (1,063,735) 583,309 (177,936) 87,815 ----------- ---------- ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, net......................... (683,902) (629,041) (1,382,640) (621,754) (368,538) ----------- ---------- ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from notes payable and other obligations..................................... (166,692) 702,851 1,901,560 1,434,578 1,257,802 Proceeds from sale of stock....................... -- -- 130,020 -- -- Distributions to stockholders..................... (738,000) (500,000) (500,000) -- (1,073,022) ----------- ---------- ---------- ---------- ---------- NET CASH PROVIDED BY FINANCING ACTIVITIES... (904,692) 202,851 1,531,580 1,434,578 184,780 ----------- ---------- ---------- ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................... (1,122,986) (1,551,925) 732,249 634,888 (95,943) Cash and cash equivalents at beginning of period.... 1,490,336 691,856 758,087 123,199 219,142 ----------- ---------- ---------- ---------- ---------- Cash and cash equivalents at end of period.......... $ 367,350 $ (860,068) $1,490,336 $ 758,087 $ 123,199 =========== ========== ========== ========== ========== Supplemental disclosure of cash flow information -- Interest paid..................................... $ 262,152 $ 191,871 $ 418,000 $ 291,000 $ 164,000 =========== ========== ========== ========== ==========
See accompanying notes to combined financial statements F-22 78 CIRCUIT TEST, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Description of Business and Principles of Combination Circuit Test, Inc. and affiliates (the Company) are primarily engaged in the business of repairing computer components and related peripherals. The combined financial statements include the financial statements of Circuit Test, Inc., located in Tampa, Florida, and affiliates Circuit Test International, L.C., located in Memphis, Tennessee and Airhub Service Group, L.C., located in Louisville, Kentucky. The financial statements are combined because of common ownership. All significant intercompany accounts and transactions have been eliminated in combination. On February 28, 1996, Airhub Service Group, L.C., a Kentucky limited liability company, was formed with two 50%/50% members. In a tax-free transfer, the net liabilities of Circuit Test International, L.C.'s Kentucky division were transferred to Airhub Service Group, L.C. on March 1, 1996. Management has elected to include Airhub Service Group, L.C. in its 1996 combined financial statements. The 1995 Airhub Service Group, L.C. financial statements represent the Kentucky division balances. The members of a limited liability company have no personal liability related to the company other than to the extent of their equity balances. Both members have equal economic and voting interests. Unless previously terminated, Airhub Services Group, L.C. will continue in existence until February 28, 2026 and Circuit Test International, L.C. will continue in existence until August 13, 2022. During November 1995, the Company decided to close one of its two Tampa facilities. This facility was closed in early 1996 upon the expiration of the Company's facility lease. The Company's affiliate near Boston, Massachusetts, Disk Maintenance, Inc., was closed in August 1996 subsequent to the expiration of the facility lease. During 1996, owners of the Company opened a facility in Brazil. In connection with the closing of the Tampa facility, the Company incurred costs of approximately $490,000 and $223,000 in 1996 and 1995, respectively. In prior years, the financial statements of Disk Maintenance, Inc. were included in the combined financial statements. Management has elected to omit Disk Maintenance, Inc. from the 1996 combination due to its closure. The accompanying 1995 and 1994 combined financial statements have been restated to reflect the change in reporting entity. Net income (loss) for 1996, 1995 and 1994 would have been $(439,357), $1,124,608 and $468,993, respectively, had Disk Maintenance, Inc. been included in the combination. (b) Revenue Recognition Revenues are recognized when products are shipped. (c) Accounting Estimates Management is required to make estimates and assumptions during the preparation of the combined financial statements in conformity with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the combined financial statements. They also affect the reported amounts of net income. Actual results could differ from these estimates and assumptions. F-23 79 CIRCUIT TEST, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (d) Cash and Cash Equivalent The Company considers all highly liquid investments with original maturities of six months or less to be cash equivalents. (e) Inventory Inventory consists primarily of computer parts and components and is valued at the lower of cost or market. Cost is determined using the weighted average method. In October 1996, the Company entered into an agreement with a third party which included the purchase of inventory in the amount of $1,188,000, with payments to be made according to a predetermined schedule during 1997. Such purchased inventory remaining on hand was approximately $1,028,000 at December 31, 1996 (note 7). (f) Property and Equipment Property and equipment are stated at cost. Equipment under capital leases is stated at the present value of minimum lease payments. Depreciation on property and equipment is calculated on the straight-line method over the estimated useful lives of the assets. Equipment held under capital leases and leasehold improvements are amortized straight line over the shorter of the lease term or estimated useful life of the assets. (g) Pre-Opening Expenses Circuit Test International, L.C. began operations in January 1993 and is amortizing pre-opening expenses, which are included in other assets (net balance of approximately $8,510 at June 30, 1997, $17,600 at December 31, 1996 and $36,900 at December 31, 1995) using the straight-line method over 60 months. (h) Income Taxes Circuit Test, Inc. has elected to be treated as an "S" Corporation under provisions of the Internal Revenue Code. Circuit Test International, L.C. and Airhub Service Group, L.C. have each elected to be treated as a limited liability company. Under these elections, the stockholders or partners are individually responsible for reporting their share of taxable income or loss. Accordingly, no provision for federal or state income taxes has been reflected in the accompanying combined financial statements. (i) Gain-Sharing Bonuses The Company has a gain-sharing bonus plan whereby employees are rewarded for attaining quality and profit goals. Gain-sharing bonuses paid for the six months ended June 30, 1997 and years ended December 31, 1996, 1995 and 1994 were $321,026, $309,174, $220,431 and $81,932, respectively. (j) Reclassifications Certain 1995 and 1994 amounts have been reclassified to conform with the 1996 presentation. F-24 80 CIRCUIT TEST, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (2) NOTES PAYABLE Notes payable at June 30, 1997 and December 31, 1996 and 1995 consist of the following:
DECEMBER 31, JUNE 30, ------------------------ 1997 1996 1995 ----------- ---------- ---------- (UNAUDITED) $4,000,000 revolving bank line of credit; borrowings bear interest at the lender's prime rate (8.5% at June 30, 1997), interest payable monthly with principal due on demand; collateralized by substantially all assets of the Company and guaranteed by certain of the Company's stockholders................... $3,693,900 $3,747,418 $2,545,129 $1,000,000 nonrevolving bank line of credit; advances bear interest at either the lender's prime rate or a prevalent fixed rate at the time of the advance (8.5% at June 30, 1997); master note payable on demand with individual advances payable in three years consisting of monthly principal and interest payments; collateralized by substantially all of the Company's machinery, equipment, fixtures and furniture and guaranteed by certain of the Company's stockholders............... 1,024,857 861,790 138,241 $525,000 bank term loan; bears interest at the lender's prime rate (8.5% at June 30, 1997); monthly principal and interest payments through June 1, 1998; collateralized by substantially all of the Company's machinery, equipment, fixtures and furniture and guaranteed by certain of the Company's stockholders.... 151,267 233,333 408,303 Other...................................... 6,957 8,261 17,569 ---------- ---------- ---------- Total notes payable........................ 4,876,981 4,850,802 3,109,242 Less current maturities of notes payable... 4,728,752 4,256,293 2,869,360 ---------- ---------- ---------- Long-term portion of notes payable......... $ 148,229 $ 594,509 $ 239,882 ========== ========== ==========
The various loan agreements limit borrowings based on eligible collateral and subject the Company to certain covenants regarding financial maintenance and ratios. At December 31, 1996, the Company was not in compliance with certain of the covenants. On July 9, 1997 the lender waived the instances of non-compliance. (3) SHAREHOLDER LOANS AND OBLIGATIONS At June 30, 1997, the Company has loans payable to a stockholder of $160,000, at 8.5% and $783,000 at 6.5%. At December 31, 1996, the Company has loans payable to a stockholder of $352,871 at 8.5% and $783,000 at 6.5%. At December 31, 1995, balances on these loans were $192,871 and $783,000. F-25 81 CIRCUIT TEST, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Stockholders of the Company have personal revolving lines of credit totaling $975,000, with $157,000, $779,500 and $107,600 outstanding at June 30, 1997 and December 31, 1996 and 1995, respectively. The credit lines are payable on demand and are guaranteed by the Company. (4) LEASES The Company is obligated for two capital leases that will expire in 1998. The Company leases one of its Tampa facilities from a stockholder at a rate of $5,080 per month under an operating lease. Rent expense for the six months ended June 30, 1997 and 1996 and the years ended December 31, 1996, 1995 and 1994 was $30,480, $0, $25,520, $65,232 and $62,701, respectively. The Company has a noncancelable operating lease with a third party for facility rental. The Company is charged $1.06 per square foot per month for office space and warehouse space occupied by certain equipment. Rent expense was $264,454 and $36,000 for the six months ended June 30, 1997 and 1996, respectively, and $206,776 and $28,800 for the years ended December 31, 1996 and 1995, respectively. The Company also has several noncancelable operating leases with third parties, primarily for facility rental, that expire over the next three years. Rent expense for these facilities for the six months ended June 30, 1997 and 1996 and the years ended December 31, 1996, 1995 and 1994 was $176,969, $108,252, $384,181, $296,810 and $147,350, respectively. Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of June 30, 1997 are as follows: 1997........................................................ $ 511,219 1998........................................................ 291,685 1999........................................................ 283,865 2000........................................................ 282,432 2001........................................................ 141,216 ---------- $1,510,417
(5) COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS The Company pays sales commissions to a company in which certain Company stockholders have a majority ownership interest. Commissions paid for the six months ended June 30, 1997 and 1996 and the years ended December 31, 1996, 1995 and 1994 were $12,600, $16,680, $27,240, $29,517 and $68,681, respectively. Certain corporate charges paid by Circuit Test, Inc. are allocated, based on a percentage of net revenues, to affiliates included in the combined financial statements and another related party which is not included in the combination. The amounts charged to the related party for 1996, 1995 and 1994 were approximately $162,000, $247,000 and $287,000, respectively. In the normal course of business, the Company is party to certain litigation. Management of the Company is of the opinion that the ultimate outcome of such matters will not have a material adverse impact on the Company's combined financial statements. F-26 82 CIRCUIT TEST, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (6) SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK The Company's customers are primarily manufacturers of computers and related peripherals and integrated transportation and logistics companies. Certain customers of the Company comprise a significant portion of accounts receivable and net revenues as of and for the years ended December 31, 1996, 1995 and 1994. These customers are summarized as follows:
PERCENTAGE CUSTOMERS OF TOTAL --------- ---------- Accounts receivable: December 31, 1996......................................... 4 65% December 31, 1995......................................... 4 57% December 31, 1994......................................... 4 72% Net revenues: Year ended December 31, 1996.............................. 4 81% Year ended December 31, 1995.............................. 4 71% Year ended December 31, 1994.............................. 4 79%
The net revenues concentration numbers include one customer which accounted for 46% of net revenues during 1996, 36% during 1995 and 39% during 1994. (7) SUBSEQUENT EVENT In May 1997, a third party requested to terminate an agreement that the Company had entered into to purchase certain assets and other rights. A new agreement was reached that resulted in a reduction in purchase price for the assets previously purchased. In June 1997, the Company reduced the assets which are included in inventory and the corresponding payable to the third party by approximately $1,000,000. On July 9, 1997, the Company entered into an Agreement and Plan of Merger (Agreement) with EFTC Corporation (EFTC). The Agreement provides that EFTC will acquired the Company through the merger of the Company with and into EFTC (Merger). In the Merger, subject to adjustment and certain exceptions, stockholders of Circuit Test, Inc. will have the right to receive 1,858,974 shares of EFTC common stock and the members of Airhub Service Group, L.C. and Circuit Test International, L.C. will receive approximately $19,500,000 and have certain liabilities assumed by EFTC. Stockholders and members of the Company will also participate in an earnout based on future earnings. The obligations of the Company and EFTC to consummate the Merger are subject to various conditions, including the condition that the holders of a majority of the outstanding shares of common stock of EFTC vote to approve the Agreement. If the necessary stockholder vote is obtained and all other conditions to the Merger are satisfied, the Merger is expected to be completed on or before October 30, 1997. F-27 83 CIRCUIT TEST, INC. AND AFFILIATES COMBINING SCHEDULE -- BALANCE SHEET INFORMATION DECEMBER 31, 1996 ASSETS
AIRHUB CIRCUIT SERVICE CIRCUIT TEST TEST, INC. GROUP, L.C. INTERNATIONAL, L.C. COMBINED ---------- ----------- ------------------- ----------- CURRENT ASSETS: Cash and cash equivalents............. $ (169,421) $ 634,756 $1,025,001 $ 1,490,336 Accounts receivable, net.............. 1,074,345 1,268,588 1,767,810 4,110,743 Inventory............................. 223,380 2,706,234 1,312,538 4,242,152 Prepaid expenses and other current assets............................. 2,843 -- 6,004 8,847 Intercompany accounts................. 533,288 (400,846) (132,442) -- ---------- ---------- ---------- ----------- TOTAL CURRENT ASSETS.......... 1,664,435 4,208,732 3,978,911 9,852,078 ---------- ---------- ---------- ----------- PROPERTY AND EQUIPMENT, AT COST: Land, buildings and improvements...... 605,409 -- -- 605,409 Leasehold improvements................ -- -- 655,029 655,029 Machinery and equipment............... 1,030,977 680,431 1,134,337 2,845,745 Furniture and fixtures................ 121,255 111,680 149,505 382,440 Vehicles.............................. 137,074 -- -- 137,074 ---------- ---------- ---------- ----------- 1,894,715 792,111 1,938,871 4,625,697 Less accumulated depreciation and amortization....................... 1,026,834 65,590 307,861 1,400,285 ---------- ---------- ---------- ----------- NET PROPERTY AND EQUIPMENT.... 867,881 726,521 1,631,010 3,225,412 Other assets, net....................... 24,553 -- 71,692 96,245 ---------- ---------- ---------- ----------- $2,556,869 $4,935,253 $5,681,613 $13,173,735 ========== ========== ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of notes payable... $ 121,498 $1,943,867 $2,190,928 $ 4,256,293 Accounts payable...................... 243,389 2,575,667 1,116,022 3,935,078 Accrued expenses...................... 260,647 454,507 354,608 1,069,762 Due to (from) related parties......... (306,765) (12,455) 579,597 260,377 Shareholder loans..................... 352,871 -- 783,000 1,135,871 ---------- ---------- ---------- ----------- TOTAL CURRENT LIABILITIES..... 671,640 4,961,586 5,024,155 10,657,381 Long-term portion of notes payable...... 44,029 222,812 327,668 594,509 ---------- ---------- ---------- ----------- TOTAL LIABILITIES............. 715,669 5,184,398 5,351,823 11,251,890 ---------- ---------- ---------- ----------- STOCKHOLDERS' EQUITY: Common stock.......................... 122 -- -- 122 Members' equity....................... -- (141,600) 8,600 (132,940) Additional paid-in capital............ 147,498 -- -- 147,498 Retained earnings (deficit)........... 1,693,580 (107,545) 321,130 1,907,165 ---------- ---------- ---------- ----------- TOTAL STOCKHOLDERS' EQUITY.... 1,841,200 (249,145) 329,790 1,921,845 ---------- ---------- ---------- ----------- $2,556,869 $4,935,253 $5,681,613 $13,173,735 ========== ========== ========== ===========
See accompanying independent auditors' report. F-28 84 CIRCUIT TEST, INC. AND AFFILIATES COMBINING SCHEDULE -- BALANCE SHEET INFORMATION DECEMBER 31, 1995 ASSETS
AIRHUB CIRCUIT SERVICE CIRCUIT TEST TEST, INC. GROUP, L.C. INTERNATIONAL, L.C. COMBINED ---------- ----------- ------------------- ---------- CURRENT ASSETS: Cash and cash equivalents............... $ 210,987 $ 38,372 $ 508,728 $ 758,087 Accounts receivable, net................ 1,332,405 449,172 1,969,156 3,750,733 Inventory............................... 1,034,222 97,280 1,336,177 2,467,679 Prepaid expenses and other current assets............................... 2,843 -- 18,756 21,599 Intercompany accounts................... 112,463 -- (112,463) -- ---------- --------- ---------- ---------- TOTAL CURRENT ASSETS............ 2,692,920 584,824 3,720,354 6,998,098 ---------- --------- ---------- ---------- PROPERTY AND EQUIPMENT, AT COST: Land, buildings and improvements........ 685,134 -- -- 685,134 Leasehold improvements.................. 208,505 29,378 388,343 626,226 Machinery and equipment................. 998,188 89,710 643,472 1,731,370 Furniture and fixtures.................. 170,160 28,022 81,829 280,011 Vehicles................................ 157,817 -- -- 157,817 ---------- --------- ---------- ---------- 2,219,804 147,110 1,113,644 3,480,558 Less accumulated depreciation and amortization......................... 1,140,678 4,268 148,637 1,293,583 ---------- --------- ---------- ---------- NET PROPERTY AND EQUIPMENT...... 1,079,126 142,842 965,007 2,186,975 Other assets, net............... 24,553 -- 35,526 60,079 ---------- --------- ---------- ---------- $3,796,599 $ 727,666 $4,720,887 $9,245,152 ========== ========= ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of notes payable..... $ 925,306 $ 448,241 $1,495,813 $2,869,360 Accounts payable........................ 340,298 379,400 1,035,401 1,755,099 Accrued expenses........................ 299,316 43,832 606,718 949,866 Due to (from) related parties........... (25,011) (2,207) 425,031 397,813 Shareholder loans....................... 192,871 -- 783,000 975,871 ---------- --------- ---------- ---------- TOTAL CURRENT LIABILITIES....... 1,732,780 869,266 4,345,963 6,948,009 Long-term portion of notes payable....................... 163,256 -- 76,626 239,882 ---------- --------- ---------- ---------- TOTAL LIABILITIES............... 1,896,036 869,266 4,422,589 7,187,891 ---------- --------- ---------- ---------- STOCKHOLDERS' EQUITY: Common stock............................ 100 -- -- 100 Members' equity......................... -- -- 8,660 8,660 Additional paid-in capital.............. 17,500 -- -- 17,500 Retained earnings (deficit)............. 1,882,963 (141,600) 289,638 2,031,001 ---------- --------- ---------- ---------- TOTAL STOCKHOLDERS' EQUITY...... 1,900,563 (141,600) 298,298 2,057,261 ---------- --------- ---------- ---------- $3,796,599 $ 727,666 $4,720,887 $9,245,152 ========== ========= ========== ==========
See accompanying independent auditors' report. F-29 85 CIRCUIT TEST, INC. AND AFFILIATES COMBINING SCHEDULE -- OPERATIONS INFORMATION YEAR ENDED DECEMBER 31, 1996
AIRHUB CIRCUIT TEST CIRCUIT SERVICE INTERNATIONAL, ELIMINATING TEST, INC. GROUP, L.C. L.C. ENTRIES COMBINED ---------- ----------- -------------- ----------- ----------- Net revenues................. $4,590,711 $8,211,422 $13,854,357 $(146,765) $26,509,725 Costs of revenues............ 3,348,588 6,421,699 9,956,818 (146,765) 19,580,340 ---------- ---------- ----------- --------- ----------- GROSS PROFIT....... 1,242,123 1,789,723 3,897,539 -- 6,929,385 Selling, general and administrative expenses.... 1,348,581 1,799,830 3,102,953 -- 6,251,364 Interest expense, net........ 100,587 70,664 263,094 -- 434,345 Other (income) expense....... (17,662) 26,774 -- -- 9,112 ---------- ---------- ----------- --------- ----------- NET INCOME (LOSS).. $ (189,383) $ (107,545) $ 531,492 $ -- $ 234,564 ========== ========== =========== ========= ===========
See accompanying independent auditors' report. F-30 86 CIRCUIT TEST, INC. AND AFFILIATES COMBINING SCHEDULE -- OPERATIONS INFORMATION YEAR ENDED DECEMBER 31, 1995
AIRHUB CIRCUIT TEST CIRCUIT SERVICE INTERNATIONAL, ELIMINATING TEST, INC. GROUP, L.C. L.C. ENTRIES COMBINED ---------- ----------- -------------- ----------- ----------- Net revenues................... $7,668,419 $ 302,531 $8,356,249 $(143,609) $16,183,590 Costs of revenues.............. 5,593,172 238,617 5,111,310 (143,609) 10,799,490 ---------- --------- ---------- --------- ----------- GROSS PROFIT......... 2,075,247 63,914 3,244,939 -- 5,384,100 Selling, general and administrative expenses...... 1,591,408 198,810 2,003,102 -- 3,793,320 Interest expense, net.......... 128,273 6,704 156,084 -- 291,061 ---------- --------- ---------- --------- ----------- NET INCOME (LOSS).... $ 355,566 $(141,600) $1,085,753 $ -- $ 1,299,719 ========== ========= ========== ========= ===========
See accompanying independent auditors' report. F-31 87 CIRCUIT TEST, INC. AND AFFILIATES COMBINING SCHEDULE -- OPERATIONS INFORMATION YEAR ENDED DECEMBER 31, 1994
CIRCUIT TEST CIRCUIT INTERNATIONAL, ELIMINATING TEST, INC. L.C. ENTRIESE COMBINED ---------- -------------- ----------- ---------- Net revenues............................. $7,032,786 $2,069,931 $(74,130) $9,028,587 Costs of revenues........................ 4,891,004 1,493,756 (74,130) 6,310,630 ---------- ---------- -------- ---------- GROSS PROFIT................... 2,141,782 576,175 -- 2,717,957 Selling, general and administrative expenses............................... 1,721,680 803,116 -- 2,524,796 Interest expense, net.................... 47,367 63,883 -- 111,250 ---------- ---------- -------- ---------- NET INCOME (LOSS).............. $ 372,735 $ (290,824) $ -- $ 81,911 ========== ========== ======== ==========
See accompanying independent auditors' report. F-32 88 CIRCUIT TEST, INC. AND AFFILIATES COMBINING SCHEDULE -- CASH FLOWS INFORMATION YEAR ENDED DECEMBER 31, 1996
AIRHUB CIRCUIT TEST CIRCUIT SERVICE INTERNATIONAL TEST, INC. GROUP, L.C. L.C. COMBINED ----------- ----------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES:.... $ (189,383) $ (107,545) $ 531,492 $ 234,564 Net income (loss) Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities: Depreciation and amortization........ 162,822 59,287 122,094 344,203 (Increase) decrease in accounts receivables, net.................. 258,060 (819,416) 201,346 (360,010) (Increase) decrease in inventory..... 810,842 (2,608,954) 23,639 (1,774,473) Increase in prepaids and other assets............................ -- -- (23,414) (23,414) Increase (decrease) in accounts payable........................... (96,909) 2,196,267 80,621 2,179,979 Increase (decrease) in accrued expenses.......................... (38,669) 410,675 (252,110) 119,896 Change in due to (from) related parties........................... (281,754) (10,248) 154,566 (137,436) Change in intercompany account....... (1,017,309) 1,019,433 (2,124) -- ----------- ----------- ---------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.......... (392,300) 139,499 836,110 583,309 ----------- ----------- ---------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES -- capital expenditures, net.................................... 48,423 (642,966) (788,097) (1,382,640) ----------- ----------- ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from notes payable and other obligations.................... (166,551) 1,099,851 968,260 1,901,560 Proceeds from sale of stock............ 130,020 -- -- 130,020 Distributions to stockholders.......... -- -- (500,000) (500,000) ----------- ----------- ---------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.......... (36,531) 1,099,851 468,260 1,531,580 ----------- ----------- ---------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......... (380,408) 596,384 516,273 732,249 ----------- ----------- ---------- ----------- Cash and cash equivalents at beginning of year................................... 210,987 38,372 508,728 758,087 ----------- ----------- ---------- ----------- Cash and cash equivalents at end of year................................... (169,421) 634,756 1,025,001 1,490,336 =========== =========== ========== =========== Supplemental disclosure of cash information -- Interest paid........... $ 98,000 $ 71,000 $ 249,000 $ 418,000 =========== =========== ========== ===========
See accompanying independent auditors' report. F-33 89 CIRCUIT TEST, INC. AND AFFILIATES COMBINING SCHEDULE -- CASH FLOWS INFORMATION YEAR ENDED DECEMBER 31, 1995
AIRHUB CIRCUIT SERVICE CIRCUIT TEST TEST, INC. GROUP, L.C. INTERNATIONAL, L.C. COMBINED ---------- ----------- ------------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)..................... $ 355,566 (141,600) 1,085,753 1,299,719 Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities: Depreciation and amortization...... 203,597 8,368 84,704 296,669 Increase in accounts receivables, net.............................. (370,082) (449,172) (1,561,804) (2,381,058) (Increase) decrease in inventory... 242,180 (97,280) (1,218,583) (1,073,683) (Increase) decrease in prepaids and other assets..................... (17,798) -- 2,178 (15,620) Increase in accounts payable....... 36,453 379,400 911,988 1,327,841 Increase in accrued expenses....... 49,573 43,832 389,112 482,517 Change in due to (from) related parties.......................... (255,947) (2,207) 143,833 (114,321) Change in intercompany account..... (11,439) -- 11,439 -- --------- --------- ----------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES........ 232,103 (258,659) (151,380) (177,936) --------- --------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES -- capital expenditures, net............. 42,130 (151,210) (512,674) (621,754) --------- --------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: net proceeds from notes payable and other obligations.................. (219,440) 448,241 1,205,777 1,434,578 --------- --------- ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS................. 54,793 38,372 541,723 634,888 Cash and cash equivalents at beginning of year............................... 156,194 -- (32,995) 123,199 --------- --------- ----------- ----------- Cash and cash equivalents at end of year.................................. $ 210,987 38,372 508,728 758,087 ========= ========= =========== =========== Supplemental disclosure of cash information -- Interest paid.......... $ 128,000 7,000 156,000 291,000 ========= ========= =========== ===========
See accompanying independent auditors' report. F-34 90 CIRCUIT TEST, INC. AND AFFILIATES COMBINING SCHEDULE -- CASH FLOWS INFORMATION YEAR ENDED DECEMBER 31, 1994
CIRCUIT TEST CIRCUIT INTERNATIONAL, TEST, INC. L.C. COMBINED ----------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss).............................. $ 372,735 $(290,824) $ 81,911 Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities: Depreciation and amortization............... 195,200 57,739 252,579 Increase in accounts receivables, net....... (211,334) (219,574) (430,908) Increase in inventory....................... (511,571) 48,664 (560,235) (Increase) decrease in prepaids and other assets.................................... 106,122 (3,519) 102,603 Increase in accounts payable................ 165,421 99,988 265,409 Increase (decrease) in accrued expenses..... (20,694) 154,692 133,998 Change in due to (from) related parties..... 239,655 2,803 242,458 Change in intercompany account.............. (101,024) 101,024 -- ----------- --------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES................. 234,510 (146,695) 87,815 ----------- --------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES -- capital expenditures, net.............................. (37,560) (330,978) (368,538) ----------- --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from notes payable and other obligations................................. 871,140 386,662 1,257,802 Distributions to stockholders.................. (1,073,022) -- (1,073,022) ----------- --------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES................. (201,882) 386,662 184,780 ----------- --------- ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS.......................... (4,932) (91,011) (95,943) Cash and cash equivalents at beginning of year... 161,126 58,016 219,142 ----------- --------- ----------- Cash and cash equivalents at end of year......... $ 156,194 $ (32,995) $ 123,199 =========== ========= =========== Supplemental disclosure of cash information -- Interest paid.................................. $ 54,000 $ 110,000 $ 164,000 =========== ========= ===========
See accompanying independent auditors' report. F-35 91 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Current Electronics, Inc. and Current Electronics Washington, Inc.: We have audited the accompanying combined statements of income and retained earnings and cash flows of Current Electronics, Inc. (an Oregon Corporation) and Current Electronics Washington, Inc. (a Washington S Corporation) for the year ended September 30, 1994. These combined financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these combined financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Current Electronics, Inc. and Current Electronics Washington, Inc. for the year ended September 30, 1994, in conformity with generally accepted accounting principles. Portland, Oregon, April 4, 1997 F-36 92 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Current Electronics, Inc. and Current Electronics Washington, Inc.: We have audited the accompanying combined balance sheets of Current Electronics, Inc. (an Oregon Corporation) and Current Electronics Washington, Inc. (a Washington S Corporation) as of September 30, 1996 and 1995, and the related combined statements of income and retained earnings and cash flows for the years then ended. These combined financial statements are the responsibility of the companies management. Our responsibility is to express an opinion on these combined financial statements and supplementary combining information based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Current Electronics, Inc. and Current Electronics Washington, Inc. as of September 30, 1996 and 1995, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. Portland, Oregon, November 25, 1996 F-37 93 CURRENT ELECTRONICS, INC. AND CURRENT ELECTRONICS WASHINGTON, INC. COMBINED BALANCE SHEETS ASSETS
SEPTEMBER 30, DECEMBER 31, ------------------------ 1996 1996 1995 ------------ ---------- ---------- (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents........................ $ 645,262 $ 580,839 $ 252,323 Accounts receivable, net of allowance for doubtful accounts of $34,000 and $6,774 and $22,222....................................... 1,542,819 1,929,142 1,506,049 Inventories...................................... 4,098,178 3,826,074 1,860,951 Prepaid expenses................................. 167,436 109,077 24,809 ---------- ---------- ---------- Total current assets..................... 6,453,695 6,445,132 3,644,132 ---------- ---------- ---------- PROPERTY, PLANT AND EQUIPMENT, net................. 2,430,218 2,337,317 2,171,347 OTHER ASSETS....................................... 11,783 140,201 73,197 ---------- ---------- ---------- Total assets............................. $8,895,696 $8,922,650 $5,888,676 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable................................. $1,268,678 $1,386,274 $ 636,264 Accrued liabilities.............................. 588,784 766,020 643,863 Income taxes payable............................. 191,331 99,953 247,764 Notes payable.................................... 1,326,384 650,000 -- Current portion of long-term debt................ 306,045 599,019 500,948 ---------- ---------- ---------- Total current liabilities................ 3,681,222 3,501,266 2,028,839 ---------- ---------- ---------- DEFERRED INCOME TAXES.............................. 122,000 122,000 289,000 LONG-TERM DEBT..................................... 881,371 977,826 815,751 ---------- ---------- ---------- Total liabilities........................ 4,684,593 4,601,092 3,133,590 ---------- ---------- ---------- SHAREHOLDERS' EQUITY: Preferred stock.................................. -- -- -- Common stock..................................... 33,000 33,000 33,000 Retained earnings................................ 4,178,103 4,288,558 2,722,086 ---------- ---------- ---------- Total shareholders' equity............... 4,211,103 4,321,558 2,755,086 ---------- ---------- ---------- Total liabilities and shareholders' equity................................. $8,895,696 $8,922,650 $5,888,676 ========== ========== ==========
The accompanying notes are an integral part of these combined balance sheets. F-38 94 CURRENT ELECTRONICS, INC. AND CURRENT ELECTRONICS WASHINGTON, INC. COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
THREE MONTHS ENDED DECEMBER 31, YEARS ENDED SEPTEMBER 30, ------------------------- --------------------------------------- 1996 1995 1996 1995 1994 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) NET SALES................. $ 6,361,713 $ 6,114,044 $32,520,438 $17,169,805 $11,066,863 COST OF SALES............. 5,310,833 5,180,965 27,075,305 13,471,626 8,611,474 ----------- ----------- ----------- ----------- ----------- Gross profit............ 1,050,880 933,079 5,445,133 3,698,179 2,455,389 ----------- ----------- ----------- ----------- ----------- SELLING, GENERAL ADMINISTRATIVE EXPENSES................ 747,790 624,860 2,792,814 1,976,702 1,796,962 ----------- ----------- ----------- ----------- ----------- Income from operations........... 303,090 308,219 2,652,319 1,721,477 658,427 OTHER INCOME (EXPENSE): Other income, net....... 28,695 17,310 9,345 34,603 9,218 Interest expense, net... (50,240) (26,981) (101,192) (129,315) (63,121) ----------- ----------- ----------- ----------- ----------- Total other income (expense)..... (21,545) (9,671) (91,847) (94,712) (53,903) ----------- ----------- ----------- ----------- ----------- Income before income taxes......... 281,545 298,548 2,560,472 1,626,765 604,524 ----------- ----------- ----------- ----------- ----------- PROVISION (BENEFIT) FOR INCOME TAXES: Current................. 92,000 70,167 921,000 438,435 100,000 Deferred................ -- -- (167,000) 42,000 104,000 ----------- ----------- ----------- ----------- ----------- 92,000 70,167 754,000 480,435 204,000 ----------- ----------- ----------- ----------- ----------- NET INCOME................ 189,545 228,381 1,806,472 1,146,330 400,524 RETAINED EARNINGS, beginning of year....... 4,288,558 2,649,184 2,722,086 1,650,756 1,250,232 DIVIDENDS................. (300,000) (150,000) (240,000) (75,000) -- ----------- ----------- ----------- ----------- ----------- RETAINED EARNINGS, end of year.................... $ 4,178,103 $ 2,727,565 $ 4,288,558 $ 2,722,086 $ 1,650,756 =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these combined statements. F-39 95 CURRENT ELECTRONICS, INC. AND CURRENT ELECTRONICS WASHINGTON, INC. COMBINED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, YEARS ENDED SEPTEMBER 30, ----------------------- ------------------------------------- 1996 1995 1996 1995 1994 --------- ----------- ----------- ----------- --------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income....................... $ 189,545 $ 228,381 $ 1,806,472 $ 1,146,330 $ 400,524 Adjustments to reconcile net income to cash provided by operating activities -- Depreciation and amortization................. 165,720 183,809 576,378 475,944 350,874 Loss on sale of property....... -- -- 2,491 -- 4,533 Deferred income taxes.......... -- -- (167,000) 42,000 104,569 Changes in operating accounts: Accounts receivable.......... 386,323 13,835 (423,093) (673,973) (100,461) Inventories.................. (272,104) (2,955,557) (1,717,929) (902,338) (38,628) Prepaid expenses............. (69,007) (25,710) (84,268) (13,042) 2,117 Accounts payable............. (117,596) 1,020,877 750,010 458,679 11,889 Accrued liabilities.......... (177,236) (62,863) 122,157 295,885 (56,053) Income taxes payable......... 91,378 (162,962) (147,811) 264,339 (199,826) --------- ----------- ----------- ----------- --------- Net cash provided by operating activities.... 197,023 (1,760,190) 717,407 1,093,824 479,538 --------- ----------- ----------- ----------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment...................... (258,621) (178,326) (768,867) (1,061,820) (777,128) Proceeds from disposal of property and equipment......... -- -- 24,028 -- -- Key Man Insurance................ 139,066 (20,141) (67,004) (24,269) (48,928) --------- ----------- ----------- ----------- --------- Net cash used in investing activities.............. (119,555) (198,467) (811,843) (1,086,089) (826,056) --------- ----------- ----------- ----------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings under lines of credit......................... -- -- 650,000 -- -- Proceeds from new long-term borrowings..................... 429,190 2,197,047 1,285,344 551,539 691,496 Repayments of long-term debt..... (142,235) (132,482) (1,272,392) (389,881) (409,334) Dividends paid................... (300,000) (150,000) (240,000) (75,000) -- Issuance of common stock......... -- -- -- -- 3,000 --------- ----------- ----------- ----------- --------- Net cash provided by financing activities.... (13,045) 1,914,565 422,952 86,658 285,162 --------- ----------- ----------- ----------- --------- Net increase (decrease) in cash and cash equivalents............. 64,423 (44,092) 328,516 94,393 (61,356) CASH AND CASH EQUIVALENTS, beginning of period.............. 580,839 252,323 252,323 157,930 219,286 --------- ----------- ----------- ----------- --------- CASH AND CASH EQUIVALENTS, end of period........................... $ 645,262 $ 208,231 $ 580,839 $ 252,323 $ 157,930 ========= =========== =========== =========== ========= SUPPLEMENTAL CASH FLOW DISCLOSURES: Cash paid for interest........... $ 50,240 $ 26,981 $ 143,109 $ 129,239 $ 63,121 Cash paid for taxes.............. -- 233,129 1,073,489 158,000 381,809 Issuance of note in exchange for inventories (noncash operating activity)...................... 429,190 2,585,974 247,194 -- --
The accompanying notes are an integral part of these combined statements. F-40 96 CURRENT ELECTRONICS, INC. CURRENT ELECTRONICS WASHINGTON, INC. NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 1996, 1995 AND 1994 1. DESCRIPTION OF BUSINESS: Current Electronics, Inc. (CEI) was incorporated on December 29, 1983 in the State of Oregon. CEI's primary business is contract manufacturing of electronic circuit boards and other components for its customers, who are located primarily in the Portland metropolitan area. Current Electronics Washington, Inc. (CEWI) was incorporated as an S Corporation in the State of Washington in 1994 and is also a contract manufacturer of electronic circuit boards. CEWI's primary customer is in Redmond, Washington. CEI and CEWI (the Companies) provide contract manufacturing on both a consigned basis (customer retains title to the raw materials) and turnkey basis (the Companies own the raw materials). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: PRINCIPLES OF COMBINATION The financial statements combine the accounts of the Companies, after elimination of intercompany items and transactions. These companies are being combined as they are under common ownership and management. The accounting policies referred to below represent the policies of both companies, unless otherwise specified. CASH EQUIVALENTS Cash equivalents consists of short-term, highly liquid investments with maturities at the date of purchase of 90 days or less. INVENTORIES Inventories are valued at standard cost which approximates lower of cost (first-in, first-out) or market, and include materials, labor and manufacturing overhead. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the assets: Machinery and production equipment--5 to 15 years and furniture, fixtures and computer equipment--5 to 7 years. Leasehold improvements are amortized over the estimated useful life of the asset. ADVERTISING Advertising costs are expensed as incurred. For the fiscal years ended September 30, 1996, 1995 and 1994, advertising costs were $48,266, $24,642 and $33,357, respectively. REVENUE RECOGNITION Revenues are recognized when the product is shipped to the customer. CONCENTRATIONS OF CREDIT RISK The Companies' revenues are principally generated from a small number of electronics companies based in Oregon and Washington. During 1996, four of the Companies' customers accounted for 74% of combined net sales. For the year ended September 30, 1995, three customers accounted for 52% of F-41 97 CURRENT ELECTRONICS, INC. CURRENT ELECTRONICS WASHINGTON, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) combined net sales. For the year ended September 30, 1994, four customers accounted for 63% of combined net sales. Historically, the Companies have not incurred significant losses related to its accounts receivable. However, the loss of any one customer could have a significant impact on the future results of the Companies' operations. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results may differ from those estimates and such differences could be material to the financial statements. RECENT PRONOUNCEMENT In 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS 121 requires an assessment of impairment of long-lived assets under certain conditions and recognition of loss in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. In such instances a loss would be recorded based on the fair market value of the applicable asset. SFAS 121 is effective for the Companies' fiscal year ending September 30, 1997. Adoption of SFAS 121 is not expected to have a material impact on the Company's financial position or results of operations. RECLASSIFICATIONS Certain balances for prior periods have been reclassified to be consistent with the September 30, 1996 presentation. INTERIM FINANCIAL INFORMATION The interim consolidated financial statements included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the management of the Company believes that the disclosures are adequate to make the information presented not misleading. Interim financial statements are by necessity somewhat tentative; judgments are used to estimate interim amounts for items that are normally determinable only on an annual basis. For example, the effective income tax rate is based on estimates of annual amounts of taxable income, tax credits and other factors. The interim period information included herein reflects all adjustments which are, in the opinion of the management of the Company, necessary for a fair statement of the results of the respective interim periods. Results of operations for interim periods are not necessarily indicative of results to be expected for an entire year. 3. RELATED PARTY TRANSACTIONS: CEI and CEWI lease office and factory space from Hewitson, Hewitson and Hewitson (HHH), a partnership which is comprised of the majority shareholders of CEI. Lease rates between the Companies and these shareholders are based on estimated fair market values. Rents paid to the partnership for the F-42 98 CURRENT ELECTRONICS, INC. CURRENT ELECTRONICS WASHINGTON, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) years ended September 30, 1996, 1995 and 1994 were $428,402, $259,720 and $182,520, respectively. CEI provides selling, general and administrative services to CEWI. Services totaling $150,000, $60,000 and $0 were allocated to CEWI for the years ended September 30, 1996, 1995 and 1994, respectively. CEI owes HHH a combined total of $59,066 under a note (see Note 9) as of September 30, 1996. CEI owed the partnership $113,055 under two notes at September 30, 1995. CEI owed HHH a total of $39,190 under a note as of September 30, 1994. 4. OPERATING LEASES: Total rental expense under operating leases was $472,212, $362,241 and $232,516 during fiscal 1996, 1995 and 1994, respectively. Future minimum lease payments under noncancelable operating leases as of September 30, 1996 are as follows:
YEAR ENDED SEPTEMBER 30 CEI CEWI ----------------------- -------- -------- 1997.............................................. $266,778 $ 96,000 1998.............................................. 73,408 16,000 1999.............................................. 3,186 -- -------- -------- $343,372 $112,000 ======== ========
The Companies' lease payments principally represent commitments under the related party facility lease agreement described in Note 3. 5. INVENTORIES: Inventories consisted of the following at September 30:
1996 1995 ---------- ---------- Raw materials........................................... $2,892,338 $1,163,165 Work in process......................................... 827,437 484,555 Finished goods.......................................... 106,299 213,231 ---------- ---------- $3,826,074 $1,860,951 ========== ==========
6. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment consisted of the following at September 30:
1996 1995 ---------- ---------- Machinery and equipment................................. $2,897,719 $2,771,774 Leasehold improvements.................................. 705,557 575,149 Computer equipment...................................... 626,032 279,188 Furniture and fixtures.................................. 138,184 121,414 ---------- ---------- 4,367,492 3,747,525 Less -- Accumulated depreciation and amortization....... 2,030,175 1,576,178 ---------- ---------- $2,337,317 $2,171,347 ========== ==========
F-43 99 CURRENT ELECTRONICS, INC. CURRENT ELECTRONICS WASHINGTON, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 7. OTHER ASSETS: Other assets include the cash surrender value of key man life insurance policies where the Company is the beneficiary. At September 30, 1996, the face amounts of these policies total $5,019,005. 8. NOTES PAYABLE: CEI has a revolving line of credit arrangement with Wells Fargo Bank which allows for borrowings up to $900,000 with interest payable at 1.25% above the existing prime rate at the date of draw down. The line expired September 30, 1996. Upon expiration, this line of credit arrangement was converted to term debt bearing interest at 7.75%, payable in monthly installments of $5,583 including interest through September 2001, secured by machinery and equipment and personally guaranteed by the shareholders of CEI. CEI has an additional revolving line of credit arrangement with Wells Fargo Bank which allows for borrowings up to $1,200,000 with interest payable at 1.00% above the existing prime rate at the date of draw down. The line expires March 31, 1997. The line of credit is personally guaranteed by the shareholders of CEI. There was $650,000 outstanding at September 30, 1996 under the line of credit. The loan agreements contain restrictive covenants for certain items, such as borrowings and dividends. As of September 30, 1996, CEI was in compliance with such covenants. F-44 100 CURRENT ELECTRONICS, INC. CURRENT ELECTRONICS WASHINGTON, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 9. LONG-TERM DEBT: Long-term debt at September 30, 1996 and 1995 is comprised of the following:
1996 1995 ---------- ---------- Note payable to Wells Fargo Bank, converted upon expiration of line of credit at September 30, 1996 (see Note 8)...... $ 335,000 $ -- Note payable to Hewitson, Hewitson, Hewitson and Hewitson, a related party, payable on demand, with interest at 10% per annum............................................. 59,066 106,171 Note payable to Wells Fargo Bank, maturing April 2001, payable in monthly installments of $2,157 including interest at 7.75% per annum; secured by machinery and equipment................................................. 99,590 -- Note payable to Wells Fargo Bank, maturing June 2000, payable in monthly installments of $14,841 including interest at 8.75% per annum; secured by machinery and equipment................................................. 567,597 675,451 Note payable to Wells Fargo Bank, maturing September 1999, payable in monthly installments of $7,430 including interest at 9.5% per annum; secured by machinery and equipment................................................. 231,960 290,680 Note payable to Wells Fargo Bank, maturing November 1997, payable in monthly installments of $2,289, including interest at 9.0% per annum; secured by machinery and equipment................................................. 30,288 51,998 Note payable to Wells Fargo Bank, maturing November 1997, payable in monthly installments of $350 including interest at 7.0% per annum......................................... 4,683 8,108 Unsecured noninterest-bearing note payable to customer, maturing May 1997, payable in monthly installments of $41,199................................................... 247,194 -- Note payable to Hewitson, Hewitson and Hewitson, repaid in 1996...................................................... -- 6,884 Note payable to Wells Fargo Bank, maturing October 1996, payable in monthly installments of $1,496 including interest at 7.75% per annum; secured by machinery and equipment................................................. 1,467 17,210 Note payable to Wells Fargo Bank, repaid in 1996....... -- 57,718 Note payable to Wells Fargo Bank, repaid in 1996....... -- 72,588 Note payable to customer, repaid in 1996............... -- 21,523 Note payable to Wells Fargo Bank, repaid in 1996....... -- 8,368 ---------- ---------- 1,576,845 1,316,699 Less -- Current portion................................ 599,019 500,948 ---------- ---------- Long-term debt......................................... $ 977,826 $ 815,751 ========== ==========
Future payments under long-term debt arrangements, by year, are as follows:
YEAR ENDED SEPTEMBER 30, ------------------------ 1997................................................... $ 599,019 1998................................................... 294,141 1999................................................... 315,208 2000................................................... 205,840 2001................................................... 72,282 Thereafter............................................. 90,355 ---------- $1,576,845 ==========
F-45 101 CURRENT ELECTRONICS, INC. CURRENT ELECTRONICS WASHINGTON, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 10. PROFIT SHARING PLAN: The Companies maintain a contributory employees' profit sharing plan which covers all eligible employees of the Company. The plan provides for annual contributions in an amount to be determined by the Companies' Board of Directors at its discretion. CEI's contribution for the years ended September 30, 1996, 1995 and 1994 was approximately $285,000, $125,000 and $92,000, respectively. 11. INCOME TAXES: CEI accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). Under the liability method specified by SFAS 109, the deferred tax assets and liabilities are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates for the years in which the taxes are expected to be paid. At September 30, 1996 and 1995, total deferred tax liabilities were $122,000 and $289,000, respectively. In 1995, deferred tax liabilities primarily represent tax depreciation differences and utilization of cash method for tax purposes on consigned sales. In 1996, these deferred tax liabilities primarily represent book/tax depreciation differences. There were no significant deferred tax assets at September 30, 1996 and 1995. CEWI has elected to be taxed as an S corporation. Earnings and losses for federal tax purposes will be included in the personal income tax returns of the shareholders. Accordingly, there is no provision for income taxes or deferred taxes reflected in the accompanying combined financial statements related to CEWI. CEI's effective tax rate of 33%, 39% and 48% for fiscal 1996, 1995 and 1994, respectively, differs from the federal statutory rate primarily due to state taxes and nondeductible officer life insurance premiums. The 1996 effective rate is lower than the 1995 effective rate principally due to a one-time credit allowed by the State of Oregon and corrections of prior year estimates. 12. SHAREHOLDERS' EQUITY: Both CEI and CEWI have 2,000,000 shares common stock authorized and 1,000,000 shares preferred stock authorized, with a par value of $.01 per share. At September 30, 1996 and 1995, 300 shares of common stock were issued and outstanding for both Companies. Subsequent to September 30, 1996, the Board of Directors approved a 100-for-one stock split for CEI. CEWI paid $240,000, $75,000 and $0 of dividends for the years ended September 30, 1996, 1995 and 1994, respectively. CEI and CEWI maintain shareholder agreements which restrict the nature in which shares can be disposed. In accordance with these agreements, the Company and/or its shareholders have right of first refusal as to the purchase of any shares being disposed. The purchase price of such shares is based on the estimated fair market due at date of disposition, as determined by the Companies' Board of Directors or independent appraiser. F-46 102 NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDERS OR ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. --------------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary.................... 3 Cautionary Statement Regarding Forward-Looking Statements.......... 8 Risk Factors.......................... 8 Use of Proceeds....................... 15 Price Range of Common Stock........... 15 Dividend Policy....................... 16 Capitalization........................ 16 Selected Historical and Pro Forma Financial Data...................... 17 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 19 Business and Properties............... 27 Certain Relationships and Related Transactions........................ 36 Unaudited Pro Forma Condensed Financial Information............... 37 Management............................ 41 Principal Shareholders................ 45 Selling Shareholders.................. 47 Description of Capital Stock and Other Securities.......................... 48 Shares Eligible for Future Sale....... 49 Underwriting.......................... 51 Legal Matters......................... 53 Experts............................... 53 Available Information................. 53 Incorporation of Certain Documents by Reference........................... 54 Index to Financial Statements......... 55
4,000,000 SHARES EFTC CORPORATION COMMON STOCK ($0.01 PAR VALUE) EFTC CORPORATION LOGO SALOMON BROTHERS INC J.C. BRADFORD & CO. PACIFIC CREST SECURITIES INC. PROSPECTUS DATED , 1997 103 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by the Company in connection with the sale of Common Stock being registered (all amounts are estimated except the SEC Registration Fee, the NASD Filing Fee and the Nasdaq Listing Fee). SEC Registration Fee........................................ $ 21,430 National Association of Securities Dealers, Inc. Fee........ 7,572 Nasdaq Listing Fee.......................................... 17,500 Blue Sky Qualification Fees and Expenses (including legal fees)..................................................... 1,500 Printing Expenses........................................... 175,000 Legal Fees and Expenses..................................... 125,000 Auditors' Fees and Expenses................................. 175,000 Transfer Agent and Registrar Fees........................... 3,500 Miscellaneous Expenses...................................... 23,498 -------- Total............................................. $550,000 ========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Article Five of the Company's Articles of Incorporation and Article VI of the Company's Bylaws require the Company to indemnify, to the fullest extent authorized by applicable law, any person who is or is threatened to be made a party to any civil, criminal, administrative, arbitrative or investigative proceeding instituted or threatened by reason of the fact that he is or was a director or officer of the Company or is or was serving at the request of the Company as a director or officer of another corporation, partnership, joint venture, trust, other enterprise or employee benefit plan. Article Four of the Company's Articles of Incorporation provides that, to the fullest extent permitted by the Colorado Corporation Code or any successor statute, directors of the Company shall not be liable to the Company or any of its shareholders for monetary damages caused by a breach of a fiduciary duty by such director. Sections 7-109-102 and 103 of the Colorado Business Corporation Act ("CBCA") authorize the indemnification of directors and officers against liability incurred by reason of being a director or officer and against expenses (including attorney's fees) judgments, fines and amounts paid in settlement and reasonably incurred in connection with any action seeking to establish such liability, in the case of third-party claims, if the officer or director acted in good faith and in a manner he reasonably believed to be in or not opposed to the best Interests of the corporation, and in the case of actions by or in the right of the corporation, if the officer or director acted in good faith and in a manner he reasonably believed to be in or not opposed to the best Interest of the corporation and if such officer or director shall not have been adjudged liable to the corporation, unless a court otherwise determines. Indemnification is also authorized with respect to any criminal action or proceeding where the officer or director also had no reasonable cause to believe his conduct was unlawful. The above discussion of the Company's Articles of Incorporation, Bylaws and the CBCA is only a summary and is qualified in its entirety by the full text of each of the foregoing. Reference is made to the Underwriting Agreement, the proposed form of which is filed as Exhibit 1.1, in which each Underwriter agrees, under certain circumstances, to indemnify the directors and officers of the Company and certain other persons against certain civil liabilities. II-1 104 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits
EXHIBIT NUMBER DOCUMENT DESCRIPTION ------- -------------------- 1.1 -- Form of Underwriting Agreement between the Company and the Underwriters(6) 5.1 -- Form of Opinion of Holme Roberts & Owen LLP as to the legality of issuance of the Company's Common Stock(6) MATERIAL CONTRACTS 10.1 -- Form of Registration Rights Agreement dated January 1994 between the Company and the parties thereto.(1) 10.2 -- Agreement and Plan of Merger among the Company, Current Merger Corp., and Current Electronics, Inc., dated as of January 15, 1997.(2) 10.3 -- Share Purchase Agreement among the Company and the Shareholders of Current Electronics (Washington), Inc. dated as of January 15, 1997.(2) 10.4 -- Registration Rights Agreement dated as of February 24, 1997, among the Company, Charles E. Hewitson, Matthew J. Hewitson and Gregory Hewitson and certain other parties.(2) 10.5 -- Indemnification Agreement dated as of February 24, 1997, among the Company, the shareholders of Current Electronics, Inc., and the shareholders of Current Electronics (Washington), Inc.(2) 10.6 -- Agreement and Plan of Reorganization among the Company, Acquisition Corp., and Circuit Test, Inc., dated as of July 9, 1997.(4) 10.7 -- Limited Liability Company Unit Purchase Agreement among the Company, CTLLC Acquisition Corp., Airhub Service Group, L.C., and CTI International, L.C., dated as of July 9, 1997.(4) 10.8 -- Registration Rights Agreement dated as of September 30, 1997 among the Company and CTI Shareholders.(4) 10.9 -- Indemnification Agreement dated as of September 30, 1997 among the Company, CTI Shareholders and the LLC Members.(4) 10.10 -- Earnout Agreement dated as of September 30, 1997 among the Company and the LLC Members.(4) 10.11.1 -- Master Agreement Regarding Asset Purchase and Related Transactions among the Company, AlliedSignal Avionics, Inc., a Kansas corporation ("Avionics"), and AlliedSignal, Inc., operating through its Aerospace Equipment Systems Unit ("AES"), dated as of July 15, 1997, as amended by the First Amendment to Master Agreement dated as of July 31, 1997, and as further amended by the Second Amendment to Master Agreement dated as of August 11, 1997.(3) *10.11.2 -- Third Amendment to Master Agreement dated as of September 5, 1997. 10.12 -- Supplier Partnering Agreement between the Company and AlliedSignal, Inc., dated as of August 4, 1997.(3) 10.13.1 -- License Agreement between the Company and AlliedSignal Technologies, Inc., dated as of July 15, 1997.(3) *10.13.2 -- Amended and Restated License Agreement between the Company and AlliedSignal Technologies, Inc., dated as of September 5, 1997. 10.14 -- Premises License Agreement between the Company and AES dated as of August 4, 1997.(3)
II-2 105
EXHIBIT NUMBER DOCUMENT DESCRIPTION ------- -------------------- 10.15 -- Facilities Management and Transition Services Agreement dated as of July 31, 1997 between the Company and AES as amended by a First Amendment to Facilities Management and Transition Services Agreement dated as of August 4, 1997.(3) 10.16 -- Sublease Agreement dated as of August 11, 1997 between the Company and AlliedSignal, Inc.(3) 10.17 -- Transition Services Agreement dated as of August 11, 1997 between the Company and Avionics.(3) 10.18.1 -- Agreement to Extend Avionics Personal Property Asset Transfer Date dated August 15, 1997, by and between the Company, Avionics and AES.(3) *10.18.2 -- Agreement to Extend Avionics Personal Property Asset Transfer Date dated August 29, 1997, by and between the Company, Avionics and AES. *10.19 -- Accounts Payable Service Agreement dated as of August 11, 1997 between the Company and Avionics. 10.20 -- Credit Agreement dated September 30, 1997 between the Company and Bank One, Colorado, N.A. ("Bank One").(4) 10.21 -- Pledge and Security Agreement dated as of September 30, 1997 by the Company to Bank One.(4) 10.22 -- Security Agreement and Assignment dated as of September 30, 1997 between the Company and Bank One.(4) 10.23 -- Deed of Trust and Security Agreement dated as of September 30, 1997, among the Company as Grantor, Bank One, as Agent and Beneficiary, and Northwest Title Company as Trustee.(4) 10.24 -- Deed of Trust and Security Agreement and Financing Statement dated as of September 30, 1997 from the Company to The Public Trustee of Weld County for Bank One, as Beneficiary.(4) 10.25 -- Note Agreement between the Company and Richard L. Monfort dated as of September 5, 1997, including the form of Floating Rate Subordinated Note attached as Exhibit A thereto.(4) 10.26 -- Warrant to Purchase 500,000 shares of Common Stock of the Company, dated as of October 6, 1997, issued by the Company to Richard L. Monfort.(4) *10.27 -- Form of Warrants to Purchase an aggregate of 80,000 shares of Common Stock of the Company, dated as of March 11, 1994, issued to Dain Bosworth Incorporated and Stephens Inc., underwriters, in connection with the Company's initial public offering. EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS 10.28 -- 1989 Stock Option Plan.(1) 10.29 -- 1993 Incentive Stock Option Plan.(1) *10.30 -- EFTC Corporation Equity Incentive Plan, amended and restated as of July 9, 1997. *10.31 -- EFTC Corporation Stock Option Plan for Non-Employee Directors, amended and restated as of July 9, 1997. 10.32 -- Employment Agreement with Jack Calderon dated as of August 1996.(5) 10.33 -- Form of Consulting Agreement entered into by the Company with each of OnCourse Inc., Matt Hewitson Consulting, Inc. and Corporate Solutions, Inc., dated as of February 24, 1997.(5)
II-3 106
EXHIBIT NUMBER DOCUMENT DESCRIPTION ------- -------------------- 10.34 -- Form of the separate Employment Agreements, each dated as of September 30, 1997, entered into by the Company, CTI and Allen S. Braswell, Jr., Richard Strott, Andrew Hatch and Dennis Ayo.(4) *10.35 -- 1997 Management Bonus Plan. CONSENTS *23.1 -- Consent of KPMG Peat Marwick LLP *23.2 -- Consent of KPMG Peat Marwick LLP *23.3 -- Consent of Arthur Andersen LLP 23.4 -- Consent of Holme Roberts & Owen LLP (See Exhibit 5.1) OTHER EXHIBITS *24.1 -- Powers of Attorney *27.1 -- Financial Data Schedule
- --------------- * Filed herewith. (1) Incorporated by reference from the Company's Registration Statement on Form SB-2 under the Securities Act of 1933, File No. 33-73392-D. (2) Incorporated by reference from EFTC Corporation Form 8-K filed on March 5, 1997. (3) Incorporated by reference from EFTC Corporation Form 8-K filed on August 26, 1997. (4) Incorporated by reference from EFTC Corporation Form 8-K filed on October 15, 1997. (5) Incorporated by reference from EFTC Corporation Form 10-K filed on March 27, 1997. (6) To be filed by amendment. (b) Financial Statement Schedules All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions, are inapplicable and therefore have been omitted or the information required by the applicable schedule is included in the notes to the financial statements. ITEM 17. UNDERTAKINGS. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-4 107 The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 108 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Denver, Colorado, on this 21 day of October 1997. EFTC CORPORATION By: /s/ JACK CALDERON ---------------------------------- Jack Calderon President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Chairman of the Board and Director October 21, 1997 - ----------------------------------------------------- Gerald J. Reid /s/ JACK CALDERON Director, President and Chief October 21, 1997 - ----------------------------------------------------- Executive Officer (Principal Jack Calderon Executive Officer) /s/ STUART W. FUHLENDORF Director and Chief Financial October 21, 1997 - ----------------------------------------------------- Officer (Principal Financial Stuart W. Fuhlendorf Officer) /s/ BRENT L. HOFMEISTER Controller (Principal Accounting October 21, 1997 - ----------------------------------------------------- Officer) Brent L. Hofmeister * Director October 21, 1997 - ----------------------------------------------------- Allen S. Braswell, Sr. * Director October 21, 1997 - ----------------------------------------------------- Allen S. Braswell, Jr. * Director October 21, 1997 - ----------------------------------------------------- Darrayl E. Cannon * Director October 21, 1997 - ----------------------------------------------------- James A. Doran * Director October 21, 1997 - ----------------------------------------------------- Charles E. Hewitson * Director October 21, 1997 - ----------------------------------------------------- Gregory C. Hewitson * Director October 21, 1997 - ----------------------------------------------------- Matthew J. Hewitson
II-6 109
SIGNATURE TITLE DATE --------- ----- ---- * Director October 21, 1997 - ----------------------------------------------------- Lloyd A. McConnell * Director October 21, 1997 - ----------------------------------------------------- Robert K. McNamara * Director October 21, 1997 - ----------------------------------------------------- Richard L. Monfort * Director October 21, 1997 - ----------------------------------------------------- Lucille A. Reid * Director October 21, 1997 - ----------------------------------------------------- Masoud S. Shirazi * Director October 21, 1997 - ----------------------------------------------------- David W. Van Wert *By: /s/ STUART W. FUHLENDORF - ----------------------------------------------------- Stuart W. Fuhlendorf, as attorney-in-fact
II-7 110 INDEX TO EXHIBITS
EXHIBIT NUMBER DOCUMENT DESCRIPTION PAGE ------- -------------------- ---- 1.1 -- Form of Underwriting Agreement between the Company and the Underwriters(6) 5.1 -- Form of Opinion of Holme Roberts & Owen LLP as to the legality of issuance of the Company's Common Stock(6) MATERIAL CONTRACTS 10.1 -- Form of Registration Rights Agreement dated January 1994 between the Company and the parties thereto.(1) 10.2 -- Agreement and Plan of Merger among the Company, Current Merger Corp., and Current Electronics, Inc., dated as of January 15, 1997.(2) 10.3 -- Share Purchase Agreement among the Company and the Shareholders of Current Electronics (Washington), Inc. dated as of January 15, 1997.(2) 10.4 -- Registration Rights Agreement dated as of February 24, 1997, among the Company, Charles E. Hewitson, Matthew J. Hewitson and Gregory Hewitson and certain other parties.(2) 10.5 -- Indemnification Agreement dated as of February 24, 1997, among the Company, the shareholders of Current Electronics, Inc., and the shareholders of Current Electronics (Washington), Inc.(2) 10.6 -- Agreement and Plan of Reorganization among the Company, Acquisition Corp., and Circuit Test, Inc., dated as of July 9, 1997.(4) 10.7 -- Limited Liability Company Unit Purchase Agreement among the Company, CTLLC Acquisition Corp., Airhub Service Group, L.C., and CTI International, L.C., dated as of July 9, 1997.(4) 10.8 -- Registration Rights Agreement dated as of September 30, 1997 among the Company and CTI Shareholders.(4) 10.9 -- Indemnification Agreement dated as of September 30, 1997 among the Company, CTI Shareholders and the LLC Members.(4) 10.10 -- Earnout Agreement dated as of September 30, 1997 among the Company and the LLC Members.(4) 10.11.1 -- Master Agreement Regarding Asset Purchase and Related Transactions among the Company, AlliedSignal Avionics, Inc., a Kansas corporation ("Avionics"), and AlliedSignal, Inc., operating through its Aerospace Equipment Systems Unit ("AES"), dated as of July 15, 1997, as amended by the First Amendment to Master Agreement dated as of July 31, 1997, and as further amended by the Second Amendment to Master Agreement dated as of August 11, 1997.(3) *10.11.2 -- Third Amendment to Master Agreement dated as of September 5, 1997. 10.12 -- Supplier Partnering Agreement between the Company and AlliedSignal, Inc., dated as of August 4, 1997.(3) 10.13.1 -- License Agreement between the Company and AlliedSignal Technologies, Inc., dated as of July 15, 1997.(3) *10.13.2 -- Amended and Restated License Agreement between the Company and AlliedSignal Technologies, Inc., dated as of September 5, 1997. 10.14 -- Premises License Agreement between the Company and AES dated as of August 4, 1997.(3)
111 INDEX TO EXHIBITS
EXHIBIT NUMBER DOCUMENT DESCRIPTION PAGE ------- -------------------- ---- 10.15 -- Facilities Management and Transition Services Agreement dated as of July 31, 1997 between the Company and AES as amended by a First Amendment to Facilities Management and Transition Services Agreement dated as of August 4, 1997.(3) 10.16 -- Sublease Agreement dated as of August 11, 1997 between the Company and AlliedSignal, Inc.(3) 10.17 -- Transition Services Agreement dated as of August 11, 1997 between the Company and Avionics.(3) 10.18.1 -- Agreement to Extend Avionics Personal Property Asset Transfer Date dated August 15, 1997, by and between the Company, Avionics and AES.(3) *10.18.2 -- Agreement to Extend Avionics Personal Property Asset Transfer Date dated August 29, 1997, by and between the Company, Avionics and AES. *10.19 -- Accounts Payable Service Agreement dated as of August 11, 1997 between the Company and Avionics. 10.20 -- Credit Agreement dated September 30, 1997 between the Company and Bank One, Colorado, N.A. ("Bank One").(4) 10.21 -- Pledge and Security Agreement dated as of September 30, 1997 by the Company to Bank One.(4) 10.22 -- Security Agreement and Assignment dated as of September 30, 1997 between the Company and Bank One.(4) 10.23 -- Deed of Trust and Security Agreement dated as of September 30, 1997, among the Company as Grantor, Bank One, as Agent and Beneficiary, and Northwest Title Company as Trustee.(4) 10.24 -- Deed of Trust and Security Agreement and Financing Statement dated as of September 30, 1997 from the Company to The Public Trustee of Weld County for Bank One, as Beneficiary.(4) 10.25 -- Note Agreement between the Company and Richard L. Monfort dated as of September 5, 1997, including the form of Floating Rate Subordinated Note attached as Exhibit A thereto.(4) 10.26 -- Warrant to Purchase 500,000 shares of Common Stock of the Company, dated as of October 6, 1997, issued by the Company to Richard L. Monfort.(4) *10.27 -- Form of Warrants to Purchase an aggregate of 80,000 shares of Common Stock of the Company, dated as of March 11, 1994, issued to Dain Bosworth Incorporated and Stephens Inc., underwriters, in connection with the Company's initial public offering. EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS 10.28 -- 1989 Stock Option Plan.(1) 10.29 -- 1993 Incentive Stock Option Plan.(1) *10.30 -- EFTC Corporation Equity Incentive Plan, amended and restated as of July 9, 1997. *10.31 -- EFTC Corporation Stock Option Plan for Non-Employee Directors, amended and restated as of July 9, 1997.
112 INDEX TO EXHIBITS
EXHIBIT NUMBER DOCUMENT DESCRIPTION PAGE ------- -------------------- ---- 10.32 -- Employment Agreement with Jack Calderon dated as of August 1996.(5) 10.33 -- Form of Consulting Agreement entered into by the Company with each of OnCourse Inc., Matt Hewitson Consulting, Inc. and Corporate Solutions, Inc., dated as of February 24, 1997.(5) 10.34 -- Form of the separate Employment Agreements, each dated as of September 30, 1997, entered into by the Company, CTI and Allen S. Braswell, Jr., Richard Strott, Andrew Hatch and Dennis Ayo.(4) *10.35 -- 1997 Management Bonus Plan. CONSENTS *23.1 -- Consent of KPMG Peat Marwick LLP *23.2 -- Consent of KPMG Peat Marwick LLP *23.3 -- Consent of Arthur Andersen LLP 23.4 -- Consent of Holme Roberts & Owen LLP (See Exhibit 5.1) OTHER EXHIBITS *24.1 -- Powers of Attorney *27.1 -- Financial Data Schedule
- --------------- * Filed herewith. (1) Incorporated by reference from the Company's Registration Statement on Form SB-2 under the Securities Act of 1933, File No. 33-73392-D. (2) Incorporated by reference from EFTC Corporation Form 8-K filed on March 5, 1997. (3) Incorporated by reference from EFTC Corporation Form 8-K filed on August 26, 1997. (4) Incorporated by reference from EFTC Corporation Form 8-K filed on October 15, 1997. (5) Incorporated by reference from EFTC Corporation Form 10-K filed on March 27, 1997. (6) To be filed by amendment. EX-10.11.2 2 3RD AMENDMENT TO MASTER AGREEMENT 1 THIRD AMENDMENT TO MASTER AGREEMENT REGARDING ASSET PURCHASE AND RELATED TRANSACTIONS This Third Amendment ("Amendment") is entered into as of September 5, 1997 with respect to that certain Master Agreement Regarding Asset Purchase and Related Transactions dated July 15, 1997 (the "Master Agreement") entered into and between AlliedSignal Avionics, Inc., a Kansas corporation ("Avionics"), AlliedSignal Inc., a Delaware corporation operating through its Aerospace Equipment Systems Business Unit ("AES"), and EFTC Corporation, a Colorado corporation (EFTC"), as amended by that certain First Amendment to Master Agreement Regarding Asset Purchase and Related Transactions and that certain Second Amendment to Master Agreement Regarding Asset Purchase and Related Transactions. The parties hereby agree to amend the Master Agreement as follows: 1. The parties acknowledge and agree that, based on the estimated valuation of the assets to transfer to EFTC on the AES Asset Transfer Date, a filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "Hart-Scott Act") is required prior to the AES Asset Transfer Date. 2. Each party agrees to promptly file a notification and report in accordance with the Hart-Scott Act and shall use its best good faith efforts to complete the Federal Government's antitrust review of the transactions contemplated herein under the Hart-Scott Act which includes promptly furnishing any additional information requested of it under the Hart-Scott Act. 3. As a condition precedent to the AES Asset Transfer, the parties and any other person (as defined in the Hart-Scott Act and the rules and regulations thereunder) required in connection with the acquisition or the other transactions contemplated by this Agreement to file a Notification and Report Form for Certain Mergers and Acquisitions with the Department of Justice and Federal Trade Commission pursuant to Title II of the Hart-Scott Act shall have made such filing and the applicable waiting period with respect to each such filing (including any extension thereof by reason of a request for additional information) shall have expired or been terminated. 4. AES and Avionics on the one hand and EFTC on the other hand agree to share equally the cost of the filing fee under the Hart-Scott Act. This Amendment shall not otherwise change, amend, limit or affect any other provision of the Agreement, which shall continue in full force and effect. Any capitalized terms used in this Agreement which are not defined herein shall have the meanings ascribed to them under the Master Agreement. 1 2 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above. AlliedSignal Avionics, Inc., a Kansas corporation By: /s/ W. Tim Bibens ---------------------------------------- W. Tim Bibens Title: Subcontracts Program Manager AlliedSignal Inc., a Delaware corporation, operating through its Aerospace Equipment Systems Business Unit By: /s/ John DeRusso ---------------------------------------- John DeRusso Title: Materials Program Manager EFTC Corporation, a Colorado corporation By: /s/ Stuart Fuhlendorf ---------------------------------------- Stuart Fuhlendorf Title: Chief Financial Officer 2 EX-10.13.2 3 AMENDED & RESTATED LICENSE AGREEMENT 1 AMENDED AND RESTATED LICENSE AGREEMENT THIS AMENDED AND RESTATED LICENSE AGREEMENT dated September 5, 1997 is entered into by and between ALLIEDSIGNAL TECHNOLOGIES INC., an Arizona corporation, with offices at 8440 South Hardy Drive, Tempe, AZ 85284 (hereinafter referred to as Licensor), and EFTC CORPORATION, a Colorado corporation with offices at 7251 West 4th Street, Greeley, CO 80634, (hereinafter referred to as Licensee) amends and restates in its entirety that certain LICENSE AGREEMENT between Licensor and Licensee dated August 4, 1997 and is intended to be effective retroactively to the Effective Date set out below. RECITALS WHEREAS, the Licensee and AlliedSignal Inc., acting through its Aerospace Equipment Systems business ("AES") and AlliedSignal Avionics Inc. ("Avionics") have entered into a certain Master Agreement Regarding Asset Purchase and Related Transactions dated July 15, 1997, as amended ( the "Master Agreement"), whereby AES and Avionics agreed to transfer certain assets and employees relating to the manufacture of electronic assemblies to Licensee; and WHEREAS, in connection with the Master Agreement, Licensee agreed to manufacture electronic assemblies for AES, Avionics and their affiliated entities; and WHEREAS, Licensor is the owner of certain intellectual property rights relating to the manufacture of electronic assemblies by AES and Avionics, which rights Licensor has licensed to AES and Avionics; and WHEREAS, Licensee desires to acquire a license to this intellectual property under the terms and conditions that follow for the purpose of manufacturing electronic assemblies for AES, Avionics, their affiliated entities, and others. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: 1. Definitions 1.1 The term "AlliedSignal" as used herein means AlliedSignal Inc., any division or subsidiary thereof, including but not limited to AES and Avionics, and any company directly or indirectly owned or controlled by any one or more of the foregoing. 1.2 The term "AES Asset Transfer Date" as used herein means the Asset Transfer Date as set forth in Section 9.1.3 of the "Master Agreement". 1 2 1.3 The term "Closing Date" as used herein means the Closing Date, for Avionics and AES as applicable, as set forth in Sections 9.1.1 and 9.1.2 of the "Master Agreement". 1.4 The term "Gross Revenue" as used herein means all invoice amounts received by Licensee on all sales and leases of product and parts therefor, provided, however, that with respect to product and parts therefor which are (a) sold or leased by Licensee to any customer other than AlliedSignal, having a special relationship with or enjoying a favored position for dealing with Licensee as a result of which invoice prices billed by Licensee are less than the invoice prices billed to ordinary customers, (b) sold or leased by Licensee, to any customer other than AlliedSignal, for other than monetary payments, (c) used rather than sold or leased by Licensee, or (d) shipped or delivered by Licensee to a party other than AlliedSignal and Licensee does not bill such party, the term "Gross Revenue" means an amount equal to the most recent invoice price billed by Licensee for such product and parts therefor to ordinary customers. 1.5 The term "Licensee Subleased Facility" as used herein means the facility subleased by Licensee from Avionics as set forth in Section 7.1 of the "Master Agreement". 1.6 The term "Licensed Product" as used herein means an electronic assembly made or manufactured for AlliedSignal using Technical Data or Technical Information. 1.7 The term "Licensee Tucson Facility" as used herein means the Licensee operated facility as set forth in Section 7.2 of the "Master Agreement". 1.8 The term "Technical Data" as used herein means information and data in written, graphic, or machine readable form and source code and supporting documentation to the extent available received from Licensor, AES or Avionics including such information and data contained in the documents and software listed on Schedule A for AES and Schedule B for Avionics. 1.9 The term "Technical Information" means all know-how that Licensee receives through transferred AES and Avionics employees or through technical assistance provided by Licensor, AES or Avionics. 2. Licenses Granted 2.1 Licensor grants to Licensee, under all applicable intellectual property rights held by Licensor, a nonexclusive, irrevocable, worldwide license to use Technical Data and Technical Information to manufacture, have manufactured, use and sell electronic assemblies and parts therefor. 2 3 2.2 All right, title and interest in and to Technical Data and Technical Information shall remain in Licensor. 2.3 Licensee may copy, alter, modify, and merge with its own technology Technical Data and Technical Information, subject to the other terms and conditions of this License Agreement including the obligation to pay the compensation of Section 5. 2.4 If any copyright or proprietary rights notice appears on Technical Data, Licensee agrees to the extent reasonably practical to include such notice on any modifications of Technical Data made by Licensee under Section 2.3 of this License Agreement. 2.5 No license, either express or implied, is granted by Licensor to Licensee hereunder with respect to any patent or information except as specifically stated above. 2.6 No license, either express or implied, is granted hereunder to use any trademark, or logo, or trade or product name of Licensor or AlliedSignal Inc., or Avionics, or any word or mark similar thereto. 2.7 Licensee may indicate that Licensed Products and parts therefor are made under license from Licensor by a suitable legend, if the form of such legend and the extent of Licensee's use thereof have received prior written approval of Licensor. Licensor may amend or revoke prior approvals to use such legends at any time during the term of this License Agreement, and all rights to use such legends shall terminate with this License Agreement. 2.8 Nothing contained in this License Agreement shall constitute, or be construed to be, a limitation or restriction upon any right otherwise possessed by Licensee or Licensor, or AlliedSignal, or Avionics to make, use or sell any product, or part therefor, in any country, provided, however, that the payments required by this License Agreement to be made by Licensee to Licensor with respect to sales and other dispositions of Licensed Product and parts therefor shall not be deemed to constitute such a limitation or restriction. 3. Delivery of Technical Data 3.1 Within thirty (30) days of the Avionic's Personal Property Transfer Date, Licensor shall cause Avionics to deliver to Licensee one copy each of the documents and software, in machine readable form and source code and supporting documentation to the extent available, listed on Schedule B. 3.2 On or before the AES Asset Transfer Date, Licensor shall cause AES to deliver to Licensee one copy each of the documents and software, in machine 3 4 readable form and source code and supporting documentation to the extent available, listed on Schedule A. . 3.3 Licensor agrees to provide such additional information as may be reasonably necessary or desirable for Licensee to continue the business of manufacturing electronic assemblies as previously conducted by AES and Avionics, provided such additional information is in existence and in a tangible medium as of the Effective Date. 4. Warranty 4.1 Licensor warrants that the Technical Information and Technical Data provided to Licensee hereunder is the same as that which is used by AES and Avionics respectfully as of the Effective Date in their manufacture of electronic assemblies, and that to the best of Licensor's knowledge Licensee's use of Technical Data and Technical Information in a manner previously utilized by AES and Avionics prior to the Effective Date hereof will not violate any third party rights in existence as of the Effective Date, but Licensor does not make any other warranty, either expressed or implied, including warranties of merchantability and fitness for a particular purpose and shall have no liability with respect to the Technical Information or Technical Data, or the use thereof; nor does Licensor assume any responsibility or make any warranty with respect to electronic assemblies or Licensed Product, or parts therefor, manufactured, sold or used under this License Agreement. 4.2 With respect to electronic assemblies manufactured, sold, or used under this License Agreement that are not Licensed Product, Licensee shall hold Licensor harmless from any patent infringement liability and product liability arising from such electronic assemblies and shall maintain appropriate product liability insurance to cover such electronic assemblies. 4.3 With respect to Licensed Product, all indemnity shall be governed by the purchase order under which the Licensed Product was ordered from Licensee. 4.4 If a part of the data delivered hereunder does not meet the warranty specified above, Licensor will, upon discovery of such discrepancy or upon notification thereof by Licensee correct the discrepancy in that part of the data by supplying amended or additional data. 4.5 All Technical Information and Technical Data is supplied in confidence solely for the use of Licensee under this License Agreement and Licensee agrees to handle the Technical Information and Technical Data in the same manner that it handles its own proprietary information, but shall use at least reasonable care in keeping the Technical Information and Technical Data confidential. Licensee agrees: (a) not to use or permit use of any Technical Data or Technical Information except in accordance with the licenses herein granted; and (b) not to disclose any Technical Data or Technical Information to others (including affiliates of Licensee) except to the extent 4 5 such disclosure is reasonably necessary in connection with Licensee's operations under this License Agreement and only then if such disclosure is subject to the same limitations on the recipient as on Licensee hereunder; and except as required by law or legal process. The obligations under this Section 4.5 shall not apply to (i) information already known to Licensee prior to receipt from Licensor; (ii) information in the public domain including information that can be reverse engineered from a Licensed Product; (iii) information received from a third-party without similar restrictions; or (iv) information developed independently by or for Licensee. 5. Compensation 5.1. Licensee shall pay to Licensor a nonrefundable, noncreditable down payment of one million two hundred fifty thousand dollars ($1,250,000.00) to be paid pursuant to the terms of the Master Agreement. 5.2 For a period starting with the Effective Date and ending on December 31, 2001, for all electronic assemblies and parts therefor made for a customer other than AlliedSignal at the Licensee Subleased Facility or the Licensee Tucson Facility, or at any successor Licensee facility within fifty (50) miles of either of these Facilities, Licensee shall pay to Licensor a running royalty of one percent (1.0%) of Gross Revenue for all such electronic assemblies to be paid on or before the twentieth (20th) day of the month following the calendar quarter covered thereby. 5.3 With respect to customers other than AlliedSignal, along with the quarterly running royalty payments under Section 5.2, Licensee shall provide to Licensor a report showing for the period covered by the payment: (a) a list of all separately identifiable types of electronic assemblies delivered, leased or otherwise disposed of; (b) the quantity of such electronic assemblies of each type sold, leased or otherwise disposed of; (c) the Gross Revenue for electronic assemblies of each type and, (d) the quantities of, and Gross Revenue for, parts sold, leased or otherwise disposed of, identified by the electronic assembly type, and (e) the derivation of the amount payable to Licensor from the foregoing information. Licensor agrees to keep such reports confidential even as to other AlliedSignal businesses, unless otherwise requested by Licensee. 5.4 In addition to the obligation to pay royalties under Section 5.2, Licensee shall pay such royalties for all electronic assemblies shipped to customers other than AlliedSignal by December 31, 2001 for which payment has not been received by Licensor. This payment shall be made on January 20, 2002. The parties agree that the licenses granted by Licensor to Licensee hereunder will be fully-paid upon receipt and acceptance by Licensor of all royalty payments due by January 20, 2002 under this License Agreement, and a final corresponding report. 5.5. Licensee shall pay interest to Licensor at a rate of two percent (2%) over the prime per annum interest rate quoted by Chase Manhattan Bank on any and all amounts that are at any time overdue and payable to Licensor under this License 5 6 Agreement, such interest being calculated on each such overdue amount from the date when such amount became due to the date of actual payment thereof. The payment of such interest shall not replace any of Licensor's other rights under this License Agreement resulting from Licensee's default by failure to pay any amounts due hereunder. 5.6 All amounts payable to Licensor under this License Agreement are to be paid in U.S.A. currency. 5.7 Licensee shall keep such records that will enable, under generally accepted accounting principles, the royalties due hereunder to be accurately determined. Licensor shall have the right to select an independent representative or accountant to inspect Licensee's records once a year on reasonable notice and during regular business hours to verify Licensee's reports and payments. Such inspections shall be at the expense of Licensor unless a variation or error exceeding Ten Thousand U.S. Dollars (U.S. $10,000.00) of royalty due, is discovered in the course of the inspection, whereupon, Licensee shall reimburse Licensor for the expense. 5.8 All payments to be made to Licensor shall be made by wire transfer to: Mellon Bank Pittsburgh, PA ABA 043000261 AlliedSignal Technologies Inc. Account Number 009-7594 Advice-AE-O-144 5.9 In the event that Licensee is terminated for default under the Long Term Agreement, or any purchase order thereunder, between AlliedSignal and Licensee relating to Licensed Product and upon written request by Licensor, Licensee shall provide to Licensor any and all improvements and modifications Licensee has made to Technical Information and Technical Data relating to Licensee's manufacture of Licensed Product for AES and Avionics and Licensor shall have a royalty free, irrevocable license, with right to sublicense to AlliedSignal and to AlliedSignal Avionics Inc., to use all of these improvements and modifications strictly to make or have made Licensed Product for AlliedSignal. In the event Licensor exercises rights pursuant to this Section 5.10, any remaining obligations of Licensee under Section 5 shall automatically terminate. Licensor agrees that its obligations with respect to all information provided under this Section 5.10 shall be commensurate with Licensee's obligations under Section 4.5 hereof. 6. Term and Termination 6.1 This License Agreement is effective as of the Effective Date and shall expire on December 31, 2003. 6 7 6.2 Neither party can terminate this License Agreement. Each party's sole and exclusive remedy for any alleged breach of this License Agreement shall be an action for monetary damages and/or specific performance, except that a party may seek injunctive relief for breach of Section 4.3 of this License Agreement. Failure on the part of either party to notify the other party of any violation of this License Agreement shall not constitute a waiver of that party's right to pursue the stipulated remedies hereof because of such violation or any like or different subsequent violation. 6.3 Expiration of this License Agreement shall not excuse Licensee from paying Licensor all royalties earned pursuant to Article 5 of this License Agreement prior to expiration, and all royalties thus earned, but unpaid, shall immediately become due and payable. 6.4 Licensor agrees that the licenses granted to Licensee hereunder shall not, under any circumstances, be subject to revocation or termination for any reason by Licensor. 7. Notices 7.1 Any notice or report under this License Agreement shall be deemed given when sent registered mail, telex, facsimile, or telegram to the parties hereto at the following addresses: To Licensor: To Licensee: Gaylord P. Haas, Jr. August Bruehlman Vice President Chief Administrative Officer AlliedSignal Technologies Inc. EFTC Corporation 8440 South Hardy Drive 7251 West 4th Street Tempe, Arizona 85284 Greeley, Colorado 80634 Either party may, at any time, substitute for its previous record address any other address by giving written notice of the substitution. 8. Assignment 8.1 This License Agreement may not be assigned by Licensee and the Technical Data and Technical Information may not be sublicensed, in either case without the prior written consent of Licensor which shall not be unreasonably withheld; provided however, that Licensee may assign this License Agreement without prior consent to a wholly owned subsidiary of Licensee, to a purchaser of all or substantially all assets to which this License Agreement relates or to a corporation surviving Licensee in the event of a merger. 9. Entire Agreement 7 8 9.1 This License Agreement shall be binding upon and inure to the benefit of the parties hereto and the successors to substantially the entire assets and business of the parties hereto, to which this License Agreement relates. This License Agreement is not for the benefit of any third person, firm, government, or corporation, and nothing herein contained shall be construed to create any rights to any third parties hereunder as a result of, or in connection with this License Agreement. This License Agreement contains the entire and only agreement between the parties, and supersedes all pre-existing agreements between such parties pertaining to the subject matter hereof; and any representation, promise, or condition in connection therewith not incorporated herein shall not be binding upon the party. No modification, renewal, extension or waiver of this License Agreement or any of the provisions herein contained shall be binding upon the party against whom enforcement of such modification, renewal, extension or waiver is sought, unless it is made in writing and signed on behalf of Licensor and Licensee by their respective representatives who have been delegated such authority. 10. Governing Law 10.1 This License Agreement shall be construed and interpreted in accordance with the laws of the State of Arizona, United States of America without regard to its provisions as to choice of law. 11. Severability of Provisions 11.1 If any of the provisions of this License Agreement shall be declared to be invalid or unenforceable by judicial or administrative decisions, any such provision shall be modified by negotiation to the extent necessary to avoid such violation and in a manner that does not affect the validity or enforceability of any other provisions of this License Agreement, which shall be valid and enforceable to the fullest extent of the law. 12. Waiver 12.1 Failure of either party to insist upon the strict performance of any provisions hereof or to exercise any right or remedy shall not be deemed a waiver of any right or remedy with respect to any existing or subsequent breach or default; the election by either party of any particular right or remedy shall not be deemed to exclude any other; and all rights and remedies of either party shall be cumulative. 13. Headings 13.1 The headings to the Sections of this License Agreement are inserted for convenience only and shall not be deemed a part hereof or affect the construction or interpretation of any provision. 14. Survivability 8 9 14.1 Sections 4.1, 4.3, 6.4 and Articles 2., 5., 7., 8., 10., 11., 12., and this Article 14. will survive the expiration of this License Agreement IN WITNESS HEREOF Licensor and Licensee have executed this License Agreement effective as of August 4, 1997 ("Effective Date"). ALLIEDSIGNAL TECHNOLOGIES INC. EFTC Corporation By: /s/ Gaylord P. Haas By: /s/ Stuart Fuhlendorf --------------------------- --------------------------- Name: Gaylord P. Haas Name: Stuart Fuhlendorf ------------------------- ------------------------- Title: Vice President Title: Chief Financial Officer ------------------------ ------------------------ 9 10 Schedule A Technical Data - AES 1. Work Instructions For Circuit Card Assemblies Current In Production as listed herein: 1 11 Schedule B Technical Data - Avionics 1 EX-10.18.2 4 PERSONAL PROPERTY ASSET TRANSFER DATE 1 AGREEMENT TO EXTEND AVIONICS PERSONAL PROPERTY ASSET TRANSFER DATE DATED: AUGUST 29, 1997 AlliedSignal Avionics, Inc., a Kansas corporation ("Avionics"), AlliedSignal Inc., a Delaware corporation operating through its Aerospace Equipment Systems Business Unit ("AES"), and EFTC Corporation, a Colorado corporation ("EFTC") hereby agree to the following in connection with that certain Master Agreement Regarding Asset Purchase and Related Transactions dated July 15, 1997 (the "Master Agreement"), as amended by that certain First Amendment to Master Agreement Regarding Asset Purchase and Related Transactions and that certain Second Amendment to Master Agreement Regarding Asset Purchase and Related Transactions ("Second Amendment"): 1. Personal Property Transfer. The Avionics Personal Property Transfer Date shall be extended until September 5, 1997, unless otherwise agreed to in writing by the parties, and all other obligations to occur upon the Avionics Personal Property Transfer Date are extended until such date, unless otherwise agreed to in writing by the parties. 2. Use of Personal Property. The short term Equipment License between Avionics and EFTC shall also be extended until September 5, 1997 unless otherwise agreed to in writing by the parties. 3. Intellectual Property License. The License Agreement between AlliedSignal Technologies Inc. and EFTC with respect to the Avionics Technical Data and Technical Information, as defined therein, will not be effective until the Avionics Personal Property Transfer Date, as extended, including, but not limited to, the provisions of such agreement regarding the right of EFTC to use the Avionics Technical Data and Technical Information and the payment obligations of EFTC with respect thereto. In the interim, AlliedSignal, Inc. will cause AlliedSignal Technologies Inc. to grant to EFTC a temporary license to use the Avionics Technical Data and Technical Information for the limited purpose of performing its obligations under the Master Agreement at the Ft. Lauderdale, Florida site. 4. Deferment of Payment to be made August 29, 1997. The parties agree that the deferred portion of the purchase price for the Avionics Raw Materials Inventory and Avionics Work In Process Inventory payable on August 29, 1997, shall be deferred until and payable on the Avionics Personal Property Transfer Date, as extended. 1 2 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above. AlliedSignal Avionics, Inc., a Kansas corporation By: /s/ W. Tim Bibens ---------------------------------------- W. Tim Bibens Title: Subcontracts Program Manager AlliedSignal Inc., a Delaware corporation, operating through its Aerospace Equipment Systems Business Unit By: /s/ John DeRusso ---------------------------------------- John DeRusso Title: Materials Program Manager EFTC Corporation, a Colorado corporation By: /s/ Augie P. Bruehlman ---------------------------------------- Augie P. Bruehlman Title: Chief Administrative Officer AlliedSignal Technologies, Inc., By: /s/ Gaylord P. Haas ---------------------------------------- Gaylord P. Haas Title: Vice President 2 EX-10.19 5 ACCOUNTS PAYABLE SERVICE AGREEMENT 1 ACCOUNTS PAYABLE SERVICE AGREEMENT THIS ACCOUNTS PAYABLE SERVICE AGREEMENT (the "Agreement") dated as of August 11, 1997 is entered into by and between AlliedSignal Avionics Inc., a Kansas corporation ("Avionics") and EFTC Corporation, a Colorado corporation ("EFTC") with reference to the following facts: WHEREAS, Avionics, AlliedSignal, Inc. operating through its Aerospace Equipment Systems Business Unit, and EFTC have entered into a MASTER AGREEMENT REGARDING ASSET PURCHASE AND RELATED TRANSACTIONS dated July 15, 1997, as amended, providing, in part, for the sale of certain assets related to the manufacture of electronic circuit card assemblies to Avionics (the "Master Agreement"); and WHEREAS, Avionics and EFTC have entered into a LONG TERM PURCHASE AGREEMENT dated July 15, 1997 (LTA no. R20046) in which EFTC agrees to provide electronic circuit card assemblies to Avionics; WHEREAS, in order to provide for an orderly transition of the business sold, Avionics and EFTC entered into a TRANSITION SERVICES AGREEMENT dated August 11, 1997 providing for certain transition services to be provided to EFTC by Avionics and providing for the use of Avionics material resources planning system ("Mac Pac") for a transitional period; WHEREAS, in order for Mac Pac to function properly, purchase orders for materials and related invoice payments will need to be processed through Mac Pac and the parties desire to enter into this Agreement to set forth the terms and conditions by which Avionics will provide support to EFTC in this regard. NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Accounts Payable Service. This Agreement applies to the processing of orders for materials required in connection with the manufacture of goods for Avionics at the EFTC Ft. Lauderdale site only and for no other purpose. The process by which materials will be ordered and paid for during the Term is as follows: 1.1 Mac Pac will generate order requests based on production forecast, stock in hand and projected lead times; 1.2 EFTC will collect such order requests and promptly process them and place orders as directed by Mac Pac through the Mac Pac system in coordination with Avionics; 1.3 Avionics will invoice EFTC for the cost of the materials at actual cost and such payments are due net 45 days from EFTC's receipt of invoice; 1 2 1.4 Avionics will timely pay the material vendor based on the information provided through the Mac Pac system. 2. Term. The term of this Agreement will commence as of the date hereof and continue for such time as EFTC continues to have the use of the Mac Pac system under the Transition Services Agreement. The parties acknowledge and agree that they intend for such services to extend for up to nine months from the date hereof. This agreement may be extended by mutual agreement in writing signed by both parties. 3. Invoicing. Avionics will invoice EFTC for material utilized by the EFTC Florida operations on a daily basis. The invoice is triggered by receipt of a part into Procurement D (purchasing module within Mac Pac). The invoice will be generated based on a report generated from MacPac. The invoice will include the following information: purchase order number, part number, line item number, quantity received, unit price, extended price, date received, vendor name, vendor number and payment terms. Invoices will be submitted to the following address: EFTC Corporation 7251 West 4th Street Greeley, CO 80631 Customer Code 086015 Attention Olivia Rengal 4. Payment Terms. All payments are due net 45 days from EFTC's receipt of invoice. Remittance shall be paid by check and sent to the following lock box location: AlliedSignal Aerospace PO Box 93439 Chicago, IL 60673-3439 The invoice number must be indicated on the remittance check. In the event EFTC does not timely pay such invoices, Avionics may at its discretion either: (i) require EFTC to pay for all materials ordered through the Mac Pac system in advance or (ii) offset amounts due from EFTC against any amounts owed to EFTC. 5. Limitations on Part Numbers. For the period of time that EFTC is operating within MacPac no additional part numbers shall be added into the system unless the part number is an Avionics part number required for Avionics assemblies. 6. Limitation of Liability. Avionics is providing this service as a convenience to EFTC for a limited period in connection with the transition of operations and Avionics is not in the business of providing such services to third parties. Avionics makes no representation or warranty of any kind regarding the Mac Pac system or any data contained in the Mac Pac system and the provisions of this Agreement will not be construed as such. EFTC agrees not to hold Avionics responsible for any particular result or for the failure of the system to operate as planned. EFTC will indemnify, 2 3 defend and hold Avionics harmless from and against any and all claims against Avionics arising from or in connection with the services it is performing hereunder. EFTC acknowledges and agrees that it is responsible for the payment of the materials ordered and that Avionics is merely acting as a paying agent of EFTC and does not have privity of contract or responsibility to the material vendors. 7. Arbitration. 7.1 Any controversy, claim or dispute arising out of or relating to this Agreement or the transactions contemplated hereby or the breach, termination, enforcement, interpretation or validity hereof, including the determination of the scope or applicability of this agreement to arbitrate (collectively "Dispute"), shall be determined by arbitration in Phoenix, Arizona before a sole arbitrator. The following shall apply to any such arbitration: 7.2 The arbitration shall be administered by the American Arbitration Association ("AAA") pursuant to its Commercial Rules and Supplementary Procedures for Large, Complex Disputes. 7.3 The arbitrator shall not be an officer, employee, director or affiliate of any party hereto or of its affiliates. If the parties are unable to agree on an arbitrator within 30 days of the filing of the Demand for Arbitration, an arbitrator shall be selected pursuant to the rules and procedures of the AAA. 7.4 Any party may seek from any court interim or provisional relief that is necessary to protect the rights or property of that party, pending the appointment of the arbitrator or pending the arbitrator's determination of the merits of the controversy. 7.5 The parties shall bear their own costs and expenses, including attorneys' fees, but the arbitrator may, in the award, allocate all of the administrative costs of the arbitration, including the fees of the arbitrator and mediator, against the party who did not prevail. 7.6 The arbitration award shall be in writing and shall specify the factual and legal bases for the award. Judgment on the award may be entered in any court having jurisdiction. 8 Miscellaneous. 8.1 Notices. Whenever notice is to be served hereunder, service shall be made personally, by facsimile transmission or by overnight courier. All delivery charges shall be prepaid by the party sending the notice. Notice shall be effective only upon receipt by the party being served. All notices shall be sent to the addresses described in the Master Agreement. 3 4 8.2 Entire Agreement. This Agreement, the Master Agreement (including any documents or agreements contemplated thereby) constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all prior communications, representations, agreements and understandings between the parties hereto, whether oral or written. 8.3 Construction. When the context so requires, references herein to the singular number include the plural and vice versa and pronouns in the masculine or neuter gender include the feminine. The headings contained in this Agreement and the Schedules hereto are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. 8.4 Assignment. This Agreement, and all rights and obligations hereunder, shall not be assignable by any party in whole or in part, except that (a) either party may assign this Agreement and its rights and obligations hereunder with the other's prior written consent, (b) either party may assign this Agreement without the prior written consent of the other party to a subsidiary, parent or affiliated entity, (c) Avionics may perform any of the services required hereunder through a subsidiary or affiliate of Avionics without the prior written consent of EFTC, and (d) Avionics may subcontract any of the services required of it hereunder to any party Avionics contracts with for services for its own account now or in the future without the prior written consent of EFTC. For any such assignment, EFTC or Avionics, as the case may be, shall remain obligated hereunder unless the other party shall consent otherwise. Any purported assignment inconsistent with this Section 8.4 shall be void and of no effect. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. 8.5 Amendment. This Agreement may be amended only by written agreement duly executed by representatives of both the parties hereto. 4 5 8.6 Applicable Law. This Agreement shall be construed in accordance with the laws of the State of Florida, disregarding its conflicts of laws principles which may require the application of the laws of another jurisdiction. 8.7 No Third Party Rights. This Agreement is not intended and shall not be construed to create any rights in any parties other than Avionics and EFTC and no other person shall assert any rights as a third party beneficiary hereunder. 8.8 Waivers. Any waiver of rights hereunder must be set forth in writing. A waiver of any breach or failure to enforce any of the terms or conditions of this Agreement shall not in any way affect, limit or waive a party's rights at any time to enforce strict compliance thereafter with every term and condition of this Agreement. 8.9 Independent Contractor. The parties intend to create an independent contractor relationship and nothing contained in this Agreement shall be construed to make either Avionics or EFTC a partner, joint venturer, principal, agent or employee of the other. Neither party shall have any right, power or authority, express or implied, to bind the other. 8.10 Force Majeure. If a party is unable to meet its obligations under this Agreement as a result of flood, earthquake, storm, other act of God, fire, strike, war, riot, embargo, act of government or governmental agency or any other similar cause beyond the reasonable control of such party ("Force Majeure"), the obligations of the parties hereto shall be suspended for the duration of the Force Majeure. The party claiming Force Majeure shall, within five (5) days from the date of disability, excluding Saturdays, Sundays and holidays, notify the other party of the existence of a Force Majeure condition and will similarly notify the other party within a period of five (5) days, excluding Saturdays, Sundays and holidays, when the Force Majeure has ended. IN WITNESS WHEREOF, Avionics and EFTC have duly executed and delivered this Agreement as of the date first written above. ALLIEDSIGNAL AVIONICS, INC., a Kansas corporation By: /s/ W. Tim Bibens ---------------------------- Title: Subcontracts Program Manager EFTC CORPORATION, a Colorado corporation By: /s/ Stuart Fuhlendorf ---------------------------- Stuart Fuhlendorf Title: Chief Financial Officer 5 EX-10.27 6 FORM OF WARRANTS TO PURCHASE 1 [FORM OF WARRANT] THIS WARRANT IS NOT AN ACCOUNT OR DEPOSIT AND WILL NOT BE INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY. NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OR CONVERSION OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE. NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OR CONVERSION OF THIS WARRANT MAY BE SOLD, TRANSFERRED, HYPOTHECATED, ASSIGNED, OFFERED FOR SALE OR OTHERWISE DISPOSED OF UNLESS REGISTERED PURSUANT TO SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE, AS ESTABLISHED TO THE REASONABLE SATISFACTION OF THE COMPANY, BY OPINION OF COUNSEL OR OTHERWISE. March 10, 1994 CONVERTIBLE STOCK PURCHASE WARRANT To Subscribe for and Purchase Common Stock of ELECTRONIC FAB TECHNOLOGY CORP. VOID AFTER MARCH 9, 1999 THIS CERTIFIES that, for value received, [name and address] or registered assigns, is entitled to subscribe for and purchase from Electronic Fab Technology Corp., a Colorado corporation whose offices are located at 7251 West 4th Street, Greeley, Colorado 80634 (the "Company"), at the price of $9.00 per share (as from time to time adjusted as provided below, the "Warrant Price"), at any time and from time to time but not earlier than March 10, 1995 (the "Commencement Date") or later than March 9, 1999 (the "Expiration Date"), up to [number of shares] fully paid and nonassessable shares of Common Stock, $.01 par value, of the Company ("Common Stock"), upon the terms and conditions hereinafter set forth. Section 1. Exercise of Warrant (a) Manner of Exercise Subject to the provisions of Section 11 hereof, this Warrant may be exercised, at any time and from time to time, in whole or in part, beginning on the Commencement Date and ending at 5:00 PM in Denver, Colorado on the Expiration Date, by the holder hereof (hereinafter referred to as the "Warrantholder"), by completing and signing the subscription form attached hereto, surrendering this Warrant at the office of the Company in Denver, Colorado (or at such other agency or office of the Company in the United States as it may designate by notice in writing to the Warrantholder at the address of the Warrantholder appearing on the books of the Company), and tendering to the Company the Warrant Price for each share being purchased by certified or official bank check made payable to the Company. At 5:01 p.m. on the Expiration Date, this Warrant, to the extent not previously exercised or converted, shall become void, and all rights to acquire shares of Common Stock hereunder shall thereupon cease. A certificate or certificates for the shares of Common Stock purchased upon exercise, registered in the name of the Warrantholder, shall be delivered to the Warrantholder within a reasonable time, not exceeding ten business days, after this Warrant shall have been so exercised; and, unless this Warrant has expired, a new Warrant covering the number of shares (except a remaining fractional share of common Stock), if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the Warrantholder within such time. The Warrantholder shall for all purposes be deemed to have become the holder of record of the number of shares of Common Stock for which this Warrant has been properly exercised from the date on which this Warrant was surrendered and payment of the Warrant Price was made as provided above, irrespective of the date of delivery of such certificate or certificates, except that, if the date of 2 such surrender and payment is a date on which the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open. The Company will at no time close its transfer books against the transfer of the shares of Common Stock issued or issuable upon the exercise of this Warrant in any manner which materially interferes with the timely exercise of this Warrant. (B) FRACTIONAL SHARES No fractional shares shall be issued upon exercise of this Warrant. If any fractional interest in a share of Common Stock would, except for the provisions of this Section 1, be delivered upon any such exercise, the Company shall pay to the Warrantholder an amount in case equal to the current fair market value of such fractional interest as determined in good faith by the Board of Directors of the Company. (C) ISSUE TAX The issuance of certificates for shares of Common Stock upon exercise of this Warrant shall be made without a charge to the Warrantholder for any issuance tax in respect thereof, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the Warrantholder. SECTION 2. ADJUSTMENT OF NUMBER OF SHARES Upon each adjustment of the Warrant Price for any stock dividend or distribution or any subdivision or combination of the outstanding shares of the Common Stock as provided in Section 3, the Warrantholder shall thereafter be entitled to purchase, at the Warrant Price resulting from such adjustment, the number of shares (calculated to the nearest tenth of a share) obtained by multiplying the Warrant Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment and dividing the product thereof by the Warrant Price resulting from such adjustment. SECTION 3. ADJUSTMENTS OF WARRANT PRICE (a) DIVIDENDS In case the Company shall declare a dividend or made any other distribution upon any stock of the Company payable in Common Stock the Common Stock so distributed shall be deemed to have been issued in a subdivision of outstanding shares as provided in Section 3(b). In case the Company shall declare a dividend or make any other distribution upon any stock of the Company payable in options to purchase Common Stock ("Options") or securities convertible into or exchangeable for Common Stock ("Convertible Securities") or other securities, the Options, Convertible Securities or other securities so distributed, together with the shares of Common Stock with respect to which they were distributed, shall be deemed to have been issued in a reclassification of outstanding shares as provided in Section 3(c). (b) SUBDIVISION OR COMBINATION OF STOCK In case the Company shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares, the Warrant Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Common Stock of the Company shall be combined into a smaller number of shares, the Warrant Price in effect immediately prior to such combination shall be proportionately increased. (c) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE If any capital reorganization or reclassification of the capital stock of the Company or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all the Company's assets to another corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive securities (including Common Stock) or the property (including cash) with respect to or in exchange for Common Stock, then as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provisions shall be made whereby the Warrantholder shall thereafter have the right to receive upon the exercise of this Warrant, in addition to or in lieu of (as the case may be) the shares of Common Stock of the Company immediately theretofore issuable upon such exercise, such securities (including Common Stock) or other property (including cash) as may be -2- 3 issued or paid in such reorganization, reclassification, consolidation or merger or as a result of such sale with respect to or in exchange for a number of outstanding shares of Common Stock equal to the number of shares of Common Stock immediately theretofore so issuable had such reorganization, reclassification, consolidation, merger or sale not taken place, and in any such case appropriate provision shall be made so that the provisions hereof (including, without limitation provisions, for adjustments of the Warrant Price) shall thereafter be applicable, as nearly as may be, in relation to securities or other property thereafter deliverable upon the exercise of this Warrant. The Company will not effect any such consolidation or merger unless prior to the consummation thereof the resulting or surviving corporation (if other than the Company) in such consolidation or merger shall assume, by written instrument executed and mailed or delivered to the Warrantholder at the last address of the Warrantholder appearing on the books of the Company, the obligation to deliver to the Warrantholder, upon exercise or conversion of this Warrant, such securities or other assets as, in accordance with the foregoing provisions, the Warrantholder may be entitled to receive. (d) NOTICE OF ADJUSTMENT Upon any adjustment of the Warrant Price, the Company shall give written notice thereof, by first-class mail, postage prepaid, addressed to the Warrantholder at the address of the Warrantholder as shown on the books of the Company, which notice shall state the Warrant Price resulting from such adjustment and the number of shares of Common Stock issuable upon exercise of the Warrants following such adjustment, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Section 4. CONVERSION At any time and from time to time, beginning on the Commencement Date and ending at 5:00 p.m. in Denver, Colorado on the Expiration Date, this Warrant may by converted, in whole or in part, into a number of shares of fully paid and nonassessable shares of Common Stock equal to N in the formula: N = E - P X E ----- C where E = the total number of shares then issuable upon exercise of the Warrant or, if less than all of the Warrant is being converted, the number of shares then issuable upon exercise of the portion of the Warrant being converted: P = the Warrant Price in effect on the date on conversion; and C = the fair market value of the Common Stock on the date of conversion. The fair market value of the Common Stock on the date of conversion shall equal the average "reference price" of the Common Stock on the 10 trading days immediately preceding the date of conversion. The "reference price" of the Common Stock on each such trading day shall equal the closing price of the Common Stock on the principal exchange on which the Common Stock is then listed or, if the Common Stock is not then listed on an exchange, as reported by NASDAQ, or, if the closing price of the Common Stock is not then reported by NASDAQ, the average of the bid and asked prices of the Common Stock as reported by NASDAQ or, if the Common Stock is not then included on NASDAQ, by any other recognized source selected by the Company. In order to exercise the conversion right, the Warrantholder shall complete and sign the conversion form attached hereto and surrender this Warrant at the office of the Company in Greeley, Colorado (or at such other agency or office as the Company may have designated as provided in Section 1(a) and the date of such surrender shall for all purposes be the date of conversion. The Company shall deliver stock certificates (and a new Warrant, if applicable) to the Warrantholder, and the Warrantholder shall be deemed to have become the holder of record of the shares issuable upon conversion, at the times and in the manner provided in Section 1(a) as though this Warrant had been exercised for such shares on the date of conversion. If on the date of conversion the Warrantholder would be entitled to receive upon the exercise of this warrant, in addition to or in lieu of shares of Common Stock, securities (including Common Stock) or other property (including cash) as provided in Section 3(c), the provisions of this Section 4 shall apply, mutatis mutandis, to such securities or other property. -3- 4 SECTION 5. STOCK TO BE RESERVED The Company will at all times reserve and keep available out of its authorized Common Stock or its treasury shares, solely for the purpose of issuance upon the exercise or conversion of this Warrant as herewith provided, such number of shares of Common Stock as shall then be issuable upon the exercise of this Warrant. The Company covenants that all shares of Common Stock which shall be issued upon exercise or conversion of this Warrant shall be duly and validly issued and fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, and, without limiting the generality of the foregoing, the Company covenants that it will from time to time take all such action as may be required to ensure that the par value per share of the Common Stock is at all times equal to or less than the effective Warrant Price. The Company will use its reasonable best efforts to take all such action as may be necessary to ensure that all such shares of Common Stock may be so issued without violation of any applicable law or regulation, or of any requirements of any national securities exchange upon which the Common Stock of the Company may be listed the Company has not granted and will not grant any right of first refusal with respect to shares issuable upon exercise or conversion of this Warrant, and there are no preemptive rights associated with such shares. SECTION 6. REGISTRATION RIGHTS (a) CERTAIN DEFINITIONS As used in this Section 6, the following terms have the indicated meanings: "Holders" means the holders of the Registrable Securities, including the holders of Warrants to purchase Registrable Securities not then issued. "Majority of the Holders" means Holders of Warrants and Registrable Securities theretofore issued upon exercise or conversion of Warrants who own or have the right to acquire upon exercise or conversion of Warrants a majority of the Registrable Securities that would be outstanding if all of the outstanding Warrants were exercised in full on the date as of which the determination is being made. "Registrable Securities" means all shares of Common Stock issued or issuable upon exercise or conversion of the Warrants, all securities other than Common Stock issued or issuable upon exercise or conversion of the Warrants as a result of the provisions of Section 3 hereof, any additional shares of Common Stock or other securities received as a dividend or other distribution in respect of any such shares of Common Stock or other securities or in connection with any subdivision or combination thereof, and any other securities received in lieu of or in exchange for any such shares of Common Stock or other securities upon exercise or conversion of this Warrant or in connection with any capital reorganization, reclassification, merger or consolidation; provided, however, that any shares of Common Stock or other securities that have been sold pursuant to an effective registration statement pursuant to this Section or pursuant to Rule 144 of the Regulations or that are freely tradeable under the Securities Act and the Regulations, without limitation as to amount, shall cease to be Registrable Securities. "Regulation" means the rules and regulation of the SEC under the Securities Act. "SEC" means the United States Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Subject Stock" means the Registrable Securities that the Company is requested to include in a registration statement pursuant to Section 6(b) or 6(c). "Warrant" means this Warrant and any other warrants derived from the Warrants originally issued by the Company to DAIN BOSWORTH INCORPORATED and STEPHENS INC. on March 10, 1994 covering a total of 80,000 shares of Common Stock. (b) DEMAND REGISTRATION Subject to the qualifications set forth in this Section 6(b), a Majority of the Holders shall have the right, at any time and from time to time, but not earlier than the Commencement Date or later than the Expiration Date, to make -4- 5 written request of the Company to register under the Securities Act and the Regulations all or any portion of the Registrable Securities. Promptly after receipt of a request for registration pursuant to this Section 6(b), the Company shall notify all other Holders of such request and shall include in the registration effected hereunder such Registrable Securities as any other Holder shall request within 15 days after such notice. As soon as reasonably practicable after receipt of the original request, the Company shall file with the SEC a registration statement for the registration of the Subject Stock for sale to the public and use its reasonable best efforts to cause such registration statement to become effective. The Company is obligated to effect only one such registration pursuant to this Section 6(b). Notwithstanding the foregoing, if the Company shall furnish to each of the Holders a certificate signed by the Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors of the Company it would be significantly disadvantageous to the Company and its shareholders for such a registration statement to be filed (other than as a result of the time and expense involved in the registration process), the Company shall have the right to defer such filing for a period of not more than 90 days after receipt of the request to effect such a registration; provided, however, that the Company may not utilize this right more than once; and provided, further, that the Holder who made such written request to effect such registration, may, at any time in writing during the period of the deferral, withdraw the request for such registration and thereby preserve the right provided in this Section 6(b) to request such registration on a subsequent occasion. At any time prior to the effectiveness of a registration statement filed pursuant to this Section 6(b), the Holders of a majority of the Subject Shares covered thereby may instruct the Company to withdraw the registration statement. If following any such withdrawal, the Holders shall reimburse the Company for all out-of-pocket expenses incurred by it in connection with the registration, including expenses incurred in withdrawing the registration statement, the Holders shall have the right to require the Company to file a registration statement under this Section 6(b) on a subsequent occasion. In connection with any offering of Subject Stock registered pursuant to this Section 6(b), the Company agrees not to effect any public sale or distribution of Common Stock for the seven-day period preceding, and the 90-day period beginning on, the effective date of such registration. (c) PIGGYBACK REGISTRATION If, on or before the sixth anniversary of the Commencement Date, the Company proposes; to register any of its securities with the SEC under the Securities Act (other than pursuant to a request under Section 6(b) and other than on a registration statement of Form S-4, 5-8 or other form on which Registrable Securities cannot be registered for sale to the public), the Company shall promptly give written notice thereof to the Holders. If, within 15 days after receipt of such notice, any Holder submits a written request to the Company specifying the amount of Registrable Securities that the Holder wishes to include in such registration, the Company shall include the Registrable Securities specified in such request in such registration statement. The Holders shall be entitled to a total of two registrations pursuant to this Section 6(b). Notwithstanding the foregoing, if the registration statement that the Company proposes to file relates to an underwritten public offering of its securities, and if the lead underwriter in such offering advises the Company that, in its opinion, all of the shares of Subject Stock cannot reasonably be included in the offering without adversely affecting the Company's ability to sell the securities it proposes to offer, the number of shares of Subject Stock that the Company is obligated to include in such registration shall be reduced to the number of shares that the lead underwriter determines in good faith may be included in the offering. If the number of shares of Subject Stock included in the offering is so reduced, the reduction shall apply pro rata to all Holders who have requested that Registrable Securities be included in proportion to the numbers of shares specified in their respective requests. The Company shall not be required to complete any registration commenced under this Section 6(c) if it decides for any reason not to proceed with the offering of the securities it proposed to register. (d) HOLDBACK AGREEMENT The Holders agree not to effect any public sale or public distribution of equity securities of the Company, or any securities convertible into or exchangeable or exercisable for such securities, during the seven days prior to and the 90-day period beginning on the effective date of any underwritten registration in which Registrable Securities are included (except as part of such underwritten registration) unless the underwriters managing the registered public offering otherwise agree. -5- 6 (e) PREPARATION OF DOCUMENTS Prior to filing any registration statement, or any amendments or supplements thereto, which includes any Registrable Securities, the Company will furnish to counsel for each Holder who has included Registrable Securities in such registration statement copies of all documents proposed to be filed, which documents will be subject to the timely review of such counsel. Each Holder shall be responsible for all fees and expenses of its own counsel. The Company shall allow each such Holder to conduct any desired due diligence in connection with such review, subject to receipt of a reasonably satisfactory confidentiality agreement from such Holder. Each Holder agrees to provide all such information and materials and take all action as may be reasonably required in order to permit the Company to comply with all applicable requirements of the SEC and to obtain any desired acceleration of the effective date of such registration statement. (f) COVENANTS OF THE COMPANY In connection with any registration of Subject Stock pursuant to this Section 6, the Company shall (i) file such pre-effective amendments, provide such supplemental information to the SEC and take such other steps as may reasonably be required to cause the registration statement to become effective; (ii) furnish to each Holder of Subject Stock such number of copies of the registration statement and each amendment thereto, and of each preliminary and final prospectus and each supplement thereto, as such Holder may reasonably request in order to effect the offering and sale of the Subject Stock, but only while the Company shall be required under the provisions hereof to cause the Registration Statement to remain current; (iii) use its best efforts to qualify the Subject Stock covered by the registration statement for offer and sale under the blue sky or securities laws of such jurisdictions as any such Holder shall reasonably request; (iv) keep each such Holder advised in writing as to the status of each registration throughout the registration process; (v) use its best efforts to keep the registration statement current and effective for a period of at least 90 days after its original effective date; (vi) prepare and file with the SEC such post-effective amendments and supplements to the registration statement and the related prospectus as may be necessary to comply with the provisions of the Securities Act and the Regulations with respect to the disposition of all securities covered by the Registration Statement; (vii) use its best efforts to cause all Subject Stock to be listed on each securities exchange or automated quotation system on which the Common Stock is then listed; (viii) provide a transfer agent and registrar for all Subject Stock and a CUSIP number for all Subject Stock, in each case not later than the effective date of the registration; and (ix) otherwise comply with the Securities Act and the Regulations. (g) EXPENSES With respect to any registration of Subject Stock pursuant to this Section 6, except as otherwise expressly provided in Section 6(b), the Company will pay all expenses incident to the performance of its obligations hereunder, including, without limitation, all registration and filing fees, fees and expenses of compliance with state securities or blue sky laws, printing or copying expenses, messenger, telephone and delivery expenses, and fees and disbursements of its counsel and independent certified public accountants. Each Holder including Registrable Securities in any registration pursuant to this Section 6 will be responsible for all stock transfer taxes and underwriter's or broker's discounts and commissions relating to the Registrable Securities sold by such Holder, all internal management, personnel and administrative costs of such Holder and the fees and expenses of counsel, if any, retained by such Holder in connection with the registration. (h) INDEMNIFICATION The Company will indemnify, to the maximum extent permitted by law, each Holder who includes Registrable Securities in any registration pursuant to this Section 6, its officers and directors and each person who controls such Holder (within the meaning of the Securities Act) against all losses, claims, damages, liabilities and expenses (or actions, proceedings or settlements in respect thereof) arising out of any untrue or alleged untrue statement of a material fact contained in any registration statement, prospectus or preliminary prospectus (or any amendment or supplement thereto) in which Subject Stock is included pursuant to this Section 6, including any exhibits or materials incorporated by reference therein, or any omission or alleged omission to state therein a material fact required to be stated therein (in the case of a prospectus, in the light of the circumstances under which they were made) or necessary to make the statements therein not misleading, except insofar as the same are (i) caused by or contained in any information with respect to such Holder furnished in writing to the Company by such Holder for use therein or (ii) caused by the Holder's failure to deliver a copy of the prospectus or any amendments or supplements thereto after the Company has furnished the Holder with a sufficient number of copies thereof. In connection with an underwritten offering, the -6- 7 Company will indemnify the underwriters thereof, their officers and directors and each person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the holders of the Subject Stock. Each Holder who includes Registrable Securities in any registration pursuant to this Section 6 will indemnify, to the maximum extent permitted by law, the Company, its officers and directors, and each person who controls the Company (within the meaning of the Securities Act) against all losses, claims, damages, liabilities and expenses or actions, proceedings or settlements in respect thereof) arising out of (i) any untrue or alleged untrue statement of a material fact contained in any registration statement, prospectus or preliminary prospectus (or any amendment or supplement thereto) in which such Registrable Securities are included, including any exhibits or materials incorporated by reference therein, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in the light of the circumstances under which they were made) not misleading, insofar and only insofar as the same are caused by or contained in any information with respect to such Holder furnished in writing to the Company by such Holder for use therein or (ii) the Holder's failure to deliver a copy of the prospectus or any amendments or supplements thereto after the Company has furnished the Holder with a sufficient number of copies thereof. In connection with an underwritten offering, each such Holder will indemnify the underwriters thereof, their officers and directors and each person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the Company. Notwithstanding the foregoing, the liability of any Holder pursuant to this Section shall not exceed an amount equal to the proceeds of the sale of Registrable Securities sold pursuant to such registration statement that are received by or for the benefit of such Holder. Any person entitled to indemnification under this Section 6(b) will (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) unless in such indemnified party's reasonable judgment (based on written advice of counsel) a conflict of interest between such indemnified and indemnifying parties may exist or arise with respect to such claim which would prevent the same counsel from representing both parties, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party will not be responsible for attorneys' fees subsequently incurred by any indemnified party, but, if the counsel retained by the indemnifying party to represent the indemnified parties also represents the indemnifying party in the action, each indemnified party shall be entitled to participate in (but not control) the defense of the claim with counsel selected and compensated by it. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party (based on written advice of counsel) a conflict of interest may exist or arise between such indemnified party and any other of such indemnified parties with respect to such claim which would prevent the same counsel from representing both parties. If the indemnification provided for in this subsection 6(h) is legally unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses (or actions, proceedings or settlements in respect thereof) referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities, expenses, actions, proceedings or settlements in such proportion as is appropriate to reflect the relative fault of indemnifying party and the indemnified party. The relative fault of the indemnifying and indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, the indemnifying or the indemnified party or parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include any reasonable legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. The parties agree that it would not be just and equitable if contribution pursuant to this paragraph were determined by pro rata allocation or by any other method of allocation which does not take into account the relative fault of the parties as described above. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribute from any person who is not guilty of such fraudulent misrepresentation. The indemnification and contribution obligations set forth in this Section 6(h) shall survive the termination or expiration of this Warrant. -7- 8 (l) Limitation Notwithstanding any other provision hereof, the Company shall not be required to include in any registration hereunder the Registrable Securities of any Holder who could, at the time such registration becomes effective, sell all Registrable Securities owned by such Holder in a single three-month period pursuant to Rule 144 of the Regulations. SECTION 7. NOTICES OF RECORD DATES In the event that the Company shall propose (1) the establishment of a record date or the closing of the transfer books of the Company for the purpose of determining the holders of any class of securities who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any right to sell shares of stock of any class or any other right, or (2) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all the assets of the Company to or consolidation or merger of the Company with or into any other corporation or entity, or (3) any voluntary or involuntary dissolution, liquidation or winding-up of the Company, then and in each such event the Company will give notice to the Warrantholder specifying (i) the record date or the date such transfer books are to be closed for the purpose of such dividend, distribution or right and stating the amount and character of such dividend, distribution or right and (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock will be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up. Such notice shall be given at least 10 days and not more than 90 days prior to the date therein specified, and such notice shall state that the action in question or the record date is subject to the effectiveness of a registration statement under the Securities Act or to a favorable vote of stockholders, if either is required. SECTION 8. NO STOCKHOLDER RIGHTS OR LIABILITIES This Warrant shall not entitle the Warrantholder to any voting rights or other rights as a stockholder of the Company. No provision hereof, in the absence of affirmative action by the Warrantholder to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the Warrantholder shall give rise to any liability of such Warrantholder for the Warrant Price or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. SECTION 9. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT If this Warrant is lost, stolen, mutilated or destroyed, the Company shall, on such terms as to indemnity as it may reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed. Any such new Warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone. SECTION 10. NOTICES All notices, requests and other communications required or permitted to be given or made hereunder shall be in writing, and shall be personally delivered, or shall be sent by certified or registered mail, return receipt requested, postage prepaid, to the addresses of the parties given above or to such other address as either party shall designate in a written notice to the other party or by telecopy. Delivery by Federal Express or other recognized courier service shall be deemed personal delivery. Any notice shall be effective upon the earliest of receipt, the first business day after such notice is sent by Federal Express, the second business day after such notice is sent by mail in accordance with this -8- 9 Section 10 or, if telecopied, upon receipt by the sending telecopy machine of confirmation of receipt by the receiving telecopy machine. SECTION 11. RESTRICTIONS ON TRANSFER (a) SECURITIES LAW RESTRICTIONS Neither this Warrant nor the shares of Common Stock issuable upon the exercise or conversion of this Warrant have been registered under the Securities Act of 1933, as amended, or under the securities laws of any state. Neither this Warrant nor the shares of Common Stock issuable upon the exercise or conversion of this Warrant may be sold, transferred, hypothecated, assigned, offered for sale or otherwise disposed of unless registered pursuant to such Act and applicable state securities laws or unless an exemption from such registration is available, as established to the reasonable satisfaction of the Company, by opinion of counsel or otherwise. Certificates representing securities issued upon exercise or conversion of this Warrant shall bear a legend setting forth the foregoing restriction. (b) OTHER RESTRICTIONS This Warrant may not be sold, transferred, assigned, pledged or hypothecated by the Warrantholder prior to the Commencement Date except to or among (i) officers of Dain Bosworth Incorporated or its parent or of any successor to the business of Dain Bosworth Incorporated or its parent or (ii) officers of Stephens Inc. or its parent or any successor to the business of Stephens Inc. or its parent. The foregoing restriction shall not apply to any transfer by operation of law, by will, pursuant to the laws of descent and distribution, or by reason of any reorganization of the Warrantholder. (c) DIVISION OR COMBINATION OF CERTIFICATES This Warrant may be divided or combined, upon request made to the Company by the Warrantholder, into a certificate or certificates evidencing the right to acquire upon exercise or conversion the same aggregate number of shares of Common Stock. SECTION 12. AMENDMENTS AND WAIVERS This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. SECTION 13. SEVERABILITY If one or more provisions of this Warrant are held to be unenforceable under applicable law, such provision shall be excluded from this Warrant, and the balance of this Warrant shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. SECTION 14. GOVERNING LAW This Warrant shall be governed by and construed under the laws of the State of Colorado as applied to agreements among Colorado residents entered into and to be performed entirely within the State of Colorado. -9- 10 SECTION 15. HEADINGS The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect any of the terms hereof. IN WITNESS WHEREOF, ELECTRONIC FAB TECHNOLOGY CORP. has executed this Warrant on and as of the day and year first above written. ELECTRONIC FAB TECHNOLOGY CORP. By: /s/ KEN SCHULTZ --------------------------- Ken Schultz President -10- 11 SUBSCRIPTION FORM TO BE EXECUTED UPON EXERCISE OF THE WARRANT Date _______________ To Electronic Fab Technology Corp.: The undersigned, pursuant to the provisions set forth in the Warrant, hereby elects to subscribe for and purchase _____________ shares of _____________ covered by such Warrant, and herewith tenders $______________ in full payment of the purchase price for such shares. Name of Holder: _______________________________________ By: ___________________________________ Address _______________________________ _______________________________ 12 CONVERSION FORM TO BE EXECUTED UPON CONVERSION OF THE WARRANT Date _______________ To Electronic Fab Technology Corp.: The undersigned, pursuant to the provisions set forth in the Warrant, hereby elects to convert this Warrant as to _____________ shares (number of shares represented by E in the formula set forth in Section 4 of this Warrant) of _____________ issuable upon the exercise hereof. Name of Holder: _______________________________________ By: ___________________________________ Address _______________________________ _______________________________ EX-10.30 7 EQUITY INCENTIVE PLAN 1 ================================================================================ EFTC CORPORATION EQUITY INCENTIVE PLAN as amended and restated July 9, 1997 ================================================================================ 2 TABLE OF CONTENTS
Page ---- ARTICLE I - INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Establishment . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.2 Gender and Number . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE III - PLAN ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE IV - STOCK SUBJECT TO THE PLAN . . . . . . . . . . . . . . . . . . . 4 4.1 Number of Shares . . . . . . . . . . . . . . . . . . . . . . . 4 4.2 Other Shares of Stock . . . . . . . . . . . . . . . . . . . . 4 4.3 Adjustments for Stock Split, Stock Dividend, Etc. . . . . . . 4 4.4 Other Distributions and Changes in the Stock . . . . . . . . . 5 4.5 General Adjustment Rules . . . . . . . . . . . . . . . . . . . 5 4.6 Determination by the Committee, Etc. . . . . . . . . . . . . . 5 ARTICLE V - CORPORATE REORGANIZATION . . . . . . . . . . . . . . . . . . . . 6 5.1 Reorganization . . . . . . . . . . . . . . . . . . . . . . . . 6 5.2 Required Notice . . . . . . . . . . . . . . . . . . . . . . . 6 5.3 Acceleration of Exercisability . . . . . . . . . . . . . . . . 6 5.4 Limitation on Payments . . . . . . . . . . . . . . . . . . . . 7 ARTICLE VI - PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . 7 ARTICLE VII - OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 7.1 Grant of Options . . . . . . . . . . . . . . . . . . . . . . . 8 7.2 Stock Option Certificates . . . . . . . . . . . . . . . . . . 8 7.3 Restrictions on Incentive Options . . . . . . . . . . . . . . 11 7.4 Shareholder Privileges . . . . . . . . . . . . . . . . . . . . 12 ARTICLE VIII - RESTRICTED STOCK AWARDS . . . . . . . . . . . . . . . . . . . 12 8.1 Grant of Restricted Stock Awards . . . . . . . . . . . . . . . 12 8.2 Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . 12 8.3 Privileges of a Shareholder, Transferability . . . . . . . . . 12 8.4 Enforcement of Restrictions . . . . . . . . . . . . . . . . . 13 ARTICLE IX - STOCK UNITS . . . . . . . . . . . . . . . . . . . . . . . . . . 13
i 3 ARTICLE X - STOCK APPRECIATION RIGHTS . . . . . . . . . . . . . . . . . . . . 13 10.1 Persons Eligible . . . . . . . . . . . . . . . . . . . . . . . 13 10.2 Grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 10.3 Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 10.4 Number of Shares or Amount of Cash . . . . . . . . . . . . . . 14 10.5 Effect of Exercise . . . . . . . . . . . . . . . . . . . . . . 14 10.6 Termination of Employment . . . . . . . . . . . . . . . . . . 14 ARTICLE XI - OTHER COMMON STOCK GRANTS . . . . . . . . . . . . . . . . . . . 14 ARTICLE XII - CHANGE IN CONTROL . . . . . . . . . . . . . . . . . . . . . . . 15 12.1 In General . . . . . . . . . . . . . . . . . . . . . . . . . . 15 12.2 Definition . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE XIII - RIGHTS OF EMPLOYEES; PARTICIPANTS . . . . . . . . . . . . . . 15 13.1 Employment . . . . . . . . . . . . . . . . . . . . . . . . . . 15 13.2 Nontransferability . . . . . . . . . . . . . . . . . . . . . . 15 13.3 No Plan Funding . . . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE XIV - GENERAL RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . 16 14.1 Investment Representations . . . . . . . . . . . . . . . . . . 16 14.2 Compliance with Securities Laws . . . . . . . . . . . . . . . 16 14.3 Changes in Accounting Rules . . . . . . . . . . . . . . . . . 16 ARTICLE XV - OTHER EMPLOYEE BENEFITS . . . . . . . . . . . . . . . . . . . . 17 ARTICLE XVI - PLAN AMENDMENT, MODIFICATION AND TERMINATION . . . . . . . . . 17 ARTICLE XVII - WITHHOLDING . . . . . . . . . . . . . . . . . . . . . . . . . 17 17.1 Withholding Requirement . . . . . . . . . . . . . . . . . . . 17 17.2 Withholding With Stock . . . . . . . . . . . . . . . . . . . . 18 ARTICLE XVIII - REQUIREMENTS OF LAW . . . . . . . . . . . . . . . . . . . . . 18 18.1 Requirements of Law . . . . . . . . . . . . . . . . . . . . . 18 18.2 Federal Securities Law Requirements . . . . . . . . . . . . . 18 18.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 18 ARTICLE XIX - DURATION OF THE PLAN . . . . . . . . . . . . . . . . . . . . . 18
ii 4 EFTC CORPORATION EQUITY INCENTIVE PLAN ARTICLE I INTRODUCTION 1.1 Establishment. Effective December 22, 1993, EFTC Corporation, a Colorado corporation, formerly named "Electronic Fab Technology Corp.," (hereinafter referred to, together with its Affiliated Corporations (as defined in subsection 2.1(a)) as the "Company" except where the context otherwise requires), established the EFTC Corporation Equity Incentive Plan, formerly named the "Electronic Fab Technology Corp. Equity Incentive Plan" (the "Plan") for certain key employees of the Company. Article XVI of the Plan provides that the Board may amend the Plan from time to time. The Plan is hereby amended and restated, effective July 9, 1997, subject to shareholder approval (the "Effective Date"). The Plan permits the grant of stock options, restricted stock awards, stock appreciation rights, stock units and other stock grants to certain key employees of the Company. 1.2 Purposes. The purposes of the Plan are to provide the key employees selected for participation in the Plan with added incentives to continue in the service of the Company and to create in such employees a more direct interest in the future success of the operations of the Company by relating incentive compensation to the achievement of long-term corporate economic objectives, so that the income of the key employees is more closely aligned with the income of the Company's shareholders. The Plan is also designed to attract key employees and to retain and motivate participating employees by providing an opportunity for investment in the Company. ARTICLE II DEFINITIONS 2.1 Definitions. The following terms shall have the meanings set forth below: (a) "Affiliated Corporation" means any corporation or other entity (including but not limited to a partnership) that is affiliated with EFTC Corporation through stock ownership or otherwise and is treated as a common employer under the provisions of Sections 414(b) and (c) of the Code, together with any parent or subsidiary of the Company as defined in Section 424 of the Code. (b) "Award" means an Option, a Restricted Stock Award, a Stock Appreciation Right, a Stock Unit, grants of Stock pursuant to Article XI or other issuances of Stock hereunder. (c) "Board" means the Board of Directors of the Company. 1 5 (d) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (e) "Committee" means a committee consisting of members of the Board who are empowered hereunder to take actions in the administration of the Plan. The Committee shall be so constituted at all times as to permit the Plan to comply with Section 162(m) of the Code and Rule 16b-3 or any successor rule promulgated under the Securities Exchange Act of 1934 (the "1934 Act"). Members of the Committee shall be appointed from time to time by the Board, shall serve at the pleasure of the Board and may resign at any time upon written notice to the Board. (f) "Disabled" or "Disability" shall have the meaning given to such terms in Section 22(e)(3) of the Code. (g) "Eligible Employees" means those key employees (including, without limitation, officers and directors who are also employees) of the Company or any division thereof, upon whose judgment, initiative and efforts the Company is, or will become, largely dependent for the successful conduct of its business. (h) "Fair Market Value" of a share of Stock shall be the last reported sale price of the Stock on the Nasdaq National Market on the day the determination is to be made, or if no sale took place on such day, the average of the closing bid and asked prices of the Stock on the Nasdaq National Market on such day, or if the market is closed on such day, the last day prior to the date of determination on which the market was open for the transaction of business, as reported by Nasdaq. If, however, the Stock should be listed or admitted for trading on a national securities exchange, the Fair Market Value of a share of the Stock shall be the last sales price, or if no sales took place, the average of the closing bid and asked prices on the day the determination is to be made, or if the market is closed on such day, the last day prior to the date of determination on which the market was open for the transaction of business, as reported in the principal consolidated transaction reporting system for the principal national securities exchange on which the Stock is listed or admitted for trading. If the Stock is not listed or traded on NASDAQ or on any national securities exchange, the Fair Market Value for purposes of the grant of Options under the Plan shall be determined by the Committee in good faith in its sole discretion. (i) "Incentive Option" means an Option designated as such and granted in accordance with Section 422 of the Code. (j) "Non-Qualified Option" means any Option other than an Incentive Option. (k) "Option" means a right to purchase Stock at a stated or formula price for a specified period of time. Options granted under the Plan shall be either Incentive Options or Non-Qualified Options. (l) "Option Certificate" shall have the meaning given to such term in Section 7.2 hereof. 2 6 (m) "Option Holder" means a Participant who has been granted one or more Options under the Plan. (n) "Option Price" means the price at which shares of Stock subject to an Option may be purchased, determined in accordance with subsection 7.2(b). (o) "Participant" means an Eligible Employee designated by the Committee from time to time during the term of the Plan to receive one or more of the Awards provided under the Plan. (p) "Restricted Stock Award" means an award of Stock granted to a Participant pursuant to Article VIII that is subject to certain restrictions imposed in accordance with the provisions of such Section. (q) "Share" means a share of Stock. (r) "Stock" means the common stock of the Company. (s) "Stock Appreciation Right" means the right, granted by the Committee pursuant to the Plan, to receive a payment equal to the increase in the Fair Market Value of a Share of Stock subsequent to the grant of such Award. (t) "Stock Unit" means a measurement component equal to the Fair Market Value of one share of Stock on the date for which a determination is made pursuant to the provisions of this Plan. 2.2 Gender and Number. Except when otherwise indicated by the context, the masculine gender shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural. ARTICLE III PLAN ADMINISTRATION The Plan shall be administered by the Committee. In accordance with the provisions of the Plan, the Committee shall, in its sole discretion, select the Participants from among the Eligible Employees, determine the Awards to be made pursuant to the Plan, the number of Stock Units, Stock Appreciation Rights or shares of Stock to be issued thereunder and the time at which such Awards are to be made, fix the Option Price, period and manner in which an Option becomes exercisable, establish the duration and nature of Restricted Stock Award restrictions, establish the terms and conditions applicable to Stock Units, and establish such other terms and requirements of the various compensation incentives under the Plan as the Committee may deem necessary or desirable and consistent with the terms of the Plan. The Committee shall determine the form or forms of the agreements with Participants that shall evidence the particular provisions, terms, conditions, rights 3 7 and duties of the Company and the Participants with respect to Awards granted pursuant to the Plan, which provisions need not be identical except as may be provided herein. The Committee may from time to time adopt such rules and regulations for carrying out the purposes of the Plan as it may deem proper and in the best interests of the Company. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any agreement entered into hereunder in the manner and to the extent it shall deem expedient and it shall be the sole and final judge of such expediency. No member of the Committee shall be liable for any action or determination made in good faith. The determinations, interpretations and other actions of the Committee pursuant to the provisions of the Plan shall be binding and conclusive for all purposes and on all persons. ARTICLE IV STOCK SUBJECT TO THE PLAN 4.1 Number of Shares. The number of shares of Stock that are authorized for issuance under the Plan in accordance with the provisions of the Plan and subject to such restrictions or other provisions as the Committee may from time to time deem necessary shall not exceed 1,995,000. This authorization may be increased from time to time by approval of the Board and by the shareholders of the Company if, in the opinion of counsel for the Company, shareholder approval is required. Shares of Stock that may be issued upon exercise of Options, or Stock Appreciation Rights, that are issued as Restricted Stock Awards, that are issued with respect to Stock Units, and that are issued as incentive compensation or other stock grants under the Plan shall be applied to reduce the maximum number of shares of Stock remaining available for use under the Plan. The Company shall at all times during the term of the Plan and while any Options or Stock Units are outstanding retain as authorized and unissued Stock at least the number of shares from time to time required under the provisions of the Plan, or otherwise assure itself of its ability to perform its obligations hereunder. 4.2 Other Shares of Stock. Any shares of Stock that are subject to an Option that expires, or that is forfeited or for any reason is terminated unexercised, and any shares of Stock withheld for the payment of taxes or received by the Company as payment of the exercise price of an Option shall automatically become available for use under the Plan. 4.3 Adjustments for Stock Split, Stock Dividend, Etc. If the Company shall at any time increase or decrease the number of its outstanding shares of Stock or change in any way the rights and privileges of such shares by means of the payment of a stock dividend or any other distribution upon such shares payable in Stock, or through a stock split, subdivision, consolidation, combination, reclassification or recapitalization involving the Stock, then in relation to the Stock that is affected by one or more of the above events, the numbers, rights and privileges of the following shall be increased, decreased or changed in like manner as if they had been issued and outstanding, fully paid and nonassessable at the time of such occurrence: (i) the shares of Stock as to which Awards may be granted under the Plan and (ii) the shares of the Stock then included in each outstanding Award granted hereunder. 4 8 4.4 Other Distributions and Changes in the Stock. If (a) the Company shall at any time distribute with respect to the Stock assets or securities of persons other than the Company (excluding cash or distributions referred to in Section 4.3), or (b) the Company shall at any time grant to the holders of its Stock rights to subscribe pro rata for additional shares thereof or for any other securities of the Company, or (c) there shall be any other change (except as described in Section 4.3) in the number or kind of outstanding shares of Stock or of any stock or other securities into which the Stock shall be changed or for which it shall have been exchanged, and if the Committee shall in its discretion determine that the event described in subsection (a), (b), or (c) above equitably requires an adjustment in the number or kind of shares subject to an Option or other Award, an adjustment in the Option Price or the taking of any other action by the Committee, including without limitation, the setting aside of any property for delivery to the Participant upon the exercise of an Option or the full vesting of an Award, then such adjustments shall be made, or other action shall be taken, by the Committee and shall be effective for all purposes of the Plan and on each outstanding Option or Award that involves the particular type of stock for which a change was effected. Notwithstanding the foregoing provisions of this Section 4.4, pursuant to Section 8.3 below, a Participant holding Stock received as a Restricted Stock Award shall have the right to receive all amounts, including cash and property of any kind, distributed with respect to the Stock upon the Participant's becoming a holder of record of the Stock. 4.5 General Adjustment Rules. No adjustment or substitution provided for in this Article IV shall require the Company to sell a fractional share of Stock under any Option, or otherwise issue a fractional share of Stock, and the total substitution or adjustment with respect to each Option and other Award shall be limited by deleting any fractional share. In the case of any such substitution or adjustment, the total Option Price for the shares of Stock then subject to an Option shall remain unchanged but the Option Price per share under each such Option shall be equitably adjusted by the Committee to reflect the greater or lesser number of shares of Stock or other securities into which the Stock subject to the Option may have been changed, and appropriate adjustments shall be made to other Awards to reflect any such substitution or adjustment. 4.6 Determination by the Committee, Etc. Adjustments under this Article IV shall be made by the Committee, whose determinations with regard thereto shall be final and binding upon all parties thereto. 5 9 ARTICLE V CORPORATE REORGANIZATION 5.1 Reorganization. Upon the occurrence of any of the following events, if the notice required by Section 5.2 shall have first been given, the Plan and all Options then outstanding hereunder shall automatically terminate and be of no further force and effect whatsoever, and other Awards then outstanding shall be treated as described in Sections 5.2 and 5.3, without the necessity for any additional notice or other action by the Board or the Company: (a) the merger or consolidation of the Company with or into another corporation or other reorganization (other than a reorganization under the United States Bankruptcy Code) of the Company (other than a consolidation, merger, or reorganization in which the Company is the continuing corporation and which does not result in any reclassification or change of outstanding shares of Stock); or (b) the sale or conveyance of the property of the Company as an entirety or substantially as an entirety (other than a sale or conveyance in which the Company continues as holding company of an entity or entities that conduct the business or business formerly conducted by the Company); or (c) the dissolution or liquidation of the Company. 5.2 Required Notice. At least 30 days' prior written notice of any event described in Section 5.1 shall be given by the Company to each Option Holder and Participant unless (a) in the case of the events described in clauses (a) or (b) of Section 5.1, the Company, or the successor or purchaser, as the case may be, shall make adequate provision for the assumption of the outstanding Options or the substitution of new options for the outstanding Options on terms comparable to the outstanding Options except that the Option Holder shall have the right thereafter to purchase the kind and amount of securities or property or cash receivable upon such merger, consolidation, other reorganization, sale or conveyance by a holder of the number of Shares that would have been receivable upon exercise of the Option immediately prior to such merger, consolidation, sale or conveyance (assuming such holder of Stock failed to exercise any rights of election and received per share the kind and amount received per share by a majority of the non-electing shares), or (b) the Company, or the successor or purchaser, as the case may be, shall make adequate provision for the adjustment of outstanding Awards (other than Options) so that such Awards shall entitle the Participant to receive the kind and amount of securities or property or cash receivable upon such merger, consolidation, other reorganization, sale or conveyance by a holder of the number of Shares that would have been receivable with respect to such Award immediately prior to such merger, consolidation, other reorganization, sale or conveyance (assuming such holder of Stock failed to exercise any rights of election and received per share the kind and amount received per share by a majority of the non-electing shares). The provisions of this Article V shall similarly apply to successive mergers, consolidations, reorganizations, sales or conveyances. Such notice shall be deemed to have been given when delivered personally to a Participant or when mailed to a Participant by registered or certified mail, postage prepaid, at such Participant's address last known to the Company. 5.3 Acceleration of Exercisability. Participants notified in accordance with Section 5.2 may exercise their Options at any time before the occurrence of the event requiring the giving of notice (but subject to occurrence of such event), regardless of whether all conditions of exercise 6 10 relating to length of service, attainment of financial performance goals or otherwise have been satisfied. Upon the giving of notice in accordance with Section 5.2, all restrictions with respect to Restricted Stock and other Awards shall lapse immediately, all Stock Units shall become payable immediately and all Stock Appreciation Rights shall become exercisable. Any Options, Stock Appreciation Rights or Stock Units that are not assumed or substituted under clauses (a) or (b) of Section 5.2 that have not been exercised prior to the event described in Section 5.1 shall automatically terminate upon the occurrence of such event. 5.4 Limitation on Payments. If the provisions of this Article V would result in the receipt by any Participant of a payment within the meaning of Section 280G of the Code and the regulations promulgated thereunder and if the receipt of such payment by any Participant would, in the opinion of independent tax counsel of recognized standing selected by the Company, result in the payment by such Participant of any excise tax provided for in Sections 280G and 4999 of the Code, then the amount of such payment shall be reduced to the extent required, in the opinion of independent tax counsel, to prevent the imposition of such excise tax; provided, however, that the Committee, in its sole discretion, may authorize the payment of all or any portion of the amount of such reduction to the Participant. ARTICLE VI PARTICIPATION Participants in the Plan shall be those Eligible Employees who, in the judgment of the Committee, are performing, or during the term of their incentive arrangement will perform, vital services in the management, operation and development of the Company or an Affiliated Corporation, and significantly contribute, or are expected to significantly contribute, to the achievement of long-term corporate economic objectives. Participants may be granted from time to time one or more Awards; provided, however, that the grant of each such Award shall be separately approved by the Committee, and receipt of one such Award shall not result in automatic receipt of any other Award. Upon determination by the Committee that an Award is to be granted to a Participant, written notice shall be given to such person, specifying the terms, conditions, rights and duties related thereto. Each Participant shall, if required by the Committee, enter into an agreement with the Company, in such form as the Committee shall determine and which is consistent with the provisions of the Plan, specifying such terms, conditions, rights and duties. Awards shall be deemed to be granted as of the date specified in the grant resolution of the Committee, which date shall be the date of any related agreement with the Participant. In the event of any inconsistency between the provisions of the Plan and any such agreement entered into hereunder, the provisions of the Plan shall govern. 7 11 ARTICLE VII OPTIONS 7.1 Grant of Options. Coincident with or following designation for participation in the Plan, a Participant may be granted one or more Options. The Committee in its sole discretion shall designate whether an Option is an Incentive Option or a Non-Qualified Option. The Committee may grant both an Incentive Option and a Non-Qualified Option to an Eligible Employee at the same time or at different times. Incentive Options and Non-Qualified Options, whether granted at the same time or at different times, shall be deemed to have been awarded in separate grants and shall be clearly identified, and in no event shall the exercise of one Option affect the right to exercise any other Option or affect the number of shares for which any other Option may be exercised, except as provided in subsection 7.2(j). An Option shall be considered as having been granted on the date specified in the grant resolution of the Committee. 7.2 Stock Option Certificates. Each Option granted under the Plan shall be evidenced by a written stock option certificate (an "Option Certificate"). An Option Certificate shall be issued by the Company in the name of the Participant to whom the Option is granted (the "Option Holder") and in such form as may be approved by the Committee. The Option Certificate shall incorporate and conform to the conditions set forth in this Section 7.2 as well as such other terms and conditions that are not inconsistent as the Committee may consider appropriate in each case. (a) Number of Shares. Each Option Certificate shall state that it covers a specified number of shares of Stock, as determined by the Committee. Notwithstanding any other provision of this Plan, the maximum number of shares of Stock to be granted subject to Options to any one Participant during the term of this Plan shall be 300,000 shares of Stock. (b) Price. The price at which each share of Stock covered by an Option may be purchased shall be determined in each case by the Committee and set forth in the Option Certificate, but in no event shall the price be less than 100 percent of the Fair Market Value of the Stock on the date the Option (both Incentive and Non-Qualified) is granted. (c) Duration of Options; Restrictions on Exercise. Each Option Certificate shall state the period of time, determined by the Committee, within which the Option may be exercised by the Option Holder (the "Option Period"). The Option Period must end, in all cases, not more than ten years from the date the Option is granted. The Option Certificate shall also set forth any installment or other restrictions on Option exercise during such period, if any, as may be determined by the Committee; however, no Option may be exercised for at least six months after the date of grant. Each Option shall become exercisable (vest) over such period of time, if any, or upon such events, as determined by the Committee. (d) Termination of Employment, Death, Disability, Etc. The Committee may specify the period, if any, after which an Option may be exercised following termination of the Option Holder's employment. The effect of this subsection 7.2(d) shall be limited to determining the consequences of a termination and nothing in this subsection 7.2(d) shall restrict or otherwise 8 12 interfere with the Company's discretion with respect to the termination of any individual's employment. If the Committee does not otherwise specify, the following shall apply: (i) If the employment of the Option Holder terminates for any reason other than death or Disability within six months after the date the Option is granted or if the employment of the Option Holder is terminated within the Option Period for "cause", as determined by the Company, the Option shall thereafter be void for all purposes. As used in this subsection 7.2(d), "cause" shall mean a gross violation, as determined by the Company, of the Company's established policies and procedures. (ii) If the Option Holder becomes Disabled, the Option may be exercised by the Option Holder, or in the case of death by the persons specified in subsection (iii) of this subsection 7.2(d), within one year following his or her Disability (provided that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of the Option Holder's termination of employment because of Disability. (iii) If the Option Holder dies during the Option Period while still employed or within the one year period referred to in (ii) above or the three-month period referred to in (iv) below, the Option may be exercised by those entitled to do so under the Option Holder's will or by the laws of descent and distribution within one year following the Option Holder's death, (provided that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of the Option Holder's death. (iv) If the employment of the Option Holder by the Company is terminated (which for this purpose means that the Option Holder is no longer employed by the Company or by an Affiliated Corporation) within the Option Period for any reason other than cause, Disability or the Option Holder's death, and such termination occurs more than six months after the Option is granted, the Option may be exercised by the Option Holder within three months following the date of such termination (provided that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of termination of employment. (e) Transferability. Each Option shall not be transferable by the Option Holder except by will or pursuant to the laws of descent and distribution. Each Option is exercisable during the Option Holder's lifetime only by him or her, or in the event of disability or incapacity, by his or her guardian or legal representative. (f) Consideration for Grant of Option. Each Option Holder agrees to remain in the employment of the Company, at the pleasure of the Company, for a continuous period of at least one year after the date the Option is granted, at the salary rate in effect on the date of such agreement 9 13 or at such changed rate as may be fixed, from time to time, by the Company. Nothing in this paragraph shall limit or impair the Company's right to terminate the employment of any employee. (g) Exercise, Payments, Etc. (i) Manner of Exercise. The method for exercising each Option granted hereunder shall be by delivery to the Company of written notice specifying the number of Shares with respect to which such Option is exercised. The purchase of such Shares shall take place at the principal offices of the Company within thirty days following delivery of such notice, at which time the Option Price of the Shares shall be paid in full by any of the methods set forth below or a combination thereof. Except as set forth in the next sentence, the Option shall be exercised when the Option Price for the number of shares as to which the Option is exercised is paid to the Company in full. If the Option Price is paid by means of a broker's loan transaction described in subsection 7.2(g)(ii)(D), in whole or in part, the closing of the purchase of the Stock under the Option shall take place (and the Option shall be treated as exercised) on the date on which, and only if, the sale of Stock upon which the broker's loan was based has been closed and settled, unless the Option Holder makes an irrevocable written election, at the time of exercise of the Option, to have the exercise treated as fully effective for all purposes upon receipt of the Option Price by the Company regardless of whether or not the sale of the Stock by the broker is closed and settled. A properly executed certificate or certificates representing the Shares shall be delivered to or at the direction of the Option Holder upon payment therefor. If Options on less than all shares evidenced by an Option Certificate are exercised, the Company shall deliver a new Option Certificate evidencing the Option on the remaining shares upon delivery of the Option Certificate for the Option being exercised. (ii) The exercise price shall be paid by any of the following methods or any combination of the following methods at the election of the Option Holder, or by any other method approved by the Committee upon the request of the Option Holder: (A) in cash; (B) by certified, cashier's check or other check acceptable to the Company, payable to the order of the Company; (C) by delivery to the Company of certificates representing the number of shares then owned by the Option Holder, the Fair Market Value of which equals the purchase price of the Stock purchased pursuant to the Option, properly endorsed for transfer to the Company; provided however, that no Option may be exercised by delivery to the Company of certificates representing Stock, unless such Stock has been held by the Option Holder for more than six months; for purposes of this Plan, the Fair Market Value of any shares of Stock delivered in payment of the purchase price upon exercise of the Option shall be the Fair Market Value as of the exercise date; the exercise date shall be the day of delivery of the certificates for the Stock used as payment of the Option Price; or 10 14 (D) by delivery to the Company of a properly executed notice of exercise together with irrevocable instructions to a broker to deliver to the Company promptly the amount of the proceeds of the sale of all or a portion of the Stock or of a loan from the broker to the Option Holder required to pay the Option Price. (h) Date of Grant. An Option shall be considered as having been granted on the date specified in the grant resolution of the Committee. (i) Withholding. (i) Non-Qualified Options. Upon exercise of an Option, the Option Holder shall make appropriate arrangements with the Company to provide for the amount of additional withholding required by Sections 3102 and 3402 of the Code and applicable state income tax laws, including payment of such taxes through delivery of shares of Stock or by withholding Stock to be issued under the Option, as provided in Article XV. (ii) Incentive Options. If an Option Holder makes a disposition (as defined in Section 424(c) of the Code) of any Stock acquired pursuant to the exercise of an Incentive Option prior to the expiration of two years from the date on which the Incentive Option was granted or prior to the expiration of one year from the date on which the Option was exercised, the Option Holder shall send written notice to the Company at its principal office in Greeley, Colorado (Attention: Corporate Secretary) of the date of such disposition, the number of shares disposed of, the amount of proceeds received from such disposition and any other information relating to such disposition as the Company may reasonably request. The Option Holder shall, in the event of such a disposition, make appropriate arrangements with the Company to provide for the amount of additional withholding, if any, required by Sections 3102 and 3402 of the Code and applicable state income tax laws. (j) Issuance of Additional Option. If an Option Holder pays all or any portion of the exercise price of an Option with Stock, or pays all or any portion of the applicable withholding taxes with respect to the exercise of an Option with Stock that has been held by the Option Holder for more than a period, not shorter than six months, to be determined by the Committee, the Committee may, in its sole discretion, grant to such Option Holder a new Option covering the number of shares of Stock used to pay such exercise price and/or withholding tax. The new Option shall have an Option Price per share equal to the Fair Market Value of a share of Stock on the date of the exercise of the Option and shall have the same terms and provisions as the exercised Option, except as otherwise determined by the Committee in its sole discretion. 7.3 Restrictions on Incentive Options. (a) Initial Exercise. The aggregate Fair Market Value of the Shares with respect to which Incentive Options are exercisable for the first time by an Option Holder in any calendar year, under the Plan or otherwise, shall not exceed $100,000. For this purpose, the Fair Market Value of the Shares shall be determined as of the date of grant of the Option. 11 15 (b) Ten Percent Shareholders. Incentive Options granted to an Option Holder who is the holder of record of 10% or more of the outstanding Stock of the Company shall have an Option Price equal to 110% of the Fair Market Value of the Shares on the date of grant of the Option and the Option Period for any such Option shall not exceed five years. 7.4 Shareholder Privileges. No Option Holder shall have any rights as a shareholder with respect to any shares of Stock covered by an Option until the Option Holder becomes the holder of record of such Stock, and no adjustments shall be made for dividends or other distributions or other rights as to which there is a record date preceding the date such Option Holder becomes the holder of record of such Stock, except as provided in Article IV. ARTICLE VIII RESTRICTED STOCK AWARDS 8.1 Grant of Restricted Stock Awards. Coincident with or following designation for participation in the Plan, the Committee may grant a Participant one or more Restricted Stock Awards consisting of Shares of Stock. The number of Shares granted as a Restricted Stock Award shall be determined by the Committee. 8.2 Restrictions. A Participant's right to retain a Restricted Stock Award granted to him under Section 8.1 shall be subject to such restrictions, including but not limited to his continuous employment by the Company or an Affiliated Corporation for a restriction period specified by the Committee or the attainment of specified performance goals and objectives, as may be established by the Committee with respect to such Award. The Committee may in its sole discretion require different periods of employment or different performance goals and objectives with respect to different Participants, to different Restricted Stock Awards or to separate, designated portions of the Stock shares constituting a Restricted Stock Award. In the event of the death or Disability of a Participant, or the retirement of a Participant in accordance with the Company's established retirement policy, all employment period and other restrictions applicable to Restricted Stock Awards then held by him shall lapse with respect to a pro rata part of each such Award based on the ratio between the number of full months of employment completed at the time of termination of employment from the grant of each Award to the total number of months of employment required for such Award to be fully nonforfeitable, and such portion of each such Award shall become fully nonforfeitable. The remaining portion of each such Award shall be forfeited and shall be immediately returned to the Company. In the event of a Participant's termination of employment for any other reason, any Restricted Stock Awards as to which the employment period or other restrictions have not been satisfied (or waived or accelerated as provided herein) shall be forfeited, and all shares of Stock related thereto shall be immediately returned to the Company. 8.3 Privileges of a Shareholder, Transferability. A Participant shall have all voting, dividend, liquidation and other rights with respect to Stock in accordance with its terms received by him as a Restricted Stock Award under this Article VIII upon his becoming the holder of record of 12 16 such Stock; provided, however, that the Participant's right to sell, encumber, or otherwise transfer such Stock shall be subject to the limitations of Section 13.2. 8.4 Enforcement of Restrictions. The Committee shall cause a legend to be placed on the Stock certificates issued pursuant to each Restricted Stock Award referring to the restrictions provided by Sections 8.2 and 8.3 and, in addition, may in its sole discretion require one or more of the following methods of enforcing the restrictions referred to in Sections 8.2 and 8.3: (a) Requiring the Participant to keep the Stock certificates, duly endorsed, in the custody of the Company while the restrictions remain in effect; or (b) Requiring that the Stock certificates, duly endorsed, be held in the custody of a third party while the restrictions remain in effect. ARTICLE IX STOCK UNITS A Participant may be granted a number of Stock Units determined by the Committee. The number of Stock Units, the goals and objectives to be satisfied with respect to each grant of Stock Units, the time and manner of payment for each Stock Unit, and the other terms and conditions applicable to a grant of Stock Units shall be determined by the Committee. ARTICLE X STOCK APPRECIATION RIGHTS 10.1 Persons Eligible. The Committee, in its sole discretion, may grant Stock Appreciation Rights to Eligible Employees. 10.2 Grant. The Committee shall determine at the time of the grant of a Stock Appreciation Right the time period during which the Stock Appreciation Right may be exercised, which period may not commence until six months after the date of grant. 10.3 Exercise. A Stock Appreciation Right shall entitle a Participant to receive a number of shares of Stock (without any payment to the Company, except for applicable withholding taxes), cash, or Stock and cash, as determined by the Committee in accordance with Section 10.4 below. If a Stock Appreciation Right is issued in tandem with an Option, except as may otherwise be provided by the Committee, the Stock Appreciation Right shall be exercisable during the period that its related Option is exercisable. A Participant desiring to exercise a Stock Appreciation Right shall give written notice of such exercise to the Company, which notice shall state the proportion of Stock and cash that the Participant desires to receive pursuant to the Stock Appreciation Right exercised. Upon receipt of the notice from the Participant, the Company shall deliver to the person entitled 13 17 thereto (i) a certificate or certificates for Stock and/or (ii) a cash payment, in accordance with Section 10.4 below. The date the Company receives written notice of such exercise hereunder is referred to in this Article X as the "exercise date". The delivery of Stock or cash received pursuant to such exercise shall take place at the principal offices of the Company within 30 days following delivery of such notice. 10.4 Number of Shares or Amount of Cash. Subject to the discretion of the Committee to substitute cash for Stock, or Stock for cash, the amount of Stock which may be issued pursuant to the exercise of a Stock Appreciation Right shall be determined by dividing: (a) the total number of shares of Stock as to which the Stock Appreciation Right is exercised, multiplied by the amount by which the Fair Market Value of the Stock on the exercise date exceeds the Fair Market Value of a share of Stock on the date of grant of the Stock Appreciation Right, by (b) the Fair Market Value of the Stock on the exercise date; provided, however, that fractional shares shall not be issued and in lieu thereof, a cash adjustment shall be paid. In lieu of issuing Stock upon the exercise of a Stock Appreciation Right, the Committee in its sole discretion may elect to pay the cash equivalent of the Fair Market Value of the Stock on the exercise date for any or all of the shares of Stock that would otherwise be issuable upon exercise of the Stock Appreciation Right. 10.5 Effect of Exercise. If a Stock Appreciation Right is issued in tandem with an Option, the exercise of the Stock Appreciation Right or the related Option will result in an equal reduction in the number of corresponding Options or Stock Appreciation Rights which were granted in tandem with such Stock Appreciation Rights and Options. 10.6 Termination of Employment. Upon the termination of employment of a Participant, any Stock Appreciation Rights then held by such Participant shall be exercisable within the time periods, and upon the same conditions with respect to the reasons for termination of employment, as are specified in Section 7.2(d) with respect to Options. ARTICLE XI OTHER COMMON STOCK GRANTS From time to time during the duration of this Plan, the Board may, in its sole discretion, adopt one or more incentive compensation arrangements for Participants pursuant to which the Participants may acquire shares of Stock, whether by purchase, outright grant, or otherwise. Any such arrangements shall be subject to the general provisions of this Plan and all shares of Stock issued pursuant to such arrangements shall be issued under this Plan. 14 18 ARTICLE XII CHANGE IN CONTROL 12.1 In General. Upon a change of control in the Company as defined in Section 12.2, then (a) all options shall become immediately exercisable in full during the remaining term thereof, and shall remain so, whether or not the Participants to whom such Options have been granted remain employees of the Company or an Affiliated Corporation; (b) all restrictions with respect to outstanding Restricted Stock Awards shall immediately lapse; (c) all Stock Units shall become immediately payable; and (d) all other Awards shall immediately become exercisable or shall vest, as the case may be, without any further action or passage of time. 12.2 Definition. For purposes of this Plan, a "change in control" shall be deemed to have occurred if (a) a person (as such term is used in Section 13(d) of the 1934 Act) becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act) of shares of the Company or the Company's successor having 30% or more of the total number of votes that may be cast for the election of directors of the Company without the prior approval of at least a majority of the members of the Company's Board of Directors unaffiliated with such person (unless such person beneficially owns shares with at least 15% of such votes on the Effective Date), or (b) individuals who constitute the directors of the Company at the beginning of a 24-month period cease to constitute at least two-thirds of all directors at any time during such period, unless the election of any new or replacement directors was approved by a vote of at least a majority of the members of the Company's Board of Directors in office immediately prior to such period and of the new and replacement directors so approved. ARTICLE XIII RIGHTS OF EMPLOYEES; PARTICIPANTS 13.1 Employment. Nothing contained in the Plan or in any Award granted under the Plan shall confer upon any Participant any right with respect to the continuation of his employment by the Company or any Affiliated Corporation, or interfere in any way with the right of the Company or any Affiliated Corporation, subject to the terms of any separate employment agreement to the contrary, at any time to terminate such employment or to increase or decrease the compensation of the Participant from the rate in existence at the time of the grant of an Award. Whether an authorized leave of absence, or absence in military or government service, shall constitute a termination of employment shall be determined by the Committee at the time. 13.2 Nontransferability. No right or interest of any Participant in an Option, a Stock Appreciation Right, a Restricted Stock Award (prior to the completion of the restriction period applicable thereto), a Stock Unit, or other Award granted pursuant to the Plan, shall be assignable or transferable during the lifetime of the Participant, either voluntarily or involuntarily, or subjected to any lien, directly or indirectly, by operation of law, or otherwise, including execution, levy, garnishment, attachment, pledge or bankruptcy. In the event of a Participant's death, a Participant's 15 19 rights and interests in Options, Stock Appreciation Rights, Restricted Stock Awards, other Awards, and Stock Units shall, to the extent provided in Articles VII, VIII, IX, X and XI, be transferable by will or the laws of descent and distribution, and payment of any amounts due under the Plan shall be made to, and exercise of any Options may be made by, the Participant's legal representatives, heirs or legatees. If in the opinion of the Committee a person entitled to payments or to exercise rights with respect to the Plan is disabled from caring for his affairs because of mental condition, physical condition or age, payment due such person may be made to, and such rights shall be exercised by, such person's guardian, conservator or other legal personal representative upon furnishing the Committee with evidence satisfactory to the Committee of such status. 13.3 No Plan Funding. Obligations to Participants under the Plan will not be funded, trusteed, insured or secured in any manner. The Participants under the Plan shall have no security interest in any assets of the Company or any Affiliated Corporation, and shall be only general creditors of the Company. ARTICLE XIV GENERAL RESTRICTIONS 14.1 Investment Representations. The Company may require any person to whom an Option, Stock Appreciation Right, Restricted Stock Award, Stock Unit, or Stock is granted, as a condition of exercising such Option or Stock Appreciation Right, or receiving such Restricted Stock Award, Stock Unit, or Stock, to give written assurances in substance and form satisfactory to the Company and its counsel to the effect that such person is acquiring the Stock for his own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with Federal and applicable state securities laws. 14.2 Compliance with Securities Laws. Each Option, Stock Appreciation Right, Restricted Stock Award, Stock Unit, and Stock grant shall be subject to the requirement that, if at any time counsel to the Company shall determine that the listing, registration or qualification of the shares subject to such Option, Stock Appreciation Right, Restricted Stock Award, Stock Unit, or Stock grant upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, is necessary as a condition of, or in connection with, the issuance or purchase of shares thereunder, such Option, Stock Appreciation Right, Restricted Stock Award, Stock Unit or Stock grant may not be accepted or exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the Committee. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration or qualification. 14.3 Changes in Accounting Rules. Notwithstanding any other provision of the Plan to the contrary, if, during the term of the Plan, any changes in the financial or tax accounting rules applicable to Options, Stock Appreciation Rights, Restricted Stock Awards, Stock Units or other Awards shall occur which, in the sole judgment of the Committee, may have a material adverse 16 20 effect on the reported earnings, assets or liabilities of the Company, the Committee shall have the right and power to modify as necessary, any then outstanding and unexercised Options, Stock Appreciation Rights, outstanding Restricted Stock Awards, outstanding Stock Units and other outstanding Awards as to which the applicable employment or other restrictions have not been satisfied. ARTICLE XV OTHER EMPLOYEE BENEFITS The amount of any compensation deemed to be received by a Participant as a result of the exercise of an Option or Stock Appreciation Right, the sale of shares received upon such exercise, the vesting of any Restricted Stock Award, distributions with respect to Stock Units, or the grant of Stock shall not constitute "earnings" or "compensation" with respect to which any other employee benefits of such employee are determined, including without limitation benefits under any pension, profit sharing, life insurance or salary continuation plan. ARTICLE XVI PLAN AMENDMENT, MODIFICATION AND TERMINATION The Board may at any time terminate, and from time to time may amend or modify the Plan provided, however, that no amendment or modification may become effective without approval of the amendment or modification by the shareholders if shareholder approval is required to enable the Plan to satisfy any applicable statutory or regulatory requirements, or if the Company, on the advice of counsel, determines that shareholder approval is otherwise necessary or desirable. No amendment, modification or termination of the Plan shall in any manner adversely affect any Options, Stock Appreciation Rights, Restricted Stock Awards, Stock Units, Stock or other Award theretofore granted under the Plan, without the consent of the Participant holding such Options, Stock Appreciation Rights, Restricted Stock Awards, Stock Units, Stock or other Awards. ARTICLE XVII WITHHOLDING 17.1 Withholding Requirement. The Company's obligations to deliver shares of Stock upon the exercise of any Option, or Stock Appreciation Right, the vesting of any Restricted Stock Award, payment with respect to Stock Units, or the grant of Stock shall be subject to the Participant's satisfaction of all applicable federal, state and local income and other tax withholding requirements. 17 21 17.2 Withholding With Stock. At the time the Committee grants an Option, Stock Appreciation Right, Restricted Stock Award, Stock Unit, other Award, or Stock, it may, in its sole discretion, grant the Participant an election to pay all such amounts of tax withholding, or any part thereof, by electing to transfer to the Company, or to have the Company withhold from shares otherwise issuable to the Participant, shares of Stock having a value equal to the amount required to be withheld or such lesser amount as may be elected by the Participant. All elections shall be subject to the approval or disapproval of the Committee. The value of shares of Stock to be withheld shall be based on the Fair Market Value of the Stock on the date that the amount of tax to be withheld is to be determined (the "Tax Date"). Any such elections by Participants to have shares of Stock withheld for this purpose will be subject to the following restrictions: (a) All elections must be made prior to the Tax Date. (b) All elections shall be irrevocable. (c) If the Participant is an officer or director of the Company within the meaning of Section 16 of the 1934 Act ("Section 16"), the Participant must satisfy the requirements of such Section 16 and any applicable Rules thereunder with respect to the use of Stock to satisfy such tax withholding obligation. ARTICLE XVIII REQUIREMENTS OF LAW 18.1 Requirements of Law. The issuance of Stock and the payment of cash pursuant to the Plan shall be subject to all applicable laws, rules and regulations. 18.2 Federal Securities Law Requirements. If a Participant is an officer or director of the Company within the meaning of Section 16, Awards granted hereunder shall be subject to all conditions required under Rule 16b-3, or any successor rule promulgated under the 1934 Act, to qualify the Award for any exception from the provisions of Section 16(b) of the 1934 Act available under that Rule. Such conditions shall be set forth in the agreement with the Participant which describes the Award or other document evidencing or accompanying the Award. 18.3 Governing Law. The Plan and all agreements hereunder shall be construed in accordance with and governed by the laws of the State of Colorado. ARTICLE XIX DURATION OF THE PLAN Unless sooner terminated by the Board of Directors, the Plan shall terminate on December 21, 2003 and no Option, Stock Appreciation Right, Restricted Stock Award, Stock Unit, 18 22 other Award or Stock shall be granted, or offer to purchase Stock made, after such termination. Options, Stock Appreciation Rights, Restricted Stock Awards, other Awards, and Stock Units outstanding at the time of the Plan termination may continue to be exercised, or become free of restrictions, or paid, in accordance with their terms. Dated: July 9, 1997 EFTC CORPORATION ATTEST: By: /s/ Lloyd McConnell By: /s/ Jack Calderon ------------------------- ------------------------------ Secretary President and Chief Executive Officer 19 EX-10.31 8 STOCK OPTION PLAN 1 ================================================================================ EFTC CORPORATION STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS AS AMENDED AND RESTATED JULY 9, 1997 ================================================================================ 2 TABLE OF CONTENTS
Page ---- ARTICLE I - GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Definition . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Nature of Options . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II - OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.1 Participation . . . . . . . . . . . . . . . . . . . . . . . . 1 2.2 Grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.3 Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE III - AUTHORIZED STOCK . . . . . . . . . . . . . . . . . . . . . . . 4 3.1 The Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.2 Adjustments for Stock Split, Stock Dividend, Etc. . . . . . . 4 3.3 Adjustments for Certain Distributions of Property . . . . . . 5 3.4 Distributions of Capital Stock and Indebtedness . . . . . . . 5 3.5 No Rights as Shareholder . . . . . . . . . . . . . . . . . . . 5 3.6 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE IV - CORPORATE REORGANIZATION; CHANGE OF CONTROL . . . . . . . . . . 5 4.1 Reorganization . . . . . . . . . . . . . . . . . . . . . . . . 5 4.2 Required Notice . . . . . . . . . . . . . . . . . . . . . . . 6 4.3 Acceleration of Exercisability . . . . . . . . . . . . . . . . 6 4.4 Change of Control . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE V - GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . 7 5.1 Expiration . . . . . . . . . . . . . . . . . . . . . . . . . . 7 5.2 Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . 7 5.3 Treatment of Proceeds . . . . . . . . . . . . . . . . . . . . 7 5.4 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . 7 5.5 Fair Market Value . . . . . . . . . . . . . . . . . . . . . . 7 5.6 Section Headings . . . . . . . . . . . . . . . . . . . . . . . 7 5.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 8 5.8 Rule 16b-3 . . . . . . . . . . . . . . . . . . . . . . . . . . 8
i 3 EFTC CORPORATION STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS The Board of Directors (the "Board") of EFTC Corporation, a Colorado Corporation, formerly named "Electronic Fab Technology Corp." (the "Company"), established the EFTC Corporation Stock Option Plan for Non-Employee Directors, formerly named the "Electronic Fab Technology Corp. Stock Option Plan for Non-Employee Directors," (the "Plan"), effective December 22, 1993. Section 5.2 of the Plan provides that the Board may amend the Plan from time to time. The Plan is hereby amended and restated, effective July 9, 1997, subject to shareholder approval (the "Effective Date"). PURPOSES The purposes of the Plan are to provide to certain directors of the Company who are not also employees of the Company added incentive to continue in the service of the Company and a more direct interest in the future success of the operations of the Company by granting to such directors options ("Options") to purchase shares of the common stock (the "Stock") of the Company upon the terms and conditions described below. ARTICLE I GENERAL 1.1 Definition. For purposes of the Plan and as used herein, a "non- employee director" is an individual who (a) is a member of the Board and (b) is not an employee of the Company. For purposes of the Plan, an employee is an individual whose wages are subject to the withholding of federal income tax under section 3401 of the Internal Revenue Code of 1986, as amended from time to time (the "Code"). A non-employee director to whom an Option is granted is referred to herein as a "Holder." 1.2 Nature of Options. The Options granted hereunder shall be options that do not satisfy the requirements of section 422 of the Code. 1 4 ARTICLE II OPTIONS 2.1 Participation. Each non-employee director on the Effective Date and each non-employee director elected thereafter shall be eligible to receive Options to purchase Stock in accordance with Section 2.2 on the terms and conditions herein described. 2.2 Grant. (a) Grant. The Board, in its sole discretion, may grant Options to individual non-employee directors. The Board shall have full discretion as to the number and date of the grant of Options and may grant Options covering different numbers of shares of Stock to different directors. (b) Date of Grant. The date on which a non-employee director receives an Option hereunder is referred to as the date of grant of such Option. (c) Option Certificates. Each Option granted under the Plan shall be evidenced by a written stock option certificate (an "Option Certificate") issued in the name of the non-employee director to whom the Option is granted. The Option Certificate shall incorporate and conform to the terms and conditions set forth herein. 2.3 Terms. Options issued pursuant to the Plan shall have the following terms and conditions in addition to those set forth elsewhere herein: (a) Number. Each non-employee director shall receive under the Plan Options to purchase the number of shares of Stock determined by the Board, subject to adjustment as provided in Article III. Such grants shall be effective at the times specified in Section 2.2. (b) Price. The price at which each share of Stock covered by the Option may be purchased by each non-employee director shall be the Fair Market Value (as defined in Section 5.5) of the Stock on the date of grant, subject to adjustment as provided in Article III. (c) Duration of Options. The period within which each Option may be exercised shall expire ten years from the date the Option is granted (the "Option Period"), unless terminated sooner pursuant to subsection (d) below or fully exercised prior to the end of such period. (d) Termination of Service, Death, Etc. The Option shall terminate in the following circumstances if the Holder ceases to be a director of the Company: (i) If the Holder is removed as a director of the Company during the Option Period for cause, the Option shall be void thereafter for all purposes. (ii) If the Holder ceases to be a director of the Company on account of disability within the meaning of Section 22(e)(3) of the Code, the Option may be exercised by the Holder (or, in case of death thereafter, by the persons specified in Section 2.3(d)(iii)) within one year following the date on which the Holder ceased to be a 2 5 director (if otherwise within the Option Period), but not thereafter. In any such case, the Option may be exercised as to all shares of Stock specified therein, notwithstanding Section 2.3(g). (iii) If the Holder dies during the Option Period while still serving as a director or within the three-month period referred to in Section 2.3(d)(iv) below, the Option may be exercised by those entitled to do so under the Holder's will or by the laws of descent and distribution within one year following the Holder's death (if otherwise within the Option Period), but not thereafter. In any such case, the Option may be exercised as to all shares of Stock specified therein, notwithstanding Section 2.3(g). (iv) If the Holder ceases to be a director within the Option Period for any reason other than removal for cause, disability or death, the Option may be exercised by the Holder within three months following the date of such termination (if otherwise within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date the Holder ceased to be a director. (e) Transferability, Exercisability. Each Option granted under the Plan shall not be transferable by a Holder other than by will or the laws of descent and distribution and shall be exercisable during the Holder's lifetime only by the Holder or, in the event of disability or incapacity, by the Holder's guardian or legal representative. Notwithstanding any other provision of the Plan, no Option may be exercised unless and until the Plan is approved by the shareholders of the Company in accordance with Section 5.4. (f) Exercise, Payments, Etc. (i) The method for exercising each Option granted shall be by delivery to the Company of written notice specifying the number of shares with respect to which the Option is exercised. The purchase of Stock pursuant to the Option shall take place at the principal office of the Company within thirty days following delivery of such notice, at which time the purchase price of the Stock shall be paid in full by any of the methods set forth in Section 2.3(f)(ii) or a combination thereof. If the purchase price is paid by means of a broker's loan transaction as described in clause (C) of Section 2.3(f)(ii), in whole or in part, the closing of the purchase of the Stock under the Option shall take place on the date on which, and only if, the sale of Stock upon which the broker's loan was based has been closed and settled, unless the Holder makes an irrevocable written election, at the time of exercise of the Option, to have the exercise treated as fully effective for all purposes upon receipt of the purchase price by the Company regardless of whether or not the sale of the Stock by the broker is closed and settled. A properly executed certificate or certificates representing the Stock shall be delivered to the Holder upon payment therefor. If Options on less than all shares evidenced by an Option Certificate are exercised, the Company shall deliver a new Option Certificate evidencing the Option on the remaining shares on delivery of the outstanding Option Certificate for the Option being exercised. 3 6 (ii) The exercise price shall be paid by any of the following methods or any combination of such methods, at the option of the Holder: (A) cash; (B) certified, cashier's or other check acceptable to the Company, payable to the order of the Company; or (C) delivery to the Company of irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds required to pay the purchase price of the Stock; or (D) delivery to the Company of certificates representing the number of shares of Stock then owned by the Holder, the Fair Market Value of which (determined as of the date the notice of exercise is delivered to the Company) equals the price of the Stock to be purchased pursuant to the Option, properly endorsed for transfer to the Company. No Option may be exercised by delivery to the Company of certificates representing Stock that has been held by the Option Holder for less than six months or such other period as shall be sufficient for the Company to avoid, if possible, the recognition of expense with respect to the Option for accounting purposes. (g) Service Required for Exercise. Except as set forth in Sections 2.3(d), 4.3, 4.4 and 5.4, each Option shall become exercisable in increments after each month of continuous service by the Holder as a non-employee director of the Company commencing with the twelfth month of continuous service from the date of grant. The number of shares as to all or part of which the Option may be exercised after twelve months of continuous service as a non-employee director after the date of grant shall be 1/4 (12/48) of the total number of shares covered by the Option, with an additional 1/48 being exercisable after each additional month of continuous service as a non-employee director through the 48th month of continuous service. Except as set forth in Sections 2.3(d), 4.3 and 4.4, the Option shall not be exercisable as to any shares as to which the continuous service requirement has not been satisfied, regardless of the circumstances under which the Holder ceased to be a director. The number of shares as to which the Option may be exercised shall be cumulative, so that once the Option becomes exercisable as to any shares it shall continue to be exercisable as to those shares until expiration or termination of the Option as provided in the Plan. ARTICLE III AUTHORIZED STOCK 3.1 The Stock. The total number of shares of Stock as to which Options may be granted pursuant to the Plan shall be 300,000 in the aggregate. The number of shares of Stock authorized for grant hereunder shall be adjusted in accordance with the provisions of Section 3.2. Shares of Stock underlying expired or cancelled and unexercised Options shall again be available for grant under the Plan. The Company shall at all times reserve a sufficient number of shares of Stock, or otherwise assure itself of its ability to perform its obligations hereunder. 3.2 Adjustments for Stock Split, Stock Dividend, Etc. If the Company shall at any time increase or decrease the number of its outstanding Shares by means of payment of a stock dividend or any other distribution upon such Shares payable in Stock, or through a stock split, subdivision, consolidation, combination, reclassification or recapitalization involving the Stock, 4 7 or change in any way the rights and privileges of such Shares, then the numbers, rights and privileges of the following shall be increased, decreased or changed in like manner as if the corresponding Shares had been issued and outstanding, fully paid and nonassessable at the time of such occurrence: (a) the Shares as to which Options may be granted under the Plan; and (b) the Shares then subject to each outstanding Option. Upon any occurrence described in this Section 3.2, the total Option Price under each then outstanding Option shall remain unchanged but shall be apportioned ratably over the increased or decreased number of Shares subject to the Option. 3.3 Adjustments for Certain Distributions of Property. If the Company shall at any time distribute with respect to its Stock assets or securities of other persons (excluding cash dividends or distributions payable out of capital surplus and dividends or other distributions referred to in Sections 3.2 or 3.4), then the Option Price of outstanding Options shall be adjusted to reflect the fair market value of the assets or securities distributed, the Company shall provide for the delivery upon exercise of such Options of cash in an amount equal to the fair market value of the assets or securities distributed or a combination of such actions shall be taken, all as determined by the Committee in its discretion. Fair market value of the assets or securities distributed for this purpose shall be as determined by the Committee. 3.4 Distributions of Capital Stock and Indebtedness. If the Company shall at any time distribute with respect to its Stock shares of its capital stock (other than Stock) or evidences of indebtedness, then a proportionate part of such capital stock and evidences of indebtedness shall be set aside for each outstanding Option and, upon the exercise of such Option, delivered to the Option Holder. 3.5 No Rights as Shareholder. An Option Holder shall have none of the rights of a shareholder with respect to the Shares subject to an Option until such Shares are transferred to the Option Holder upon the exercise of such Option. Except as provided in this Article III, no adjustment shall be made for dividends, rights or other property distributed to shareholders (whether ordinary or extraordinary) for which the record date is prior to the date such Shares are so transferred. 3.6 Fractional Shares. No adjustment or substitution provided for in this Article III shall require the Company to issue a fractional share. The total substitution or adjustment with respect to each Option shall be limited by deleting any fractional share. ARTICLE IV CORPORATE REORGANIZATION; CHANGE OF CONTROL 4.1 Reorganization. Upon the occurrence of any of the following events, if the notice required by Section 4.2 shall have first been given, the Plan and all Options then outstanding hereunder shall automatically terminate and be of no further force and effect whatsoever, without the necessity for any additional notice or other action by the Board or the Company: (a) the 5 8 merger or consolidation of the Company with or into another corporation (other than a consolidation or merger in which the Company is the continuing corporation and which does not result in any reclassification or change of outstanding shares of Stock); or (b) the sale or conveyance of the property of the Company as an entirety or substantially as an entirety (other than a sale or conveyance in which the Company continues as a holding company of an entity or entities that conduct the business or businesses formerly conducted by the Company); or (c) the dissolution or liquidation of the Company. 4.2 Required Notice. At least 30 days' prior written notice of any event described in Section 4.1 shall be given by the Company to each Holder, unless in the case of the events described in clauses (a) or (b) of Section 4.1, the Company, or the successor or purchaser, as the case may be, shall make adequate provision for the assumption of the outstanding Options or the substitution of new options for the outstanding Options on terms comparable to the outstanding Options except that the Holder of each Option then outstanding shall have the right thereafter to purchase the kind and amount of shares of stock or other securities or property or cash receivable upon such merger, consolidation, sale or conveyance by a holder of the number of shares of Stock that would have been receivable upon exercise of the Option immediately prior to such merger, consolidation, sale or conveyance (assuming such holder of Stock failed to exercise any rights of election and received per share the kind and amount received per share by a majority of the non-electing shares). The provisions of this Article IV shall similarly apply to successive mergers, consolidations, sales or conveyances. Such notice shall be deemed to have been given when delivered personally to a Holder or when mailed to a Holder by registered or certified mail, postage prepaid, at such Holder's address last known to the Company. 4.3 Acceleration of Exercisability. Subject to Section 5.4, Holders notified in accordance with Section 4.2 may exercise their Options at any time before the occurrence of the event requiring the giving of notice (but subject to occurrence of such event), regardless of whether all conditions of exercise relating to length of service as a director have been satisfied. 4.4 Change of Control. If a Change in Control (as defined below) occurs, all Options shall become exercisable in full, regardless of whether all conditions of exercise relating to continuous service have been satisfied. A "Change in Control" is deemed to have occurred if (a) a person (as such term is used in Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange Act")) becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of shares of the Company or the Company's successor having 30% or more of the total number of votes that may be cast for the election of directors of the Company without the prior approval of at least a majority of the members of the Board unaffiliated with such person (unless such person beneficially owns shares with at least 15% of such votes on the Effective Date), or (b) individuals who constitute the directors of the Company at the beginning of a 24-month period cease to constitute at least two-thirds of all directors at any time during such period, unless the election of any new or replacement directors was approved by a vote of at least a majority of the members of the Board in office immediately prior to such period and of the new and replacement directors so approved. Notwithstanding anything to the contrary in this Section 4.4, no Option will become exercisable by virtue of the occurrence of a Change in Control if the 6 9 Holder of that Option or any group of which that Holder is a member is the person whose acquisition constituted the Change in Control. ARTICLE V GENERAL PROVISIONS 5.1 Expiration. The Plan shall terminate whenever the Board adopts a resolution to that effect. After termination, no additional Options shall be granted under the Plan, but the Company shall continue to recognize Options previously granted. 5.2 Amendments, Etc. The Board may from time to time amend, modify, suspend or terminate the Plan. Nevertheless, no such amendment, modification, suspension or termination shall impair any Option theretofore granted under the Plan or deprive any Holder of any shares of Stock that he may have acquired through or as a result of the Plan without the consent of the Holder. The Company shall obtain the approval of shareholders to any amendment or modification of the Plan to the extent required by Rule 16b-3 under the Exchange Act ("Rule 16b-3") (or any successor applicable rule) or by the listing requirements of the National Association of Securities Dealers, Inc. or any stock exchange on which the Company's securities are quoted or listed for trading. 5.3 Treatment of Proceeds. Proceeds from the sale of Stock pursuant to Options granted under the Plan shall constitute general funds of the Company. 5.4 Effectiveness. This Plan shall be effective on the Effective Date, subject to approval by the shareholders of the Company in accordance with applicable law within 12 months before or after the Effective Date. If the shareholders of the Company do not approve the Plan as specified above, the Plan as in effect prior to this amendment and restatement shall remain in effect. 5.5 Fair Market Value. The "Fair Market Value" of a share of Stock shall be the last reported sale price of the Stock on the NASDAQ National Market System on the day the determination is to be made, or if no sale took place on such day, the average of the closing bid and asked prices of the Stock on the NASDAQ National Market System on such day, or if the market is closed on such day, the last day prior to the date of determination on which the market was open for the transaction of business, as reported by NASDAQ. If, however, the Stock should be listed or admitted for trading on a national securities exchange, the Fair Market Value of a share of the Stock shall be the last sales price, or if no sales took place, the average of the closing bid and asked prices on the day the determination is to be made, or if the market is closed on such day, the last day prior to the date of determination on which the market was open for the transaction of business, as reported in the principal consolidated transaction reporting system for the principal national securities exchange on which the Stock is listed or admitted for trading. If the Stock is not listed or traded on NASDAQ or on any national securities exchange, the Fair 7 10 Market Value for purposes of the grant of Options under the Plan shall be determined by the Committee in good faith in its sole discretion. 5.6 Section Headings. The Section headings are included herein only for convenience, and they shall have no effect on the interpretation of the Plan. 5.7 Severability. If any article, section, subsection or specific provision is found to be illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of the Plan, and the Plan shall be construed and enforced as if such illegal and invalid provision had never been set forth in the Plan. 5.8 Rule 16b-3. This Plan is intended to comply with the requirements of Rule 16b-3 and any successor applicable rule so that grants under the Plan will not affect the status of non-employee directors as disinterested persons for purposes of Rule 16b-3 and that such grants will otherwise satisfy the requirements of Rule 16b-3. To the extent the Plan does not conform to such requirements, it shall be deemed amended to so conform without any further action on the part of the Board of Directors or shareholders. Amended and restated as of July 9, 1997. EFTC CORPORATION ATTEST: /s/ Lloyd McConnell By: /s/ Jack Calderon - ------------------- -------------------------------------- Secretary President and Chief Executive Officer 8 EX-10.35 9 1997 MANAGEMENT BONUS PLAN 1 EXHIBIT 10.35 Management Bonus Plan EFTC Corporation (the "Company") has established a Management Bonus Plan. The Compensation Committee (the "Committee") of the Board of Directors of the Company has determined that for 1997, in accordance with the Company's executive compensation policies, a bonus plan based on corporate earnings per share will provide an incentive to executives to enhance the financial performance of the Company. The 1997 Bonus Plan will provide the President, Chief Executive Officer, the Vice President, Chief Financial Officer and the Vice President, Chief Administrative Officer with the opportunity to receive cash bonuses for specified increases in corporate earnings per share as determined by the Committee. EX-23.1 10 CONSENT OF KPMG PEAT MARWICK 1 The Board of Directors EFTC Corporation: We consent to inclusion of our report relating to the consolidated balance sheets of EFTC Corporation and subsidiaries as of September 30, 1997 and December 31, 1996 and 1995 and the related consolidated statements of operations, shareholders' equity, and cash flows for the nine months ended September 30, 1997 and for each of the years in the three year period ended December 31, 1996 and incorporation by reference of our report relating to the consolidated balance sheets of EFTC Corporation and subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three year period ended December 31, 1996 in the registration statement on Form S-2 of EFTC Corporation and to the references to our firm under the headings "Summary Consolidated Historical and Pro Forma Financial Information", "Selected Consolidated Historical and Pro Forma Financial Data" and "Experts" in the Prospectus. KPMG Peat Marwick LLP Denver, Colorado October 20, 1997 EX-23.2 11 CONSENT OF KPMG PEAT MARWICK 1 Exhibit 23.2 INDEPENDENT AUDITORS' CONSENT The Board of Directors Circuit Test, Inc. and Affiliates: We consent to the inclusion of our report dated July 11, 1997, with respect to the combined balance sheets of Circuit Test, Inc. and affiliates as of December 31, 1996 and 1995, and the related combined statements of earnings, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996, which report appears in the Form S-2 of EFTC Corporation dated October 21, 1997. KPMG Peat Marwick LLP Memphis, Tennessee October 20, 1997 EX-23.3 12 CONSENT OF ARTHUR ANDERSEN 1 Exhibit 23.3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the inclusion, in this Form S-2 Registration Statement, of our reports dated April 4, 1997 and November 25, 1996 on the combined financial statements of Current Electronics, Inc. and Current Electronics Washington, Inc. and to all references to our firm included in this Registration Statement. ARTHUR ANDERSEN LLP Portland, Oregon October 17, 1997 EX-24.1 13 POWER OF ATTORNEY 1 POWER OF ATTORNEY Each person whose signature appears below does hereby make, constitute and appoint each of Jack Calderon and Stuart W. Fuhlendorf as such person's true and lawful attorney-in-fact and agent, with full power of substitution, resubstitution and revocation to execute, deliver and file with the Securities and Exchange Commission, for and on such person's behalf, and in any and all capacities, a Registration Statement on Form S-2, any and all amendments (including post-effective amendments) thereto and any abbreviated registration statement in connection with this Registration Statement pursuant to Rule 462(b) under the Securities Act of 1933, with all exhibits thereto and other documents in connection therewith, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or such persons's substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Gerald J. Reid September 29, 1997 ------------------------------------ Gerald J. Reid /s/ Jack Calderon September 29, 1997 ------------------------------------ Jack Calderon /s/ Stuart W. Fuhlendorf September 29, 1997 ------------------------------------ Stuart W. Fuhlendorf /s/ Allen S. Braswell, Sr. September, 29, 1997 ------------------------------------ Allen S. Braswell, Sr. /s/ Allen S. Braswell, Jr. September 29, 1997 ------------------------------------ Allen S. Braswell, Jr. /s/ Darrayl E. Cannon October 9, 1997 ------------------------------------ Darrayl E. Cannon /s/ James A. Doran October 10, 1997 ------------------------------------ James A. Doran 2 /s/ Charles E. Hewitson October 7, 1997 ------------------------------------ Charles E. Hewitson /s/ Gregory C. Hewitson October 8, 1997 ------------------------------------ Gregory C. Hewitson /s/ Matthew J. Hewitson October 11, 1997 ------------------------------------ Matthew J. Hewitson /s/ Lloyd A. McConnell September 30, 1997 ------------------------------------- Lloyd A. McConnell /s/ Robert K. McNamara October 8, 1997 ------------------------------------ Robert K. McNamara /s/ Richard L. Monfort October 6, 1997 ------------------------------------ Richard L. Monfort /s/ Lucille A. Reid September 29, 1997 ------------------------------------- Lucille A. Reid /s/ Masoud S. Shirazi September 30, 1997 ------------------------------------ Masoud S. Shirazi /s/ David W. Van Wert October 6, 1997 ------------------------------------ David W. Van Wert EX-27.1 14 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1997 SEP-30-1997 2,226,217 0 18,491,289 194,480 32,754,622 54,471,526 24,304,095 6,415,618 117,645,892 54,060,230 32,725,000 0 0 78,121 30,108,277 117,645,892 64,973,220 64,973,220 56,739,734 56,739,734 5,282,942 0 1,054,448 3,101,852 1,132,824 1,969,028 0 0 0 1,969,028 .34 .32
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