EARNOUT AGREEMENT
THIS EARNOUT AGREEMENT (this "Agreement"), dated as of September 30,
1997, is among EFTC CORPORATION, a Colorado corporation ("Parent"), and the
undersigned MEMBERS (the "Airhub Members") of AIRHUB SERVICES GROUP, L.C., a
Kentucky limited liability company ("Airhub"), and the MEMBERS (the "CTLLC
Members" and, together with the Airhub Members, the "LLC Members") of CIRCUIT
TEST INTERNATIONAL, L.C., a Florida limited liability company ("CTLLC").
RECITALS
A. Pursuant to that certain Agreement and Plan of Reorganization, dated
as of July 9, 1997 (the "Reorganization Agreement"), among Parent, CTI and CTI
Acquisition Corp., a Florida corporation and a wholly-owned subsidiary of
Parent, CTI Acquisition Corp. will be merged with and into CTI (the "Merger")
and as a result of the Merger, all shares of CTI Common Stock will be converted
into the right to receive shares of Parent Common Stock.
B. Pursuant to that certain Limited Liability Company Unit Purchase
Agreement, dated as of July 9, 1997 (the "Purchase Agreement"), among Parent,
CTILLC Acquisition Corp. ("LLC Acquisition"), Airhub, the Airhub Members, CTLLC
and the CTLLC Members, all of the outstanding interests in Airhub and CTLLC will
be acquired (the "Acquisition") and as a result of the Acquisition, all
outstanding interests in Airhub will be acquired by Parent and all of
outstanding interests in CTLLC will be acquired by Parent and LLC Acquisition.
C. In connection with, and in order to induce Parent, Airhub, the
Airhub Members, CTLLC and the CTLLC Members to enter into the Purchase Agreement
and as additional consideration for the interests acquired pursuant to the
Purchase Agreement, Parent, Airhub, the Airhub Members, CTLLC and the CTLLC
Members are entering into this Agreement.
D. Capitalized terms used not defined herein shall have that meaning as
given in the Purchase Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
1. Earnout Payments. (a) Within ninety (90) days after December 31,
1997, 1998 and 1999, Parent agrees to make certain cash earnout payments (the
"Earnout Payments") to the Airhub Members and the CTLLC Members, payable pro
rata (determined by the percentage set forth opposite the name of each of the
Airhub Members and the CTLLC Members in Schedule A attached hereto). The three
Earnout Payments will be in the following amounts:
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(i) 1997: $2 million, but only if the aggregate EBIT, if any, of the CTI
Group for the first such year exceeds $4.5 million,
(ii) 1998: $4 million, less the payment made, if any, pursuant to 1(a)(i)
above, but only if the aggregate EBIT of the CTI Group for 1997 and 1998 exceeds
$9.0 million, and
(iii) 1999: $6 million, less payments made, if any, pursuant to 1(a)(i) and
(ii) above, but only if the aggregate EBIT of the CTI Group for 1997, 1998, and
1999 exceeds $13.5 million;
(b) For the purposes of this Agreement,
(i) "CTI Group" means CTI, CTLLC and Airhub, taken as a group; and
(ii) "EBIT" means the earnings, before interest and taxes, determined on a
consolidated basis in accordance with generally accepted accounting principles
at the time of determination of CTLLC and Airhub (and including, if necessary to
achieve the target amounts of EBIT specified in 1(a), CTI).
(c) For the purpose of determining the EBIT for each year specified in
Sections 1(a)(i), (ii) and (iii), the CTI Group shall be audited in accordance
with generally accepted auditing standards at the time by a certified public
accounting firm of Parent's selection for each such year and EBIT shall be
conclusively determined by such accounting firm from the results of each such
audit. Such audit shall be conducted and EBIT shall be determined independently
of Parent and its affiliates other than the CTI Group, without any allocation of
income or expense not directly incurred by the CTI Group (based on its historic
operations measured as of the effective time). Each party agrees to cooperate
in, and to provide all information necessary or reasonably requested by such
accounting firm in connection with, the conduct of such audit. EBIT shall be
calculated to not include charges and expenses, deferred compensation in the
amount of $500,000, and bonuses payable by the CTI Group paid or payable in
connection with the Transaction as contemplated by the Reorganization Agreement
and the Purchase Agreement (the "Transaction Expenses"), and payments made to
Broadview Associates described in Section 4.28 of the Reorganization Agreement.
In the event of a dispute over the EBIT as determined by Parent's accountants,
but not over the Transaction Expenses, at the election of an Airhub or CTLLC
Member, an independent certified public accounting firm (the "Member Accounting
Firm"), other than the firm used by Parent, may examine the records of the CTI
Group to determine the accuracy of such EBIT determination. Prior to conducting
such a review, the Member Accounting Firm shall sign such reasonable
confidentiality agreements as are requested by Parent. The expense of any such
audit shall be the responsibility of the Airhub or CTLLC Member who has elected
to dispute the EBIT determination, unless such Member Accounting Firm determines
that an error which would result in payment of an Earnout Payment which
otherwise was not to be paid. In such case, Parent shall be responsible for any
fees reasonably incurred in such audit. The report of such Member Accounting
Firm shall be final,
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binding and conclusive on the parties. In the event of a dispute over the
calculation of the Transaction Expenses, the parties shall first endeavor in
good faith to resolve such a dispute. If no resolution of such a dispute is had,
the dispute shall be resolved by final and binding arbitration by three
arbitrators. One selected by Parent, the other selected by Xxxxx X. Xxxxxxxx,
Xx. and the third selected by the two arbitrators appointed by Parent and Xxxxx
X. Xxxxxxxx, Xx. The arbitration shall take place in Denver, Colorado and in no
other place. The arbitration shall be conducted in accordance with the rules and
procedures of the American Arbitration Association. During the pendency of any
such arbitration to determine Transaction Expenses, Parent's payment obligations
under this Agreement, if any, shall be tolled and only be due, if at all, ninety
(90) days after the entry of a final award or decision of the arbitrators.
2. Payment in the Event of an Offering or Change in Control. (a) If, on
or prior to December 31, 1999, Parent consummates any transaction involving
either (i) the registration and underwritten sale of shares of Parent Common
Stock or securities convertible into or exchangeable for Parent Common Stock for
the account of Parent; or (ii) the private placement of shares of Parent Common
Stock, or securities convertible into or exchangeable for Parent Common Stock,
for the account of Parent with aggregate net proceeds to Parent from such
private placement of not less than $40 million, then Parent shall pay the Airhub
Members and the CTLLC Members $6 million, less any Earnout Payments paid or due
and payable pursuant to Section 1. Any payment made according to this Section
2(a) shall be paid in full to the Airhub Members and the CTLLC Members pro rata
(determined as provided above in Section 1) within thirty (30) days of the
closing of such underwritten sale or private placement. No payment obligation
shall arise under this Section 2(a) if, prior to any such underwritten sale or
private placement, a Change in Control (as defined below) shall have occurred,
in which case Parent's payment obligation shall be governed by Section 2(b).
(b) If a Change in Control occurs on or prior to December 31,
1999 after the date of this Agreement, Parent shall pay the Airhub Members and
the CTLLC Members $6 million, less any Earnout Payments already paid or due and
payable pursuant to Section 1. Any payment made according to this Section 2(b)
shall be paid in full to the Airhub Members and the CTLLC Members pro rata
(determined as provided above in Section 1) within thirty (30) days of the
closing of such Change in Control. No payment obligation shall arise under this
Section 2(b) if, prior to any such Change in Control, an underwritten sale or
private placement giving rise to a payment under Section 2(a) shall have
occurred, in which case Parent's payment obligation shall be governed by Section
2(a).
(c) For the purposes of this Agreement,
(i) the term "Change in Control" means (A) the sale, lease, conveyance or
other disposition of all or substantially all of the assets of Parent to any
Person (as defined below) or group (as such term is used in Section 13(d)(3) of
the Securities Exchange Act of 1934), other than any Permitted Owner (as defined
below), (B) the merger or consolidation of Parent with any Person that is not
controlled by a Permitted Holder,
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(C) the liquidation or dissolution of Parent, or (D) the occurrence of any
other transaction, excluding a public offering of voting capital stock of
Parent, that results in Permitted Holders directly or indirectly owning in the
aggregate less than 35% of all of the voting capital stock of Parent then
outstanding,
(ii) the term "Permitted Holders" means any (A) Person owning, immediately
after the effectiveness of the Merger, greater than 5% of Parent's outstanding
Common Stock, (B) Person serving, immediately after the effectiveness of the
Merger as an executive officer or director of Parent, or (C) group (used as
specified above) of Persons that includes at least one Person meeting the
criteria in either of the foregoing clauses (A) and (B), and
(iii) the term "Person" means any individual, corporation, firm, joint
venture, association, partnership, organization, business, trust, other legal
entity or enterprise, government or political subdivision, department or
instrumentality thereof, including any governmental authority or district.
3. Binding Effect; Expiration. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement is intended to bind each Airhub Member as a
member of Airhub and each CTLLC Member as a member of CTLLC only with respect to
the specific matters set forth herein and shall not prohibit any Airhub Member
or CTLLC Member from acting in accordance with any applicable fiduciary duties
as a member of Airhub or CTLLC.
4. Further Assurances. The parties will take, or cause to be taken, all
actions and do, or cause to be done, all things necessary, proper or advisable,
in the reasonable opinion of Parent, to carry out the intents and purposes of
this Agreement, including the execution and delivery of additional documents and
instruments.
5. General Provisions.
(a) All notices and other communications hereunder shall be in
writing and shall be deemed given when delivered personally or sent via
facsimile, in either case with confirmation of receipt, or shall be deemed given
the business day after delivery of such notice (together with a proper request
for overnight delivery and confirmation of receipt) to a nationally recognized
overnight courier service that guarantees next-business-day delivery to the
applicable destination, in each such case to the parties at the following
address or at such other address for a party as shall be specified by notice
hereunder:
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(i) if to Parent, to:
EFTC Corporation
0000 Xxxx 0xx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxxxxx
Facsimile No.: (000) 000-0000
with a copy to:
Holme Xxxxxxx & Xxxx LLP
0000 Xxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx
Facsimile No.: (000) 000-0000
or
(b) if to the Airhub or CTLLC Members, to:
Xxxxx X. Xxxxxxxx, Xx.
0000 Xxxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxx 00000
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxx, Xxxxxx & Xxxxxxx, PLLC
00 Xxxxx Xxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxxx 00000
Attention: Warner X. Xxxxx
Facsimile No.: (000) 000-0000
(b) When a reference is made in this Agreement to a Section,
such reference shall be to a Section of this Agreement unless otherwise
indicated. The words "include," "includes" and "including" when used herein
shall be deemed in each case to be followed by the words "without limitation."
The Section headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Agreement.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms.
(c) This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties hereto and delivered to the other parties hereto, it being
understood that all parties hereto need not sign the same counterpart.
(d) This Agreement and the documents and instruments and other agreements
specifically referred to herein or delivered pursuant hereto: (i) constitute the
entire agreement among
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the parties hereto with respect to the subject matter hereof and supersede all
prior agreements and understandings, both written and oral, among the parties
hereto with respect to the subject matter hereof; (ii) are not intended to
confer upon any other Person any rights or remedies hereunder; and (iii) shall
not be assigned by operation of law or otherwise except as otherwise
specifically provided. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
(e) In the event that any provision of this Agreement, or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
Persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties hereto further agree to replace such
void or unenforceable provision of this Agreement with a valid and enforceable
provision that will achieve, to the extent possible, the economic, business and
other purposes of such void or unenforceable provision.
(f) Except as otherwise provided herein, any and all remedies
herein expressly conferred upon a party will be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by law or equity upon such
party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy. No failure or delay on the part of any party
hereto in the exercise of any right hereunder shall impair such right or be
construed to be a waiver of, or acquiescence in, any breach of any
representation, warranty or agreement herein, nor shall any single or partial
exercise of any such right preclude other or further exercise thereof or of any
other right. This Agreement may be amended or modified in writing by the party
hereto against whom enforcement of such amendment or modification is sought.
(g) This Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado (without regard to the
principles of conflicts of law thereof).
(h) The parties hereto acknowledge that they have been
represented by counsel during the negotiation, preparation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
(i) In the event of any proceeding to enforce this Agreement,
the prevailing party shall be entitled to receive from the losing party all
reasonable costs and expenses, including the reasonable fees of attorneys,
accountants and other experts, incurred by the prevailing party in investigating
and prosecuting (or defending) such action at trial or upon any appeal.
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SIGNATURE PAGE--EARNOUT AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Earnout
Agreement to be executed and delivered as of the date first written above.
PARENT:
EFTC CORPORATION,
a Colorado corporation
By:
XXXXX X. XXXXXXXX, XX. REVOCABLE LIVING
TRUST
By /s/
Xxxxx X. Xxxxxxxx, Xx., Trustee
CIRCUIT TEST INTERNATIONAL LIMITED
PARTNERSHIP, a Florida limited
Partnership
By XXXXX X. XXXXXXXX, XX. LIVING TRUST
Its General Partner
/s/
Xxxxx X. Xxxxxxxx, Xx., Trustee
CTLLC MEMBERS:
XXXXX X. XXXXXXXX, XX. REVOCABLE LIVING
TRUST
By /s/
Xxxxx X. Xxxxxxxx, Xx., Trustee
CIRCUIT TEST INTERNATIONAL LIMITED
PARTNERSHIP, a Florida limited
Partnership
By XXXXX X. XXXXXXXX, XX. LIVING TRUST
Its General Partner
/s/
Xxxxx X. Xxxxxxxx, Xx., Trustee
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