FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter period ended December 3, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File No. 333-50981
MCMS, INC.
(Exact name of registrant as specified in its charter)
Idaho 82-0480109
(State or other jurisdiction (I.R.S. Employer identification No.)
of incorporation or
organization)
16399 Franklin Road, Nampa, Idaho 83687
(Address of principal executive offices, Zip Code)
(208)898-2600
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to filing
requirements for the past 90 days.
Yes No X
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Shares of Class A Common Stock outstanding at December 3, 1998: 3,261,177
Shares of Class B Common Stock outstanding at December 3, 1998: 863,823
Shares of Class C Common Stock outstanding at December 3, 1998: 874,999
<PAGE>
MCMS, INC.
INDEX
Part I. Page
----
Item 1 Financial Information
Unaudited Consolidated Balance Sheets -
September 3, 1998 and December 3, 1998 3
Unaudited Consolidated Statements of Operations -
Three Months Ended November 27, 1997 and
December 3, 1998 4
Unaudited Consolidated Statements of Cash Flows -
Three Months Ended November 27, 1997 and
December 3, 1998 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Certain Factors 13
Item 3 Quantitative and Qualitative Disclosures about
Market Risk 18
Part II.
Other Information
Item 6 Exhibits 19
Signatures 20
2
<PAGE>
PART I FINANCIAL INFORMATION
- -----------------------------
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
MCMS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<CAPTION>
September 3, December 3,
As of 1998 1998
- -----------------------------------------------------------------------------------
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 7,542 $ -
Trade account receivable, net of allowances
for doubtful accounts of $97 and $278 34,231 39,323
Receivable from affiliates 2,096 1,350
Inventories 29,816 48,929
Deferred income taxes 1,255 1,452
Other current assets 356 529
------------ ------------
Total current assets 75,296 91,583
Property, plant and equipment, net 62,106 62,668
Deferred income taxes - 314
Other assets 7,650 7,433
------------ ------------
Total assets $ 145,052 $ 161,998
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current portion of long-term debt $ 420 $ 195
Accounts payable and accrued expenses 44,433 59,159
Payable to affiliates 775 848
Interest payable 197 4,528
------------ ------------
Total current liabilities 45,825 64,730
Notes payable, net of current portion 184,737 186,180
Deferred income taxes 1,286 -
Other liabilities 580 597
------------ ------------
Total liabilities 232,428 251,507
Redeemable preferred stock, no par value,
750,000 shares authorized; issued and
outstanding 266,313 and 274,632 shares,
respectively; mandatory redemption value of
$26.6 million and $27.5 million, respectively 25,675 26,528
Commitments and contingencies - -
Series A convertible preferred stock, par value
$0.001 per share, 6,000,000 shares authorized;
issued and outstanding 3,261,177; aggregate
liquidation preference of $36,949,135 3 3
Series B convertible preferred stock, par value
$0.001 per share, 6,000,000 shares authorized;
issued and outstanding 863,823 shares;
aggregate liquidation preference of $9,787,115 1 1
Series C convertible preferred stock, par value
$0.001 per share, 1,000,000 shares authorized;
issued and outstanding 874,999 shares;
aggregate liquidation preference of $9,913,739 1 1
Class A common stock, par value $0.001 per
share, 30,000,000 shares authorized; issued and
outstanding 3,261,177 3 3
Class B common stock, par value $0.001 per
share, 12,000,000 shares authorized; issued
and outstanding 863,823 shares 1 1
Class C common stock, par value $0.001 per
share, 2,000,000 shares authorized; issued and
outstanding 874,999 shares 1 1
Additional paid-in capital 63,318 62,471
Accumulated other comprehensive income (2,270) (2,337)
Retained earnings (174,109) (176,131)
Less treasury stock at cost:
Series A convertible preferred stock, 3,676
shares outstanding - (42)
Class A common stock, 3,676 shares outstanding - (8)
------------ ------------
Total shareholders' equity (deficit) (113,051) (116,037)
------------ ------------
Total liabilities and shareholders'
equity (deficit) $ 145,052 $ 161,998
============ ============
</TABLE>
3
<PAGE>
MCMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three months ended
---------------------------------
November 27, December 3,
1997 1998
------------ ------------
<S> <C> <C>
Net sales $ 71,001 $ 91,243
Cost of goods sold 60,909 86,056
------------ ------------
Gross profit 10,092 5,187
Selling, general and administrative expenses 3,122 4,219
------------ ------------
Income from operations 6,970 968
Other expense (income):
Interest expense (income), net (135) 4,721
Other - 45
------------ ------------
Income (loss) before taxes 7,105 (3,798)
Income tax provision (benefit) 2,629 (1,775)
------------ ------------
Net income (loss) 4,476 (2,023)
Redeemable preferred stock dividends and
accretion of preferred stock discount - (882)
------------ ------------
Net income (loss) to common stockholders $ 4,476 $ (2,905)
============ ============
Net income (loss) per share - basic and
diluted $ 4,476 $ (0.58)
============ ============
Weighted average common shares outstanding -
basic and diluted 1,000 5,000,000
============ ============
</TABLE>
4
<PAGE>
MCMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three months ended
---------------------------------
November 27, December 3,
1997 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ 4,476 $ (2,023)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 2,629 3,661
Loss on sale of property, plant and equipment 2 25
Changes in operating assets and liabilities:
Receivables 6,269 (4,292)
Inventories (3,409) (19,103)
Other assets (154) (418)
Accounts payable and accrued expenses 757 13,616
Interest payable - 4,331
Deferred income taxes 178 (1,797)
Other liabilities - 100
------------ ------------
Net cash provided by (used for) operating
activities 10,748 (5,900)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment (7,677) (2,921)
Proceeds from sales of property, plant and
equipment 31 -
------------ ------------
Net cash used for investing activities (7,646) (2,921)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from (repayments of) borrowings on
line of credit - 1,500
Repayments of debt (254) (70)
Purchase of treasury stock - (50)
------------ ------------
Net cash provided by (used for) financing
activities (254) 1,380
------------ ------------
Effect of exchange rate changes on cash and
cash equivalents - (101)
------------ ------------
Net increase (decrease) in cash and cash
equivalents 2,848 (7,542)
------------ ------------
Cash and cash equivalents at beginning of
period 13,636 7,542
------------ ------------
Cash and cash equivalents at end of period $ 16,484 $ -
============ ============
</TABLE>
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(TABULAR DOLLAR AMOUNTS IN THOUSANDS)
1. General
The information included in the accompanying consolidated
interim financial statements is unaudited and should be read in
conjunction with the annual audited financial statements and
notes thereto contained in the Company's Report on Form 10-K for
the fiscal year ended September 3, 1998. In the opinion of
management, all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the results of
operations for the interim periods presented have been reflected
herein. The results of operations for the interim periods
presented are not necessarily indicative of the results to be
expected for the entire fiscal year.
2. Effect of Recently Issued Accounting Standards
During the first quarter of fiscal 1999, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 130,
Reporting Comprehensive Income. SFAS No. 130 establishes
standards for the presentation of comprehensive income or loss in
financial statements. Comprehensive income or loss includes
income and loss components which are otherwise recorded directly
to shareholders' equity under generally accepted accounting
principles. The Company's comprehensive loss for the three
months ended December 3, 1998 was $2,090,000. The Company's
comprehensive income for the three months ended November 27, 1997
was $3,179,000. The accumulated balance of foreign currency
translation adjustments, excluded from net income or loss, is
presented in the consolidated balance sheet as "Accumulated other
comprehensive income."
In June 1997, the Financial Accounting Standards Board
issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information." Under SFAS No. 131, publicly held
companies are required to report financial and other information
about key revenue-producing segments of the entity for which such
information is available and is utilized by the chief operating
decision-maker. Specific information to be reported for
individual segments includes profit or loss, certain revenue and
expense items and total assets. A reconciliation of segment
financial information to amounts reported in the financial
statements must also be provided. SFAS No. 131 is effective for
the Company in fiscal 1999 but the form of the presentation in
the Company's financial statements has not yet been determined.
In March 1998, the AICPA issued Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." Under SOP 98-1,
companies are required to capitalize certain costs of computer
software developed or obtained for internal use, provided that
those costs are not research and development. The Company is
currently evaluating the effect of SOP 98-1 on the Company's
results of operations and financial position. The Company is
required to implement SOP 98-1 in fiscal 2000.
<TABLE>
3. Inventories
<CAPTION>
September 3, December 3,
1998 1998
------------ ------------
<S> <C> <C>
Raw materials and supplies $ 18,126 $ 26,587
Work in process 11,020 21,866
Finished goods 670 476
------------ ------------
$ 29,816 $ 48,929
============ ============
4. Accounts payable and accrued expenses
September 3, December 3,
1998 1998
------------ ------------
Trade accounts payable $ 39,152 $ 53,047
Short-term equipment contracts 543 1,152
Salaries, wages, and benefits 3,619 3,600
Other 1,119 1,360
------------ ------------
$ 44,433 $ 59,159
============ ============
</TABLE>
6
<PAGE>
<TABLE>
5. Long-term Debt
<CAPTION>
September 3, December 3,
1998 1998
------------ ------------
<S> <C> <C>
Revolving loan, principal payments at the
Company's option to February 26, 2003,
interest due quarterly, interest rates
ranging from 8.38% to 10.75% and 8.0% to
9.75%, respectively (8.38% and 8.11% at
September 3, 1998 and December 3, 1998,
respectively) $ 9,500 $ 11,000
Note payable, matures on October 8, 1998,
interest due at maturity, weighted average
interest rate equal to interest earned on the
Company's cash investments (5.24% at September
3, 1998) 212 -
Senior subordinated notes (the "Fixed Rate
Notes"), unsecured, interest at 9.75% due
semiannually, mature on March 1, 2008 145,000 145,000
Floating interest rate subordinated term
securities, (the "Floating Rate Notes"),
unsecured, interest due semiannually, mature
on March 1, 2008, variable interest rate equal
to LIBOR plus 4.63% (10.22% and 10.22% at
September 3, 1998 and December 3, 1998,
respectively) 30,000 30,000
Note payable, quarterly installments through
October 1, 2000, interest rate of 3.51% 445 375
------------ ------------
Total debt 185,157 186,375
Less current portion (420) (195)
------------ ------------
$ 184,737 $ 186,180
============ ============
</TABLE>
On February 26, 1998, the Company also issued $25.0 million
in 12-1/2% Redeemable Preferred Stock due on March 1, 2010 with a
liquidation preference of $100 per share. Dividends are payable
in cash or in-kind quarterly beginning June 1, 1998 at a rate
equal to 12-1/2% per annum. To-date, the Company has paid all
dividends in-kind.
6. Net Income (Loss) Per Share
Basic earnings per share is computed using net income (loss)
reduced (increased) by dividends on the Redeemable Preferred
Stock divided by the weighted average number of common shares
outstanding. Diluted earnings per share is computed using the
weighted average number of common and common stock equivalent
shares outstanding. Common equivalent shares include shares
issuable upon the exercise of outstanding stock options and
shares issuable upon the conversion of outstanding convertible
securities, and affect earnings per share only when they have a
dilutive effect. For the first quarter ended December 3, 1998,
the inclusion of 3.3 million, 0.9 million and 0.9 million common
shares issuable upon conversion of the Company's outstanding
Series A, Series B and Series C Convertible Preferred Stock,
respectively, are not included in the calculation of diluted
earnings per share because the effect would be antidilutive.
7. Income Taxes
The effective rate of the tax benefit for the first quarter
of fiscal 1999 was 46.7%. The effective rate for the provision of
income taxes was 37.0% for the corresponding period of fiscal
1998. The effective tax rate primarily reflects the statutory
corporate income tax rate, the net effect of state taxation and
the effect of a tax holiday granted to the Company's Malaysian
operation. The increase in the effective rate of the tax
benefit in the first quarter of 1999 relative to the
corresponding period of fiscal 1998 was primarily due to an
increase in the proportion of lower taxed income generated by the
Company's Malaysian operations. Because the Company does not
provide for U.S. tax on the earnings of its foreign
subsidiaries, the effective rate may vary significantly from
period to period.
7
<PAGE>
8. Recapitalization
On February 26, 1998 the Company completed a
Recapitalization. Prior to the closing of the Recapitalization,
the Company was a wholly owned subsidiary of MEI California, Inc.
("MEIC"), a wholly owned subsidiary of Micron Electronics, Inc.
("MEI"). Under the terms of the amended and restated
Recapitalization Agreement between the Company, MEIC, MEI and
certain other parties, pursuant to which the Company effected the
Recapitalization, certain unrelated investors (the "Investors")
acquired an equity interest in the Company. In order to complete
the Recapitalization, the Company arranged for additional
financing in the form of notes and redeemable preferred stock
totaling $200.0 million. The Company used the proceeds from the
Investors' equity investment and the issuance of notes and
redeemable preferred stock to redeem a portion of MEIC's
outstanding equity interest for approximately $249.2 million. As
of the date of this report and at all times since the date of the
Recapitalization, MEIC holds a 10% equity interest in the
Company.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Statements contained in this Form 10-Q that are not purely
historical are forward-looking statements and are being provided
in reliance upon the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. All forward-looking
statements are made as of the date hereof and are based on
current management expectations and information available to the
Company as of such date. The Company assumes no obligation to
update any forward-looking statement. It is important to note
that actual results could differ materially from historical
results or those contemplated in the forward-looking statements.
Forward-looking statements involve a number of risks and
uncertainties, and include trend information. Factors that could
cause actual results to differ materially include, but are not
limited to, those identified herein under "Certain Factors" and
in other Company filings with the Securities and Exchange
Commission. All quarterly references are to the Company's fiscal
periods ended December 3, 1998, September 3, 1998 or November 27,
1997, unless otherwise indicated.
MCMS, Inc. ("MCMS" or the "Company") is a leading
electronics manufacturing service ("EMS") provider serving
original equipment manufacturers ("OEMs") in the networking,
telecommunications, computer systems and other sectors of the
electronics industry. The Company offers a broad range of
capabilities and manufacturing management services, including
product design and prototype manufacturing; materials procurement
and inventory management; manufacturing and testing of printed
circuit board assemblies ("PCBAs") and memory modules and
systems; quality assurance; and end-order fulfillment.
MCMS provides services on both a turnkey and consignment
basis. Under a consignment arrangement, the OEM procures the
components and the Company assembles and tests them in exchange
for a process fee. Under a turnkey arrangement, the Company
assumes responsibility for both the procurement of components and
their assembly and test. Turnkey manufacturing generates higher
net sales than consignment manufacturing due to the generation of
revenue from materials as well as labor and manufacturing
overhead, but also typically results in lower gross margins than
consignment manufacturing because the Company generally realizes
lower gross margins on material-based revenue than on
manufacturing-based revenue. The Company also provides services
on a partial consignment basis, whereby the OEM procures certain
materials and the Company procures the remaining materials.
Consignment revenues, excluding partial consignment revenues,
accounted for 4.6% of the Company's net sales for the three
months ended December 3, 1998.
<TABLE>
Results of Operations
<CAPTION>
Three months ended
----------------------------
November 27, December 3,
1997 1998
------------ ------------
<S> <C> <C>
Net sales 100.0% 100.0%
Costs of sales 85.8 94.3
------------ ------------
Gross margin 14.2 5.7
Selling, general and
administrative expenses 4.4 4.6
------------ ------------
Income from operations 9.8 1.1
Interest expense (income), net (0.2) 5.2
Other - 0.1
------------ ------------
Income (loss) before taxes 10.0 (4.2)
Income tax provision (benefit) 3.7 (2.0)
Net income (loss) 6.3% (2.2%)
============ ============
Depreciation and amortization (1) 3.7% 3.8%
- --------------------------------- ============ ============
(1) For the three months ended December 3, 1998 depreciation and
amortization amount excludes $233,000 of deferred loan
amortization that was expensed as interest.
</TABLE>
Three Months Ended December 3, 1998 Compared to Three Months
Ended November 27, 1997
Net Sales. Net sales for the three months ended December 3,
1998 increased by $20.2 million, or 28.5%, to $91.2 million from
$71.0 million for the three months ended November 27, 1997. The
increase in net sales is primarily the result of a higher volume
of PCBA shipments to customers in the networking and
9
<PAGE>
telecommunications industries. These increases were partially
offset by lower PCBA prices and by decreases in both the volume
and price of custom turnkey and consigned memory modules.
Net sales attributable to foreign subsidiaries totaled $7.1
million for the three months ended December 3, 1998, compared to
$5.4 million for the corresponding period of fiscal 1998. The
growth in foreign subsidiary net sales is primarily the result of
additional sales at the Company's Belgian operation, which began
operations in November of 1997.
Gross Profit. Gross profit for the three months ended
December 3, 1998 decreased by $4.9 million, or 48.6%, to $5.2
million from $10.1 million for the three months ended November
27, 1997. Gross margin for the three months ended December 3,
1998 decreased to 5.7% of net sales from 14.2% for the comparable
period ended November 27, 1997. The decrease in gross profit
resulted from a lower volume of units shipped and lower pricing
on consigned modules, lower volumes of turnkey custom memory
modules and reduced capacity utilization at the Durham, North
Carolina operation. To a lesser degree, the Belgian operation had
a negative impact on gross margin during this period and it is
anticipated that it will continue to have a negative impact on
margins for the remainder of fiscal 1999.
Selling, General and Administrative Expenses. Selling,
general and administrative expenses ("SG&A") for the three months
ended December 3, 1998 increased by $1.1 million, or 35.1%, to
$4.2 million from $3.1 million for the three months ended
November 27, 1997. This increase for the three months ended
December 3, 1998 was the result of additional headcount in senior
management, finance and administration, sales and marketing, and
information technology which collectively amounted to $0.6
million, as well as additional SG&A associated with the Company's
foreign subsidiaries in the amount of $0.4 million.
Interest Expense. Interest expense for the three months
ended December 3, 1998 increased to $4.7 million due to the
addition of $175 million in long-term debt issued or incurred in
conjunction with the Recapitalizaton.
Provision for Income Taxes. Income taxes for the three
months ended December 3, 1998 decreased by $4.4 million, to a
benefit of $1.8 million from an expense of $2.6 million for the
three months ended November 27, 1997. The effective rate of the
tax benefit for the first quarter of fiscal 1999 was 46.7%, as
compared to a provision for income taxes of 37.0% for the
corresponding period of fiscal 1998. The increase in the
effective rate of the tax benefit in the first quarter of fiscal
1999 was primarily due to an increase in the proportion of lower
taxed income generated by the Company's Malaysian operation.
Net Income. For the reasons stated above, net income for
the three months ended December 3, 1998 decreased by $6.5 million
to a loss of $2.0 million from income of $4.5 million for the
three months ended November 27, 1997. As a percentage of net
sales, net loss for the three months ended December 3, 1998 was
2.2% compared to net income of 6.3% for the three months ended
November 27, 1997.
Liquidity and Capital Resources
During the first quarter of fiscal 1999, the Company's cash
and cash equivalents decreased by $7.5 million. Net cash
consumed by operating activities was $5.9 million. Net cash used
by investing activities was $2.9 million and net cash provided by
financing activities was $1.4 million. Exchange rate changes
reduced net cash by $0.1 million. Net cash used by investing
activities during the first quarter of fiscal 1999 primarily
consisted of to capital expenditures for additional manufacturing
capacity in the U.S and implementation of the Baan Enterprise
Resource Planning ("ERP") system. Net cash generated from
financing activities principally resulted from net borrowings
under the Company's existing credit facilities.
The cash consumed by operations of $5.9 million was
primarily due to an increase in inventory of $19.1 million during
the first quarter of 1999. The growth in inventory included
increases in raw materials of $6.9 million and work in process of
$3.8 million resulting from the growth and volatility of new
programs at the Nampa, Idaho operation and increases in work in
process of $6.4 million due to stronger customer demand late in
the first quarter at the Durham, North Carolina operation. The
average collection period for accounts receivable and the average
inventory turns were 38.5 days and 8.7 turns during the first
quarter of fiscal 1999 compared to 44.3 days and 12.6 turns
during the corresponding period in fiscal 1998. The average
collection period and average inventory turn level vary as a
function of sales volume, sales volatility, product mix, payment
terms with customers and suppliers and the mix of consigned and
turnkey business.
10
<PAGE>
Capital expenditures during the first quarter of fiscal
1999 were $2.9 million, including $1.6 million for additional
manufacturing capacity in the U.S. and $1.3 million toward the
implementation of the Baan ERP system. The Company anticipates
spending an additional $2.9 million in fiscal 1999 to complete
the ERP system implementation. See "Year 2000 Compliance" and
"Certain Factors -- Baan Implementation."
In conjunction with the Recapitalization, the Company
entered into a revolving credit facility ("Revolving Credit
Facility") with Bankers Trust Company, as agent, which provides
for borrowings of up to $40.0 million for working capital,
capital expenditures and other general corporate purposes.
Subsequent to the end of the fiscal quarter and as of January 11,
1999, the Company had drawn $22.5 million on the Revolving Credit
Facility and had a cash balance of $10.9 million. As of December
3, 1998, the Company was in compliance with the covenants under
the Revolving Credit Facility, as amended May 20, 1998, for
periods through August 31, 1999.
The Company's principal sources of future liquidity are
cash flows from operating activities and borrowings under the
Revolving Credit Facility. The Company is highly leveraged and
believes that these sources should provide sufficient liquidity
and capital resources to meet its current and future interest
payments, working capital and capital expenditures obligations.
No assurance can be given, however, that this will be the case.
Depending upon rate of growth and profitability and the ability
of the Company to manage its working capital effectively,
including its inventory turns and accounts receivable collection
period, the Company may require additional equity or debt
financing to meet its interest payments and working capital
requirements or capital equipment needs. There can be no
assurance that additional financing will be available when
required or, if available, will be on terms satisfactory to the
Company. The Company's future operating performance and ability
to service or refinance the notes and to repay, extend or
refinance the Revolving Credit Facility will be subject to future
economic conditions and to financial, business and other factors,
many of which are beyond the Company's control. See "Certain
Factors--High Level of Indebtedness; Ability to Service
Indebtedness and Satisfy Preferred Stock Dividend Requirements."
Year 2000 Compliance
State of Readiness
The Year 2000 presents many issues for the Company because
many computer hardware and software systems use only the last two
digits to refer to a calendar year. Consequently, these systems
may fail to process dates correctly after December 31, 1999,
which may cause system failures. In October 1997, the Company
established a cross functional team chartered with the specific
task of evaluating all of the Company's software, equipment and
processes for Year 2000 compliance. This team determined that a
substantial portion of the Company's systems, including its
company-wide enterprise resource planning ("ERP") system, were
not Year 2000 compliant and therefore developed a plan to resolve
this issue which includes, among other things, implementing the
Baan ERP system. The Baan ERP system is being implemented across
all of the Company's sites with targeted completion scheduled in
1999. In addition, the Company retained the services of outside
consulting firms to review and assess the Company's evaluation
and implementation plan. The Company believes that the Baan ERP
system will make all "mission critical" company information
systems Year 2000 compliant.
As part of the Company's Year 2000 compliance evaluation,
the Company recently began to contact key suppliers and
significant customers to determine the extent to which the
Company is exposed to third party failure to remedy their Year
2000 compliance issues. The Company will continue to contact key
suppliers and significant customers as part of its Year 2000
compliance evaluation. In addition, the Company intends to
conduct audits and/or testing of certain suppliers for Year 2000
compliance. There can be no assurance the Company will be able
to successfully complete such evaluations on a timely basis which
could have a material adverse effect on the Company's business,
financial condition and results of operations.
Costs
The total costs, whether capitalized or expensed, associated
with implementation and system modification relating to the Year
2000 problem is anticipated to be approximately $10 million,
excluding internal programming time on existing systems. The
total amount spent in the first quarter of fiscal 1999 relating
to the Year 2000 problem was $1.3 million with anticipated
expenditures of approximately $2.9 million during the remainder
of fiscal 1999. This amount includes the costs associated with
new systems that will be Year 2000 compliant even though such
compliance was not the primary reason for installation.
11
<PAGE>
Contingency Plan
Although the Company has no formal contingency plan related
to the Baan implementation at the present time, the
implementation is on schedule with completion slated for late
fiscal 1999. If the Baan implementation is delayed, the Company
will endeavor to develop a contingency plan. The Company will be
attempting to develop a contingency plan designed to address
problems which might arise from the failure of the Company's
suppliers and customers to timely and adequately address Year
2000 issues.
Risks Associated with the Company's Year 2000 Issues
The Company presently believes that by modifying existing
software and converting to new software, such as the Baan ERP
system, the Year 2000 problem will not pose significant
operational problems for the Company's information systems.
However, if such modifications and conversions are not timely or
properly implemented, the Year 2000 problem could affect the
ability of the Company, among other things, to manufacture
product, procure and manage materials, and administer functions
and processes, which could have a material adverse effect on the
Company's business, financial condition and results of
operations. Additionally, failure of third party suppliers to
become Year 2000 compliant on a timely basis could create a need
for the Company to change suppliers and otherwise impair the
sourcing of components, raw materials or services to the Company,
or the functionality of such components or raw materials, any of
which could have a material adverse effect on the Company's
business, financial condition and results of operations.
In addition, the Company's Year 2000 compliance efforts have
caused significant strain on the Company's information technology
resources and, as a result, could cause the deferral or
cancellation of other important Company projects. There can be
no assurance that the delay or cancellation of such projects will
not have a material adverse affect on the Company's business,
financial condition and results of operations.
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CERTAIN FACTORS
In addition to factors discussed elsewhere in this Form 10-Q
and in other Company filings with the Securities and Exchange
Commission, the following are important factors which could cause
actual results or events to differ materially from the historical
results of the Company's operations or those results or events
contemplated in any forward-looking statements made by or on
behalf of the Company.
High Level of Indebtedness; Ability to Service Indebtedness and
Satisfy Preferred Stock Dividend Requirements
The Company is highly leveraged. At December 3, 1998, the
Company had approximately $186.2 million of total indebtedness
outstanding (exclusive of unused commitments of $29 million under
the Revolving Credit Facility), and Series B 12-1/2% Senior
Preferred Stock (the "Redeemable Preferred Stock") outstanding
with an aggregate liquidation preference of $27.5 million. In
addition, as of January 11, 1999, the Company had drawn $22.5
million on the Revolving Credit Facility. The Company may incur
additional indebtedness from time to time to provide for working
capital or capital expenditures or for other purposes, subject to
certain restrictions in the (i) the Revolving Credit Facility
(ii) the Indenture (the "Indenture") governing the Company's
Series B 9-3/4% Senior Subordinated Notes due 2008 and the Series
B Floating Interest Rate Subordinated Term Securities due 2008
(collectively, the "Notes"), (iii) the Certificate of Designation
relating to the Redeemable Preferred Stock (the "Certificate of
Designation") and (iv) the Indenture (the "Exchange Indenture")
governing the 12-1/2% Subordinated Exchange Debentures (the
"Exchange Debentures") due 2010 issuable in exchange for the
Redeemable Preferred Stock.
The level of the Company's indebtedness could have important
consequences to the Company and the holders of the Company's
securities, including, but not limited to, the following: (i) a
substantial portion of the Company's cash flow from operations
must be dedicated to debt service and will not be available for
other purposes; (ii) the Company's ability to obtain additional
financing in the future, as needed, may be limited; (iii) the
Company's leveraged position and covenants contained in the
Indenture, the Certificate of Designation, the Exchange Indenture
and the Revolving Credit Facility may limit its ability to grow
and make capital improvements and acquisitions; (iv) the
Company's level of indebtedness may make it more vulnerable to
economic downturns; and (v) the Company may be at a competitive
disadvantage because some of the Company's competitors are less
financially leveraged, resulting in greater operational and
financial flexibility for such competitors.
The ability of the Company to pay cash dividends on, and to
satisfy the redemption obligations in respect of, the Redeemable
Preferred Stock and to satisfy its debt obligations, including
the Notes, will be primarily dependent upon the future financial
and operating performance of the Company. Such performance is
dependent upon financial, business and other general economic
factors, many of which are beyond the control of the Company. If
the Company is unable to generate sufficient cash flow to meet
its debt service obligations or provide adequate long-term
liquidity, it will have to pursue one or more alternatives, such
as reducing or delaying capital expenditures, refinancing debt,
selling assets or raising equity capital. There can be no
assurance that such alternatives could be accomplished on
satisfactory terms, if at all, or in a timely manner.
Restrictions Imposed by Terms of Indebtedness and Redeemable
Preferred Stock
The Indenture, the Certificate of Designation, the Exchange
Indenture and the Revolving Credit Facility contain certain
covenants that restrict, among other things, the ability of the
Company and its subsidiaries to incur additional indebtedness,
consummate certain assets sales and purchases, issue preferred
stock, incur liens, pay dividends or make certain other
restricted payments, enter into certain transactions with
affiliates, merge or consolidate with any other person or sell,
assign, transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of the Company and its
subsidiaries, none of which impaired the Company's ability to
conduct business in the first quarter of fiscal 1999. A breach of
any of these covenants could result in a default under the
Revolving Credit Facility, the Indenture and the Exchange
Indenture and would violate certain provisions of the Certificate
of Designation. The Revolving Credit Facility also requires the
Company to maintain specified financial ratios and to satisfy
certain financial condition tests. The ability of the Company to
meet those financial ratios and financial condition tests can be
affected by events beyond its control, and there can be no
assurance that the Company will meet those ratios and tests.
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In the event the Company does not meet such tests, the
availability of capital from bank borrowings, including but not
limited to the ability to access the Revolving Credit Facility,
could be adversely affected. The inability to borrow under the
Revolving Credit Facility could have a material adverse effect on
the Company's business, financial condition and results of
operations.
Upon an event of default under the Revolving Credit
Facility, the Indenture or the Exchange Indenture, the lenders
thereunder could elect to declare all amounts outstanding
thereunder, together with accrued interest, to be immediately due
and payable. In the case of the Revolving Credit Facility, if the
Company were unable to repay those amounts, the lenders
thereunder could proceed against the collateral granted to them
to secure that indebtedness. Such collateral is comprised of
substantially all of the tangible and intangible assets of the
Company, including the capital stock of its subsidiaries (limited
to no more than 65% of the capital stock of its foreign
subsidiaries).
On May 20, 1998, the Company and its lenders under the
Revolving Credit Facility amended certain financial covenants
under the Revolving Credit Facility through August 31, 1999. As
of December 3, 1998, the Company was in compliance with such
financial covenants, as amended.
Customer Concentration; Dependence on Certain Industries
At any given time, certain customers may account for
significant portions of the Company's net sales. For the first
quarter of fiscal 1999, approximately 80% of net sales were
derived from networking and telecommunications customers. In
addition, for the first quarter of fiscal 1999, the Company's ten
largest customers accounted for approximately 89.1% of net sales.
The Company's top two customers accounted for approximately 46.5%
and 18.1% of net sales in the first quarter of 1999. In addition,
the Company has another major customer that operates under a
consignment manufacturing model and, while sales are less than
10% of total revenue, the customer makes an important
contribution to the Company's overall financial performance.
Moreover, the Company has significant customer concentration at a
site level. Volatility in demand from these customers may lead
to reduced site capacity utilization and have a negative effect
on the Company gross margin. Decreases in sales to or margins
with these or any other key customers could have a material
adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Results of
Operations."
The Company expects to continue to depend upon a relatively
small number of customers for a significant percentage of its net
sales. There can be no assurance that the Company's principal
customers will continue to purchase services at current levels,
if at all. The percentage of the Company's sales to such major
customers may fluctuate from period-to-period. Significant
reductions in sales to any of the Company's major customers as
well as period-to-period fluctuations in sales and changes in
product mix ordered by such customers could have a material
adverse effect on the Company's business, financial condition and
results of operations.
In addition, the Company is dependent upon the continued
growth, viability and financial stability of its OEM customers,
which are in turn substantially dependent on the growth of the
networking, telecommunications, computer systems and other
industries. These industries are subject to rapid technological
change, product obsolescence and price competition. In addition,
many of the Company's customers in these industries are affected
by general economic conditions. Recent currency devaluations and
economic slowdowns in various Asian economies may have an adverse
effect on the results of operations of certain of the Company's
OEM customers, and in turn, their orders from the Company. These
and other competitive factors affecting the networking,
telecommunications and computer system industries in general, and
the Company's OEM customers in particular, could have a material
adverse effect on the Company's business, financial condition and
results of operations. Moreover, any further volatility in the
market for DRAM components caused by, among other things, the
turmoil in the Asian economies, could have a material adverse
effect on MTI, which has historically been one of the Company's
major customers, and consequently the Company's business,
financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations."
Variability of Results of Operations
The Company's operations may be affected by a number of
factors including economic conditions, price competition, the
level of volume and the timing of customer orders, product mix,
management of manufacturing processes, materials procurement and
inventory management, fixed asset utilization, foreign currency
14
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fluctuations, the level of experience in manufacturing a
particular product, customer product delivery requirements,
availability and pricing of components, availability of
experienced labor and failure to introduce, or lack of market
acceptance, new processes, services, technologies and products.
In addition, the level of net sales and gross margin can vary
significantly based on whether certain projects are contracted on
a turnkey basis, where the Company purchases materials, versus on
a consignment basis, where materials are provided by the customer
(turnkey manufacturing tends to result in higher net sales and
lower gross margins than consignment manufacturing). An adverse
change in one or more of these factors could have a material
adverse effect on the Company's business, financial condition and
results of operations.
In addition, customer orders can be canceled and volume
levels can be changed or delayed. From time to time, some of the
Company's customers have terminated their manufacturing
arrangements with the Company, and other customers have reduced
or delayed the volume of design and manufacturing services
performed by the Company. Resolving customer obligations due to
program or relationship termination and the replacement of
canceled, delayed or reduced contracts with new business cannot
be assured. Termination of a manufacturing relationship or
changes, reductions or delays in orders could have a material
adverse effect on the Company's business, financial condition and
results of operations.
Management of Growth
Expansion has caused, and is expected to cause, strain on
the Company's infrastructure, including its managerial,
technical, financial, information systems and other resources. To
manage further growth, the Company must continue to enhance
financial and operational controls, develop or hire additional
executive officers and other qualified personnel. Continued
growth will also require increased investments to add
manufacturing capacity and to enhance management information
systems. See "Certain Factors--Baan Implementation." There can be
no assurance that the Company will be able to scale its internal
infrastructure and other resources to effectively manage growth
and the failure to do so could have a material adverse effect on
the Company's business, financial condition and results of
operations.
The markets served by the Company are characterized by short
product life cycles and rapid technology changes. The Company's
ability to successfully support new product introductions is
critical to the Company's customers. New product introductions
have caused, and are expected to continue to cause, certain
inefficiencies and strain on the Company's resources. Any such
inefficiencies could have a material adverse effect on the
Company's business, financial condition and results of
operations.
New operations, whether foreign or domestic, can require
significant start-up costs and capital expenditures. In the event
that the Company continues to expand its domestic or
international operations, there can be no assurance that the
Company will be successful in generating revenue to recover
start-up and operating costs. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--
Results of Operations."
Baan Implementation
In fiscal 1997, the Company finalized selection of a company-
wide ERP software solution to, among other things, accommodate
the future growth and requirements of the Company and, in October
1997, the Company began implementation of ERP software provided
by Baan U.S.A., Inc. The Company based its selection criteria on
a number of items it deemed critical, and included among other
things, multi-site and foreign currency capabilities, 7x24 hour
system availability, enhanced customer communications, end-order
fulfillment and other mix mode manufacturing support and year
2000 compliance. The Company began to implement this software in
late 1998 with completion scheduled in 1999. There can be no
assurance that the Company will be successful and timely in its
implementation efforts and any delay of such implementation could
have a material adverse affect on the Company's business,
financial condition and results of operations.
Competition
The electronics manufacturing services industry is intensely
competitive and subject to rapid change, and includes numerous
regional, national and international companies, a number of which
have achieved substantial market share. The Company believes that
the primary competitive factors in its targeted markets are
manufacturing technology, product quality, responsiveness and
flexibility, consistency of performance, range of services
provided, the location of facilities and price. To be
competitive, the Company must provide technologically advanced
manufacturing services, high quality products, flexible
production schedules and reliable delivery of finished products
15
<PAGE>
on a timely and price competitive basis. Failure to satisfy any
of the foregoing requirements could materially and adversely
affect the Company's competitive position. The Company competes
directly with a number of EMS firms, including Celestica
International Holdings Inc., Flextronics International, Ltd.,
Jabil Circuits, Inc., SCI Systems, Inc., Sanmina Corporation and
Solectron Corporation. The Company also faces indirect
competition from the captive manufacturing operations of its
current and prospective customers, which continually evaluate the
merits of manufacturing products internally rather than using the
services of EMS providers. Many of the Company's competitors have
more geographically diversified manufacturing facilities,
international procurement capabilities, research and development
and capital and marketing resources than the Company. In
addition, the Company may be at a competitive disadvantage
because some of the Company's competitors are less financially
leveraged, resulting in, among other things, greater operational
and financial flexibility for such competitors. See "Certain
Factors--High Level of Indebtedness; Ability to Service
Indebtedness and Satisfy Preferred Stock Dividend Requirements."
In recent years, the EMS industry has attracted new entrants,
including large OEMs with excess manufacturing capacity, and many
existing participants have substantially expanded their
manufacturing capacity by expanding their facilities through both
internal expansion and acquisitions. In the event of a decrease
in overall demand for EMS services, this increased capacity could
result in substantial pricing pressures, which could have a
material adverse effect on the Company's business, financial
condition and results of operations.
Capital Requirements
The Company believes that, in order to achieve its long-term
expansion objectives and maintain and enhance its competitive
position, it will need significant financial resources over the
next several years for capital expenditures, including
investments in manufacturing capabilities and management
information systems, working capital and debt service. The
Company has added significant manufacturing capacity and
increased capital expenditures since 1995. In April 1995, it
opened its Durham, North Carolina facility. In October 1996, it
opened its first international facility in Penang, Malaysia and
moved from its former Boise, Idaho facility to a new facility in
Nampa, Idaho. In November 1997, it purchased its first European
facility in Colfontaine, Belgium from Alcatel. The Company
anticipates that its capital expenditures will continue to
increase as the Company expands its facilities in Asia and
Europe, invests in necessary equipment to continue new product
production, and continues to invest in new technologies and
equipment to increase the performance and the cost efficiency of
its manufacturing operations. The precise amount and timing of
the Company's future funding needs cannot be determined at this
time and will depend upon a number of factors, including the
demand for the Company's services and the Company's management of
its working capital. The Company may not be able to obtain
additional financing on acceptable terms or at all. If the
Company is unable to obtain sufficient capital, it could be
required to reduce or delay its capital expenditures and
facilities expansion, which could materially adversely affect the
Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and
Capital Resources."
International Operations
The Company currently offers EMS capabilities in North
America, Asia and Europe. In the first quarter of fiscal 1999,
net sales attributable to foreign operations totaled $7.1 million
or 7.8% of total net sales. The Company may be affected by
economic and political conditions in each of the countries in
which it operates and certain other risks of doing business
abroad, including fluctuations in the value of currencies, import
duties, changes to import and export regulations (including
quotas), possible restrictions on the transfer of funds, employee
turnover, labor or civil unrest, long payment cycles, greater
difficulty in collecting accounts receivable, the burdens, cost
and risk of compliance with a variety of foreign laws, and, in
certain parts of the world, political and economic instability.
In addition, the attractiveness of the Company's services to its
United States customers is affected by United States trade
policies, such as "most favored nation" status and trade
preferences, which are reviewed periodically by the United States
government. Changes in policies by the United States or foreign
governments could result in, for example, increased duties,
higher taxation, currency conversion limitations, hostility
toward United States-owned operations, limitations on imports or
exports, or the expropriation of private enterprises, any of
which could have a material adverse effect on the Company's
business, financial condition or results of operations. The
Company's Belgian operations are subject to labor union
agreements covering managerial, supervisory and production
employees, which set standards for, among other things, the
maximum number of working hours and minimum compensation levels.
In addition, economic considerations may make it difficult for
the Company to compete effectively compared to other lower cost
European locations. The Company's Malaysian operations and
assets are subject to significant political, economic, legal and
other uncertainties customary for businesses located in Southeast
Asia.
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The Company's international operations are based in Belgium
and Malaysia. The functional currencies of the Company's
international operations are the Belgian Franc and the Malaysian
Ringgit. The Company's financial performance may be adversely
impacted by changes in exchange rates between these currencies
and the U.S. dollar. Fixed assets for the Belgian and Malaysian
operations are denominated in each entity's functional currency
and translation gains or losses will occur as the exchange rate
between the local functional currency and the U.S. dollar
fluctuates on each balance sheet reporting date. The Company's
investments in fixed assets as of December 3, 1998 were $6.8
million (10.8% of total fixed assets) and $2.4 million (3.8% of
total fixed assets) in Belgium and Malaysia, respectively. The
Company's cumulative translation losses as of December 3, 1998,
were $0.1 million and $2.2 million for the Belgian and Malaysian
operations, respectively. The Company's equity investment in
Belgium and Malaysia are long-term in nature and, therefore, the
translations adjustments are shown as a separate component of
shareholders' equity and do not effect the Company's net income.
An additional risk is that certain working capital accounts such
as accounts receivable and accounts payable are denominated in
currencies other than the functional currency and may give rise
to exchange gains or losses upon settlement or at the end of any
financial reporting period. Sales in currencies other than the
functional currency were approximately 2.6% and 4.3% of
consolidated sales for the quarter ended December 3, 1998 for
Belgium and Malaysia, respectively. The Company's transaction
gains for the fiscal quarter ended December 3, 1998 were $0.5
million and $0.0 million for the Belgian and Malaysian
operations, respectively. The exchange rate between the
Malaysian Ringgit and U.S. dollar has been extremely volatile
over the last year. In September 1998, the Malaysian government
imposed currency control measures which, among other things,
fixed the exchange rate between the United States dollar and the
Malaysian Ringgit and make it more difficult to repatriate the
Company's investments. The Company attempts to minimize the
impact of exchange rate volatility by entering into U.S. dollar
denominated transactions whenever possible for purchases of raw
materials and capital equipment and by keeping minimal cash
balances of foreign currencies. Direct labor, manufacturing
overhead, and selling, general and administrative costs of the
international operations are also denominated in the local
currencies. Transaction losses are reflected in the Company's net
income. As exchange rates fluctuate, the Company will continue to
experience translation and transaction adjustments related to its
investments in Belgium and Malaysia which could have a material
and adverse effect on the Company's business, financial condition
and results of operations.
Dependence on Key Personnel
The Company's continued success depends to a large extent
upon the efforts and abilities of key managerial and technical
employees. The Company's business will also depend upon its
ability to continue to attract and retain qualified employees.
Although the Company has been successful in attracting and
retaining key managerial and technical employees to date, the
loss of services of certain key employees, in particular any of
its executive officers, or the Company's failure to continue to
attract and retain other key managerial and technical employees
could have a material adverse effect on the Company's business,
financial condition and results of operations.
Environmental Regulations
The Company is subject to a variety of environmental laws
and regulations governing, among other things, air emissions,
waste water discharge, waste storage, treatment and disposal, and
remediation of releases of hazardous materials. While the Company
believes that it is currently in material compliance with all
such environmental requirements, any failure to comply with
present and future requirements could have a material adverse
effect on the Company's business, financial conditions and
results of operations. Such requirements could require the
Company to acquire costly equipment or to incur other significant
expenses to comply with environmental regulations. The imposition
of additional or more stringent environmental requirements, the
results of future testing at the Company's facilities, or a
determination that the Company is potentially responsible for
remediation at other sites where problems are not presently
known, could result in expenditures in excess of amounts
currently estimated to be required for such matters.
Concentration of Ownership
Cornerstone Equity Investors and certain other investors
beneficially own, in the aggregate, approximately 90.0% of the
outstanding capital stock (other than the Redeemable Preferred
Stock) of the Company. As a result, although no single investor
has more than 49.0% of the voting power of the Company's
outstanding securities or the ability to appoint a majority of
the directors, the aggregate votes of these investors could
17
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determine the composition of a majority of the board of directors
and, therefore, influence the management and policies of the
Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Company uses the U.S. dollar as its functional currency,
except for its operations in Belgium and Malaysia. The Company
has evaluated the potential costs and benefits of hedging
potential adverse changes in the exchange rates between U.S.
dollar, Belgian Franc and Malaysian Ringgit. Currently, the
Company does not enter into derivative financial instruments
because a substantial portion of the Company's sales in these
foreign operations are in U.S dollars. The assets and
liabilities of the these two operations are translated into U.S.
dollars at an exchange rates in effect at the period end date.
Income and expense items are translated at the year-to-date
average rate. Aggregate transaction gains included in net income
for the first quarter ended December 3, 1998 were $462,000 and
$20,000 for the Belgian and Malaysian operations, respectively.
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PART II OTHER INFORMATION
- --------------------------
ITEM 6. EXHIBITS
(a) The following are filed as part of this report:
Exhibit Description
10.9 (a) Employment Agreement, dated as of October 12, 1998,
by and between MCMS, Inc. and David Garcia.
10.9 (b) Employment Agreement, dated as of December 2, 1998,
by and between MCMS, Inc. and Richard Downing.
10.20 (a) Form of Stock Option Agreement for officers of the
Company.
10.25 Executive Bonus Plan.
10.26 Employee Profit Sharing Plan.
11 MCMS, Inc. Basic and Diluted Earnings Per Share.
27 Financial Data Schedules.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed on behalf of the registrant
by the following duly authorized person.
MCMS, Inc.
(Registrant)
Date: January 14, 1999 By: /s/ Chris J. Anton
Vice President, Finance and Chief
Financial Officer (Principal
Financial Officer and Accounting
Officer)
20
Exhibit 10.9 (a)
MCMS, INC.
16399 FRANKLIN ROAD
NAMPA, IDAHO 83687
October 12, 1998
David Garcia
15200 Blackberry Hill Road
Los Gatos, California 95032
Dear David:
This letter agreement sets forth the terms of your
("Executive") employment with MCMS, Inc., an Idaho corporation
(the "Company"), as follows:
1. Employment. The Company shall employ Executive, and
Executive hereby accepts employment with the Company to serve as
the Vice President, Sales and Marketing of the Company, upon the
terms and conditions as set forth in this letter agreement for
the period beginning as of Effective Time (as defined in
paragraph 8 hereof) and ending as provided in paragraph 4 hereof
(the "Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall
serve as the Vice President, Sales and Marketing of the Company
and shall have the normal duties, responsibilities and authority
of the Vice President, Sales and Marketing, subject to the power
of the Board of Directors of the Company (the "Board") to expand
or limit such duties, responsibilities and authority within the
confines of the ordinary duties, responsibilities and authority
of a Vice President, Sales and Marketing and to override actions
of the Vice President, Sales and Marketing.
(b) Executive shall report to the Chief Executive
Officer of the Company, and Executive shall devote his best
efforts and his full business time and attention (except for
permitted vacation periods and reasonable periods of illness or
other incapacity) to the business and affairs of the Company and
its subsidiaries. Executive shall perform his duties and
responsibilities to the best of his abilities in a diligent,
trustworthy, businesslike and efficient manner. The foregoing
shall not preclude Executive from devoting reasonable time to the
supervision of his personal investments, civic and charitable
affairs and, at any time after the date six months after the
Effective Time, serving on a maximum of two boards other than the
Company's or any of its subsidiaries' board of directors,
provided that such activities do not interfere with the
performance of his duties hereunder.
(c) Location. Subject to customary business travel
and frequent travel to the principal executive offices of the
Company now located in Nampa, Idaho, Executive shall perform the
services and duties provided for in this paragraph 2 in the San
Francisco, California Standard Metropolitan Statistical Area or
such other location as the parties may mutually agree upon (the
"Geographical Employment Area").
3. Base Salary and Benefits.
(a) During the Employment Period, Executive's base
salary shall be in an amount set by the Board or a Committee of
the Board (the "Compensation Committee"), and shall initially be
$225,000 per annum (the "Base Salary"), which salary shall be
payable in regular installments in accordance with the Company's
general payroll practices and shall be subject to customary
withholding. In addition, during the Employment Period,
Executive shall be entitled to participate in all of the
Company's employee benefit programs for which senior executive
employees of the Company and its subsidiaries are generally
eligible including the Company's Executive Bonus Plan and the
1998 Stock Option Plan, with any awards under such Plans to be
set by the Board or the Compensation Committee.
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(b) The Company shall reimburse Executive for all
reasonable expenses incurred by him in the course of performing
his duties under this letter agreement which are consistent with
the Company's policies in effect from time to time with respect
to travel, entertainment and other business expenses, subject to
the Company's requirements with respect to reporting and
documentation of such expenses.
4. Term.
(a) Unless renewed by the mutual agreement of the
Company and Executive, the Employment Period shall end on the
third anniversary of the Effective Time; provided that (i) the
Employment Period shall terminate prior to such date upon
Executive's resignation (other than if the Company Constructively
Terminates Executive), death or permanent disability or
incapacity (as determined by the Board in its good faith judgment
or as provided in paragraph 4(f) hereof), (ii) the Employment
Period may be terminated by the Company at any time prior to such
date for Cause (as defined below) or without Cause and (iii) the
Employment Period shall terminate prior to such date upon
Executive's resignation if the Company Constructively Terminates
Executive.
(b) If the Employment Period is terminated by the
Company without Cause or the Company Constructively Terminates
Executive, Executive shall be entitled to receive his Base Salary
plus all fringe benefits which Executive is receiving on the
termination date (but no bonuses) for ten (10) months after the
date of such termination, if and only if, Executive has not
breached the provisions of paragraph 5, 6, and 7 hereof.
(c) If the Employment Period is terminated by the
Company for Cause or is terminated pursuant to clause (a)(i)
above, Executive shall be entitled to receive his Base Salary
through the date of termination.
(d) Except as provided in paragraph 4(b) above, all of
the Executive's rights to fringe benefits and bonuses hereunder
(if any) which accrue after the termination of the Employment
Period shall cease upon such termination. The Company may offset
any amount Executive owes it or its subsidiaries against any
amounts it owes Executive hereunder.
(e) For purposes of this letter, "Cause" shall mean
(i) the commission of a felony or a crime involving moral
turpitude or the commission of any other act or omission
involving dishonesty, disloyalty or fraud with respect to the
Company or any of its subsidiaries, or any of their customers or
suppliers, (ii) conduct tending to bring the Company or any of
its subsidiaries into substantial public disgrace or disrepute,
(iii) substantial and repeated failure to perform duties as
reasonably directed by the Board, provided that such failure has
continued for more than 15 days after the Company has given
written notice to Executive of such failure and of the Company's
intention to terminate Executive's employment because of such
failure, (iv) gross negligence or willful misconduct with respect
to the Company or any of its subsidiaries or (v) any other
material breach of this letter agreement which is not cured
within 15 days after written notice thereof to Executive.
(f) Death or Disability. In the event of Executive's
death or disability during the Employment Period, the Company
shall continue to pay to Executive (or his spouse or other
designated beneficiary) the Base Salary Executive was receiving
immediately prior to his death or disability for twelve (12)
months following his death or disability. Executive's employment
shall be deemed terminated because of his disability if Executive
becomes entitled to benefits under the Company's long-term
disability insurance plan, and the periodic benefits payable
under that plan shall reduce, on a dollar-for-dollar basis, the
payments to Executive required under this paragraph 4(f).
(g) For purposes of this letter agreement,
"Constructive Termination" shall mean, without Executive's
express written consent, the Company materially reduces the
nature, scope, level or extent of Executive's responsibilities
from the nature, scope, level or extent of such responsibilities
as of the effectiveness of this Agreement, or fails to provide
Executive with adequate office facilities and support services to
perform such responsibilities.
5. Confidential Information. Executive acknowledges that
the information, observations and data obtained by him while
employed by the Company and its subsidiaries concerning the
business or affairs of the Company or any of its subsidiaries
("Confidential Information") are the property of the Company or
such subsidiary. Therefore, Executive agrees that he shall not
disclose to any unauthorized person or use for his own purposes
any Confidential Information without the prior written consent of
the Board, unless and to the extent that the aforementioned
22
<PAGE>
matters become generally known to and available for use by the
public other than as a result of the Executive's acts or
omissions. Executive shall deliver to the Company at the
termination of the Employment Period, or at any other time the
Company may request, all memoranda, notes, plans, records,
reports, computer tapes, printouts and software and other
documents and data (and copies thereof) relating to the
Confidential Information, Work Product (as defined below) or the
business of the Company or any subsidiary which he may then
possess or have under his control.
6. Inventions and Patents. Executive acknowledges that
all inventions, innovations, improvements, developments, methods,
designs, analyses, drawings, reports and all similar or related
information (whether or not patentable) which related to the
Company's or any of its subsidiaries' actual or anticipated
business, research and development or existing or future products
or services and which are conceived, developed or made by
Executive while employed by the Company and its subsidiaries
("Work Product") belong to the Company or such subsidiary.
7. Non-Compete, Non-Solicitation.
(a) In further consideration of the compensation to be
paid to Executive hereunder, Executive acknowledges that in the
course of his employment with the Company he shall become
familiar with the Company's trade secrets and with other
Confidential Information concerning the Company and its
subsidiaries and that his services shall be of special, unique
and extraordinary value to the Company and its subsidiaries.
Therefore, Executive agrees that, during the Employment Period
and for six (6) months thereafter (the "Noncompete Period"), he
shall not directly or indirectly own any interest in, manage,
control, participate in, consult with, render services for, or in
any manner engage in any business competing with the business of
the Company or any of its subsidiaries, as such businesses exist
or are in process at any time during the period beginning on the
date hereof and ending on the date of the termination of
Executive's employment, within any geographical area in which the
Company or its subsidiaries engage in such businesses, which
shall include the geographical area in which the Company's
customers are located.. The foregoing shall not prohibit
Executive from owning directly or indirectly capital stock or
similar securities that are listed on a securities exchange or
quoted on the National Association of Securities Dealers
Automated Quotation System which do not represent more than two
percent (2%) of the outstanding capital stock of any business
competing with the business of the Company.
(b) During the Noncompete Period, Executive shall not
directly or indirectly through another entity (i) induce or
attempt to induce any employee of the Company or of any of its
subsidiaries to leave the employ of the Company or any such
subsidiary, or in any way interfere with the relationship between
the Company or any of its subsidiaries and any employee thereof,
(ii) hire any person who was an employee of the Company or any of
its subsidiaries during the Employment Period, (iii) induce or
attempt to induce any customer, supplier, licensee, licensor,
franchisee or other business relation of the Company or any of
its subsidiaries to cease doing business with the Company or any
such subsidiary, or in any way interfere with the relationship
between any such customer, supplier, licensee or business
relation and the Company or any such subsidiary.
(c) If, at the time of enforcement of this paragraph
7, a court shall hold that the duration, scope or area
restrictions stated herein are unreasonable under circumstances
then existing, the parties agree that the maximum duration, scope
or area reasonable under such circumstances shall be substituted
for the stated duration, scope or area and that the court shall
be allowed to revise the restrictions contained herein to cover
the maximum period, scope and area permitted by law. Executive
agrees that the restrictions contained in paragraph 7 are
reasonable.
(d) In the event of the breach or threatened breach by
Executive of any of the provisions of this paragraph 7, the
Company, in addition and supplementary to other rights and
remedies existing in its favor, may apply to the court of law or
equity of competent jurisdiction for specific performance and/or
injunctive or other relief in order to enforce or prevent any
violations of the provisions hereof.
(e) Executive represents and warrants that he is not
bound by any non-compete agreement with any third party that
would restrict or could potentially restrict his ability to work
for the Company as contemplated hereby. Any breach of this
paragraph by Executive shall render this Agreement null and void
and Company shall have no obligations under this Agreement
whatsoever.
23
<PAGE>
8. Effectiveness. Notwithstanding anything to the
contrary contained herein, this letter agreement shall be
effective as of Executive's first day of hire with the Company
(the "Effective Time").
9. Choice of Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this
letter agreement shall be governed by, and construed in
accordance with, the laws of the State of Idaho, without giving
effect to any choice of law or conflict of law rules or
provisions that could cause the applications of the laws of any
jurisdiction other than the State of Idaho.
10. Mitigation and Set-Off. Executive shall not be
required to mitigate Executive's damages by seeking other
employment or otherwise. The Company's obligations under this
letter agreement shall not be reduced in any way by reason of any
compensation or benefits received (or foregone) by Executive from
sources other than the Company after the termination of the
Employment Period or any amounts that might have been received by
Executive in other employment had Executive sought such other
employment. Executive's entitlement to benefits and coverage
under this letter agreement shall continue after, and shall not
be affected by, Executive's obtaining other employment after the
termination of the Employment Period, provided that any such
benefit or coverage shall not be furnished if Executive expressly
waives the specific benefit or coverage by giving written notice
of waiver to the Company.
11. Litigation Expenses. The Company shall pay to Executive
all out-of-pocket expenses, including attorney's fees, incurred
by Executive in the event Executive successfully enforces any
provision of this letter agreement in any action, arbitration or
lawsuit.
12. Indemnification. The Company will indemnify and hold
harmless Executive from and against any and all costs, liability
and expenses from any claim by any person with respect to, or in
any way related to, Executive's employment with the Company as
contemplated by this letter agreement (including reasonable
attorney's fees) (collectively, "Claims") resulting from any act
or omission of Executive that relate to Executive's employment
with the Company, to the maximum extent permitted by law other
than for Claims which shall be proven to be the result of gross
negligence, bad faith or willful misconduct by Executive.
Notwithstanding this Agreement or any termination of his
employment by the Company pursuant to this Agreement or
otherwise, the Executive shall be entitled to coverage under the
directors' and officers' liability coverage maintained by the
Company, as in effect from time to time, to the same extent as
other officers and directors of the Company.
13. Amendment or Termination. This Agreement may be amended
at any time by written agreement between the Company and
Executive.
14. Counterparts. This Agreement may be executed in one or
more counterparts, all of which together shall constitute but one
Agreement.
15. No Waiver. No failure or delay on the part of the
Company or Executive in enforcing or exercising any right or
remedy hereunder shall operate as a waiver thereof.
16. No Representations. Executive represents that he has
had the opportunity to consult with an attorney, and has
carefully read and understands the scope and effect of the
provisions of this Agreement. Neither party has relied upon any
representations or statements made by the other party hereto
which are not specifically set forth in this Agreement.
17. Entire Agreement. This Agreement represents the entire
agreement and understanding between the Company and Executive
concerning Executive's employment with the Company, and
supersedes and replaces any and all prior agreements and
understandings, written or oral.
* * * * *
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
letter agreement as of the date first written above.
MCMS, INC.
By: /s/ Robert F. Subia
Name: Robert F. Subia
Title: President and Chief
Executive Officer
EXECUTIVE:
/s/ David Garcia
25
Exhibit 10.9 (b)
December 2, 1998
Mr. Richard Downing
4 Natalies Way
Governors Island
Gilford, New Hampshire 03246
Dear Rich:
This letter agreement sets forth the terms of your
("Executive") employment with MCMS, Inc., an Idaho corporation
(the "Company"), as follows:
1. Employment. The Company shall employ Executive, and
Executive hereby accepts employment with the Company to serve as
the President and Chief Operating Officer of the Company, upon
the terms and conditions as set forth in this letter agreement
for the period beginning as of Effective Time (as defined in
paragraph 8 hereof) and ending as provided in paragraph 4 hereof
(the "Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall
serve as the President and Chief Operating Officer of the Company
and shall have all responsibility and authority over the
Manufacturing, Operations, Engineering, Information Technology,
Purchasing, and Personnel Departments, subject to the power of
the Chief Executive Officer of the Company to expand or limit
such duties, responsibilities and authority within the confines
of the ordinary duties, responsibilities and authority of a
President and Chief Operating Officer and to override actions of
the President and Chief Operating Officer.
(b) Executive shall report to the Chief Executive
Officer of the Company, and Executive shall devote his best
efforts and his full business time and attention (except for
permitted vacation periods and reasonable periods of illness or
other incapacity) to the business and affairs of the Company and
its subsidiaries. Executive shall perform his duties and
responsibilities to the best of his abilities in a diligent,
trustworthy, businesslike and efficient manner. The foregoing
shall not preclude Executive from devoting reasonable time to the
supervision of his personal investments, civic and charitable
affairs and, at any time after the date six months after the
Effective Time, serving on a maximum of two boards other than the
Company's or any of its subsidiaries' board of directors,
provided that such activities do not interfere with the
performance of his duties hereunder.
(c) Location. Subject to customary business travel,
Executive shall be required to perform the services and duties
provided for in this paragraph 2 only at the location of the
principal executive offices of the Company, which shall be
located in the Boise, Idaho Standard Metropolitan Statistical
Area or such other location as the parties may mutually agree
upon (the "Geographical Employment Area").
3. Base Salary and Benefits.
(a) During the Employment Period, Executive's base
salary shall be in an amount set by the Board of Directors of the
Company (the "Board") or a Committee of the Board (the
"Compensation Committee"), and shall initially be $240,000 per
annum (the "Base Salary"), which salary shall be payable in
regular installments in accordance with the Company's general
payroll practices and shall be subject to customary withholding.
In addition, during the Employment Period, Executive shall be
entitled to participate in all of the Company's employee benefit
programs for which senior executive employees of the Company and
its subsidiaries are generally eligible including the Company's
Executive Bonus Plan and the 1998 Stock Option Plan, with any
awards under such Plans to be set by the Board or the
Compensation Committee.
(b) The Company shall reimburse Executive for all
reasonable expenses incurred by him in the course of performing
his duties under this letter agreement which are consistent with
the Company's policies in effect from time to time with respect
to travel, entertainment and other business expenses, subject to
the Company's requirements with respect to reporting and
documentation of such expenses.
26
<PAGE>
4. Term.
(a) Unless renewed by the mutual agreement of the
Company and Executive, the Employment Period shall end on the
second anniversary of the Effective Time; provided that (i) the
Employment Period shall terminate prior to such date upon
Executive's resignation (other than if the Company Constructively
Terminates Executive), death or permanent disability or
incapacity (as determined by the Board in its good faith judgment
or as provided in paragraph 4(e) hereof), (ii) the Employment
Period may be terminated by the Company at any time prior to such
date for cause or without cause and (iii) the Employment Period
shall terminate prior to such date upon Executive's resignation
if the Company Constructively Terminates Executive.
(b) If, prior to the second anniversary date of the
Effective Time, MCMS Constructively Terminates Executive, MCMS
will pay Executive severance equal to Executive's Base Salary for
(i) twelve (12) months after the date of the Constructive
Termination in the event the Constructive Termination occurs
prior to the first anniversary date of the Effective Time or (ii)
the period of time between the date of Constructive Termination
and the second anniversary of the Effective Time in the event
Executive is Constructively Terminated after the first
anniversary date of the Effective Time, in each case if, and only
if, Executive has not breached the provisions of paragraphs 5, 6
or 7 hereof.
(c) If the Employment Period is terminated for any
reason (including pursuant to clause (a)(i) above) other than as
set forth in paragraph 4(b) hereof, Executive shall be entitled
to receive his Base Salary through the date of termination.
(d) Except as provided in paragraph 4(b) above, all of
the Executive's rights to fringe benefits and bonuses hereunder
(if any) which accrue after the termination of the Employment
Period shall cease upon such termination. The Company may offset
any amount Executive owes it or its subsidiaries against any
amounts it owes Executive hereunder.
(e) Death or Disability. In the event of Executive's
death or disability during the Employment Period, the Company
shall continue to pay to Executive (or his spouse or other
designated beneficiary) the Base Salary Executive was receiving
immediately prior to his death or disability for twelve (12)
months following his death or disability. Executive's employment
shall be deemed terminated because of his disability if Executive
becomes entitled to benefits under the Company's long-term
disability insurance plan, and the periodic benefits payable
under that plan shall reduce, on a dollar-for-dollar basis, the
payments to Executive required under this paragraph 4(e).
(f) For purposes of this letter agreement,
"Constructive Termination" shall mean, without Executive's
express written consent, the Company materially reduces the scope
of Executive's responsibilities from the scope of such
responsibilities as of the Effective Time as a result of a
merger, acquisition, or other business combination.
5. Confidential Information. Executive acknowledges that
the information, observations and data obtained by him while
employed by the Company and its subsidiaries concerning the
business or affairs of the Company or any of its subsidiaries
("Confidential Information") are the property of the Company or
such subsidiary. Therefore, Executive agrees that he shall not
disclose to any unauthorized person or use for his own purposes
any Confidential Information without the prior written consent of
the Board, unless and to the extent that the aforementioned
matters become generally known to and available for use by the
public other than as a result of the Executive's acts or
omissions. Executive shall deliver to the Company at the
termination of the Employment Period, or at any other time the
Company may request, all memoranda, notes, plans, records,
reports, computer tapes, printouts and software and other
documents and data (and copies thereof) relating to the
Confidential Information, Work Product (as defined below) or the
business of the Company or any subsidiary which he may then
possess or have under his control.
6. Inventions and Patents. Executive acknowledges that
all inventions, innovations, improvements, developments, methods,
designs, analyses, drawings, reports and all similar or related
information (whether or not patentable) which related to the
Company's or any of its subsidiaries' actual or anticipated
business, research and development or existing or future products
or services and which are conceived, developed or made by
Executive while employed by the Company and its subsidiaries
("Work Product") belong to the Company or such subsidiary.
27
<PAGE>
7. Non-Solicitation.
(a) For a period of twelve (12) months after
Executive's Employment Period, Executive shall not directly or
indirectly through another entity (i) induce or attempt to induce
any employee of the Company or of any of its subsidiaries to
leave the employ of the Company or any such subsidiary, or in any
way interfere with the relationship between the Company or any of
its subsidiaries and any employee thereof, and (ii) induce or
attempt to induce any customer, supplier, licensee, licensor,
franchisee or other business relation of the Company or any of
its subsidiaries to cease doing business with the Company or any
such subsidiary, or in any way interfere with the relationship
between any such customer, supplier, licensee or business
relation and the Company or any such subsidiary.
(b) In the event of the breach or threatened breach by
Executive of any of the provisions of this paragraph 7, the
Company, in addition and supplementary to other rights and
remedies existing in its favor, may apply to the court of law or
equity of competent jurisdiction for specific performance and/or
injunctive or other relief in order to enforce or prevent any
violations of the provisions hereof.
(c) Executive represents and warrants that he is not
bound by any non-compete agreement with any third party that
would restrict or could potentially restrict his ability to work
for the Company as contemplated hereby. Any breach of this
paragraph by Executive shall render this Agreement null and void
and Company shall have no obligations under this Agreement
whatsoever.
8. Effectiveness. Notwithstanding anything to the
contrary contained herein, this letter agreement shall be
effective as of December 7, 1998 (the "Effective Time").
9. Choice of Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this
letter agreement shall be governed by, and construed in
accordance with, the laws of the State of Idaho, without giving
effect to any choice of law or conflict of law rules or
provisions that could cause the applications of the laws of any
jurisdiction other than the State of Idaho.
10. Mitigation and Set-Off. Executive shall not be
required to mitigate Executive's damages by seeking other
employment or otherwise. The Company's obligations under this
letter agreement shall not be reduced in any way by reason of any
compensation or benefits received (or foregone) by Executive from
sources other than the Company after the termination of the
Employment Period or any amounts that might have been received by
Executive in other employment had Executive sought such other
employment. Executive's entitlement to benefits and coverage
under this letter agreement shall continue after, and shall not
be affected by, Executive's obtaining other employment after the
termination of the Employment Period, provided that any such
benefit or coverage shall not be furnished if Executive expressly
waives the specific benefit or coverage by giving written notice
of waiver to the Company.
11. Litigation Expenses. The Company shall pay to Executive
all out-of-pocket expenses, including attorney's fees, incurred
by Executive in the event Executive successfully enforces any
provision of this letter agreement in any action, arbitration or
lawsuit.
12. Indemnification. The Company will indemnify and hold
harmless Executive from and against any and all costs, liability
and expenses from any claim by any person with respect to, or in
any way related to, Executive's employment with the Company as
contemplated by this letter agreement (including reasonable
attorney's fees) (collectively, "Claims") resulting from any act
or omission of Executive that relate to Executive's employment
with the Company, to the maximum extent permitted by law other
than for Claims which shall be proven to be the result of gross
negligence, bad faith or willful misconduct by Executive.
Notwithstanding this Agreement or any termination of his
employment by the Company pursuant to this Agreement or
otherwise, the Executive shall be entitled to coverage under the
directors' and officers' liability coverage maintained by the
Company, as in effect from time to time, to the same extent as
other officers and directors of the Company.
13. Amendment or Termination. This Agreement may be amended
at any time by written agreement between the Company and
Executive.
14. Counterparts. This Agreement may be executed in one or
more counterparts, all of which together shall constitute but one
Agreement.
28
<PAGE>
15. No Waiver. No failure or delay on the part of the
Company or Executive in enforcing or exercising any right or
remedy hereunder shall operate as a waiver thereof.
16. No Representations. Executive represents that he has
had the opportunity to consult with an attorney, and has
carefully read and understands the scope and effect of the
provisions of this Agreement. Neither party has relied upon any
representations or statements made by the other party hereto
which are not specifically set forth in this Agreement.
17. Entire Agreement. This Agreement represents the entire
agreement and understanding between the Company and Executive
concerning Executive's employment with the Company, and
supersedes and replaces any and all prior agreements and
understandings, written or oral.
* * * * *
29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
letter agreement as of the date first written above.
MCMS, INC.
By: /s/ Robert F. Subia
Name: Robert F. Subia
Title: Chief Executive
Officer
EXECUTIVE:
/s/ Richard Downing
30
Exhibit 10.20 (a)
MCMS, INC.
AGREEMENT EVIDENCING A GRANT OF A
NONQUALIFIED STOCK OPTION UNDER 1998 STOCK OPTION PLAN
Agreement made as of **** between MCMS, Inc., an Idaho
corporation (the "Company"), and **** ("Grantee"). Capitalized
terms used but not defined herein shall have the meanings
assigned to such terms in the Plan (as defined below).
1. Grant of Option. Pursuant to the MCMS, Inc. 1998 Stock
Option Plan (the "Plan"), the Company hereby grants to Grantee,
as of the grant date specified above, a nonqualified stock option
(the "Option") to purchase **** shares (which number of shares
may be adjusted as provided in the Plan) of the Company's Common
Stock, $0.001 par value per share (the "Common Stock"), at the
exercise price per share of $2.27 subject to the terms and
conditions set forth herein and in the Plan. Attached hereto as
Annex A is a summary of the terms of the Option evidenced by
this Agreement.
2. Grantee Bound by Plan. Attached hereto as Annex B is a
copy of the Plan which is incorporated herein by reference and
made a part hereof. Grantee hereby acknowledges receipt of a
copy of the Plan and agrees to be bound by all the terms and
provisions thereof. The Plan should be carefully examined before
any decision is made to exercise the Option.
3. Exercise of Option. Subject to the earlier termination
of the Option as provided herein and in the Plan and subject to
Section 7, the Option may be exercised, in whole or in part, to
the extent it has become vested, by written notice to the Company
at any time and from time to time after the date of grant. An
Option shall not be exercisable in any event after the tenth
anniversary of grant. An Option may not be exercised for a
fraction of a share of Common Stock. Options are subject to
cancellation as provided in the Plan.
4. Vesting of Option. This Option shall vest and become
exercisable with respect to the Option Shares subject to this
Option as follows:
(a) Class I Option Shares. This Option shall vest and
become exercisable with respect to 50% of the Option Shares
subject to this Option (the "Class I Option Shares") provided the
Grantee remains continuously employed with the Company after the
date hereof and through and including the vesting dates described
below as follows:
Number of Class I
Vesting Date Option Shares Vested
- -------------------------------- -----------------------------
The first anniversary of the 1/4 of Class I Option Shares
Vesting Commencement Date (see
Annex A hereto)
The last day of each of the first 1/48 of Class I Option Shares
36 months after the first
anniversary of the Vesting
Commencement Date
- -----------------------------------------------------------------
31
<PAGE>
(b) Class II Option Shares.
(i) Time Vesting. This Option shall vest and
become exercisable with respect to the remaining 50% of the
Option Shares subject to this Option (the "Class II Option
Shares") on the seventh anniversary of the Vesting
Commencement Date provided that the Grantee has been
continuously employed with the Company from the Vesting
Commencement Date through the seventh anniversary
thereafter.
(ii) Performance Vesting. This Option shall vest
and become exercisable with respect to the Class II Option
Shares prior to the seventh anniversary upon the attainment
of certain goals described in this Section 4(b)(ii). This
Option shall vest and become exercisable with respect to the
following percentages of Class II Option Shares on the
vesting dates set forth opposite such percentages below if
(x) the Company's EBITDA (as defined below) for the fiscal
year ending on such vesting date equals at least the dollar
amount set forth opposite such vesting date (each an "EBITDA
Target") and (y) the Grantee has been continuously employed
with the Company from the date hereof through the applicable
vesting date:
- -----------------------------------------------------------------
Vesting Date EBITDA Target Percentage of Class II
Option Shares Vested
- -------------------- ------------------- ----------------------
August 30, 1999 $30,548,463 50%
August 30, 2000 To be determined by 50%
further action of
the Compensation
Committee of the
Board of Directors
- -----------------------------------------------------------------
"EBITDA" shall have the same meaning ascribed to
"Consolidated EBITDA" in the Credit Agreement, dated as of
February 26, 1998, among MCMS, Inc., various lending institutions
named therein, and Bankers Trust Company, as amended.
In the event the Company consummates an acquisition of
another Person the EBITDA Targets for the periods occurring after
such acquisition will be adjusted in good faith by Grantee and
approved by the Board, and such adjusted and approved EBITDA
Targets shall, once approved, be deemed the EBITDA Targets for
all purposes hereunder.
32
<PAGE>
5. Conditions to Exercise. The Option may not be
exercised by Grantee unless the following conditions are met:
(a) The Option has become vested with respect to the
Option Shares to be acquired pursuant to such exercise;
(b) legal counsel for the Company must be satisfied at
the time of exercise that the issuance of shares of Common Stock
upon exercise will be in compliance with the Securities Act and
applicable United States federal, state, local and foreign laws;
and
(c) Grantee must pay at the time of exercise the full
purchase price for the shares of Common Stock being acquired
hereunder in accordance with the terms of the Plan.
6. Right to Purchase Option Shares Upon Termination of
Employment.
(a) Repurchase Right. In the event a Participant's
employment with the Company is terminated for any reason, the
Option Shares (whether held by such Participant or one or more
transferees and including any Option Shares acquired subsequent
to such termination of employment) will be subject to repurchase
by the Company pursuant to the terms and conditions set forth in
this Section 6 (the "Repurchase Option") at a price per share
equal to the Fair Market Value thereof determined as of the
Termination Date.
(b) Repurchase Notice. The Board may elect to
purchase all or any portion of the Option Shares by delivery of
written notice (the "Repurchase Notice") to the holder or holders
of the Option Shares within 180 days after the Termination Date
(or if termination is caused by the Participant's death or
disability, 180 days after the expiration of the Options held by
such Participant). The Repurchase Notice will set forth the
number of Option Shares to be acquired from such holder, the
aggregate consideration to be paid for such shares and the time
and place for the closing of the transaction.
33
<PAGE>
(c) Closing of Repurchase. The closing of the
repurchase transaction will take place on the date designated by
the Company in the Repurchase Notice, which date will not be more
than 45 days nor less than 10 days after the delivery of such
notice. The Company will pay for the Option Shares to be
purchased pursuant to the Repurchase Option by delivering, at the
option of the Company to such Participant and/or the other
holder(s), (1) a check in the amount of the aggregate sale price
of the Option Shares to be repurchased or (2) if the aggregate
consideration to be paid to such holder(s) of Option Shares
exceeds $50,000, a check in the amount of 20% of the aggregate
sale price of the Option Shares to be repurchased (except to the
extent not permitted under that certain revolving credit facility
with various lending institutions and Bankers Trust Company of up
to $40.0 million, a note in compliance therewith) and a
subordinated promissory note in a principal amount equal to the
remainder of the aggregate sale price, bearing interest at a
floating rate of interest equal to the prime rate as stated from
time to time by Chase Manhattan Bank or any successor thereto,
and payable, as to principal and interest, in four equal annual
installments on the first four anniversaries of the closing of
such repurchase; provided that if the Company determines that
withholding tax is required with respect to the exercise of a
Repurchase Option, the Company shall withhold an amount equal to
such withholding tax from the purchase price. At the closing,
the Participant and each other seller will deliver the
certificates representing the Option Shares to be sold duly
endorsed in form for transfer to the Company or its designee, and
the Company will be entitled to receive customary representations
and warranties from the Participant and the other sellers
regarding title to the Option Shares.
7. Restrictions on Transfer.
(a) Restrictions. A Participant may not sell, pledge
or otherwise transfer any interest in any Option Shares except
pursuant to the provisions of this Section 7. At least 60 days
prior to making any transfer, the Participant proposing such
transfer shall deliver a written notice (the "Sale Notice") to
the Company. The Sale Notice will disclose in reasonable detail
the identity of the prospective transferee(s) and the terms and
conditions of the proposed transfer. Such Participant (and such
Participant's transferees) shall not consummate any such transfer
until 60 days after the Sale Notice has been delivered to the
Company, unless the Company has notified such Participant in
writing that it will not exercise its rights under this Section
7. (The date of the first to occur of such events is referred to
herein as the "Authorization Date").
(b) Repurchase Option. The Company may elect to
purchase all or any portion of the Option Shares to be
transferred upon the same terms and conditions as those set forth
in the Sale Notice (the "Right of First Refusal") by delivering a
written notice of such election to such Participant within 30
days after the receipt of the Sale Notice by the Company (the
"Election Notice"). If the Company has not elected to purchase
all of the Option Shares specified in the Sale Notice, such
Participant may transfer the Option Shares not purchased by the
Company to the prospective transferee(s) as specified in the Sale
Notice at a price and on terms no more favorable to the
transferee(s) thereof than specified in the Sale Notice during
the 60-day period immediately following the Authorization Date.
Any Option Shares not so transferred within such 60-day period
must be re-offered to the Company in accordance with the
provisions of this Section 7 in connection with any subsequent
proposed transfer.
(c) Exceptions. The restrictions contained in this
Section 7 will not apply with respect to transfers of Option
Shares (1) pursuant to applicable laws of descent and
distribution, (2) pursuant to the Shareholders Agreement or (3)
among the Participant's family group; provided that the
restrictions contained in this paragraph will continue to be
applicable to the Option Shares after any such transfer and the
transferees of such Option Shares have agreed in writing to be
bound by the terms and provisions of this Plan and the Option
grant, as amended from time to time. The Participant's "family
group" means the Participant's spouse and descendants (whether
natural or adopted) and any trust solely for the benefit of the
Participant and/or the Participant's spouse and/or descendants.
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8. Administration. Any action taken or decision made by
the Company, the Board, or the Committee or its delegates arising
out of or in connection with the construction, administration,
interpretation or effect of the Plan or this Agreement shall lie
within its sole and absolute discretion, as the case may be, and
shall be final, conclusive and binding on Grantee and all persons
claiming under or through Grantee. By accepting this grant or
other benefit under the Plan, Grantee and each person claiming
under or through Grantee shall be conclusively deemed to have
indicated acceptance and ratification of, and consent to, any
action taken under the Plan by the Company, the Board or the
Committee or its delegates.
9. No Rights as Shareholder. Unless and until a
certificate or certificates representing such shares of Common
Stock shall have been issued to Grantee (or any person acting
under Section 7 above), Grantee shall not be or have any of the
rights or privileges of a shareholder of the Company with respect
to shares of Common Stock acquirable upon exercise of the Option.
10. Investment Representation. Grantee hereby acknowledges
that the shares of Common Stock which Grantee may acquire by
exercising the Option shall be acquired for investment without a
view to distribution, within the meaning of the Securities Act,
and shall not be sold, transferred, assigned, pledged or
hypothecated in the absence of an effective registration
statement for the shares of Common Stock under the Securities Act
and applicable state securities laws or an applicable exemption
from the registration requirements of the Act and any applicable
state securities laws. Grantee also agrees that the shares of
Common Stock which Grantee may acquire by exercising the Option
will not be sold or otherwise disposed of in any manner which
would constitute a violation of any applicable federal or state
securities laws.
11. Sale of the Company.
(a) Consent to Sale of Company. If the Board and the
holders of a majority of the shareholders of the Company's then
outstanding shares of capital stock approve a Sale of the Company
(the "Approved Sale"), you will (i) consent to and raise no
objections against the Approved Sale or the process pursuant to
which the Approved Sale is arranged, (ii) waive any dissenter's
rights and any similar rights with respect thereto and (iii) if
the Approved Sale is structured as a sale of stock, you will
agree to sell all of your Option Shares and rights to acquire
Option Shares on the terms and conditions approved by the Board
and the shareholders of a majority of the shares of capital stock
then outstanding. You will take all necessary and desirable
actions in connection with the consummation of the Approved Sale
as requested by the Board.
(b) Purchaser Representative. If the Company or the
holders of the Company's securities enter into any negotiation or
transaction for which Rule 506 (or any similar rule then in
effect) promulgated by the Securities Exchange Commission
pursuant to the Securities Act may be available with respect to
such negotiation or transaction (including a merger,
consolidation or other reorganization), you will, at the request
of the Company, appoint a purchaser representative (as such term
is defined in Rule 501) reasonably acceptable to the Company. If
you appoint the purchaser representative designated by the
Company, the Company will pay the fees of such purchaser
representative, but if you decline to appoint the purchaser
representative designated by the Company you will appoint another
purchaser representative (reasonably acceptable to the Company),
and you will be responsible for the fees of the purchaser
representative so appointed.
(c) Termination of Restrictions. The provisions of
this Section 11 will terminate when the Company has sold shares
of its Common Stock pursuant to a Qualified Initial Public
Offering.
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12. Notification of Inquiries and Agreements. Grantee and
each permitted transferee shall notify the Company in writing
within 10 days after the date the Grantee or such permitted
transferee (i) first obtains knowledge of any Internal Revenue
Service inquiry, audit, assertion, determination, investigation,
or question relating in any way to the value of Options granted
pursuant to this Agreement; (ii) includes or agrees (including,
without limitation, in any settlement, closing, or other similar
agreement) to include in gross income with respect to Options
granted pursuant to this Agreement (A) any amount in excess of
the amount reported on Form 1099 or Form W-2 to Grantee by the
Company, or (B) if no such Form is received, any amount; or (iii)
exercises, sells, disposes of, or otherwise transfers (other than
to a permitted transferee) an Option acquired pursuant to this
Agreement. Upon request, Grantee shall provide to the Company
any information or document relating to any event described in
the preceding sentence which the Company (in its sole discretion)
requires in order to calculate and substantiate any change in the
Company's tax liability as a result of such event.
13. Listing and Registration of Common Stock. The Company,
in its discretion, may postpone the issuance and/or delivery of
shares of Common Stock upon any exercise of the Option until
completion of such stock exchange listing, or registration, or
other qualification of such shares under any state and/or federal
law, rule or regulation as the Company may consider appropriate.
14. Rights of Participants. Neither this Agreement nor the
Plan creates any employment rights in Grantee and the Company
shall have no liability hereunder for terminating Grantee's
employment or materially reducing Grantee's responsibilities.
15. Notices. Any notice hereunder to the Company shall be
addressed to the Company, Attention: Board of Directors, and any
notice hereunder to Grantee shall be addressed to Grantee at
Grantee's last address on the records of the Company, subject to
the right of either party to designate at any time hereafter in
writing some other address. Any notice shall be deemed to have
been duly given when delivered personally, one day following
dispatch if sent by reputable overnight courier, fees prepaid, or
three days following mailing if sent by registered mail, return
receipt requested, postage prepaid and addressed as set forth
above.
16. Binding Effect. This Agreement shall be binding upon
and inure to the benefit of any successors to the Company and all
persons lawfully claiming under Grantee.
17. Governing Law. The validity, construction,
interpretation, administration and effect of the Plan, and of its
rules and regulations, and rights relating to the Plan and to
this Agreement, shall be governed by the substantive laws, but
not the choice of law rules, of whichever state in the United
States in which the Company is incorporated from time to time.
* * * * *
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IN WITNESS WHEREOF, the Company and Grantee have executed
this Agreement as of the date first above written.
MCMS, INC.
Name:
Title:
GRANTEE
Employee's Signature
Name of Employee (Print)
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ANNEX A
SUMMARY OF OPTION TERMS
Name of Grantee:
Class I Options
Date of Option Grant:
--------------------------------
Total Option Shares Granted:
--------------------------------
Option Exercise Price Per Share:
--------------------------------
Total Option Exercise Price:
--------------------------------
Option Term/Expiration Date:
--------------------------------
Vesting Commencement Date:
--------------------------------
Vesting Schedule:
--------------------------------
- -----------------------------------------------------------------
Number of Class I
Vesting Date Option Shares Vested
- ------------------------------ ---------------------------------
The first anniversary of the 1/4 of Class I Option Shares
Vesting Commencement Date
The last day of each of the 1/48 of Class I Option Shares
first 36 months after the first
anniversary of the Vesting
Commencement Date
- -----------------------------------------------------------------
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<PAGE>
Class II Options
Date of Option Grant:
--------------------------------
Total Option Shares Granted:
--------------------------------
Option Exercise Price Per Share: --------------------------------
Total Option Exercise Price: --------------------------------
Option Term/Expiration Date: --------------------------------
Vesting Commencement Date: --------------------------------
Vesting Schedule: --------------------------------
Class II Options shall vest and become exercisable on the
seventh anniversary of the Vesting Commencement Date provided
that the Grantee has been continuously employed with the Company
from the Vesting Commencement Date through the seventh
anniversary thereafter. Class II Options shall vest and become
exercisable prior to the seventh anniversary of the Vesting
Commencement Date upon the attainment of certain goals as
follows:
- -----------------------------------------------------------------
Vesting Date EBITDA Target Percentage of Class II
Option Shares Vested
- -------------------- ------------------- ----------------------
August 30, 1999 $30,548,463 50%
August 30, 2000 To be determined by 50%
further action of the
Compensation
Committee of the
Board of Directors
- -----------------------------------------------------------------
39
<PAGE>
ANNEX B
MCMS, INC.
1998 STOCK OPTION PLAN
ARTICLE I
Purpose of Plan of Plan
The 1998 Stock Option Plan (the "Plan") of MCMS, Inc. (the
"Company"), adopted by the Board of Directors and shareholders of
the Company effective May 14, 1998, is intended to advance the
best interests of the Company by providing executives, key
employees and certain advisors of the Company or any Subsidiary
(as defined below) who have substantial responsibility for the
management and growth of the Company or any Subsidiary with
additional incentives by allowing such employees to acquire an
ownership interest in the Company. The Plan is a compensatory
benefit plan within the meaning of Rule 701 under the Securities
Act of 1933, as amended (the "Securities Act") and, unless and
until the Common Stock (as defined below) is publicly traded, the
issuance pursuant to the Plan of stock purchase options to
purchase shares of Common Stock ("Options"), and the issuance of
Common Stock upon the exercise of Options issued pursuant to the
Plan, are each intended to qualify for the exemption from
registration under the Securities Act provided by Rule 701.
ARTICLE II
Definitions
For purposes of the Plan the following terms have the
indicated meanings:
"Authorization Date" has the meaning ascribed thereto in
Section 5.9(a) hereof.
"Affiliate" means, with respect to any specified Person, any
other Person that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common
control with, such specified Person. For purposes of this
definition, "control" (including the terms "controlled by" and
"under common control with"), with respect to the relationship
between or among two or more Persons, means the possession,
directly or indirectly or as trustee or executor, of the power to
direct or cause the direction of the affairs or management of a
Person, whether through the ownership of voting securities, as
trustee or executor, by contract or otherwise, including, without
limitation, the ownership, directly or indirectly, of securities
having the power to elect a majority of the board of directors or
similar body governing the affairs of such Person.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended,
and any successor statute.
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"Committee" means the Compensation Committee or such other
committee of the Board as the Board may designate to administer
the Plan or, if for any reason the Board has not designated such
a committee, the Board. The Committee, if other than the Board,
shall be composed of two or more directors as appointed from time
to time by the Board.
"Common Stock" means the Class A Common Stock, $0.001 par
value per share, of MCMS, Inc., an Idaho corporation.
"Election Notice" has the meaning ascribed thereto in
Section 5.9(b) hereof.
"Fair Market Value" per share on any given date means the
average of the closing prices of the sales of the Common Stock on
all securities exchanges on which such stock may at the time be
listed, or, if there have been no sales on any such exchange on
any day, the average of the highest bid and lowest asked prices
on all such exchanges at the end of such day, or, if on any day
such stock is not so listed, the average of the representative
bid and asked prices quoted on the Nasdaq Stock Market as of
4:00 P.M., New York time, or, if on any day such stock is not
quoted on the Nasdaq Stock Market, the average of the highest bid
and lowest asked prices on such day in the domestic over-the-
counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization. If at any
time the Common Stock is not listed or quoted, the Fair Market
Value per share shall be determined by the Committee or the Board
based on such factors as the members thereof in the exercise of
their business judgment, consider relevant.
"Measurement Date" means the date on which any taxable
income resulting from the exercise of an Option is determined
under applicable federal income tax law.
"Option Agreement" has the meaning set forth in Section 6.1
hereof.
"Option Shares" shall mean (i) all shares of Common Stock
issued or issuable upon the exercise of an Option and (ii) all
shares of Common Stock issued with respect to the Common Stock
referred to in clause (i) above by way of stock dividend or stock
split or in connection with any conversion, merger, consolidation
or recapitalization or other reorganization affecting the Common
Stock. Unless provided otherwise herein or in the Participant's
Option Agreement, Option Shares will continue to be Option Shares
in the hands of any holder other than the Participant (except for
the Company), and each such transferee thereof will succeed to
the rights and obligations of a holder of Option Shares
hereunder.
"Options" has the meaning set forth in the preamble hereof.
"Participant" means (i) any employee of the Company or any
Subsidiary or (ii) any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services to such
entity who has been selected to participate in the Plan by the
Committee or the Board.
"Permitted Transferee" means those persons to whom the
Participant is authorized (1) pursuant to Section 5.9, to
transfer Option Shares, or (2) pursuant to Section 6.3, to
transfer Options.
"Person" means any individual, partnership, firm,
corporation, association, trust, unincorporated organization or
other entity.
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"Plan" has the meaning set forth in the preamble hereof.
"Qualified Initial Public Offering" means an offering by the
Corporation of its capital stock or equity securities to the
public pursuant to an effective registration statement under the
Securities Act of 1933, as then in effect, or any comparable
statement under any similar federal statute then in force
pursuant to which the public offering price per share of which is
not less than $14.00 (adjusted to reflect stock dividends, stock
splits or recapitalizations) after the date hereof and results in
aggregate gross cash proceeds to the Corporation of at least
$30,000,000 (before deduction of underwriting discounts and
expenses).
"Repurchase Notice" has the meaning ascribed thereto in
Section 5.8(b) hereof.
"Repurchase Option" has the meaning ascribed thereto in
Section 5.8(a) hereof.
"Right of First Refusal" has the meaning ascribed thereto in
Section 5.9(b) hereof.
"Sale Notice" has the meaning ascribed thereto in Section
5.9(a) hereof.
"Sale of the Company" means the sale of the Company to any
Third Party or Parties pursuant to which such party or parties
acquire (i) capital stock of the Company possessing the voting
power under normal circumstances necessary to elect a majority of
the Board (whether by merger, consolidation or sale or transfer
of the Company's capital stock) or (ii) all or substantially all
of the Company's assets determined on a consolidated basis.
"Securities Act" has the meaning ascribed thereto in Article
1 hereof.
"Shareholders Agreement" means the Shareholders Agreement
dated as of February 26, 1998 by and among the Company,
Cornerstone Equity Investors IV, L.P., MEI California, Inc.,
Randolph Street Partners II, BT Investment Partners, Inc. and the
other investors listed in Appendix A thereto.
"Subsidiary" means any subsidiary corporation (as such term
is defined in Section 424(f) of the Code) of the Company.
"Termination Date" shall mean the date upon which such
Participant's employment or engagement, as the case may be, with
the Company terminated.
"Third Party" means any Person which is not an Affiliate of
the Company.
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<PAGE>
ARTICLE III
Administration
The Plan shall be administered by the Committee. Subject to
the limitations of the Plan, the Committee shall have the sole
and complete authority to: (i) select Participants, (ii) grant
Options to Participants in such forms and amounts as it shall
determine, (iii) impose such limitations, restrictions and
conditions upon such Options as it shall deem appropriate, (iv)
interpret the Plan and adopt, amend and rescind administrative
guidelines and other rules and regulations relating to the Plan,
(v) correct any defect or omission or reconcile any inconsistency
in the Plan or in any Options granted under the Plan and (vi)
make all other determinations and take all other actions
necessary or advisable for the implementation and administration
of the Plan. The Committee's determinations on matters within
its authority shall be conclusive and binding upon the
Participants, the Company and all other persons. All expenses
associated with the administration of the Plan shall be borne by
the Company. The Committee may, as approved by the Board and to
the extent permissible by law, delegate any of its authority
hereunder to such persons or entities as it deems appropriate.
ARTICLE IV
Limitation on Aggregate Shares
The number of shares of Common Stock with respect to which
Options may be granted under the Plan shall not exceed, in the
aggregate, 2,500,000 shares, subject to adjustment in accordance
with Section 6.4. To the extent any Options expire unexercised
or are canceled, terminated or forfeited in any manner without
the issuance of Common Stock thereunder, such shares shall again
be available under the Plan. The shares of Common Stock
available under the Plan may consist of authorized and unissued
shares, treasury shares or a combination thereof, as the
Committee shall determine.
ARTICLE V
Awards
5.1 Grant of Options. The Committee may grant Options to
Participants from time to time in accordance with this Article V.
Options granted under the Plan may be nonqualified stock options
or "incentive stock options" within the meaning of Section 422 of
the Code or any successor provision as specified by the
Committee; provided, however, that no incentive stock option may
be granted to any Participant who, at the time of grant, owns
stock of the Company (or any Subsidiary) representing more than
10% of the total combined voting power of all classes of stock of
the Company (or any Subsidiary), unless such incentive stock
option shall at the time of grant (a) have a termination date not
later than the fifth anniversary of the issuance date and
(b) have an exercise price per share equal to at least 110% of
the Fair Market Value of a share of Common Stock on the date of
grant. The exercise price per share of Common Stock under each
Option shall be determined by the Committee or the Board at the
time of grant; provided, however, that the exercise price per
share of Common Stock under each incentive stock option shall be
fixed by the Committee at the time of grant of the Option and
shall equal at least 100% of the Fair Market Value of a share of
Common Stock on the date of grant, but not less than the par
value per share (as adjusted pursuant to Section 6.4). Subject
to Section 5.6, Options shall be exercisable at such time or
times as the Committee shall determine; provided, however, that
any option intended to be an incentive stock option shall be
treated as an incentive stock option only to the extent that the
aggregate Fair Market Value of the Common Stock (determined as of
the date of Option grant) with respect to which incentive stock
options (but not nonqualified options) are exercisable for the
first time by any Participant during any calendar year (under all
stock option plans of the Company and its Subsidiaries) does not
exceed $100,000. The Committee shall determine the term of each
Option, which term shall not exceed ten years from the date of
grant of the Option.
5.2 Exercise Procedure. Options shall be exercisable, to
the extent they are vested, by written notice to the Company (to
the attention of the Company's Secretary) accompanied by payment
in full of the applicable exercise price. Payment of such
exercise price may be made (i) in cash (including check, bank
draft, money order or wire transfer of immediately available
funds), (ii) if approved by the Committee prior to exercise (or
in the case of an incentive stock option, if approved by the
Committee and set forth in the Option Agreement) by delivery of a
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<PAGE>
full recourse promissory note of the Participant bearing interest
at a rate not less than the applicable federal rate determined
pursuant to Section 1274 of the Code, (iii) in shares of Common
Stock valued at their Fair Market Value as of the date of
exercise as provided in Section 5.3 below, (iv) in the
consideration received by the Company pursuant to a cashless
exercise program implemented by the Company in connection with
the Plan, or (v) in a combination of the foregoing.
5.3 Exchange of Previously Acquired Stock. The Committee,
in its discretion and subject to such conditions as the Committee
may determine, may permit the exercise price for the shares being
acquired upon the exercise of an Option to be paid, in full or in
part, by the delivery to the Company of Common Stock. Any Common
Stock so delivered shall be treated as the payment of cash equal
to the aggregate Fair Market Value on the date of delivery of
such Common Stock. In the case of incentive stock options, the
Committee shall specify in the Option Agreement whether the
option holder may satisfy the exercise price with respect to
shares of Common Stock purchased upon exercise of such Option by
delivering to the Company shares of previously acquired Common
Stock. In the case of shares of Common Stock acquired upon
exercise of an Option, such shares shall have been owned by the
optionee for more than six months on the date of surrender, and
have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the shares of Common Stock as to
which said Option shall be exercised.
5.4 Withholding Tax Requirements.
(a) Amount of Withholding. It shall be a condition of
the exercise of any Option that the Participant exercising the
Option make appropriate payment or other provision acceptable to
the Company with respect to any withholding tax requirement
arising from such exercise. The amount of withholding tax
required, if any, with respect to any Option exercise (the
"Withholding Amount") shall be determined by the Treasurer or
other appropriate officer of the Company, and the Participant
shall furnish such information and make such representations as
such officer requires to make such determination.
(b) Withholding Procedure. If the Company determines that
withholding tax is required with respect to any Option exercise,
the Company shall notify the Participant of the Withholding
Amount, and the Participant shall pay to the Company an amount
not less than the Withholding Amount. In lieu of making such
payment and at the discretion of the Company, the Participant
may elect to pay the Withholding Amount by either (i) delivering
to the Company a number of shares of Common Stock having an
aggregate Fair Market Value as of the Measurement Date not less
than the Withholding Amount or (ii) directing the Company to
withhold (and not to deliver or issue to the Participant)
a number of shares of Common Stock, otherwise issuable upon
the exercise of an Option, having an aggregate Fair Market Value
as of the Measurement Date not less than the Withholding
Amount. In addition, if the Committee approves, a Participant
may elect pursuant to the prior sentence to deliver or direct
the withholding of shares of Common Stock having an aggregate
Fair Market Value in excess of the minimum Withholding Amount
but not in excess of the Participant's applicable highest
marginal combined federal income and state income tax rate, as
estimated in good faith by such Participant. Any fractional
share interests resulting from the delivery or withholding of
shares of Common Stock to meet withholding tax requirements
shall be settled in cash. All amounts paid to or withheld by
the Company and the value of all shares of Common Stock
delivered to or withheld by the Company pursuant to this
Section 5.4 shall be deposited in accordance with applicable
law by the Company as withholding tax for the Participant's
account. If the Treasurer or other appropriate officer of the
Company determines that no withholding tax is required with
respect to the exercise of any Option (because such option
is an incentive stock option or otherwise), but subsequently
it is determined that the exercise resulted in taxable income
as to which withholding is required (as a result of a
disposition of shares or otherwise), the Participant shall
promptly, upon being notified of the withholding requirement,
pay to the Company, by means acceptable to the Company, the
amount required to be withheld; and at its election the Company
may condition the transfer of any shares issued upon exercise
of an incentive stock option upon receipt of such payment.
5.5 Notification of Inquiries and Agreements. Each
Participant and each Permitted Transferee shall notify the
Company in writing within 10 days after the date such Participant
or Permitted Transferee (i) first obtains knowledge of any
Internal Revenue Service inquiry, audit, assertion,
determination, investigation, or question relating in any manner
to the value of Options granted hereunder; (ii) includes or
agrees (including, without limitation, in any settlement, closing
or other similar agreement) to include in gross income with
respect to any Option granted under this Plan (A) any amount in
excess of the amount reported on Form 1099 or Form W-2 to such
Participant by the Company, or (B) if no such Form was received,
any amount; and/or (iii) exercises, sells, disposes of, or
otherwise transfers an Option acquired pursuant to this Plan.
Upon request, a Participant or Permitted Transferee shall provide
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<PAGE>
to the Company any information or document relating to any event
described in the preceding sentence which the Company (in its
sole discretion) requires in order to calculate and substantiate
any change in the Company's tax liability as a result of such
event.
5.6 Conditions and Limitations on Exercise. At the
discretion of the Committee, exercised at the time of grant,
Options may vest, in one or more installments, upon (i) the
fulfillment of certain conditions, (ii) the passage of
a specified period of time, and/or (iii) the achievement by the
Company or any Subsidiary of certain performance goals.
5.7 Expiration of Options.
(a) Normal Expiration. In no event shall any part of
any Option be exercisable after the stated date of expiration
thereof.
(b) Early Expiration Upon Termination of Employment.
Any part of any Option that was not vested on a Participant's
Termination Date shall expire and be forfeited on such date, and
any part of any Option that was vested on the Termination Date
shall also expire and be forfeited to the extent not theretofore
exercised on the thirtieth (30th) day (one year, if termination
is caused by the Participant's death or disability) following the
Termination Date, but in no event after the stated date of
expiration thereof.
5.8 Right to Purchase Option Shares Upon Termination of
Employment.
(a) Repurchase Right. In the event a Participant's
employment with the Company is terminated for any reason, the
Option Shares (whether held by such Participant or one or more
transferees and including any Option Shares acquired subsequent
to such termination of employment) will be subject to repurchase
by the Company pursuant to the terms and conditions set forth in
this Section 5.8 (the "Repurchase Option") at a price per share
equal to the Fair Market Value thereof determined as of the
Termination Date.
(b) Repurchase Notice. The Board may elect to
purchase all or any portion of the Option Shares by delivery of
written notice (the "Repurchase Notice") to the holder or holders
of the Option Shares within 180 days after the Termination Date
(or if termination is caused by the Participant's death or
disability, 180 days after the expiration of the Options held by
such Participant). The Repurchase Notice will set forth the
number of Option Shares to be acquired from such holder, the
aggregate consideration to be paid for such shares and the time
and place for the closing of the transaction.
(c) Closing of Repurchase. The closing of the
repurchase transaction will take place on the date designated by
the Company in the Repurchase Notice, which date will not be more
than 45 days nor less than 10 days after the delivery of such
notice. The Company will pay for the Option Shares to be
purchased pursuant to the Repurchase Option by delivering, at the
option of the Company to such Participant and/or the other
holder(s), (1) a check in the amount of the aggregate sale price
of the Option Shares to be repurchased or (2) if the aggregate
consideration to be paid to such holder(s) of Option Shares
exceeds $50,000, a check in the amount of 20% of the aggregate
sale price of the Option Shares to be repurchased (except to the
extent not permitted under that certain revolving credit facility
with various lending institutions and Bankers Trust Company of up
to $40 million, a note in compliance therewith) and a
subordinated promissory note in a principal amount equal to the
remainder of the aggregate sale price, bearing interest at a
floating rate of interest equal to the prime rate as stated from
time to time by Chase Manhattan Bank or any successor thereto,
and payable, as to principal and interest, in four equal annual
installments on the first four anniversaries of the closing of
such repurchase; provided that if the Company determines that
withholding tax is required with respect to the exercise of a
Repurchase Option, the Company shall withhold an amount equal to
such withholding tax from the purchase price. At the closing,
the Participant and each other seller will deliver the
certificates representing the Option Shares to be sold duly
endorsed in form for transfer to the Company or its designee, and
the Company will be entitled to receive customary representations
and warranties from the Participant and the other sellers
regarding title to the Option Shares.
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5.9 Restrictions on Transfer.
(a) Restrictions. A Participant may not sell, pledge
or otherwise transfer any interest in any Option Shares except
pursuant to the provisions of this Section 5.9. At least 60 days
prior to making any transfer, the Participant proposing such
transfer shall deliver a written notice (the "Sale Notice") to
the Company. The Sale Notice will disclose in reasonable detail
the identity of the prospective transferee(s) and the terms and
conditions of the proposed transfer. Such Participant (and such
Participant's transferees) shall not consummate any such transfer
until 60 days after the Sale Notice has been delivered to the
Company, unless the Company has notified such Participant in
writing that it will not exercise its rights under this Section
5.9. (The date of the first to occur of such events is referred
to herein as the "Authorization Date").
(b) Repurchase Option. The Company may elect to
purchase all or any portion of the Option Shares to be
transferred upon the same terms and conditions as those set forth
in the Sale Notice (the "Right of First Refusal") by delivering a
written notice of such election to such Participant within 30
days after the receipt of the Sale Notice by the Company (the
"Election Notice"). If the Company has not elected to purchase
all of the Option Shares specified in the Sale Notice, such
Participant may transfer the Option Shares not purchased by the
Company to the prospective transferee(s) as specified in the Sale
Notice at a price and on terms no more favorable to the
transferee(s) thereof than specified in the Sale Notice during
the 60-day period immediately following the Authorization Date.
Any Option Shares not so transferred within such 60-day period
must be reoffered to the Company in accordance with the
provisions of this Section 5.9 in connection with any subsequent
proposed transfer.
(c) Exceptions. The restrictions contained in this
Section 5.9 will not apply with respect to transfers of Option
Shares (1) pursuant to applicable laws of descent and
distribution, (2) pursuant to the Shareholders Agreement or (3)
among the Participant's family group; provided that the
restrictions contained in this paragraph will continue to be
applicable to the Option Shares after any such transfer and the
transferees of such Option Shares have agreed in writing to be
bound by the terms and provisions of this Plan and the Option
grant, as amended from time to time. The Participant's "family
group" means the Participant's spouse and descendants (whether
natural or adopted) and any trust solely for the benefit of the
Participant and/or the Participant's spouse and/or descendants.
46
<PAGE>
5.10 Termination of Restrictions. The rights and
obligations set forth in Sections 5.8 and 5.9 hereof will
terminate upon the earlier of (A) the consummation by the Company
of a Qualified Initial Public Offering or (B) the sale of Option
Shares in accordance with the terms and conditions of Section 5.9
(except for a transfer pursuant to Section 5.9 (c)); provided
that with respect to clause (B) above, such rights and
obligations shall terminate only with respect to those Option
Shares sold.
ARTICLE VI
General Provisions
6.1 Written Agreement. Each Option granted hereunder shall
be embodied in a written agreement (the "Option Agreement")
which shall be signed by the Participant to whom the Option is
granted and shall be subject to the terms and conditions set
forth herein.
6.2 Listing, Registration and Legal Compliance. If at any
time the Committee determines, in its discretion, that the
listing, registration or qualification of the shares subject to
Options upon any securities exchange or under any state or
federal securities or other law or regulation, or the consent or
approval of any governmental regulatory body, is necessary or
desirable as a condition to or in connection with the granting of
Options or the purchase or issuance of shares thereunder, no
Options may be granted or exercised, in whole or in part, unless
such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not
acceptable to the Committee. The holders of such Options will
supply the Company with such certificates, representations and
information as the Company shall request and shall otherwise
cooperate with the Company in obtaining such listing,
registration, qualification, consent or approval. In the case of
officers and other persons subject to Section 16(b) of the
Securities Exchange Act of 1934, as amended, the Committee may at
any time impose any limitations upon the exercise of Options
that, in the Committee's discretion, are necessary or desirable
in order to comply with such Section 16(b) and the rules and
regulations thereunder. If the Company, as part of an offering
of securities or otherwise, finds it desirable because of federal
or state regulatory requirements to reduce the period during
which any Options may be exercised, the Committee may, in its
discretion and without the Participant's consent, so reduce such
period on not less than 15 days' written notice to the holders
thereof.
6.3 Options Not Transferrable. Options may not be
transferred other than by will or the laws of descent and
distribution and, during the lifetime of the Participant to whom
they were granted, may be exercised only by such Participant (or,
if such Participant is incapacitated, by such Participant's
legal guardian or legal representative). In the event of the
death of a Participant, Options which are not vested on the date
of death shall terminate; exercise of Options granted hereunder
to such Participant, which are vested as of the date of death,
may be made only by the executor or administrator of such
Participant's estate or the person or persons to whom such
Participant's rights under the Options will pass by will or the
laws of descent and distribution.
6.4 Adjustments. In the event of a reorganization,
recapitalization, stock dividend or stock split, or combination
or other change in the shares of Common Stock, the Board or the
Committee may, in order to prevent the dilution or enlargement of
rights under the Plan or outstanding Options, adjust (1) the
number and type of shares as to which options may be granted
under the Plan, (2) the number and type of shares covered by
outstanding Options, (3) the exercise prices specified therein
and (4) other provisions of this Plan which specify a number of
shares, all as such Board or Committee determines to be
appropriate and equitable.
6.5 Rights of Participants. Nothing in the Plan shall
interfere with or limit in any way the right of the Company or
any Subsidiary to terminate any Participant's employment at any
time (with or without cause), or confer upon any Participant any
right to continue in the employ of the Company or any Subsidiary
for any period of time or to continue to receive such
Participant's current (or other) rate of compensation. No
employee shall have a right to be selected as a Participant or,
having been so selected, to be selected again as a Participant.
6.6 Fair Market Value Determination. Until the Common
Stock is listed on a security exchange or quoted on the Nasdaq
Stock Market, the Board or the Committee will determine the Fair
Market Value per share of Common Stock based on such factors as
the members thereof in the exercise of their business judgment
consider relevant as necessary and any Participant may receive
upon termination of his or her employment with the Company the
most recent Fair Market Value determination for the Common Stock
upon written request to the Board.
47
<PAGE>
6.7 Amendment, Suspension and Termination of Plan. The
Board or the Committee may suspend or terminate the Plan or any
portion thereof at any time and may amend it from time to time in
such respects as the Board or the Committee may deem advisable;
provided, however, that no such amendment shall be made without
shareholder approval to the extent such approval is required by
law, agreement or the rules of any exchange or national market
system upon which the Common Stock is listed, and no such
amendment, suspension or termination shall impair the rights of
Participants under outstanding Options without the written
consent of the Participants affected thereby, except as provided
below. No Options shall be granted hereunder after the tenth
anniversary of the adoption of the Plan.
6.8 Amendment of Outstanding Options. The Committee may
amend or modify any Option in any manner to the extent that the
Committee would have had the authority under the Plan initially
to grant such Option; provided that, except as expressly
contemplated elsewhere herein or in any agreement evidencing such
Option, no such amendment or modification shall impair the rights
of any Participant under any outstanding Option without the
written consent of such Participant.
6.9 Indemnification. In addition to such other rights of
indemnification as they may have as members of the Board or the
Committee, the members of the Committee shall be indemnified by
the Company against (i) all costs and expenses reasonably
incurred by them in connection with any action, suit or
proceeding to which they or any of them may be party by reason of
any action taken or failure to act under or in connection with
the Plan or any Option granted under the Plan, and (ii) all
amounts paid by them in settlement thereof (provided such
settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding; provided, however, that any such
Committee member shall be entitled to the indemnification rights
set forth in this Section 6.9 only if such member (1) acted in
good faith and in a manner that such member reasonably believed
to be in, and not opposed to, the best interests of the Company,
and (2) with respect to any criminal action or proceeding, (A)
had no reasonable cause to believe that such conduct was
unlawful, and (B) upon the institution of any such action, suit
or proceeding a Committee member shall give the Company written
notice thereof and an opportunity to handle and defend the same
before such Committee member undertakes to handle and defend it
on his own behalf.
6.10 Restricted Securities. Unless registered as described
in Section 6.2 hereof, all Common Stock issued pursuant to the
terms of this Plan shall constitute "restricted securities," as
that term is defined in Rule 144 promulgated by the Securities
and Exchange Commission pursuant to the Securities Act, and may
not be transferred except in compliance with the registration
requirements of the Securities Act or an exemption therefrom.
* * * * *
48
Exhibit 10.25
MCMS, INC. EXECUTIVE BONUS PLAN
1. PURPOSE
The MCMS, Inc. Executive Bonus Plan (the "Bonus Plan") is
designed to attract, retain, and reward highly qualified
executives and key employees who are important to the Company's
success and to provide incentives relating directly to the
performance and growth of the Company.
2. DEFINITIONS
(a) Bonus - The cash incentive awarded to an Executive Officer
or Key Employee pursuant to the terms and conditions of the
Bonus Plan.
(b) Board - The Board of Directors of MCMS, Inc.
(c) Code - The Internal Revenue Code of 1986, as amended.
(d) Committee - The Compensation Committee of the Board, or such
other committee of the Board that is designated by the Board to
administer the Bonus Plan, in compliance with requirements of
Section 162(m) of the Code.
(e) Company - MCMS, Inc. and any other corporation in which
MCMS, Inc. controls, directly or indirectly, more than fifty
percent (50%) of the combined voting power of all classes of
voting securities.
(f) Executive - An Executive Officer or Key Employee of the
Company.
(g) Executive Officer - Any officer of the Company.
(h) Key Employee - Any employee of the Company as may be
designated by the Committee to participate in this Bonus Plan.
3. ELIGIBILITY
Only Executives are eligible to participate in the Bonus Plan.
4. ADMINISTRATION
(a) Awards of bonuses under the Bonus Plan shall be based on one
or more of the following performance goals, as determined by
resolution of the Committee in their discretion: (i) net income,
(ii) earnings, before interest, taxes, depreciation, and
amortization, (iii) earnings per share, (iv) return on equity,
(v) gross margin,(vi) return on assets, (vii) net sales, (viii)
new products, (ix) expansion of facilities, (x) customer
satisfaction (xi) asset management, (xii) debt management, or
(xiii) other criteria identified by the Committee.
(b) The Committee shall administer the Bonus Plan and shall have
full power and authority to construe, interpret, and administer
the Bonus Plan necessary to comply with the requirements of
Section 162(m) of the Code. The Committee's decisions shall be
final, conclusive, and binding upon all persons. The Committee
in its sole discretion has the authority, by resolution, to
modify performance goals and/or reduce or increase the amount
of a bonus otherwise allocated to Executives upon attainment of
performance goals. In addition, bonuses will be conditioned
upon the Company's compliance, both before and after such
bonuses are paid, with any existing Company obligations or
covenants.
(c) Prior to the commencement of a fiscal year, or at such other
time as the Committee deems appropriate, the Committee shall:
(i) determine the performance goals; (ii) determine the
Executives who will participate in the Bonus Plan for the
relevant period; and (iii) determine the method for computing
the amount of bonus payable to each Executive if the performance
goals are achieved. Bonus amounts shall be paid within ninety
(90) days after the completion of the audit of the Company's
fiscal year unless otherwise determined by the Committee.
49
<PAGE>
(d) If the Executive ceases to be employed by the Company, any
unpaid bonuses shall be paid in accordance with the Executive's
employment agreement, if applicable.
(e) The Committee may amend, modify, suspend, or terminate the
Bonus Plan for the purpose of meeting or addressing any changes
in legal requirements or for any other purpose permitted by law.
The Committee will seek shareholder approval of any amendment
determined to require shareholder approval or advisable under
the regulations of the Internal Revenue Service or other
applicable law or regulation.
5. NONASSIGNABILITY
No Bonus or any other benefit under the Bonus Plan shall be
assignable or transferable by the participant during the
participant's lifetime except as otherwise approved by the
Committee.
6. NO RIGHT TO CONTINUED EMPLOYMENT
Subject to employment agreements entered into between the Company
and the Executives, nothing in the Bonus Plan shall confer upon
any employee any right to continue in the employ of the Company
or shall interfere with or restrict in any way the right of the
Company to discharge an Executive at any time for any reason
whatsoever, with or without good cause.
7. EFFECTIVE DATE
The Bonus Plan shall be deemed effective as of February 27, 1998.
50
Exhibit 10.26
MCMS, INC. PROFIT SHARING PLAN
1. PURPOSE
The MCMS, Inc. (the "Company") Profit Sharing Plan (the "Plan")
is designed to recognize individual performance and contribution
to the profitability of the Company.
2. PROFIT SHARING AND ADMINISTRATION
(a) The Company will distribute a bonus of up to approximately
7% of its earnings, before, interest, taxes, depreciation
and amortization ("EBITDA") (the "Bonus Pool"), to eligible
team members. The Bonus Pool, after approval of the
Compensation Committee (the "Committee") in their discretion,
may be distributed in the form of a broad based equal
distribution to all eligible team members ("Broad Based
Distribution") and/or a distribution to eligible team members
based on individual performance or other criteria ("Pay for
Performance"). All distributions are subject to the
profitability of the Company and are at the discretion of
the Committee, which shall have the authority to determine
performance goals and other criteria for Pay for Performance
distributions, the team members to be awarded bonuses, and
the amount and timing of bonuses under the Plan. The
Committee also shall have the right to make adjustments to
the Bonus Pool as it deems appropriate. In addition,
bonuses will be conditioned upon the Company's compliance,
both before and after such bonuses are paid, with any
existing Company obligations or covenants.
(b) Bonuses will be distributed after the announcement of the
Company's fiscal quarterly results of operations or at such
other times as determined by the Committee.
(c) Any questions concerning interpretations of, or eligibility
under, the Plan shall be decided by the Committee. The Plan
may be modified or discontinued at any time by the
Committee, with or without cause or notice.
3. ELIGIBILITY
To be eligible to participate under the Plan, the following
requirements must be met:
(a) Employees must be continuously employed with the Company for
ninety (90) days prior to the close of the most recent
fiscal quarter (time worked as a temporary employee will be
credited to fulfilling this ninety (90) day requirement).
In addition, any Broad Based Distribution to part-time team
members shall be prorated based on the hours worked by such
team member.
(b) Team members must be a full or part-time MCMS employee on
the payroll transmit date without respect to a retroactive
or other termination date established after the payroll has
been transmitted. Temporary employees are not eligible.
(c) Officers, interns, and commission-based sales team members
are not eligible for Pay for Performance bonuses.
4. EFFECTIVE DATE
The Plan shall be deemed effective as of February 27, 1998.
51
Exhibit 11
<TABLE>
MCMS, INC.
EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
<CAPTION>
Three months ended
---------------------------------
November 27, December 3,
1997 1998
------------ ------------
<S> <C> <C>
Net income basic $ 4,476 $ (2,023)
Dividends on redeemable preferred
stock accumulated but not paid - (28)
Redeemable preferred stock dividends
and discount accretion - (854)
------------ ------------
Net income available to common
stockholders $ 4,476 $ (2,905)
============ ============
Shares used to compute net income per
share:
Weighted average common shares
outstanding - basic and diluted 1,000 5,000,000
============ ============
Net income (loss) per share - basic
and diluted $ 4,476 $ (0.58)
============ ============
</TABLE>
52
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-02-1999
<PERIOD-END> DEC-03-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 40,951
<ALLOWANCES> 278
<INVENTORY> 48,929
<CURRENT-ASSETS> 91,583
<PP&E> 96,611
<DEPRECIATION> 33,943
<TOTAL-ASSETS> 161,998
<CURRENT-LIABILITIES> 64,730
<BONDS> 0
26,528
5
<COMMON> 5
<OTHER-SE> (116,047)
<TOTAL-LIABILITY-AND-EQUITY> 161,998
<SALES> 91,243
<TOTAL-REVENUES> 91,243
<CGS> 86,056
<TOTAL-COSTS> 86,056
<OTHER-EXPENSES> 4,264
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,721
<INCOME-PRETAX> (3,798)
<INCOME-TAX> (1,775)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,023)
<EPS-PRIMARY> (0.58)
<EPS-DILUTED> 0
</TABLE>
