<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 17, 1996
REGISTRATION NO. 333-4230
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
BENCHMARK ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
TEXAS 3679 74-2211011
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
3000 TECHNOLOGY DRIVE
ANGLETON, TEXAS 77515
(409) 849-6550
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
---------------------
<TABLE>
<S> <C>
CARY T. FU Copy to:
BENCHMARK ELECTRONICS, INC. JOHN R. BRANTLEY
3000 TECHNOLOGY DRIVE BRACEWELL & PATTERSON, L.L.P.
ANGLETON, TEXAS 77515 SOUTH TOWER PENNZOIL PLACE
(409) 849-6550 711 LOUISIANA STREET, SUITE 2900
(Name, address, including zip code, and HOUSTON, TEXAS 77002-2781
telephone number, including area code, of
agent for service)
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
EMD TECHNOLOGIES, INC.
4065 THEURER BOULEVARD
WINONA, MINNESOTA, 55987-5025
(507) 452-8932
June , 1996
Dear EMD Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
EMD Technologies, Inc. ("EMD") to be held at , on July , 1996, at
local time.
At the Special Meeting, you will be asked to consider and vote upon the
approval of a proposed merger whereby EMD will be merged with and into
Electronics Acquisition, Inc. ("Newco"), a wholly owned subsidiary of Benchmark
Electronics, Inc. ("Benchmark") (the "Merger"). As a result of the Merger, EMD
will cease to exist, and Newco will survive as a wholly owned subsidiary of
Benchmark. The Merger will occur pursuant to the Agreement and Plan of Merger
dated as of March 27, 1996, as amended (the "Merger Agreement"), by and among
EMD, Benchmark, Newco, and the Founding Shareholders of EMD named therein.
Under the terms of the Merger Agreement, the Merger will result in the
conversion of each share of EMD's Common Stock outstanding immediately prior to
the time the Merger becomes effective into cash and a number of shares of
Benchmark's Common Stock determined in accordance with the provisions of the
Merger Agreement, as described in the enclosed Information Statement/Prospectus
for the Special Meeting. Under certain circumstances described in the
Information Statement/Prospectus, shares of EMD's Common Stock may be converted
into shares of Benchmark's Mandatorily Convertible Preferred Stock, Series A, as
well as cash and shares of Benchmark's Common Stock.
The enclosed Information Statement/Prospectus contains a more complete
description of the terms of the Merger. You are urged to read the Information
Statement/Prospectus carefully.
THE EMD BOARD OF DIRECTORS HAS APPROVED THE MERGER AND THE MERGER AGREEMENT
AS BEING IN THE BEST INTERESTS OF EMD'S SHAREHOLDERS AND RECOMMENDS THAT YOU
VOTE IN FAVOR OF THE MERGER. IN MAKING THIS RECOMMENDATION, THE BOARD OF
DIRECTORS HAS CONSIDERED NUMEROUS FACTORS, INCLUDING THE CONSIDERATION OFFERED
BY BENCHMARK AND VARIOUS STRATEGIC ALTERNATIVES FOR EMD.
Sincerely,
Daniel M. Rukavina
President
David H. Arnold
Secretary and Treasurer
<PAGE> 3
EMD TECHNOLOGIES, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JULY , 1996
To the Shareholders of EMD Technologies, Inc.
A Special Meeting of Shareholders of EMD Technologies, Inc. ("EMD") will be
held at , on July , 1996, at local time, for the
following purposes (which are more fully described in the accompanying
Information Statement/Prospectus):
(1) To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger dated as of March 27, 1996, as amended (the
"Merger Agreement"), by and among EMD, Benchmark Electronics, Inc.
("Benchmark"), Electronics Acquisition, Inc., a wholly owned subsidiary of
Benchmark ("Newco"), and the Founding Shareholders of EMD named therein,
and, as contemplated thereby, the merger of EMD with and into Newco (the
"Merger"). As a result of the Merger, EMD will cease to exist, and Newco
will survive as a wholly owned subsidiary of Benchmark. In connection with
the Merger, each outstanding share of EMD's Common Stock, no par value (the
"EMD Common Stock"), will be converted into the right to receive cash and
shares of Benchmark's Common Stock, par value $0.10 per share (the
"Benchmark Common Stock"), based upon the conversion ratio described in the
accompanying Information Statement/Prospectus and in the Merger Agreement
(a copy of which is attached to the Information Statement/Prospectus as
Appendix A). Under certain circumstances, as described in the Information
Statement/Prospectus and in the Merger Agreement, shares of EMD Common
Stock may be converted into shares of Benchmark's Mandatorily Convertible
Preferred Stock, Series A, as well as cash and shares of Benchmark Common
Stock; and
(2) To transact any other business that may properly come before the
EMD Special Meeting or any adjournment thereof.
The board of directors has fixed the close of business on ,
1996, as the record date for the determination of shareholders entitled to
receive notice of and to vote at the Special Meeting or any adjournments
thereof. Only shareholders of record as of that date are entitled to receive
notice of and to attend the Special Meeting. Although participants in the EMD
Employee Stock Ownership Plan are not entitled to receive notice of or to attend
the Special Meeting, they may nevertheless direct the record holder of the
shares beneficially owned by them with respect to the voting of such shares. See
"The Merger -- Certain Matters Relating to the EMD ESOP -- Right to Direct Vote
with Respect to the Merger" in the accompanying Information
Statement/Prospectus.
Under Minnesota law, if the Merger is consummated, a shareholder of EMD or
beneficial owner of EMD Common Stock who follows statutorily prescribed
procedures will be entitled, in lieu of receiving cash and shares of Benchmark
capital stock as a result of the Merger, to receive cash equal to the "fair
value" of such shareholder's or beneficial owner's shares of EMD Common Stock
immediately prior to the Merger. See "The Merger -- Dissenters' Rights" in the
attached Information Statement/Prospectus.
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. THE AFFIRMATIVE
VOTE OF AT LEAST A MAJORITY OF THE OUTSTANDING SHARES OF EMD COMMON STOCK IS
REQUIRED FOR APPROVAL OF THE MERGER. THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN
FAVOR OF THE MERGER.
By Order of the Board of Directors
David H. Arnold
Secretary
June , 1996
<PAGE> 4
INFORMATION STATEMENT OF
EMD TECHNOLOGIES, INC.
FOR A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY , 1996
---------------------
PROSPECTUS OF
BENCHMARK ELECTRONICS, INC.
RELATING TO THE OFFERING OF SHARES OF
COMMON STOCK AND
MANDATORILY CONVERTIBLE PREFERRED STOCK, SERIES A
---------------------
This Information Statement of EMD Technologies, Inc. ("EMD") and Prospectus
of Benchmark Electronics, Inc. ("Benchmark") (the "Information
Statement/Prospectus") relates to up to 805,879 shares of Benchmark's Common
Stock, par value $.10 per share (the "Benchmark Common Stock"), and up to
250,000 shares of Benchmark's Mandatorily Convertible Preferred Stock, Series A,
par value $.10 per share (the "Series A Preferred Stock"), issuable to the
holders of issued and outstanding shares of EMD's Common Stock, no par value
(the "EMD Common Stock"), upon the consummation of the merger (the "Merger") of
EMD with and into Electronics Acquisition, Inc. ("Newco"), a wholly owned
subsidiary of Benchmark, with Newco as the surviving corporation, pursuant to
the terms of an Agreement and Plan of Merger dated as of March 27, 1996, by and
among Benchmark, Newco, EMD, David H. Arnold and Daniel M. Rukavina, as amended
(the "Merger Agreement"). A copy of the Merger Agreement is attached as Appendix
A to this Information Statement/Prospectus and incorporated herein by reference.
This Information Statement/ Prospectus also relates to 250,000 shares of
Benchmark Common Stock issuable upon the mandatory conversion of the Series A
Preferred Stock into Benchmark Common Stock, plus such indeterminable number of
additional shares of Benchmark Common Stock into which the Series A Preferred
Stock may become convertible upon a split, subdivision or similar change in the
outstanding shares of Benchmark Common Stock.
This Information Statement/Prospectus is being furnished to the holders of
shares of EMD Common Stock in connection with a Special Meeting of such
shareholders to be held at .m. on July , 1996 at
and any adjournments or postponements thereof (the "Special Meeting"). WE ARE
NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
Except as otherwise described herein, upon consummation of the Merger, each
outstanding share of EMD Common Stock will be converted into the right to
receive (i) cash in the amount of approximately $5.91, subject to adjustment as
provided for in the Merger Agreement and described herein, and (ii) a fraction
of a share of Benchmark Common Stock determined in accordance with a formula set
forth in the Merger Agreement. The actual fraction of a share of Benchmark
Common Stock that each share of EMD Common Stock will entitle the holder thereof
to receive will be based on a price per share of the Benchmark Common Stock (the
"Benchmark Measurement Price") determined by reference to the market price (the
"Trading Price") of the Benchmark Common Stock measured during a 20-day period
provided for in the Merger Agreement, subject to adjustment as provided in the
Merger Agreement and described herein. Based on this formula, if the
consummation of the Merger had occurred on May 31, 1996, each share of EMD
Common Stock would have entitled the holder thereof to receive .1314 share of
Benchmark Common Stock. The formula is intended to provide the holder of each
share of EMD Common Stock with a fraction of a share of Benchmark Common Stock
valued, using the Benchmark Measurement Price, at approximately $3.94, so that
the total value of the cash and Benchmark Common Stock that each share of EMD
Common Stock will entitle the holder thereof to receive will be approximately
$9.85. If the Trading Price is more than $40.00 or less than $22.00, however,
Benchmark may terminate the Merger Agreement; if the Trading Price is less than
$22.00, EMD may terminate the Merger Agreement.
In the event that the market price of the Benchmark Common Stock on the
trading day immediately prior to the consummation of the Merger (the "Closing
Price") is less than the Benchmark Measurement Price, the amount of cash and the
fraction of a share of Benchmark Common Stock that each share of EMD
<PAGE> 5
Common Stock will entitle the holder thereof to receive will be redetermined
based on formulae set forth in the Merger Agreement. The effect of this
redetermination will be to decrease the amount of cash and increase the fraction
of a share of Benchmark Common Stock that each share of EMD Common Stock will
entitle the holder thereof to receive, while maintaining the combined value of
the cash and the fraction of a share of Benchmark Common Stock at approximately
$9.85 (based on the Benchmark Measurement Price). In addition, if the aggregate
number of shares of Benchmark Common Stock that Benchmark would otherwise be
required to issue in the Merger exceeds 805,879, Benchmark will issue pro rata
to the holders of shares of EMD Common Stock one share of Series A Preferred
Stock in lieu of each share of Benchmark Common Stock that would otherwise be
issued in excess of 805,879 shares. FOR A MORE COMPLETE DESCRIPTION OF THE TERMS
OF THE MERGER, INCLUDING A DESCRIPTION OF THE RANGE (BOTH AMOUNT AND NATURE) OF
THE POSSIBLE CONSIDERATION TO BE RECEIVED BY EMD SHAREHOLDERS AT TRADING PRICES
FROM $22.00 TO $40.00, SEE "THE MERGER -- TERMS OF THE MERGER -- DETERMINATION
OF MERGER CONSIDERATION" AND "-- REDETERMINATION OF MERGER CONSIDERATION."
As noted above, under certain circumstances, the Merger Agreement provides
that Benchmark issue shares of its Series A Preferred Stock in lieu of Benchmark
Common Stock. If issued, the Series A Preferred Stock will convert automatically
on a share for share basis, subject to adjustment, into Benchmark Common Stock
upon the approval by a majority of the issued and outstanding shares of
Benchmark Common Stock of the issuance of the shares of Benchmark Common Stock
issuable upon conversion of the Series A Preferred Stock. Pursuant to the Merger
Agreement, Benchmark has agreed that if shares of Series A Preferred Stock are
issued, it will convene a special meeting of its shareholders for the purpose of
voting on the issuance of the shares of Benchmark Common Stock issuable upon
conversion of the Series A Preferred Stock within 120 days after the
consummation of the Merger. In the event that the Series A Preferred Stock has
not been converted into Benchmark Common Stock within 120 days after the
consummation of the Merger, the holders of shares of Series A Preferred Stock
will be entitled to receive, until such conversion occurs, when, as and if
declared by the board of directors of Benchmark, out of funds legally available
therefor, cumulative dividends, accruing from the date of consummation of the
Merger, in an amount annually equal to 4% of the lesser of the Benchmark
Measurement Price and the Closing Price, payable quarterly. This annual dividend
amount will increase, on each anniversary of the consummation of the Merger, by
2% of the lesser of the Benchmark Measurement Price and the Closing Price, but
shall in no event exceed 12% of the lesser of the Benchmark Measurement Price
and the Closing Price. Upon liquidation, dissolution or winding up of Benchmark,
each share of Series A Preferred Stock will entitle the holder thereof to
payment of an amount equal to the lesser of the Benchmark Measurement Price and
the Closing Price prior to the payment of any amounts to the holders of
Benchmark Common Stock or any other security ranking junior to the Series A
Preferred Stock. The Series A Preferred Stock will have no voting rights other
than with respect to mergers, consolidations and other extraordinary corporate
transactions and with respect to matters as to which holders of the Series A
Preferred Stock are entitled to vote as a matter of law. For a more complete
description of the Series A Preferred Stock and the circumstances under which
such shares may become issuable, see "The Merger -- Description of Series A
Preferred Stock."
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS INFORMATION STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
The date of this Information Statement/Prospectus is June , 1996.
2
<PAGE> 6
AVAILABLE INFORMATION
Benchmark is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In accordance therewith,
Benchmark files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the Commission's regional offices at 7 World
Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials may be
obtained at prescribed rates from the Public Reference Section of the Commission
at its principal offices in Washington, D.C. As of May 6, 1996, Benchmark is
required to file its reports, proxy statements and other information with the
Commission electronically. The Commission maintains a site on the World Wide Web
that contains documents filed with the Commission electronically. The address of
such site is http://www.sec.gov, and reports, proxy statements and other
information filed by Benchmark after May 6, 1996 may be inspected at such site.
Reports, proxy statements and other information filed by Benchmark may also be
inspected at the offices of the American Stock Exchange, Inc. (the "AMEX") at 86
Trinity Place, New York, New York 10006-1881.
Benchmark has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the shares of Benchmark Common Stock and
Series A Preferred Stock offered hereby. In accordance with the Securities Act
and the rules and regulations thereunder, this Information Statement/Prospectus,
which constitutes part of the Registration Statement, omits certain of the
information contained in the Registration Statement and the exhibits and
schedules thereto. Statements made in this Information Statement/Prospectus as
to the contents of any document are necessarily summaries of such document and
are not necessarily complete, and in each instance reference is made to the copy
of such document filed as an exhibit to the Registration Statement, each such
statement being hereby qualified in all respects by such reference. The
Registration Statement, including the exhibits and schedules thereto, is on file
at the offices of the Commission and may be obtained upon payment of the fee
prescribed by the Commission or may be examined without charge at the public
reference facilities of the Commission or at the Commission's World Wide Web
site as described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS INFORMATION STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE
AVAILABLE WITHOUT CHARGE UPON WRITTEN OR ORAL REQUEST FROM LENORA A. GURTON,
BENCHMARK ELECTRONICS, INC., 3000 TECHNOLOGY DRIVE, ANGLETON, TEXAS 77515,
TELEPHONE (409) 849-6550. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUEST SHOULD BE MADE BY JULY , 1996.
Benchmark's Annual Report on Form 10-K for the year ended December 31,
1995, Benchmark's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996 and the description of the Benchmark Common Stock contained in Benchmark's
Registration Statement on Form 8-A registering the Benchmark Common Stock under
the Exchange Act, filed with the Commission on May 15, 1990, as amended on Form
8 dated June 25, 1990, are incorporated by reference in, and made a part of,
this Information Statement/Prospectus.
All documents filed by Benchmark with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and
prior to the Special Meeting shall be deemed to be incorporated by reference
herein and made a part hereof from the date of such filing.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of the Registration Statement and this Information
Statement/Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of the Registration Statement or this Information
Statement/Prospectus.
3
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
AVAILABLE INFORMATION................................................................. 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 3
SUMMARY............................................................................... 6
Business of Benchmark and EMD....................................................... 6
Benchmark........................................................................ 6
EMD.............................................................................. 6
The Merger.......................................................................... 7
Terms of the Merger.............................................................. 7
Special Meeting; Vote Required................................................... 9
Reasons for the Merger; Recommendation of EMD's Board of Directors............... 9
Effective Time of the Merger..................................................... 10
Surrender of Certificates........................................................ 10
Conditions to the Merger; Termination............................................ 10
Dissenters' Rights............................................................... 11
Accounting Treatment............................................................. 11
Regulatory Approvals............................................................. 11
Certain Federal Income Tax Consequences.......................................... 11
Certain Differences in Rights of Shareholders.................................... 11
Market Information.................................................................. 12
Selected Historical Financial Information Relating to EMD........................... 13
Selected Historical and Pro Forma Financial Information Relating to Benchmark....... 14
Comparative Unaudited Historical and Pro Forma Per Share Information................ 15
THE SPECIAL MEETING................................................................... 16
General............................................................................. 16
Date, Place and Time................................................................ 16
Record Date; Vote Required.......................................................... 16
Beneficial Ownership of EMD Common Stock............................................ 17
THE MERGER............................................................................ 18
Background of and Reasons for the Merger............................................ 18
Background of the Merger......................................................... 18
Recommendation of the Board of EMD; Reasons for the Merger....................... 20
Terms of the Merger................................................................. 21
General.......................................................................... 21
Determination of Merger Consideration............................................ 21
Redetermination of Merger Consideration.......................................... 23
Issuance of Series A Preferred Stock............................................. 24
Fractional Shares................................................................ 25
Effective Time of the Merger........................................................ 25
Surrender of Certificates........................................................... 25
Conditions to the Merger............................................................ 26
Certain Covenants................................................................... 27
Amendment, Waiver and Termination................................................... 28
Dissenters' Rights.................................................................. 29
Certain Federal Income Tax Consequences............................................. 30
Certain Matters Relating to the EMD ESOP............................................ 32
Right to Direct Vote with Respect to the Merger.................................. 32
Treatment After the Effective Time............................................... 32
Additional Agreements............................................................... 32
Voting and Share Transfers....................................................... 32
Board Representation............................................................. 33
Other............................................................................ 33
</TABLE>
4
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<TABLE>
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PAGE
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Interests of Certain Persons in the Merger.......................................... 34
Description of Series A Preferred Stock............................................. 34
General.......................................................................... 34
Dividends........................................................................ 35
Liquidation Preference........................................................... 35
Conversion....................................................................... 35
Voting Rights.................................................................... 36
Certain Differences in Rights of Shareholders....................................... 36
Management of Corporation by Shareholders........................................ 36
Dissenters' Rights............................................................... 36
Special Meetings of Shareholders................................................. 37
Indemnification of Directors and Officers........................................ 37
Inspection of Books and Records.................................................. 37
Operations After the Merger......................................................... 38
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION.......................... 39
INFORMATION ABOUT EMD................................................................. 45
Business of EMD..................................................................... 45
Introduction..................................................................... 45
Operations....................................................................... 45
Customers and Marketing.......................................................... 46
Competition...................................................................... 46
Patents, Trademarks, Copyrights and Other Intellectual Property.................. 46
Employees........................................................................ 46
Facilities....................................................................... 47
Management.......................................................................... 47
Market Information and Dividends.................................................... 47
EMD MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 48
Results of Operations............................................................... 48
Liquidity and Capital Resources..................................................... 51
EXPERTS............................................................................... 53
LEGAL OPINION......................................................................... 53
INDEX TO EMD FINANCIAL STATEMENTS..................................................... F-1
APPENDICES
APPENDIX A -- AGREEMENT AND PLAN OF MERGER............................................ A-1
APPENDIX B -- MINNESOTA BUSINESS CORPORATION ACT, SECTIONS 302A.471 AND 302A.473...... B-1
</TABLE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS INFORMATION STATEMENT/PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS INFORMATION STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE
BENCHMARK COMMON STOCK OR SERIES A PREFERRED STOCK OFFERED BY THIS INFORMATION
STATEMENT/PROSPECTUS IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER. NEITHER THE DELIVERY OF THIS INFORMATION
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF BENCHMARK OR EMD SINCE THE DATE OF THIS INFORMATION STATEMENT/
PROSPECTUS.
5
<PAGE> 9
SUMMARY
The following is a summary of certain information contained elsewhere in
this Information Statement/Prospectus. The summary is not intended to be a
complete description of the matters covered in this Information
Statement/Prospectus and is subject to and qualified by reference to the more
detailed information contained elsewhere herein, including in the Appendices
hereto. Holders of shares of EMD Common Stock are urged to read carefully the
entire Information Statement/Prospectus, including the Appendices.
BUSINESS OF BENCHMARK AND EMD
Benchmark
Benchmark provides contract manufacturing services to original equipment
manufacturers ("OEMs") in the electronics industry, including manufacturers of
medical devices, communications equipment, industrial and business computers,
testing instrumentation and industrial instruments. Benchmark specializes in
assembling high quality, technologically complex printed circuit boards with
computer-automated equipment using surface mount and pin-through-hole
interconnection technologies for customers requiring low to medium volume
assembly. Benchmark frequently works with customers from product design and
prototype stages through ongoing production and provides manufacturing services
for successive product generations.
Substantially all of Benchmark's manufacturing services are provided on a
turnkey basis, whereby Benchmark purchases customer-specified components from
its extensive network of suppliers, assembles the components into finished
printed circuit boards, and performs post-assembly testing. Benchmark offers its
customers flexible, "just-in-time" delivery programs allowing product shipments
to be closely coordinated with the customers' inventory requirements. In certain
instances, Benchmark completes the assembly of its customers' products at
Benchmark's facilities by integrating printed circuit boards into other
components of the customers' products. Benchmark also provides manufacturing
services on a consignment basis, whereby Benchmark, utilizing components
provided by the customer, provides only assembly and post-assembly testing
services.
Benchmark's principal executive offices are located at 3000 Technology
Drive, Angleton, Texas 77515, and its telephone number is (409) 849-6550.
Additional information concerning Benchmark is included in the Benchmark
documents incorporated by reference herein. See "Incorporation of Certain
Documents by Reference."
EMD
EMD, through its operating subsidiaries, is an independent provider of
electronic design and manufacturing services for major OEMs in the commercial
electronics industry. EMD provides product design, turnkey manufacturing,
assembly and test services. Unless the context requires otherwise, references to
"EMD" include EMD's operating subsidiaries. See "Information About EMD --
Business of EMD -- Introduction."
EMD's product design services include the complete design and development
of electronic products and mechanical packages, from conceptual design to
configuring subsystems and enclosures. EMD's turnkey manufacturing services
involve material procurement and inventory management, assembly of complex
printed circuit boards using primarily surface mount and pin-through-hole
technology, and testing of electronic subsystems and systems. EMD operates two
surface mount production facilities and a separate material handling facility.
These facilities contain state-of-the-art equipment and process technologies,
including 15 surface mount production lines.
EMD's principal executive offices are located at 4065 Theurer Boulevard,
Winona, Minnesota 55987-5025, and its telephone number is (507) 452-8932. See
"Information About EMD."
6
<PAGE> 10
THE MERGER
Terms of the Merger
Upon the effectiveness of the Merger (the "Effective Time"), EMD will be
merged with and into Newco with Newco being the surviving corporation of the
Merger (sometimes referred to herein as the "Surviving Corporation"). EMD shall
cease to exist, and Newco shall continue to be a wholly owned subsidiary of
Benchmark, governed by the laws of the State of Texas, with all of the rights
and obligations of each of Newco and EMD.
At the Effective Time, each share of EMD Common Stock outstanding
immediately prior to the Effective Time, other than shares held in the treasury
of EMD (which will be cancelled) and shares as to which statutory dissenters'
rights have been exercised, shall, without any action on the part of the holder
thereof, be converted into the right to receive (i) cash in the amount of
$5.9074, subject to redetermination as described below (the "Cash Amount"), and
(ii) a fraction of a share (the "Share Fraction") of Benchmark Common Stock
determined by dividing $3.9383 by the Benchmark Measurement Price (determined as
described below), subject to redetermination as described below and subject to a
provision in the Merger Agreement requiring the use of Series A Preferred Stock
under certain circumstances. See "The Merger -- Terms of the Merger -- Issuance
of Series A Preferred Stock." The total consideration provided by the Cash
Amount and the Share Fraction is intended to have a value, using the Benchmark
Measurement Price to value the Share Fraction, equal to approximately $9.85 with
60% of the consideration in cash and 40% in stock.
The Merger Agreement provides that (i) if the Trading Price (determined as
described below) of the Benchmark Common Stock is equal to or more than $32.00
per share, the Benchmark Measurement Price will be $32.00, and (ii) if the
Trading Price is less than $32.00 per share, the Benchmark Measurement Price
will be equal to the Trading Price. The Merger Agreement may be terminated by
Benchmark if the Trading Price is more than $40.00 or less than $22.00, and by
EMD if the Trading Price is less than $22.00. Neither Benchmark nor EMD is
required to exercise its right to terminate the Merger Agreement under such
circumstances, and if the Trading Price is expected to be less than $22.00 or
more than $40.00 and neither party intends to exercise such right, Benchmark and
EMD will supplement this Information Statement/Prospectus to reflect such
decision and will provide such supplement to EMD shareholders a reasonable time
prior to conducting any vote on the Merger. As used herein and in the Merger
Agreement, the Trading Price of the Benchmark Common Stock will be the quotient
obtained by dividing the sum of the averages of the daily high and low sale
prices of such stock on the AMEX for the 20 successive trading days ending on
the trading day immediately prior to the date on which the closing of the Merger
occurs (the "Closing Date") by the number of such trading days. If the Closing
Date had occurred on May 31, the Trading Price, and therefore the Benchmark
Measurement Price, would have been $29.96875, and the Share Fraction would have
been .1314, with a value, based on the Benchmark Measurement Price, of
approximately $3.94. At Trading Prices from $32.00, the highest possible
Benchmark Measurement Price, to $40.00, the highest Trading Price at which
Benchmark is obligated to close the Merger, each shareholder of EMD will receive
$5.9074 in cash and .1231 shares of Benchmark Common Stock for each share of EMD
Common Stock held. At a Trading Price of $22.00, the lowest Trading Price at
which either EMD or Benchmark is obligated to close, each shareholder of EMD
will receive $5.9074 in cash, .1547 shares of Benchmark Common Stock and .0243
shares of Series A Preferred Stock (for an aggregate Share Fraction of .1790)
for each share of EMD Common Stock held. See "The Merger -- Terms of the
Merger -- Determination of Merger Consideration" and "-- Issuance of Series A
Preferred Stock."
The effect of capping the Benchmark Measurement Price at $32.00 will be
that, if the Trading Price is greater than the $32.00, the value of the
consideration received by the shareholders of EMD will be greater than $9.85
using the Trading Price to value the stock portion of the consideration. For
example, if the Trading Price were $40.00, the highest Trading Price at which
Benchmark is obligated to close the Merger, the value of the consideration
payable in respect of each share of EMD Common Stock will be approximately $9.85
using the Benchmark Measurement Price to value the Benchmark Common Stock but
would be approximately $10.83 using the Trading Price to value the Benchmark
Common Stock.
7
<PAGE> 11
Because the Benchmark Measurement Price is based on the price of the
Benchmark Common Stock on the AMEX, no assurance may be given with respect to
the Benchmark Measurement Price or with respect to the Share Fraction resulting
from the calculation described above. However, except as described below, the
Share Fraction will always be valued, using the Benchmark Measurement Price, at
approximately $3.94.
In the event that the Closing Price, which will be the average of the high
and low sale prices of the Benchmark Common Stock on the AMEX for the trading
day immediately prior to the Closing Date, is less than the Benchmark
Measurement Price, the Merger Agreement requires that the Cash Amount and the
Share Fraction be adjusted in order to maintain the relative ratios of the cash
and stock portions of the merger consideration at 60% and 40%, respectively,
using the Closing Price rather than the Benchmark Measurement Price to value the
Share Fraction. In such event, the Cash Amount and the Share Fraction will be
redetermined using the formulae contained in the Merger Agreement, and each
share of EMD Common Stock will, at the Effective Time, entitle the holder
thereof to receive the Cash Amount and the Share Fraction as recalculated.
The effect of this redetermination will be that holders of shares of EMD
Common Stock will receive less cash but more shares of Benchmark Common Stock
(and, if applicable, Series A Preferred Stock) than they would have received in
the absence of such redetermination, but the combined value of the Cash Amount
and the Share Fraction, using the Benchmark Measurement Price to value the Share
Fraction, will remain approximately $9.85. However, the combined value of the
Cash Amount and the Share Fraction using the Closing Price rather than the
Benchmark Measurement Price to value the Share Fraction will be less than $9.85.
Such value would be less than $9.85 by the greatest amount if the Benchmark
Measurement Price were $32.00 (resulting from a Trading Price of $32.00 or
higher) and the Closing Price were $22.00, the lowest price at which Benchmark
and EMD are obligated to close, in which case the Cash Amount, as redetermined,
would be $4.9986 and the Share Fraction, as redetermined, would be .1515,
resulting in a combined value of the Cash Amount and the Share Fraction, using
the Closing Price to value the Share Fraction, of approximately $8.33. Further,
the redetermination would have the greatest effect on the possible valuations of
the consideration to be received by the EMD shareholders if the Trading Price
were $40.00, the highest price at which Benchmark is obligated to close the
Merger (resulting in a Benchmark Measurement Price of $32.00), and the Closing
Price were $22.00, the lowest price at which Benchmark and EMD are obligated to
close. In that case, in the absence of the redetermination, the aggregate value
of the Cash Amount and the Share Fraction, using the Trading Price of $40.00 to
value the Share Fraction, would be approximately $10.83. With the
redetermination, the aggregate value of the Cash Amount and the Share Fraction,
using the Closing Price of $22.00 to value the Share Fraction, would be
approximately $8.33. With or without the redetermination, however, the combined
value of the Cash Amount and the Share Fraction using the Benchmark Measurement
Price to value the Share Fraction will be approximately $9.85.
In the event that the calculation of the Benchmark Measurement Price, or
the Closing Price, if less than the Benchmark Measurement Price, would require
Benchmark to issue in excess of 805,879 shares of Benchmark Common Stock in the
Merger to the holders of shares of EMD Common Stock, Benchmark will issue, in
lieu of each share in excess thereof, pro rata to the holders of EMD Common
Stock, one share of Series A Preferred Stock. This would occur, assuming no
redetermination of the Cash Amount and the Share Fraction is required as
described above, only if the Benchmark Measurement Price were less than
approximately $25.50. The issuance of the Series A Preferred Stock is required
in order to comply with the regulations of the AMEX restricting the number of
shares of Benchmark Common Stock that may be issued without the approval of
Benchmark's shareholders. At a Benchmark Measurement Price of $22.00, the lowest
price at which Benchmark and EMD are obligated to close, an aggregate of 126,367
shares of Series A Preferred Stock would be issuable, representing .0243 shares
of Series A Preferred Stock for each share of EMD Common Stock held and
constituting the largest number of shares of Series A Preferred Stock issuable
in the Merger, unless a redetermination of the Cash Amount and the Share
Fraction is required as described above, in which case slightly more shares of
Series A Preferred Stock may be issued. See "The Merger -- Terms of the
Merger -- Issuance of Series A Preferred Stock" and "-- Description of Series A
Preferred Stock -- General." If the Closing Date had occurred on May 31, 1996,
no shares of Series A Preferred Stock would have been issued in the Merger.
8
<PAGE> 12
In no event will Benchmark issue any fractional share of Benchmark Common
Stock or Series A Preferred Stock in the Merger. In lieu of any fractional share
of Benchmark Common Stock or Series A Preferred Stock to which a holder of
shares of EMD Common Stock would otherwise be entitled, after taking into
account all shares of EMD Common Stock held of record by such holder, such
holder shall be entitled to receive a cash payment equal to the product of (i)
the fractional interest of a share of Benchmark Common Stock or Series A
Preferred Stock to which such holder would otherwise be entitled and (ii) the
Benchmark Measurement Price.
FOR A MORE COMPLETE DESCRIPTION OF THE TERMS OF THE MERGER, INCLUDING A
DESCRIPTION OF THE RANGE (BOTH AMOUNT AND NATURE) OF THE POSSIBLE CONSIDERATION
TO BE RECEIVED BY EMD SHAREHOLDERS AT TRADING PRICES FROM $22.00 TO $40.00, SEE
"THE MERGER -- TERMS OF THE MERGER -- DETERMINATION OF MERGER CONSIDERATION" AND
"-- REDETERMINATION OF MERGER CONSIDERATION."
Special Meeting; Vote Required
This Information Statement/Prospectus is being furnished to the holders of
shares of EMD Common Stock in connection with the Special Meeting. The Special
Meeting will be held at .m., local time, on , July , 1996, at
. The board of directors of EMD has fixed the close of business on
, 1996 as the record date for the determination of shareholders
of EMD entitled to receive notice of and to vote at the Special Meeting. On the
record date, there were 5,208,078 shares of EMD Common Stock outstanding and
entitled to vote at the Special Meeting. Approval of the Merger Agreement
requires the affirmative vote of the holders of a majority of the outstanding
shares of EMD Common Stock. The Merger cannot be consummated without the
requisite approval of the Merger Agreement by the holders of EMD Common Stock.
As of the record date for the Special Meeting, the directors and officers
of EMD and their affiliates owned beneficially an aggregate of 4,475,663 shares
of EMD Common Stock or approximately 85.9% of the shares of EMD Common Stock
outstanding on that date. See "The Special Meeting -- Beneficial Ownership of
EMD Common Stock." In the Merger Agreement, each of David H. Arnold and Daniel
M. Rukavina (together, the "Founding Shareholders") has agreed to vote all
shares of EMD Common Stock over which he exercises voting authority in favor of
the Merger Agreement. As of the record date for the Special Meeting, the
Founding Shareholders collectively owned beneficially 3,615,016 shares of EMD
Common Stock or approximately 69.4% of the outstanding shares of EMD Common
Stock as of that date. See "The Special Meeting -- Beneficial Ownership of EMD
Common Stock." Approval of the Merger by the holders of EMD Common Stock,
therefore, is assured.
Reasons for the Merger; Recommendation of EMD's Board of Directors
Benchmark has been actively examining opportunities for the establishment
or acquisition of a third manufacturing facility that satisfies its criteria for
such expansion, including without limitation substantial customer base,
geographic expansion and management philosophy. Benchmark believes that EMD
satisfies its criteria for a third manufacturing facility and, accordingly, has
entered into the Merger Agreement.
In reaching its decision to enter into the Merger Agreement, EMD's board of
directors received presentations of and reviewed the terms of the Merger with
Dain Bosworth Incorporated ("Dain Bosworth"), EMD's financial advisor, EMD's
legal counsel and the EMD leadership team. The board of directors considered a
number of factors, including but not limited to the following: the belief that
the combination of Benchmark and EMD would result in the achievement of certain
synergies and efficiencies; the belief that, following the Merger, Benchmark
would have the infrastructure and the access to capital required for continued
growth in EMD's business; the opportunity of the shareholders of EMD to enhance
the value and liquidity of their investments by receiving cash and Benchmark
Common Stock in a transaction with favorable tax consequences; and the financial
condition, results of operations and prospects of each of EMD and Benchmark. See
"The Merger -- Background of and Reasons for the Merger."
EMD's board of directors has unanimously approved the Merger Agreement and
determined to recommend the Merger to EMD's shareholders. EMD'S BOARD BELIEVES
THAT THE MERGER IS IN THE BEST
9
<PAGE> 13
INTERESTS OF EMD AND ITS SHAREHOLDERS AND RECOMMENDS THAT SHAREHOLDERS OF EMD
VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
Effective Time of the Merger
The Closing Date will occur as soon as practicable after all of the
conditions to the consummation of the Merger have been fulfilled or, to the
extent permissible, waived. On the Closing Date, EMD and Newco shall cause
Articles of Merger relating to the Merger to be filed with the Secretary of
State of the States of Texas and Minnesota. The "Effective Time" will occur at
such time as the Articles of Merger have been so filed. EMD and Benchmark
anticipate that the Effective Time will occur promptly after the Special
Meeting. See "The Merger -- Conditions to the Merger."
Surrender of Certificates
On the Closing Date (or as soon as practicable thereafter), each holder of
a certificate representing shares of EMD Common Stock (an "EMD Certificate")
(other than EMD Certificates representing shares held by EMD or shares with
respect to which statutory dissenters' rights have been exercised) should
deliver all EMD Certificates held by such person together with the Letter of
Transmittal mailed to holders of EMD Common Stock along with this Information
Statement/Prospectus, duly executed, to Benchmark as set forth in the Letter of
Transmittal. Upon surrender to Benchmark of one or more EMD Certificates and a
duly executed Letter of Transmittal, the record holder of the shares of EMD
Common Stock represented by such EMD Certificates shall receive from Benchmark
(i) a certificate or certificates representing the number of shares of Benchmark
Common Stock and, if applicable, Series A Preferred Stock to which such holder
shall have become entitled pursuant to the Merger, determined as described
above, and (ii) a check in the amount of the cash to which such holder shall
have become entitled, including cash in lieu of fractional shares, pursuant to
the Merger, determined as described above. See "The Merger -- Terms of the
Merger." A holder of EMD Common Stock may receive the cash to which such holder
shall have become entitled by wire transfer as soon as practicable after the
Effective Time instead of by check if such holder delivers his EMD Certificates,
together with a duly executed Letter of Transmittal, to Benchmark on the Closing
Date and provides Benchmark with written wire transfer instructions at least two
business days prior to the Closing Date. See "The Merger -- Surrender of
Certificates."
Conditions to the Merger; Termination
The respective obligations of Benchmark, Newco and EMD to consummate the
Merger are subject to the satisfaction of certain conditions, including approval
of the Merger by the holders of EMD Common Stock (see "The Special
Meeting -- Record Date; Vote Required"), receipt of an opinion as to the tax
consequences of the Merger, the execution and delivery of certain agreements by
various parties and other conditions that are customary in transactions of this
nature. See "The Merger -- Conditions to the Merger."
The Merger Agreement may be terminated by mutual consent of Benchmark, EMD
and Newco at any time prior to the filing of the Articles of Merger. The Merger
Agreement may be terminated by action of the board of directors of EMD,
Benchmark or Newco (i) if the Merger is not consummated by July 31, 1996
provided that the party taking such action is not in material breach of the
Merger Agreement, (ii) if consummation of the Merger is prohibited by final
action of a court or other governmental entity, (iii) if the lesser of the
Trading Price and the Closing Price is less than $22.00, (iv) if the other party
has failed to comply with its covenants or agreements contained in the Merger
Agreement and such failure has not been corrected within 30 days after notice of
such failure, or (v) if the board of directors of EMD changes its recommendation
to EMD's shareholders with respect to approval of the Merger. In addition,
Benchmark may terminate the Merger Agreement if the Trading Price is more than
$40.00. If the Merger Agreement is terminated because EMD's board of directors
changes its recommendation with respect to the Merger, EMD is required to pay to
Benchmark a termination fee of $1,500,000. See "The Merger -- Amendment, Waiver
and Termination."
10
<PAGE> 14
Dissenters' Rights
Under Minnesota law, holders of EMD Common Stock who dissent from the
Merger are entitled to obtain payment in cash of the fair value of their shares
instead of receiving the cash and shares of Benchmark stock as provided for in
the Merger Agreement. A participant in the EMD Employee Stock Ownership Plan
(the "ESOP") can dissent by (i) directing the ESOP trustee not to vote the
shares allocated to such holder's account in favor of the Merger and (ii) either
(A) requesting the ESOP trustee, as the record holder of the shares of EMD
Common Stock held in such participant's ESOP account, to exercise dissenters'
rights with respect to such shares, or (B) obtaining and delivering to EMD in a
timely manner the written consent of the ESOP trustee to the participant's
exercising dissenters' rights with respect to the shares held in the
participant's account. Failure to comply with statutory procedures in the
exercise of dissenters' rights will nullify such rights. See "The
Merger -- Dissenters' Rights."
Accounting Treatment
The Merger will be accounted for as a purchase under generally accepted
accounting principles.
Regulatory Approvals
The Merger is subject to the notification requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), and the
consummation of the Merger is subject to the expiration or early termination of
the waiting period under the HSR Act. The Federal Trade Commission has notified
Benchmark and EMD that the waiting period imposed by the HSR Act has been
terminated.
Certain Federal Income Tax Consequences
It is intended that the Merger will be treated as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), and that as a result, for federal income tax purposes, no gain or
loss will be recognized by the holders of EMD Common Stock upon receipt of
shares of Benchmark Common Stock or Series A Preferred Stock issued in the
Merger. However, gain may be recognized by the holders of EMD Common Stock with
respect to cash received in the Merger, including cash in lieu of fractional
shares. The aggregate adjusted tax basis of the shares of Benchmark Common Stock
and Series A Preferred Stock will be equal to the holders' basis in the shares
of EMD Common Stock surrendered in exchange therefor decreased by cash received
and increased by any gain recognized on the exchange. None of Benchmark, EMD or
Newco will recognize gain or loss as a result of the Merger. Notwithstanding the
foregoing, neither the ESOP nor any participant therein will recognize any gain
on the cash or shares of Benchmark Common Stock or Series A Preferred Stock
received by the ESOP in the Merger. Consummation of the Merger is conditioned on
the receipt by Benchmark and EMD of an opinion of KPMG Peat Marwick LLP ("KPMG")
to the effect that the Merger will have the described tax consequences. See "The
Merger -- Certain Federal Income Tax Consequences."
Holders of EMD Common Stock should consult with their own tax advisors
regarding the tax consequences of the Merger in light of their personal tax
situations.
Certain Differences in Rights of Shareholders
At the Effective Time, shareholders of EMD, a Minnesota corporation, will
become shareholders of Benchmark, a Texas corporation. The rights of
shareholders under Texas law differ in certain respects from the rights of
shareholders under Minnesota law. Additionally, to the extent that Series A
Preferred Stock is issued in the Merger, the rights of holders of Series A
Preferred Stock will be different from the rights of holders of EMD Common Stock
or Benchmark Common Stock. Therefore, the rights of holders of EMD Common Stock
will change, possibly significantly, as a result of the Merger. See "The
Merger -- Description of Series A Preferred Stock" and "-- Certain Differences
in Rights of Shareholders."
11
<PAGE> 15
MARKET INFORMATION
Benchmark Common Stock is listed on the AMEX where it trades under the
symbol "BHE." On March 27, 1996, the last trading day preceding public
announcement of the Merger, the closing price per share of the Benchmark Common
Stock on the AMEX was $26 1/8, and on June , 1996, such price was $ .
Holders of EMD Common Stock are advised to obtain current market quotations for
Benchmark Common Stock. The price of the Benchmark Common Stock on the AMEX is
expected to fluctuate between the date of this Information Statement/Prospectus
and the Closing Date, which may be a period of several weeks or more. No
assurance can be given concerning the price of the Benchmark Common Stock on the
AMEX at any time before, on or after the Closing Date. Prior to the date of this
Information Statement/Prospectus, Benchmark has issued no shares of Series A
Preferred Stock. Consequently, there is no public market for Series A Preferred
Stock, and no such market is expected to develop if such shares are issued. Such
shares will not be listed for trading on the AMEX or any other exchange.
There is no public market for EMD Common Stock. See "Information About
EMD -- Market Information and Dividends."
12
<PAGE> 16
SELECTED HISTORICAL FINANCIAL INFORMATION RELATING TO EMD
The following table sets forth selected historical consolidated financial
information for EMD for the five years ended December 31, 1995 and the three
months ended March 31, 1995 and 1996. The selected historical financial
information is derived from the audited consolidated financial statements of EMD
for each year in such five-year period and from the unaudited consolidated
financial statements of EMD for each such three-month period. The selected
historical financial information as of March 31, 1996 and for the three-month
periods ended March 31, 1995 and 1996 is derived from the unaudited financial
statements of EMD for such periods. In the opinion of management, all
adjustments consisting of normal recurring accruals considered necessary for a
fair presentation have been made. The results of operations for the three months
ended March 31, 1996 are not necessarily indicative of the actual results for
the full 1996 year. This information should be read in conjunction with the
consolidated financial statements of EMD and the related notes thereto included
elsewhere in this Information Statement/Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------- -----------------------
1991 1992 1993 1994 1995 1995 1996
------- -------- -------- -------- -------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME INFORMATION:
Net sales................................... $78,465 $108,913 $154,842 $168,531 $160,754 $ 43,759 $ 39,099
Cost of sales............................... 65,509 93,705 138,369 154,249 143,158 37,857 36,023
------- -------- -------- -------- -------- ---------- ----------
Gross profit.......................... 12,956 15,208 16,473 14,282 17,596 5,902 3,076
Operating and administrative expenses....... 6,213 7,697 10,002 9,472 9,663 2,538 1,875
------- -------- -------- -------- -------- ---------- ----------
Operating income.......................... 6,743 7,511 6,471 4,810 7,933 3,364 1,201
Other income (expense):
Interest expense.......................... (55) (280) (684) (1,523) (909) (362) (353)
Other income (expense).................... 192 176 697 506 756 293 392
------- -------- -------- -------- -------- ---------- ----------
Total other income (expense), net..... 137 (104) 13 (1,017) (153) (69) 39
------- -------- -------- -------- -------- ---------- ----------
Income from continuing operations before
income taxes.............................. 6,880 7,407 6,484 3,793 7,780 3,295 1,240
Income tax expense.......................... 2,780 2,947 2,585 1,485 3,024 1,334 391
------- -------- -------- -------- -------- ---------- ----------
Income from continuing operations........... 4,100 4,460 3,899 2,308 4,756 1,961 849
Discontinued operations:
Loss from discontinued operations......... (329) (298) (478) (291) (203) (6) --
Loss on disposal of discontinued
operations.............................. -- -- -- -- (510) -- --
------- -------- -------- -------- -------- ---------- ----------
Loss from discontinued operations......... (329) (298) (478) (291) (713) (6) --
Net income.................................. $ 3,771 $ 4,162 $ 3,421 $ 2,017 $ 4,043 1,955 849
======= ======== ======== ======== ======== ========= =========
Earnings per share:
Continuing operations..................... $ .81 $ .88 $ .77 $ .45 $ .91 $ .38 $ .16
Discontinued operations................... (.06) (.06) (.09) (.05) (.13) -- --
------- -------- -------- -------- -------- ---------- ----------
Net income................................ $ .75 $ .82 $ .68 $ .40 $ .78 $ .38 $ .16
======= ======== ======== ======== ======== ========= =========
Weighted average shares outstanding......... 5,042 5,042 5,043 5,086 5,208 5,208 5,208
BALANCE SHEET INFORMATION:
Working capital............................. $ 7,220 $ 5,671 $ 20,386 $ 26,082 $ 26,273 $ 32,098
Total assets................................ 22,185 43,298 50,605 67,108 64,132 69,783
Long-term debt.............................. 397 1,076 15,032 22,352 15,687 21,122
Shareholders' equity........................ 13,888 17,649 22,291 25,350 29,582 30,431
</TABLE>
13
<PAGE> 17
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION RELATING TO BENCHMARK
The following table sets forth selected historical financial information for
Benchmark for the periods indicated and selected pro forma financial information
reflecting the Merger as if it had occurred on January 1, 1995 for purposes of
the statements of income information and on March 31, 1996 for purposes of the
balance sheet information. The selected historical financial information is
derived from the audited consolidated financial statements of Benchmark for each
year in the five-year period ended December 31, 1995. The selected historical
financial information as of March 31, 1996 and for the three-month periods ended
March 31, 1995 and 1996 is derived from the unaudited financial statements of
Benchmark for such periods. In the opinion of management, all adjustments
consisting of normal recurring accruals considered necessary for a fair
presentation have been made. The results of operations for the three months
ended March 31, 1996 are not necessarily indicative of the actual results for
the full 1996 fiscal year. The selected pro forma financial information is not
necessarily representative of what Benchmark's results of operations or
financial position would have been had the Merger in fact occurred on January 1,
1995 or March 31, 1996 and is not intended to project Benchmark's results of
operations or financial position for any future period or date. The selected
financial information should be read in conjunction with the financial
statements of Benchmark and the related notes thereto incorporated by reference
in this Information Statement/Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------ ------------------------------
PRO FORMA PRO FORMA
FOR MERGER FOR MERGER
1991 1992 1993 1994 1995 1995 1995 1996 1996
------- ------- ------- ------- ------- ---------- ------- ------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME
INFORMATION:
Sales......................... $33,332 $50,647 $75,859 $98,168 $97,353 $258,107 $23,115 $30,383 $ 69,482
Cost of sales................. 28,637 43,683 66,462 86,236 85,113 228,271 20,026 26,558 62,581
------- ------- ------- ------- ------- ---------- ------- ------- ----------
Gross profit............ 4,695 6,964 9,397 11,932 12,240 29,836 3,089 3,825 6,901
Selling, general and
administrative expenses..... 1,772 2,697 2,870 3,154 2,990 12,253 712 884 2,659
Amortization of excess of
acquired net assets over
cost........................ 108 108 63 -- -- (1,711) -- -- (428)
------- ------- ------- ------- ------- ---------- ------- ------- ----------
Income from
operations............ 3,031 4,375 6,590 8,778 9,250 15,872 2,377 2,941 3,814
Interest income............... 199 358 384 252 268 729 75 38 38
Interest expense.............. -- -- -- -- -- (3,857) -- -- (1,063)
Other income (expense)........ 47 26 (30) 11 13 308 7 1 393
Income tax expense............ (1,173) (1,629) (2,478) (3,272) (3,383) (5,439) (890) (1,141) (1,300)
------- ------- ------- ------- ------- ---------- ------- ------- ----------
Income before cumulative
effect of change in
accounting
principle............. 2,104 3,130 4,466 5,769 6,148 7,613 1,569 1,839 1,882
Cumulative effect at January
1, 1993 of change in
accounting for income
taxes....................... -- -- 116 -- -- -- -- -- --
------- ------- ------- ------- ------- ---------- ------- ------- ----------
Net income.............. $ 2,104 $ 3,130 $ 4,582 $ 5,769 $ 6,148 $ 7,613 $ 1,569 $ 1,839 $ 1,882
======= ======= ======= ======= ======= ========== ======= ======= ==========
Earnings per common share
before cumulative effect of
change in accounting
principle................... $ .66 $ .83 $ 1.10 $ 1.41 $ 1.50 $ 1.57 $ .38 $ .45 $ .39
Cumulative effect at January
1, 1993 of change in
accounting for income
taxes....................... -- -- .03 -- -- -- -- -- --
------- ------- ------- ------- ------- ---------- ------- ------- ----------
Earnings per common share....... $ .66 $ .83 $ 1.13 $ 1.41 $ 1.50 $ 1.57 $ .38 $ .45 $ .39
======= ======= ======= ======= ======= ========== ======= ======= ==========
Ratio of earnings to combined
fixed charges and preferred
stock dividends(a)............ N/A N/A N/A N/A N/A 4.38 N/A N/A 3.99
Weighted average common and
equivalent shares
outstanding................... 3,190 3,762 4,066 4,088 4,106 4,835 4,106 4,150 4,879
BALANCE SHEET INFORMATION:
Working capital............... $12,307 $25,796 $29,160 $30,890 $37,285 $36,612 $ 66,638
Total assets.................. 19,951 34,380 47,425 48,333 57,037 68,627 164,345
Long-term debt................ -- -- -- -- -- -- 53,328
Shareholders' equity.......... 16,262 29,573 34,213 40,131 46,624 48,600 69,011
</TABLE>
- ---------------
(a) The ratio of earnings to combined fixed charges and preferred stock
dividends is the quotient obtained by dividing the sum of (1) earnings
before interest and income taxes and (2) fixed charges, with the resulting
sum divided by fixed charges and preferred stock dividends. Fixed charges
represent interest on all indebtedness. Preferred stock dividends include
the pretax preferred stock dividend requirements of the Series A Preferred
Stock for the pro forma period. For purposes of the pro forma calculations
presented above, a Benchmark Measurement Price of $28 1/8 was assumed.
Accordingly, no preferred stock would be issued in the transaction and no
preferred stock dividends are included in fixed charges. See Note 3 to Notes
to Unaudited Pro Forma Condensed Financial Information for the range of
possible earnings to fixed charges and preferred stock dividends.
14
<PAGE> 18
COMPARATIVE UNAUDITED HISTORICAL AND PRO FORMA PER SHARE INFORMATION
The following information reflects certain comparative unaudited historical
and pro forma per share information for Benchmark and EMD based on (i) the
unaudited quarterly financial statements of Benchmark and EMD as of and for the
three months ended March 31, 1996 and the audited financial statements of
Benchmark and EMD as of and for the year ended December 31, 1995 and (ii) the
unaudited pro forma financial information for Benchmark, all of which is
incorporated by reference or included elsewhere herein.
<TABLE>
<CAPTION>
AS OF AND FOR THE
THREE-MONTH PERIOD ENDED
MARCH 31, 1996
------------------------
HISTORICAL PRO FORMA
---------- ---------
<S> <C> <C>
Benchmark:
Book value per share of Benchmark Common Stock....................... $11.71 $ 14.14
Cash dividends per share of Benchmark Common Stock................... -- --
Net income per share of Benchmark Common Stock....................... .45 .39
</TABLE>
<TABLE>
<CAPTION>
EQUIVALENT
HISTORICAL PRO FORMA(A)
---------- ------------
<S> <C> <C>
EMD:
Book value per share of EMD Common Stock............................. $ 5.84 $ 1.98
Cash dividends per share of EMD Common Stock......................... -- --
Net income per share of EMD Common Stock............................. .16 .05
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE
YEAR ENDED
DECEMBER 31, 1995
------------------------
HISTORICAL PRO FORMA
---------- ---------
<S> <C> <C>
Benchmark:
Cash dividends per share of Benchmark Common Stock................... $ -- $ --
Net income per share of Benchmark Common Stock....................... 1.50 1.57
</TABLE>
<TABLE>
<CAPTION>
EQUIVALENT
HISTORICAL PRO FORMA(A)
---------- ------------
<S> <C> <C>
EMD:
Cash dividends per share of EMD Common Stock......................... $ -- $ --
Net income per share of EMD Common Stock............................. .78 .22
</TABLE>
- ---------------
(a) The equivalent pro forma amounts represent the combined pro forma amounts
multiplied by the assumed exchange ratio for shares of EMD Common Stock,
which assumes a Benchmark Measurement Price of $28 1/8 and takes into
account the cash consideration paid in the Merger. See "The Merger -- Terms
of the Merger."
15
<PAGE> 19
THE SPECIAL MEETING
GENERAL
This Information Statement/Prospectus is being furnished to the holders of
shares of EMD Common Stock in connection with the Special Meeting. WE ARE NOT
ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
This Information Statement/Prospectus is also being furnished to the
holders of shares of EMD Common Stock as a prospectus relating to the shares of
Benchmark Common Stock and Series A Preferred Stock to be issued by Benchmark in
the Merger.
This Information Statement/Prospectus and the attached Notice of Special
Meeting are first being mailed to the holders of shares of EMD Common Stock on
or about June , 1996.
DATE, PLACE AND TIME
The Special Meeting will be held at .m., local time, on
, July , 1996, at .
RECORD DATE; VOTE REQUIRED
The Board of Directors of EMD has fixed the close of business on
, 1996 as the record date for the determination of shareholders of EMD
entitled to receive notice of and to vote at the Special Meeting. Only
shareholders of record as of that date are entitled to receive notice of or to
attend the Special Meeting. Although participants in the ESOP are not entitled
to notice of or to attend the Special Meeting, they may nevertheless direct the
record holder of the shares beneficially owned by them with respect to the
voting of such shares. See "The Merger -- Certain Matters Relating to the EMD
ESOP -- Right to Direct Vote with Respect to the Merger." On the record date,
there were 5,208,078 shares of EMD Common Stock outstanding and entitled to vote
at the Special Meeting. Approval of the Merger Agreement requires the
affirmative vote of the holders of a majority of the outstanding shares of EMD
Common Stock. The Merger cannot be consummated without the requisite approval of
the Merger Agreement by the holders of EMD Common Stock.
As of the record date for the Special Meeting, the directors and officers
of EMD and their affiliates owned beneficially an aggregate of 4,475,663 shares
of EMD Common Stock or approximately 85.9% of the outstanding shares of EMD
Common Stock on that date. See "-- Beneficial Ownership of EMD Common Stock." In
addition, in the Merger Agreement, each of the Founding Shareholders has agreed
to vote all shares of EMD Common Stock over which he exercises voting authority
in favor of the Merger Agreement. As of the record date for the Special Meeting,
the Founding Shareholders collectively owned beneficially 3,615,016 shares of
EMD Common Stock or approximately 69.4% of the outstanding shares of EMD Common
Stock as of that date. See "-- Beneficial Ownership of EMD Common Stock."
Approval of the Merger by the holders of EMD Common Stock, therefore, is
assured.
As of the record date for the Special Meeting, the directors and executive
officers of Benchmark did not own beneficially any shares of EMD Common Stock.
16
<PAGE> 20
BENEFICIAL OWNERSHIP OF EMD COMMON STOCK
The following table sets forth, as of April 15, 1996, certain information
regarding the beneficial ownership (the right, by agreement or otherwise, to
direct the voting or disposition of shares) of EMD Common Stock with respect to
its officers, directors, each person known by EMD to own 5% or more of the
outstanding EMD Common Stock and all officers and directors of EMD as a group.
Unless otherwise indicated, such persons have sole voting and dispositive power
with respect to the shares indicated.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME AND ADDRESS BENEFICIALLY OWNED OUTSTANDING SHARES
---------------- ------------------ ------------------
<S> <C> <C>
David H. Arnold(1)(2)........................................ 1,867,258 35.85%
4065 Theurer Boulevard
Winona, Minnesota 55987
Daniel M. Rukavina(2)(3)..................................... 1,747,758 33.56%
4065 Theurer Boulevard
Winona, Minnesota 55987
EMD Employee Stock Ownership Trust(4)........................ 787,706 15.12%
c/o Winona National and Savings Bank
204 Main Street
Winona, Minnesota 55987
Robert W. Hahn and Community Trust, as
trustees for various trusts(5)............................. 400,600 7.69%
Robert W. Hahn, as sole trustee for various trusts(6)........ 425,788 8.18%
All directors and officers as a group (8 persons)(7)......... 4,475,663 85.94%
</TABLE>
- ---------------
(1) Includes 43,553 shares held by Muriel M. Arnold, wife of David H. Arnold.
Excludes (i) 140,550 shares held by Robert W. Hahn and Community Trust, as
trustees for various trusts for the benefit of Mr. Arnold's family, and
(ii) 212,894 shares held by Mr. Hahn, as trustee for various grantor
retained annuity trusts ("GRATs") in which Mr. Arnold has an income
interest.
(2) Includes shares held for the benefit of such individual pursuant to the EMD
ESOP as follows: Mr. Arnold, 10,516 shares; and Mr. Rukavina, 10,516
shares.
(3) Includes 43,553 shares held by Patricia A. Rukavina, wife of Daniel M.
Rukavina. Excludes (i) 260,050 shares held by Robert W. Hahn and Community
Trust, as trustees for various trusts for the benefit of Mr. Rukavina's
family, and (ii) 212,894 shares held by Mr. Hahn, as sole trustee for
various GRATs in which Mr. Rukavina has an income interest.
(4) Includes 34,259 shares also listed in footnotes (2) and (7).
(5) Shares held by Mr. Hahn and Community Trust as the trustees for the trusts
described in footnotes (1) and (3) above.
(6) Shares held by Mr. Hahn as the sole trustee for the trusts described in
footnotes (1) and (3) above.
(7) Includes an aggregate of 34,259 shares held for the benefit of such
individuals pursuant to the EMD ESOP.
As a result of the Merger, David H. Arnold and Daniel M. Rukavina may
become owners of five percent or more of the outstanding shares of Benchmark
Common Stock. Assuming no redetermination of the Cash Amount and the Share
Fraction is required as described herein, Mr. Arnold would become such a five
percent owner if the Benchmark Measurement Price were less than approximately
$31.50, and Mr. Rukavina would become a five percent owner if the Benchmark
Measurement Price were less than approximately $29.00.
17
<PAGE> 21
THE MERGER
This section of the Information Statement/Prospectus describes certain
aspects of the Merger. The description does not purport to be complete and is
qualified by reference to the Merger Agreement, which is attached as Appendix A
hereto and is incorporated by reference herein. All holders of EMD Common Stock
are encouraged to read the Merger Agreement.
BACKGROUND OF AND REASONS FOR THE MERGER
Background of the Merger
The proposed Merger has resulted from a review by the EMD board of
directors of strategic alternatives available to EMD. This review encompassed
key market and industry factors as well as evaluation and analysis of financing
alternatives available to EMD to sustain its projected growth rate. As described
below, the board has concluded that the proposed Merger is in the best interests
of EMD and its shareholders.
In general, EMD's board and advisors considered various matters relating to
EMD's capital needs in numerous meetings beginning in 1990 and continuing until
the execution and delivery of the definitive Merger Agreement on March 27, 1996.
The negotiations with Benchmark relating to the proposed Merger occurred
primarily between September 1995 and March 27, 1996 as part of a managed
solicitation process conducted by Dain Bosworth as EMD's financial advisor.
Certain aspects of these deliberations and related matters are discussed below.
From time to time, the EMD board has discussed trends in the commercial
electronics contract manufacturing industry and in EMD's business specifically.
Especially in recent years, the board has also considered management and
ownership succession issues. Beginning in 1992, the EMD board considered
possible strategic alternatives for EMD, including remaining as an independent
privately owned company, completing an initial public offering, and pursuing a
private equity investment or an acquisition by a third party. Of particular
interest to the EMD board during this review were the following factors:
1. EMD would need additional equity capital to finance its continued
growth. EMD would also need additional financing to fund required purchases
of EMD Common Stock from EMD's ESOP, especially if ESOP ownership continued
to increase, which would divert additional capital from EMD's business.
2. The anticipated reduction and eventual loss during 1993, 1994 and
1995 of business from EMD's most significant customer (see "EMD
Management's Discussion and Analysis of Financial Condition and Results of
Operations"); this customer accounted for as much as approximately 81% of
EMD's revenues during 1993. Even though EMD had successfully replaced most
of the lost revenue as of the end of fiscal 1995, this shift in EMD's
business away from this customer fundamentally altered EMD's business.
Until EMD established a reliable track record with its new customer base,
it was believed that financial investors (such as purchasers in an initial
public offering or a private equity investor) might not fully value EMD's
business.
3. The Founding Shareholders of EMD had expressed their desire to
reduce their involvement in management and to provide some liquidity for
their respective ownership positions consistent with their estate planning
objectives. These developments required the EMD board to consider a
management and ownership transition, and it was believed that these factors
would also adversely affect the valuation in any public or private equity
transaction.
As part of its evaluation of strategic alternatives, the board interviewed
three investment banking firms in the summer and fall of 1994 and solicited
their input with respect to the alternatives under consideration. On October 5,
1994, EMD retained Dain Bosworth to act as financial advisor to EMD in
connection with exploring the possible sale of EMD. Pursuant to such engagement,
upon closing of the Merger, Dain Bosworth will receive a fee from EMD of
approximately 1.20% of the transaction value (as defined in Dain Bosworth's
engagement letter) (estimated to be a fee of approximately $650,000), less
advisory fees already paid. No other financial advisors or investment banking
firms will receive a fee from EMD in connection with the Merger.
18
<PAGE> 22
As part of its engagement, Dain Bosworth made a presentation to the EMD
board on January 25, 1995. At that meeting, Dain Bosworth presented an analysis
of possible ranges of valuations for EMD. Dain Bosworth also identified possible
candidates for making an acquisition of EMD (including financial and strategic
buyers). Finally, Dain Bosworth described its proposal for a managed
solicitation process designed to determine the level of interest in a possible
transaction involving EMD. The board then instructed Dain Bosworth to proceed
with the managed solicitation process consistent with the proposal made by Dain
Bosworth.
Based upon their knowledge of the industry, Dain Bosworth and the EMD board
and advisors considered and evaluated numerous potential candidates for the
acquisition of EMD. Dain Bosworth and EMD evaluated each such potential
candidate based upon, among other things, an assessment of each candidate's
prospects, financial stability and resources, position within the industry,
perceived receptivity to acquiring commercial electronics contract
manufacturers, and perceived compatibility with the EMD method of operation;
from this assessment, Dain Bosworth and EMD developed a list of nineteen
potential candidates that were considered suitable for preliminary contacts
regarding a proposed transaction with EMD. Beginning in May 1995, Dain Bosworth
contacted each of these nineteen potential candidates. Fifteen of such
candidates exhibited sufficient interest that Dain Bosworth sent to them an
Executive Summary regarding EMD, together with a proposed form of
Confidentiality Agreement. Eleven of these candidates signed and returned a
Confidentiality Agreement and then received a copy of a Selling Memorandum that
was prepared by Dain Bosworth and included detailed information about EMD. Of
these eleven interested candidates, several received additional preliminary due
diligence materials or conducted additional due diligence, and two candidates
actually visited EMD's facilities. Four candidates then submitted non-binding
indications of interest regarding a possible acquisition of EMD in various price
ranges.
At a meeting held on September 6, 1995, the board of directors of EMD
considered the indications of interest received from these four candidates. At
this meeting, Dain Bosworth made a presentation regarding the results of the
managed solicitation process and the indications of interest received from the
four interested candidates. The indications of interest received from two of
these candidates, including Benchmark, appeared to be clearly superior to the
others; as a result, Dain Bosworth presented additional information about those
candidates and their indications of interest to the board. After considering the
information presented at the meeting, the board instructed Dain Bosworth to
engage in further discussions with these two candidates and to submit the
results of those discussions to the board for further consideration.
Following discussions with Dain Bosworth, each of Benchmark and the other
candidate submitted revised indications of interest to EMD. The other candidate
subsequently withdrew. Benchmark's revised indication of interest was submitted
to EMD on October 24, 1995, and represented a material increase over Benchmark's
prior proposal. In the opinion of the EMD board and Dain Bosworth, the revised
Benchmark indication was sufficiently attractive to merit further consideration.
Thereafter Dain Bosworth and the board focused their efforts on negotiating the
best available terms for a transaction with Benchmark. No other interested
candidates emerged, and no other revised proposals were received from other
candidates, after October 24, 1995.
From October 1995 through March 1996, EMD and Benchmark exchanged
additional information about their respective businesses and engaged in
extensive discussions regarding a proposed transaction. On December 7, 1995,
Benchmark prepared and delivered a draft Agreement and Plan of Merger to EMD. On
December 15, 1995, EMD's Founding Shareholders, senior executives from Benchmark
and their respective advisors met to discuss pricing and other key points in a
proposed transaction. At that meeting, the EMD and Benchmark executives agreed
that, although neither party was obligated to enter into an agreement, both
parties would work diligently toward the preparation of a definitive agreement
while due diligence investigations and negotiations continued. Additional draft
agreements and comments were exchanged by the parties and their counsel from
late December 1995 through March 27, 1996. Pricing discussions and negotiations
of other key points continued throughout this period. On March 27, 1996, EMD and
the Founding Shareholders amended an existing shareholders' agreement to permit
execution of the necessary agreements, including the Merger Agreement and the
exhibits thereto.
19
<PAGE> 23
In March 1995, EMD created the EMD Technologies, Inc. Gain-Sharing Plan
(the "Gain-Sharing Plan") to recognize and reward the loyal co-workers of EMD.
Under the Gain-Sharing Plan, co-workers of EMD will be entitled to receive cash
bonuses if the proposed Merger is consummated. The aggregate amount of payments
under the Gain-Sharing Plan will be approximately $4.4 million; individual
bonuses will be determined by the terms of the Plan. The Founding Shareholders
will not receive any amounts under the Gain-Sharing Plan. The after-tax cost of
the payments under the Gain-Sharing Plan reduced the amount of consideration to
be received by EMD's shareholders in connection with the Merger.
During the period from October 1995 through March 27, 1996, the board was
regularly apprised by Dain Bosworth of the current status and progress of
negotiations with Benchmark. On March 27, 1996, the EMD board unanimously
approved the terms of the Merger Agreement and the Merger, and the parties
executed and delivered the Merger Agreement.
Recommendation of the Board of EMD; Reasons for the Merger
EMD's board of directors has unanimously approved the Merger Agreement and
determined to recommend the Merger to EMD's shareholders. EMD'S BOARD BELIEVES
THAT THE PROPOSED MERGER IS IN THE BEST INTERESTS OF EMD AND ITS SHAREHOLDERS
AND RECOMMENDS THAT SHAREHOLDERS OF EMD VOTE FOR APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND THE MERGER.
Prior to taking action on the Merger, the board of directors of EMD
reviewed various materials relevant to the Merger and received presentations
from, and reviewed carefully the terms and conditions of the transactions
contemplated by the Merger Agreement with, Dain Bosworth, legal counsel and the
EMD leadership team.
On October 5, 1994, EMD retained Dain Bosworth to act as its financial
advisor on an exclusive basis. Prior to such engagement, Dain Bosworth had
provided valuation services for the EMD ESOP and had provided advice and
information to EMD regarding various strategic alternatives for EMD. From and
after the date of such engagement, Dain Bosworth provided the following services
as part of its engagement: (i) assisting EMD in preparing a Confidential
Memorandum describing EMD and its business for distribution to prospective
purchasers; (ii) identifying and contacting prospective purchasers; (iii)
assisting EMD in negotiations with interested parties and in evaluating the
offers received; and (iv) in general, advising EMD with respect to matters
relating to finalizing and closing a transaction. These activities by Dain
Bosworth are described in further detail above (see "-- Background of the
Merger"). Dain Bosworth assisted the EMD board in evaluating the financial
aspects of the proposed Merger, but Dain Bosworth will not be rendering, and was
not asked to render, an opinion that the Merger is fair to EMD and its
shareholders from a financial point of view.
The factors considered by the board in approving the Merger included, among
others, the following:
1. The belief that Benchmark, after a Merger with EMD, would have the
management and the infrastructure, and would have access to the capital, to
meet the requirements for continued growth of EMD's business;
2. The belief that Benchmark and EMD could achieve significant synergy
and efficiencies by combining their complementary businesses;
3. The Merger presents an opportunity for EMD shareholders to enhance
the liquidity of their investment through cash and publicly traded
Benchmark Stock;
4. The Merger eliminates a significant ESOP repurchase liability for
EMD;
5. The partially tax-free nature of the transaction to the extent of
the value of Benchmark stock, as opposed to a fully taxable cash merger or
other fully taxable transaction;
6. The Benchmark proposal for the Merger resulted from an extensive
solicitation process managed by Dain Bosworth and lengthy negotiations with
Benchmark, and the opportunity to affiliate with such an
20
<PAGE> 24
attractive and compatible industry partner might be jeopardized if the
proposed Merger with Benchmark were not pursued at this time;
7. The financial condition, results of operations and prospects for
EMD and Benchmark before, and after giving effect to, the Merger, including
the board's assessment that the Merger would create a combined business
that would be better positioned than EMD on a stand-alone basis to compete
in the current and prospective environment of technological change and
increasing domestic and foreign competition, especially considering (i) the
efficiencies and synergy that could be realized after the Merger, (ii) the
ability of Benchmark to more easily access the capital markets, and (iii)
the expanded customer base that would result from combining the businesses
of EMD and Benchmark; and
8. The likelihood that Benchmark would be able to successfully
complete the Merger as proposed.
TERMS OF THE MERGER
General
At the Effective Time, EMD will be merged with and into Newco with Newco
being the surviving corporation of the Merger. EMD shall cease to exist, and
Newco shall continue to be a wholly owned subsidiary of Benchmark, governed by
the laws of the State of Texas, with all of the rights and obligations of each
of Newco and EMD.
Determination of Merger Consideration
At the Effective Time, each share of EMD Common Stock outstanding
immediately prior to the Effective Time, other than shares held in the treasury
of EMD (which will be cancelled) and shares as to which statutory dissenters'
rights have been exercised (see "-- Dissenters' Rights"), shall, without any
action on the part of the holder thereof, be converted into the right to receive
(i) cash in the amount of $5.9074, subject to redetermination as described below
(the "Cash Amount"), and (ii) a fraction of a share (the "Share Fraction") of
Benchmark Common Stock determined by dividing $3.9383 by the Benchmark
Measurement Price (determined as described below), subject to redetermination as
described below and subject to a provision in the Merger Agreement requiring the
use of Series A Preferred Stock under certain circumstances. See "-- Terms of
the Merger -- Issuance of Series A Preferred Stock" and "-- Description of
Series A Preferred Stock -- General." The total consideration provided by the
Cash Amount and the Share Fraction is intended to have a value, using the
Benchmark Measurement Price to value the Share Fraction, equal to approximately
$9.85 with 60% of the consideration in cash and 40% in stock.
The Merger Agreement provides that (i) if the Trading Price (determined as
described below) of the Benchmark Common Stock is equal to or more than $32.00
per share, the Benchmark Measurement Price will be $32.00, and (ii) if the
Trading Price is less than $32.00 per share, the Benchmark Measurement Price
will be equal to the Trading Price. As used herein and in the Merger Agreement,
the Trading Price of the Benchmark Common Stock will be the quotient obtained by
dividing the sum of the averages of the daily high and low sale prices of such
stock on the AMEX for the 20 successive trading days ending on the trading day
immediately prior to the Closing Date by the number of such trading days. If the
Closing Date had occurred on May 31, the Trading Price, and therefore the
Benchmark Measurement Price, would have been $29.96875, and the Share Fraction
would have been .1314, with a value, based on the Benchmark Measurement Price,
of approximately $3.94. Because the Benchmark Measurement Price is based on the
price of the Benchmark Common Stock on the AMEX, no assurance may be given with
respect to the Benchmark Measurement Price or with respect to the Share Fraction
resulting from the calculation described above. However, except as described
below, the Share Fraction will always be valued, using the Benchmark Measurement
Price, at approximately $3.94.
The Merger Agreement provides that it may be terminated by Benchmark if the
Trading Price is more than $40.00 or less than $22.00, and by EMD if the Trading
Price is less than $22.00. Neither Benchmark nor EMD is required to exercise its
right to terminate the Merger Agreement under such circumstances, and if the
Trading Price is expected to be less than $22.00 or more than $40.00 and neither
party intends to exercise such
21
<PAGE> 25
right, Benchmark and EMD will supplement this Information Statement/Prospectus
to reflect such decision and will provide such supplement to EMD shareholders a
reasonable time prior to conducting any vote on the Merger.
The effect of capping the Benchmark Measurement Price at $32.00 will be
that, if the Trading Price is greater than $32.00, the value of the
consideration received by the shareholders of EMD will be greater than $9.85
using the Trading Price to value the stock portion of the consideration. For
example, if the Trading Price were $40.00, the highest Trading Price at which
Benchmark is obligated to close the Merger, the value of the consideration
payable in respect of each share of EMD Common Stock would be approximately
$9.85 using the Benchmark Measurement Price to value the Benchmark Common Stock
but would be approximately $10.83 using the Trading Price to value the Benchmark
Common Stock.
The following table sets forth the ranges of types and values of
consideration payable in the Merger at Trading Prices from $22.00 to $40.00,
assuming that no redetermination of the Cash Amount and the Share Fraction is
required as described under the caption "-- Redetermination of Merger
Consideration":
<TABLE>
<CAPTION>
BENCHMARK TOTAL SHARES TOTAL SHARES TOTAL PER SHARE
TRADING MEASUREMENT TOTAL CASH OF BENCHMARK OF SERIES A TRANSACTION TRANSACTION
PRICE RANGE(1) PRICE(2) CONSIDERATION(3) COMMON STOCK(4) PREFERRED STOCK(5) VALUE(6) VALUE(7)
- --------------- ----------- ---------------- --------------- ------------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$40.00 $ 30,766,200 641,114 -0- $56,410,760 $ 10.83
to
$32.00 $32.00 $30,766,200 641,114 -0- $51,281,848 $ 9.85
- ------------------------------------------------------------------------------------------------------------------
$31.875 $31.875 $ 30,766,200 643,718 -0- $51,284,711 $ 9.85
to to
$25.50 $25.50 $30,766,200 804,127 -0- $51,271,439 $ 9.85
- ------------------------------------------------------------------------------------------------------------------
$25.375 $25.375 $ 30,766,200 805,879 2,415 $51,276,660 $ 9.85
to to
$22.00 $22.00 $30,766,200 805,879 126,367 $51,275,612 $ 9.85
</TABLE>
- ---------------
(1) As used herein and in the Merger Agreement, the Trading Price of the
Benchmark Common Stock will be the quotient obtained by dividing the sum of
the averages of daily high and low sale prices of such stock on the AMEX for
the 20 successive trading days ending on the trading day immediately prior
to the Closing Date by the number of such trading days.
(2) For Trading Prices from $32.00 to $40.00, the Benchmark Measurement Price is
$32.00; for Trading Prices below $32.00 and above or equal to $22.00, the
Benchmark Measurement Price is the Trading Price.
(3) Total cash consideration is computed by multiplying $5.9074, the Cash
Amount, by 5,208,078, the number of shares of EMD Common Stock outstanding.
(4) The total number of shares of Benchmark Common Stock issuable is determined
by multiplying 5,208,078 (the number of shares of EMD Common Stock
outstanding) by the Share Fraction for the applicable Benchmark Measurement
Price, but in no event may the total number of shares of Benchmark Common
Stock exceed 805,879. The Share Fraction is calculated by dividing $3.9383
by the Benchmark Measurement Price and therefore represents the number of
shares of Benchmark Common Stock (and, if applicable, Series A Preferred
Stock) issuable for one share of EMD Common Stock. For each Trading Price in
the ranges set forth in the foregoing table, the corresponding Share
Fractions are as follows:
<TABLE>
<CAPTION>
TRADING PRICE SHARE FRACTION
- -------------- ---------------
<S> <C>
$40.00 .1231
$32.00 .1231
$31.875 .1236
$25.50 .1544
$25.375 .1552
$22.00 .1790
</TABLE>
22
<PAGE> 26
(5) The Merger Agreement limits the total number of shares of Benchmark Common
Stock issuable in the Merger to 805,879. At a Benchmark Measurement Price
below approximately $25.50, shares of Series A Preferred Stock become
issuable in lieu of shares of Benchmark Common Stock. The maximum number of
shares of Series A Preferred Stock would be issuable at a Benchmark
Measurement Price of $22.00, the lowest price at which Benchmark and EMD are
obligated to close the Merger. Accordingly, the number of shares of Series A
Preferred Stock issuable per share of EMD Common Stock ranges from zero to
.0243, and is calculated by subtracting 805,879 (the maximum number of
shares of Benchmark Common Stock issuable) from the product obtained by
multiplying the Share Fraction ($3.9383 divided by the Benchmark Measurement
Price) by 5,208,078 (the number of shares of EMD Common Stock outstanding)
and then dividing such difference by 5,208,078.
(6) Calculated by adding the total cash consideration to the product of the
total number of shares of Benchmark Common Stock and, if applicable, Series
A Preferred Stock to be issued by the Trading Price. The total transaction
value will be the same as the value presented in the column using the
Benchmark Measurement Price to value the shares being issued except when the
Trading Price is above $32.00, in which case the total transaction value
using the Trading Price to value the shares being issued will exceed the
total transaction value using the Benchmark Measurement Price.
(7) Calculated by adding the Cash Amount, $5.9074, to the product of the Share
Fraction and the Trading Price. The per share transaction value will be the
same as the value presented in the column using the Benchmark Measurement
Price to value the Share Fraction except when the Trading Price is above
$32.00, in which case the per share transaction value using the Benchmark
Measurement Price to value the Share Fraction will be $9.85.
Redetermination of Merger Consideration
In the event, and only in the event, that the Closing Price is less than
the Benchmark Measurement Price, the Merger Agreement requires that the Cash
Amount and the Share Fraction be adjusted in order to maintain the relative
ratios of the cash and stock portions of the merger consideration at 60% and
40%, respectively, using the Closing Price rather than the Benchmark Measurement
Price to value the Share Fraction. In such event, the Cash Amount and the Share
Fraction will be redetermined in the manner hereinafter described, and each
share of EMD Common Stock will, at the Effective Time, entitle the holder
thereof to receive the Cash Amount and the Share Fraction as redetermined. The
Cash Amount (as redetermined) will equal the quotient obtained by dividing (i)
an adjusted aggregate amount of cash to be paid by Benchmark to the holders of
shares of EMD Common Stock in the Merger (determined as described below) ("C")
by (ii) 5,208,078, the number of shares of EMD Common Stock outstanding. The
Share Fraction (as redetermined) will equal the quotient obtained by dividing
(i) an adjusted aggregate number of shares of Benchmark Common Stock (and Series
A Preferred Stock, if applicable) to be issued by Benchmark to the holders of
shares of EMD Common Stock in the Merger (determined as described below) ("N")
by (ii) 5,208,078. The redetermined Cash Amount and Share Fraction may be
expressed algebraically as follows:
Cash Amount (as redetermined) = C / 5,208,078
Share Fraction (as redetermined) = N / 5,208,078
The Merger Agreement provides that the aggregate adjusted cash amount ("C")
and the aggregate adjusted number of shares of Benchmark Common Stock (and
Series A Preferred Stock) ("N") will be determined by solving the following two
simultaneous equations, where MP equals the Benchmark Measurement Price and CP
equals the Closing Price.
Equation 1: C + (N X MP) = $51,277,154
Equation 2: N X CP / C = 2/3
For example, if the Benchmark Measurement Price were $30.00 and the Closing
Price were $25.00, then the two equations would be:
Equation 1: C + (N X $30) = $51,277,154
Equation 2: N X $25 / C = 2/3
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<PAGE> 27
Solving Equation 2 for C results in C = $37.5 X N. This value for C is then
substituted into Equation 1 to solve for N, resulting in a value for N of
759,661.5407. This value for N is then substituted in Equation 2, resulting in a
value for C of $28,487,307.7763. Dividing these values for C and N by 5,208,078
as described above results in a redetermined Cash Amount of $5.4698, instead of
$5.9074, and a redetermined Share Fraction of 0.1459, instead of 0.1313, which
it would have been in the absence of the redetermination.
The effect of this redetermination, if required, will be that holders of
shares of EMD Common Stock will receive less cash but more shares of Benchmark
Common Stock than they would have received in the absence of such
redetermination, but the combined value of the Cash Amount and the Share
Fraction, using the Benchmark Measurement Price to value the Share Fraction,
will remain approximately $9.85. However, the combined value of the Cash Amount
and the Share Fraction using the Closing Price rather than the Benchmark
Measurement Price to value the Share Fraction will be less than $9.85.
In the foregoing example, without the redetermination, the combined value
of the Cash Amount and the Share Fraction, using the Benchmark Measurement Price
of $30.00 to value the Share Fraction, would be approximately $9.85. With the
redetermination, the combined value of the Cash Amount and the Share Fraction
would be approximately $9.85 using the Benchmark Measurement Price of $30.00 to
value the Share Fraction but would be approximately $9.12 using the Closing
Price of $25.00 to value the Share Fraction.
The redetermination would cause the combined value of the Cash Amount and
the Share Fraction, using the Closing Price to value the Share Fraction, to be
less than $9.85 by the greatest amount if the Benchmark Measurement Price were
$32.00 (resulting from a Trading Price of $32.00 or higher) and the Closing
Price were $22.00, the lowest price at which Benchmark and EMD are obligated to
close, in which case the Cash Amount, as redetermined, would be $4.9986 and the
Share Fraction, as redetermined, would be .1515, resulting in a combined value
of the Cash Amount and the Share Fraction, using the Closing Price to value the
Share Fraction, of approximately $8.33. Further, the redetermination of the Cash
Amount and the Share Fraction would affect the possible valuations of the
consideration to be received by the EMD shareholders most if the Trading Price
were $40.00 (the highest price at which Benchmark is obligated to close the
Merger) and the Closing Price were $22.00 (the lowest price at which Benchmark
and EMD are obligated to close). In that case, in the absence of the
redetermination, the aggregate value of the Cash Amount and the Share Fraction,
using the Trading Price of $40.00 to value the Share Fraction, would be
approximately $10.83. With the redetermination, the aggregate value of the Cash
Amount and the Share Fraction, using the Closing Price of $22.00 to value the
Share Fraction, would be approximately $8.33. With or without the
redetermination, however, the combined value of the Cash Amount and the Share
Fraction using the Benchmark Measurement Price to value the Share Fraction will
be approximately $9.85. The following table sets forth the per share and total
values for the consideration that would be issued in such event both without and
with the required redetermination using the relevant prices of Benchmark Common
Stock to value the Benchmark Common Stock to be issued:
<TABLE>
<CAPTION>
TRANSACTION
VALUE
PER SHARE TOTAL
CASH SHARE OF EMD TRANSACTION
AMOUNT FRACTION COMMON STOCK VALUE
------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Without redetermination
Trading Price ($40)........................... $5.9074 .1231 $10.83 $56,410,776
Benchmark Measurement Price($32).............. $5.9074 .1231 $ 9.85 $51,281,861
With redetermination
Benchmark Measurement Price ($32)............. $4.9986 .1515 $ 9.85 $51,281,861
Closing Price ($22)........................... $4.9986 .1515 $ 8.33 $43,391,623
</TABLE>
Issuance of Series A Preferred Stock
In the event that the calculation of the Benchmark Measurement Price, or
the Closing Price, if less than the Benchmark Measurement Price, would require
Benchmark to issue in excess of 805,879 shares of Benchmark Common Stock in the
Merger to the holders of shares of EMD Common Stock, Benchmark will
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<PAGE> 28
issue, in lieu of each share in excess thereof, pro rata to the holders of EMD
Common Stock, one share of Series A Preferred Stock. This would occur, assuming
no redetermination of the Cash Amount and the Share Fraction is required as
described above, only if the Benchmark Measurement Price were less than
approximately $25.50. The issuance of the Series A Preferred Stock is required
in order to comply with the regulations of the AMEX restricting the number of
shares of Benchmark Common Stock that may be issued without the approval of
Benchmark's shareholders. See "-- Description of Series A Preferred Stock --
General." If the Closing Date had occurred on May 31, 1996, no shares of Series
A Preferred Stock would have been issued in the Merger. Assuming no waivers by
either Benchmark or EMD of their respective rights to terminate the Merger
Agreement if the Trading Price is less than $22.00, the maximum number of shares
of Series A Preferred Stock issuable in the Merger is 126,367 shares, or .0243
shares of Series A Preferred Stock per share of EMD Common Stock, unless a
redetermination of the Cash Amount and the Share Fraction is required as
described above, in which case slightly more shares of Series A Preferred Stock
may be issued.
Fractional Shares
In no event will Benchmark issue any fractional share of Benchmark Common
Stock or Series A Preferred Stock in the Merger. In lieu of any fractional share
of Benchmark Common Stock or Series A Preferred Stock to which a holder of
shares of EMD Common Stock would otherwise be entitled, after taking into
account all shares of EMD Common Stock held of record by such holder, such
holder shall be entitled to receive a cash payment equal to the product of (i)
the fractional interest of a share of Benchmark Common Stock or Series A
Preferred Stock to which such holder would otherwise be entitled and (ii) the
Benchmark Measurement Price.
EFFECTIVE TIME OF THE MERGER
The Closing Date will occur as soon as practicable after all of the
conditions to the consummation of the Merger have been fulfilled or, to the
extent permissible, waived. On the Closing Date, EMD and Newco shall cause
Articles of Merger relating to the Merger to be filed with the Secretary of
State of the States of Texas and Minnesota. The Effective Time of the Merger
shall occur at such time as the Articles of Merger have been so filed. EMD and
Benchmark anticipate that the Effective Time will occur promptly after the
Special Meeting. See "-- Conditions to the Merger."
SURRENDER OF CERTIFICATES
On the Closing Date (or as soon as practicable thereafter), each holder of
an EMD Certificate (other than EMD Certificates representing shares held by EMD
or shares with respect to which statutory dissenters' rights have been
exercised) should deliver all EMD Certificates held by such person together with
the Letter of Transmittal mailed to holders of EMD Common Stock along with this
Information Statement/Prospectus, duly executed, to Benchmark as set forth in
the Letter of Transmittal. Upon surrender to Benchmark of one or more EMD
Certificates and a duly executed Letter of Transmittal, the record holder of the
shares of EMD Common Stock represented by such EMD Certificates shall receive
from Benchmark (i) a certificate or certificates representing the number of
shares of Benchmark Common Stock and, if applicable, Series A Preferred Stock to
which such holder shall have become entitled pursuant to the Merger, determined
as described above, and (ii) a check in the amount of the cash to which such
holder shall have become entitled, including cash in lieu of fractional shares,
pursuant to the Merger, determined as described above. See "-- Terms of the
Merger." A holder of EMD Common Stock may receive the cash to which such holder
shall have become entitled by wire transfer as soon as practicable after the
Effective Time instead of by check if such holder delivers his EMD Certificates,
together with a duly executed Letter of Transmittal, to Benchmark on the Closing
Date and provides Benchmark with written wire transfer instructions at least two
business days prior to the Closing Date.
Holders of EMD Common Stock whose EMD Certificates have been lost or
destroyed may nevertheless receive the cash and stock to which they have become
entitled pursuant to the Merger by delivering to Benchmark and the Surviving
Corporation a statement certifying such loss or destruction and indemnifying
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<PAGE> 29
Benchmark and the Surviving Corporation against any loss either of them may
incur as a result of such certificate being thereafter surrendered.
No dividends declared with a record date after the Effective Time shall be
paid to persons entitled to receive Benchmark Common Stock or Series A Preferred
Stock in the Merger until such persons have surrendered their EMD Certificates
as described above. Promptly after such surrender, Benchmark will pay any such
dividends for which the payment date has already occurred to such persons
without interest. If the payment date is after the date of such surrender, such
payment shall be made on the payment date.
CONDITIONS TO THE MERGER
The obligation of Benchmark and Newco to consummate the Merger is subject
to the satisfaction at or before the Effective Time of certain conditions. Such
conditions include, but are not limited to: (i) the representations and
warranties of EMD and the Founding Shareholders contained in the Merger
Agreement being true and correct as of the Effective Time, (ii) EMD and the
Founding Shareholders having complied with all of their obligations under the
Merger Agreement to be complied with prior to the Effective Time (see "--
Certain Covenants"), (iii) Benchmark having received certain certificates and
affidavits from EMD and the Founding Shareholders, (iv) the Merger Agreement
having been approved by a majority of the outstanding shares of EMD Common Stock
(see "The Special Meeting -- Record Date; Vote Required"), (v) there being no
pending or threatened litigation to restrain or invalidate the Merger, (vi) all
material consents and approvals necessary for consummation of the Merger having
been received and the waiting period under the HSR Act having expired or been
earlier terminated, (vii) Benchmark having received an opinion from KPMG to the
effect that, for federal income tax purposes, the Merger will constitute a
reorganization under Section 368(a) of the Code (see "-- Certain Federal Income
Tax Consequences"), (viii) Benchmark having received the legal opinions of EMD's
legal counsel as to certain matters, (ix) certain additional agreements having
been executed and delivered by the parties thereto (see "-- Additional
Agreements"), (x) the Registration Statement having become effective under the
Securities Act and no stop order suspending such effectiveness having been
issued or proceedings for that purpose having been initiated or threatened by
the Commission, (xi) Benchmark having received all permits or authorizations
required under any state securities or "blue sky" law in connection with the
issuance of the Benchmark Common Stock and Series A Preferred Stock in the
Merger, (xii) Benchmark having received from all affiliates of EMD receiving
shares of Benchmark Common Stock or Series A Preferred Stock in the Merger a
letter to the effect that such persons will not dispose of such shares except in
compliance with Rule 145 under the Securities Act, (xiii) Benchmark having
received on the effective date of the Registration Statement and on the Closing
Date a "comfort letter" from EMD's independent public accountants relating to
certain information concerning EMD contained in the Registration Statement, and
(xiv) the shares of Benchmark Common Stock issuable in the Merger having been
approved for listing on the AMEX upon notice of issuance.
The obligation of EMD to consummate the Merger is subject to the
satisfaction at or before the Effective Time of certain conditions. Such
conditions include, but are not limited to: (i) the representations and
warranties of Benchmark and Newco contained in the Merger Agreement being true
and correct as of the Effective Time, (ii) Benchmark and Newco having complied
with all of their obligations under the Merger Agreement to be complied with
prior to the Effective Time (see "-- Certain Covenants"), (iii) EMD having
received certain certificates from Benchmark and Newco, (iv) the Merger
Agreement having been approved by a majority of the outstanding shares of EMD
Common Stock (see "The Special Meeting -- Record Date; Vote Required"), (v)
there being in effect no injunction or other order prohibiting consummation of
the Merger, (vi) all material consents and approvals necessary for consummation
of the Merger having been received and the waiting period under the HSR Act
having expired or been earlier terminated, (vii) EMD and its shareholders having
received an opinion from KPMG to the effect that, for federal income tax
purposes, the Merger will constitute a reorganization under Section 368(a) of
the Code (see "-- Certain Federal Income Tax Consequences"), (viii) EMD having
received the legal opinion of Benchmark's legal counsel as to certain matters,
(ix) certain additional agreements having been executed and delivered by the
parties thereto (see "-- Additional Agreements"), (x) the Registration Statement
having become effective under the Securities Act and no stop order suspending
such effectiveness having been issued or proceedings for that
26
<PAGE> 30
purpose having been initiated or threatened by the Commission, (xi) Benchmark
having received all permits or authorizations required under any state
securities or "blue sky" law in connection with the issuance of the Benchmark
Common Stock and Series A Preferred Stock in the Merger, and (x) the shares of
Benchmark Common Stock issuable in the Merger having been approved for listing
on the AMEX upon notice of issuance.
Subject to certain limitations, the conditions to the obligations of the
parties to consummate the Merger may be waived. See "-- Amendment, Waiver and
Termination."
CERTAIN COVENANTS
The Merger Agreement contains certain covenants, customary in transactions
of this kind, of EMD and the Founding Shareholders relating to the operations of
EMD prior to the Effective Time, including, without limitation, covenants of EMD
to, and of the Founding Shareholders to cause EMD to, except with the consent of
Benchmark or as otherwise provided in the Merger Agreement, do the following:
(i) carry on its business diligently and in the ordinary and usual course, (ii)
take all action to comply with all permits and licenses, (iii) use reasonable
efforts to preserve its business organization and maintain its relations with
its customers, suppliers and employees, (iv) not make any generally applicable
changes in its credit and pricing policies, (v) not sell or pledge or agree to
sell or pledge any of its stock or the stock of any of its subsidiaries, (vi)
not amend its articles of incorporation or bylaws, (vii) not split, combine or
reclassify the outstanding shares of EMD Common Stock, (viii) not declare, pay
or set aside any dividends with respect to the EMD Common Stock, (ix) not issue,
sell, pledge, dispose of or encumber any shares of, or securities convertible or
exchangeable or exercisable for, or options, warrants, calls, commitments or
rights of any kind to acquire any shares of, its capital stock, (x) with certain
exceptions, not transfer, lease, license, sell, mortgage, pledge, dispose of or
encumber any assets except in the ordinary course of business, (xi) not incur or
amend the terms of any indebtedness or other liability except in the ordinary
course of business, (xii) not extend other than on a month-to-month basis or
otherwise modify or amend or waive any rights under any lease of real property,
(xiii) with certain exceptions, not increase the compensation of any officer,
director or employee, pay any bonus or severance pay, or establish or amend any
benefit plan, (xiv) not acquire any business or organization or division
thereof, (xv) not merge or otherwise combine with any other entity, (xvi) not
change its application of accounting principles except as required by generally
accepted accounting principles, (xvii) not take any action that is intended or
may reasonably be expected to result in any representations and warranties
contained in the Merger Agreement being or becoming untrue, any conditions to
the Merger not being satisfied or any violation of the Merger Agreement
occurring, (xviii) perform in all material respects all of its obligations under
its material contracts and not enter into any contracts except contracts
involving the payment by EMD of less than $50,000, (xix) maintain its insurance
coverage and the condition of its properties and equipment, (xx) file all tax
returns, and (xxi) allow Benchmark access, including one full-time observer, to
EMD's and its subsidiaries' properties and records and consult from time to time
with Benchmark regarding EMD's business.
The Merger Agreement contains additional covenants of EMD and the Founding
Shareholders to be performed prior to the Effective Time, including but not
limited to the following: (i) the agreement of EMD and the Founding Shareholders
not to take any action to facilitate the acquisition of all or substantially all
of the business and properties of EMD or its subsidiaries (an "Acquisition
Transaction") except with the consent of Benchmark or as required by fiduciary
obligations under applicable law; (ii) the agreement of EMD and the Founding
Shareholders to give all notices and take all other actions required by law in
order to complete the closure procedure applicable to an underground storage
tank previously removed from EMD's property and to take all actions necessary to
determine whether any EMD facility is required to have an environmental permit
for discharges into the air and, if such permit is required, to take all action
necessary to obtain it; (iii) the agreement of EMD to cause its affiliates,
within the meaning of Rule 145 under the Securities Act, to provide Benchmark
with undertakings to the effect that no dispositions of shares of Benchmark
Common Stock or Series A Preferred Stock received by such persons in the Merger
will be made by such persons except in compliance with Rule 145; and (iv) the
agreement of EMD and its subsidiaries and the Founding Shareholders not to
engage in any transactions in Benchmark Common Stock during the 30 trading days
prior
27
<PAGE> 31
to the Closing Date and not to engage in any transactions in EMD Common Stock at
any time prior to the Effective Time.
In addition, the Merger Agreement contains covenants of Benchmark (i) not
to purchase any shares of Benchmark Common Stock during the 30 trading days
prior to the Closing Date, (ii) as of the Closing Date, to recognize, for
eligibility in any Benchmark employee benefit plan that is substantially similar
to an EMD employee benefit plan, all service recognized under the EMD benefit
plan, and (iii) to provide health continuation coverage as required under the
Employee Retirement Income Security Act of 1974, as amended, or the Code to all
former employees of EMD or its subsidiaries and their beneficiaries who are
receiving or are entitled to receive such coverage as of the Closing Date.
The Merger Agreement also contains covenants of the parties to the Merger
Agreement to cooperate and to take all necessary action with respect to the
Registration Statement, state securities or "blue sky" matters, the Special
Meeting, and the consummation of the Merger generally.
AMENDMENT, WAIVER AND TERMINATION
Subject to applicable provisions of the Texas Business Corporation Act and
the Minnesota Business Corporation Act, the Merger Agreement may be modified or
amended at any time prior to the Effective Time by the mutual consent of
Benchmark, Newco and EMD, by action of their respective boards of directors
followed by written agreement executed and delivered by duly authorized officers
of the respective parties and the Founding Shareholders.
To the extent permitted by applicable law, any party to the Merger
Agreement may waive any condition to such party's obligation to consummate the
Merger.
The Merger Agreement may be terminated at any time prior to the Effective
Time by the mutual consent of Benchmark, Newco and EMD by action of their
respective boards of directors. The Merger Agreement may be terminated by action
of any of the boards of directors of Benchmark, Newco and EMD if the Merger has
not been consummated by July 31, 1996 (or a later date agreed to by the parties)
provided that the terminating party is not in material breach of any of its
obligations under the Merger Agreement or if any court of competent jurisdiction
or other governmental body has entered an order, decree or ruling or taken any
other action restraining enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action has become final and nonappealable. In
addition, Benchmark and Newco may terminate the Merger Agreement by action of
their boards of directors (i) if EMD or the Founding Shareholders have failed to
comply in any material respect with any of the covenants or agreements contained
in the Merger Agreement and to be complied with or performed by them prior to
the Effective Time and such failure has not been cured within 30 days after
receipt of notice thereof, (ii) if the board of directors of EMD does not
recommend to its shareholders the approval of the Merger Agreement or withdraws
or modifies in a manner adverse to Benchmark or Newco its approval or
recommendation of the Merger or takes any action to facilitate an Acquisition
Transaction, or (iii) if the lesser of the Trading Price and the Closing Price
is less than $22.00 or the Trading Price is more than $40.00.
EMD may terminate the Merger Agreement by action of its board of directors
(i) if Benchmark or Newco has failed to comply in any material respect with any
of the covenants or agreements contained in the Merger Agreement and to be
complied with or performed by it prior to the Effective Time and such failure
has not been cured within 30 days of receipt of notice thereof, (ii) if the
board of directors of EMD withdraws or modifies in a manner adverse to Benchmark
or Newco its approval or recommendation of the Merger in order to approve the
execution by EMD of a definitive agreement relating to an Acquisition
Transaction on terms more favorable to EMD's shareholders than the Merger, or
(iii) if the lesser of the Trading Price and the Closing Price is less than
$22.00.
In the event of termination of the Merger Agreement, any rights and
remedies which any of the parties to the Merger Agreement may have against any
other party by reason of the termination shall not be affected by the
termination but shall be preserved and may be exercised in accordance with
applicable law. However, if Benchmark and Newco terminate the Merger Agreement
because the board of directors of EMD does not
28
<PAGE> 32
recommend to its shareholders the approval of the Merger Agreement or withdraws
or modifies in a manner adverse to Benchmark or Newco its approval or
recommendation of the Merger or takes any other action to facilitate an
Acquisition Transaction or if EMD terminates the Merger Agreement because its
board of directors withdraws or modifies its approval or recommendation of the
Merger in order to approve the execution of a definitive agreement relating to
an Acquisition Transaction on terms more favorable to EMD's shareholders than
the Merger, then as a condition to the termination of EMD's obligations under
the Merger Agreement, EMD shall pay to Benchmark a termination fee of $1,500,000
in cash, which shall be Benchmark's sole remedy and compensation for such
termination.
DISSENTERS' RIGHTS
Shareholders of EMD and beneficial owners of EMD Common Stock are entitled
to exercise dissenters' rights with respect to and obtain payment for the fair
value of their shares of EMD Common Stock under Sections 302A.471 and 302A.473
of the Minnesota Business Corporation Act (the "MBCA"). A shareholder electing
to exercise dissenters' rights must file with EMD at EMD's principal executive
offices before the date of the Special Meeting, or at the Special Meeting prior
to the shareholder vote on the Merger, a notice of intent to demand the fair
value of such shareholder's shares of EMD Common Stock, and must not vote such
shares in favor of the Merger. Beneficial owners of shares of EMD Common Stock
who are not the record holders of the shares, including participants in the EMD
ESOP, may exercise dissenters' rights by (i) instructing the record holder of
the beneficial owner's shares not to vote in favor of the Merger and (ii) either
(A) requesting the record holder of the beneficial owner's shares to exercise
dissenters' rights with respect to the beneficial owner's shares or (B)
obtaining and submitting to EMD, at the time of or before the assertion of such
dissenters' rights, a written consent of such record holder to the beneficial
owner's exercising dissenters' rights with respect to the beneficial owner's
shares. Any beneficial owner following these procedures will be treated as a
"dissenting shareholder" under the terms of Section 302A.471 and 302A.473 of the
MBCA. The exercise of dissenters' rights by an ESOP participant will not result
in a cash payment to the participant. Any right to distribution will be
determined by the terms of the ESOP. See "Certain Matters Relating to the EMD
ESOP -- Right to Direct Vote with Respect to the Merger." FAILURE OF A
SHAREHOLDER OR BENEFICIAL OWNER TO FOLLOW THESE PROCEDURES WILL CAUSE THE
SHAREHOLDER OR BENEFICIAL OWNER TO LOSE THE RIGHT TO EXERCISE DISSENTERS'
RIGHTS.
After approval of the Merger by EMD's shareholders, EMD will deliver to
each shareholder who has timely filed a notice of intent to demand the fair
value of such shareholder's shares a notice that specifies the address to which
a demand for payment and EMD Certificates must be sent in order to obtain
payment and the date by which the demand and EMD Certificates must be received
and that contains a form to be used to make the demand for payment and a copy of
Sections 302A.471 and 302A.473 of the MBCA. In order to receive payment for
shares of EMD Common Stock, a dissenting shareholder must deliver a demand for
payment and such shareholder's EMD Certificates to EMD (or to the Surviving
Corporation) at EMD's principal executive offices within 30 days after EMD gives
the notice described above. Failure by a shareholder to timely deliver a demand
for payment and such shareholder's EMD Certificates to EMD (or the Surviving
Corporation) will cause the shareholder to lose the right to exercise
dissenters' rights.
After the Effective Time or the receipt of a valid demand for payment,
whichever is later, the Surviving Corporation will remit to each shareholder of
EMD who has complied with the procedures for exercising dissenters' rights the
amount the Surviving Corporation estimates to be the fair value of such
shareholder's shares, plus interest as provided for in the MBCA, accompanied by
(i) financial statements of EMD for and as of the end of the most recent
completed fiscal year and for and as of the end of the most recent interim
period, since the end of the most recent completed fiscal year, for which
financial statements are available, (ii) an estimate of the fair value of the
shares and a description of the procedure used to reach the estimate and (iii) a
copy of Sections 302A.471 and 302A.473 of the MBCA. The Surviving Corporation
may withhold the remittance from a person who was not a shareholder of EMD on
March 27, 1996 (the date the Merger was first publicly announced) or who is
dissenting on behalf of a person who was not a beneficial owner of shares of EMD
Common Stock on such date. In such event, the Surviving Corporation shall send
to the person the materials described above to be sent with the remittance along
with a statement of the reason for
29
<PAGE> 33
withholding the remittance and an offer to pay the amount per share remitted to
other dissenting shareholders if such person agrees to accept such amount in
full satisfaction.
If a dissenting shareholder believes that the amount remitted by the
Surviving Corporation is less than the fair value of the shares plus interest,
within 30 days after the Surviving Corporation mails the remittance to the
dissenting shareholder, the dissenting shareholder may give notice to the
Surviving Corporation of the dissenting shareholder's own estimate of the fair
value of the shares, plus interest, and demand payment of the difference. If the
dissenting shareholder does not timely give such notice and make such demand,
the dissenting shareholder will be entitled only to the amount remitted by the
Surviving Corporation. If the Surviving Corporation receives a timely notice and
demand, the Surviving Corporation shall, within 60 days of the receipt thereof,
either pay the amount demanded to be paid or file with the appropriate court a
petition to determine the fair value of the shares, plus interest. The petition
shall name as parties all dissenting shareholders with whom the Surviving
Corporation has not reached agreement and shall be served, together with a
summons, on all parties. The court shall determine whether the dissenting
shareholder or shareholders have complied with all requirements for exercising
dissenters' rights and shall determine the fair value of the shares, taking into
account any and all factors the court finds relevant, computed by any method or
combination of methods that the court, in its discretion sees fit to use,
whether or not used by the Surviving Corporation or a dissenting shareholder.
The fair value determined by the court shall be binding on all dissenting
shareholders. Dissenting shareholders will be entitled to receive in cash from
the Surviving Corporation any amount by which the fair value of the shares
determined by the court, plus interest, exceeds the amount remitted by the
Surviving Corporation but shall not be liable to the Surviving Corporation for
any amount by which the amount remitted by the Surviving Corporation exceeds the
fair value of the shares determined by the court, plus interest.
The court shall determine the costs and expenses of the proceeding and
shall assess those costs and expenses against the Surviving Corporation, except
that the court may assess all or part of the costs and expenses against a
dissenter whose action in demanding payment of an amount in excess of the amount
remitted by the Surviving Corporation is found to be arbitrary, vexatious or not
in good faith.
Prior to the Effective Time, a shareholder of EMD who exercises dissenters'
rights shall retain all rights of a shareholder of EMD. From and after the
Effective Time, such a shareholder shall have no rights with respect to such
shares except the right to receive payment therefor as described above. Any
shareholder of EMD who fails to perfect or otherwise loses dissenters' rights
shall be entitled only to payment of the consideration provided for in the
Merger Agreement.
Holders of EMD Common Stock should note that the exercise of dissenters'
rights with respect to a significant number of shares of EMD Common Stock could
affect the treatment of the Merger as a reorganization under Section 368(a) of
the Code and, therefore, could result in KPMG failing to deliver an opinion that
the Merger will be treated as a reorganization under Section 368(a) of the Code.
The obligations of the parties to the Merger Agreement to consummate the Merger
are conditioned on the receipt by the parties of such an opinion from KPMG. See
"-- Conditions to the Merger."
THE FOREGOING SUMMARY OF DISSENTERS' RIGHTS DOES NOT PURPORT TO BE A
COMPLETE STATEMENT OF THE PROCEDURE OUTLINED IN THE RELEVANT PROVISIONS OF THE
MBCA. HOLDERS OF EMD COMMON STOCK ARE ENCOURAGED TO READ SUCH PROVISIONS, A COPY
OF WHICH IS ATTACHED HERETO AS APPENDIX B, IN THEIR ENTIRETY. IN ADDITION,
BECAUSE OF THE COMPLEXITY OF SUCH PROVISIONS, SHAREHOLDERS WISHING TO EXERCISE
DISSENTERS' RIGHTS MAY WISH TO CONSULT WITH COUNSEL.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a discussion of certain federal income tax consequences
of the Merger that are expected to be generally applicable to Benchmark, Newco,
EMD and EMD's shareholders. This discussion does not address any foreign, state
or local tax consequences of the Merger to Benchmark, Newco, EMD or
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EMD's shareholders, nor does it address the tax consequences of the Merger to
any party other than Benchmark, Newco, EMD and EMD's shareholders.
Benchmark and EMD do not intend to apply for a ruling from the Internal
Revenue Service with respect to the federal income tax consequences of the
Merger. Instead, Benchmark and EMD intend to rely on the opinion of their tax
advisors. Consummation of the Merger is conditioned on the receipt by Benchmark,
EMD and EMD's shareholders of an opinion of KPMG, dated as of the Closing Date,
substantially to the effect that, on the basis of facts, representations and
assumptions set forth or referred to in such opinion, the principal federal
income tax consequences of the Merger under current law will be as set forth
below. The opinion of KPMG will not be binding on the Internal Revenue Service
or the courts, and there can be no assurance that the Internal Revenue Service
will agree with the conclusions of KPMG therein. The opinion will be based on
laws and regulations currently in effect, certain factual assumptions and
certain representations made by parties to the Merger Agreement. Any change in
applicable law or any inaccuracy in such assumptions and representations could
affect the validity of KPMG's opinion.
Subject to the foregoing, it is expected that the Merger will have the
following tax consequences to Benchmark, Newco, EMD and EMD's shareholders:
1. The Merger will constitute a reorganization within the meaning of
Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code. Benchmark, Newco, and
EMD will each be "a party to a reorganization" within the meaning of
Section 368(b) of the Code.
2. The gain, if any, to be realized by the holders of EMD Common Stock
will be recognized, but not in excess of the cash portion of the
consideration received in the Merger. The receipt of the cash by such
shareholders will qualify for sale or exchange treatment under Section
356(a)(2) of the Code. Notwithstanding the foregoing, the ESOP will
recognize no gain or loss on the receipt of the cash or shares of Benchmark
Common Stock or Series A Preferred Stock.
3. The basis of the Benchmark Common Stock and Series A Preferred
Stock, if any, to be received by the holders of EMD Common Stock will be
equal to the basis of the EMD Common Stock to be surrendered in the Merger
decreased by the cash received in the Merger and increased by the amount of
gain recognized as a result of the Merger.
4. The holding period of the Benchmark Common Stock and Series A
Preferred Stock, if any, to be received by the holders of EMD Common Stock
will include the period the EMD Common Stock exchanged therefor was held,
provided that the EMD Common Stock was held as a capital asset on the
Closing Date.
5. No gain or loss will be recognized to EMD as a result of the
Merger.
6. No gain or loss will be recognized to Benchmark or Newco as a
result of the Merger.
7. Section 483 of the Code will not apply to shares of Benchmark
Common Stock or Series A Preferred Stock placed in escrow by the Founding
Shareholders.
8. Newco will succeed to and take into account the items of EMD
described in Section 381(c) of the Code, subject to the provisions and
limitations specified in Sections 381, 382, 383 and 384 of the Code, if
applicable, and the regulations thereunder.
9. The payment of cash in lieu of fractional share interests of
Benchmark Common Stock or Series A Preferred Stock will be treated for
federal income tax purposes as if the fractional shares were distributed as
part of the exchange and then were redeemed by Benchmark. These cash
payments will be treated as having been received as distributions in full
payment in exchange for the shares redeemed as provided in Section 302(b)
of the Code. Provided the fractional share interest is a capital asset in
the hands of an exchanging shareholder, the gain or loss will constitute
capital gain or loss subject to the provisions and limitations of
Subchapter P of Chapter 1 of the Code.
THE DISCUSSION SET FORTH ABOVE IS FOR GENERAL INFORMATION ONLY. EACH HOLDER
OF EMD COMMON STOCK IS ENCOURAGED TO CONSULT SUCH HOLDER'S OWN
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TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH
HOLDER.
CERTAIN MATTERS RELATING TO THE EMD ESOP
Right to Direct Vote with Respect to the Merger
Pursuant to Section 8.4 of the ESOP, each participant in the ESOP is
entitled to direct the trustee of the ESOP as to the manner in which the shares
of EMD Common Stock held in the participant's account shall be voted with
respect to the Merger at the Special Meeting. In order to exercise dissenters'
rights under the MBCA, however, each ESOP participant will be required to (i)
instruct the ESOP trustee not to vote the shares of EMD Common Stock held in the
participant's account in favor of the Merger and (ii) either (A) requesting the
ESOP trustee to exercise dissenters' rights with respect to such shares or (B)
obtain and submit to EMD, at the time at or before the assertion at such
dissenters' rights a written consent of the ESOP trustee to the participant's
exercising dissenters' rights with respect to the shares held in the
participant's account. See "-- Dissenters' Rights." Instructions for directing
the ESOP trustee with respect to such matters, together with copies of this
Information Statement/Prospectus, are being provided to ESOP participants by the
ESOP trustee.
Treatment After the Effective Time
The Merger Agreement provides that, within 60 days after the Closing Date,
Benchmark shall amend the ESOP or cause the ESOP to be amended to provide that
(i) all participants in the ESOP are fully vested in their account balances in
the ESOP, (ii) the ESOP is frozen and no further contributions will be made to
the ESOP, and (iii) if the ESOP receives any Series A Preferred Stock in the
Merger, then the Series A Preferred Stock held in the ESOP shall be subject to
the "Put Option" provided for in Section 7.11 of the ESOP. The price at which
the Put Option will be exercisable will be the greater of (a) the market value
of a share of Benchmark Common Stock on the date the Put Option is exercised and
(b) the value of the Series A Preferred Stock determined in accordance with
Section 6.2 of the ESOP. The Merger Agreement further provides that, until a
distribution from the ESOP upon its termination or upon a transfer from the ESOP
to another "qualified plan" sponsored by Benchmark or any of its affiliates,
Benchmark agrees that the ESOP will be maintained as a "qualified plan" within
the meaning of Section 401(a) of the Code. Additionally, the Merger Agreement
provides that Benchmark agrees to use reasonable efforts to cause the assets in
the ESOP to be transferred to another "qualified plan" sponsored by Benchmark or
any of its affiliates. Benchmark anticipates that the ESOP will be merged into
the 401(k) Plan currently maintained by Benchmark.
ADDITIONAL AGREEMENTS
Voting and Share Transfers
The Merger Agreement contains certain restrictions on the ability of the
Founding Shareholders to vote and transfer shares of Benchmark Common Stock and
Series A Preferred Stock received by them in the Merger for a period of three
years after the Closing Date. Until the first anniversary of the Closing Date,
the Founding Shareholders may not transfer any shares of Benchmark Common Stock
or Series A Preferred Stock except by will or the laws of descent and
distribution or otherwise by operation of law. During the second and third years
after the Closing Date, the Founding Shareholders may make certain transfers
that are expressly permitted by the Merger Agreement, but may not make any other
transfers unless they have complied with procedures set forth in the Merger
Agreement providing for a right of first refusal for Benchmark with respect to
the shares of Benchmark Common Stock or Series A Preferred Stock to be
transferred by the Founding Shareholders.
Until the third anniversary of the Closing Date, the Merger Agreement
requires the Founding Shareholders to be present, in person or by proxy, at all
meetings of shareholders of Benchmark and to vote all shares of Benchmark Common
Stock and, to the extent applicable, Series A Preferred Stock held by them,
however acquired, in the manner recommended to shareholders by Benchmark's board
of directors, except that the Founding Shareholders may vote their shares in
their sole discretion with respect to any proposal
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involving a merger, consolidation, statutory share exchange, reorganization,
reclassification or other extraordinary corporate transaction that has been
approved by Benchmark's board of directors. Additionally, until the third
anniversary of the Closing Date, the Founding Shareholders are prohibited from
(i) soliciting proxies in opposition to the recommendation of Benchmark's board
of directors, (ii) depositing any shares of Benchmark Common Stock or Series A
Preferred Stock in a voting trust or subjecting them to a voting agreement,
(iii) acquiring or offering to acquire any shares of Benchmark Common Stock or
Series A Preferred Stock except from other persons receiving such shares in the
Merger or as a result of a stock split or dividend or similar transaction, (iv)
joining any group for the purpose of acquiring, holding or disposing of
Benchmark Common Stock or Series A Preferred Stock within the meaning of Section
13(d) of the Exchange Act, (v) initiating, proposing or soliciting shareholders
for a shareholder proposal or tender or exchange offer for Benchmark Common
Stock or Series A Preferred Stock or any change of control of Benchmark or for
the purpose of convening a shareholders' meeting, (vi) acquiring more than 5% of
any class of equity security of any entity that has publicly disclosed that it
owns or intends to become the owner of, or that the Founding Shareholder
otherwise knows owns or intends to become the owner of, 5% of the outstanding
shares of Benchmark Common Stock or Series A Preferred Stock, and (vii) taking
any action by written consent in lieu of a meeting.
Board Representation
The Merger Agreement provides that, for so long as the Founding
Shareholders own beneficially in the aggregate at least 10% of the outstanding
shares of Benchmark Common Stock, Benchmark will include one of the Founding
Shareholders or an acceptable person designated by them on its recommended slate
of nominees for election to the board of directors of Benchmark. For purposes of
calculating the percentage of shares owned by the Founding Shareholders, during
the first three years after the Closing Date, but only during such period,
shares held by the Founding Shareholders' spouses and descendants will be
counted as beneficially owned by the Founding Shareholders.
Pursuant to this provision of the Merger Agreement, the Founding
Shareholders have selected David H. Arnold as their initial designee to
Benchmark's board. Mr. Arnold was a co-founder of EMD and has served as a
director and officer of EMD since 1974. Mr. Arnold earned a B.S. degree in
mechanical engineering from Iowa State University and an M.S. degree in
mechanical engineering from the University of Michigan. He also serves as a
director of Town and Country State Bank in Winona, Minnesota.
Other
The Merger Agreement provides that, as conditions to the consummation of
the Merger, certain agreements must be entered into, including but not limited
to (i) a Noncompetition Agreement pursuant to which the Founding Shareholders
will agree not to compete with Benchmark and the Surviving Corporation in the
contract electronics manufacturing business for a period of three years after
the Closing Date, (ii) an Escrow Agreement pursuant to which a portion of the
shares of Benchmark Common Stock and Series A Preferred Stock, if any, issued to
the Founding Shareholders in the Merger will be placed in escrow for a period of
one year after the Closing Date for the purpose of avoiding a subsequent share
transfer that could adversely affect the tax treatment described in "-- Certain
Federal Income Tax Consequences," (iii) Indemnification Agreements pursuant to
which the Founding Shareholders will indemnify Benchmark and the Surviving
Corporation from and against any liabilities relating to two former subsidiaries
of EMD and any environmental liabilities associated with a facility leased by
EMD, and (iv) amendments to certain real property leases pursuant to which EMD
or its subsidiaries lease facilities from the Founding Shareholders and their
affiliates.
The Merger Agreement also contains representations and warranties and
indemnification and survival provisions of the sort that are customary in
transactions of this kind.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
The Founding Shareholders, each of whom is an officer and director of EMD,
and their affiliates own an aggregate of approximately 69.4% of the outstanding
shares of EMD Common Stock. Additionally, as a result of the consummation of the
Merger, certain of the directors and officers, in their capacities as
co-workers, and other co-workers of EMD and its subsidiaries, other than the
Founding Shareholders, will receive cash payments aggregating approximately $4.4
million pursuant to the terms of the Gain-Sharing Plan. See "-- Background of
and Reasons for the Merger -- Background of the Merger."
The Merger Agreement provides that, for so long as the Founding
Shareholders own beneficially in the aggregate at least 10% of the outstanding
shares of Benchmark Common Stock, Benchmark will include one of the Founding
Shareholders or an acceptable person designated by them on its recommended slate
of nominees for election to the board of directors of Benchmark. The Founding
Shareholders have selected David H. Arnold as their initial designee to
Benchmark's board. See "-- Additional Agreements -- Board Representation." Upon
his election, Mr. Arnold will receive the benefits made available to other non-
employee directors of Benchmark with respect to his serving on the board of
directors of Benchmark, including payment for attendance at meetings of the
board of directors and committees thereof, indemnification in accordance with
the provisions of Benchmark's Articles of Incorporation and Bylaws and
participation in Benchmark's 1994 Stock Option Plan for Non-Employee Directors.
Stephens Inc. ("Stephens") has served as financial advisor to Benchmark in
connection with the Merger. In that capacity, Stephens will be paid 1% of the
Transaction Value (as defined in Stephens' engagement letter with Benchmark
dated December 1, 1995) upon consummation of the Merger. Gerald W. Bodzy, who is
a director of Benchmark, is Senior Vice President and Managing Director of
Stephens.
DESCRIPTION OF SERIES A PREFERRED STOCK
General
The Merger Agreement provides that, if the calculation of the Benchmark
Measurement Price, or the Closing Price, if less than the Benchmark Measurement
Price, and the Share Fraction will cause Benchmark to issue more than 805,879
shares of Benchmark Common Stock (which constitutes 20% of the shares of such
class currently outstanding), Benchmark will issue in lieu of each share in
excess of that amount one share of Benchmark's Series A Preferred Stock, a new
series of Benchmark preferred stock that will mandatorily convert into shares of
Benchmark Common Stock upon approval the holders of the Benchmark Common Stock
outstanding. This provision was required in order to comply with the provisions
of the AMEX's listing requirements, which do not permit a listed company to
issue securities that could result in an increase in the outstanding common
shares of 20% or more, without approval of its shareholders. Benchmark has been
advised by the AMEX that no approval by its shareholders is needed for the
issuance of the Series A Preferred Stock as long as the conversion of such stock
into Benchmark Common Stock is conditioned upon obtaining the prior approval of
Benchmark's common shareholders and the prior approval of the AMEX to the
additional listing of the Benchmark Common Stock issuable on conversion thereof.
If the shareholders of Benchmark Common Stock were to fail to approve the
conversion of the Series A Preferred Stock into Common Stock, the shares of
Series A Preferred Stock would remain outstanding. Accordingly, the following
discussion relates to the terms of the Series A Preferred Stock. Benchmark
believes that the shares of Series A Preferred Stock would only become issuable
if the lesser of the Benchmark Measurement Price and the Closing Price were to
be less than approximately $25.50.
Benchmark's Articles of Incorporation authorize 10,000,000 shares of
Benchmark Common Stock, of which 4,029,400 were issued and outstanding as of
April 15, 1996, and 5,000,000 shares of preferred stock, none of which have been
issued. Benchmark's board of directors has authorized the establishment of the
Series A Preferred Stock and designated 250,000 shares as shares of Series A
Preferred Stock. Benchmark will file a Statement of Resolution establishing the
Series A Preferred Stock with the Secretary of State of the State of Texas prior
to the Effective Time.
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The Series A Preferred Stock will rank prior to the Benchmark Common Stock
and any series of preferred stock expressly made junior to the Series A
Preferred Stock ("Junior Securities") with respect to dividend rights and rights
upon liquidation, dissolution or winding up. The Series A Preferred Stock is
subject to the creation of Junior Securities, securities ranking on a parity
with the Series A Preferred Stock ("Parity Securities") and securities ranking
senior to the Series A Preferred Stock ("Senior Securities"); provided, however,
that, during the time any shares of Series A Preferred Stock are outstanding,
Benchmark may not issue any Parity Securities or Senior Securities without the
consent of the holders of a majority of the issued and outstanding shares of
Series A Preferred Stock.
Dividends
Holders of shares of Series A Preferred Stock will not be entitled to
dividends in respect of such shares unless all outstanding shares of Series A
Preferred Stock have not been converted into Benchmark Common Stock within 120
days after the Closing Date. See "-- Description of Series A Preferred Stock --
Conversion." In that event, the holders of outstanding shares of Series A
Preferred Stock will be entitled to receive, when, as and if declared by
Benchmark's board of directors, out of funds legally available therefor, payment
of cumulative preferential cash dividends accruing from the Closing Date in an
amount per share equal to 4% of the lesser of the Benchmark Measurement Price
and the Closing Price, payable quarterly in arrears. The dividend rate will
increase on each anniversary of the Closing Date by 2% of the lesser of the
Benchmark Measurement Price and the Closing Price, but shall in no event exceed
12% of the lesser of the Benchmark Measurement Price and the Closing Price.
Accrued and unpaid dividends will not bear interest unless they are not timely
paid, in which case accrued and unpaid dividends will bear interest at an annual
rate equal to 12%.
Unless full cumulative dividends on the Series A Preferred Stock that have
accrued and become payable have been or are contemporaneously declared and paid
or declared and a sum set apart sufficient for such payment, no full dividends
may be declared, paid or set apart for payment by Benchmark on any Parity
Securities, no Parity Securities may be redeemed, purchased or otherwise
acquired and no money may be paid to or made available for a sinking fund for
the redemption of any Parity Securities. If any dividends are not paid or set
apart in full on the shares of Series A Preferred Stock and any Parity
Securities, all dividends declared on the Series A Preferred Stock and any
Parity Securities shall be declared pro rata among the shares of Series A
Preferred Stock and any Parity Securities. Unless full cumulative dividends on
the Series A Preferred Stock that have accrued and become payable have been or
are contemporaneously declared and paid or declared and a sum set apart
sufficient for such payment, no full dividends may be declared, paid or set
apart for payment by Benchmark on any Junior Securities, no Junior Securities
may be redeemed, purchased or otherwise acquired and no money may be paid to or
made available for a sinking fund for the redemption of any Junior Securities,
except by conversion into or exchange for other Junior Securities.
Liquidation Preference
In the event of any liquidation, dissolution or winding up of Benchmark,
before any of Benchmark's assets are distributed among or paid over to the
holders of any Junior Securities, the holders of shares of Series A Preferred
Stock will be entitled to receive an amount per share equal to the lesser of the
Benchmark Measurement Price and the Closing Price, plus any and all accrued but
unpaid dividends thereon, and will not be entitled to any other distribution.
If upon liquidation, dissolution or winding up, the assets available for
distribution among the holders of Series A Preferred Stock and holders of Parity
Securities are insufficient to permit the payment of the full preferential
amounts to which they are entitled, then the assets will be distributed ratably
among such holders.
Conversion
Upon the approval by the holders of a majority of the issued and
outstanding shares of Benchmark Common Stock of the issuance of the shares of
Benchmark Common Stock into which the outstanding shares of Series A Preferred
Stock are convertible, each share of Series A Preferred Stock will be converted
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automatically, without any further action on the part of the holder thereof,
into one share of Benchmark Common Stock, subject to adjustment in the event of
certain capital changes with respect to the Benchmark Common Stock. The Merger
Agreement provides that, if any shares of Series A Preferred Stock are issued in
the Merger, within 120 days after the Closing Date, Benchmark will call a
special meeting of its shareholders for the purpose of voting on the issuance of
the shares of Benchmark Common Stock into which the shares of Series A Preferred
Stock are convertible. Additionally, as a condition to the obligation of EMD to
consummate the Merger, the Merger Agreement requires certain shareholders of
Benchmark holding in the aggregate approximately 26.5% of the outstanding shares
of Benchmark Common Stock to execute an agreement to vote their shares of
Benchmark Common Stock in favor of issuance of the shares of Benchmark Common
Stock into which the shares of Series A Preferred Stock are convertible.
Voting Rights
The holders of shares of Series A Preferred Stock will be entitled to vote
their shares of Series A Preferred Stock along with the holders of Benchmark
Common Stock as if the shares of Series A Preferred Stock had been converted
into Benchmark Common Stock immediately prior to such vote on any proposal on
which holders of Benchmark Common Stock are entitled to vote relating to a
merger, consolidation, statutory share exchange, reorganization,
reclassification or other extraordinary corporate transaction. On all other
matters, holders of shares of Series A Preferred Stock will have no voting
rights except as required by the Texas Business Corporation Act (the "TBCA").
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
EMD is incorporated under the laws of the State of Minnesota, and Benchmark
is incorporated under the laws of the State of Texas. The rights of shareholders
of EMD, therefore, are governed by the MBCA in addition to the Articles of
Incorporation and Bylaws of EMD. Upon consummation of the Merger, shareholders
of EMD will become shareholders of Benchmark, and their rights as shareholders
will be governed by the TBCA and the Articles of Incorporation and Bylaws of
Benchmark. The MBCA and TBCA are similar in many respects, but there are certain
significant differences that may affect the rights of EMD's shareholders. Such
differences are discussed below. Shareholders of EMD should also note that, if
shares of Series A Preferred Stock are issued in the Merger, the rights of
shareholders with respect to those shares will be different from the rights of
shareholders with respect to Benchmark Common Stock. See "-- Description of
Series A Preferred Stock."
Management of Corporation by Shareholders
The MBCA provides that the business and affairs of a corporation shall be
managed by or under the direction of a board of directors. However, the MBCA
also provides that the holders of the shares entitled to vote for directors of
the corporation may, by unanimous affirmative vote, take any action required or
permitted to be taken by the board of directors of the corporation.
Under the TBCA, the management of the business and affairs of a corporation
is entrusted to the board of directors, and the shareholders of the corporation
may not participate in the management of the corporation unless the
corporation's articles of incorporation provide that it is a "close"
corporation. Benchmark is not a close corporation.
Dissenters' Rights
The MBCA provides shareholders the right to dissent from certain types of
transactions and obtain payment of fair value for their shares. Dissenters'
rights are available in the case of (i) an amendment of the articles of
incorporation that materially and adversely affects the rights and preferences
of the shares of the dissenting shareholder, (ii) with certain exceptions, a
sale, lease, transfer or other distribution of all or substantially all of the
property and assets of the corporation, (iii) a plan of merger to which the
corporation is a party except in the case in which the corporation will be the
surviving corporation of the merger and the shareholder is not entitled to vote
on the merger, (iv) a plan of exchange to which the corporation is a party as
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the corporation whose shares will be acquired by the acquiring corporation if
the shareholder is entitled to vote on the plan, and (v) any other corporate
action taken pursuant to a shareholder vote with respect to which the articles
of incorporation, bylaws or a resolution approved by the board of directors
directs that dissenting shareholders may obtain payment for their shares. See
"-- Dissenters' Rights" for a discussion of the application of dissenters'
rights under the MBCA in the context of the Merger.
Under the TBCA, dissenters' rights are available for (i) any plan of merger
to which the corporation is a party if shareholder approval is required and the
dissenting shareholder is entitled to vote on the plan, (ii) any sale, lease,
exchange or other disposition of all or substantially all the property and
assets of the corporation if authorization of the shareholders is required, and
(iii) any plan of exchange in which the shares of the corporation of the class
held by the dissenting shareholder are being acquired. The TBCA provides
further, however, that such dissenters' rights do not apply with respect to a
plan of merger or exchange if (1) the shares held by the dissenting shareholder
are part of a class' shares of which are listed on a national securities
exchange or are held of record by at least 2,000 holders' and (2) the dissenting
shareholder is not required by the terms of the plan of merger or exchange to
accept for his shares any consideration other than (a) shares of corporation
that after the merger or exchange will be part of a class' shares of which will
be listed on a national exchange or held of record by at least 2,000 holders'
and (b) cash in lieu of fractional shares. Because the Benchmark Common Stock is
listed on the AMEX, holders of shares of Benchmark Common Stock would not have
dissenters' rights with respect to a plan of merger or exchange pursuant to
which such shareholders would receive only consideration of the type described
in clauses (a) and (b) above.
Special Meetings of Shareholders
The MBCA and the bylaws of EMD provide that special meetings of
shareholders may be called by (i) the chairman of the board, (ii) the chief
executive officer, (iii) the chief financial officer, (iv) two or more directors
or (v) a shareholder or shareholders holding ten percent or more of the voting
power of all shares entitled to vote, except that a special meeting for the
purpose of considering any action to directly to indirectly facilitate or effect
a business combination, including any action to change or otherwise affect the
composition of the board of directors for that purpose, must be called by
twenty-five percent or more of the voting power of all shares entitled to vote.
The TBCA and the bylaws of Benchmark provide that a special meeting of
shareholders may be called by (i) the president, (ii) the board of directors,
(iii) the president or the secretary at the written request of a majority of the
board of directors, or (iv) the president or the secretary at the written
request of the holders of at least ten percent of the shares entitled to vote.
Indemnification of Directors and Officers
The MBCA and the bylaws of EMD provide that, under certain circumstances,
EMD shall indemnify its directors, officers and employees for judgments,
penalties, fines, settlements and reasonable expenses incurred by such a person
in connection with a proceeding to which the person is or is threatened to be
made a party by reason of such person's former or present official capacity.
The TBCA allows, but does not require, a corporation to provide
indemnification of directors, officers and employees in substantially similar
circumstances, except that such indemnification is mandatory with respect to
directors and officers for expenses incurred in connection with a proceeding if
the director or officer is wholly successful in the defense of the proceeding.
Additionally, the bylaws of Benchmark make mandatory the indemnification of
directors in all cases in which indemnification is permitted by the TBCA.
Inspection of Books and Records
The MBCA provides that any shareholder or beneficial owner of shares of a
corporation, such as EMD, that is not a publicly held corporation may, upon
written demand, examine and copy the books and records of the corporation.
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The TBCA provides that a person who has been a shareholder of a corporation
for at least six months or is the holder of at least five percent of the
outstanding shares of a corporation may, upon written demand, inspect the books
and records of the corporation.
OPERATIONS AFTER THE MERGER
At the Effective Time, EMD will be merged into Newco and Newco will be the
surviving corporation in the Merger. Thereafter, the business of EMD and its
subsidiaries will be operated as wholly-owned subsidiaries of Benchmark, with
EMD personnel reporting to Benchmark personnel on a functional basis. Benchmark
anticipates the offices of EMD in California will be closed before the Merger
and the offices of EMD in Wisconsin will be closed promptly after the Merger.
With these exceptions, EMD will continue to operate at its present locations.
Benchmark also expects to expand the EMD sales force to more aggressively market
the combined entities' services and products in EMD's historic markets. Over
time, Benchmark believes that there will be opportunities to consolidate certain
overhead functions to reduce duplicative expenditures and to target savings
associated with the increased purchasing power of the combined entities.
38
<PAGE> 42
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information
is based upon (i) the historical consolidated financial statements of Benchmark
which are incorporated by reference in this Information Statement/Prospectus and
(ii) the historical consolidated financial statements of EMD and subsidiaries
which are included elsewhere in this Information Statement/Prospectus and should
be read in conjunction with such financial statements and notes thereto.
The historical condensed balance sheets present the financial position of
Benchmark and EMD as of March 31, 1996. The unaudited pro forma condensed
combined balance sheet as of March 31, 1996 assumes the Merger occurred as of
that date.
The unaudited pro forma condensed combined statements of operations were
prepared assuming that the Merger was consummated as of January 1, 1995. The
unaudited pro forma condensed combined statements of operations give effect to
(i) the proposed Merger under the purchase method of accounting and (ii) certain
estimated operational and financial combination benefits that are a direct
result of the proposed Merger.
The unaudited pro forma condensed combined financial statements have been
prepared based upon assumptions deemed appropriate by Benchmark and may not be
indicative of actual results of the future operations of the combined companies.
The allocation of the purchase price is, in certain instances, based on
preliminary information and is therefore subject to revision when additional
information concerning asset and liability valuations is obtained. In the
opinion of the Benchmark's management, such asset and liability valuations will
not be materially different from those shown in the accompanying condensed pro
forma financial statements.
39
<PAGE> 43
BENCHMARK ELECTRONICS INC. AND EMD TECHNOLOGIES INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------- -------------------------
BENCHMARK EMD ADJUSTMENTS COMBINED
--------- -------- ----------- ---------
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash............................................ $ 81 $ 124 $ $ 205
Accounts receivable............................. 24,855 17,153 42,008
Income taxes receivable......................... 393 -- 393
Inventories..................................... 30,001 30,375 60,376
Prepaid expenses and other assets............... 194 432 626
Deferred tax asset.............................. 372 594 1,677 (a) 2,643
--------- -------- ----------- ---------
Total current assets.................... 55,896 48,678 1,677 106,251
Property, plant and equipment................... 21,015 45,502 (26,046)(a) 40,471
Accumulated depreciation........................ (8,460) (26,046) 26,046 (a) (8,460)
--------- -------- ----------- ---------
Net property, plant and equipment....... 12,555 19,456 -- 32,011
Goodwill, net................................... -- -- 25,669 (a) 25,669
Note receivable................................. 1,411 (1,411)(a) --
Other assets.................................... 176 238 414
--------- -------- ----------- ---------
$68,627 $ 69,783 $ 25,935 $ 164,345
======== ======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital
leases....................................... $ -- $ 651 $ (651)(a) $ --
Accounts payable................................ 17,221 13,965 31,186
Accrued liabilities............................. 922 1,964 4,400 (a) 7,286
Income taxes payable............................ 1,141 -- 1,141
--------- -------- ----------- ---------
Total current liabilities............... 19,284 16,580 3,749 39,613
Notes payable to bank -- long-term.............. -- 20,283 (20,283)(a) --
Long-term debt and capital leases, less current
portion...................................... -- 839 52,489(a) 53,328
Deferred tax liability.......................... 743 1,650 2,393
--------- -------- ----------- ---------
Total liabilities....................... 20,027 39,352 35,955 95,334
Shareholders' equity:
Preferred shares................................ -- -- -- --
73 (a)
Common shares................................... 403 156 (156)(a) 476
20,438 (a)
Additional paid-in capital...................... 19,944 1,652 (1,652)(a) 40,382
Retained earnings............................... 28,313 28,723 (28,723)(a) 28,313
Less treasury shares, at cost................... (60) -- (60)
Unearned ESOP shares............................ -- (100) (100)
--------- -------- ----------- ---------
Total shareholders' equity.............. $48,600 $ 30,431 $ (10,020) $ 69,011
--------- -------- ----------- ---------
$68,627 $ 69,783 $ 25,935 $ 164,345
======== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of the unaudited
pro forma condensed combined financial statements
40
<PAGE> 44
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------- --------------------------
BENCHMARK EMD ADJUSTMENTS COMBINED
--------- -------- ----------- --------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Sales......................................... $97,353 $160,754 $ $258,107
Cost of sales................................. 85,113 143,158 228,271
------- -------- ------- --------
Gross profit................................ 12,240 17,596 29,836
Selling, general and administrative
expenses.................................... 2,990 9,663 (400)(b) 12,253
Amortization of goodwill...................... -- -- (1,711)(c) (1,711)
------- -------- ------- --------
Income from continuing operations........... 9,250 7,933 (1,311) 15,872
Interest income............................... 268 461 729
Interest expense.............................. (909) (2,948)(d) (3,857)
Other income.................................. 13 295 308
------- -------- ------- --------
Income from continuing operations before
income taxes............................. 9,531 7,780 (4,259) 13,052
Income tax expense............................ (3,383) (3,024) 968 (e) (5,439)
------- -------- ------- --------
Income from continuing operations........... 6,148 4,756 (3,291) 7,613
Earnings per common share:
Continuing operations....................... $ 1.50 $ .91 $ 1.57
======= ======== ========
Weighted average common and common
equivalent shares outstanding............ 4,106 5,208 4,835
</TABLE>
The accompanying notes are an integral part of these condensed combined pro
forma financial statements.
41
<PAGE> 45
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------- --------------------------
BENCHMARK EMD ADJUSTMENTS COMBINED
--------- ------- ----------- --------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Sales........................................... $30,383 $39,099 $ $69,482
Cost of sales................................... 26,558 36,023 62,581
------- -------- ------- --------
Gross profit.................................. 3,825 3,076 6,901
Selling, general and administrative expenses.... 884 1,875 (100)(b) 2,659
Amortization of goodwill........................ -- -- (428)(c) (428)
------- -------- ------- --------
Income from continuing operations............. 2,941 1,201 (328) 3,814
Interest income................................. 38 38
Interest expense................................ (353) (710)(d) (1,063)
Other income.................................... 1 392 393
------- -------- ------- --------
Income from continuing operations before
income taxes............................... 2,980 1,240 (1,038) 3,182
Income tax expense.............................. (1,141) (391) 232 (e) (1,300)
------- -------- ------- --------
Income from continuing operations............. 1,839 849 (806) 1,882
Earnings per common share:
Continuing operations......................... $ .45 $ .16 $ .39
======= ======== ========
Weighted average common and common equivalent
shares outstanding......................... 4,150 5,208 4,879
</TABLE>
The accompanying notes are an integral part of these condensed combined pro
forma financial statements.
42
<PAGE> 46
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
1. BASIS OF PRESENTATION
On March 27, 1996, Benchmark and EMD entered into the Merger Agreement
providing for the Merger of EMD with and into Benchmark. Under the terms of the
Merger Agreement, each outstanding share of EMD Common Stock shall be converted
into the right to receive (i) cash in the amount of $5.9074, subject to
redetermination as described in the Merger Agreement and (ii) a fraction of a
share of Benchmark Common Stock determined by dividing $3.9383 by the Benchmark
Measurement Price, subject to redetermination as described in the Merger
Agreement (the "Share Fraction"). Under certain circumstances the use of Series
A Preferred Stock would be required. The total consideration paid to EMD
shareholders provided by the Cash Amount and the Share Fraction amount is
intended to have a value, using the Benchmark Measurement Price to value the
Share Fraction, equal to approximately $9.85 per share or approximately $51.3
million in total. In addition, the estimated closing costs are $2.2 million.
The Merger is to be accounted for using the purchase method of accounting
for business combinations. Both Benchmark's and EMD's fiscal years end December
31.
2. PRO FORMA ADJUSTMENTS
a. The pro forma entries to goodwill, debt, equity and retained earnings
reflect the application of purchase accounting based on a total purchase price
of $51,277,154 plus approximately $2,200,000 of estimated closing costs, which
include professional and financial advisory fees. Goodwill recorded represents
the purchase price in excess of the fair value of assets acquired of EMD. The
pro forma adjustments give effect to the issuance of Benchmark Common Stock in
exchange for all outstanding shares of EMD Common Stock based on an assumed
Benchmark Measurement Price of $28 1/8 per share (729,131 shares of Benchmark
Common Stock). The assumed Benchmark Measurement Price is based on the average
closing price of Benchmark stock for a three day period (the day preceding, the
day of and the day following the announcement of the Merger.) The debt entries
record the borrowings used to finance the transaction and include the
elimination of the outstanding debt of EMD.
The adjustment to note receivable reflects the payment of the note upon
consummation of the Merger.
The $4.4 million adjustment to accrued liabilities represents the payments
to be made under the Gain-Sharing Plan. The $1.677 million deferred tax asset
represents the expected tax benefit to be realized by the Company.
b. The adjustment to selling, general and administrative expenses reflects
the estimated cost savings realized through consolidation of duplicative
executive functions as a direct result of the merger.
c. The adjustment to amortization expense reflects the amortization of
goodwill incurred in connection with the transaction over an estimated useful
life of 15 years.
d. The adjustment to interest expense reflects the additional interest
expense, at an interest rate of 8.0% per annum which reflects rates currently
available to the Company, on the debt to be incurred in connection with the
Merger.
e. The adjustment to income taxes reflects the tax effect (federal and
state) associated with the effects of the identified cost savings and additional
expenses (including nondeductible goodwill) in the above adjustments.
3. EARNINGS PER SHARE
The pro forma earnings per common share is computed on the basis of the
combined weighted average number of shares of common stock based upon an assumed
Benchmark Measurement Price of $28 1/8 per share for purposes of determining the
number of shares to be issued in connection with the Merger. Fully diluted
earnings per share are equal to primary earnings per share for the periods
presented.
43
<PAGE> 47
The table below provides a range of potential pro forma earnings per common
share data based on the range of possible values of Benchmark Common Stock in
accordance with the terms of the Merger Agreement. While the actual number of
shares to be issued will not be determined until immediately prior to closing,
the table provides the effect of issuance of the minimum and maximum number of
shares and demonstrates the impact of the range on earnings per share.
<TABLE>
<CAPTION>
EFFECTS ON PRO FORMA FINANCIAL STATEMENTS AS OF AND FOR THE
THREE MONTHS ENDED MARCH 31, 1996 AT A TRADING PRICE OF:
-----------------------------------------------------------
$22/SHARE $25.50/SHARE $32/SHARE $40/SHARE
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Goodwill............................... $ 25,669 $ 25,669 $ 25,669 $ 30,797
Earnings per common share.............. .37(a) .38 .39 .38
Weighted average common and common
equivalent shares outstanding........ 5,082 4,954 4,791 4,791
Number of common shares to be issued... 805,879 804,127 641,114 641,114
Number of preferred shares............. 126,367 -- -- --
Market value of preferred and common
shares to be issued.................. $20,509,412 $ 20,505,239 $20,515,648 $25,644,560
Cash to be given....................... 30,766,200 30,766,200 30,766,200 30,766,200
----------- ----------- ----------- -----------
$51,275,612 $ 51,271,439 $51,281,848 $56,410,760
=========== =========== =========== ===========
Earnings to combined fixed charges and
preferred stock dividends............ 3.89(b) 3.99 3.99 3.99
</TABLE>
- ---------------
(a) Net income per common share is calculated without the effect of a potential
preferred stock dividend due to the assumption that the preferred stock
will be converted in 120 days which precludes the payment of a dividend.
(b) For purposes of this calculation, the preferred stock is assumed to be
outstanding for the first quarter of 1996.
44
<PAGE> 48
INFORMATION ABOUT EMD
BUSINESS OF EMD
Introduction
EMD is an independent provider of electronic manufacturing services for
OEMs in the commercial electronics industry. EMD provides product design,
turnkey manufacturing, assembly and test services. EMD product design services
include the complete design and development of electronic products and
mechanical packages, from circuit board design to configuring subsystems and
enclosures. EMD's turnkey manufacturing services encompass material procurement
and inventory management, complex printed circuit board assembly (using surface
mount technology and pin-through-hole technology), and assembling and testing
electronic subsystems and systems.
EMD was incorporated under Minnesota law on June 5, 1990. EMD is a holding
company that currently conducts its business primarily through its wholly-owned
subsidiaries, EMD Associates, Inc. ("EMD Associates"), which was incorporated
under Minnesota law in 1974, and EMD-Foreign Sales Corporation ("EMD-FSC"),
which was incorporated in Barbados in 1996. EMD Associates was founded by David
H. Arnold and Daniel M. Rukavina as an electrical and mechanical design
engineering firm.
Until January 1, 1996, EMD had two other wholly-owned subsidiaries: DCM
Tech, Inc. ("DCM") and MAP Leasing Co. ("MAP Leasing"). These subsidiaries were
sold to David H. Arnold, one of the co-founders and a major shareholder and
officer of EMD (see "EMD Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations"). DCM manufactures
a line of automotive rebuilding equipment and MAP Leasing is a leasing company
providing direct finance leases for customers of DCM. EMD sold these
subsidiaries because DCM had been unprofitable for several years and Mr. Arnold
was interested in continuation of the business. Except as otherwise indicated,
DCM and MAP Leasing are treated as discontinued operations. Unless the context
indicates or otherwise requires, references to "EMD" include EMD Associates and,
for periods after January 2, 1996, EMD-FSC.
Operations
In its operations, EMD focuses on integrating the following activities:
design engineering; printed circuit board assembly (including advanced
manufacturing technology); materials management; customer service; and quality
analysis and control.
Design engineering. EMD provides design-for-manufacturability engineering
services for most of the products that it manufactures. With respect to product
design, EMD provides the complete design and development of electronic products
and mechanical packages, in addition to the redesign, surface mount conversion,
and printed circuit board layout of existing products. EMD also provides test
process design capabilities that include the design and development of test
fixtures and procedures and software for both in-circuit tests and functional
tests of circuit boards, components and products. EMD's design services include
full support during all phases of test development, from initial test
specifications through final tester integration in a production environment.
Printed circuit board assembly. EMD's printed circuit board assembly
operations are oriented toward advanced surface-mount-technology applications.
EMD currently has 15 surface-mount-technology lines. To achieve excellence in
manufacturing, EMD combines advanced technology with proven management
techniques, including statistical process control and total quality leadership.
EMD continues to make substantial investments to maintain advanced manufacturing
technologies.
Materials management. Material procurement and inventory management
consist of planning, purchasing, expediting, warehousing, preparing and
financing components and materials. EMD procures components from a select group
of suppliers that meet EMD's standards for quality, timely delivery and
cost-effectiveness. EMD manages consigned components for some of its customers.
Customer service. EMD offers a broad range of services to its customers
through the use of "Customer Teams." Each EMD customer is assigned to a
specialized Customer Team, typically consisting of a program
45
<PAGE> 49
manager, buyer, manufacturing engineer, test engineer and production
representative. Through its Customer Teams, EMD maintains regular contact with
its customers to ensure timely information exchange, document control and
coordination of activities.
Quality analysis and control. EMD has devoted significant capital and
human resources to quality analysis and control. EMD maintains its own quality
analysis laboratory, which is staffed with highly educated and experienced
technical personnel. This laboratory contains sophisticated equipment that is
used to analyze printed circuit boards, production materials and individual
components; such equipment includes a scanning electron microscope, and x-ray
fluorescence system, a solderability tester, an energy dispersive x-ray
analyzer, and a coordinate measuring machine. The laboratory serves as a
valuable resource for EMD and its customers and suppliers. EMD has also
implemented a company-wide process improvement and quality control program. All
of EMD's manufacturing facilities are certified under the ISO-9001 1994
Standard, which is an international quality standard for engineering,
manufacturing and distribution management systems. In November 1995, EMD was
certified to EN46001, the ISO standard for medical devices.
Customers and Marketing
EMD offers its services to OEM customers in the United States. For
information regarding significant customer concentrations, see "EMD Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."
EMD's direct sales efforts are led by the Sales Manager and a Portfolio
Team consisting of the Chief Executive Officer, the department managers for
Customer Service and Engineering, two full-time direct sales co-workers, and
three co-workers responsible for advertising, advanced technology and program
management. EMD also utilizes an independent sales representative firm located
in the Eastern United States.
Competition
EMD operates in a highly competitive industry. EMD primarily competes with
other "Tier One" contract manufacturers: they typically have sales in excess of
$100 million, serve large multinational OEM customers, and offer advanced
manufacturing, product design and test capabilities. EMD's competitors include
Avex, Inc., Benchmark, DOVatron International, IEC Electronics Corp., Jabil
Circuit, Inc. Plexus Corp., SCI Systems, Inc., and Solectron Corporation Inc.,
as well as others. EMD believes that the principal competitive factors in its
target markets are: price; quality; delivery; flexibility and timeliness in
response to design and schedule changes; technological sophistication; and
geographical location.
Patents, Trademarks, Copyrights and Other Intellectual Property
EMD regards its manufacturing processes, customers' designs, and other EMD
information as proprietary and confidential information. EMD relies primarily
upon a combination of trade secret laws, agreements with customers and
co-workers, security systems, and internal procedures to protect its
confidential and proprietary information. EMD believes that the rapid pace of
technological change makes patent protection less significant than such factors
as the knowledge and experience of management and personnel and EMD's ability to
develop, enhance and market its design and manufacturing services.
Employees
As part of its effort to empower and motivate its work force, EMD refers to
each employee as a "co-worker." As of April 1, 1996, EMD employed approximately
782 co-workers and engaged the full-time services of 36 contract workers,
including approximately 576 in manufacturing and operations, 56 in design and
development, 92 in materials management, 35 in marketing, sales and customer
service, and 59 in finance, information systems, human resources, education and
training and administration. Many of EMD's co-workers are highly skilled, and
EMD's success will depend in part upon its continued ability to attract, retain,
and motivate highly-skilled co-workers. EMD has never had a work stoppage or
strike and no co-workers are represented by a labor union or covered by
collective bargaining agreements. EMD considers its relations with its
co-workers to be good.
46
<PAGE> 50
Facilities
EMD's administrative, manufacturing, product development and principal
sales and marketing operations are located in Winona, Minnesota, where EMD
currently occupies primary facilities totaling approximately 181,000 square
feet. Commencing on November 1, 1996, EMD will be vacating approximately 31,000
square feet of leased space and replacing it with approximately 35,000 square
feet of leased space, which will result in EMD occupying primary facilities in
Winona totaling approximately 185,000 square feet. As of November 1, 1996, EMD
will be leasing approximately 122,000 square feet of this space in two leased
facilities, with the remaining 64,000 square feet located in a facility owned by
EMD. Both leased facilities are leased by EMD from a partnership whose partners
are Daniel M. Rukavina and David H. Arnold, who are major shareholders and
officers of EMD.
In addition, EMD leases two other warehouse facilities totaling
approximately 20,000 square feet in Winona, Minnesota. EMD also leases three
facilities for its sales and engineering offices located in St. Paul, Minnesota,
Cupertino, California, and Madison, Wisconsin.
MANAGEMENT
The following table sets forth the directors and executive officers of EMD.
<TABLE>
<CAPTION>
NAME AGE TITLE
- --------------------------------------------------------- --- ----------------------------------
<S> <C> <C>
Daniel M. Rukavina....................................... 59 President and Director
David H. Arnold.......................................... 58 Secretary, Treasurer and Director
Daniel Arnold............................................ 33 Director
L.F. Baechler............................................ 50 Director
David Fradin............................................. 50 Director
Kent A. Gernander........................................ 55 Director
Robert W. Hahn........................................... 54 Director
Daniel J. Rukavina....................................... 36 Director
</TABLE>
Pursuant to the Merger Agreement, after consummation of the Merger, the
Founding Shareholders will be entitled to designate a nominee to Benchmark's
board of directors. See "The Merger -- Additional Agreements -- Board
Representation." The Founding Shareholders have selected David H. Arnold as
their initial designee to Benchmark's board. EMD leases certain facilities that
are owned by Mr. Arnold and Daniel M. Rukavina. Total monthly payments by EMD
under these leases is approximately $107,000. In addition, on January 2, 1996,
Mr. Arnold purchased all outstanding shares of DCM and MAP Leasing from EMD in
exchange for a promissory note in the approximate amount of $1,300,000. The note
will become due and payable upon consummation of the Merger and is secured by
the shares of DCM and MAP Leasing. DCM and EMD have entered into an agreement
pursuant to which EMD provides certain services to DCM during a transition
period. Further, DCM provides machining services to EMD for tooling, prototypes,
repair parts and other products, based on individual purchase orders.
In 1995, Mr. Arnold was paid principal and interest of approximately
$115,000 by EMD in deferred payments for shares of EMD Common Stock sold by Mr.
Arnold to the ESOP in 1993 and 1994. Additionally, EMD paid Mr. Arnold
approximately $342,000 in salary and bonuses during 1995.
MARKET INFORMATION AND DIVIDENDS
There is no public trading market for EMD Common Stock.
As of April 1, 1996, there were six record holders of EMD Common Stock.
During the last two fiscal years, EMD has not paid any dividends on EMD
Common Stock. EMD currently intends to retain all earnings for use in its
business and does not anticipate paying any cash dividends in the foreseeable
future. In addition, EMD's existing credit agreement would prohibit the payment
of such dividends without the lender's consent.
47
<PAGE> 51
EMD MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Historical Financial Information Relating to EMD" appearing in the Summary and
the Financial Statements of EMD and the associated notes appearing elsewhere in
this document.
RESULTS OF OPERATIONS
General
In 1994, International Business Machines Corporation ("IBM"), EMD's largest
customer at that time, announced its decision to use an offshore source for new
products. IBM accounted for 67% of net sales in 1994 and 81% in 1993. In 1995,
sales to IBM declined to 41% of net sales. The loss of sales to IBM was largely
compensated by revenues from new customers added since 1993. In each of the
years 1994 and 1995, customers added since 1993 accounted for over 80 percent of
the growth in the non-IBM sales base. The assemblies currently manufactured by
EMD for IBM are scheduled for discontinuance during 1996; accordingly, EMD
expects sales to this customer equal to less than 10% of net sales during 1996
and EMD expects no significant sales to this customer thereafter. During the
second quarter of 1996 IBM cancelled orders of approximately $10 million for
product scheduled for delivery during the balance of 1996. During the time
periods discussed below, EMD has been making the transition from a concentration
of business with this customer to a broader, more diversified customer base. For
the year ended December 31, 1995, Stratus Computer Corporation accounted for
greater than 10% of net sales of EMD. No other customer accounted for more than
10% of EMD's net sales during 1995, 1994, or 1993.
EMD believes that aggressive sales efforts will be required to reduce the
impact of the loss of IBM's business. There can be no assurance, however, that
increased sales efforts will replace the lost business during 1996, when IBM's
business is expected to decline from 41% of 1995 net sales to less than 10% net
sales, or thereafter. EMD has no long-term purchase commitments from its
customers, and customer orders can be canceled, changed or rescheduled. The
timely replacement of canceled, changed or delayed orders with new customers
cannot be assured nor can there be any assurance that any of EMD's current
customers will continue to utilize EMD's services.
The following table presents the percentage relationships of certain items
in EMD's Consolidated Statements of Income to sales for the periods indicated.
<TABLE>
<CAPTION>
PERCENTAGE OF
SALES
PERCENTAGE OF SALES QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- ---------------
1995 1994 1993 1996 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Sales............................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales..................................... 89.1 91.5 89.4 92.1 86.5
----- ----- ----- ----- -----
Gross profit.................................... 10.9 8.5 10.6 7.9 13.5
Operating and administrative expenses............. 6.0 5.6 6.4 4.8 5.8
----- ----- ----- ----- -----
Operating income................................ 4.9 2.9 4.2 3.1 7.7
Other income (expense)
Interest expense................................ (0.6) (0.9) (0.4) (0.9) (0.9)
Other income (expense).......................... 0.5 0.3 0.4 1.0 0.7
----- ----- ----- ----- -----
Total other income (expense), net....... (0.1) (0.6) 0.0 0.1 (0.2)
----- ----- ----- ----- -----
Income from continuing operations before income
taxes........................................... 4.8 2.3 4.2 3.2 7.5
Income tax expense................................ 1.9 0.9 1.7 1.0 3.0
----- ----- ----- ----- -----
Income from continuing operations................. 2.9 1.4 2.5 2.2 4.5
Discontinued operations
Loss from discontinued operations............... (0.1) (0.2) (0.3) -- --
Loss on disposal of discontinued operations..... (0.3) -- -- -- --
----- ----- ----- ----- -----
Loss from discontinued operations............... (0.4) (0.2) (0.3) -- --
----- ----- ----- ----- -----
Net income.............................. 2.5% 1.2% 2.2% 2.2% 4.5%
===== ===== ===== ===== =====
</TABLE>
48
<PAGE> 52
Quarter Ended March 31, 1996 Compared With Quarter Ended March 31, 1995
Sales. Sales for the first quarter of fiscal 1996 decreased $4.66 million,
or 10.6%, from the first quarter of fiscal 1995. This decrease was caused by
reduced sales to IBM, which accounted for 66.0% of sales in the first quarter of
fiscal 1995 compared to 20.0% of sales in the first quarter of fiscal 1996. This
decrease was partially offset by sales to other customers during the first
quarter of 1996. During the second quarter of 1996, sales are expected to
decline from the sales for the second quarter of 1995 by less than 10%.
Gross Profit. Gross profit decreased by $2.83 million, or 47.9%, due to
lower sales in the first quarter of fiscal 1996.
Operating and Administrative Expenses. Operating and administrative
expenses decreased by $0.66 million, or 26.1%, to $1.88 million due primarily to
a decrease in profit sharing.
Other Income (Expense). Interest expense declined slightly by $8,830 to
$353,015, due to lower average debt outstanding and lower interest rates. Other
income increased to $391,646 from $293,059, due to the gain of $146,000
recognized on the sale of the swap agreement, offset by a decrease in gains on
the sales of fixed assets.
Income Tax Expense. Income tax expense decreased from $1.33 million to
$0.39 million in the first quarter of fiscal 1996. This decrease was due to
decreased income in the first quarter of fiscal 1996 compared to the first
quarter of fiscal 1995 and to a reduction in overall tax rate in the first
quarter of fiscal 1996 of 31.5% compared to 40.5% in the first quarter of fiscal
1995. The lower tax rate resulted primarily from the beneficial tax impact of
EMD-FSC, a Barbados foreign sales corporation, which was formed on January 2,
1996, to act as a sales agent for EMD's foreign sales. A substantial portion of
EMD's current and forecast sales are delivered for use outside the United
States.
Income from Continuing Operations. Income from continuing operations
declined by $1.11 million, or 56.7%, to $0.85 million, due to lower sales and
lower gross and operating margins.
Discontinued Operations. On January 2, 1996, EMD sold two wholly owned
subsidiaries, DCM Tech, Inc. and MAP Leasing Co., to an officer and major
shareholder of EMD. During the first quarter of fiscal 1995, these discontinued
operations reported an operating loss of $6,246.
Net Income. EMD reported net income of $0.85 million, or $0.16 per share,
for the first quarter of fiscal 1996, compared to $1.96 million, or $0.38 per
share, in the first quarter of fiscal 1995. The decrease was primarily a result
of lower sales and lower gross and operating margins.
Inflation. Inflation had a relatively minor effect on the comparison of
EMD's operating results for the first quarter of fiscal 1996 and the first
quarter of fiscal 1995.
Year Ended December 31, 1995 Compared With Year Ended December 31, 1994
Sales. Sales in 1995 decreased $7.78 million or 4.6% from 1994 sales. The
decrease primarily reflected reduced sales to IBM, which accounted for 67% in
1994 and 41% in 1995 of the net sales of EMD. EMD continued to add customers
during the period 1993 to 1995. During 1994, sales to new customers added in
1993 and 1994 exceeded the drop in IBM sales from 1993. During 1995, sales to
these customers and the customers added in 1994 were about 90 percent of the
drop in IBM sales from their peak in 1993.
Gross Profit. Gross profit increased in 1995 by $3.31 million or 23.2%
over 1994. As a percent of sales, gross profit increased from 8.5% for 1994 to
10.9% for 1995. The improvement in gross profit reflects greater production
efficiencies and a more profitable product mix. Because EMD had more diversity
in customers and products in 1995, shortages in specific semiconductor
components had less impact on production scheduling.
Operating and Administrative Expenses. Operating and administrative
expenses increased from 1994 to 1995 by $192,000, or 2.0%, to $9.66 million.
This increase reflected additional costs associated with increased marketing
activities and with new programs.
Other Income (Expense). Interest expense decreased in 1995 to $909,038
from $1,523,204 in 1994, a reduction of 40.3%. This decrease was due primarily
to reduction in inventory levels during the year with
49
<PAGE> 53
resulting reductions in bank borrowings. Other income increased to $755,808 from
$506,126, reflecting increases in sales of fixed assets and customer payments
for inventory carrying charges.
Income Tax Expense. Income tax expense increased to $3.02 million in 1995
from $1.49 million in 1994. This increase was attributable to increased net
income during 1995. EMD experienced an effective tax rate of 38.9% for the year
ended December 31, 1995, compared with an effective tax rate of 39.2% for the
year ended December 31, 1994. In January 1996, EMD formed EMD-FSC, a Barbados
corporation, to act as a sales agent for EMD's foreign sales. A substantial
portion of EMD's current and forecast sales are delivered for use outside the
United States, and management believes commissions paid to EMD-FSC on such sales
will reduce EMD's tax liabilities.
Income from Continuing Operations/Net Income. EMD reported 1995 income
from continuing operations of $4.76 million, or $0.91 per share, compared with
$2.31 million, or $0.45 per share for 1994. The $2.45 million increase in 1995
was primarily a result of higher gross margins.
In September 1995, EMD announced a plan to sell 100% of the stock of two
wholly owned subsidiaries, DCM and MAP Leasing, to an officer and major
shareholder of EMD. See "Information About EMD -- Business of
EMD -- Introduction." On January 2, 1996, the stock was sold in return for a
promissory note of approximately $1,300,000, resulting in a loss on disposal of
$130,720. The note is payable in 20 equal quarterly installments of principal,
plus interest on the unpaid balance at a variable rate equal to the rate paid by
EMD on its bank borrowing, beginning April 1, 1996. The note is secured by the
shares of DCM and MAP Leasing. The note will be payable in full upon
consummation of the proposed Merger. The loss on disposition of the
subsidiaries, including operating losses during the phaseout period, has been
accounted for as discontinued operations, and the prior year financial
statements have been reclassified to reflect the discontinuation of the
subsidiaries. Loss from discontinued operations was $713,137 in 1995 and
$290,765 in 1994. Revenues related to the discontinued operations were
$4,274,330 and $3,940,533 for the years ended December 31, 1995 and 1994,
respectively.
Net income increased to $4,042,804 or $0.78 per share in 1995 from
$2,016,860 or $0.40 per share in 1994, due primarily to the increase in gross
margins from continuing operations in 1995, reduced by the loss from
discontinued operations.
Inflation. During each year, inflation had a relatively minor effect on
EMD's operating results.
Year Ended December 31, 1994 Compared With Year Ended December 31, 1993
Sales. Sales in 1994 increased $13.69 million, or 8.8% from 1993 sales.
The increase reflects both sales to new customers and increased sales to
existing customers. Contributing to the increase in sales were EMD's increased
sales efforts and the continuing trend toward the use of surface-mount
technology by OEMs and the resulting increase in demand by OEMs for EMD's
turnkey contract manufacturing services. IBM accounted for 67% of net sales in
1994 compared to 81% in 1993.
Gross Profit. Gross profit in 1994 decreased $2.19 million, or 13.3%, from
1993. This decrease was due primarily to three factors: first, shortages of
electronic components used exclusively in the subassemblies of IBM caused
significant disruptions and inefficiencies in production; second, a new
manufacturing and office facility was built and brought on line in mid-1994; and
third, significant expenses were incurred in the initiation of new programs.
Operating and Administrative Expenses. Operating and administrative
expenses decreased by $0.53 million, or 5.3%, to $9.47 million in 1994. The
decrease reflected lower profit sharing expense, which offset increases in other
operating and administrative expenses from 1993.
Other Income (Expense). Interest expense increased by 122.8% to $1.52
million in 1994. This increase was due primarily to higher inventory levels
during 1994 with resulting higher levels of bank debt. Other income fell to
$506,000 in 1994, a decrease of $191,000 or 27.4% from 1993. This decrease
primarily reflected lower income from customer payments for inventory carrying
charges.
50
<PAGE> 54
Income Tax Expense. Income tax expense decreased from $2.59 million in
1993 to $1.49 million in 1994. This decrease was almost entirely attributable to
decreased net income during 1994, but also reflected an effective tax rate of
39.2% for the year ended December 31, 1994 compared with an effective tax rate
of 39.9% for the year ended December 31, 1993.
Income from Continuing Operations/Net Income. Income from continuing
operations was approximately $2.31 million, or $0.45 per share, in 1994 compared
with $3.90 million, or $0.77 per share, in 1993, a decrease of about 40.8%. Most
of this decrease reflects the lower gross profit in 1994.
Loss from discontinued operations decreased 39.2% to $290,765 in 1994 from
$478,419 in 1993, reflecting a reduced loss for DCM during 1994.
EMD reported net income of $2.02 million or $0.40 per share for 1994,
compared with $3.42 million or $0.68 per share for 1993. The decrease is
primarily due to the corresponding decrease in gross profit.
Inflation. During each year, inflation had a relatively minor effect on
EMD's operating results.
LIQUIDITY AND CAPITAL RESOURCES
Three Months Ended March 31, 1996
EMD has financed its operations, capital investments and growth with funds
generated from operations and from borrowings under a credit agreement with
participating banks. Working capital increased as of March 31, 1996, compared to
December 31, 1995. Inventories increased 17.7% from $25.80 million as of
December 31, 1995, to $30.37 million as of March 31, 1996, due to changes in
production schedules with several customers. Accounts receivable increased 15.7%
from $14.83 million as of December 31, 1995, to $17.15 million as of March 31,
1996, due primarily to changes in the average payment terms across the customer
base. Accounts payable increased 1.9% from $13.71 million as of December 31,
1995, to $13.96 million as of March 31, 1996. As of June 14, 1996, net current
assets have declined approximately $2.1 million from March 31, 1996, due
primarily to reductions in accounts receivable.
Year Ended December 31, 1995
EMD has financed its operations, capital investments and growth with funds
generated from operations and from borrowings under a credit agreement with
participating banks. EMD's working capital changed little from December 31, 1994
to December 31, 1995, reflecting similar levels of sales and business. Working
capital was $26.27 million as of December 31, 1995, and $26.08 million as of
December 31, 1994, an increase of less than 1%. Inventories increased 1.1% to
$25.80 million as of December 31, 1995. Accounts receivable increased to $14.83
million at December 31, 1995 from $13.67 million at December 31, 1994, an
increase of 8.5%.
EMD's practice is to purchase components only after customer orders or
authorizations are received. Supplies of electronic components and other
materials used in operations are subject to industry-wide shortages. In certain
instances, suppliers may allocate available quantities to EMD. The increase in
demand for surface-mount components and the inability of many manufacturers to
meet that demand may cause continued shortages with respect to certain
capacitors and semiconductors.
EMD's operations are subject to certain federal, state and local regulatory
requirements relating to environmental, waste management, health and safety
matters. Some risk of costs and liabilities related to these matters is inherent
in EMD's business, as with many similar businesses. Management believes that
EMD's business is operated in substantial compliance with applicable
environmental, waste management, health and safety regulations.
EMD's credit agreement with participating banks provides for a total credit
facility of up to $25,000,000, outstanding amounts of which are due on June 30,
1997. The agreement is secured by virtually all assets of EMD, and interest is
payable monthly in an amount equal to the bank's prime rate. EMD must pay a
quarterly commitment fee of 3/8 of 1% on the average daily unused portion of the
commitment. The agreement requires EMD to comply with certain covenants
including minimum financial ratios, limitations on intercompany loans and
advances, and capital expenditures. Under this agreement, EMD had $14,733,000
and
51
<PAGE> 55
$21,310,000 outstanding at December 31, 1995 and 1994, respectively. As of June
14, 1996, $17,583,000 was outstanding under this facility.
In order to mitigate fluctuations in interest rate changes, EMD entered
into an interest rate swap agreement which calls for monthly interest
considerations for the differential between a fixed swap rate of 7.25% and the
average monthly prime rate for the period on approximately $6,667,000 of the
outstanding balance at December 31, 1995. The fair value of the interest rate
swap agreement, based on estimated termination value at December 31, 1995, was
$94,000. The prime rate was 8.50% at December 31, 1995 and 1994. On March 11,
1996, EMD terminated the swap agreement and received a termination payment of
$146,000.
EMD leases some of its manufacturing, office and materials handling
facilities. Total rental expenses were $1,033,074 for 1995, $1,009,669 for 1994,
and $975,427 for 1993. Some of the facilities are rented from a partnership
whose partners are officers and major shareholders of EMD. These leases have
terms of up to ten years, expiring through December 15, 2005, with annual
renewals thereafter and are classified as operating leases. The lease agreements
provide for base monthly rentals plus payments of executory costs such as
property taxes, maintenance and insurance. Rent expense associated with these
leases was $859,560 for 1995, $845,760 for 1994, and $831,600 for 1993.
In March 1996, EMD agreed to terminate the lease of its Airport facility,
and entered into a new sublease of the facility, for a term beginning on that
date and continuing until October 31, 1996. EMD also entered into a new lease
with the same partnership for another facility, currently used by DCM Tech,
Inc., effective in August 1996, for a term of ten years. Termination of the
lease of the Airport facility will result in writing off leasehold improvements
to the facility made by EMD and not fully amortized, which had a net book value
as of December 31, 1995 of about $129,000. In addition, EMD will incur moving
expenses and expenses of improving and preparing the DCM facility for its use by
EMD, estimated by management to be about $498,000.
The business of EMD requires substantial capital investments. Total
investments in property and equipment were $45.45 million at December 31, 1995.
EMD's purchases of property and equipment were $3.90 million during 1995, $10.20
million during 1994, and $8.67 million during 1993. Some of EMD's equipment is
subject to capital leases, with remaining principal payments as of December 31,
1995 of $1,421,546. Management believes EMD's facilities and equipment are
adequate for its current business levels. However, substantial capital
investments may be required to keep pace with changes in technology or to
accommodate sales growth.
EMD sponsors an employee stock ownership plan ("ESOP"), to which it has
made discretionary contributions totaling $304,071 for 1995, $1,776,645 for
1994, and $2,035,624 for 1993. The 1994 contribution included 122,664 shares of
EMD stock at $8.56 per share, for a total value of $1,050,004; and the ESOP
contracted to purchase 46,730 shares at $8.56 per share, of which $100,000 was
unpaid at December 31, 1995. The 1993 contribution included 43,510 shares of EMD
stock at $13.79 per share, for a total value of $600,003; and the ESOP
contracted to purchase 29,008 shares at $13.79 per share, all of which was paid
at December 31, 1995. As of December 31, 1995, the ESOP owned 787,706 shares of
EMD, representing 15.1% of the outstanding shares. Under the terms of the ESOP,
participating co-workers are generally entitled to receive distribution of EMD
shares representing their interest in the plan upon retirement, and are entitled
to put the shares to EMD unless the shares are then readily tradable on an
established securities market. This repurchase liability may require substantial
expenditures by EMD, the amount of which is undetermined and unfunded.
52
<PAGE> 56
EXPERTS
The consolidated financial statements of EMD Technologies, Inc. and
subsidiaries as of December 31, 1995 and 1994 and for each of the years in the
three-year period ended December 31, 1995 have been included herein and in the
Registration Statement in reliance on the report of KPMG Peat Marwick LLP,
Minneapolis, Minnesota, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing. The financial statements of Benchmark Electronics, Inc. as of
December 31, 1995 and 1994 and for each of the years in the three-year period
ended December 31, 1995 have been incorporated by reference herein and in the
Registration Statement in reliance on the report of KPMG Peat Marwick LLP,
Houston, Texas, independent certified public accountants, also incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
LEGAL OPINION
Bracewell & Patterson, L.L.P., Houston, Texas, has rendered an opinion that
the shares of Benchmark Common Stock and Series A Preferred Stock to be issued
in connection with the Merger have been duly authorized and, if and when issued
pursuant to the terms of the Merger Agreement, will be validly issued, fully
paid and non-assessable.
53
<PAGE> 57
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF EMD TECHNOLOGIES, INC.
<TABLE>
<S> <C>
Consolidated Financial Statements for the Years Ended December 31, 1995, 1994 and
1993:
Independent Auditors' Report........................................................ F-2
Consolidated Balance Sheets......................................................... F-3
Consolidated Statements of Income................................................... F-4
Consolidated Statements of Stockholders' Equity..................................... F-5
Consolidated Statements of Cash Flows............................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
Consolidated Financial Statements for the Three Months Ended March 31, 1996 and 1995
(unaudited):
Consolidated Balance Sheets (unaudited)............................................. F-15
Consolidated Statements of Income (unaudited)....................................... F-16
Consolidated Statements of Stockholders' Equity (unaudited)......................... F-17
Consolidated Statements of Cash Flows (unaudited)................................... F-18
Notes to Consolidated Financial Statements (unaudited).............................. F-19
</TABLE>
F-1
<PAGE> 58
INDEPENDENT AUDITORS' REPORT
The Board of Directors
EMD Technologies, Inc.
We have audited the accompanying consolidated balance sheets of EMD
Technologies, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of EMD
Technologies, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 31, 1996
F-2
<PAGE> 59
EMD TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................ $ 184,313 $ 101,285
Accounts receivable -- net of allowance for doubtful accounts
and sales returns of $82,000 and $164,000 as of 1995 and
1994, respectively........................................... 14,830,785 13,670,859
Inventories..................................................... 25,804,022 25,532,595
Prepaid expense, including taxes, and other receivables......... 659,870 1,447,839
Deferred income tax asset....................................... 564,348 751,516
Other current assets............................................ 3,642 285,007
Net assets associated with discontinued operations.............. 1,409,488 1,823,557
------------ ------------
Total current assets.................................... 43,456,468 43,612,658
Property and equipment............................................ 45,450,763 44,049,337
Less accumulated depreciation................................... (24,856,574) (20,569,295)
------------ ------------
Net property and equipment.............................. 20,594,189 23,480,042
Other assets...................................................... 81,045 15,176
------------ ------------
Total assets............................................ $ 64,131,702 $ 67,107,876
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease
obligations.................................................. $ 716,512 $ 965,078
Accounts payable................................................ 13,707,006 13,837,645
Accrued taxes, other than income................................ 593,392 808,195
Other accrued liabilities....................................... 2,166,444 1,920,058
------------ ------------
Total current liabilities............................... 17,183,354 17,530,976
Notes payable to bank -- long-term................................ 14,733,000 21,310,000
Long-term debt and capital lease obligations, less current
portion......................................................... 953,688 1,041,655
Deferred income tax liability..................................... 1,679,436 1,874,783
------------ ------------
Total liabilities....................................... 34,549,478 41,757,414
Stockholders' equity:
Common stock, no par value; 10,000,000 shares authorized;
5,208,078 issued and outstanding at December 31, 1995, and
1994......................................................... 156,526 156,526
Paid in capital................................................. 1,652,104 1,663,146
Retained earnings............................................... 27,873,594 23,830,790
Unearned ESOP shares............................................ (100,000) (300,000)
------------ ------------
Total stockholders' equity.............................. 29,582,224 25,350,462
------------ ------------
Total liabilities and stockholders' equity.............. $ 64,131,702 $ 67,107,876
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 60
EMD TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Net sales............................................ $160,754,107 $168,530,943 $154,841,796
Cost of sales........................................ 143,158,039 154,249,205 138,368,644
------------ ------------ ------------
Gross profit....................................... 17,596,068 14,281,738 16,473,152
Operating and administrative expenses................ 9,663,295 9,471,743 10,002,004
------------ ------------ ------------
Operating income................................... 7,932,773 4,809,995 6,471,148
Other income (expense):
Interest expense................................... (909,038) (1,523,204) (683,719)
Other income, including interest income of
$460,748, $393,753 and $666,226 in 1995, 1994
and 1993, respectively.......................... 755,808 506,126 697,311
------------ ------------ ------------
Total other income (expense), net.......... (153,230) (1,017,078) 13,592
------------ ------------ ------------
Income from continuing operations before income
taxes........................................... 7,779,543 3,792,917 6,484,740
Income tax expense................................. 3,023,602 1,485,292 2,585,130
------------ ------------ ------------
Income from continuing operations.................. 4,755,941 2,307,625 3,899,610
Discontinued operations:
Loss from discontinued operations (net of income
tax benefit of $137,862, $178,309 and $311,189
in 1995, 1994 and 1993, respectively)........... (203,015) (290,765) (478,419)
Loss on disposal of discontinued operations,
including $363,659 of operating losses during
the phaseout period (net of income tax expense
of $15,743)..................................... (510,122) -- --
------------ ------------ ------------
Loss from discontinued operations.................. (713,137) (290,765) (478,419)
------------ ------------ ------------
Net income................................. $ 4,042,804 $ 2,016,860 $ 3,421,191
============ ============ ============
Earnings per share:
Continuing operations.............................. $ .91 $ .45 $ .77
Discontinued operations............................ (.13) (.05) (.09)
------------ ------------ ------------
Net income......................................... $ .78 $ .40 $ .68
============ ============ ============
Weighted average number of common shares
outstanding........................................ 5,208,078 5,086,086 5,042,858
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 61
EMD TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON PAID IN RETAINED UNEARNED STOCKHOLDERS'
STOCK CAPITAL EARNINGS ESOP SHARES EQUITY
-------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992................. $156,526 $ -- $18,392,739 $(900,000) $ 17,649,265
Net income................................... -- -- 3,421,191 -- 3,421,191
Issuance of 43,510 shares of common stock.... -- 600,003 -- -- 600,003
Effect of difference between fair value and
cost of shares released from collateral.... -- 120,182 -- -- 120,182
Cost of shares pledged as collateral......... -- -- -- (400,000) (400,000)
Cost of shares released from collateral...... -- -- -- 900,000 900,000
-------- ---------- ----------- ---------- -------------
BALANCE AT DECEMBER 31, 1993................. $156,526 $ 720,185 $21,813,930 $(400,000) $ 22,290,641
Net income................................... -- -- 2,016,860 -- 2,016,860
Issuance of 122,664 shares of common stock... -- 1,050,004 -- -- 1,050,004
Effect of difference between fair value and
cost of shares released from collateral.... -- (107,043) -- -- (107,043)
Cost of shares pledged as collateral......... -- -- -- (400,000) (400,000)
Cost of shares released from collateral...... -- -- -- 500,000 500,000
-------- ---------- ----------- ---------- -------------
BALANCE AT DECEMBER 31, 1994................. $156,526 $1,663,146 $23,830,790 $(300,000) $ 25,350,462
Net income................................... -- -- 4,042,804 -- 4,042,804
Effect of difference between fair value and
cost of shares released from collateral.... -- (11,042) -- -- (11,042)
Cost of shares released from collateral...... -- -- -- 200,000 200,000
-------- ---------- ----------- ---------- -------------
BALANCE AT DECEMBER 31, 1995................. $156,526 $1,652,104 $27,873,594 $(100,000) $ 29,582,224
======== ========== =========== ========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 62
EMD TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
----------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 4,042,804 $ 2,016,860 $ 3,421,191
Adjustments to reconcile net income to cash provided
by (used in) operating activities:
(Gain) loss on disposal of property and
equipment....................................... (280,155) (102,872) 10,499
Depreciation and amortization..................... 7,142,103 6,204,312 4,910,285
Deferred income taxes............................. (8,179) 215,980 403,165
ESOP shares contribution and valuation allowance
relating to previously unallocated ESOP
shares.......................................... (11,042) 942,961 720,185
Changes in operating assets and liabilities:
Accounts receivable............................... $(1,159,926) $ (5,115,761) $ (98,990)
Inventories....................................... (271,427) (6,889,219) (1,080,082)
Prepaid expense, including taxes, and other
receivables, and other current assets........... 1,069,334 623,649 (1,549,220)
Net assets associated with discontinued
operations...................................... 414,069 (116,002) 21,120
Accounts payable.................................. (130,639) 5,427,501 492,995
Accrued taxes, other than income and other accrued
liabilities..................................... 31,583 406,275 (51,081)
----------- ----------- -----------
Net cash provided by operating
activities............................ 10,838,525 3,613,684 7,200,067
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from disposal of property and equipment..... $ 766,289 $ 168,590 $ 101,461
Purchase of property and equipment................... (3,897,680) (10,195,113) (8,671,281)
(Increase) decrease in other assets.................. (65,869) 2,518 (12,866)
----------- ----------- -----------
Net cash used in investing activities... (3,197,260) (10,024,005) (8,582,686)
----------- ----------- -----------
Cash flows from financing activities:
Net proceeds from (payments on) notes payable to
banks............................................. (6,577,000) 7,000,000 2,388,000
Principal payments on capital lease obligations...... (981,237) (868,063) (706,225)
----------- ----------- -----------
Net cash provided by (used in) financing
activities............................ (7,558,237) 6,131,937 1,681,775
----------- ----------- -----------
Net increase (decrease) in cash...................... 83,028 (278,384) 299,156
Cash at beginning of year............................ 101,285 379,669 80,513
----------- ----------- -----------
Cash at end of year.................................. $ 184,313 $ 101,285 $ 379,669
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.......................................... $ 911,872 $ 1,634,730 $ 676,048
Income taxes...................................... 2,081,730 840,102 3,109,690
Supplemental schedule of noncash investing and
financing activities:
Long-term debt and capital lease obligations in
exchange for property and equipment............... 844,704 1,223,409 576,916
Net activity in notes receivable and payable relating
to ESOP........................................... (200,000) (100,000) (500,000)
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 63
EMD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF BUSINESS
NATURE OF BUSINESS
EMD Technologies, Inc. is the holding company for EMD Associates, Inc., DCM
Tech, Inc., and MAP Leasing Co. EMD Associates, Inc. is a full service contract
manufacturer offering design, assembly and testing of printed circuit board
assemblies using leaded and surface mount technologies. DCM Tech, Inc.
manufactures a line of automotive rebuilding equipment. MAP Leasing Co. is a
leasing company providing direct finance leases for DCM Tech, Inc. customers.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of EMD
Technologies, Inc. and its wholly owned subsidiaries, EMD Associates, Inc., DCM
Tech, Inc., and MAP Leasing Co. (collectively, the Company). All intercompany
accounts have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported. Actual results could differ from
those estimates.
INVENTORIES
Inventories are valued at lower of cost or market. Cost is determined by
the first in, first out method.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation and amortization
are computed using the straight-line and double declining methods over estimated
useful lives of three to twenty years. When assets are retired, or otherwise
disposed of, the cost and related accumulated depreciation are removed from the
accounts and resulting gain or loss is recognized in income for the period. The
cost of maintenance and repairs is charged to income as incurred; significant
renewals and betterments are capitalized.
INCOME TAXES
Deferred tax assets and liabilities are recognized to give effect to future
tax consequences of temporary differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
FAIR VALUES OF FINANCIAL INSTRUMENTS
Unless otherwise stated herein, the carrying amounts of the Company's
financial instruments reported in the balance sheet approximate their fair value
due to the relatively short periods to maturity of the instruments and/or
variable interest rates of the instruments which approximate current market
interest rates.
The Company entered into an interest rate swap transaction in December
1993. The transaction effectively converted a significant portion of floating
rate borrowings to fixed rate borrowings. The interest rate differential to be
received or paid is recognized as an adjustment to interest expense. See Note 4
for additional information.
F-7
<PAGE> 64
EMD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION
Revenue is recognized upon shipment of product.
RECLASSIFICATIONS
Certain amounts previously reported in the 1994 and 1993 financial
statements have been reclassified to conform to the 1995 presentation.
EARNINGS PER SHARE
Earnings per share are computed by dividing net income by the weighted
average number of common shares outstanding.
STATEMENT OF CASH FLOWS
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with original maturities of three months or less
to be cash equivalents.
(2) INVENTORIES
The major components of inventories are as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Work in process and finished goods.......................... $ 6,710,207 $ 5,181,171
Raw materials............................................... 19,093,815 20,351,424
----------- -----------
$25,804,022 $25,532,595
========== ==========
</TABLE>
The Company has arrangements to maintain inventory levels on behalf of
certain customers for which it receives material handling fees. During the years
ended December 31, 1995, 1994 and 1993, the Company received $438,987, $389,156
and $662,447 respectively of such material handling fees. These fees were
recorded as an increase to interest income.
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Land........................................................ $ 86,055 $ 86,055
Building.................................................... 3,886,605 3,883,404
Machinery and equipment..................................... 41,240,471 39,866,710
Vehicles.................................................... 237,632 213,168
----------- -----------
$45,450,763 $44,049,337
========== ==========
</TABLE>
Included in property and equipment are assets under capital leases with
costs and accumulated depreciation of $2,477,097 and $772,832 as of December 31,
1995, and $2,950,845 and $930,137 as of December 31, 1994, respectively.
Amortization of leased equipment is included in depreciation expense.
F-8
<PAGE> 65
EMD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) NOTES PAYABLE TO BANKS -- LONG-TERM
The Company has a credit agreement with participating banks which provides
for a total credit facility of up to $25,000,000, outstanding amounts of which
are due on June 30, 1997. The agreement is secured by virtually all assets of
the Company and interest is payable monthly in an amount equal to the bank's
prime rate. The Company must pay a quarterly commitment fee of 3/8 of 1 percent
on the average daily unused portion of the commitment. The agreement requires
the Company to comply with certain covenants including minimum financial ratios,
limitations on intercompany loans and advances, and capital expenditures. Under
this agreement, the Company had $14,733,000 and $21,310,000 outstanding at
December 31, 1995, and 1994, respectively.
In order to mitigate fluctuations in interest rate changes the Company has
entered into an interest rate swap agreement which calls for monthly interest
considerations for the differential between a fixed swap rate of 7.25% and the
average monthly prime rate for the period on approximately $6,667,000 of the
outstanding balance at December 31, 1995. The fair value of the interest rate
swap agreement, based on estimated termination value at December 31, 1995, was
$94,000.
The prime rate was 8.50% at December 31, 1995, and 1994.
(5) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consists of the following:
<TABLE>
<CAPTION>
1995 1994
--------- ----------
<S> <C> <C>
8.24% capital lease due in monthly installments of $4,671
including interest through July 8, 1995; secured by
equipment................................................... $ -- $ 31,814
8.24% capital lease due in monthly installments of $17,834
including interest through October 15, 1995; secured by
equipment................................................... -- 171,778
8.24% capital lease due in monthly installments of $16,198
including interest through July 15, 1995; secured by
equipment................................................... -- 110,329
4.18% capital lease due in 6 monthly installments of $2,758
including interest and 30 monthly installments of $1,896
including interest through October 15, 1995; secured by
equipment................................................... -- 18,605
8.03% capital lease due in monthly installments of $18,086
including interest through May 1, 1996; secured by
equipment................................................... 88,644 289,710
6.70% capital lease due in monthly installments of $11,348
including interest through January 16, 1997; secured by
equipment................................................... 141,917 264,106
7.47% capital lease due in monthly installments of $12,983
including interest through June 15, 1999 and a lump sum
payment of $108,929 on June 15, 1999; secured by
equipment................................................... 562,440 671,737
9.26% capital lease due in monthly installments of $16,631
including interest through February 20, 1998; secured by
equipment................................................... 390,440 --
4.90% capital lease due in monthly installments of $9,686
including interest through January 31, 1998, and a monthly
installment of $9,283 including interest on February 28,
1998; secured
by equipment................................................ 238,105 --
</TABLE>
F-9
<PAGE> 66
EMD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1995 1994
--------- ----------
<S> <C> <C>
Tax Increment Financing (TIF) agreement due in estimated
annual installments of $25,000 including interest, starting
August 1996 through August 2004............................. 148,654 148,654
Notes payable to stockholders due in varying annual
installments through December 1996, with interest at a rate
of 1% above prime rate; secured by the shares purchased from
the stockholders (see Note 9)............................... 100,000 300,000
--------- ----------
1,670,200 2,006,733
Less current portion.......................................... (716,512) (965,078)
--------- ----------
$ 953,688 $1,041,655
========= =========
</TABLE>
Aggregate annual maturities of long-term debt and future minimum capital
lease payments as of December 31, 1995, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
-----------------------------------------------------------------
<S> <C>
1996................................................... $ 716,512
1997................................................... 451,528
1998................................................... 203,495
1999................................................... 197,410
2000................................................... 17,447
Thereafter............................................. 83,808
----------
$1,670,200
=========
</TABLE>
(6) LEASE COMMITMENTS
The Company leases manufacturing and office facilities from a partnership
whose partners are officers and major stockholders of the Company. These leases
have initial terms of three to ten years, expiring through December 15, 2005,
with annual renewals thereafter and are classified as operating leases. The
lease agreements provide for base monthly rentals plus payment of executory
costs such as property taxes, maintenance and insurance. Total rent expense
associated with these leases for the years ended December 31, 1995, 1994 and
1993 was $859,560, $845,760 and $831,600, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1995,
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
-----------------------------------------------------------------
<S> <C>
1996................................................... $ 875,128
1997................................................... 850,050
1998................................................... 624,984
1999................................................... 624,984
2000................................................... 624,984
Thereafter............................................. 3,098,879
----------
$6,699,009
=========
</TABLE>
Rental expense for the years ended December 31, 1995, 1994 and 1993 was
$1,033,074, $1,009,669 and $975,427, respectively.
F-10
<PAGE> 67
EMD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) EMPLOYEE RETIREMENT AND BENEFIT PLANS
The Company sponsors a 401(k) plan covering all employees with more than
one year of service. The Company allows for a deferral of up to 7% of wages per
year. The Company will match the employees deferral up to 3% of their wages.
Total contributions by the Company for the years ended December 31, 1995, 1994
and 1993 were $458,774, $430,340 and $357,206, respectively.
The Company has a cafeteria plan which qualifies under Section 125 of the
Internal Revenue Code which provides employees with the opportunity to pay
medical insurance premiums, medical expenses and dependent care expenses with
pretax income.
(8) INCOME TAXES
Income tax expense was allocated as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Income from continuing operations.................. $3,023,602 $1,485,292 $2,585,130
Discontinued operations............................ (122,119) (178,309) (311,189)
---------- ---------- ----------
$2,901,483 $1,306,983 $2,273,941
========= ========= =========
</TABLE>
Income tax expense attributable to income from continuing operations
consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal.......................................... $2,525,392 $ 964,495 $1,710,598
State............................................ 506,389 304,817 471,367
---------- ---------- ----------
3,031,781 1,269,312 2,181,965
Deferred:
Federal.......................................... 1,512 257,980 329,744
State............................................ (9,691) (42,000) 73,421
---------- ---------- ----------
(8,179) 215,980 403,165
---------- ---------- ----------
Total income tax expense................. $3,023,602 $1,485,292 $2,585,130
========= ========= =========
</TABLE>
Income tax expense attributable to continuing operations as shown in the
accompanying consolidated financial statements differed from the "expected" tax
expense computed by applying the U.S. federal statutory tax rate of 34% to
pretax income from continuing operations as a result of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Computed "expected" tax expense.................... $2,645,045 $1,289,592 $2,204,812
State income taxes, net of federal income tax
benefit.......................................... 467,000 228,000 389,000
Other net.......................................... (88,443) (32,300) (8,682)
---------- ---------- ----------
$3,023,602 $1,485,292 $2,585,130
========= ========= =========
</TABLE>
F-11
<PAGE> 68
EMD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Deferred tax assets:
Vacation accrual.......................................... $ 274,679 $ 269,977
Bad debt, sales and inventory allowance................... 185,948 252,098
Inventory capitalization costs............................ 40,815 170,918
Other..................................................... 62,906 58,523
----------- -----------
564,348 751,516
Deferred tax liabilities:
Accelerated depreciation for tax purposes in excess of
financial statement depreciation....................... (1,679,436) (1,833,965)
Other..................................................... -- (40,818)
----------- -----------
(1,679,436) (1,874,783)
----------- -----------
Net deferred tax liability........................ $(1,115,088) $(1,123,267)
========== ==========
</TABLE>
The Company determined that no valuation allowance against deferred tax
assets is required at December 31, 1995, or 1994. In assessing the realizability
of deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment. Taxable income for the years ended December 31, 1995,
1994 and 1993 was $7,188,851, $2,829,677 and $4,966,106, respectively. Based
upon the level of historical taxable income and projections for future taxable
income over the periods which the deferred tax assets are deductible, management
believes it is more likely than not the Company will realize the benefits of
these deductible differences.
(9) EMPLOYEE STOCK OWNERSHIP PLAN
The Company sponsors a leveraged employee stock ownership plan (ESOP), the
contributions to which are determined at the discretion of the Company's
management and may not exceed 25% of eligible compensation of the covered
employees. Employees begin to participate in the ESOP upon reaching age 18 and
completing minimum service requirements. Participants become fully vested in
their share of Company contributions immediately upon entry into the plan. The
Company's contributions to the ESOP were $304,071, $1,776,645 and $2,035,624 for
the years ended December 31, 1995, 1994 and 1993, respectively.
In December 1994, the Company contributed 122,664 shares of previously
unissued stock at $8.56 per share for a total value of $1,050,004. In addition,
the ESOP contracted to purchase 46,730 shares of the Company's common stock at
$8.56 per share using $200,009 of the cash it received from the Company and a
note payable of $200,000 as payment thereof.
In December 1993, the Company contributed 43,510 shares of previously
unissued stock at $13.79 per share for a total value of $600,003. In addition,
the ESOP contracted to purchase 29,008 shares of the Company's common stock at
$13.79 per share using $200,020 of the cash it received from the Company and a
note payable of $200,000 as payment thereof.
In accordance with the American Institute of Certified Public Accountants'
Statement of Position (SOP) 93-6 Employers' Accounting For Employee Stock
Ownership Plans, the debt of the ESOP is recorded as debt and the shares pledged
as collateral are reported as unearned ESOP shares on the balance sheet. As
F-12
<PAGE> 69
EMD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shares are committed to be released from collateral, the Company reports
compensation income or expense equal to the current market price of the shares.
The compensation income (expense) recorded during 1995, 1994 and 1993 relating
to previously unallocated shares was ($10,201), $99,696 and ($110,638),
respectively. The ESOP shares as of December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Allocated shares....................................... 776,024 757,091 565,153
Unrealized shares...................................... 11,682 30,615 29,793
-------- -------- --------
Total ESOP shares...................................... 787,706 787,706 594,946
======== ======== ========
Fair value of unreleased shares at December 31......... $116,586 $262,064 $410,845
======== ======== ========
</TABLE>
(10) STOCKHOLDERS' AGREEMENT
The stockholders of the Company have an agreement which prohibits them from
transferring or encumbering their shares of the Company's common stock without
first offering to sell such shares to the Company, the other stockholders or the
trustees of the ESOP. The purchase price for shares of the common stock shall be
established by an appraisal to determine the fair market value.
(11) DISCONTINUED OPERATIONS
In September 1995, the Company announced a plan to sell 100% of the stock
of two wholly owned subsidiaries, DCM Tech, Inc. and MAP Leasing Co., to an
officer and major stockholder of the Company. On January 2, 1996, the stock was
sold in return for a promissory note of approximately $1,300,000, resulting in a
loss on disposal of $130,720. The note is payable in 20 equal quarterly
installments of principal, plus interest on the unpaid balance at a variable
rate equal to the rate paid by the Company on its bank borrowing, beginning
April 1, 1996, through January 1, 2001. The note is secured by the shares of DCM
Tech, Inc. and MAP Leasing Co.
The loss on disposition of the subsidiaries has been accounted for as
discontinued operations and the prior year financial statements have been
reclassified to reflect the discontinuation of the subsidiaries. Revenues
related to the discontinued operations were $4,274,330, $3,940,533 and
$3,110,989 for the years ended December 31, 1995, 1994 and 1993, respectively.
(12) CONCENTRATIONS OF BUSINESS AND CREDIT RISK
The Company operates primarily domestically in the electronics industry, in
the electronics manufacturing services industry segment. For the years ended
December 31, 1995, 1994 and 1993, sales to one customer accounted for 41%, 67%
and 81% of net sales of the Company. Additionally, for the year ended December
31, 1995, another customer accounted for 24% of net sales of the Company. No
other customer accounted for more than 10% of net sales.
The Company uses numerous suppliers of electronic components and other
materials for its operations. Some components used by the Company have been
subject to industry-wide shortages, and suppliers have been forced to allocate
available quantities among their customers. The Company's inability to obtain
any needed components during periods of allocation could cause delays in
manufacturing and could adversely affect results of operations.
Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties failed completely to perform as contracted.
Concentrations of credit risk (whether on or off-balance sheet) that arise from
financial instruments, exist for groups of customers or counterparties when they
have similar
F-13
<PAGE> 70
EMD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
economic characteristics that would cause their ability to meet contractual
obligations to be similarly affected by changes in economic or other conditions.
The Company's customers operate in businesses associated with rapid
technological change and consequent product obsolescence. Developments adverse
to the electronics industry, the Company's customers or their products could
impact the Company's overall credit risk.
The Company extends credit based on an evaluation of its customers'
financial condition and generally does not require collateral or other security
interest. The Company would incur an accounting loss equal to the carrying value
of the customer's accounts receivable if its customer failed to perform
according to the terms of the credit agreement. Credit losses are provided for
in the financial statements and consistently have been within management's
expectations.
At December 31, 1995, one of the Company's customers was experiencing cash
flow problems. Its bank line of credit was frozen due to covenant violations,
which resulted in the customer's inability to remain current with its
obligations to the Company. The outstanding receivable at December 31, 1995,
from this customer was approximately $1,500,000. In January 1996, the customer's
bank line of credit was amended and restated and all previous defaults and
violations were waived by their lending group. The Company continues to do
business with this customer and has developed a program to collect past due
receivables over the near term. Management believes no loss will be incurred.
F-14
<PAGE> 71
EMD TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash............................................................ $ 123,699 $ 184,313
Accounts receivable -- net of allowance for doubtful accounts
and sales returns of $82,000................................. 17,153,039 14,830,785
Inventories..................................................... 30,374,621 25,804,022
Prepaid expenses, including taxes, and other receivables........ 431,531 659,870
Deferred income tax asset....................................... 594,348 564,348
Other current assets............................................ 486 3,642
Net assets associated with discontinued operations.............. -- 1,409,488
------------ ------------
Total current assets.................................... 48,677,724 43,456,468
Property and equipment............................................ 45,502,141 45,450,763
Less accumulated depreciation................................... (26,045,748) (24,856,574)
------------ ------------
Net property equipment.................................. 19,456,393 20,594,189
Other assets...................................................... 238,126 81,045
Notes receivable.................................................. 1,410,510 --
------------ ------------
Total assets............................................ $ 69,782,753 $ 64,131,702
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease
obligations.................................................. $ 650,628 $ 716,512
Accounts payable................................................ 13,964,877 13,707,006
Accrued taxes, other than income................................ 403,269 593,392
Other accrued liabilities....................................... 1,561,280 2,166,444
------------ ------------
Total current liabilities............................... 16,580,054 17,183,354
Notes payable to bank -- long term................................ 20,283,000 14,733,000
Long-term debt and capital lease obligations, less current
portion......................................................... 838,854 953,688
Deferred income tax liability..................................... 1,649,436 1,679,436
------------ ------------
Total liabilities....................................... 39,351,344 34,549,478
Stockholders' equity:
Common stock, no par value. 10,000,000 shares authorized;
5,208,078 issued and outstanding............................. 156,526 156,526
Paid in capital................................................. 1,652,104 1,652,104
Retained earnings............................................... 28,722,779 27,873,594
Unearned ESOP shares............................................ (100,000) (100,000)
------------ ------------
Total stockholders' equity.............................. 30,431,409 29,582,224
------------ ------------
Total liabilities and stockholders' equity.............. $ 69,782,753 $ 64,131,702
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-15
<PAGE> 72
EMD TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net sales......................................................... $39,099,582 $43,759,477
Cost of sales..................................................... 36,023,089 37,856,922
----------- -----------
Gross profit............................................ 3,076,493 5,902,485
Operating and administrative expenses............................. 1,875,095 2,538,452
----------- -----------
Operating income........................................ 1,201,398 3,364,033
Operating income (expense):
Interest expense................................................ (353,015) (361,845)
Other income including interest income of $165,136 in 1996 and
$152,017 in 1995............................................. 391,646 293,059
----------- -----------
Total other expense, net........................................ 38,631 (68,786)
----------- -----------
Income from continuing operations before income taxes... 1,240,029 3,295,247
Income tax expense................................................ 390,844 1,333,520
----------- -----------
Income from continuing operations....................... 849,185 1,961,727
Discontinued operations:
Loss from discontinued operations (net of income tax benefit
of $8,154)................................................... -- (6,246)
Loss on disposal of discontinued operations..................... -- --
----------- -----------
Loss from discontinued operations....................... -- (6,246)
----------- -----------
Net income.............................................. $ 849,185 $ 1,955,481
========== ==========
Earnings per share:
Continuing operations........................................... $ .16 $ .38
----------- -----------
Discontinued operations......................................... -- --
----------- -----------
Net income...................................................... $ .16 $ .38
----------- -----------
Weighted average number of common shares outstanding.............. $ 5,208,078 $ 5,208,078
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-16
<PAGE> 73
EMD TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS
OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
UNEARNED TOTAL
COMMON PAID IN RETAINED ESOP STOCKHOLDERS'
STOCK CAPITAL EARNINGS SHARES EQUITY
-------- ---------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994..... $156,526 $1,663,146 $23,830,790 $(300,000) $ 25,350,462
Net income....................... -- -- 4,042,804 -- 4,042,804
Effect of difference between fair
value and cost of shares
released from collateral....... -- (11,042) -- -- (11,042)
Cost of shares released from
collateral..................... -- -- -- 200,000 200,000
-------- ---------- ----------- --------- -----------
Balance at December 31, 1995..... $156,526 $1,652,104 $27,873,594 $(100,000) $ 29,582,224
======== ========== =========== ========= ===========
Net income....................... -- -- 849,185 -- 849,185
Effect of difference between fair
value and cost of shares
released from collateral....... -- -- -- -- --
Cost of shares released from
collateral..................... -- -- -- -- --
-------- ---------- ----------- --------- -----------
Balance at March 31, 1996........ $156,526 $1,652,104 $28,722,779 $(100,000) $ 30,431,409
======== ========== =========== ========= ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-17
<PAGE> 74
EMD TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income...................................................... $ 849,185 $ 1,955,481
Adjustments to reconcile net income to cash provided by (used
in) operating activities:
Gain on disposal of property and equipment................... (79,327) (132,071)
Depreciation and amortization................................ 1,779,596 1,811,780
Deferred income taxes........................................ (60,000) --
Changes in operating assets and liabilities:
Accounts receivable........................................ (2,322,254) 710,055
Inventories................................................ (4,570,599) 5,144,809
Prepaid expense, including taxes, and other receivables,
and other current assets.................................. 231,495 997,141
Net assets associated with discontinued operations......... 1,409,488 64,435
Accounts payable........................................... 257,871 602,160
Accrued taxes, other than income and other accrued
liabilities............................................... (795,287) 393,536
----------- -----------
Net cash provided by (used in) operating activities..... (3,299,832) 11,547,326
----------- -----------
Cash flows from investing activities:
Proceeds from disposal of property and equipment................ 108,648 172,976
Purchase of property and equipment.............................. (670,809) (1,945,589)
(Increase) decrease in other assets............................. (157,393) 9,949
----------- -----------
Net cash used in investing activities................... (719,554) (1,762,664)
----------- -----------
Cash flows from financing activities:
Net proceeds from (payments on) notes payable to banks.......... 5,550,000 (9,635,000)
Principal payments on capital lease obligations................. (180,718) (233,635)
Increase in notes receivable.................................... (1,410,510) --
----------- -----------
Net cash provided by (used in) financing activities..... 3,958,772 (9,868,635)
----------- -----------
Net decrease in cash.............................................. (60,614) (83,973)
Cash at beginning of year......................................... 184,313 101,285
----------- -----------
Cash at end of period............................................. $ 123,699 $ 17,312
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest..................................................... $ 312,672 $ 362,334
Income taxes................................................. -- --
Supplemental schedule of noncash investing and financing
activities:
Long-term debt and capital lease obligations in exchange for
property and equipment....................................... -- 844,704
Net activity in notes receivable and payable relating to ESOP... -- --
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-18
<PAGE> 75
EMD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
reflect all normal and recurring adjustments which in the opinion of management
are necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods presented. The results of
operations for the periods presented are not necessarily indicative of the
results to be expected for the full year. The accompanying unaudited condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes for the year ended December 31,
1995.
(2) EARNINGS PER SHARE
Earnings per share are computed by dividing net income by the weighted
average number of common shares outstanding.
(3) INVENTORIES
The major components of inventories are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- -----------
<S> <C> <C>
(UNAUDITED)
Work in process and finished goods........................ $ 9,184,754 $ 6,710,207
Raw materials............................................. 21,189,867 19,093,815
----------- -----------
$30,374,621 $25,804,022
=========== ===========
</TABLE>
The Company has arrangements to maintain inventory levels on behalf of
certain customers for which it receives material handling fees. During the three
months ended March 31, 1996 and 1995, the Company received $143,936 (unaudited)
and $151,645 (unaudited) respectively of such material handling fees. These fees
were recorded as an increase to interest income.
(4) NOTES PAYABLE TO BANKS -- LONG-TERM
The Company has a credit agreement with participating banks which provides
for a total credit facility of up to $25,000,000 (unaudited), outstanding
amounts of which are due on June 30, 1997. The agreement is secured by virtually
all assets of the Company and interest is payable monthly in an amount equal to
the bank's prime rate. The Company must pay a quarterly commitment fee of 3/8 of
1 percent (unaudited) on the average daily unused portion of the commitment. The
agreement requires the Company to comply with certain covenants including
minimum financial ratios, limitations on intercompany loans and advances, and
capital expenditures. Under this agreement, the Company had $10,283,000
(unaudited) and $14,733,000 outstanding at March 31, 1996 and December 31, 1995,
respectively.
In order to mitigate fluctuations in interest rate changes the Company had
entered into an interest rate swap agreement which calls for monthly interest
considerations for the differential between a fixed swap rate of 7.25%
(unaudited) and the average monthly prime rate for the period (unaudited) on
approximately $6,667,000 (unaudited) of the outstanding balance at December 31,
1995. The fair value of the interest rate swap agreement, based on estimated
termination value at December 31, 1995, was $94,000. On March 11, 1996, the
Company terminated the swap agreement and received a termination payment of
$146,000 (unaudited).
The prime rate was 8.25% at March 31, 1996 (unaudited) and 8.50% at
December 31, 1995.
F-19
<PAGE> 76
EMD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) INCOME TAXES
Total income taxes was allocated as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------------
1996 1995
--------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Income from continuing operations.............................. $ 390,844 $1,333,520
Discontinued operations........................................ -- (8,154)
--------- ----------
$ 390,844 $1,325,366
========= ==========
</TABLE>
Income tax expense attributable to income from continuing operations
consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------------
1996 1995
--------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Current:
Federal................................................... $ 295,000 $1,120,384
State..................................................... 155,844 213,136
--------- ----------
450,844 1,333,520
Deferred....................................................... (60,000) --
--------- ----------
Total income tax expense $ 390,844 $1,333,520
========= ==========
</TABLE>
Income tax expense attributable to continuing operations as shown in the
accompanying condensed consolidated financial statements differed from the
"expected" tax expense computed by applying the U.S. federal statutory tax rate
of 34% to pretax income from continuing operations as a result of the following:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------------
1996 1995
--------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Computed "expected" tax expense................................ $ 421,610 $1,120,384
State income taxes, net of federal income tax benefit.......... 52,000 198,000
EMD FSC benefit................................................ (111,000) --
Other, net..................................................... 28,234 15,136
--------- ----------
$ 390,844 $1,333,520
========= =========
</TABLE>
(6) DISCONTINUED OPERATIONS
In September 1995, the Company announced a plan to sell 100% of the stock
of two wholly owned subsidiaries, DCM Tech, Inc. and MAP Leasing Co., to an
officer and major stockholder of the Company. On January 2, 1996 the stock was
sold in return for a promissory note of $1,410,510 resulting in a loss on
disposal of $130,720. The note is payable in 20 equal quarterly installments of
principal, plus interest on the unpaid balance at a variable rate equal to the
rate paid by the Company on its bank borrowing, beginning April 1, 1996 through
January 1, 2001. The note is secured by the shares of DCM Tech, Inc. and MAP
Leasing Co. The loss on disposition of the subsidiaries has been accounted for
as discontinued operations. Revenues related to the discontinued operations were
$1,309,930 (unaudited) for the three months ended March 31, 1995.
F-20
<PAGE> 77
APPENDIX A
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
BENCHMARK ELECTRONICS, INC.,
ELECTRONICS ACQUISITION, INC.,
EMD TECHNOLOGIES, INC.,
DAVID H. ARNOLD
AND
DANIEL M. RUKAVINA
MARCH 27, 1996
- --------------------------------------------------------------------------------
A-1
<PAGE> 78
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
ARTICLE I
THE MERGER; THE SURVIVING CORPORATION.................................................. A-9
1.1. The Merger.................................................................... A-9
1.2. Articles of Incorporation and By-Laws of the Surviving Corporation............ A-9
1.3. Directors and Officers of the Surviving Corporation........................... A-9
1.4. Closing....................................................................... A-9
1.5. Effective Time................................................................ A-9
1.6. Further Assurances............................................................ A-10
ARTICLE II
CONVERSION OR CANCELLATION OF SHARES................................................... A-10
2.1. EMD Common Stock.............................................................. A-10
2.2. Newco Common Stock............................................................ A-11
2.3. Exchange of EMD Common Stock for Merger Consideration......................... A-11
2.4. Transfers After the Effective Time............................................ A-12
2.5. Fractional Shares............................................................. A-12
2.6. Dissenting Shares............................................................. A-13
2.7. Limitation on Issuance of Benchmark Common Stock.............................. A-13
ARTICLE III
REPRESENTATIONS AND WARRANTIES......................................................... A-13
3.1. Representations and Warranties of EMD......................................... A-13
(a) Corporate Organization and Qualification............................... A-13
(b) Authorized Capital..................................................... A-14
(c) Corporate Authority.................................................... A-14
(d) No Conflicts or Violations............................................. A-15
(e) Licenses; Compliance with Laws......................................... A-15
(f) Financial Statements................................................... A-15
(g) Absence of Certain Changes............................................. A-15
(h) Information in Form S-4................................................ A-16
(i) Governmental Filings and Consents...................................... A-16
(j) Litigation............................................................. A-16
(k) Undisclosed Liabilities................................................ A-16
(l) Employment and Noncompetition Agreements............................... A-17
(m) Material Contracts..................................................... A-17
(n) Powers of Attorney and Certain Authorized Persons...................... A-17
(o) Title to and Condition of Property..................................... A-17
(p) Patents, Copyrights, Service Marks and Trademarks...................... A-18
(q) Insurance.............................................................. A-18
(r) Labor Matters.......................................................... A-18
(s) Employee Benefit Plans................................................. A-18
(t) Transactions with Affiliates........................................... A-19
(u) Environmental Matters.................................................. A-19
(v) Tax Matters............................................................ A-21
(w) Financial Advisors..................................................... A-22
(x) Inventories and Receivables............................................ A-23
(y) Future Product Deliveries.............................................. A-23
(z) Warranty Claims........................................................ A-23
(aa) Availability of Assets................................................. A-23
(bb) Relations with Customers and Suppliers................................. A-24
</TABLE>
A-2
<PAGE> 79
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
(cc) Absence of Certain Commercial Practices................................ A-24
(dd) Books and Records...................................................... A-24
(ee) Disclosure............................................................. A-24
(ff) Materiality............................................................ A-25
3.2. Representations and Warranties of Benchmark and Newco......................... A-25
(a) Corporate Organization and Qualification............................... A-25
(b) Corporate Authority.................................................... A-25
(c) No Conflicts or Violations............................................. A-25
(d) Benchmark Reports; Financial Statements................................ A-25
(e) Absence of Certain Changes............................................. A-26
(f) Governmental Filings and Consents...................................... A-26
(g) Litigation............................................................. A-26
(h) Financial Advisors..................................................... A-26
(i) Capitalization of Benchmark; Benchmark Common Stock; Newco............. A-26
(j) Compliance with Laws................................................... A-26
(k) Disclosure............................................................. A-27
(l) Information in Form S-4................................................ A-27
3.3. Disclosure in Disclosure Letter............................................... A-27
3.4. Disclosure Letter; Amendments................................................. A-27
3.5. Knowledge..................................................................... A-27
ARTICLE IV
COVENANTS.............................................................................. A-27
4.1. Acquisition Transactions...................................................... A-27
4.2. Certain Covenants of EMD and the Founding Shareholders........................ A-28
(a) Interim Operations of EMD.............................................. A-28
(b) Negative Covenants..................................................... A-29
(c) Other Operational Covenants............................................ A-29
(d) Rule 145 Letters....................................................... A-30
(e) Inspection and Access to Information................................... A-30
(f) Consultations.......................................................... A-30
(g) No Transactions in Benchmark or EMD Common Stock....................... A-30
4.3. Certain Covenants of Benchmark and Newco...................................... A-30
(a) Consent of Benchmark................................................... A-30
(b) No Purchase of Benchmark Common Stock.................................. A-31
(c) Benchmark Shareholders' Meeting........................................ A-31
(d) ESOP Amendments........................................................ A-31
(e) EMD Benefit Plans; COBRA Continuation Coverage......................... A-31
(f) Board Nominations...................................................... A-31
4.4. Meeting of Shareholders of EMD................................................ A-32
(a) EMD Shareholder Meeting................................................ A-32
(b) Form S-4; Prospectus................................................... A-32
4.5. Certain Additional Covenants of the Parties................................... A-32
(a) Certain Filings, Consents and Arrangements............................. A-32
(b) Notification of Certain Matters........................................ A-32
(c) Reasonable Efforts..................................................... A-32
(d) Blue Sky Laws.......................................................... A-32
4.6. Certain Covenants of the Founding Shareholders................................ A-32
(a) Restrictions on Transfers.............................................. A-32
(b) Voting, Ownership and Other Restrictions............................... A-33
(c) Legend and Stop Transfer Order......................................... A-34
(d) Additional Limitations on Transfer..................................... A-34
</TABLE>
A-3
<PAGE> 80
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
(e) Permitted Transfers.................................................... A-34
(f) Procedures for Transfer................................................ A-35
(g) Specific Enforcement; Other Remedies................................... A-36
(h) Vote in Favor of the Merger............................................ A-36
ARTICLE V
CONDITIONS TO CLOSING.................................................................. A-36
5.1. Conditions to the Obligations of Benchmark and Newco.......................... A-36
(a) Representations and Warranties......................................... A-36
(b) EMD Shareholder Approval............................................... A-36
(c) Pending Litigation; Insolvency......................................... A-36
(d) Other Consents and Filings............................................. A-36
(e) Tax Opinion............................................................ A-36
(f) Opinion of EMD Counsel................................................. A-37
(g) Noncompetition Agreement............................................... A-37
(h) Escrow Agreement....................................................... A-37
(i) Form S-4; "Blue Sky" Permits........................................... A-37
(j) Rule 145 Letters....................................................... A-37
(k) Comfort Letter......................................................... A-37
(l) Lease of EMD East Facility............................................. A-37
(m) Lease of EMD West Parking Area......................................... A-37
(n) Owner's Title Policies................................................. A-37
(o) Leasehold Policies of Title Insurance.................................. A-37
(p) Title Opinion.......................................................... A-38
(q) Surveys................................................................ A-38
(r) Non-Disturbance Agreements............................................. A-38
(s) Consent and Estoppel................................................... A-38
(t) Indemnification Relating to Transfer of Subsidiaries................... A-38
(u) American Stock Exchange Listing........................................ A-38
(v) Certain Employees...................................................... A-38
(w) Due Diligence.......................................................... A-38
(x) Certain Regulatory Matters............................................. A-38
5.2. Conditions to the Obligations of EMD.......................................... A-39
(a) Representations and Warranties......................................... A-39
(b) EMD Shareholder Approval............................................... A-39
(c) Injunction............................................................. A-39
(d) Governmental Filings and Consents...................................... A-39
(e) Opinion of Benchmark's Counsel......................................... A-39
(f) Tax Opinion............................................................ A-39
(g) Form S-4; "Blue Sky" Permits........................................... A-39
(h) American Stock Exchange Listing........................................ A-39
(i) Agreement to Vote for Conversion....................................... A-39
ARTICLE VI
TERMINATION............................................................................ A-40
6.1. Termination by Mutual Consent................................................. A-40
6.2. Termination by Benchmark, Newco or EMD........................................ A-40
6.3. Termination by Benchmark...................................................... A-40
6.4. Termination by EMD............................................................ A-40
6.5. Effect of Termination......................................................... A-40
</TABLE>
A-4
<PAGE> 81
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
ARTICLE VII
MISCELLANEOUS; GENERAL................................................................. A-41
7.1. Fees and Expenses............................................................. A-41
7.2. Survival...................................................................... A-41
7.3. Indemnification............................................................... A-41
(a) Indemnification of Benchmark and the Surviving Corporation............. A-41
(b) Indemnification of Holders of EMD Common Stock......................... A-41
(c) Exceptions and Limitations............................................. A-42
7.4. Notice and Defense of Third-Party Claims...................................... A-42
(a) Notice................................................................. A-42
(b) Assumption of Defense.................................................. A-42
(c) Participation by Other Parties......................................... A-43
(d) Settlement............................................................. A-43
(e) Notice to Both Founding Shareholders................................... A-43
7.5. No Third Party Reliance....................................................... A-43
7.6. Remedies Exclusive............................................................ A-43
7.7. Modification or Amendment..................................................... A-43
7.8. Waiver of Conditions.......................................................... A-44
7.9. Counterparts.................................................................. A-44
7.10 Governing Law................................................................. A-44
7.11. Arbitration................................................................... A-44
7.12. Notices....................................................................... A-44
7.13. Disclosure Letter and Exhibits; Entire Agreement.............................. A-45
7.14. Assignment.................................................................... A-45
7.15. Obligation of Benchmark and Newco or EMD...................................... A-46
7.16. Titles and Captions........................................................... A-46
7.17. Public Statements............................................................. A-46
</TABLE>
A-5
<PAGE> 82
EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit 1.5 -- Form of Articles of Merger
Exhibit 2.1(e) -- Example of Recalculation of Cash Amount and Share Fraction
Exhibit 2.3(a) -- Form of Letter of Transmittal
Exhibit 2.3(d) -- Form of Escrow Agreement
Exhibit 2.7 -- Form of Statement of Resolution Establishing Series of Shares
Exhibit 4.2(d) -- Form of Rule 145 Letter
Exhibit 5.1(f) -- Matters to be Covered in Opinion of EMD's Counsel
Exhibit 5.1(g) -- Form of Noncompetition Agreement
Exhibit 5.1(l) -- Form of Amendment to Lease of EMD East Facility
Exhibit 5.1(m) -- Form of Amendment to Lease of EMD West Parking Area
Exhibit 5.1(r) -- Form of Non-Disturbance Agreement
Exhibit 5.1(s) -- Form of Landlord Consent and Estoppel
Exhibit 5.1(t) -- Form of Indemnification Agreement relating to Transfer of EMD Subsidiaries
Exhibit 5.2(e) -- Matters to be Covered in Opinion of Benchmark's Counsel
</TABLE>
A-6
<PAGE> 83
INDEX OF DEFINITIONS
<TABLE>
<CAPTION>
DEFINITION PAGE
- ------------------------------------------------------------------------------------- ----
<S> <C>
Acquisition Transactions............................................................. A-28
Agreement............................................................................ A-9
Articles of Merger................................................................... A-9
Backlog Report....................................................................... A-38
Benchmark............................................................................ A-9
Benchmark Common Stock............................................................... A-10
Benchmark Reports.................................................................... A-25
Benchmark Indemnified Parties........................................................ A-41
Benchmark Measurement Price.......................................................... A-10
Cash Amount.......................................................................... A-10
CERCLA............................................................................... A-20
Closing.............................................................................. A-9
Closing Date......................................................................... A-9
Closing Price........................................................................ A-11
Code................................................................................. A-9
Computation Period................................................................... A-10
Confidentiality Agreement............................................................ A-30
Constituent Corporations............................................................. A-9
Damages.............................................................................. A-41
DCM Facility......................................................................... A-37
Disclosure Letter.................................................................... A-14
Dissenting Shares.................................................................... A-13
Effective Time....................................................................... A-10
EMD.................................................................................. A-9
EMD Benefit Plans.................................................................... A-18
EMD Business......................................................................... A-15
EMD Certificates..................................................................... A-11
EMD Common Stock..................................................................... A-10
EMD East Facility.................................................................... A-37
EMD ESOP............................................................................. A-31
EMD Indemnified Parties.............................................................. A-41
EMD Shareholder Meeting.............................................................. A-32
EMD West Parking Area................................................................ A-37
Environmental Laws................................................................... A-20
Environmental Permit................................................................. A-20
ERISA................................................................................ A-18
Excess Expense Amount................................................................ A-41
Exchange Ratio....................................................................... A-10
Financial Statements................................................................. A-15
Form S-4............................................................................. A-16
Founding Shareholders................................................................ A-9
GAAP................................................................................. A-15
Gain-Sharing Plan.................................................................... A-29
Governmental Consents................................................................ A-16
Governmental Filings................................................................. A-16
Hazardous Material................................................................... A-20
HSR Act.............................................................................. A-16
Indemnified Persons.................................................................. A-41
Letter of Transmittal................................................................ A-11
</TABLE>
A-7
<PAGE> 84
<TABLE>
<CAPTION>
DEFINITION PAGE
- ------------------------------------------------------------------------------------- ----
<S> <C>
Liabilities.......................................................................... A-16
Licenses............................................................................. A-15
Material Contracts................................................................... A-17
MBCA................................................................................. A-9
Mean Price........................................................................... A-10
Merger............................................................................... A-9
Merger Consideration................................................................. A-10
Newco................................................................................ A-9
Permitted Transfers.................................................................. A-34
Potential Acquiror................................................................... A-28
Proposed Transferee.................................................................. A-35
Prospectus........................................................................... A-16
RCRA................................................................................. A-20
Release.............................................................................. A-21
Representatives...................................................................... A-30
Repurchase Price..................................................................... A-35
Rule 145 Affiliates.................................................................. A-30
Rule 145 Letters..................................................................... A-30
Schedules............................................................................ A-14
SEC.................................................................................. A-25
Securities Act....................................................................... A-16
Series A Preferred Stock............................................................. A-13
Share Fraction....................................................................... A-10
Share Maximum........................................................................ A-13
Subsidiary........................................................................... A-14
Surviving Corporation................................................................ A-9
Tax Returns.......................................................................... A-21
Tax.................................................................................. A-21
TBCA................................................................................. A-9
Third-Party Claim.................................................................... A-42
Trading Price........................................................................ A-10
Transfer............................................................................. A-33
Transfer Notice...................................................................... A-35
</TABLE>
A-8
<PAGE> 85
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of March 27,
1996, is by and among Benchmark Electronics, Inc., a Texas corporation
("Benchmark"), Electronics Acquisition, Inc., a Texas corporation and wholly
owned subsidiary of Benchmark ("Newco"), EMD Technologies, Inc. a Minnesota
corporation ("EMD"), and Messrs. David H. Arnold and Daniel M. Rukavina (the
"Founding Shareholders"). Newco and EMD are sometimes collectively referred to
herein as the "Constituent Corporations."
RECITALS
WHEREAS, the respective Boards of Directors of Benchmark, Newco and EMD
have approved the Merger (as defined below) of EMD with and into Newco upon the
terms and subject to the conditions set forth herein and in accordance with the
Minnesota Business Corporation Act (the "MBCA") and the Texas Business
Corporation Act (the "TBCA"); and
WHEREAS, for federal income tax purposes, it is intended that the Merger
will be a reorganization under Sections 368(a)(1)(A) and 368(a)(2)(D) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes, it is intended that the Merger will be
accounted for as a purchase;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants, agreements and conditions specified in this Agreement,
the parties hereto agree as follows:
ARTICLE I
THE MERGER; THE SURVIVING CORPORATION
1.1. The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined in Section 1.5), EMD shall be merged with and
into Newco and the separate corporate existence of EMD shall thereupon cease
(the "Merger"). Newco shall be the surviving corporation of the Merger
(sometimes hereinafter referred to as the "Surviving Corporation") and shall
continue to be governed by the laws of the State of Texas, and the separate
corporate existence of Newco, with all the rights, privileges, powers and
franchises of each of the Constituent Corporations, shall continue unaffected by
the Merger. The Merger shall have the effects specified in the MBCA and the
TBCA.
1.2. Articles of Incorporation and By-Laws of the Surviving
Corporation. The Articles of Incorporation and the By-Laws of Newco in effect
at the Effective Time shall be the Articles of Incorporation and the By-Laws of
the Surviving Corporation, until duly amended in accordance with the terms
thereof and the TBCA.
1.3. Directors and Officers of the Surviving Corporation. The directors
and officers of Newco immediately prior to the Effective Time shall, from and
after the Effective Time, be the directors and officers of the Surviving
Corporation until their respective successors have been duly elected or
appointed and qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Articles of Incorporation and
By-Laws.
1.4. Closing. The Closing of the Merger (the "Closing") shall take place
at the offices Bracewell & Patterson, L.L.P., at 711 Louisiana Street, Suite
2900, Houston, Texas, at 9:00 a.m. local time, or at such other place and time
as the parties hereto may agree, on the soonest practicable date following the
fulfillment or, to the extent permissible, the waiver of all of the conditions
to Closing set forth in Article V hereof. The "Closing Date" shall be the date
on which the Closing occurs.
1.5. Effective Time. On the Closing Date, Newco and EMD shall cause the
Articles of Merger in the form attached as Exhibit 1.5 (the "Articles of
Merger") to be properly executed and filed with the Secretary of State of the
States of Minnesota and Texas in accordance with the MBCA and the TBCA. The
Merger
A-9
<PAGE> 86
shall become effective at the time at which the Articles of Merger have been
duly filed with the Secretary of State of the States of Texas and Minnesota and
such time is herein referred to as the "Effective Time".
1.6. Further Assurances. If at any time after the Effective Time the
Surviving Corporation shall consider or be advised that any further deeds, bills
of sale, assignments, assurances or any other actions or things are necessary,
desirable or proper to vest, perfect or confirm, of record or otherwise, in the
Surviving Corporation its rights, title or interest in, to or under any of the
rights, properties or assets of either of the Constituent Corporations acquired
or to be acquired by the Surviving Corporation as a result of, or in connection
with, the Merger or otherwise to carry out the purposes of this Agreement, the
officers and directors of the Surviving Corporation shall be authorized to
execute and deliver, in the name and on behalf of each of the Constituent
Corporations or otherwise, all such deeds, bills of sale, assignments and
assurances and to take and do, in the name and on behalf of each of the
Constituent Corporations or otherwise, all such other actions and things as may
be necessary, desirable or proper to vest, perfect or confirm any and all right,
title and interest in, to and under such rights, properties or assets in the
Surviving Corporation or otherwise to carry out the purposes of this Agreement.
ARTICLE II
CONVERSION OR CANCELLATION OF SHARES
2.1. EMD Common Stock. (a) At the Effective Time, each share of Common
Stock, no par value, of EMD (the "EMD Common Stock") issued and outstanding
immediately prior to the Effective Time (except for shares of EMD Common Stock
then held in the treasury of EMD, which shares shall be canceled and retired in
accordance with Section 2.1(d), and other than shares as to which statutory
appraisal rights have been exercised) shall, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into the right to
receive (i) cash in the amount of $5.9074 (the "Cash Amount"), and (ii) subject
to Section 2.7, that fraction of a share (the "Share Fraction") of Common Stock,
par value $0.10 per share, of Benchmark ("Benchmark Common Stock") equal to the
Exchange Ratio (as defined in Section 2.1(b)); provided that no fractional share
of Benchmark Common Stock shall be issued, and, in lieu thereof, a cash payment
shall be made pursuant to Section 2.5; and provided further that the Cash Amount
and the Share Fraction shall be subject to recalculation pursuant to the
provisions of Section 2.1(e). The consideration described in clauses (i) and
(ii) above, including without limitation any Series A Preferred Stock (as
hereinafter defined) issued as a result of Section 2.7, to be received by the
holders of EMD Common Stock pursuant to the Merger is hereinafter referred to
collectively as the "Merger Consideration."
At the Effective Time, all of the shares of EMD Common Stock which, by
virtue of the Merger and without any action on the part of the holders thereof,
are converted into the right to receive the Merger Consideration, shall cease to
be outstanding, shall be canceled and retired and shall cease to exist, and each
holder of a certificate formerly representing any such shares shall thereafter
cease to have any rights with respect to such shares of EMD Common Stock, except
the right to receive the Merger Consideration for such shares of EMD Common
Stock upon the surrender of such certificate in accordance with Section 2.3.
(b) As used in this Agreement, the "Exchange Ratio" shall be the quotient
(rounded to four decimal places) obtained by dividing (i) $3.9383 by (ii) the
Benchmark Measurement Price (as hereinafter defined). Subject to Section 2.1(c),
the "Benchmark Measurement Price" shall be determined as follows:
(1) If the average Mean Price (as hereinafter defined) of Benchmark
Common Stock for the twenty successive trading days (the "Computation
Period") ending on the trading day immediately prior to the date on which
the Effective Time occurs (the "Trading Price") is equal to or more than
$32.00, then the Benchmark Measurement Price shall be $32.00.
(2) If the Trading Price is less than $32.00, then the Benchmark
Measurement Price shall be the Trading Price.
As used in this Agreement, the term "Mean Price" shall mean, for any day,
the average (arithmetic mean) of the reported "high" and "low" sales prices of
the Benchmark Common Stock as reported in The
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Wall Street Journal's American Stock Exchange Composite Transactions listing for
such day (corrected for obvious typographical errors), or if such shares are not
reported in such listing, then the average of the reported "high" and "low"
sales prices on the largest national securities exchange (based on the aggregate
dollar value of securities listed) on which such shares are listed or traded, or
if such shares are not listed or traded on any national securities exchange,
then the average of the reported "high" and "low" sales prices for such shares
in the over-the-counter market, as reported on the National Association of
Securities Dealers Automated Quotations System, or, if such prices shall not be
reported thereon, the average between the closing bid and asked prices so
reported, or, if such prices shall not be reported, then the average closing bid
and asked prices reported by the National Quotation Bureau Incorporated, or, in
all other cases, the value established by the board of directors of Benchmark in
good faith. The "average" Mean Price per share of Benchmark Common Stock for any
period shall be determined by dividing the sum of the Mean Prices determined for
the individual days in such period by the number of days in such period.
(c) If after the date hereof and prior to the Effective Time Benchmark
shall have declared a stock split (including a reverse split) of Benchmark
Common Stock or a dividend payable in Benchmark Common Stock, or any other
distribution of securities to holders of Benchmark Common Stock with respect to
their Benchmark Common Stock, then the Share Fraction shall be proportionately
adjusted to reflect such stock split, dividend or other distribution of
securities.
After the date hereof and prior to the Effective Time, Benchmark shall not
engage in or agree to engage in any reclassification of Benchmark Common Stock
or any consolidation, merger, reorganization or other business combination
transaction other than the Merger.
(d) At the Effective Time, each share of EMD Common Stock held in the
treasury of EMD shall, by virtue of the Merger and without any action on the
part of EMD, be canceled and retired and cease to exist without payment of any
consideration therefor.
(e) In the event that the Mean Price of Benchmark Common Stock for the
trading day immediately prior to the Closing Date (the "Closing Price") is less
than the Benchmark Measurement Price, the Cash Amount and the Share Fraction
shall be recalculated as follows:
The Cash Amount shall be, instead of $5.9074, the quotient of (i) the
aggregate adjusted cash consideration to be issued in the merger ("C")
(determined as set forth below) divided by (ii) 5,208,078. The Share
Fraction shall be, instead of the Exchange Ratio, the quotient of (i) the
aggregate adjusted number of shares of Benchmark Common Stock and, if
applicable, Series A Preferred Stock to be issued in the Merger ("N")
(determined as set forth below) divided by (ii) 5,208,078. C and N shall be
determined by using the following equations to solve for C and N.
C + (N X MP) = $51,277,154
N X CP divided by C = 2/3
where MP = the Benchmark Measurement Price and CP = the Closing Price.
An example of the recalculation of the Cash Amount and the Share Fraction
to be made pursuant to this Section 2.1(e) is attached hereto as Exhibit 2.1(e).
2.2. Newco Common Stock. At the Effective Time, each share of common
stock, par value $.10 per share, of Newco issued and outstanding immediately
prior to the Effective Time shall remain outstanding and unchanged.
2.3. Exchange of EMD Common Stock for Merger Consideration. (a) At the
Closing, EMD covenants and agrees that it will direct each holder as of the
Effective Time of an outstanding certificate or certificates which immediately
prior to the Effective Time represented shares of EMD Common Stock (the "EMD
Certificates"), other than EMD and other holders of shares as to which statutory
appraisal rights have been exercised, to deliver to Benchmark a duly executed
letter of transmittal in the form attached hereto as Exhibit 2.3(a) (the "Letter
of Transmittal") for use in effecting the surrender of the EMD Certificates for
payment therefor and conversion thereof. At the Closing, each of the Founding
Shareholders covenants and agrees that he will deliver to Benchmark a duly
executed Letter of Transmittal for use in effecting the
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surrender of the EMD Certificates held by him for payment therefor and
conversion thereof. Upon surrender to Benchmark of an EMD Certificate, together
with such Letter of Transmittal duly executed, but subject to Section 2.3(d),
the record holder of the shares of EMD Common Stock represented by such EMD
Certificate shall be entitled to receive in exchange therefor (1) a certificate
or certificates representing the number of shares of Benchmark Common Stock
(and, if applicable, the number of shares of Series A Preferred Stock) to which
such holder of EMD Common Stock shall have become entitled pursuant to the
provisions of clause (ii) of Section 2.1(a) and (2) a check representing the
cash portion of the Merger Consideration (including any cash in lieu of
fractional shares) to which such holder shall have become entitled pursuant to
the provisions of clauses (i) and (ii) of Section 2.1(a); provided, however,
that Benchmark shall pay the cash portion of the Merger Consideration (including
any cash in lieu of fractional shares) by wire transfer as soon as practicable
after the Effective Time to any holder of EMD Certificates who, as of the
Effective Time, has surrendered such EMD Certificates together with a duly
executed Letter of Transmittal to Benchmark if such holder has provided to
Benchmark wire transfer instructions in writing at least two business days prior
to the Closing Date. Any EMD Certificate delivered to Benchmark with such Letter
of Transmittal shall forthwith be canceled. No interest will be paid or will
accrue on any cash payable on the surrender of any EMD Certificate. Any holder
whose EMD Certificates have been lost or destroyed may nevertheless obtain the
Merger Consideration into which the shares of EMD Common Stock represented by
such EMD Certificates have been converted pursuant to the provisions of Section
2.1, provided such holder delivers to the Surviving Corporation and Benchmark a
statement certifying such loss or destruction and providing for indemnity
reasonably satisfactory to the Surviving Corporation and Benchmark against any
loss or expense either of them may incur as a result of such lost or destroyed
EMD Certificate being thereafter surrendered to Benchmark. Until surrendered in
accordance with the provisions of this Section 2.3(a), each EMD Certificate
(other than EMD Certificates previously representing shares of EMD Common Stock
held in the treasury of EMD or shares as to which statutory appraisal rights
have been exercised) shall represent, for all purposes, only the right to
receive the Merger Consideration.
(b) No dividends or distributions declared with a record date after the
Effective Time with respect to Benchmark Common Stock shall be paid to persons
entitled to receive Benchmark Common Stock in the Merger until such persons have
surrendered their EMD Certificates in accordance with Section 2.3(a). Promptly
after such surrender, there shall be paid to the person in whose name Benchmark
Common Stock shall be issued any dividends or distributions on such Benchmark
Common Stock which shall have a record date after the Effective Time and prior
to such surrender. If the payment date is after the date of such surrender, such
payment shall be made on such payment date.
(c) In no event shall the persons entitled to receive dividends or
distributions on shares of Benchmark Common Stock pursuant to Section 2.3(b) be
entitled to receive interest on such dividends or distributions. All deliveries
and payments in respect of shares of EMD Common Stock which are made in
accordance with the terms hereof shall be deemed to have been made in full
satisfaction of all rights pertaining to such securities, except as may be
otherwise required by law.
(d) At the Closing, Benchmark shall deliver to the Escrow Agent (as defined
in the Form of Escrow Agreement attached hereto as Exhibit 2.3(d)) 73.2% of the
shares of Benchmark Common Stock issuable to the Founding Shareholders to be
held by the Escrow Agent in accordance with the terms of the Escrow Agreement.
2.4. Transfers After the Effective Time. No transfers of shares of EMD
Common Stock shall be made on the stock transfer books of the Surviving
Corporation at or after the Effective Time.
2.5. Fractional Shares. No fractional share of Benchmark Common Stock
shall be issued in the Merger. Each holder of shares of EMD Common Stock shall
be entitled to receive in lieu of any fractional share of Benchmark Common Stock
to which such holder otherwise would have been entitled pursuant to Section 2.1
(after taking into account all shares of EMD Common Stock, other than shares
with respect to which statutory appraisal rights have been exercised, then held
of record by such holder) a cash payment in an amount equal to the product of
(i) the fractional interest of a share of Benchmark Common Stock to which
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such holder otherwise would have been entitled and (ii) the Benchmark
Measurement Price. Payment of such amounts shall be made by Benchmark.
2.6. Dissenting Shares. If required by the MBCA but only to the extent
required thereby, shares of EMD Common Stock which are issued and outstanding
immediately prior to the Effective Time and which are held by holders of such
shares of EMD Common Stock who have properly exercised appraisal rights with
respect thereto in accordance with Section 302A.473 of the MBCA (the "Dissenting
Shares") will not be converted into or be exchangeable for the right to receive
the relevant Merger Consideration or any other amounts otherwise payable to such
holders under the other provisions of this Article II, and holders of such
shares of EMD Common Stock will be entitled to receive payment of the appraised
value of such shares of EMD Common Stock in accordance with the provisions of
such Section 302A.473 of the MBCA unless and until such holders fail to perfect
or effectively withdraw or otherwise lose their rights to appraisal and payment
under the MBCA. If, after the Effective Time, any such holder fails to perfect
or effectively withdraws or otherwise loses such right, such shares of EMD
Common Stock will thereupon be treated as if they had been converted into and
become exchangeable for, at the Effective Time, the right to receive the Merger
Consideration and any unpaid dividends and distributions payable pursuant to
Section 2.3(b) to which the holder of such shares of EMD Common Stock is
entitled, without any interest thereon. EMD will give Benchmark prompt notice of
any demands received by EMD for appraisal of shares of EMD Common Stock and,
prior to the Effective Time, Benchmark will have the right to participate in all
negotiations and proceedings with respect to such demands. Prior to the
Effective Time, EMD will not, except with the prior written consent of
Benchmark, make any payment with respect to, or settle or offer to settle, any
such demands.
2.7. Limitation on Issuance of Benchmark Common Stock. The aggregate
number of shares of Benchmark Common Stock issuable in the Merger on conversion
of the shares of EMD Common Stock pursuant to Section 2.1(b) shall in no event
exceed 805,879 shares, subject to adjustment in the event of a transaction of
the type described in the first paragraph of Section 2.1(c) (the "Share
Maximum"). If at the Effective Time the aggregate number of shares of Benchmark
Common Stock issuable pursuant to Section 2.1(b) would exceed such Share
Maximum, the shares of Benchmark Common Stock exceeding such Share Maximum shall
not be issued but, in lieu of each such share, Benchmark shall cause to be
issued one share of its Mandatorily Convertible Preferred Stock, Series A (the
"Series A Preferred Stock"), having the relative rights and preferences set
forth in the Form of Statement of Resolution Establishing Series of Shares
attached hereto as Exhibit 2.7. The shares of Series A Preferred Stock shall in
any event be issued in a number such that the ratio of the number of shares of
Series A Preferred Stock issued pursuant to the Merger to the number of shares
of Benchmark Common Stock issued pursuant to the Merger shall be, as near as may
be practicable, the same for each record holder of EMD Certificates. For
purposes of Sections 2.3(b)-(d) and 2.5, shares of Series a Preferred Stock
shall be treated as if they were shares of Benchmark Common Stock.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of EMD. Each of EMD and the Founding
Shareholders hereby jointly and severally represents and warrants to Benchmark
and Newco that:
(a) Corporate Organization and Qualification. Each of EMD and its
Subsidiaries (as defined below) is a corporation duly organized, validly
existing and in good standing under the laws of its respective jurisdiction
of organization and is qualified to do business as a foreign corporation in
each jurisdiction in which the properties owned, leased or operated, or the
business conducted, by it require such qualification, except where any such
failure to be so qualified or in good standing would not have a material
adverse effect on the financial condition, properties, businesses or
results of operations of EMD and its Subsidiaries, taken as a whole. Each
of EMD and its Subsidiaries has the corporate power and authority to carry
on its respective businesses as they are now being conducted. EMD has
heretofore made available to Benchmark a complete and correct copy of EMD's
and each of its Subsidiary's Certificate or Articles of Incorporation (or
other charter document) and By-Laws, as amended to date.
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EMD's and each EMD Subsidiary's Certificate or Articles of Incorporation
(or other charter document) and By-Laws so made available are in full force
and effect as of the date hereof. The Disclosure Letter (as defined below)
lists all Subsidiaries of EMD, the percentage of capital stock or other
ownership interests owned directly or indirectly by EMD and the
jurisdictions in which EMD and each of its Subsidiaries is duly qualified,
registered or licensed to do business. Except as set forth in the
Disclosure Letter, EMD does not own, directly or indirectly, any interest
in any corporation, partnership or other entity. As used in this Agreement,
the word "Subsidiary" means, with respect to a party, any corporation or
other organization, whether incorporated or unincorporated, of which (i)
such party or any other Subsidiary of such party is a general partner
(excluding partnerships, the general partnership interests of which held by
such party or Subsidiary of such party do not have a majority of the voting
interest in such partnership) or (ii) at least a majority of the securities
or other interests having by their terms ordinary voting power to elect a
majority of the Board of Directors or others performing similar functions
with respect to such corporation or other organization is directly or
indirectly owned or controlled by such party, by any one or more of its
Subsidiaries, or by such party and one or more of its Subsidiaries. As used
herein, the "Disclosure Letter" is the letter delivered by EMD and the
Founding Shareholders to Benchmark as of the date of this Agreement
containing schedules (the "Schedules") specifically referring to the
section of this Agreement to which such Schedules relate.
(b) Authorized Capital. The authorized capital stock of EMD consists
of 10,000,000 shares of EMD Common Stock of which, as of the date hereof,
5,208,078 shares are issued and outstanding and none of which shares are
held in treasury by EMD. All of the outstanding shares of EMD Common Stock
have been duly authorized and validly issued, are fully paid and
nonassessable and were issued in compliance with all applicable federal and
state securities laws. Except as set forth in the Disclosure Letter, there
are, and have been, no preemptive rights with respect to the issuance of
shares of EMD Common Stock. The aggregate direct and indirect ownership
interests of EMD in each Subsidiary of EMD are set forth in the Disclosure
Letter, and, as to each of EMD's Subsidiaries, have been duly authorized
and validly issued, are fully paid and nonassessable, were issued in
compliance with all applicable federal and state securities laws, and are
validly held, beneficially and of record, by EMD. Except as set forth in
the Disclosure Letter, there are not, and have not been, any preemptive
rights with respect to the issuance of shares of capital stock of or other
interests in any Subsidiary of EMD. All of the shares of the capital stock
of Subsidiaries of EMD are owned free and clear of all liens, pledges,
security interests, claims or other encumbrances. None of EMD or any of its
Subsidiaries has any shares reserved for issuance for any purpose. Except
as set forth above, there are no shares of capital stock of EMD authorized,
issued or outstanding. There are no outstanding subscriptions, options,
warrants, rights, convertible securities, or other agreements or
commitments (whether contingent or not) of any character relating to
unissued capital stock or other securities of EMD or any of its
Subsidiaries obligating EMD or any of its Subsidiaries to issue any shares
of or other equity interests in, or securities or rights convertible into
or exchangeable for shares of or other equity interests in, EMD or a
Subsidiary. Except as set forth in the Disclosure Letter, there are no
agreements or understandings with respect to the voting, sale, transfer or
registration of any shares of capital stock of EMD or any of its
Subsidiaries to which EMD or any Subsidiary is a party or to which any
shareholder of EMD is a party.
(c) Corporate Authority. Prior to the date of this Agreement, the
board of directors of EMD, pursuant to Section 302A.613 of the MBCA,
approved this Agreement and the consummation of the transactions
contemplated hereby. EMD has the full power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby,
including without limitation the Merger. Subject only to approval of this
Agreement and the Merger by the holders of a majority of the outstanding
shares of EMD Common Stock, the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby, including
without limitation the Merger, have been duly and validly authorized by all
necessary corporate action on the part of EMD. At a meeting duly called for
such purpose, the board of directors of EMD has approved, subject to the
terms of this Agreement, the submission of this Agreement to the holders of
shares of EMD Common Stock with a recommendation that such shareholders of
EMD vote in favor of the Merger. This Agreement has been duly and validly
executed and delivered by EMD and constitutes a legal, valid and binding
agreement of
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EMD enforceable against EMD in accordance with its terms, except that (i)
such enforcement may be subject to bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
(d) No Conflicts or Violations. The execution and delivery of this
Agreement by EMD and the Founding Shareholders does not, and the
consummation by EMD and the Founding Shareholders of the transactions
contemplated hereby, including without limitation the Merger, will not,
constitute or result in (i) a breach or violation of, or a default under,
the Certificate or Articles of Incorporation (or other charter document) or
By-Laws of EMD or any Subsidiary of EMD, (ii) a breach or violation of, a
default under or the triggering of any payment or other obligations
pursuant to, any of the EMD Benefit Plans (as defined in Section 3.1(s)),
(iii) the triggering of any right of first refusal or similar rights under
any shareholder or partnership agreement to which EMD or any of its
Subsidiaries or a Founding Shareholder is a party, or (iv) except as set
forth in the Disclosure Letter, a breach or violation of, a default under,
the creation of a right to terminate, the acceleration of or the creation
of a lien, pledge, security interest or other encumbrance on assets
pursuant to (with or without the giving of notice or the lapse of time) any
provision of any agreement, lease, contract, note, mortgage, indenture,
arrangement or other obligation of EMD or any of its Subsidiaries or of any
Founding Shareholder, or any law, rule, ordinance or regulation or
judgment, decree, order, award or governmental or non-governmental permit
or license to which EMD or any of its Subsidiaries is subject.
(e) Licenses; Compliance with Laws. EMD and each of its Subsidiaries
hold all permits, licenses, variances, exemptions, orders and approvals
from governmental authorities (collectively, the "Licenses") which are
necessary to conduct their business and operations in the manner heretofore
conducted (collectively, the "EMD Business") and in accordance with
applicable laws, rules and regulations, except for failures to hold such
Licenses or to comply with such laws, rules and regulations which, in the
aggregate, would not have a material adverse effect on the properties or
business of EMD and its Subsidiaries, taken as a whole, or on the financial
condition or results of operations of EMD and its Subsidiaries, taken as a
whole. No event has occurred with respect to any of the Licenses which
permits, or after notice or lapse of time or both would permit, revocation
or termination thereof or would result in any impairment of the rights of
the holder of any such License, except for revocations, terminations and
impairments which, in the aggregate, would not have a material adverse
effect on the properties or business of EMD and its Subsidiaries, taken as
a whole, or on the financial condition or results of operations of EMD and
its Subsidiaries, taken as a whole. EMD and each of its Subsidiaries is in
compliance with all federal, state, local and foreign laws, ordinances,
codes, regulations, orders, requirements, standards and procedures, which
are applicable to the business of EMD and its Subsidiaries, except for
failures so to comply which would not have a material adverse effect on the
properties or business of EMD and its Subsidiaries, taken as a whole, or on
the financial condition or results of operations of EMD and its
Subsidiaries, taken as a whole.
(f) Financial Statements. EMD has made available to Benchmark true
and complete copies of the following audited financial statements for EMD
and its Subsidiaries (the "Financial Statements"): the consolidated balance
sheets of EMD and its Subsidiaries as at December 31, 1995, 1994 and 1993,
and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for the fiscal years then ended,
including the notes thereto and accompanied by the audit report of KPMG
Peat Marwick, independent public accountants with respect to EMD. The
Financial Statements fairly present the consolidated financial position of
EMD and its Subsidiaries as of the respective dates of such balance sheets,
and the results of the consolidated operations and the changes in
consolidated financial position of EMD and its Subsidiaries for the fiscal
periods ended on such dates, all in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods involved, except as may be noted therein.
(g) Absence of Certain Changes. Except for such activities undertaken
between the date of this Agreement and the Effective Time reasonably
necessary in connection with the transactions contem-
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plated by this Agreement and except as set forth in the Disclosure Letter,
since December 31, 1995, except, with respect to each business operated by
EMD and its Subsidiaries, as experienced generally by companies operating
businesses similar to such business, neither EMD nor any Subsidiary has
undergone or suffered any change in its financial condition, properties,
business or results of operations which has been, individually or in the
aggregate, materially adverse to EMD and its Subsidiaries, taken as a
whole. Except as set forth in the Disclosure Letter since September 30,
1995, neither EMD nor any of its Subsidiaries has (i) increased in any
manner the compensation of any director, officer or other employee; (ii)
granted any severance or termination pay except as required under those
agreements, policies or plans listed in Schedule 3.1(s) of the Disclosure
Letter; (iii) established, adopted, entered into, extended or amended,
except to the extent required by applicable law, any EMD Benefit Plan (as
defined in Section 3.1(s)); or (iv) conducted its business other than in
the ordinary and usual course.
(h) Information in Form S-4. None of the information prepared or
supplied by EMD or its officers, directors, employees or agents and
contained in Benchmark's Registration Statement on Form S-4 (including all
amendments and supplements thereto, the "Form S-4") under the Securities
Act of 1933, as amended (the "Securities Act"), including the related
Prospectus included in such Form S-4 (including all amendments and
supplements thereto, the "Prospectus") relating to the shares of Benchmark
Common Stock and Series A Preferred Stock to be issued in the Merger, will,
as of (i) the effectiveness of the Form S-4 under the Securities Act, (ii)
the date the Form S-4 is first mailed to the shareholders of EMD, (iii) the
date of the special meeting of the shareholders of EMD held for the purpose
of voting on the Merger and this Agreement, or (iv) the Effective Time, be
false or misleading with respect to any material fact, or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
or were made, not misleading. EMD will promptly notify Benchmark in writing
if prior to the Effective Time it shall obtain knowledge of any fact that
would make it necessary to amend the Form S-4 or the Prospectus in order to
render the statements therein not misleading or to comply with applicable
law.
(i) Governmental Filings and Consents. Except for such filings and
approvals as may be required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), and the filing and recordation of
the Articles of Merger in accordance with the MBCA and the TBCA, no
notices, reports or other filings ("Governmental Filings") are required to
be made by EMD or any of its Subsidiaries with, nor are any consents,
registrations, approvals, permits or authorizations ("Governmental
Consents") required to be obtained by EMD or any of its Subsidiaries from,
any governmental or regulatory authorities of the United States, the
several states or any foreign jurisdiction in connection with the execution
and delivery of this Agreement by EMD and the consummation of the
transactions contemplated hereby.
(j) Litigation. There are no actions, suits, investigations or
proceedings pending or, to the knowledge of EMD or the Founding
Shareholders, threatened against EMD or any of its Subsidiaries that, if
adversely determined, could reasonably be expected to result in any claims
against or obligations or liabilities of EMD or any of its Subsidiaries,
except for such obligations and liabilities as, in the aggregate, would not
have a material adverse effect on the financial condition, properties,
businesses or results of operations of EMD and its Subsidiaries, taken as a
whole.
(k) Undisclosed Liabilities. Except as disclosed in the Disclosure
Letter or disclosed or specifically reserved against in EMD's Financial
Statements at and for the year ended December 31, 1995, EMD and its
Subsidiaries have not incurred or otherwise become liable for any direct or
indirect material liability, indebtedness, obligation, expense, claim,
deficiency, guaranty or endorsement of or by any person ("Liabilities")
except for Liabilities arising in the ordinary course of business
consistent with past practice or in connection with the transactions
contemplated by this Agreement. Except as set forth in the Disclosure
Letter, neither EMD nor either of the Founding Shareholders knows of any
basis for assertion against EMD or any of its Subsidiaries of any
Liabilities not adequately reflected in the Financial Statements of EMD,
except for the Liabilities as contemplated by (and in the maximum amount
specified in) Section 7.1 and other Liabilities which, in the aggregate,
would not have a material adverse
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effect on the financial condition, properties, businesses or results of
operations of EMD and its Subsidiaries, taken as a whole.
(l) Employment and Noncompetition Agreements. Except as set forth in
the Disclosure Letter, neither EMD nor any of its Subsidiaries is a party
to any employment, consulting, noncompetition, nonsolicitation or other
similar agreement.
(m) Material Contracts. All agreements, personal property and fixture
leases, contracts, notes, mortgages, indentures, arrangements or other
obligations of EMD or any of its Subsidiaries requiring an annual
expenditure by EMD or any of its Subsidiaries of $50,000 per year and all
leases of real property regardless of annual expenditure (the "Material
Contracts") are listed in the Disclosure Letter and are valid, binding and
enforceable in accordance with their terms except to the extent limited by
bankruptcy or other laws affecting creditors' rights generally. True,
correct and complete copies of all Material Contracts have been made
available to Benchmark. EMD and each of its Subsidiaries have fulfilled, or
will be able to fulfill when due, all of its obligations under the Material
Contracts, except for failures to fulfill its obligations which, in the
aggregate, would not have a material adverse effect on the financial
condition, properties, businesses or results of operations of EMD and its
Subsidiaries, taken as a whole. No default by EMD or any of its
Subsidiaries under any Material Contract has occurred and is continuing,
except for any default which would not give another person the right, with
or without giving of notice or lapse of time, or both, to terminate or
materially modify the terms of such contract and except for terminations
and modifications which would not have a material adverse effect on the
financial condition, properties, businesses or results of operations of EMD
and its Subsidiaries, taken as a whole. Neither EMD nor either of the
Founding Shareholders has any knowledge of any material default or claimed,
threatened or alleged material default by any other party under any term or
provision of any Material Contract. Except as set forth in the Disclosure
Letter, there are no developments known to EMD or the Founding Shareholders
materially affecting any Material Contract that might prevent EMD or any of
its Subsidiaries that is a party thereto from realizing the benefits of any
such Material Contract or that might prevent the Surviving Corporation from
realizing such benefits after the completion of the Merger. Except as set
forth in the Disclosure Letter, no consents or approvals of any party to
any Material Contract are required to be obtained by EMD in connection with
the execution and delivery of this Agreement by EMD and the consummation of
the transactions contemplated hereby.
(n) Powers of Attorney and Certain Authorized Persons. Except as set
forth in the Disclosure Letter, no person holds a power of attorney from
EMD or any of its Subsidiaries. Except as set forth in the Disclosure
Letter, no person other than the executive officers of EMD and of EMD
Associates, Inc. is authorized to borrow money or incur or guarantee
indebtedness on behalf of EMD or any of its Subsidiaries.
(o) Title to and Condition of Property. EMD and its Subsidiaries,
respectively, own and have good and marketable title or valid leasehold
title, free and clear of all liens, claims, encumbrances, commitments or
other charges not disclosed in the Financial Statements, to all real
property, buildings, fixtures, equipment, machinery, tools and other
personal property reflected in the Disclosure Letter and to all inventory.
The Disclosure Letter contains a list of all such property, other than
inventory and consigned property, which is material to the operation of the
business of EMD or any of its Subsidiaries or which is shown as an asset on
the balance sheet of EMD as of December 31, 1995 (subject to the reserves
provided for therein), except for property which has been disposed of in
the ordinary course of business since such date and except for assets
disposed of in transactions referred to in Schedule 3.1(g) of the
Disclosure Letter and unused test equipment. All vehicles and equipment and
all other tangible assets and properties owned or leased by EMD and its
Subsidiaries are in good operating condition and repair (ordinary wear and
tear excepted) and are usable in the ordinary course of the EMD Business
consistent with past practice and conform in all material respects to all
applicable regulations relating to their use and operation, except for
failures to so conform which, in the aggregate, would not have a material
adverse effect on the financial condition, properties, businesses or
results of operations of EMD and its Subsidiaries, taken as a whole.
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(p) Patents, Copyrights, Service Marks and Trademarks. Neither EMD
nor any of its Subsidiaries is the owner of any registered patent,
copyright, trademark, servicemark, tradename or servicename. Except as set
forth in the Disclosure Letter, EMD or one of its Subsidiaries has full and
sufficient rights to use and practice all technology, trade secrets,
know-how and other proprietary information used or practiced in the
operation of their respective businesses, free and clear of all liens,
claims, encumbrances, commitments, assignments, licenses, claims and rights
of others. To the knowledge of EMD and the Founding Shareholders, neither
EMD nor any of its Subsidiaries has infringed or is infringing on the right
or interest of any other person or entity to or in any patent, copyright,
trade or service mark or trade or service name. Except as set forth in the
Disclosure Letter, neither EMD nor either of the Founding Shareholders has
any knowledge of any claim, whether actual or threatened, against EMD or
any of its Subsidiaries for any such infringement.
(q) Insurance. All insurance coverage applicable to EMD and its
Subsidiaries and the EMD Business is listed in the Disclosure Letter and is
in full force and effect, is valid, binding and enforceable in accordance
with its terms against the respective insurers, insures EMD and its
Subsidiaries in reasonably sufficient amounts against all risks usually
insured against by persons operating similar businesses or properties in
the localities where such businesses or properties are located and has been
issued by insurers of recognized responsibility. There is no default under
such coverage nor has there been any failure to give notice or present any
claim under any such coverage in due and timely fashion. There are no
outstanding past due unpaid premiums and no notice of cancellation or
non-renewal of any such coverage has been received. Neither EMD nor either
of the Founding Shareholders knows of the occurrence of any event which
reasonably might form the basis of any claim against EMD or its
Subsidiaries or its or their assets or properties or which might increase
the insurance premiums payable for any such coverage, except for such
claims and increases as would not in the aggregate have a material adverse
effect on the financial condition, properties, businesses or results of
operations of EMD and its Subsidiaries, taken as a whole. There are no
outstanding performance bonds covering EMD or any of its Subsidiaries or
their respective operations which, individually or in the aggregate, are
material to the EMD Business.
(r) Labor Matters. Neither EMD nor any of its Subsidiaries is a party
to, otherwise bound by or subject to any Liability in connection with any
collective bargaining agreement. Since December 31, 1993, no strike,
slowdown, picketing or work stoppage by any union or other group of
employees against EMD or any Subsidiary, or their respective assets or
properties wherever located, secondary boycott with respect to its
products, lockout by any of them of any of their respective employees or
any other labor trouble or other occurrence, event or condition of a
similar character has occurred or, to the knowledge of EMD or either of the
Founding Shareholders, has been threatened affecting the EMD Business.
(s) Employee Benefit Plans.
(i) General. All "employee benefit plans," as such term is defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and any other deferred compensation, stock
purchase, stock option, stock incentive, other incentive, bonus,
severance or fringe benefit plan, program, policy or arrangement,
whether written or unwritten, formal or informal, maintained or
contributed to by EMD or any of its Subsidiaries (collectively, the "EMD
Benefit Plans") for the benefit of EMD's or any Subsidiary's employees
are identified in the Disclosure Letter. All such EMD Benefit Plans have
been maintained in compliance with, to the extent applicable, ERISA, the
Code and all other regulations, except for such failures to comply
which, in the aggregate, would not have a material adverse effect on the
financial condition, properties, businesses or results of operations of
EMD and its Subsidiaries, taken as a whole. There is no current matter,
including without limitation, any matter involving the administration,
operation, expenses and funds of such EMD Benefit Plans, that would
either materially adversely affect such EMD Benefit Plans or impose any
Liability material to the financial condition, properties, business or
results of operations of EMD and its Subsidiaries, taken as a whole,
except for those expenses and funding obligations regularly incurred
under the terms of such plans. EMD and its Subsidiaries do not now, and
have not at any time sponsored, maintained, adopted, contributed or been
obligated to
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contribute to any employee pension benefit plans, pursuant to Section
3(2) of ERISA, for the benefit of EMD's or any Subsidiary's employees
which are or ever were subject to the provisions of Title IV of ERISA.
(ii) Prohibited Transactions. There has not occurred, nor is any
person or entity contractually bound to enter into, any transaction
which constitutes a prohibited transaction as defined in Section 406 or
Section 407 of ERISA or Section 4975 of the Code with respect to any EMD
Benefit Plan that is subject to such provisions of ERISA or the Code.
(iii) Multi-employer Plan Liability. None of EMD and its
Subsidiaries is now, or has ever been, a party to, or become subject to,
any collective bargaining agreements with respect to EMD's or any
Subsidiary's employees pursuant to which any of them has been, is or
will become obligated to contribute to a "multi-employer plan" as that
term is defined in Section 4001(a)(3) of ERISA.
(iv) Controlled Group Relationships. None of EMD and its
Subsidiaries is now, or has ever been, a part of either (A) a controlled
group of corporations within the meaning of Section 414(b) of the Code,
(B) a group of trades or businesses under common control within the
meaning of Section 414(c) of the Code, or (C) an affiliated service
group within the meaning of Section 414(m) of the Code, except as to
which, in each case, EMD and its Subsidiaries have not incurred, and
will not incur, any liability material to the financial condition,
properties, businesses or results of operations of EMD and its
Subsidiaries, taken as a whole.
(v) Reporting and Disclosure Obligations. EMD and its Subsidiaries
have filed or caused to be filed on a timely basis all returns, reports,
statements, notices and other documents required under any applicable
regulations with respect to each EMD Benefit Plan, and have delivered or
caused to be delivered to every participant, beneficiary and other party
entitled to such material all plan descriptions, returns, reports,
schedules, notices, statements and similar materials required under any
applicable regulations with respect to each EMD Benefit Plan, including
without limitation summary descriptions and reports, as are required
under Title I of ERISA and/or the Code, except for failures to file or
deliver which, in the aggregate, could not reasonably be expected to
have a material adverse effect on the financial condition, properties,
businesses or results of operations of EMD and its Subsidiaries, taken
as a whole.
(t) Transactions with Affiliates. Except to the extent described in
the Disclosure Letter and provided for in this Agreement, no director or
officer of EMD or shareholder holding more than 10% of the voting
securities of EMD or any member of the immediate family or any other of the
affiliates of any of the foregoing owns or has an ownership interest in any
corporation or other entity that is a party to, or in any property which is
the subject of, business arrangements or relationships of any kind with EMD
or any of its Subsidiaries.
(u) Environmental Matters. Except as set forth in the Disclosure
Letter and except for matters which, individually or in the aggregate,
could not reasonably be expected to have a material adverse effect on EMD
and its Subsidiaries, taken as a whole, (i) to the knowledge of EMD and the
Founding Shareholders, no Releases of Hazardous Materials or violations of
Environmental Laws have occurred at or from any property which is the
subject of this transaction or which was otherwise owned, operated, or used
(including third party sites at which disposals from the operations
occurred) at any time by EMD or any of its Subsidiaries or their
predecessors; (ii) there are no pending or, to the knowledge of EMD and the
Founding Shareholders, threatened Environmental Claims, and for the past
ten years there have been no Environmental Claims, against EMD or any of
its Subsidiaries; (iii) to the knowledge of EMD and the Founding
Shareholders there are no underground storage tanks, polychlorinated
biphenyls, or asbestos-containing materials owned by EMD or its any of its
Subsidiaries, or located at any facility owned or operated by EMD or any of
its Subsidiaries; (iv) to the knowledge of EMD and the Founding
Shareholders, there are no facts, circumstances, or conditions that would
reasonably be expected to give rise to liability under any Environmental
Laws or to restrict, under any Environmental Laws or Environmental Permit
in effect prior to or at the Closing Date, the ownership, occupancy, use or
transferability of any property owned, operated, or leased by EMD or any of
its Subsidiaries; (v) to the
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knowledge of EMD and the Founding Shareholders, EMD and its Subsidiaries
have not disposed, treated, or arranged for the disposal or treatment of
any toxic or hazardous wastes, materials or Hazardous Materials at a site
or location, or leased, used, operated or owned a site or location, which
(x) has been or is proposed to be placed on the National Priorities List or
its state equivalent pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act, as amended ("CERCLA"), or similar foreign,
territorial or state law; (y) is subject to a lien, administrative order or
other demand either to take response or other action under CERCLA or other
Environmental Laws, or to develop or implement a "Corrective Action Plan"
or "Compliance Plan," as each is defined in regulations promulgated
pursuant to the Resource Conservation and Recovery Act, as amended
("RCRA"), or to reimburse any person who has taken response or other action
in connection with that site; or (z) is on any Comprehensive Environmental
Response Compensation Liability Information System List; (vi) to the
knowledge of EMD and the Founding Shareholders, the facilities owned,
leased, or operated by EMD or its Subsidiaries are adequate and sufficient
for the current operations of EMD and its Subsidiaries in conformance with
all applicable requirements of Environmental Laws; (vii) to the knowledge
of EMD and the Founding Shareholders, EMD and its Subsidiaries are in
compliance with all Environmental Laws and Environmental Permits relating
to or affecting the assets, business or operations of EMD or its
Subsidiaries. To the extent that the foregoing representations and
warranties are qualified by the knowledge of EMD and the Founding
Shareholders, such representations and warranties shall be qualified only
as to knowledge of factual matters, and it shall not be a defense to a
claim of breach of any of such representations and warranties that any
person did not have knowledge of the existence or applicability of any
Environmental Law. As used herein:
"Environmental Claims" means any and all administrative, regulatory
or judicial actions, suits, demands, demand letters, orders, claims,
liens, notices of noncompliance or violations, investigations or
proceedings related to any applicable Environmental Laws or any
Environmental Permit brought, issued or asserted by: (i) a governmental
or regulatory authority or third party for compliance, damages,
penalties, removal, response, cleanup, cost recovery, remedial or other
action, injunctive relief, or for contribution or indemnity with respect
thereto, pursuant to any applicable Environmental Laws; or (ii) a third
party seeking damages for personal injury or property damage resulting
from the release of a Hazardous Material at, to or from any facility of
EMD or any of its Subsidiaries, including but not limited to EMD or
Subsidiary employees seeking damages for exposure to Hazardous Materials
(An Environmental Claim includes, but is not limited to, a common law
action, as well as a proceeding to issue, modify, terminate, or enforce
the provisions of an Environmental Permit or requirement of
Environmental Laws, or to adopt or amend a regulation to the extent that
such a proceeding attempts to address violations or alleged violations
of the applicable permit, license, or regulation.);
"Environmental Laws" means all applicable federal, state,
provincial, territorial, foreign, and local laws, statutes, ordinances,
codes, policies (to the extent they have the force of law), rules and
regulations, judicial or administrative decisions, decrees or orders
related to protection of the environment and/or the handling, use,
generation, treatment, storage, transportation, or disposal of Hazardous
Materials;
"Environmental Permit" means all permits, licenses, identification
numbers, approvals, authorizations, or consents required by any
governmental authority under any applicable Environmental Laws and
includes any and all orders, consent orders or binding agreements issued
or entered into by or with a governmental authority under any applicable
Environmental Laws and applicable to or binding upon EMD or any of its
Subsidiaries or their operations;
"Hazardous Material" means any pollutant, contaminant, toxic
substance, hazardous or extremely hazardous substance or chemical, solid
or hazardous waste, special, liquid, industrial or other waste,
hazardous material, or other material, substance or agent (whether in
solid, liquid or gaseous form) which is regulated as of the Closing Date
by any state or local governmental authority or the United States or
under any Environmental Laws, including, without limitation, any
material or substance that is: (i) defined as a "hazardous substance"
under applicable state law;
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(ii) petroleum or petroleum products, including, but not limited to,
used oil; (iii) asbestos or asbestos-containing materials; (iv)
designated as a "hazardous substance" pursuant to Section 311 of the
Federal Water Pollution Control Act, as amended, 33 U.S.C. sec. 1251 et
seq.; (v) defined as a "hazardous waste" by or under the federal
Resource Conversation and Recovery Act, as amended, 42 U.S.C. sec. 6901
et seq.; (vi) defined as a "hazardous substance" pursuant to Section 101
of the Comprehensive Environmental Response, Compensation and Liability
Act, as amended, 42 U.S.C. sec. 9601 et seq.; (vii) defined as a
"regulated substance" pursuant to Section 9001 of the federal Resource
Conservation and Recovery Act, as amended, 42 U.S.C. sec. 6901 et seq.;
(viii) regulated as an air pollutant by or under the Clean Air Act, as
amended, 42 U.S.C. sec. 7401 et seq., or (ix) otherwise regulated under
the Toxic Substances Control Act, 15 U.S.C. sec. 2601 et seq., the
Hazardous Materials Transportation Act, as amended, 49 U.S.C. sec. 5101
et seq., the Oil Pollution Act of 1990, 33 U.S.C. sec. 2701 et seq., the
Safe Drinking Water Act, 42 U.S.C. sec. 300f, et seq., the Atomic Energy
Act, 42 U.S.C. sec. 2011 et seq., the Emergency Planning and Community
Right-To-Know Act, 42 U.S.C. sec. 11001 et seq., or the Federal
Insecticide, Fungicide and Rodenticide Act, as amended, 7 U.S.C.
sec. 136 et seq.; and
"Release," as referred to herein, shall mean any release, spill,
emission, leaking, pumping, injection, deposit, disposal, discharge,
dispersal, leaching or migration of any Hazardous Material into the
environment or into or out of any property, including the movement of
any Hazardous Material through or in the air, soil, surface water,
groundwater, or property.
(v) Tax Matters. Except as set forth in the Disclosure Letter:
(i) EMD and its Subsidiaries have filed or caused to be filed all
federal, state, local, foreign or other Tax (as defined in Section
3.1(v)(v)) returns ("Tax Returns") of every nature required to be filed
by them, other than failures to file which, in the aggregate, would not
have a material adverse effect on the financial condition, properties,
businesses or results of operations of EMD and its Subsidiaries, taken
as a whole;
(ii) Neither EMD nor any of its Subsidiaries has obtained any
extensions of time in which to file any Tax Returns which have not yet
been filed;
(iii) Each Tax Return filed by EMD or any of its Subsidiaries is
complete and correct in all material respects;
(iv) No claim or assertion has been made against EMD or any of its
Subsidiaries by any tax authority in any jurisdiction in which no Tax
Return has been filed by EMD or by any Subsidiary that EMD or the
Subsidiary is or may be subject to taxation of any sort in that
jurisdiction or otherwise is required to file a Tax Return;
(v) All Taxes owed by EMD or any of its Subsidiaries (whether or
not shown on any Tax Return) have been timely paid, except for failures
to make payment which, in the aggregate, would not have a material
adverse effect on the financial condition, properties, businesses or
results of operations of EMD and its Subsidiaries, taken as a whole. For
purposes of this Agreement, "Tax" means any federal, state, local or
foreign income, gross receipts, license, payroll, unemployment, excise,
severance, stamp, occupation, premium, windfall profits, environmental
(including, but not limited to, taxes under Section 59A of the Code),
customs, duties, capital stock, franchise, profits, withholding, Social
Security, unemployment, disability, real property, personal property,
sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or any other kind of tax whatsoever, including any
interest, addition, penalty or other associated charge thereto, whether
disputed or not;
(vi) There are no Tax liens or other security interests or
encumbrances of any type resulting from Tax liabilities on any of the
assets of EMD or any of its Subsidiaries other than liens that can be
cleared without material expense to EMD and other than inchoate tax
liens arising in the ordinary course of business;
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(vii) EMD and its Subsidiaries have withheld and paid all Taxes
required to be withheld and paid in connection with amounts paid or
owing to any employee, creditor, independent contractor or any other
party, except for failures to withhold or pay which, in the aggregate,
would not have a material adverse effect on the financial condition,
properties, businesses or results of operations of EMD and its
Subsidiaries, taken as a whole;
(viii) There is no dispute, claim or any other controversy
concerning any Tax liability of EMD or any of its Subsidiaries either
(A) raised or asserted by any Tax authority in writing; or (B) whether
or not formally asserted or claimed, as to which the chief financial
officer or the chief accounting officer or any other officer or employee
of EMD or any of its Subsidiaries with authority for Tax matters has any
knowledge. EMD has made available to Benchmark a correct and complete
copy of each federal Income Tax Return, examination report, statement of
deficiency, or any other administrative or judicial assertion,
assessment or determination of federal Income Tax liability with respect
to EMD or any of its Subsidiaries;
(ix) Each method of Tax accounting employed by EMD or any of its
Subsidiaries, and material to the tax position of EMD and its
Subsidiaries, is a permissible method of Tax accounting, validly
elected, with respect to EMD or such Subsidiary. Neither EMD nor any of
its Subsidiaries has changed, or requested to be permitted to change,
any method of Tax accounting;
(x) Neither EMD nor any of its Subsidiaries has waived any statute
of limitations with respect to federal or state Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency, except
for such waivers or extensions which, by their terms, have elapsed as of
the date of this Agreement;
(xi) Neither EMD nor any of its Subsidiaries:
(A) has filed a consent under Section 341(f) of the Code
concerning collapsible corporations;
(B) has made any payments, is obligated to make any payments, or
is a party to any agreement that could render it (or the payor of
compensation under the agreement) subject to the provisions of
Section 280G of the Code regarding payments as a result of a change
in control;
(C) has been a United States real property holding company
within the meaning of Section 897(c)(2);
(D) has failed to disclose on its Tax return any positions taken
therein that could give rise to a substantial understatement of
Federal Income Tax liability within the meaning of Section 6661 of
the Code;
(E) is a party to any Tax allocation or Tax sharing agreement;
or
(F) has any material liability for unpaid Taxes because it once
was a member of an affiliated group (within the meaning of Section
1504(a) of the Code or any similar group defined under a similar
provision of state, local or foreign law) during any part of any tax
year within any part of which any entity other than EMD or one of its
Subsidiaries was also a member of the affiliated group; and
(xii) The unpaid Taxes of EMD and its Subsidiaries do not
materially exceed the reserve for Tax liability (other than any reserve
for deferred Taxes to reflect timing differences between book and Tax
income) set forth on the balance sheet dated December 31, 1995 included
in the Financial Statements, as adjusted for time through the Closing
Date in accordance with the past reasonable custom of EMD and its
Subsidiaries.
(w) Financial Advisors. Except as specified in the Disclosure Letter,
none of EMD or any of its Subsidiaries or any of their officers, directors
or employees has employed any financial advisor, broker or
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finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions or finders' fees in connection with the transactions
contemplated herein.
(x) Inventories and Receivables. The inventory of EMD and its
Subsidiaries as of December 31, 1995 is reflected in EMD's Financial
Statements as of such date in accordance with GAAP (subject to the reserves
provided for therein). Except as disclosed in the Disclosure Letter, (i)
since December 31, 1995, except for inventory disposed of in the
transactions referred to in Schedule 3.1(g) of the Disclosure Letter, EMD
and its Subsidiaries have acquired and disposed of inventory only in the
ordinary course of business, (ii) to the knowledge of EMD and the Founding
Shareholders, the booked inventory of EMD and its Subsidiaries consists in
all material respects of items of a quality salable or usable in the
ordinary course of business (except to the extent returnable to the vendors
thereof for the full purchase price), (iii) neither EMD nor any of its
Subsidiaries is bound by any inventory purchase commitment, whether oral or
written, formal or informal, that is not cancelable by EMD or such
Subsidiary without penalty on 60 days notice or ordered in connection with
a valid purchase order, letter of intent, instruction, forecast or
manufacturing agreement from a customer, (iv) subject to normal reserves in
accordance with past practice not exceeding the amounts of such reserves in
the Financial Statements, the accounts receivable of EMD and its
Subsidiaries are, and as of the Effective Time will be, valid, subject to
no counterclaim, set-off or other deduction (other than those arising from
standard procedures relating to the retest, repair and replacement of
customer returns described in Schedule 3.1(z) of the Disclosure Letter),
and (v) none of the obligors under the accounts receivable of EMD and its
Subsidiaries has refused to pay, or given notice that it will refuse to
pay, the full amount or any portion thereof.
(y) Future Product Deliveries. Except as described in the Disclosure
Letter, neither EMD nor any of its Subsidiaries is a party to any contract
or arrangement for the sale of product under which it (i) has received any
payment for goods or services not yet delivered that EMD or its
Subsidiaries are obligated to deliver, (ii) has delivered more goods or
services than the other party is obligated to purchase, (iii) is required
to "make up" or recoup any deliveries of goods or services to any other
party that have not been delivered, or (iv) has delivered fewer goods or
services than the other party thereto has paid for or is obligated to
purchase.
(z) Warranty Claims. EMD has made available to Benchmark true,
correct and complete copies of all product warranties issued or made by EMD
and its Subsidiaries in connection with the sale or lease of any product or
the rendition of any service. EMD has disclosed to Benchmark its standard
procedures with regard to the retest, repair and replacement of customer
returns, as outlined in the Disclosure Letter. Neither EMD nor either of
the Founding Shareholders knows of any existing or threatened material
claim, or any facts upon which a material claim could be based, against EMD
or any of its Subsidiaries for merchandise which is defective, defectively
designed or otherwise fails to satisfy the terms of any product warranty;
provided however that the products of EMD and its Subsidiaries are subject
to the retest, repair and replacement procedures outlined in the Disclosure
Letter. Except as disclosed in the Disclosure Letter, (i) all existing
warranty, product liability and similar claims have been adequately accrued
for or reserved against in the Financial Statements, and (ii) no material
warranty, product liability or other claims of a similar nature are now
outstanding against EMD or any of its Subsidiaries. Except to the extent
consistent with industry norms, no claim has been asserted against EMD or
any of its Subsidiaries for renegotiation or price redetermination of any
material business transaction, and neither EMD nor either of the Founding
Shareholders has knowledge of any facts upon which any such claim
reasonably could be based.
(aa) Availability of Assets. Except as set forth in the Disclosure
Letter, and except for personal property of nominal value owned by officers
and employees of EMD and its Subsidiaries, and automobiles owned by
officers and employees of EMD, (i) EMD and its Subsidiaries own or have
adequate and sufficient rights to use all of the assets and properties,
real, personal, tangible and intangible, which are used in or necessary for
the operation of its business as a going concern on a basis consistent with
past practices and (ii) the assets owned, leased, licensed or consigned by
or to EMD and its Subsidiaries constitute all the assets that are being
used in its business.
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(bb) Relations with Customers and Suppliers. Except as described in
the Disclosure Letter attached hereto, to the knowledge of EMD and the
Founding Shareholders, EMD and its Subsidiaries have satisfactory
commercial relationships with its significant customers who have purchased
goods or services from EMD and its Subsidiaries at any time during the past
two years and suppliers of goods and services to its facilities who have
supplied goods or services to EMD and its Subsidiaries at any time during
the past two years. Except as disclosed in the Disclosure Letter, to the
knowledge of EMD and the Founding Shareholders neither the public
announcement nor consummation of the transactions contemplated hereby will
cause any customer or supplier to terminate its business relationship with
EMD or its Subsidiary.
(cc) Absence of Certain Commercial Practices. None of EMD, any of its
Subsidiaries or any of their respective directors or officers and, to the
knowledge of EMD and its Founding Shareholders, none of EMD's or its
Subsidiaries' agents, affiliates, or employees, or other persons acting on
behalf of any of EMD, any of its Subsidiaries or any of their respective
directors, officers, agents, affiliates or employees, has (i) given,
proposed to give, or agreed to give any material gift or similar benefit to
any customer, supplier or governmental employee or official or any other
person, for the purpose of directly or indirectly furthering the EMD
Business or assisting EMD or its Subsidiaries with any proposed
transaction, or which, if not continued in the future, could reasonably be
expected to adversely affect EMD and its Subsidiaries, or (ii) in
connection with the EMD Business used any corporate or other funds for
contributions, payments, gifts, or entertainment, or made any expenditures
relating to political activities to government officials or others in
violation of any applicable laws or established or maintained any unlawful
or unrecorded funds. None of EMD, any of its Subsidiaries or any of their
respective directors or officers and, to the knowledge of EMD and the
Founding Shareholders, none of EMD's or its Subsidiaries' agents,
affiliates or employees, or other persons acting on behalf of any of EMD,
any of its Subsidiaries or any of their respective directors, officers,
agents, affiliates or employees, has accepted or received any unlawful
contributions, payments, gifts, or expenditures in connection with the
business of EMD or its Subsidiaries.
(dd) Books and Records. (i) The minute books and stock ledgers of EMD
and its Subsidiaries that have been made available to Benchmark, its
representatives or affiliates constitute all of the minute books and stock
ledgers of EMD and its Subsidiaries and contain a complete and accurate
record of all actions of the shareholders and directors (and any committees
thereof) of EMD and its Subsidiaries. All personnel files, reports,
feasibility studies, strategic planning documents, financial forecasts,
lease files, land files, accounting and tax records and all of the records
of every type and description in whatever form or medium that relate to the
business and properties of EMD and its Subsidiaries and are in the
possession or control of EMD or the Founding Shareholders have been made
available to Benchmark, its representatives or affiliates, and are located
at the offices of EMD.
(ii) Each of EMD and its Subsidiaries makes and keeps books, records
and accounts which, in reasonable detail and in all material respects,
accurately and fairly reflect its transactions and dispositions of its
assets and securities and maintains a system of internal accounting
controls sufficient to provide assurances that (A) transactions involving
EMD and its Subsidiaries are executed in accordance with management's
general or specific authorizations; (B) transactions are recorded as
necessary (I) to permit the preparation of financial statements in
conformity with generally accepted accounting principles consistently
applied or any other criteria applicable to such statements, and (II) to
maintain accountability for assets; (C) access to assets of EMD and its
Subsidiaries is permitted only in accordance with management's general or
specific authorizations; and (D) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(ee) Disclosure. No representation or warranty by EMD in this
Agreement and no statement contained in the Disclosure Letter or any
certificate delivered by EMD or the Founding Shareholders to Benchmark or
Newco pursuant to this Agreement, contains any untrue statement of a
material fact or omits any material fact necessary in order to make the
statements herein or therein, in light of the circumstances under which
they are or were made, not misleading. The Disclosure Letter is true,
correct
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and complete on and as of the date hereof and EMD and the Founding
Shareholders have not omitted any information from the Disclosure Letter in
reliance on their right to supplement the Disclosure Letter pursuant to
Section 3.4 hereof.
(ff) Materiality. The materiality qualifications contained in the
representations and warranties set forth in this Section 3.1 in the
aggregate do not have, and could not reasonably be expected to have, a
material adverse effect on the business, operations, properties, assets,
condition (financial or otherwise), or results of operations of EMD and its
Subsidiaries, taken as a whole.
3.2. Representations and Warranties of Benchmark and Newco. Benchmark and
Newco represent and warrant to EMD that:
(a) Corporate Organization and Qualification. Each of Benchmark and
Newco is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has the
corporate power and authority to carry on its businesses as they are now
being conducted. Benchmark has no Subsidiaries other than Newco.
(b) Corporate Authority. Each of Benchmark and Newco has the
requisite corporate power and authority and has taken all corporate action
necessary in order to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by each of Benchmark and Newco and
constitutes a legal, valid and binding agreement of each of them
enforceable against each of them in accordance with its terms, except that
(i) such enforcement may be subject to bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
(c) No Conflicts or Violations. The execution and delivery of this
Agreement by Benchmark and Newco do not, and the consummation by Benchmark
and Newco of the transactions contemplated hereby will not, constitute or
result in (i) a breach or violation of, or a default under, the Articles of
Incorporation or By-Laws of either Benchmark or Newco or (ii) a breach or
violation of, a default under, the creation of a right to terminate, the
acceleration of or the creation of a lien, pledge, security interest or
other encumbrance on assets pursuant to (with or without the giving of
notice or the lapse of time), any provision of any agreement, lease,
contract, note, mortgage, indenture, arrangement or other obligation of
Benchmark or Newco or any law, rule, ordinance or regulation or judgment,
decree, order, award or governmental or non-governmental permit or license
to which Benchmark or Newco is subject except, in the case of clause (ii)
above, for such breaches, violations, defaults, accelerations or liens
which, alone or in the aggregate, would not have a material adverse effect
on the financial condition, properties, business or results of operations
of Benchmark or on the consummation of the transactions contemplated by
this Agreement.
(d) Benchmark Reports; Financial Statements. Benchmark has delivered
to EMD true and correct copies of (i) each registration statement, Current
Report on Form 8-K, proxy statement or information statement filed or
issued by it since December 31, 1994, and all amendments thereto, (ii)
Benchmark's Annual Report on Form 10-K for the fiscal year ended December
31, 1994 and (iii) Quarterly Reports on Form 10-Q for the periods ended
March 31, June 30, and September 30, 1995, each in the form (including
exhibits) filed with the Securities and Exchange Commission (the "SEC")
(collectively, the "Benchmark Reports"). Each Benchmark Report was prepared
and filed in accordance with all applicable rules and regulations of the
SEC and at the time of its filing was otherwise in compliance with such
rules and regulations in all material respects. As of their respective
dates, the Benchmark Reports did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein not misleading,
except as the same was corrected or superseded in a subsequent report or
statement filed with the SEC prior to the date hereof, which subsequent
report or statement has been delivered to EMD. Each of the consolidated
balance sheets included in or incorporated by reference into the Benchmark
Reports
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(including the related notes and schedules) presents fairly the
consolidated financial position of Benchmark as of its date and each of the
consolidated statements of operations and cash flows included in or
incorporated by reference into the Benchmark Reports (including any related
notes and schedules) presents fairly the results of operations and cash
flows of Benchmark for the periods set forth therein (subject, in the case
of unaudited statements, to the omission of certain notes not ordinarily
accompanying unaudited financial statements, and to normal year-end audit
adjustments which will not be material to Benchmark in amount or effect),
in each case in accordance with GAAP consistently applied during the
periods involved, except as may be noted therein.
(e) Absence of Certain Changes. Except as disclosed in the benchmark
reports, since December 31, 1995 (i) Benchmark has conducted its business
only in the ordinary and usual course and (ii) Benchmark has not undergone
or suffered any change in its financial condition, properties, business or
results of operations that has been, individually or in the aggregate,
materially adverse to Benchmark except for any changes in its properties or
business attributable to the transactions contemplated by this Agreement.
(f) Governmental Filings and Consents. Except for the filings
provided for in Section 1.5, filings required pursuant to applicable
federal or state securities laws and stock exchange regulations, and
filings required under the HSR Act, no Governmental Filings are required to
be made nor are any Governmental Consents required to be obtained by
Benchmark or Newco in connection with the execution and delivery of this
Agreement by Benchmark and Newco and the consummation of the transactions
contemplated hereby.
(g) Litigation. Except as disclosed in the Benchmark Reports, there
are no actions, suits, investigations or proceedings pending or, to the
knowledge of Benchmark, threatened against Benchmark that, if adversely
determined, could result in any claims against or obligations or
liabilities of Benchmark, except for such obligations and liabilities as,
in the aggregate, would not have a material adverse effect on the financial
condition, properties, business or results of operations of Benchmark.
(h) Financial Advisors. None of Benchmark, Newco or any of their
officers, directors or employees has employed any financial advisor, broker
or finder or incurred any liability for any financial advisory fees,
brokerage fees, commissions or finders' fees in connection with the
transactions contemplated herein, except that Benchmark has employed
Stephens, Inc. as its financial advisor.
(i) Capitalization of Benchmark; Benchmark Common Stock; Newco. The
authorized capital stock of Benchmark consists of 10,000,000 shares of
Benchmark Common Stock, and 5,000,000 shares of preferred stock, par value
$.10 per share. As of September 30, 1995, there were 4,020,100 shares of
Benchmark Common Stock issued and outstanding, 24,742 shares of Benchmark
Common Stock held in treasury and no shares of Benchmark's preferred stock
had been issued. All of the outstanding shares of Benchmark Common Stock
have been duly authorized, validly issued and are fully paid and
nonassessable and were issued in compliance with all applicable federal and
state securities laws, and no holder thereof is entitled to preemptive or
similar rights. As of the date hereof, there are outstanding options to
purchase 382,000 shares of Benchmark Common Stock. The shares of Benchmark
Common Stock to be delivered to the holders of shares of EMD Common Stock
pursuant to this Agreement have been duly authorized and will be, upon
delivery to the holders of shares of EMD Common Stock pursuant to this
Agreement, validly issued, fully paid and nonassessable and listed for
trading on the American Stock Exchange upon official notice of issuance.
All of the outstanding capital stock of Newco is, and at all times since
its incorporation has been, owned beneficially and of record by Benchmark.
Newco has not at any time since its incorporation, except as contemplated
by this Agreement (i) engaged, directly or through any Subsidiary, in any
business or activities of any type or kind whatsoever, (ii) entered into
any agreements with any person or entity or (iii) become subject to or
bound by any obligation or undertaking.
(j) Compliance with Laws. Benchmark is not in violation of any
decree, order, statute, rule or regulation so as to materially and
adversely affect the business, financial position or results of the
operations of Benchmark.
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(k) Disclosure. No representation or warranty by Benchmark in this
Agreement and no statement contained in any certificate delivered by
Benchmark or Newco to EMD or the Founding Shareholders pursuant to this
Agreement contains any untrue statement of a material fact or omits any
material fact necessary in order to make the statements herein or therein,
in light of the circumstances under which they are or were made, not
misleading.
(l) Information in Form S-4. None of the information prepared or
supplied by Benchmark, Newco or their officers, directors, employees or
agents and contained in the Prospectus or contained in the Form S-4 will,
as of (i) the effectiveness of the Form S-4 under the Securities Act, (ii)
the date the Prospectus is first mailed to the shareholders of EMD, (iii)
the date of the special meeting of the shareholders of EMD held for the
purpose of voting on the Merger and this Agreement or (iv) the Effective
Time, be false or misleading with respect to any material fact, or omit to
state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they are
or were made, not misleading. The Form S-4 will comply as to form in all
material respects with the requirements of the Securities Act and the rules
and regulations thereunder. Benchmark will promptly notify EMD in writing
if prior to the Effective Time it shall obtain knowledge of any fact that
would make it necessary to amend the Form S-4 or the Prospectus in order to
render the statements therein not misleading or to comply with applicable
law.
3.3. Disclosure in Disclosure Letter. A disclosure made in any Schedule in
the Disclosure Letter shall be deemed to be made in any other Schedule in which
such disclosure is appropriate regardless of whether the disclosure is actually
made in such other Schedule, provided that it is reasonably apparent from the
disclosure that the disclosure is responsive to the provision of this Agreement
requiring that the disclosure be made in such other Schedule.
3.4. Disclosure Letter; Amendments. From time to time prior to the Closing
Date, EMD and the Founding Shareholders shall promptly supplement or amend the
Disclosure Letter to reflect any matter hereafter arising that would make any
representation or warranty set forth in Section 3.1 inaccurate. For purposes of
determining (i) the fulfillment of the condition set forth in Section 5.1(a) as
of the Closing Date and (ii) the accuracy of the representations and warranties
contained in Section 3.1 if the Merger is not consummated, the Disclosure Letter
shall be deemed to include only that information contained therein on the date
of this Agreement and shall be deemed to exclude any information contained in
any subsequent supplement or amendment thereto. For purposes of determining the
accuracy of the representations and warranties contained in Section 3.1 or the
liability of the Founding Shareholders with respect thereto under Section 7.3(a)
should the Merger be consummated, the Disclosure Letter shall be deemed to
include all information contained in any supplement or amendment thereto made
before the Closing Date.
3.5. Knowledge. For purposes of this Agreement, "knowledge" of the
Founding Shareholders means actual knowledge of David H. Arnold and Daniel M.
Rukavina, or either of them, and "knowledge" of EMD means actual knowledge of
the EMD Associates Leadership Team (commonly known as the "Team of Twenty"), or
any member thereof. No person may deny having actual knowledge by reason of such
person having willfully failed to review or obtain available information.
ARTICLE IV
COVENANTS
4.1. Acquisition Transactions. (a) After the date of this Agreement and
prior to the Effective Time or earlier termination of this Agreement, unless
Benchmark shall otherwise agree in writing, EMD and the Founding Shareholders
shall not, and shall not permit any of EMD's Subsidiaries to, or cause or permit
any of its Subsidiaries to cause any officer, director or employee, or any
attorney, accountant, investment banker or other agent retained by it to,
initiate, solicit, negotiate, encourage, or provide confidential information to
facilitate any proposal or offer to acquire all or any substantial part of the
business and properties of EMD or any of its Subsidiaries, whether by merger,
purchase of assets, tender offer or otherwise, whether for cash, securities or
any other consideration or combination thereof (such transactions being referred
to herein as
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"Acquisition Transactions"); provided, however, that to the extent required by
fiduciary obligations under applicable law, as advised in writing by legal
counsel, EMD and its Subsidiaries may furnish (on terms substantially similar to
the Confidentiality Agreement (as defined in Section 4.2(e)), information
concerning its business, properties or assets to a person, corporation,
partnership or other entity or group (a "Potential Acquiror") and may
participate in negotiations with a Potential Acquiror that has submitted a bona
fide written offer to acquire EMD and its Subsidiaries, the terms of which, in
the written opinion of EMD's investment banking firm, are more favorable to the
shareholders of EMD than those provided pursuant to this Agreement, but only to
the extent required by fiduciary obligations under applicable law as advised in
writing by legal counsel.
(b) If EMD shall determine to provide any information as described in
Section 4.1(a) or shall receive any offer of the type referred to in the proviso
of Section 4.1(a), it shall promptly inform Benchmark as to the fact that
information is to be provided or that an offer has been received and shall
furnish to Benchmark the identity of the recipient of such information or the
proponent of such offer, if applicable, and, if an offer has been received, a
description of the material terms thereof.
(c) EMD represents and warrants to Benchmark that it has determined that it
is not in the best interests of EMD and its shareholders to proceed with, and
therefore that it promptly will terminate all discussions heretofore held with
third parties regarding, any heretofore proposed Acquisition Transaction, and
that it will promptly instruct all such third parties to return or destroy all
information which is not publicly available which EMD provided to such third
parties in connection with proposed Acquisition Transactions. EMD covenants that
it will, subject to any action taken by, or upon the authority of, the board of
directors of EMD in the exercise of its good faith judgment as to its fiduciary
duties to shareholders of EMD based upon the written advice of counsel, strictly
enforce its rights pursuant to all confidentiality or similar agreements entered
into with third parties with which it has heretofore held discussions or
hereafter may hold discussions (as permitted by this Section 4.1) regarding
Acquisition Transactions and will not release any third party from, or waive any
provision of, any confidentiality or standstill agreement to which EMD is a
party.
4.2. Certain Covenants of EMD and the Founding Shareholders. (a) Interim
Operations of EMD. From and after the date hereof and prior to the Effective
Time (unless Benchmark shall otherwise agree in writing and except as otherwise
contemplated by this Agreement), the Founding Shareholders will cause EMD, and
EMD will and will cause each of its Subsidiaries, to:
(i) Carry on its businesses diligently and in the ordinary and usual
course, consistent with past practice.
(ii) Take all action necessary to comply with and maintain all
Licenses of EMD and its Subsidiaries and otherwise preserve its rights and
the rights of its subsidiaries to conduct the EMD Business in the areas in
which it and they have the right to conduct the EMD Business as of the date
of this Agreement.
(iii) Use all reasonable efforts to preserve its business organization
intact and maintain its existing relations with customers, suppliers,
employees and business associates.
(iv) Not make or permit any changes of general or widespread
applicability in any market in its or their credit policies or pricing
plans for customers except for any such changes that have already been
communicated to customers as of the date of this Agreement.
(v) Furnish or cause to be furnished to Benchmark all the information
concerning EMD and its Subsidiaries required for inclusion in the Form S-4
in a form suitable for filing with the SEC.
(vi) Promptly after the execution and delivery of this agreement (A)
give all notices and take all other actions required by law in order to
complete the closure procedure applicable to the underground storage tank
removed from EMD's property in 1988, as discussed in Schedule 3.1 (u) of
the Disclosure Letter, and (B) take all actions necessary to determine
whether any EMD facility is required by any environmental law to have an
environmental permit for the discharge of volatile organic compounds into
the air and, if such permit is required, take all action necessary to
obtain such permit.
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(b) Negative Covenants. From and after the date hereof and prior to the
Effective Time (unless Benchmark shall otherwise agree in writing and except as
otherwise contemplated by this Agreement), the Founding Shareholders will not
permit EMD, and EMD will not and will not permit any of its Subsidiaries, to:
(i) (A) Sell or pledge or agree to sell or pledge any of its stock or
the stock of any of its Subsidiaries; (B) amend its Certificate or Articles
of Incorporation or By-Laws; (C) split, combine or reclassify the
outstanding shares of EMD Common Stock; or (D) declare, set aside or pay
any dividend payable in cash, stock or property with respect to shares of
EMD Common Stock.
(ii) (A) Issue, sell, pledge, dispose of or encumber any shares of, or
securities convertible or exchangeable or exercisable for, or options,
warrants, calls, commitments or rights of any kind to acquire any shares
of, its capital stock; (B) transfer, lease, license, sell, mortgage,
pledge, dispose of or encumber any assets other than in the ordinary course
of business, other than the transfer by EMD prior to the Closing Date of
certain assets related to unused test equipment having a value of
approximately $10,000; (C) incur, amend the terms of or modify any
indebtedness or other liability other than borrowings made in the ordinary
course of business under the line of credit with NBD Bank and Winona
National and Savings Bank available to EMD and its Subsidiaries and current
liabilities incurred in the ordinary and usual course of business; (D)
extend other than on a month-to-month basis or otherwise modify or amend,
or waive any rights under, any lease of real property; or (E) acquire
directly or indirectly by redemption or otherwise any shares of its capital
stock or any options, warrants, calls commitments or rights to acquire the
same.
(iii) Except as required by the EMD Technologies, Inc. Gain-Sharing
Plan (in the form provided to Benchmark prior to the date hereof) (the
"Gain-Sharing Plan"), (A) Increase in any manner the compensation of any
director, officer or any other employee; (B) grant any performance or
incentive bonus, or any severance or termination pay, except as required
under those agreements, policies or plans listed in Schedule 3.1(s) of the
Disclosure Letter; or (C) establish, adopt, enter into, extend or amend,
except to the extent required by applicable law, the Gain Sharing Plan or
any EMD Benefit Plan.
(iv) (A) Acquire, by merger, reorganization, consolidation or
purchase, substantially all of the assets of, or otherwise acquire, any
business or any organization or division thereof; or (B) except as
specifically permitted in the circumstances contemplated by Section 4.1,
merge with, liquidate into or otherwise combine with any other person,
corporation, partnership or other entity.
(v) Enter into any agreement or make any commitment to do any of the
foregoing.
(vi) Change its application of accounting principles in any material
respect except if such change is required by GAAP to be made at such time.
(vii) Take any action that is intended or may reasonably be expected
to result in (A) any of their representations and warranties contained in
this Agreement being or becoming untrue in any material respect, or (B) any
of the conditions to the Merger set forth in Article V not being satisfied,
or (C) a violation of any provision of this Agreement.
(c) Other Operational Covenants. Between the date hereof and the Effective
Time, unless Benchmark shall otherwise agree in writing, the Founding
Shareholders will cause EMD to, and EMD shall, and shall cause each of its
Subsidiaries to:
(i) Perform in all material respects all of its obligations under all
Material Contracts (except those being contested in good faith and
disclosed to Benchmark in writing and which are not, individually or in the
aggregate, material to the business of EMD and its Subsidiaries taken as a
whole) and not enter into, assume or amend any contracts except (x)
contracts which are in the ordinary course of business involving the
payment by EMD or any Subsidiary of less than $50,000 individually or (y)
contracts which are not in the ordinary course of business involving the
payment by EMD or any Subsidiary of less than $50,000 individually.
(ii) Maintain in full force and effect policies of insurance
comparable in scope of coverage to that now maintained by EMD or such
Subsidiary, and maintain and keep its material properties and
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equipment in good repair, working order and condition, ordinary wear and
tear excepted, in accordance with its customary policies and past
practices.
(iii) Prepare and timely file all federal, state, local and foreign
returns for taxes and other tax reports, filings and amendments thereto
required to be filed by it, and allow Benchmark, at its request, to review
all such returns, reports, filings and amendments at EMD's offices.
(d) Rule 145 Letters. Prior to Closing, the Disclosure Letter will be
supplemented to list all officers and directors of EMD and any other persons who
are "affiliates" of EMD within the meaning of such terms as used in Rule 145
under the Securities Act ("Rule 145 Affiliates"), and EMD covenants to use its
best efforts to provide to Benchmark undertakings from such persons in the form
attached hereto as Exhibit 4.2(d) ("Rule 145 Letters") to the effect that no
disposition of shares of Benchmark Common Stock or Series A Preferred Stock
received in the Merger will be made by such persons except within the limits and
in accordance with the applicable provisions of Rule 145, as amended from time
to time, or except in a transaction which, in the opinion of legal counsel
satisfactory to Benchmark, is exempt from registration under the Securities Act.
Each of the Founding Shareholders agrees to execute and deliver a Rule 145
Letter on the Closing Date.
(e) Inspection and Access to Information. Subject to the Confidentiality
Agreement dated as of July 18, 1995 (the "Confidentiality Agreement") by and
between Benchmark and EMD, EMD shall allow Benchmark and its authorized
employees, representatives and designees (collectively, the "Representatives")
reasonable access during normal business hours to all of EMD's and its
Subsidiaries' properties and records (including without limitation all
supporting work papers of the independent auditors for EMD's Financial
Statements), officers, employees, counsel, auditors, financial advisors, and
investment bankers and shall make available to Benchmark and the Representatives
such information concerning EMD's and its Subsidiaries' affairs as Benchmark may
reasonably request. EMD acknowledges that this right of inspection and access
specifically authorizes Benchmark or its Representatives to enter at reasonable
times and take samples of environmental media for the purpose of preparing
environmental reports. EMD shall permit Benchmark to assign one Representative
to be on the premises of EMD or its Subsidiaries on a full-time basis for the
purpose of monitoring and obtaining a better understanding of, and consulting
with EMD and its officers, employees and agents with respect to, the EMD
Business.
(f) Consultations. In connection with the continuing operation of the
business of EMD between the date of this Agreement and the Closing Date, EMD and
the Founding Shareholders shall confer in good faith with Representatives, as
requested by Benchmark from time to time, to report on material operational
matters and the general status of ongoing operations. EMD and the Founding
Shareholders acknowledge that Benchmark does not and will not waive any rights
it may have under this Agreement as a result of such consultations (except to
the extent the results of such consultations are contained in an amendment or
supplement to the Disclosure Letter in effect on the Closing Date) nor shall
Benchmark be responsible for any decisions made by the Founding Shareholders,
EMD or EMD's officers and directors with respect to matters that are the subject
of such consultation. Benchmark agrees that it shall promptly respond to any
request by EMD for Benchmark's acknowledgment of consultation or consent
hereunder, and that any such acknowledgment or consent shall not be unreasonably
withheld.
(g) No Transactions in Benchmark or EMD Common Stock. During the ten
trading days immediately preceding the Computation Period and during the
Computation Period, the Founding Shareholders, EMD and EMD Subsidiaries will
not, and will not induce or attempt to induce any other person to, engage in any
transactions in shares of Benchmark Common Stock in the open market or through
negotiated purchases. From the date hereof through the Closing Date, the
Founding Shareholders agree not to sell, transfer, assign, pledge, encumber or
otherwise dispose of any shares of EMD Common Stock or any interest therein.
4.3. Certain Covenants of Benchmark and Newco. (a) Consent of Benchmark.
Benchmark, as the sole shareholder of Newco, by executing this Agreement,
consents to the execution, delivery and performance of this Agreement by Newco,
approves the Merger and agrees that such consent shall be treated for all
purposes as the action of a sole shareholder in lieu of a meeting pursuant to
Section 9.10.A of the TBCA to evidence such consent and approval.
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(b) No Purchase of Benchmark Common Stock. During the ten trading days
immediately preceding the Computation Period and during the Computation Period,
Benchmark will not, and will use its best efforts to cause its affiliates not
to, purchase any shares of Benchmark Common Stock in the open market, or through
negotiated purchases.
(c) Benchmark Shareholders' Meeting. In the event that shares of Series A
Preferred Stock are required to be issued in the Merger in respect of shares of
EMD Common Stock as provided for in Section 2.7, Benchmark covenants and agrees,
no later than 120 days after the issuance of such shares, to take all action
necessary in accordance with applicable law and its Articles of Incorporation
and By-Laws to convene a meeting of its shareholders to vote upon the approval
of the conversion of such shares of Series A Preferred Stock into shares of
Benchmark Common Stock, as required by the rules of the American Stock Exchange.
(d) ESOP Amendments. Within sixty (60) days after the Closing Date,
Benchmark shall amend or Benchmark shall cause to be amended effective as of the
Closing Date the EMD Technologies, Inc. Employee Stock Ownership Plan ("EMD
ESOP") to provide (i) that all participants of the EMD ESOP are fully vested in
their account balances in the EMD ESOP, (ii) that the EMD ESOP is frozen and
that no further contributions will be made to the EMD ESOP, and (iii) that if
the EMD ESOP receives any Series A Preferred Stock in accordance with Section
2.7 of this Agreement, then the Series A Preferred Stock held in the EMD ESOP
shall be subject to the "Put Option" provided for in Section 7.11 of the EMD
ESOP. The price at which the Put Option is exercisable is the greater of (i) the
market value of a share of Benchmark Common Stock on the date the Put Option is
exercised or (ii) the value of the Series A Preferred Stock determined in
accordance with Section 6.2 of the EMD ESOP. Until a distribution from the EMD
ESOP upon its termination or upon a transfer from the EMD ESOP to another
"qualified plan" sponsored by Benchmark or any of its affiliates, Benchmark
agrees that the EMD ESOP will be maintained as a "qualified plan" pursuant to
Section 401(a) of the Code. Benchmark agrees to use reasonable efforts to cause
the assets held in the EMD ESOP to be transferred to another "qualified plan"
sponsored by Benchmark or any of its affiliates.
(e) EMD Benefit Plans; COBRA Continuation Coverage. As of the Closing
Date, Benchmark, for eligibility in any Benchmark employee benefit plan that is
substantially similar to an EMD Benefit Plan, shall recognize all service
recognized under such EMD Benefit Plan. Benchmark agrees to provide health
continuation coverage as required under Section 602 of ERISA or Section 4980B of
the Code to all former employees of EMD or its Subsidiaries and/or their
beneficiaries who are receiving or entitled to receive such coverage as of the
Closing Date.
(f) Board Nominations. For so long as the Founding Shareholders shall
beneficially own, in the aggregate, shares of Benchmark Common Stock
representing at least 10% of the shares of such class issued and outstanding,
Benchmark agrees to include either David H. Arnold, Daniel M. Rukavina or one
other person designated by the Founding Shareholders and acceptable to Benchmark
in its recommended slate of nominees for election to Benchmark's board of
directors (which slate of nominees shall not include more persons than the
number of seats then subject to election), unless a person so designated at the
time the Board recommends its slate of nominees holds a seat on the board of
directors that is not then subject to election; provided, that (i) if either of
the Founding Shareholders shall be in violation of the provisions of Section 4.6
of this Agreement, or shall be found to have been in violation of such section
at any time, Benchmark's obligations under this section shall terminate, and
(ii) if either of the Founding Shareholders (A) is prohibited by law, order,
injunction, decree or otherwise from serving on the board of directors of
Benchmark, (B) has been convicted of any felony or is the subject of any pending
felony proceeding, or (C) is involved in any of the events or circumstances
enumerated in Item 401(f) of Regulation S-K (or any successor or substitute
provision of similar import) promulgated by the SEC, or similar provisions of
state "blue sky" laws, Benchmark's obligations under this section to nominate
the Founding Shareholder subject to such prohibition, proceeding or circumstance
shall terminate, but Benchmark's obligation to nominate the Founding Shareholder
not subject to such prohibition, proceeding or circumstance, or a person
designated by the Founding Shareholders and acceptable to Benchmark, shall
continue. For purposes of determining the percentage of the shares of Benchmark
Common Stock beneficially owned by the Founding Shareholders, shares owned
beneficially by their spouses and descendants shall be deemed, during the
three-year period immediately
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following the Closing, to be beneficially owned by the Founding Shareholders;
thereafter, shares held by the spouses and descendants of the Founding
Shareholders shall not be deemed to be beneficially owned by the Founding
Shareholders for purposes of this calculation.
4.4. Meeting of Shareholders of EMD. (a) EMD Shareholder Meeting. EMD
will take all action necessary in accordance with applicable law and its
Articles of Incorporation and By-Laws to convene a special meeting of its
shareholders within 25 business days after the date of effectiveness under the
Securities Act of the Form S-4 to consider and vote upon the approval of this
Agreement and the Merger and such other matters as may be necessary to
effectuate the transactions contemplated hereunder (the "EMD Shareholder
Meeting"), and except to the extent required by fiduciary obligations under
applicable law as advised in writing by legal counsel, the Board of Directors of
EMD shall recommend such approval.
(b) Form S-4; Prospectus. As soon as practicable after the date hereof EMD
and Benchmark shall take such reasonable steps as are necessary for the prompt
preparation and filing with the SEC of the Form S-4. Each of EMD and Benchmark
shall use all reasonable efforts to have the Form S-4 declared effective under
the Securities Act as promptly as practicable after such filing, and EMD shall
promptly thereafter (i) mail the Prospectus to its shareholders, and (ii)
provide sufficient copies thereof to the trustee of the EMD ESOP for
distribution to the participants therein. EMD shall provide all reasonable
assistance to the trustee of the EMD ESOP so that the EMD ESOP participants who
elect to do so may direct the trustee how to vote the shares of EMD Common Stock
held in the participants' accounts in the EMD ESOP with respect to the Merger
and this Agreement.
4.5. Certain Additional Covenants of the Parties. (a) Certain Filings,
Consents and Arrangements. (i) As soon as practicable after the execution of
this Agreement, EMD, Benchmark and Newco shall file the notification and report
forms required under the HSR Act and make promptly any required submissions
under the HSR Act with respect to the transactions contemplated by this
Agreement.
(ii) EMD, Benchmark and Newco shall cooperate with one another (1) in
promptly determining whether any filings are reasonably required to be or should
be made or consents, approvals, permits or authorizations are required to be or
should be obtained under any other federal, state or local law or regulation or
whether any consents, approvals or waivers are required to be or should be
obtained from other parties to loan agreements or other Material Contracts in
connection with the consummation of the transactions contemplated hereby, and
(2) in promptly making any such filings, furnishing information required in
connection therewith and seeking timely to obtain any such consents, permits,
authorizations, approvals or waivers.
(b) Notification of Certain Matters. Each of EMD, Benchmark and Newco
shall give prompt notice to the other of (1) any notice of, or other
communication relating to, a default or event which, with notice or lapse of
time or both, would become a default, received by it or any of its subsidiaries
subsequent to the date of this Agreement and prior to the Effective Time, under
any Material Contract, in the case of EMD or, in the case of Benchmark, under
any contract material to its financial condition, properties, businesses or
results of operations or (2) any notice or other communication from any third
party alleging that the consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement.
(c) Reasonable Efforts. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use all reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations (i)
to consummate and make effective the transactions contemplated by this Agreement
on or before July 31, 1996, and (ii) to cause KPMG Peat Marwick to issue its
opinion referred to in Sections 5.1(e) and 5.2(f).
(d) Blue Sky Laws. Benchmark shall take such action as may be necessary to
comply with all securities or "blue sky" laws of all jurisdictions that are
applicable to the issuance of the Benchmark Common Stock and Series A Preferred
Stock pursuant hereto. EMD shall use its best efforts to assist Benchmark as may
be necessary to comply with all such securities or "blue sky" laws.
4.6. Certain Covenants of the Founding Shareholders. (a) Restrictions on
Transfers. Until the first anniversary of the Closing Date, each of the
Founding Shareholders covenants and agrees that without the
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prior written consent of Benchmark he will not sell, assign, donate, transfer,
devise, deliver, pledge, hypothecate, encumber or otherwise dispose of any
shares of Benchmark Common Stock (or Series A Preferred Stock) acquired pursuant
to this Agreement or any interest therein ("Transfer") except by will or the
laws of descent and distribution or otherwise by operation of law or judicial
decree. Any Transferee by will or the laws of descent and distribution or
otherwise by operation of law or judicial decree shall, by accepting such
Transfer, be bound by the provisions of this Section 4.6 and the provisions in
Section 7.3(a) relating to indemnification for breach of the covenants contained
in this Section 4.6.
(b) Voting, Ownership and Other Restrictions. To the extent that the
Series A Preferred Stock has voting rights, the provisions of this Section
4.6(b) shall apply to Series A Preferred Stock to the same extent as such
provisions by their terms apply to Benchmark Common Stock. Until the third
anniversary of the Closing Date, each of the Founding Shareholders agrees as
follows:
(i) As a holder of Benchmark Common Stock, to be present, in person or
represented by proxy, at all meetings of shareholders of Benchmark so that
all shares of Benchmark Common Stock beneficially owned by them may be
counted for the purpose of determining the presence of a quorum at such
meetings.
(ii) As a holder of Benchmark Common Stock, to vote or cause to be
voted all shares, however and whenever acquired, of Benchmark Common Stock
beneficially owned by him in the manner recommended to shareholders by the
Board of Directors of Benchmark; provided, however, that the Founding
Shareholders shall have the right to vote their shares of Benchmark Common
Stock in their sole discretion with respect to any proposal involving a
merger, consolidation, statutory share exchange, reorganization,
reclassification or other extraordinary corporate transaction involving
Benchmark that has been approved by Benchmark's board of directors.
(iii) Each Founding Shareholder agrees, unless the prior approval of
the board of directors of Benchmark has been obtained, not to:
(1) solicit proxies or become a "participant" in a "solicitation"
(as such terms are defined in Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) in opposition to
the recommendation of the majority of the directors of Benchmark with
respect to any matter;
(2) deposit any shares of Benchmark Common Stock in a voting trust
or subject them to a voting agreement or other arrangement of similar
effect (other than this Agreement);
(3) acquire or offer to acquire or agree to acquire, directly or
indirectly, by purchase or otherwise, any Benchmark Common Stock except
from any other person receiving Benchmark Common Stock in the Merger or
as a result of a stock split, reverse split or other reclassification
affecting outstanding shares of Benchmark Common Stock or as a result of
a stock dividend or other pro rata distribution by Benchmark to holders
of Benchmark Common Stock;
(4) join a partnership, limited partnership, syndicate, or other
group for the purpose of acquiring, holding or disposing of Benchmark
Common Stock within the meaning of Section 13(d) of the Exchange Act;
(5) initiate, propose or otherwise solicit shareholders for any
matter at any time, or induce or attempt to induce any other person to
initiate, or participate with or support any person in respect of, any
shareholder proposal or a tender offer or an exchange offer for
Benchmark Common Stock or any change of control of Benchmark or for the
purpose of convening a shareholders' meeting of Benchmark;
(6) acquire, by purchase or otherwise, more than 5% of any class of
equity securities of any entity (A) that prior to the time that a
Founding Shareholder acquires more than 5% of such class, publicly
discloses (by filing with the Commission or otherwise) that it is, or
intends to become, the beneficial owner of more than 5% of the
outstanding shares of Benchmark Common Stock or
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(B) that to the knowledge of a Founding Shareholder owns or intends to
own more than 5% of the outstanding shares of Benchmark Common Stock; or
(7) take any action by written consent in lieu of a meeting.
(c) Legend and Stop Transfer Order. To assist in effectuating the
provisions of this Section 4.6, each of the Founding Shareholders hereby
consents:
(i) to the placement of the following legend on all certificates or
instruments representing ownership of Benchmark Common Stock (or Series A
Preferred Stock) beneficially owned by him in any capacity until the
earlier of the date on which such securities have been sold, transferred or
disposed of pursuant to Section 4.6(e)(vi), Section 4.6(e)(vii) or Section
4.6(f) of this Agreement or the third anniversary of the Closing Date:
"The securities represented hereby are subject to the provisions of
an Agreement and Plan of Merger dated as of March 27, 1996, by and among
Benchmark Electronics, Inc., Electronics Acquisition, Inc., EMD
Technologies, Inc., David H. Arnold and Daniel M. Rukavina and may not
be sold, transferred, pledged, hypothecated or otherwise disposed of
except in accordance therewith. A copy of such Agreement is on file and
available for inspection at the principal offices of Benchmark
Electronics, Inc."; and
(ii) to the entry of a stop transfer order with the transfer agent of
the Benchmark Common Stock (or Series A Preferred Stock) against the
transfer by the Founding Shareholders of Benchmark Common Stock (or Series
A Preferred Stock) except in compliance with the requirements of this
Agreement, or if Benchmark is its own transfer agent with respect to the
Benchmark Common Stock (or Series A Preferred Stock), to the refusal by
Benchmark to transfer any shares of Benchmark Common Stock (or Series A
Preferred Stock) except in compliance with the requirements of this
Agreement.
(d) Additional Limitations on Transfer. After the first anniversary of the
Closing Date and until the third anniversary of the Closing Date, no Founding
Shareholder shall Transfer any Benchmark Common Stock (or any Series A Preferred
Stock) or any interest therein in any manner, except in transactions permitted
by Section 4.6(e), or after compliance with Section 4.6(f), of this Agreement.
Any Transfer not made in strict compliance with the requirements of this
Agreement shall be void, and neither Benchmark nor any transfer agent for the
Benchmark Common Stock (or Series A Preferred Stock) shall be required to make
or recognize any such Transfer.
(e) Permitted Transfers. After the first anniversary of the Closing Date
and until the third anniversary of the Closing Date, the Transfer of shares of
Benchmark Common Stock (or any Series A Preferred Stock) resulting from any of
the following events ("Permitted Transfers") shall be permitted without
compliance with the provisions of Section 4.6(f) of this Agreement:
(i) A Transfer as a result of a gift by a Founding Shareholder to any
spouse of such Founding Shareholder, or to any direct lineal descendants,
by blood or adoption, of such Founding Shareholder, or to such Founding
Shareholder's natural or adoptive mother, father, or siblings;
(ii) A Transfer to the Company (or any successor of the Company)
incident to a redemption, repurchase or any other reacquisition of the
Benchmark Common Stock (or Series A Preferred Stock) by the Company, its
successors or assigns;
(iii) A merger or consolidation in which Benchmark is acquired;
(iv) A Transfer by a Founding Shareholder (i) by will or intestate
succession as a result of the death of a Founding Shareholder, (ii) to any
guardian, trustee, assignee or personal representative as a result of
guardianship proceedings or other incompetency of a Founding Shareholder,
(iii) by order of any court in a bankruptcy, insolvency, reorganization
arrangement, adjustment, composition or similar proceeding of a Founding
Shareholder, or (iv) by order of any court in any divorce of a Founding
Shareholder;
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(v) A bona fide pledge of or the granting of a security interest in
the Benchmark Common Stock (or Series A Preferred Stock) to an
institutional lender for money borrowed;
(vi) Any Transfer of Benchmark Common Stock not otherwise described in
clause (i), (ii), (iii), (iv), (v) or (vii) of this Section 4.6(e);
provided, that each such sale, when aggregated with all such Transfers by
such Founding Shareholder in reliance on this Section 4.6(e)(vi) during the
immediately preceding twelve months, does not exceed two percent of the
then issued and outstanding number of shares of Benchmark Common Stock;
(vii) A Transfer of Benchmark Common Stock (or Series A Preferred
Stock) pursuant to a tender offer or exchange offer that the Board of
Directors of Benchmark endorses or does not oppose within the time that
Benchmark's Board of Directors is required, pursuant to the requirements of
the Exchange Act, to advise the shareholders of Benchmark of the position
of such Board with respect to such offer or, absent such requirements, ten
business days after the commencement of such offer; or
(viii) A Transfer to a bona fide charitable organization within the
meaning of Section 501(c) of the Code;
provided, however, that each person or entity acquiring any shares of Benchmark
Common Stock (or Series A Preferred Stock) incident to any Permitted Transfer
specified in this Section 4.6(e) (other than purchasers in a transaction
permitted by Section 4.6(e)(vi) or Section 4.6(e)(vii)) shall, as a condition
precedent to the Transfer, take and hold the shares of Benchmark Common Stock
(or Series A Preferred Stock) subject to this Agreement, be deemed a Founding
Shareholder for the purposes of this Section 4.6 and the provisions in Section
7.3(a) relating to indemnification for breach of the covenants contained in this
Section 4.6 and execute an agreement subjecting the shares of Benchmark Common
Stock (or Series A Preferred Stock) acquired by such person or entity to the
provisions of this Section 4.6 and the provisions in Section 7.3(a) relating to
indemnification for breach of the covenants contained in this Section 4.6.
(f) Procedures for Transfer. After the first anniversary of the Closing
Date and until the third anniversary of the Closing Date, any Founding
Shareholder (or transferee of a Founding Shareholder bound by the provisions of
this Section 4.6) desiring to effect a Transfer (other than a Permitted
Transfer) of the Benchmark Common Stock (or Series A Preferred Stock) shall give
Benchmark notice of the proposed Transfer (the "Transfer Notice") specifying the
person or entity to whom the proposed Transfer is to be made (the "Proposed
Transferee") and the number of shares to be transferred. Benchmark shall have
the right, exercisable by written notice given to the Founding Shareholder
within ten business days following the date upon which Benchmark receives the
Transfer Notice, to purchase (or arrange for the purchase by others of) all of
the shares of Benchmark Common Stock (or Series A Preferred Stock) as to which
the Transfer relates. If Benchmark elects to exercise its right to purchase all
of the shares of Benchmark Common Stock (or Series A Preferred Stock) proposed
to be Transferred, the closing of the purchase of such shares shall take place
at a mutually convenient location within three business days after expiration of
the ten business day exercise period. The price to be paid by Benchmark (or
other purchaser as arranged by Benchmark) upon exercise of the right contained
in this Section 4.6(f) shall be the average Mean Price for the twenty
consecutive trading days next preceding the date of Benchmark's receipt of the
Transfer Notice (the "Repurchase Price"); provided, however, that if the
Transfer Notice is accompanied by a copy of a bona fide written offer from a
third party to purchase shares of Benchmark Common Stock (or Series A Preferred
Stock) from such Founding Shareholder at a price per share that is higher than
the Repurchase Price, then the price to be paid by Benchmark (or other purchaser
as arranged by Benchmark) upon exercise of the right contained in this Section
4.6(f) shall be the price set forth in such bona fide written offer. If
Benchmark shall not exercise its right under this Section 4.6(f) within the 10
business day period following its receipt of the Transfer Notice, the Founding
Shareholder shall have 60 days after the end of such 10 business day period to
consummate the Transfer of the shares specified in the Transfer Notice to the
Proposed Transferee free and clear of the provisions of this Section 4.6. If the
Founding Shareholder does not so consummate the Transfer to the Proposed
Transferee within such 60 day period, the shares specified in the Transfer
Notice shall again be fully subject to the provisions of this Section 4.6.
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(g) Specific Enforcement; Other Remedies. Each of the Founding
Shareholders acknowledges and agrees that Benchmark would be irreparably damaged
in the event that any provision of this Section 4.6 is not performed by any
Founding Shareholder in accordance with its specific terms or is otherwise
breached. It is accordingly agreed that Benchmark shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this Section
4.6 and to enforce specifically the terms and provisions hereof in any court of
the United States or any state thereof having jurisdiction, in addition to any
other remedy to which Benchmark may be entitled at law or in equity.
(h) Vote in Favor of the Merger. Each of the Founding Shareholders agrees
to vote, at the EMD Shareholder Meeting, all shares of EMD Common Stock over
which he exercises voting control for the approval of this Agreement and the
Merger.
ARTICLE V
CONDITIONS TO CLOSING
5.1. Conditions to the Obligations of Benchmark and Newco. The respective
obligations of Benchmark and Newco to consummate the Merger are subject to the
fulfillment at or prior to the Effective Time of the following conditions, any
or all of which may be waived in whole or in part by Benchmark or Newco, as the
case may be, to the extent allowed by applicable law.
(a) Representations and Warranties. Except for representations and
warranties specifically stated to be made only as of a specified date, the
representations and warranties of EMD and the Founding Shareholders set
forth in this Agreement shall be true and correct at and as of the
Effective Time with the same force and effect as though the same had been
made at and as of the Effective Time (except for such changes therein
expressly permitted by this Agreement or in writing by Benchmark), EMD and
the Founding Shareholders shall have performed in all material respects all
of their obligations under this Agreement theretofore to be performed, and
Benchmark shall have received at the Effective Time a certificate to that
effect dated the Closing Date and executed by an authorized executive
officer of EMD, and an affidavit to that effect dated the Closing Date and
executed by the Founding Shareholders.
(b) EMD Shareholder Approval. This Agreement shall have been duly
approved by the holders of a majority of the outstanding shares of EMD
Common Stock, in accordance with applicable law and the Articles of
Incorporation and By-Laws of EMD.
(c) Pending Litigation; Insolvency. There shall not be any litigation
or other proceeding pending or threatened to restrain or invalidate any of
the transactions contemplated by this Agreement, which, in the reasonable
judgment of Benchmark, would make the consummation of the Merger imprudent
in light of applicable law, or the defense of which would involve material
expense to Benchmark. Neither EMD nor any of its Subsidiaries shall be a
party to any proceeding in bankruptcy or for the liquidation or
reorganization of, or appointment of a trustee or receiver for, EMD or any
such Subsidiary, as the case may be.
(d) Other Consents and Filings. All Governmental Consents and
Governmental Filings (other than the filing provided for in Section 1.5),
all consents, approvals, permits, authorizations, waivers and filings
referred to in Section 4.5(a)(ii) (except for any such which, in the
aggregate, would not have a material adverse effect on the financial
condition, properties, businesses or results of operations of EMD and its
Subsidiaries, taken as a whole) and all other consents or approvals of any
other person determined to be required to permit the consummation of the
transactions contemplated hereby, including without limitation consents of
parties to Material Contracts, shall have been obtained or made to the
reasonable satisfaction of Benchmark. The waiting period under the HSR Act
shall have terminated or early termination thereof shall have been granted
and no condition with respect thereto shall be unacceptable to Benchmark.
(e) Tax Opinion. Benchmark shall have received from KPMG Peat Marwick
an opinion, dated as of the Closing Date, in form and substance reasonably
satisfactory to Benchmark, to the effect that, for
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federal income tax purposes, the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code.
(f) Opinion of EMD Counsel. EMD shall have delivered to Benchmark
opinions of Faegre & Benson, Professional Limited Liability Partnership,
and Streater, Murphy, Gernander, Forsythe & Telstad, P.A., in form and
substance reasonably satisfactory to Benchmark and covering the respective
matters specified in Exhibit 5.1(f).
(g) Noncompetition Agreement. Each of the Founding Shareholders shall
have entered into a Noncompetition Agreement with Benchmark and the
Surviving Corporation substantially in the form of Exhibit 5.1(g).
(h) Escrow Agreement. Benchmark, the Founding Shareholders and the
Escrow Agent shall have entered into an Escrow Agreement substantially in
the form of Exhibit 2.3(d).
(i) Form S-4; "Blue Sky" Permits. The Form S-4 shall have become
effective, no stop order suspending the effectiveness of the Form S-4 shall
have been issued and no proceedings for that purpose shall have been
initiated or threatened by the SEC. Benchmark shall have received all state
securities laws or "blue sky" permits and other authorizations necessary to
issue the Benchmark Common Stock and Series A Preferred Stock in exchange
for the shares of EMD Common Stock and to consummate the Merger.
(j) Rule 145 Letters. The Founding Shareholders and each other Rule
145 Affiliate shall have executed and delivered to Benchmark a Rule 145
Letter substantially in the form attached as Exhibit 4.2(d) together with
such other documents and instruments as Benchmark may reasonably request
related to compliance with the Securities Act.
(k) Comfort Letter. On the effective date of the Form S-4 and the
Closing Date, Benchmark shall have received a "comfort letter" from EMD's
independent public accountants addressed to EMD and Benchmark, in form and
substance reasonably acceptable to Benchmark and customary in scope and
substance for letters delivered by independent public accountants in
transactions such as those contemplated by this Agreement.
(l) Lease of EMD East Facility. EMD Associates, Inc. and the lessor
under the current real estate lease with respect to the EMD East Facility,
situated at 4065 Theurer Boulevard, in Goodview, Minnesota, including
adjacent parking facilities (the "EMD East Facility"), shall have entered
into an amendment to such lease substantially in the form of Exhibit
5.1(l).
(m) Lease of EMD West Parking Area. EMD Associates, Inc., shall have
entered into an amendment to the current real estate lease with respect to
the EMD West parking area, located adjacent to the EMD West Facility,
situated at 4245 Theurer Boulevard, in Goodview, Minnesota (the "EMD West
Parking Area"), substantially in the form of Exhibit 5.1(m).
(n) Owner's Title Policies. A title company reasonably acceptable to
Benchmark shall have issued to EMD Associates, Inc. an Owner's Policy of
Title Insurance insuring that EMD Associates, Inc. owns good and
indefeasible fee simple title to the EMD West Facility, in an amount agreed
to by Benchmark, containing zoning and other customary endorsements
requested by Benchmark, and reflecting no exceptions other than those
acceptable to Benchmark. Benchmark shall have received evidence reasonably
satisfactory to it that the foregoing actions have been completed.
(o) Leasehold Policies of Title Insurance. A title company reasonably
acceptable to Benchmark shall have issued to EMD Associates, Inc. a
Leasehold Policy of Title Insurance insuring the leasehold rights of EMD
Associates, Inc. under leases relating to the EMD East Facility, the EMD
West Parking Area, and the facility leased by DCM Tech, Inc. located at
4155 Theurer Boulevard in Goodview, Minnesota and to be leased to EMD
Associates, Inc. (the "DCM Facility") in amounts agreed to by Benchmark,
containing zoning and other customary endorsements requested by Benchmark,
and reflecting no exceptions other than those acceptable to Benchmark.
Benchmark shall have received evidence satisfactory to it that the
foregoing actions have been completed.
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(p) Title Opinion. EMD Associates, Inc. shall have received an
updated title opinion of Streater, Murphy, Gernander, Forsythe & Telstad,
P.A. covering the Airport Facility, reflecting that the legal owner of such
facility is the lessor under the lease of such facility, and further
reflecting only such easements, encumbrances, restrictions, and other
matters of record affecting title to such facility as are acceptable to
Benchmark. Benchmark shall have received evidence satisfactory to it that
the foregoing actions have been completed.
(q) Surveys. Blumentritt Land Surveying shall have delivered to EMD
Associates, Inc. surveys for the EMD East Facility, DCM Facility, EMD West
Facility and EMD West Parking Area, containing such information and
certified in a manner reasonably acceptable to Benchmark. Benchmark shall
have received evidence satisfactory to it that the foregoing actions have
been completed.
(r) Non-Disturbance Agreements. EMD Associates, Inc. shall have
received "non-disturbance" agreements from all parties holding liens
against the EMD East Facility, DCM Facility, EMD West Parking Area and
Airport Facility substantially in the form attached hereto as Exhibit
5.1(r).
(s) Consent and Estoppel. EMD Associates, Inc. shall have received a
Landlord Consent and Estoppel, substantially in the form attached as
Exhibit 5.1(s), from the lessor under each real property lease pursuant to
which EMD Associates, Inc. leases real property other than the leases of
the EMD East Facility, EMD West Parking Area and Airport Facility.
(t) Indemnification Relating to Transfer of Subsidiaries. Benchmark,
Newco, EMD and the Founding Shareholders shall have entered into an
Indemnification Agreement substantially in the form of Exhibit 5.1(t) to
this Agreement.
(u) American Stock Exchange Listing. Benchmark shall have caused the
shares of Benchmark Common Stock issuable pursuant to this Agreement to
have been approved for listing, upon official notice of issuance, on the
American Stock Exchange.
(v) Certain Employees. Benchmark shall have received the resignation
of the Founding Shareholders from all officer and director positions held
by the Founding Shareholders with all of EMD's Subsidiaries.
(w) Due Diligence. Schedule 5.1(w) of the Disclosure Letter contains
a complete and accurate list, as of the date of this Agreement, arranged by
customer and by month from March 1996 through May 1997, of the dollar
amounts of all customer orders covered by purchase orders, customer orders
not covered by purchase orders and customer-provided forecasts of future
purchases (collectively, "Backlog") received by EMD and its Subsidiaries
(the "Backlog Report"). No later than 10 days after the date of this
Agreement, Benchmark shall have contacted each of EMD's customers in a
manner reasonably acceptable to EMD for the purpose of verifying the
accuracy of the information contained in the Backlog Report with respect to
such customers, and the results of such procedure shall not reveal a
reduction of more than two percent (2%) in the aggregate of the total
dollar amount of Backlog for all customers reflected in the Backlog Report.
Benchmark shall have received from an environmental consulting firm
acceptable to Benchmark a completed Phase II environmental site assessment
of such EMD facilities (including for purposes of this paragraph the DCM
Facility) as Benchmark considers appropriate, and the results of such Phase
II environmental site assessment and the contents of the environmental
consulting firm's final report relating thereto shall not (i) indicate any
current or historical violation of Environmental Law at any EMD facility,
(ii) indicate the presence at any EMD facility of Hazardous Materials in
excess of background levels, (iii) indicate any historical or current
Releases at any EMD facility whether or not requiring reporting to any
governmental entity, or (iv) recommend any further investigation or
remediation.
(x) Certain Regulatory Matters. The notices and other actions required
by Section 4.2(a)(vi) shall have been given and taken as required, and (A)
EMD shall have delivered to Benchmark evidence of filing the closing
notification with the Minnesota Pollution Control Agency required thereby,
and shall have received no request for further action from such Agency, and
(B) Benchmark shall have received evidence reasonably satisfactory to it
that EMD has all records
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necessary to establish that no environmental permit for the discharge of
volatile organic compounds into the air is required, or if such permit is
required, that EMD has been granted all permits required by law.
5.2. Conditions to the Obligations of EMD. The obligation of EMD to
consummate the Merger is subject to the fulfillment at or prior to the Effective
Time of the following conditions, any or all of which may be waived in whole or
in part by EMD to the extent permitted by applicable law.
(a) Representations and Warranties. Except for representations and
warranties specifically stated to be made only as of a specified date, the
representations and warranties of Benchmark and Newco set forth in this
Agreement shall be true and correct on and as of the Effective Time with
the same force and effect as though the same had been made on and as of the
Effective Time (except for such changes therein expressly permitted by this
Agreement), Benchmark and Newco shall have performed in all material
respects all of their respective obligations under this Agreement
theretofore to be performed, and EMD shall have received at the Effective
Time a certificate to that effect dated the Closing Date and executed by an
authorized executive officer of Benchmark and Newco.
(b) EMD Shareholder Approval. This Agreement shall have been duly
approved by the holders of a majority of the outstanding shares of EMD
Common Stock in accordance with applicable law and the Articles of
Incorporation and By-Laws of EMD.
(c) Injunction. There shall be in effect no preliminary or permanent
injunction or other order of a court or governmental or regulatory agency
of competent jurisdiction directing that the transactions contemplated
herein not be consummated.
(d) Governmental Filings and Consents. All Governmental Consents and
Governmental Filings (other than the filing provided for in Section 1.5)
required to permit the consummation of the transactions contemplated hereby
shall have been obtained or made to the reasonable satisfaction of EMD
(other than Governmental Consents and Governmental Filings which, if not
obtained or made, would not have a material adverse effect on the financial
condition, properties, business, or results of operations of Benchmark and
the Surviving Corporation, taken individually) and the waiting period under
the HSR Act shall have terminated or early termination shall have been
granted.
(e) Opinion of Benchmark's Counsel. Benchmark shall have delivered to
EMD an opinion of Bracewell & Patterson, L.L.P., dated as of the Closing
Date, in form and substance reasonably satisfactory to EMD and covering the
matters specified in Exhibit 5.2(e).
(f) Tax Opinion. EMD and each of its shareholders shall have received
from KPMG Peat Marwick an opinion, dated as of the Closing Date, in form
and substance reasonably satisfactory to EMD, to the effect that, for
federal income tax purposes, the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code.
(g) Form S-4; "Blue Sky" Permits. The Form S-4 shall have become
effective, no stop order suspending the effectiveness of the Form S-4 shall
have been issued and no proceedings for that purpose shall have been
initiated or threatened by the SEC. Benchmark shall have received all state
securities laws or "blue sky" permits and other authorizations necessary to
issue the Benchmark Common Stock and Series A Preferred Stock in exchange
for the shares of EMD Common Stock and to consummate the Merger.
(h) American Stock Exchange Listing. Benchmark shall have caused the
shares of Benchmark Common Stock issuable pursuant to this Agreement to
have been approved for listing, upon official notice of issuance, on the
American Stock Exchange.
(i) Agreement to Vote for Conversion. Donald E. Nigbor, Cary T. Fu
and Mason & Hanger -- Silas Mason Co., Inc. shall have executed an
agreement obligating them, in case any shares of Series A Preferred Stock
are issued in the Merger, to vote all shares of Benchmark Common Stock
owned by them in favor of conversion of the shares of Series A Preferred
Stock issued in the Merger into shares of Benchmark Common Stock at the
meeting of Benchmark's shareholders held for the purpose of voting on such
conversion pursuant to Section 4.3(c) of this Agreement.
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ARTICLE VI
TERMINATION
6.1. Termination by Mutual Consent. This Agreement may be terminated and
the Merger may be abandoned at any time before the filing of the Articles of
Merger, before or after approval by holders of shares of EMD Common Stock, by
the mutual consent of Benchmark, Newco and EMD by action of their respective
boards of directors.
6.2. Termination by Benchmark, Newco or EMD. This Agreement may be
terminated and the Merger may be abandoned by action of either of the boards of
directors of Benchmark and Newco or the board of directors of EMD if (a) the
Merger shall not have been consummated on or before July 31, 1996, or such later
date as may be mutually agreed to by the parties hereto, provided that the party
taking action to terminate this Agreement is not otherwise in breach in any
material respect of any of its obligations hereunder or (b) any court of
competent jurisdiction or other governmental body shall have issued an order,
decree or ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action shall have
become final and nonappealable.
6.3. Termination by Benchmark. This Agreement may be terminated and the
Merger may be abandoned by action of the boards of directors of Benchmark and
Newco (a) if EMD or the Founding Shareholders shall have failed to comply in any
material respect with any of the covenants or agreements contained in this
Agreement to be complied with or performed by them at or prior to the Effective
Time and such failure has not been cured within 30 days after receipt of notice
thereof, (b) if the board of directors of EMD shall not recommend to its
shareholders the approval of this Agreement, or shall withdraw or modify in a
manner adverse to Benchmark or Newco its approval or recommendation of the
Merger, or shall take any other action to facilitate any Acquisition
Transaction, (c) if the lesser of the Trading Price and the Closing Price shall
be less than $22.00 or the Trading Price shall be more than $40.00, (d) no later
than ten days after the date of this Agreement, if the results of the backlog
verification procedure provided for in Section 5.1(w) do not satisfy the
requirements of such section. or (e) within 10 days after the receipt by
Benchmark of a final report from its environmental consulting firm relating to
such firm's Phase II environmental site assessment, if such report contains any
indication or recommendation referred to in clauses (i), (ii), (iii) or (iv) of
Section 5.1(w).
6.4. Termination by EMD. This Agreement may be terminated and the Merger
may be abandoned by action of the board of directors of EMD if (a) Benchmark or
Newco shall have failed to comply in any material respect with any of the
covenants or agreements contained in this Agreement to be complied with or
performed by it at or prior to the Effective Time and such failure has not been
cured within 30 days after receipt of notice thereof, (b) the board of directors
of EMD shall have withdrawn or modified in a manner adverse to Benchmark or
Newco its approval or recommendation of the Merger in order to approve the
execution by EMD of a definitive agreement providing for the acquisition of EMD
or its assets by merger or other business combination on terms more favorable to
EMD's shareholders than the Merger or (c) the lesser of the Trading Price and
the Closing Price shall be less than $22.00.
6.5. Effect of Termination. In the event of a termination of this
Agreement pursuant to this Article VI, any rights and remedies which any of the
parties to this Agreement may have against any other such party by reason of
such termination shall not be affected thereby but shall be preserved and may be
exercised in accordance with applicable law. Notwithstanding the foregoing, in
the event that EMD terminates this Agreement pursuant to Section 6.4(b) or
Benchmark terminates this Agreement pursuant to Section 6.3(b), then as a
condition to the termination of EMD's obligations under this Agreement, EMD
shall immediately pay Benchmark a termination fee of $1,500,000 in cash which
shall be Benchmark's sole remedy and compensation for such termination.
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ARTICLE VII
MISCELLANEOUS; GENERAL
7.1. Fees and Expenses. Whether or not the Merger shall be consummated,
each party hereto shall pay its own expenses incident to preparing for, entering
into or carrying out this Agreement and the consummation of the Merger. In the
event the Merger is consummated, the parties hereto agree that any fees and
expenses of EMD incurred after December 31, 1995 in connection with the Merger
in excess of $900,000 (the "Excess Expense Amount") shall result in a reduction
of the Cash Amount by an amount equal to the quotient of the amount of such
excess divided by 5,208,078. The parties hereto acknowledge that the expenses
relating to the negotiation on behalf of EMD and its shareholders of the
Agreement and the related documentation are expenses of EMD.
7.2. Survival. The representations and warranties contained in this
Agreement shall survive for a period of fifteen months after the Closing Date,
and the liability of any party to any other party to this Agreement for the
breach of any of the representations and warranties contained in this Agreement
shall be limited to claims for which the party asserting such claim shall
deliver written notice to the party against whom such claim is being made on or
before the date fifteen months after the Closing Date. Notwithstanding the
foregoing, the representations and warranties (i) of the shareholders of EMD
contained in the Letter of Transmittal, and (ii) of EMD and the Founding
Shareholders contained in Sections 3.1(c) and 3.1(v) and in the first two
sentences of Section 3.1(o) shall survive the consummation of the Merger for the
maximum period permitted by applicable law.
7.3. Indemnification. (a) Indemnification of Benchmark and the Surviving
Corporation. Subject to Section 7.2 and Section 7.3(c), from and after the
Effective Time, the Founding Shareholders, jointly and severally, shall defend,
indemnify, save, hold harmless, discharge and release Benchmark, its direct and
indirect Subsidiaries (including the Surviving Corporation) and its and their
successors and permitted assigns (collectively, the "Benchmark Indemnified
Parties") from and against any and all damages (including exemplary damages,
interest and penalties), losses, deficiencies, costs, expenses, obligations,
fines, expenditures, assessments, charges, claims and liabilities, including
attorneys' fees, court costs and expenses of investigating, defending and
prosecuting litigation (collectively, the "Damages"), caused by, arising from,
based on, or in any way relating to (i) any inaccuracy in any representation or
warranty made by EMD or the Founding Shareholders in this Agreement, including
any inaccuracy in or omission from any list, schedule, certificate or other
document or instrument furnished or to be furnished in connection with this
Agreement, and (ii) any breach or nonfulfillment of any agreement or covenant in
this Agreement or any other document or instrument furnished or to be furnished
in connection with this Agreement to be performed by EMD or the Founding
Shareholders at or prior to the Effective Time. Subject to Section 7.3(c), from
and after the Effective Time each Founding Shareholder, severally and not
jointly, shall defend, indemnify, save, hold harmless, discharge and release the
Benchmark Indemnified Parties from and against any Damages caused by, arising
from, based on or in any way relating to any breach or nonfulfillment of any
agreement or covenant in this Agreement or any other document furnished or to be
furnished in connection with this Agreement to be performed by such Founding
Shareholder after the Effective Time. Notwithstanding anything herein to the
contrary, the indemnification obligations set forth in the preceding sentence
shall be limited to claims for which the Benchmark Indemnified Party asserting
such claim shall deliver written notice to the Founding Shareholder against whom
such claim is being asserted no later than three months after the expiration of
the obligation of the Founding Shareholders to perform such covenants and
agreements.
(b) Indemnification of Holders of EMD Common Stock. Subject to Section 7.2
and Section 7.3(c), from and after the Effective Time, Benchmark shall defend,
indemnify, save, hold harmless, discharge and release any person who was the
holder of shares of EMD Common Stock immediately prior to the Effective Time and
the former officers and directors of EMD and its Subsidiaries (collectively, the
"EMD Indemnified Parties;" sometimes the Benchmark Indemnified Parties or the
EMD Indemnified Parties, as applicable, are referred to as the "Indemnified
Persons") from and against any and all Damages caused by, arising from, based
on, or in any way relating to (i) any inaccuracy in any representation or
warranty made by Benchmark or Newco in this Agreement, including any inaccuracy
in or omission from any list, schedule, certificate or
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other document or instrument furnished or to be furnished in connection with
this Agreement, (ii) any breach or nonfulfillment of any agreement or covenant
on the part of Benchmark or the Surviving Corporation in this Agreement or any
other document or instrument furnished to or to be furnished in connection with
this Agreement, or (iii) any obligation or liabilities of EMD or the Surviving
Corporation other than those for which indemnification by the Founding
Shareholders is expressly provided for under Section 7.3(a); provided, however,
that Benchmark's obligations to defend, indemnify, save, hold harmless,
discharge and release the EMD Indemnified Parties for any Damages under clause
(iii) above shall be limited to claims for which the EMD Indemnified Party
asserting such claim shall deliver written notice to Benchmark within three
years after the Closing Date and shall not apply to the extent that the EMD
Indemnified Party asserting such claim acted, with respect to any matter giving
rise to such Damages, other than in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of EMD or its
Subsidiaries.
(c) Exceptions and Limitations. (i) The Benchmark Indemnified Parties
shall not have the right to be indemnified pursuant to Section 7.3(a) (other
than for willful breaches of representations or warranties, breaches of Section
4.6 and for fraud) unless and until the Benchmark Indemnified Parties shall have
incurred on a cumulative basis since the Closing Date aggregate Damages (other
than for willful breaches of representations or warranties, breaches of Section
4.6 and for fraud) in an amount exceeding $540,000, in which event the right to
be indemnified shall apply to the extent, but only to such extent, that such
Damages exceed $250,000.
(ii) The sum of all Damages pursuant to which indemnification is payable by
the Founding Stockholders pursuant to Section 7.3(a) (other than for willful
breaches of representations or warranties, breaches of Section 4.6 and for
fraud) shall not exceed $5,400,000 in the aggregate.
(iii) Any proceeds from insurance paid to an Indemnified Person as a direct
result of any fact, event or circumstance which would create Damages requiring
indemnity pursuant to Section 7.3(a) or Section 7.3(b) shall constitute a
reduction in such Damages.
(iv) The calculation of the amount of Damages for purposes of Section
7.3(a) or Section 7.3(b) shall take into account any increased tax liability of
an Indemnified Person as a result of the inclusion in the income of such
Indemnified Person of any part of the indemnification payment; and shall take
into account any allowable present tax benefits or the present value of any
allowable future tax benefits attributable to the Damages. For purposes of
determining the amount of any tax benefit or detriment under this Section
7.3(c), the marginal combined federal and state income tax rate (i) of the
Surviving Corporation conclusively shall be deemed to be forty percent (40%) and
(ii) of a Founding Shareholder conclusively shall be deemed to be thirty percent
(30%), and for the calculation of prospective tax benefits or detriments, a
discount rate of seven and one-half percent (7 1/2%) shall be used.
7.4. Notice and Defense of Third-Party Claims. The obligations and
liabilities of an indemnifying person with respect to Damages resulting from the
assertion of liability by third parties (each, a "Third-Party Claim") shall be
subject to the following terms and conditions:
(a) Notice. The Indemnified Persons shall promptly give written
notice to the indemnifying parties of any Third-Party Claim (including,
without limitation, any threat of a Third-Party Claim, such as an audit or
investigation) which might give rise to any Damages by the Indemnified
Persons, stating the nature and basis of such Third-Party Claim and the
amount thereof to the extent known; provided, however, that no delay on the
part of the Indemnified Persons in notifying any indemnifying party shall
relieve the indemnifying party from any liability or obligation hereunder
unless (and then solely to the extent) the indemnifying party thereby is
prejudiced by the delay. Such notice shall be accompanied by copies of all
relevant documentation with respect to such Third-Party Claim, including,
but not limited to, any summons, complaint or other pleading which may have
been served, any written demand or any other document or instrument.
(b) Assumption of Defense. If the indemnifying parties shall
acknowledge in a writing delivered to the Indemnified Persons that the
indemnifying parties shall be obligated under the terms of their
indemnification obligations hereunder in connection with such Third-Party
Claim, then the indemnifying
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parties shall have the right to assume the defense of any Third-Party Claim
at their own expense and by their own counsel, which counsel shall be
reasonably satisfactory to the Indemnified Persons; provided, however, that
the indemnifying parties shall not have the right to assume the defense of
any Third-Party Claim, notwithstanding the giving of such written
acknowledgment, if (i) the Indemnified Persons shall have been advised by
counsel that there are one or more legal or equitable defenses available to
them which are different from or in addition to those available to the
indemnifying parties, and, in the reasonable opinion of the Indemnified
Persons, counsel for the indemnifying parties could not adequately
represent the interests of the Indemnified Parties because such interests
could be in conflict with those of the indemnifying parties, (ii) such
action or proceeding involves, or could have a material effect on, any
material matter beyond the scope of the indemnification obligation of the
indemnifying parties or (iii) the indemnifying parties shall not have
assumed the defense of the Third-Party Claim in a timely fashion.
(c) Participation by Other Parties. If the indemnifying parties shall
assume the defense of a Third-Party Claim (under circumstances in which the
proviso to Section 7.4(b) is not applicable), the indemnifying parties
shall not be responsible for any legal or other defense costs subsequently
incurred by the Indemnified Persons in connection with the defense thereof.
If the indemnifying parties do not exercise their right to assume the
defense of a Third-Party Claim by giving the written acknowledgment
referred to in Section 7.4(b), or are otherwise restricted from so assuming
by the proviso to Section 7.4(b), the indemnifying parties shall
nevertheless be entitled to participate in such defense with their own
counsel and at their own expense; and in any such case, the Indemnified
Persons may assume the defense of the Third-Party Claim, with counsel which
shall be reasonably satisfactory to the indemnifying parties and shall act
reasonably and in accordance with their good faith business judgment and
shall not effect any settlement without the consent of the indemnifying
parties, which consent shall not unreasonably be withheld or delayed.
(d) Settlement. If the indemnifying parties exercise their right to
assume the defense of a Third-Party Claim, they shall not make any
settlement of any claims without the prior written consent of the
Indemnified Persons, which consent shall not be unreasonably withheld or
delayed.
(e) Notice to Both Founding Shareholders. Anything contained in this
Agreement to the contrary notwithstanding, in the event of a claim for
indemnification pursuant to the joint and several indemnification
obligations in Section 7.3(a), all notices to be delivered to, or the
consent to be received of, either Founding Shareholder shall also require
the delivery of notice to the other Founding Shareholder and the consent of
both Founding Shareholders, which consent shall not be unreasonably
withheld or delayed.
7.5. No Third Party Reliance. Anything contained herein to the contrary
notwithstanding, the representations and warranties of EMD and the Founding
Shareholders contained in this Agreement (including, without limitation, the
Disclosure Letter) (i) are being given by EMD and the Founding Shareholders as
an inducement to Benchmark and Newco to enter into this Agreement and (ii) are
solely for the benefit of Benchmark and Newco. Accordingly, no third party or
anyone acting on behalf thereof other than the Benchmark Indemnified Persons,
and each of them, shall be a third party or other beneficiary of such
representations and warranties.
7.6. Remedies Exclusive. The enforcement of the agreements of
indemnification contained in this Article VII shall be, after the Effective
Time, the exclusive remedy of the parties hereto for any breach of any warranty
or term hereof, whether sounding in tort, contract or otherwise, and the parties
hereto waive all remedies otherwise available to such parties, including without
limitation, those relating to environmental matters, save only remedies for
fraud and remedies which by law may not be waived.
7.7. Modification or Amendment. Subject to the applicable provisions of
the MBCA and the TBCA, at any time prior to the Effective Time, this Agreement
may be modified or amended by the mutual consent of Benchmark, Newco and EMD, by
action of their respective boards of directors followed by written agreement
executed and delivered by duly authorized officers of the respective parties and
the Founding Shareholders.
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7.8. Waiver of Conditions. The conditions to each party's obligations to
consummate the Merger are for the sole benefit of such party and may be waived
by such party in whole or in part to the extent permitted by applicable law.
7.9. Counterparts. For the convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each such counterpart
being deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement.
7.10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota without giving effect to the
principles of conflict of laws thereof.
7.11. Arbitration. Any controversy, dispute or claim arising out of or
relating to this Agreement, any breach or alleged breach hereof, the making of
this Agreement or fraud in the inducement, the transactions contemplated hereby,
any modification or extension of this Agreement or affecting this Agreement in
any way shall be resolved by arbitration in the City of Chicago, in accordance
with the then current Center for Public Resources Rules for Non-Administered
Arbitration of Business Disputes, by three independent and impartial
arbitrators, one of whom shall be appointed by Benchmark and one of whom shall
be appointed by the Founding Shareholders. In the event that the dispute
concerns any matter involving accounting issues, at least one of the arbitrators
shall be a certified public accountant affiliated with one of the "big six"
accounting firms (other than such an accounting firm employed by Benchmark or
any of its affiliates). Notwithstanding anything to the contrary provided in
Section 7.10 hereof, the arbitration shall be governed by the United States
Arbitration Act, 9 U.S.C. sec. 1 et seq. The decision of the arbitrators shall
be binding on the parties, and judgment upon the award may be entered in any
court having jurisdiction thereof. Notwithstanding anything to the contrary
provided in this Section 7.11 and without prejudice to the above procedures, any
party may apply to any court of competent jurisdiction for temporary injunctive
or other provisional judicial relief if in such party's sole judgment such
action is necessary to avoid irreparable damage or to preserve the status quo
until such time as the arbitration award is rendered or the controversy is
otherwise resolved.
7.12. Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the others shall be in writing and shall be
deemed to have been duly given on the next business day after the same is sent,
if delivered personally or sent by telecopy or overnight delivery, or five
calendar days after the same is sent, if sent by registered or certified mail,
return receipt requested, postage prepaid, as set forth below, or to such other
persons or addresses as may be designated in writing in accordance with the
terms hereof by the party to receive such notice.
If to EMD:
EMD Technologies, Inc.
4065 Theurer Boulevard
Winona, Minnesota 55987-5025
Telecopy: (507) 453-4578
Attention: David H. Arnold or Daniel M. Rukavina
With a required copy to the Founding Shareholders and:
Kent A. Gernander
Streater, Murphy, Gernander, Forsythe & Telstad, P.A.
64-68 East Fourth Street
Winona, Minnesota 55987
Telecopy: (507) 454-2929
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and
Susan L. Jacobson
Faegre & Benson, Professional Limited Liability Partnership
2200 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402-3901
Telecopy: (612) 336-3026
If to the Founding Shareholders:
Mr. David H. Arnold
1853 Edgewood Road
Winona, Minnesota 55987
Mr. Daniel M. Rukavina
Rural Route 1
Box 67B2
Winona, Minnesota 55987
With a required copy to Kent A. Gernander and Susan L. Jacobson at the
addresses indicated above
If to Benchmark or Newco:
Benchmark Electronics, Inc.
3000 Technology Drive
Angleton, Texas 77515
Telecopy: (409) 848-5269
Attention: Mr. Cary Fu
With a required copy to:
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana, Suite 2900
Houston, Texas 77002
Telecopy: (713) 221-1212
Attention: Mr. John R. Brantley
7.13. Disclosure Letter and Exhibits; Entire Agreement. All exhibits and
the Disclosure Letter and attachments to exhibits or the Disclosure Letter, or
documents expressly incorporated into this Agreement, and any other attachments
to this Agreement are hereby incorporated into this Agreement and are hereby
made a part hereof as if set out in full in this Agreement. This Agreement
supersedes all other prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof (other than the
Confidentiality Agreement, which shall remain in full force and effect), and
constitutes the entire agreement among the parties hereto.
7.14. Assignment. Prior to the Effective Time, this Agreement and the
rights and obligations of the parties hereto shall not be assignable, by
operation of law or otherwise, or delegable. After the Effective Time, neither
Founding Shareholder may assign his rights or delegate his obligations under
this Agreement without the prior written consent of Benchmark except as
otherwise provided in this Agreement. Except as otherwise provided in this
Section 7.14, neither Benchmark nor the Surviving Corporation may assign its
rights or delegate its duties without the prior written consent of each of the
Founding Shareholders. Benchmark or the Surviving Corporation may assign its
rights hereunder without the consent of the Founding Shareholders (i) by
operation of law in connection with any merger, consolidation or share exchange
involving Benchmark or the Surviving Corporation, and (ii) to any purchaser of
all or substantially all of the assets of Benchmark or the Surviving
Corporation.
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7.15. Obligation of Benchmark and Newco or EMD. Whenever this Agreement
requires Benchmark, Newco or the Surviving Corporation to take any action, such
requirement shall be deemed to include an undertaking on the part of Benchmark
to cause such action to be taken. Whenever this Agreement requires EMD or any of
its Subsidiaries to take any action, such requirements shall be deemed to
include an undertaking on the part of EMD to cause such action to be taken.
7.16. Titles and Captions. The titles, captions and table of contents
contained in this Agreement are inserted herein only as a matter of convenience
and for reference and in no way deem, limit, extend or describe the scope of
this Agreement or the intent of any provisions hereof.
7.17. Public Statements. The parties agree to consult with each other
prior to issuing any public announcement or statement with respect to the
transactions contemplated hereby.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto.
BENCHMARK ELECTRONICS, INC.
By: /s/ DONALD E. NIGBOR
------------------------------------
Name: Donald E. Nigbor
Title: President and Chief Executive
Officer
ELECTRONICS ACQUISITION, INC.
By: /s/ DONALD E. NIGBOR
------------------------------------
Name: Donald E. Nigbor
Title: President and Chief Executive
Officer
EMD TECHNOLOGIES, INC.
By: /s/ DANIEL M. RUKAVINA
------------------------------------
Name: Daniel M. Rukavina
Title: President
/s/ DAVID H. ARNOLD
--------------------------------------
David H. Arnold
/s/ DANIEL M. RUKAVINA
--------------------------------------
Daniel M. Rukavina
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APPENDIX B
MINNESOTA BUSINESS CORPORATION ACT,
SECTIONS 302A.471 AND 302A.473
302A.471 RIGHTS OF DISSENTING SHAREHOLDERS. -- Subdivision 1. Actions
creating rights. A shareholder of a corporation may dissent from, and obtain
payment for the fair value of the shareholder's shares in the event of, any of
the following corporate actions:
(a) An amendment of the articles that materially and adversely affects
the rights or preferences of the shares of the dissenting shareholder in
that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the
redemption of the shares, including a provision respecting a sinking
fund for the redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the
shares to acquire shares, securities other than shares, or rights to
purchase shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a
matter, or to cumulate votes, except as the right may be excluded or
limited through the authorization or issuance of securities of an
existing or new class or series with similar or different voting rights;
except that an amendment to the articles of an issuing public
corporation that provides that section 302A.671 does not apply to a
control share acquisition does not give rise to the right to obtain
payment under this section;
(b) A sale, lease, transfer or other disposition of all or
substantially all of the property and assets of the corporation, but not
including a transaction permitted without shareholder approval in section
302A.661, subdivision 1, or a disposition in dissolution described in
section 302A.725, subdivision 2, or a disposition pursuant to an order of a
court, or a disposition for cash on terms requiring that all or
substantially all of the net proceeds of disposition be distributed to the
shareholders in accordance with their respective interests within one year
after the date of disposition;
(c) A plan of merger, whether under this chapter or under chapter
322B, to which the corporation is a party, except as provided in
subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter
322B, to which the corporation is a party as the corporation whose shares
will be acquired by the acquiring corporation, if the shares of the
shareholder are entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote
with respect to which the articles, the bylaws, or a resolution approved by
the board directs that dissenting shareholders may obtain payment for their
shares.
Subdivision 2. Beneficial owners. (a) A shareholder shall not assert
dissenters' rights as to less than all of the shares registered in the name of
the shareholder, unless the shareholder dissents with respect to all the shares
that are beneficially owned by another person but registered in the name of the
shareholder and discloses the name and address of each beneficial owner on whose
behalf the shareholder dissents. In that event, the rights of the dissenter
shall be determined as if the shares as to which the shareholder has dissented
and the other shares were registered in the names of different shareholders.
(b) A beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of the beneficial
owner, and shall be treated as a dissenting shareholder under the terms of this
section and section 302A.473, if the beneficial owner submits to the corporation
at the time of or before the assertion of the rights a written consent of the
shareholder.
Subdivision 3. Rights not to apply. Unless the articles, the bylaws, or a
resolution approved by the board otherwise provide, the right to obtain payment
under this section does not apply to a shareholder of the surviving corporation
in a merger, if the shares of the shareholder are not entitled to be voted on
the merger.
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Subdivision 4. Other rights. The shareholders of a corporation who have a
right under this section to obtain payment for their shares do not have a right
at law or in equity to have a corporate action described in subdivision 1 set
aside or rescinded, except when the corporate action is fraudulent with regard
to the complaining shareholder or the corporation.
302A.473 PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS. -- Subdivision 1.
Definitions. (a) For purposes of this section, the terms defined in this
subdivision have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action referred to in section 302A.471, subdivision 1 or the
successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a
corporation immediately before the effective date of the corporate action
referred to in section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective date
of the corporate action referred to in section 302A.471, subdivision 1 up to and
including the date of payment, calculated at the rate provided in section 549.09
for interest on verdicts and judgments.
Subdivision 2. Notice of action. If a corporation calls a shareholder
meeting at which any action described in section 302A.471, subdivision 1 is to
be voted upon, the notice of the meeting shall inform each shareholder of the
right to dissent and shall include a copy of section 302A.471 and this section
and a brief description of the procedure to be followed under these sections.
Subdivision 3. Notice of dissent. If a proposed action must be approved by
the shareholders, a shareholder who wishes to exercise dissenters' rights must
file with the corporation before the vote on the proposed action a written
notice of intent to demand the fair value of the shares owned by the shareholder
and must not vote the shares in favor of the proposed action.
Subdivision 4. Notice of procedure; deposit of shares; (a) After the
proposed action has been approved by the board and, if necessary, the
shareholders, the corporation shall send to all shareholders who have complied
with subdivision 3 and to all shareholders entitled to dissent if no shareholder
vote was required, a notice that contains:
(1) The address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertificated shares that will
apply after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder, or
the beneficial owner on whose behalf the shareholder dissents, acquired the
shares or an interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a brief
description of the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply with
any restrictions on transfer of uncertificated shares within 30 days after the
notice was given, but the dissenter retains all other rights of a shareholder
until the proposed action takes effect.
Subdivision 5. Payment; return of shares. (a) After the corporate action
takes effect, or after the corporation receives a valid demand for payment,
whichever is later, the corporation shall remit to each dissenting shareholder
who has complied with subdivisions 3 and 4 the amount the corporation estimates
to be the fair value of the shares, plus interest, accompanied by:
(1) the corporation's closing balance sheet and statement of income
for a fiscal year ending not more than 16 months before the effective date
of the corporate action, together with the latest available interim
financial statements;
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<PAGE> 125
(2) an estimate by the corporation of the fair value of the shares and
a brief description of the method used to reach the estimate; and
(3) a copy of section 302A.471 and this section, and a brief
description of the procedure to be followed in demanding supplemental
payment.
(b) The corporation may withhold the remittance described in paragraph (a)
from a person who was not a shareholder on the date the action dissented from
was first announced to the public or who is dissenting on behalf of a person who
was not a beneficial owner on that date. If the dissenter has complied with
subdivisions 3 and 4, the corporation shall forward to the dissenter the
materials described in paragraph (a), a statement of the reason for withholding
the remittance, and an offer to pay to the dissenter the amount listed in the
materials if the dissenter agrees to accept that amount in full satisfaction.
The dissenter may decline the offer and demand payment under subdivision 6.
Failure to do so entitles the dissenter only to the amount offered. If the
dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the deposit
of certificates or the imposition of transfer restrictions on uncertificated
shares, it shall return all deposited certificates and cancel all transfer
restrictions. However, the corporation may again give notice under subdivision 4
and require deposit or restrict transfer at a later time.
Subdivision 6. Supplemental payment; demand. If a dissenter believes that
the amount remitted under subdivision 5 is less than the fair value of the
shares plus interest, the dissenter may give written notice to the corporation
of the dissenter's own estimate of the fair value of the shares, plus interest,
within 30 days after the corporation mails the remittance under subdivision 5,
and demand payment of the difference. Otherwise, a dissenter is entitled only to
the amount remitted by the corporation.
Subdivision 7. Petition; determination. If the corporation receives a
demand under subdivision 6, it shall, within 60 days after receiving the demand,
either pay to the dissenter the amount demanded or agreed to by the dissenter
after discussion with the corporation or file in court a petition requesting
that the court determine the fair value of the shares, plus interest. The
petition shall be filed in the county in which the registered office of the
corporation is located, except that a surviving foreign corporation that
receives a demand relating to the shares of a constituent domestic corporation
shall file the petition in the county in this state in which the last registered
office of the constituent corporation was located. The petition shall name as
parties all dissenters who have demanded payment under subdivision 6 and who
have not reached agreement with the corporation. The corporation shall, after
filing the petition, serve all parties with a summons and copy of the petition
under the rules of civil procedure. Nonresidents of this state may be served by
registered or certified mail or by publication as provided by law. Except as
otherwise provided, the rules of civil procedure apply to this proceeding. The
jurisdiction of the court is plenary and exclusive. The court may appoint
appraisers, with powers and authorities the court deems proper, to receive
evidence on and recommend the amount of the fair value of the shares. The court
shall determine whether the shareholder or shareholders in question have fully
complied with the requirements of this section, and shall determine the fair
value of the shares, taking into account any and all factors the court finds
relevant, computed by any method or combination of methods that the court, in
its discretion, sees fit to use, whether or not used by the corporation or by a
dissenter. The fair value of the shares as determined by the court is binding on
all shareholders, wherever located. A dissenter is entitled to judgment in cash
for the amount by which the fair value of the shares as determined by the court,
plus interest, exceeds the amount, if any, remitted under subdivision 5, but
shall not be liable to the corporation for the amount, if any, by which the
amount, if any, remitted to the dissenter under subdivision 5 exceeds the fair
value of the shares as determined by the court, plus interest.
Subdivision 8. Costs; fees; expenses. (a) The court shall determine the
costs and expenses of a proceeding under subdivision 7, including the reasonable
expenses and compensation of any appraisers appointed by the court, and shall
assess those costs and expenses against the corporation, except that the court
may assess part or all of those costs and expenses against a dissenter whose
action in demanding payment under subdivision 6 is found to be arbitrary,
vexatious, or not in good faith.
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(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses of
any experts or attorneys as the court deems equitable. These fees and expenses
may also be assessed against a person who has acted arbitrarily, vexatiously, or
not in good faith in bringing the proceeding, and may be awarded to a party
injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an
attorney for the dissenters out of the amount awarded to the dissenters, if any.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Texas Business Corporation Act
Article 2.02-1.B of the Texas Business Corporation Act, as amended (the
"TBCA"), grants to a corporation the power to indemnify a person who was, is or
is threatened to be made a named defendant or respondent in a proceeding because
the person is or was a director of the corporation against judgments, penalties
(including excise and similar taxes), fines, settlements and reasonable expenses
actually incurred in connection therewith, only if it is determined that the
person (1) conducted himself in good faith; (2) reasonably believed that (a) in
the case of conduct in his official capacity as a director of the corporation,
his conduct was in the corporation's best interests, and (b) in all other cases,
his conduct was at least not opposed to the corporation's best interests; and
(3) in the case of any criminal proceeding, he had no reasonable cause to
believe that his conduct was unlawful. Article 2.02-1.C limits the allowable
indemnification by providing that, except to the extent permitted by Article
2.02-1.E, a director may not be indemnified in respect of a proceeding in which
the person was found liable (1) on the basis that he improperly received a
personal benefit, whether or not the benefit resulted from an action taken in
his official capacity, or (2) to the corporation. Article 2.02-1.E provides that
if a director is found liable to the corporation or is found liable on the basis
that he received a personal benefit, the permissible indemnification (1) is
limited to reasonable expenses actually incurred by the person in connection
with the proceeding, and (2) shall not be made in respect of any proceeding in
which the person shall have been found liable for willful or intentional
misconduct in the performance of his duty to the corporation. Finally, Article
2.02-1.H provides that a corporation shall indemnify a director against
reasonable expenses incurred by him in connection with a proceeding in which he
is a named defendant or respondent because he is or was a director if he has
been wholly successful, on the merits or otherwise, in defense of the
proceeding.
With respect to the officers of a corporation, Article 2.02-1.O of the TBCA
provides that a corporation may indemnify and advance expenses to an officer of
the corporation to the same extent that it may indemnify and advance expenses to
directors under Article 2.02-1. Further, Article 2.02-1.O provides that an
officer of a corporation shall be indemnified as, and to the same extent,
provided by Article 2.02-1.H for a director.
Amended and Restated Bylaws
The Amended and Restated Bylaws of Benchmark make mandatory the
indemnification of and advancement of expenses to its directors who become
involved in indemnifiable legal proceedings, subject to their compliance with
certain requirements imposed by Texas law.
Indemnity Agreements
Benchmark has entered into Indemnity Agreements with its directors and
officers pursuant to which Benchmark generally is obligated to indemnify its
directors and officers to the full extent permitted by Texas law.
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<PAGE> 128
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
The exhibits listed below are filed as a part of the Registration
Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C> <C>
2.1 -- Agreement and Plan of Merger dated as of March 27, 1996, by and among Benchmark
Electronics, Inc., Electronics Acquisition, Inc., EMD Technologies, Inc., David H.
Arnold and Daniel M. Rukavina (incorporated herein by reference to Exhibit 2 to
Benchmark's Annual Report on Form 10-K for the fiscal year ended December 31,
1995).
2.2 -- Amendment No. 1 to Agreement and Plan of Merger dated as of April 5, 1996, by and
among Benchmark Electronics, Inc., Electronics Acquisition, Inc., EMD Technologies,
Inc., David H. Arnold and Daniel M. Rukavina.
4.1 -- Restated Articles of Incorporation of Benchmark (incorporated herein by reference
to Exhibit 3.1 to Benchmark's Registration Statement on Form S-1 (Registration No.
33-46316)).
4.2 -- Amended and Restated Bylaws of Benchmark (incorporated herein by reference to
Exhibit 3.2 to Benchmark's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992).
4.3* -- Form of Statement of Resolution Establishing Series of Shares relating to
Benchmark's Mandatorily Convertible Preferred Stock, Series A.
5* -- Opinion of Bracewell & Patterson, L.L.P., regarding the validity of the shares
covered by this Registration Statement.
8* -- Form of Opinion of KPMG Peat Marwick LLP, regarding certain tax matters.
23.1* -- Consent of Bracewell & Patterson, L.L.P. (included in the opinion filed as Exhibit
5 hereto).
23.2* -- Consent of KPMG Peat Marwick LLP, relating to Benchmark's financial statements
incorporated by reference herein.
23.3* -- Consent of KPMG Peat Marwick LLP, relating to EMD's financial statements included
herein.
23.4* -- Consent of David H. Arnold.
24 -- Powers of Attorney (included on the signature page of this Registration Statement
as originally filed).
</TABLE>
- ---------------
* Filed herewith.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities
II-2
<PAGE> 129
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through the use
of a prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Information
Statement/Prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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<PAGE> 130
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Angleton, State of Texas, on June 14, 1996.
BENCHMARK ELECTRONICS, INC.
By: /s/ CARY T. FU
------------------------------------
Cary T. Fu
Executive Vice President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement has been signed by the
following persons in the capacities indicated on June 14, 1996.
<TABLE>
<CAPTION>
SIGNATURE POSITION
- --------------------------------------------- --------------------------------------------
<S> <C>
Chairman of the Board of Directors
- ---------------------------------------------
John C. Custer
/s/ DONALD E. NIGBOR* Director and President (principal executive
- --------------------------------------------- officer)
Donald E. Nigbor
Director and Executive Vice President
- ---------------------------------------------
Steven A. Barton
/s/ CARY T. FU* Director and Executive Vice President
- --------------------------------------------- (principal financial and accounting
Cary T. Fu officer)
/s/ PETER G. DORFLINGER* Director
- ---------------------------------------------
Peter G. Dorflinger
/s/ GERALD W. BODZY* Director
- ---------------------------------------------
Gerald W. Bodzy
/s/ RICHARD M. LOGHRY* Director
- ---------------------------------------------
Richard M. Loghry
</TABLE>
- ---------------
* Pursuant to a power of attorney executed by such individual and filed with the
Commission, Cary T. Fu has executed this Amendment No. 1 to the Registration
Statement on behalf of such individual in the space provided below on June 14,
1996.
/s/ CARY T. FU
------------------------------------------------------
Cary T. Fu
Attorney-in-Fact
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<PAGE> 131
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------
<S> <C> <C>
2.1 -- Agreement and Plan of Merger dated as of March 27, 1996, by and among Benchmark
Electronics, Inc., Electronics Acquisition, Inc., EMD Technologies, Inc., David
H. Arnold and Daniel M. Rukavina (incorporated herein by reference to Exhibit 2
to Benchmark's Annual Report on Form 10-K for the fiscal year ended December 31,
1995).
2.2 -- Amendment No. 1 to Agreement and Plan of Merger dated as of April 5, 1996, by and
among Benchmark Electronics, Inc., Electronics Acquisition, Inc., EMD
Technologies, Inc., David H. Arnold and Daniel M. Rukavina.
4.1 -- Restated Articles of Incorporation of Benchmark (incorporated herein by reference
to Exhibit 3.1 to Benchmark's Registration Statement on Form S-1 (Registration
No. 33-46316)).
4.2 -- Amended and Restated Bylaws of Benchmark (incorporated herein by reference to
Exhibit 3.2 to Benchmark's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992).
4.3* -- Form of Statement of Resolution Establishing Series of Shares relating to
Benchmark's Mandatorily Convertible Preferred Stock, Series A.
5* -- Opinion of Bracewell & Patterson, L.L.P., regarding the validity of the shares
covered by this Registration Statement.
8* -- Form of Opinion of KPMG Peat Marwick LLP, regarding certain tax matters.
23.1* -- Consent of Bracewell & Patterson, L.L.P. (included in the opinion filed as
Exhibit 5 hereto).
23.2* -- Consent of KPMG Peat Marwick LLP, relating to Benchmark's financial statements
incorporated by reference herein.
23.3* -- Consent of KPMG Peat Marwick LLP, relating to EMD's financial statements included
herein.
23.4* -- Consent of David H. Arnold.
24 -- Powers of Attorney (included on the signature page of this Registration Statement
as originally filed).
</TABLE>
- ---------------
* Filed herewith.
<PAGE> 1
BENCHMARK ELECTRONICS, INC.
STATEMENT OF RESOLUTION
ESTABLISHING SERIES OF SHARES
Pursuant to the provisions of Article 2.13 of the Texas Business
Corporation Act, Benchmark Electronics, Inc., a Texas corporation (the
"Corporation"), submits the following statement for the purpose of establishing
a series of shares and fixing and determining the designations, preferences,
limitations and relative rights thereof:
1. The name of the corporation is Benchmark Electronics, Inc.
2. The following recitals and resolutions, establishing a series
of shares and fixing and determining the designations, preferences, limitations
and relative rights thereof, were duly adopted by the Board of Directors of the
Corporation on _____________ __,1996:
WHEREAS, Section 4.1 of the Articles of Incorporation of the
Corporation authorizes 10,000,000 shares of a class of common stock,
par value $.10 per share ("Common Stock"), issuable from time to time,
and 5,000,000 shares of a class of preferred stock, par value $.10 per
share, issuable from time to time in one or more series; and
WHEREAS, pursuant to Section 4.2 of the Articles of
Incorporation of the Corporation, the Board of Directors of the
Corporation is authorized to fix and determine the designation,
preferences, limitations and relative rights of any series of
preferred stock and to fix the number of shares constituting such
series and to increase or decrease the number of shares of any such
series (but not below the number of shares then outstanding); and
WHEREAS, it is the desire of the Board of Directors of the
Corporation, pursuant to its authority described above, to establish a
series of preferred stock and to fix and determine the designation,
preferences, limitations and relative rights thereof:
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors
hereby establishes a series of preferred stock of the Corporation and
fixes and determines the designation, preferences, limitations and
relative rights thereof as follows:
ARTICLE I
The series shall be designated as Mandatorily Convertible
Preferred Stock, Series A (hereinafter called "Series A Preferred
Stock").
ARTICLE II
The number of shares of Series A Preferred Stock is 250,000,
par value of $.10 per share, which number of shares the Board of
Directors may increase or decrease but may not decrease below the
number of shares of Series A Preferred Stock outstanding.
<PAGE> 2
ARTICLE III
1. Rank. The Series A Preferred Stock shall, with
respect to dividend rights and rights upon liquidation, dissolution
and winding up, rank prior to the Common Stock and to any other series
of preferred stock that is expressly made junior to the Series A
Preferred Stock. All equity securities of the Corporation to which
the Series A Preferred Stock ranks prior, including the Common Stock,
are collectively referred to herein as the "Junior Securities," all
equity securities of the Corporation with which the Series A Preferred
Stock ranks on a parity, if any, are collectively referred to herein
as the "Parity Securities" and all equity securities of the
Corporation to which the Series A Preferred Stock ranks junior,
whether with respect to dividends or upon liquidation, dissolution,
winding-up or otherwise, if any, are collectively referred to herein
as the "Senior Securities." The Series A Preferred Stock shall be
subject to the creation of Junior Securities, Parity Securities and
Senior Securities; provided, however, that during the time that any
shares of Series A Preferred Stock are issued and outstanding the
Corporation shall not issue any Parity Securities or Senior Securities
without the consent of the holders of a majority of the issued and
outstanding shares of Series A Preferred Stock.
2. Dividends.
2.1 Dividend Amount; Payment of Dividends. In
the event that all outstanding shares of Series A Preferred
Stock have not been converted into Common Stock pursuant to
Section 4 of this Article III within 120 days after the date
shares of Series A Preferred Stock are first issued (the
"Issuance Date"), but only in such event, the holders of
outstanding shares of the Series A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of
Directors, out of funds legally available for the payment of
dividends, cumulative preferential cash dividends per share
accruing from the Issuance Date in an amount equal to $___
(the "Annual Dividend") [to be an amount equal to 4% of the
lesser of the Benchmark Measurement Price and the Closing
Price as defined in the Agreement and Plan of Merger dated as
of March 27, 1996 by and among the Corporation, Electronics
Acquisition, Inc., EMD Technologies, Inc., David H. Arnold and
Daniel M. Rukavina], payable quarterly in arrears on or before
the 45th day after the last day of each calendar quarter for
which such dividends are payable (each a "Dividend Period");
provided, however, that the Annual Dividend set forth above
shall increase by $_____ [to be an amount equal to 2% of the
lesser of the Benchmark Measurement Price and the Closing
Price] on each anniversary of the Issuance Date; provided,
however, that the Annual Dividend shall in no event exceed
$____ [an
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<PAGE> 3
amount equal to 12% of the lesser of the Benchmark Measurement
Price and the Closing Price].
If any dividend payment date shall be or be declared
a national or Texas State holiday, or if banking institutions
in the State of Texas shall be closed because of a banking
moratorium or otherwise on such date, then such dividend shall
be paid on the next succeeding day on which such banks shall
be open. Each such dividend will be payable to holders of
record as they appear on the stock transfer records of the
Corporation on such record dates, not less than 10 nor more
than 60 days preceding the payment dates thereof, as shall be
fixed by the Board of Directors. Dividends on the Series A
Preferred Stock shall accrue (whether or not declared) on a
daily basis and shall be cumulative (whether or not in any
Dividend Period there shall be funds of the Corporation
legally available for the payment of such dividends). The
first dividend shall accrue from the Issuance Date through the
end of the first calendar quarter to end after the expiration
of 120 days after the Issuance Date, and subsequent dividends
shall accrue on a daily basis during the Dividend Period for
which they are payable. Accrued and unpaid dividends shall
not bear interest unless such dividends remain unpaid after 45
days after the end of the Dividend Period for which such
dividends are payable, in which case such accrued and unpaid
dividends shall bear interest at an annual rate of 12%.
Dividends (or cash amounts equal to accrued and unpaid
dividends) payable on the Series A Preferred Stock for any
period shorter than a quarterly dividend period shall be
computed on the basis of a 360-day year of twelve 30- day
months. Notwithstanding the foregoing, if the Series A
Preferred Stock shall have been converted into Common Stock
pursuant to Section 4 of this Article III within 120 days of
the Issuance Date, no dividends shall accrue or be payable.
2.2 Dividends on Other Securities. No full
dividends shall be declared by the Board of Directors or paid
or set apart for payment by the Corporation on any Parity
Securities for any period and no Parity Securities shall be
redeemed, purchased or otherwise acquired for any
consideration, nor may any money be paid to or made available
for a sinking fund for the redemption of any Parity
Securities by the Corporation unless full cumulative dividends
have been or contemporaneously are declared and paid or
declared and a sum set apart sufficient for such payment on
the Series A Preferred Stock for all Dividend Periods ending
on or prior to the date of payment of any such dividend on, or
redemption or purchase of, any Parity Securities. If any
dividends are not paid or set apart in full, as aforesaid,
upon the shares of the Series A
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<PAGE> 4
Preferred Stock and any Parity Securities, all dividends
declared upon the Series A Preferred Stock and any Parity
Securities shall be declared pro rata so that the amount of
dividends declared per share on the Series A Preferred Stock
and such Parity Securities shall in all cases bear to each
other the same ratio that accrued dividends per share on the
Series A Preferred Stock and such Parity Securities bear to
each other. Unless full cumulative dividends, if any, accrued
on all outstanding shares of the Series A Preferred Stock have
been or contemporaneously are declared and paid or declared
and a sum set apart sufficient for such payment for all
Dividend Periods ending on or prior to the date of payment
thereof, no dividend shall be declared or paid or set aside
for payment or other distribution declared or made upon the
Common Stock or upon any other Junior Securities (other than a
dividend or distribution paid in shares of, or warrants,
rights or options exercisable for or convertible into or
exchangeable for, Common Stock or any other Junior
Securities), nor shall any Common Stock nor any other Junior
Securities be redeemed, purchased or otherwise acquired for
any consideration, nor may any moneys be paid to or made
available for a sinking fund for the redemption of any shares
of any such securities, by the Corporation, except by
conversion into or exchange for Junior Securities. Holders of
the shares of the Series A Preferred Stock shall not be
entitled to any dividends, whether payable in cash, stock or
other property, in excess of full cumulative dividends as
provided in Section 2.1. Subject to the foregoing, the Board
of Directors may declare and the Corporation may pay or set
apart for payment dividends and other distributions on any of
the Junior Securities or Parity Securities, and may redeem,
purchase or otherwise acquire out of funds legally available
therefor any Junior Securities, and the holders of the shares
of the Series A Preferred Stock shall not be entitled to share
therein.
2.3 Order of Crediting Payments. Any dividend
payment made on shares of the Series A Preferred Stock shall
first be credited against the earliest accrued but unpaid
dividend due with respect to shares of the Series A Preferred
Stock.
2.4 Pro Rata Payments. All dividends paid with
respect to shares of the Series A Preferred Stock pursuant to
this Section 2 shall be paid pro rata to the holders entitled
thereto.
2.5 Priority. Holders of shares of the Series A
Preferred Stock shall be entitled to receive the dividends
provided for in this Section 2 in preference to and in
priority over any dividends payable in respect of any of the
Junior Securities.
3. Liquidation Preference.
3.1 Liquidation Amount. In the event of any
liquidation, dissolution or winding up of the Corporation,
either voluntary or involuntary, and subject to the rights of
the holders of any Senior Securities, before any of the assets
of the
-4-
<PAGE> 5
Corporation shall be distributed among or paid over to the
holders of any Junior Securities, the holders of shares of
Series A Preferred Stock shall be entitled to receive an
amount per share equal to $_____ [to be an amount equal to the
lesser of the Benchmark Measurement Price and the Closing
Price] plus any and all accrued but unpaid dividends thereon,
and shall not be entitled to any other or additional
distribution.
3.2 Ratable Distribution. If upon such
liquidation, dissolution or winding up, whether voluntary or
involuntary, the assets available for distribution among the
holders of shares of Series A Preferred Stock and holders of
Parity Securities shall be insufficient to permit the payment
to such holders of the full preferential amounts to which they
are entitled, then the assets of the Corporation available for
distribution among the holders of shares of Series A Preferred
Stock and holders of Parity Securities shall be distributed
ratably among such holders in proportion to the full amounts
to which they would otherwise be entitled.
3.3 Inapplicability. A consolidation or merger
of the Corporation with or into any other corporation or
corporations, or a sale of all or substantially all of the
assets of the Corporation that does not involve a distribution
by the Corporation of cash or other property to the holders of
shares of the Common Stock, shall not be deemed to be a
liquidation, dissolution or winding up within the meaning of
this Section 3.
4. Conversion. The Series A Preferred Stock is
convertible into Common Stock as follows:
4.1 Mandatory Conversion. Each share of Series A
Preferred Stock shall be converted automatically, for no
additional consideration and without any further action on the
part of the holders thereof, into one share of Common Stock,
subject to adjustment pursuant to Section 4.3, upon the
approval by the shareholders of the Corporation of the
issuance of the Common Stock issuable upon the conversion of
the Series A Preferred Stock. In the event that such
conversion occurs more than 120 days after the Issuance Date,
the holders of Series A Preferred Stock shall be entitled,
upon conversion, to payment of any accrued but unpaid
dividends on the Series A Preferred Stock.
4.2 Mechanics of Conversion. As soon as
practicable after the approval by the shareholders of the
Corporation of the issuance of the shares of Common Stock
issuable upon conversion of the Series A Preferred Stock, the
holders of the Series A Preferred Stock shall surrender the
certificate or certificates for the Series A
-5-
<PAGE> 6
Preferred Stock held by them, duly endorsed, at the office of
the Corporation or of any transfer agent for the Series A
Preferred Stock. The Corporation shall, as soon as practicable
after surrender of a certificate formerly representing shares
of Series A Preferred Stock, issue and deliver to the holder
thereof a certificate or certificates for the number of shares
of Common Stock into which the shares represented by such
certificate have been converted pursuant to Section 4.1.
Holders of Series A Preferred Stock whose certificates have
been lost, stolen or destroyed may nevertheless obtain
certificates representing the shares of Common Stock into
which their shares of Series A Preferred Stock have been
converted by delivering to the Corporation and any transfer
agent for the Series A Preferred Stock a statement certifying
such loss, theft or destruction and providing for indemnity
reasonably satisfactory to the Corporation and any transfer
agent against any loss or expense either of them may incur as
a result of such lost, stolen or destroyed certificate being
thereafter surrendered to either of them. Conversion of the
Series A Preferred Stock into Common Stock shall for all
purposes be deemed to have occurred upon the approval by the
shareholders of the Corporation of the issuance of the shares
of Common Stock into which the shares of Series A Preferred
Stock are convertible, and the person or persons entitled to
receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock from and
after such approval.
4.3 No Impairment. The Corporation will not, by
amendment of its Articles of Incorporation or through any
reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of
securities, stock split, stock dividend or any other voluntary
action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by
the Corporation, but will at all times in good faith assist in
the performance of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the
holders of the Series A Preferred Stock against impairment.
Without limiting the foregoing, (a) if, prior to the
conversion pursuant to this Section 4 of all outstanding
shares of Series A Preferred Stock into Common Stock, the
Corporation shall effect, with respect to the Common Stock, a
subdivision or consolidation of shares or other capital
readjustment, the payment of a stock dividend, a stock split
(including a reverse split), a combination of shares, a
recapitalization or other increase or reduction of the number
of shares of the Common Stock outstanding without receiving
consideration therefor in money, services or property, the
number of shares of Common Stock into which each share of
Series A Preferred Stock shall be convertible pursuant to this
Section 4 shall (i) in the event of an increase in the number
of outstanding shares of Common Stock be proportionately
increased or (ii) in the event of a reduction in the
-6-
<PAGE> 7
number of outstanding shares of Common Stock, be
proportionately reduced, and (b) if, prior to the conversion
pursuant to this Section 4 of all outstanding shares of Series
A Preferred Stock into Common Stock, the Corporation shall
engage in any reorganization, recapitalization, transfer of
assets, consolidation, merger or other action (other than an
action described in clause (a) above) pursuant to which
shares of Common Stock are being exchanged for or converted
into other securities, money or other property, or the right
to receive any of the foregoing, the holders of shares of
Series A Preferred Stock shall be entitled to receive in such
transaction the same securities, money or other property, or
right to receive the same, as such holders would have
received had the Series A Preferred Stock been converted into
Common Stock immediately prior to the effectiveness of such
transaction.
4.4 Fractional Shares. No fractional shares or
scrip representing fractional shares shall be issued upon the
conversion of any share of Series A Preferred Stock. If, upon
conversion of any share of Series A Preferred Stock, the
registered holder would, except for this Section 4.4, be
entitled to receive a fractional share of Common Stock, then
an amount equal to such fractional share multiplied by that
fraction the numerator of which is ______ [the lesser of the
Benchmark Measurement Price and the Closing Price] and the
denominator of which is the number of shares of Common Stock
into which each share of Series A Preferred Stock is being
converted shall be paid by the Corporation in cash to such
registered holder.
4.5 Reservation of Shares. The Corporation
shall, so long as any share of Series A Preferred Stock shall
remain outstanding, at all times reserve and keep available,
free from preemptive rights, out of its authorized capital
stock, for the purpose of issue upon conversion of the Series
A Preferred Stock, the full number of shares of Common Stock
then issuable upon conversion of all outstanding shares of
Series A Preferred Stock. Prior to issuance of any shares of
Series A Preferred Stock, the Corporation shall file a listing
application for the listing, upon official notice of issuance,
of the shares of Common Stock issuable upon conversion of such
shares of Series A Preferred Stock on the American Stock
Exchange or other exchange on which the Common Stock is listed
for trading.
4.6 Validity of Shares. The Corporation will
from time to time take all such actions as may be required to
ensure that all shares of Common Stock which may be issued
upon conversion of any share of Series A Preferred Stock will,
upon issuance, be legally and validly issued, fully paid and
non-assessable and free from all taxes, liens and charges with
respect to the issue thereof; and, without limiting the
generality of the foregoing, the Corporation will from time to
time take all such action as may be required to ensure either
(i) that the par value per share, if any, of
-7-
<PAGE> 8
the Common Stock is at all times equal to or less than the
then current par value per share of the shares of Series A
Preferred Stock divided by the number of shares of Common
Stock into which each share of Series A Preferred Stock is
convertible, or (ii) that an amount be credited to the capital
account of the Corporation from surplus so that, upon
conversion of the Series A Preferred Stock, a sufficient
amount will be credited to the Corporation's capital account.
4.7 Taxes. The Corporation will pay all taxes
and other governmental charges that may be imposed in respect
of the issue or delivery of shares of Common Stock upon
conversion of the Series A Preferred Stock.
5. Voting Rights. The holders of shares of Series A
Preferred Stock shall be entitled to vote such shares along with
holders of Common Stock as if such shares of Series A Preferred Stock
had been converted into Common Stock immediately prior to such vote on
any proposal on which holders of Common Stock are entitled to vote
relating to a merger, consolidation, statutory share exchange,
reorganization, reclassification or other extraordinary corporate
transaction. Except as provided in the foregoing sentence and as
required by the Texas Business Corporation Act, as now or hereafter in
effect, holders of shares of Series A Preferred Stock shall have no
voting rights with respect to such shares.
6. Status of Converted or Redeemed Stock. In case any
shares of Series A Preferred Stock shall be converted pursuant to
Section 4 hereof or redeemed, purchased or otherwise acquired by the
Corporation, the shares of Series A Preferred Stock so converted,
redeemed, purchased or acquired shall be canceled and shall have the
status of authorized but unissued shares of the Corporation's
preferred stock, unclassified as to series. No share of Series A
Preferred Stock acquired by the Corporation by reason of purchase,
conversion, redemption or otherwise shall be reissued. The
Corporation may from time to time take such appropriate corporate
action as may be necessary to reduce the authorized number of shares
of the Series A Preferred Stock accordingly.
IN WITNESS WHEREOF, the undersigned has executed this statement and does
affirm the foregoing as true under penalty of perjury this ____ day of
__________________, 1996.
By: ___________________________________
Name:__________________________________
Title:_________________________________
-8-
<PAGE> 1
June 14, 1996
Benchmark Electronics, Inc.
3000 Technology Drive
Angleton, Texas 77515
Ladies and Gentlemen:
We have acted as counsel to Benchmark Electronics, Inc., a Texas corporation
(the "Company"), in connection with the proposed offering of up to 805,879
shares of its Common Stock, par value $.10 per share (the "Common Stock"), and
up to 250,000 shares of its Mandatorily Convertible Preferred Stock, Series A,
par value $.10 per share (the "Preferred Stock"), to the shareholders of EMD
Technologies, Inc. ("EMD") in connection with the merger of EMD with and into
Electronics Acquisition, Inc., a wholly owned subsidiary of the Company
("Newco"), pursuant to the terms of an Agreement and Plan of Merger dated as of
March 27, 1996 by and among the Company, Newco, EMD, David H. Arnold and Daniel
M. Rukavina, as amended (the "Merger Agreement").
A Registration Statement on Form S-4 (Registration No. 333-4230) ("Registration
Statement") relating to the Common Stock and Preferred Stock described above
and an additional 250,000 shares of Common Stock issuable upon conversion of
the Preferred Stock (collectively, the "Registered Shares") has been filed with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended.
We have examined originals or copies of (1) the Registration Statement; (2) the
Merger Agreement; (3) the Restated Articles of Incorporation of the Company;
(4) the Amended and Restated Bylaws of the Company; (5) certain resolutions of
the Board of Directors of the Company; (6) the form of Statement of Resolution
establishing the Preferred Stock; and (7) such other documents and records as
we have deemed necessary and relevant for purposes hereof. In addition, we
have relied on certificates of officers of the Company as to certain
matters of fact relating to this opinion and have made such investigations of
law as we have deemed necessary and relevant as a basis hereof.
<PAGE> 2
Benchmark Electronics, Inc.
June 14, 1996
Page 2
We have assumed the genuineness of all signatures, the authenticity of all
documents, certificates and records submitted to us as originals, the
conformity to original documents, certificates and records of all documents,
certificates and records submitted to us as copies, and the truthfulness of all
statements of fact contained therein.
Based on the foregoing, and subject to the limitations set forth herein, and
having due regard for such legal considerations as we deem relevant, we are of
the opinion that, upon issuance pursuant to the terms of the Merger Agreement,
the Registered Shares will be legally issued, fully paid and non-assessable,
provided, in the case of the Preferred Stock, that prior to such issuance the
Company shall have filed a duly executed Statement of Resolution establishing
the Preferred Stock, in the form approved by the Company's Board of Directors
and examined by us, with the Secretary of State of the State of Texas in the
manner prescribed by the Texas Business Corporation Act.
The foregoing opinion is based on and is limited to the laws of the State of
Texas and the relevant laws of the United States of America, and we render no
opinion with respect to the laws of any other jurisdiction.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the use
of our name therein, provided, however, that in giving such consent we do not
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission.
Very truly yours,
Bracewell & Patterson, L.L.P.
<PAGE> 1
WE EXPECT TO BE IN A POSITION TO RENDER THE FOLLOWING OPINION IMMEDIATELY PRIOR
TO THE CONSUMMATION OF THE TRANSACTION REFERRED TO IN THE REGISTRATION
STATEMENT.
, 1996
Benchmark Electronics, Inc.
3000 Technology Drive
Angleton, Texas 77515
EMD Technologies, Inc.
4065 Theurer Boulevard
Winona, MN 55987
RE: ACQUISITION OF EMD TECHNOLOGIES, INC.
Dear Sirs:
You have requested the opinion of KPMG Peat Marwick LLP ("KPMG") as to certain
Federal income tax consequences to Benchmark Electronics, Inc., EMD
Technologies, Inc. and the shareholders of EMD Technologies, Inc. with respect
to the proposed transaction described below. Our opinion is based solely upon
information provided to us in an "Agreement and Plan of Merger" dated March 27,
1996 ("the Agreement"), and information and representations provided to us as
set forth in the sections of this letter entitled "FACTS," "PROPOSED
TRANSACTION" and "REPRESENTATIONS." We have not reviewed the information
statement/prospectus relating to the proposed transaction.
You have advised us that your statements provide an accurate and complete
description of the facts and circumstances concerning the proposed transaction,
and we have made no independent inquiry into them. In addition, we have made
certain assumptions with respect to the facts herein. Any variance or omission
in the facts and circumstances, assumptions or representations set forth below
may adversely affect the views stated herein. We have reviewed no other legal
documents other than the Agreement which are necessary to effectuate the
transaction. We assume that all steps will be properly effectuated under the
laws of the States of Minnesota and Texas (as applicable) and will be
consistent with the information submitted to us.
Further, in rendering our opinion, we are relying upon the Internal Revenue
Code of 1986 and Treasury Department regulations thereunder, as amended and in
effect on the date hereof, and Revenue Rulings, Revenue Procedures and reported
judicial decisions as they existed on the date of this opinion letter. Each of
the foregoing is subject to change or modification by subsequent legislation,
or regulatory, administrative or judicial decisions. Any such change could
also have an effect on the validity of the conclusions set forth herein
retroactively or prospectively. Further, the opinion which is rendered should
be considered together with various risks set forth in the
<PAGE> 2
Benchmark Electronics, Inc.
, 1996
Page 2
"DISCUSSION" and "CAVEAT" sections of this letter. Unless requested otherwise,
we undertake no responsibility to update our opinion in the event of any
subsequent change in the foregoing.
Our opinion is limited solely to the Federal income tax consequences of the
transaction as discussed herein to the parties described above. No opinion is
rendered, expressed or implied with respect to the tax consequences of the
proposed transaction to any other party. Furthermore, no opinion is expressed
with respect to issues not specifically discussed herein or any other Federal,
state or local tax or the legal aspects of the proposed transaction.
FACTS
Benchmark Electronics, Inc. ("Benchmark") is a Texas corporation engaged in
business as a contract manufacturer providing services to original equipment
manufacturers in the electronics industry. As of September 30, 1995, there
were 4,020,100 shares of Benchmark $.10 par value common stock outstanding and
no shares of preferred stock outstanding. The stock of Benchmark is publicly
traded on the American Stock Exchange.
Electronics Acquisition, Inc. ("Newco") will be a Texas corporation formed for
the purposes of the proposed transaction described below. Newco will be a
wholly-owned subsidiary of Benchmark.
EMD Technologies, Inc. ("EMD") is a Minnesota corporation engaged in business
as a holding company for EMD Associates, Inc., a Minnesota corporation engaged
in business as a full service contract manufacturer of printed circuit board
assemblies. The outstanding stock of EMD consists 5,208,078 shares of $.10 par
value voting common stock held as follows:
<TABLE>
<CAPTION>
Shareholders Shares Percent of Total
------------ ------ ----------------
<S> <C> <C>
David H. Arnold 1,815,065 34.9%
Daniel M. Rukavina 1,741,165 33.4
Employee Stock Ownership Plan ("ESOP") 787,706 15.1
Muriel M. Arnold 36,879 0.7
Patricia A. Rukavina 36,879 0.7
Arnold Family Trusts 358,242 6.9
Rukavina Family Trusts 432,142 8.3
------- -----
Totals 5,208,078 100.0%
========= =====
</TABLE>
DCM Tech, Inc. ("DCM") is a Minnesota corporation engaged in business as a
manufacturer of a line of automotive rebuilding equipment. MAP Leasing Company
("MAP") is a Minnesota corporation engaged in business as a leasing company.
Both DCM and MAP were wholly-owned
<PAGE> 3
Benchmark Electronics, Inc.
, 1996
Page 3
subsidiaries of EMD until January 2, 1996, when David H. Arnold purchased them
in exchange for a $1,300,000 promissory note.
Benchmark and EMD believe that a combination of their respective businesses
will enable both companies to grow and operate more efficiently. To achieve
this purpose, Benchmark has agreed to acquire all of the assets of EMD through
Newco, its wholly-owned subsidiary, as more fully described below.
PROPOSED TRANSACTION
In order to accomplish the aforementioned goal, the following transaction has
been proposed:
(1) Upon the effective date of the transaction, EMD will be merged with
and into Newco pursuant to the applicable laws of the States of
Minnesota and Texas. All of the assets of EMD and its liabilities will
be transferred to Newco in exchange for a combination of Benchmark
stock and cash consisting of 40 percent stock and 60 percent cash.
(2) Pursuant to the merger, EMD will cease to exist as a separate legal
entity, and upon surrender of 100% of the issued and outstanding shares
of stock, its shareholders will receive $20,640,000(1) in Benchmark
stock and $30,960,000(2) in cash, which amounts are to be adjusted
based upon a formula in the Agreement. No fractional shares of
Benchmark will be issued in the proposed transaction and cash in lieu
thereof will be paid by Benchmark to the EMD shareholders.
If the average price of a share of Benchmark stock on the American Stock
Exchange ("AMEX") for the twenty successive trading days ("the Computation
Period") ending on the trading day immediately prior to the merger (the "Trading
Price") is equal to or more than $32.00 then the Benchmark Measurement Price
shall be $32.00. If the Trading Price is less than $32.00, then the Benchmark
Measurement Price shall be the Trading Price. If the Trading Price is less than
$22.00, then the transaction shall be terminated. The number of shares issued
to the EMD shareholders will be calculated by dividing $20,240,000 by the
Benchmark Measurement Price.
The aggregate number of shares of Benchmark common stock issued in the proposed
transaction shall in no event exceed 805,879 shares. If Benchmark is required
to issue shares in excess thereof for whatever reason, Benchmark shall cause
shares of Benchmark convertible preferred stock to be issued in lieu of
additional shares of common stock. In addition, in the event that the average
price of Benchmark common stock for the trading date immediately prior to the
closing date is less than
- -----------------
(1) $21,600,000 less 40% of the after-tax amount of "gain sharing payments".
($20,240,000 is an estimate, the final amount could change at closing.)
(2) $32,400,000 less 60% of the after-tax amount of "gain sharing payments".
($30,960,000 is an estimate, the final amounts could change at closing.)
<PAGE> 4
Benchmark Electronics, Inc.
, 1996
Page 4
the Benchmark Measurement Price, the cash amount and the amount of Benchmark
shares to be exchanged will be adjusted to retain the 40/60 ratio described
above.
In addition, David H. Arnold and Daniel M. Rukavina (sometimes collectively
referred to as "the Founding Shareholders") will transfer certificates
representing 73.2 percent of the shares of Benchmark stock issued to them to an
escrow agent immediately after receipt. The stock shall be held in escrow
until one year after closing. The Founding Shareholders will have the right to
vote such shares and will have the right to receive dividends thereon. The only
condition for termination of the escrow arrangement is the passage of time,
i.e., a one year period from the effective date of the proposed transaction.
The sole purpose of the escrow arrangement is to ensure that the "continuity of
interest" requirement, more fully described below, is satisfied.
REPRESENTATIONS
In connection with the proposed transaction, the following representations are
made:
(a) The shareholders of EMD have no plan or intention to sell or otherwise
dispose of the Benchmark common stock that will be received in the
proposed transaction, other than to the escrow agent described above.
(b) No stock of Newco will be issued in the proposed transaction.
(c) Benchmark has no plan or intention to redeem or otherwise reacquire
any of its stock that was issued in the proposed transaction.
(d) There is no intercorporate indebtedness among Benchmark, Newco, or EMD
which was issued, acquired, or will be settled at a discount as a
result of the proposed transaction.
(e) Prior to the proposed transaction, Benchmark did not own any stock of
EMD.
(f) Newco will assume all liabilities of EMD.
(g) Benchmark, Newco, and EMD will each pay their own expenses, if any,
incurred in connection with the proposed transaction.
(h) The merger of EMD with and into Newco will qualify as a statutory
merger under the laws of Minnesota and Texas.
<PAGE> 5
Benchmark Electronics, Inc.
, 1996
Page 5
(i) Benchmark has no plan, intention, or obligation to sell or otherwise
dispose of Newco stock or to liquidate Newco or to cause Newco to sell
any of the assets of EMD to be acquired in the proposed transaction,
except in the ordinary course of business.
(j) Newco has no plan or intention of disposing of any of the assets of
EMD to be received in the proposed transaction, except in the ordinary
course of business.
(k) Following the proposed transaction, Newco will continue the existing
business of EMD in a substantially unchanged manner.
(1) There have not been any, nor will there be any sales, redemptions, or
other dispositions of stock of EMD by EMD occurring prior to the
proposed transaction.
(m) The liabilities of EMD to be assumed by Newco in the proposed
transaction were incurred in the ordinary course of business and will
be associated with the assets transferred to Newco by EMD.
(n) The total fair market value and adjusted basis of the assets of EMD to
be transferred to Newco will each equal or exceed the sum of the
liabilities to be assumed by Newco plus the amount of liabilities to
which the transferred assets may be subject.
(o) Newco will acquire at least 90 percent of the fair market value of the
net assets and at least 70 percent of the fair market value of the
gross assets of EMD in the proposed transaction. For this purpose,
amounts paid by EMD for expenses arising out of the transaction are to
be included in determining the net and gross assets of EMD.
(p) The fair market value of Benchmark stock and cash that will be
received by the shareholders of EMD will be, in each instance,
approximately equal to the fair market value of the shares of EMD stock
surrendered.
(q) All cash to be received by the shareholders of EMD will be paid by
Benchmark.
(r) No two parties to the proposed transaction are investment companies
within the meaning of Section 368(a)(2)(F)(iii) or (iv) of the Internal
Revenue Code of 1986, as amended.(3)
(s) None of the compensation to be received by any shareholder/employees
of EMD is separate consideration for or allocable to their shares of
EMD stock surrendered in the exchange, and the compensation to be paid
to such shareholder/employees after
- ---------------
(3) Unless otherwise noted, all references herein to "Section" or "Section"
are to provisions of the Internal Revenue Code of 1986, as amended.
<PAGE> 6
Benchmark Electronics, Inc.
, 1996
Page 6
the transaction will be commensurate with the amounts paid to third
parties bargaining at arm's length for similar services. None of the
stock or cash to be received by any shareholder-employees of EMD with
respect to EMD stock is separate consideration for or allocable to any
compensation owed to such shareholder-employees.
(t) The purchase by David H. Arnold of DCM and MAP from EMD was
commensurate with amounts that would have been paid by unrelated third
parties bargaining at arm's-length in similar transactions.
(u) The Benchmark stock to be placed in escrow by the Founding
Shareholders will be legally issued and outstanding pursuant to state
law and will appear as issued and outstanding on the balance sheet of
Benchmark.
(v) All cash dividends paid on the escrowed stock will be distributed
currently to the Founding Shareholders.
(w) All voting rights of the escrowed stock will be exercisable by the
Founding Shareholders.
(x) All of the escrowed stock will be released from escrow within one year
of the date of consummation of the transaction unless there is a bona
fide dispute as to whom the stock should be released to.
(y) At least 50 percent of the total number of shares of the Benchmark
stock issued initially to the shareholders of EMD will not be subject
to the escrow agreement.
(z) The return of any escrowed shares will not be triggered by an event
the occurrence or nonrecurrence of which is within the control of the
EMD shareholders.
(aa) The return of any escrowed shares will not be triggered by the payment
of additional tax or reduction in tax paid as a result of an IRS audit
of EMD or its shareholders either (i) with respect to the
reorganization transaction in which such stock will be issued, or (ii)
when the persons related within the meaning of Section 267(c)(4); and
shares of escrowed stock to be returned, if any, is objective and
reasonably ascertainable.
(bb) The mechanism for the calculation of the number of shares of escrowed
stock to be returned, if any, is objective and reasonably
ascertainable.
<PAGE> 7
Benchmark Electronics, Inc.
, 1996
Page 7
ISSUE
Whether the proposed merger of EMD with and into Newco will qualify as a
reorganization within the meaning of Section 368(a)(1)(A) by virtue of Section
368(a)(2)(D) and, if so, what are the Federal income tax consequences to
Benchmark, Newco, and EMD and its shareholders.
CONCLUSION
Based on the facts and representations set forth above and the Agreement, it is
our view that the Federal income tax consequences of the proposed merger are as
follows:
(1) So long as the amount of Benchmark stock received by the EMD
shareholders does not decrease below 40 percent of the total
consideration received in the exchange for any reason, and further
provided that the proposed merger of EMD with and into Newco qualifies
as a statutory merger under the applicable laws of Minnesota and Texas,
respectively, the acquisition by Newco of substantially all of the
assets of EMD in exchange for Benchmark common stock, Benchmark
preferred stock (if any), cash and the assumption by Newco of the
liabilities of EMD, as described above, will constitute a
reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(D). For these purposes, "substantially all" means at least
ninety percent of the fair market value of the net assets and at least
seventy percent of the fair market value of the gross assets of EMD.
Benchmark, Newco, and EMD will each be "a party to a reorganization"
within the meaning of Section 368(b).
(2) The gain, if any, to be realized by the shareholders of EMD (other
than the ESOP) will be recognized, but not in excess of the cash
received. (Section 356(a)(1)). The receipt of the cash by such
shareholders will qualify for sale or exchange treatment under Section
356(a)(2). See Rev. Rul. 93-61, 1993-2 C.B. 118. The receipt of the
cash is not taxable as the ESOP is treated as a nontaxable entity. Any
increase in value will be taxed to the participant when distributions
are made to the trust. (Section 402)
(3) The basis of the Benchmark stock to be received by the EMD
shareholders (including any escrowed shares) will be equal to the
basis of the EMD stock to be surrendered in the exchange decreased by
the cash and increased by the amount of gain recognized on the
exchange. (Section 358(a)(1)).
(4) The holding period of the Benchmark stock to be received by the EMD
shareholders (including any escrowed shares) will include the period
the EMD stock exchanged therefor was held, provided that the EMD stock
was held as a capital asset on the date of the exchange. (Section
1223(l)).
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(5) No gain or loss shall be recognized to EMD upon the transfer of
substantially all of its assets to Newco in exchange for Benchmark
stock, cash, and Newco's assumption of all of EMD's liabilities.
(Sections 357(a) and 361(b)).
(6) No gain or loss will be recognized to Benchmark or Newco on the
receipt by Newco of substantially all of EMD's assets in exchange for
Benchmark stock, cash and the assumption of EMD's liabilities by Newco
(Rev. Rul. 57-278, 1957-1 C.B. 124).
(7) Section 483 does not apply to Benchmark stock to be placed in escrow
by the Founding Shareholders.
(8) Newco will succeed to and take into account the items of EMD described
in Section 381(c), subject to the provisions and limitations specified
in Sections 381, 382, 383 and 384, if applicable, and the regulations
thereunder. (Section 381(a) and Section 1.381(a)-1 of the Income Tax
Regulations).
(9) The payment of cash in lieu of fractional share interests of Benchmark
stock will be treated for Federal income tax purposes as if the
fractional shares were distributed as part of the exchange and then
were redeemed by Benchmark. These cash payments will be treated as
having been received as distributions in full payment in exchange for
the shares redeemed as provided in Section 302(b) (See Rev. Proc.
77-41, 1977-2 C.B. 574). Provided the fractional share interest is a
capital asset in the hands of an exchanging shareholder, the gain or
loss will constitute capital gain or loss subject to the provisions and
limitations of Subchapter P of Chapter 1 of the Code. (Sections 1221
and 1222).
DISCUSSION
Section 368(a)(1)(A) provides that the term "reorganization" includes a
statutory merger or consolidation. Section 1.368-2 of the Income Tax
Regulations provides that for a reorganization to qualify under Section
368(a)(1)(A), it must be "effected pursuant to the corporation laws of the
United States or a State or territory or the District of Columbia." With regard
to a statutory merger in which the acquiring corporation uses stock of its
parent corporation to effect the acquisition, Section 368(a)(2)(D) provides
that such a merger will qualify as a Section 368(a)(1)(A) reorganization if
certain requirements are met. Specifically, Section 368(a)(2)(D) provides as
follows:
The acquisition by one corporation, in exchange for stock of a corporation
(referred to in this subparagraph as "controlling corporation") which is in
control of the acquiring corporation, of substantially all of the properties
of another corporation shall not disqualify a transaction under paragraph
(1)(A) if--
(i) no stock of the acquiring corporation is used in the transaction,
and
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, 1996
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(ii) in the case of a transaction under paragraph (1)(A), such
transaction would have qualified under paragraph (1)(A) had the
merger been into the controlling corporation.
Accordingly, an acquisition by a subsidiary in exchange for stock of its parent
will meet the requirements of this provision of the Code if: (a) "substantially
all" the properties of the transferor are acquired by the subsidiary; (b) the
transferor is merged into the subsidiary pursuant to state law; (c) the merger
would have qualified under Section 368(a)(1)(A) had the transferor merged
directly into the parent corporation and (d) no stock of the subsidiary is used
in the transaction.
Statutory Requirements
With respect to the first requirement of Section 368(a)(2)(D), Section
1.368-2(b)(2) of the Income Tax Regulations provides, in part, as follows:
In order for the transaction to qualify under Section 368(a)(1)(A) by reason
of the application of Section 368(a)(2)(D), one corporation (the acquiring
corporation) must acquire substantially all of the properties of another
corporation (the acquired corporation) partly or entirely in exchange for
stock of a corporation which is in control of the acquiring corporation (the
controlling corporation) . . . .
For Internal Revenue Service advance ruling purposes, Rev. Proc. 77-37,
Section 3.01, provides that the "substantially all" requirement of Section
368(a)(2)(D) will be satisfied if:
there is a transfer of assets representing at least 90 percent of the fair
market value of the net assets and at least 70 percent of the fair market
value of the gross assets held by the corporation immediately prior to the
transfer. All payments to dissenters and all redemptions and distributions
(except for regular, normal distributions) made by the corporation
immediately preceding the transfer and which are part of the plan of
reorganization will be considered as assets held by the corporation
immediately prior to the transfer.
This rule does not establish a minimum percentage below which the
"substantially all" test will not be met, but merely provides guidelines for
advance rulings.(4) For example, one court has held that 51 percent of a
corporation's assets (consisting of all of its operating assets) was sufficient
to meet the "substantially all" test. See James Armour, Inc., 43 T.C. 295
(1965).
- ---------------
(4) Section 2.03 of Rev. Proc. 77-37 states that this operating rule does
not define the lower limits of "substantially all of the properties" as a
matter of law.
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Benchmark Electronics, Inc.
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In the instant case, we assume that the "substantially all" requirement will be
satisfied because all of the assets of EMD will be acquired by Newco in the
transaction, other than the two subsidiaries and de minimis other assets sold,
as described above, and amounts needed to pay reorganization expenses.(5)
Further, it has been represented that Newco will acquire sufficient properties
of EMD to satisfy the ninety percent and seventy percent tests of Rev. Proc.
77-37, Section 3.01.
The second requirement of Section 368(a)(2)(D) will be met if EMD merges into
Newco pursuant to a statutory merger. Legal counsel must determine whether the
transaction qualifies as a statutory merger under the laws of Minnesota and
Texas. For purposes of our evaluation, we have assumed that this requirement
will be met.
The third requirement of Section 368(a)(2)(D) is that the transaction will
qualify under Section 368(a)(1)(A) if EMD merges directly into Benchmark, the
controlling corporation. This requirement has been interpreted to mean that
the general prerequisites to a reorganization under Section 368(a)(1)(A) such
as (i) a valid business purpose, (ii) continuity of business enterprise, and
(iii) continuity of shareholder interest must be met in addition to the
specific requirements of Section 368(a)(2)(D). These additional prerequisites
are discussed in detail below under "Judicially Created Requirements".
The fourth statutory requirement under Section 368(a)(2)(D) is that no stock of
the subsidiary, Newco, be used in the merger. This requirement will be met if
the transaction is consummated pursuant to the terms of the Agreement.
In addition to the above, a corporation participating in a reorganization must,
pursuant to Section 368(b), be a "party to the reorganization." Section
1.368-2(f) of the Regulations provides an example which states that all three
corporations in a triangular merger are parties to the reorganization when a
target corporation transfers substantially all its assets to the acquiring
corporation in exchange for all or part of the voting stock of a corporation
controlling the acquiring corporation. Because our facts are the same as the
example in the regulation, all three corporations will be considered "parties
to a reorganization."
Also for a transaction to qualify under Section 368, there must be a plan of
reorganization pursuant to which the steps in the corporation readjustment are
effectuated. A plan of reorganization is expressly required by Sections 354
and 361, which grant tax-free treatment to reorganization exchanges only if
they are made in pursuance of a plan. In this regard, Reg. Section 1.368-3(a)
provides that:
The plan of reorganization must be adopted by each of the corporations
parties thereto; and the adoption must be shown by the acts of its duly
constituted responsible officers, and appear upon the official records
of the corporation.
- ---------------
(5) Each party to the reorganization will pay its own expenses in connection
with the transaction.
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Benchmark Electronics, Inc.
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In the instant case, once the Agreement is adopted and approved by the proper
parties, the requirement for a plan of reorganization will be satisfied.
Judicially Created Requirements
As noted above, there are three additional tests that a transaction must
satisfy in order to qualify as a reorganization within the meaning of Section
368(a). These tests have their origin in court decisions and are now set
forth in Reg. Section 1.368-1(b), (c) and (d).
The first requirement is that the reorganization have a valid business purpose
and not a tax avoidance purpose. Section 1.368-1(b) of the Regulations states
that the reorganization provisions permit "certain . . . exchanges incident to
such readjustments of corporate structures . . ., as are required by business
exigencies . . ." to be excepted from the general rule of taxation. Thus, a
transaction will not be accorded reorganization treatment for tax purposes
unless it serves a corporate business purpose. In this instance, unrelated
parties dealing at arm's-length will enter into an agreement to merge that is
intended to benefit all parties. Accordingly, the business purpose requirement
of the Regulations should be met.
The second requirement is that a reorganization must result in a "continuity of
the business enterprise under the modified corporate form." See Reg. Section
1.368-1(b). On this regard, Reg. Section 1.368-1(d) states that the transferee
corporation must either (i) continue the transferor corporation's "historic
business" or (ii) "use a significant portion of [the transferor's] historic
business assets in a business." It has been represented that Newco will
continue to use the assets of EMD in an ongoing business. Furthermore, it has
been represented that EMD's current business is its historic business. Based
upon these representations, the continuity of business enterprise requirement
of the Regulations should be met.
The third prerequisite set forth in the Regulations is the continuity of
shareholder interest requirement. Specifically, Reg. Section 1.368-1(b)
provides that there must be a continuing equity interest on the part of those
persons who, directly or indirectly, were owners of the acquired enterprise
prior to the acquisition for the transaction to qualify as a tax-free
reorganization. For purposes of advance rulings, the Service, in Rev. Proc.
77-37, Section 3.02, has stated that the continuity of interest requirement
will be satisfied if:
there is continuing interest through stock ownership in the acquiring
[corporation] or transferee corporation [or its parent] . . . on the part of
the former shareholders of the acquired or transferor corporation which is
equal in value, as of the effective date of the reorganization, to at least
50 percent of the
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Benchmark Electronics, Inc.
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value of all of the formerly outstanding stock of the acquired or transferor
corporation as of the same date.(6)
It is not necessary that 50 percent of the consideration received by each
shareholder of the acquired corporation consist of stock of the acquiring
corporation or that 50 percent in number of the shareholders of the acquired
corporation receive stock of the acquiring corporation. All that is required
is that at least 50 percent of the value of the entire consideration
transferred by the acquiring corporation to the shareholders of the acquired
corporation in the aggregate consists of stock of the acquiring corporation or
its parent. See Rev. Rul. 66-224, 1966-2 C.B. 114.
Although the Service will not issue an advance ruling that a transaction
qualifies as a reorganization unless the 50 percent test of Rev. Proc. 77-37
is satisfied, 50 percent is not the lower limit for determining whether the
continuity of interest requirement is met. For instance, the Service has taken
the position in a published ruling, Rev. Rul. 61-156, 1961-2 C.B. 62, that 45
percent qualifying consideration satisfied the continuity requirement. However,
in a published Technical Advice Memorandum (TAM 7905011), the Service held that
a continuing interest in an acquiring corporation by shareholders holding 34
percent of the stock of the acquired corporation did not represent sufficient
continuity of interest to characterize the transaction as a reorganization
under Section 368.
In John A. Nelson Co. v. Helvering, 296 U.S. 374 (1935), the Supreme Court held
that sufficient continuity of interest existed when assets were transferred for
consideration composed of 38 percent preferred stock and 62 percent cash.
Moreover, in Ralph M. Heintz, 25 T.C. 132 (1955), the Service contended that a
reorganization existed when the consideration transferred to the acquired
corporation's shareholders consisted of 37-1/2 percent stock and 62-1/2 percent
cash.
The continuity of interest requirement as developed by the courts involves two
distinct elements: (a) the qualitative nature of the consideration given by the
transferee (or its parent); and (b) the proportion or amounts thereof that
consist of "continuity-preserving" interests. See Bittker and Eustice, Federal
Income Taxation of Corporations and Shareholders Paragraph 12.21[2][b], p. 12-27
(6th Ed. 1993). With respect to the former, only an equity interest evidenced
by common or preferred stock, whether voting or nonvoting, qualifies. With
respect to the latter, the proportion in question represents the proportion of
equity consideration to aggregate consideration received for the transferred
assets. See Bittker and Eustice, supra, at p. 12-28. In the instant case, the
stock portion of the consideration to be received by the EMD shareholders can be
determined as follows:
- ----------------
(6) This rule is solely to provide guidance for advance ruling purposes. It
does not, as a matter of law, define the lower limits of continuity of
interest. See Section 2.03 of Rv. Proc. 77-37.
<PAGE> 13
Benchmark Electronics, Inc.
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Benchmark Stock $20,640,000
Cash 30,960,000(7)
----------
Total Consideration $51,600,000
==========
$20,640,000(8) = 40%
-----------
$51,600,000
Accordingly, the total stock consideration to be received here should be
approximately 40% of the total consideration paid and the percentage of
continuing equity interest held to satisfy the continuity of interest test as
set forth in Nelson, should be satisfied here. As stated above, if the average
trading price for Benchmark stock on the day prior to closing is less than the
Benchmark Measurement Price, then the amounts set forth above will be adjusted
pursuant to Section 2.1(e) of the Agreement and the formula set forth in
Exhibit 2.1(e) to the Agreement to retain the 40/60 stock to cash ratio.
If an exchanging shareholder of the acquired corporation in a reorganization
receives cash or other property, i.e. boot, in addition to stock of a party to
the reorganization in an exchange that would otherwise qualify for tax-free
treatment under Section 354, the boot will be taxable under Section 356. See
Section 354(a)(3). Under Section 356(a)(1), if an exchanging shareholder
receives boot as well as nonrecognition property, his gain, if any, will be
recognized, but not in an amount in excess of the boot received. Section
356(a)(2) determines whether the boot will be treated as a dividend or as
capital gain (unless the shareholder is a dealer in securities). Specifically,
Section 356(a)(2) provides that if an exchange has ... "the effect of the
distribution of a dividend", the exchanging shareholder's recognized gain must
be treated as a dividend to the extent of his ratable share of earnings and
profits accumulated after February 23, 1913. The remainder of recognized gain,
if any, is treated as gain from the exchange of property.
In this instance, when exchanging EMD shareholders receive cash in addition to
Benchmark stock, such property will be treated as boot for purposes of Section
356. This will result in taxable income to the recipient shareholder if the
shareholder realizes gain on the exchange. The amount of such taxable income
is, however, limited to the amount of boot received.
In Commissioner v. Clark, 489 U.S. 726 (1989), 1989-2 C.B. 68, the sole
shareholder of a target corporation exchanged his target stock for stock of an
acquiring corporation and cash. The Supreme Court applied the dividend
equivalency rules for redemptions contained in Section 302 to determine whether
the boot payment had the effect of a dividend distribution under Section
356(a)(2).
- ---------------
(7) This calculation assumes that no EMD shareholders will dissent the
proposed transaciton including the ESOP participants. As 85 percent of
EMD is owned by the Founding Shareholders and related entities and
remaining 15 percent is owned by an ESOP, it has been assumed that there
will be few, if any, dissenters.
(8) Includes preferred stock, if necessary, as described above.
<PAGE> 14
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The Court concluded that the treatment of a boot distribution is determined "by
examining the effect of the exchange as a whole," 489 U.S. 726, 737, and held
that by the test is made by comparing the interest the shareholder actually
received in the acquiring corporation in the reorganization exchange with the
interest the shareholder would have received in the acquiring corporation if
solely stock had been received.
Section 302(a) provides that a redemption of stock "shall be treated as a
distribution in part or full payment in exchange for the stock" if the
transaction fits into any one of four categories set forth in Section 302(b).
Of those four categories, at least two have application in this case: Section
302(b)(1) and Section 302(b)(2). Section 302(b)(1) provides that a redemption
qualifies for exchange treatment if it is "not essentially equivalent to a
dividend" and Section 302(b)(2) provides that a redemption will qualify for
exchange treatment if it is "substantially disproportionate" as defined
thereunder.
In order to qualify as substantially disproportionate under Section 302(b)(2),
a redemption must meet three requirements:
(1) Immediately after the redemption the shareholder must own
(directly or constructively) less than 50 percent of the total combined
voting power of all classes of outstanding stock entitled to vote;
(2) The shareholder's percentage of the total outstanding voting stock
immediately after the redemption must be less than 80 percent of his
percentage of ownership of such stock immediately before the
redemption; and
(3) The shareholder's percentage of outstanding common stock (whether or
not voting) after the redemption must be less than 80 percent of his
percentage of ownership before the redemption.
In the instant case, each EMD shareholder will exchange all of his EMD shares
for consideration consisting of 60 percent cash and 40 percent Benchmark stock.
Under Rev. Rul. 93-61, 1993-2 C.B. 118, and Clark, an exchanging shareholder
will be treated as having received solely Benchmark stock and thereafter
redeemed 60 percent thereof for cash. Since each Benchmark shareholder will
own less than 50 percent of the voting stock of Benchmark after the
hypothetical redemption and also will have a reduction in excess of 20 percent
of his prior ownership of the Benchmark voting stock, Section 302(b)(2) will
apply to the hypothetical redemption. Accordingly, each shareholder will
qualify for sale or exchange treatment for the gain recognized as a result of
the receipt of the cash in the proposed transaction. Further, since Section
302(b)(2) should also apply here, Section 302(b)(1) need not be addressed here
even though it should also apply as well to provide the same result.
Exchanging shareholders in a Section 354 exchange determine their basis for
property acquired in the exchange under Section 358(a) which provides that the
basis of stock received shall be the same as the
<PAGE> 15
Benchmark Electronics, Inc.
, 1996
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basis of the stock transferred, decreased by the fair market value of any boot
received, and increased by the amount of any gain recognized on the exchange.
Section 1223(l) provides that the holding period of property acquired in a
nontaxable exchange can be computed by adding or tacking on the time that the
old asset was held to the time the acquired asset was held if the property
exchanged was a capital asset or a "Section 1231 asset" and the basis of the
property received has the same basis as the property exchanged.
Section 361 provides that no gain or loss shall be recognized if a corporation,
a party to a reorganization, exchanges property, in pursuance of a plan of
reorganization, solely for stock in another corporation a party to the
reorganization. Under Section 361(b), a transferor corporation will not
recognize gain, even if boot is received in the reorganization, if all of the
boot is distributed to its shareholders in pursuance of the plan of
reorganization. In the instant case, all of the stock of Benchmark and all
other property will be distributed to the EMD shareholders as part of the
transaction. For the purposes of Section 361, Section 357(a) provides that the
assumption of a transferor corporation's liabilities or the taking of property
subject to liabilities will not constitute money or other property.
Furthermore, Rev. Rul. 73-257, 1973-1 C.B. 189, provides that the assumption
by a parent corporation of a portion of the liabilities of an acquired
corporation in a Section 368(a)(1)(A)/368(a)(2)(D) reorganization does not
prevent the transaction from qualifying as a reorganization and will not result
in the recognition of gain or loss to the acquired corporation.
Escrow Agreement
Escrow arrangements are permitted by the Service in certain types of
acquisitive reorganizations, including Sections 368(a)(1)(A) and 368(a)(2)(D)
reorganizations. For advance ruling purposes, the Service will permit a
portion of the stock of the acquiring corporation, or a corporation in control
of the acquiring corporation, to be placed in escrow by the exchanging
shareholders for possible return to the acquiring corporation under specified
conditions, provided certain operating rules as set forth in Section 3.06 of
Rev. Proc. 77-37, amended by Rev. Proc. 84-42, 1984-1 C.B. 521, are met. These
operating rules are as follows:
(1) There is a valid business reason for establishing the arrangement; (2)
The stock subject to such arrangement appears as issued and
outstanding on the balance sheet of the acquiring corporation and such
stock is, in fact, legally outstanding under applicable state law; (3)
All dividends paid on such stock will be distributed currently to the
exchanging shareholders; (4) All voting rights of such stock (if any)
are exercisable by or on behalf of the shareholders or their authorized
agent; (5) No shares of such stock are subject to restrictions
requiring their return to the issuing corporation because of death,
failure to continue employment or similar restrictions; (6) All such
stock is released from the arrangement within five years from the date
of consummation of the reorganization (except where there is a bona
fide dispute as to whom the stock should be released to); (7) At least
50 percent of the number of
<PAGE> 16
Benchmark Electronics, Inc.
, 1996
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shares of each class of stock issued initially to the shareholders
(exclusive of shares of stock to be issued at a later date . . . ) is
not subject to the arrangement, (8) The return or any escrowed will not
be triggered by an event the occurrence or nonrecurrence of which is
within the control of the EMD shareholders, (9) The return of any
escrowed will not be triggered by the payment of additional tax or
reduction in tax paid as a result of an IRS audit of EMD or its
shareholders either (a) with respect to the reorganization transaction
in which such stock will be issued, or (b) when the persons related
within the meaning of Section 267(c)(4); and shares of escrowed stock
to be returned, if any, is objective and reasonably ascertainable,
(10) The mechanism for the calculation of the number of shares of
escrowed stock to be returned, if any, is objective and reasonably
ascertainable.
The parties have represented that the operating rules above have been met (see
Representations (u) through (bb) above). Therefore, the use of the escrow
arrangement should not prevent the transaction from qualifying as a
reorganization under Sections 368(a)(1)(A) and 368(a)(2)(D).
Fractional Shares
If fractional shares are not issued in the proposed transaction, and an
adjustment is necessary to eliminate the need therefor, cash received by an EMD
shareholder in lieu of a fractional share interest in Benchmark common stock
will be treated as having been received in full payment for such fractional
share interest subject to the provisions and limitations of Section 302. Rev.
Proc. 77-41, 1977-2 C.B. 574, amplifies Rev. Proc. 77-37, by including a
statement that:
A ruling will usually be issued under Section 302(a) of the Code that cash
to be distributed to shareholders in lieu of fractional share interests
arising in corporate reorganizations . . . will be treated as having been
received in part or full payment in exchange for the stock redeemed if the
cash distribution is undertaken solely for the purpose of saving the
corporation the expense and inconvenience of issuing and transferring
fractional shares, and is not separately bargained-for consideration.
In the instant case, since the conditions of Rev. Proc. 77-41 appear to be met,
the receipt of cash in lieu of fractional shares will be treated under Section
302(a) resulting in long term capital gains, provided the EMD stock exchanged
therefor was a capital asset held for more than 12 months.
Section 381
Section 381 deals with the tax treatment of carryovers in certain corporate
acquisitions. Specifically, Section 381(a) provides that in the case of an
acquisition of assets pursuant to a reorganization under Section 368(a)(1)(A)
and Section 368(a)(2)(D), the acquiring corporation shall succeed to and take
into account the tax attributes of the transferor corporation, including net
operating loss carryovers. However,
<PAGE> 17
Benchmark Electronics, Inc.
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Section 382 limits the deductibility of net operating loss carryforwards of
corporations experiencing ownership changes. No opinion is given and no
determination has been made with respect to any possible limitation of this
kind.
Section 483
Section 483 provides that in the case of any payment under any contract for the
sale or exchange of any property interest can be imputed if the provision
applies. Section 483 applies to payments where all or part of the sales price
is due more than 6 months after the date of the sale or exchange. In the
instant case, all of the consideration for EMD will be paid to the EMD
shareholders immediately. Thereafter, the Founding Shareholders will transfer
their Benchmark shares to the escrow agent. Accordingly, there is no deferred
or contingent payment here and as such, Section 483 does not apply to the
escrowed shares. See Rev. Rul. 70-120, 1970-1 C.B. 124.
CAVEAT
No opinions are provided with respect to issues not specifically set forth in
the "OPINION" section of this letter. Our opinion has not been requested and
none is expressed with respect to any foreign, state or local tax consequences
to Benchmark, Newco, EMD or the EMD shareholders including, but not limited to,
income, franchise, sales, use, excise or transfer taxes which effect may be
significant. Further, no opinion is rendered, expressed or implied with
respect to the tax consequences to any other party as a result of the proposed
transaction.
Our conclusions with respect to the proposed transaction are based upon the
assumption that the stock consideration received by the EMD shareholders will
not decrease below 40% and no views are expressed with respect to the proposed
transaction if that event occurs.
This opinion letter sets forth our views based on the completeness and accuracy
of the above stated facts and any assumptions that were included. If any of
the foregoing is not entirely complete or accurate, it is imperative that we be
informed immediately, as the inaccuracy or incompleteness could have a material
effect on our conclusions. In rendering our opinion, we are relying upon he
relevant provisions of the Internal Revenue Code of 1986, as amended, the
regulations thereunder, and judicial and administrative interpretations
thereof, which are subject to change or modification by subsequent legislative,
regulatory, administrative, or judicial decisions. Any such changes could also
have an effect on the validity of our opinion.
* * * * * * *
<PAGE> 18
Benchmark Electronics, Inc.
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This opinion may only be provided to the Internal Revenue Service in connection
with an examination of the underlying transaction.
If you have any questions, please contact me at (713) 221-0167.
Very truly yours,
KPMG Peat Marwick LLP
Francis D. McQuilkin
Managing Director
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Benchmark Electronics, Inc.:
We consent to the use of our report incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Houston, Texas
June 14, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
EMD Technologies, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Minneapolis, Minnesota
June 14, 1996
<PAGE> 1
EXHIBIT 23.4
June 14, 1996
I consent to the use of my name herein and to the reference to me as a
person about to become a director of Benchmark Electronics, Inc.
/s/ DAVID H. ARNOLD
-------------------------------
David H. Arnold
