BENCHMARK ELECTRONICS INC, 10-K, 1999-03-31

BENCHMARK ELECTRONICS INC
10-K, 1999-03-31
PRINTED CIRCUIT BOARDS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 1-10560

BENCHMARK ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)

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TEXAS 74-2211011
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

3000 TECHNOLOGY DRIVE 77515
ANGLETON, TEXAS (Zip Code)
(Address of principal executive offices)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(409) 849-6550

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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ----------------------
Common Stock, par value New York Stock Exchange, Inc.
$0.10 per share

Preferred Stock Purchase Rights New York Stock Exchange, Inc.

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

As of March 26, 1999, the number of outstanding shares of Common Stock was
11,666,083. As of such date, the aggregate market value of the shares of Common
Stock held by non-affiliates, based on the closing price of the Common Stock on
the New York Stock Exchange on such date, was approximately $328.8 million.

DOCUMENTS INCORPORATED BY REFERENCE:

(1) Portions of the Company's Annual Report to Shareholders for the fiscal
year ended December 31, 1998 (Part II Items 5-8 and Part IV Item
14(a)(1)).

(2) Portions of the Company's Proxy Statement for the 1999 Annual Meeting of
Shareholders (Part III, Items 10-13).

<PAGE>
TABLE OF CONTENTS

PAGE

PART I

ITEM 1. Business................................................. 1
ITEM 2. Properties............................................... 7
ITEM 3. Legal Proceedings........................................ 8
ITEM 4. Submission of Matters to a Vote of Security Holders...... 8

PART II

ITEM 5. Market for Registrant's Common Equity and Related
Shareholder Matters.................................... 8
ITEM 6. Selected Financial Data.................................. 8
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 8
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk............................................ 8
ITEM 8. Financial Statements and Supplementary Data.............. 8
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................... 9

PART III

ITEM 10. Directors and Executive Officers of the Registrant....... 9
ITEM 11. Executive Compensation................................... 9
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management............................................. 9
ITEM 13. Certain Relationships and Related Transactions........... 9

PART IV

ITEM 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K............................................... 9

ii
<PAGE>
PART I

ITEM 1. BUSINESS

GENERAL

Benchmark Electronics, Inc. (the "Company") provides contract electronics
manufacturing and design services to original equipment manufacturers ("OEMs")
in select industries, including medical devices, communications equipment,
industrial and business computers, testing instrumentation and industrial
controls. The Company specializes in manufacturing high quality, technologically
complex printed circuit board assemblies with computer-automated equipment using
surface mount and pin-through-hole interconnection technologies for customers
requiring low to medium volume production runs. The Company frequently works
with customers from product design and prototype stages through ongoing
production and, in some cases, final assembly of the customers' products and
provides manufacturing services for successive product generations. As a result,
the Company believes that it is often an integral part of its customers'
operations.

Substantially all of the Company's manufacturing services are provided on
a turnkey basis, whereby the Company purchases customer-specified components
from its extensive network of suppliers, assembles the components on finished
printed circuit boards, performs post-production testing and provides the
customer with production process and testing documentation. The Company offers
its customers flexible, "just-in-time" delivery programs allowing product
shipments to be closely coordinated with the customers' inventory requirements.
In certain instances, the Company completes the assembly of its customers'
products at the Company's facilities by integrating printed circuit board
assemblies into other elements of the customers' products. The Company also
provides manufacturing services on a consignment basis, whereby the Company,
utilizing components provided by the customer, provides only assembly and
post-production testing services. The Company operates a total of 39 surface
mount production lines at its facilities in Angleton, Texas, Beaverton, Oregon,
Hudson, New Hampshire, Winona, Minnesota, and Dublin, Ireland.

The Company, formerly named Electronics, Inc., began operations in 1979
and was incorporated under Texas law in 1981 as a wholly owned subsidiary of
Intermedics, Inc. ("Intermedics"), a medical implant manufacturer based in
Angleton, Texas. In 1986, Intermedics sold 90% of the outstanding shares of
common stock of the Company to Electronic Investors Corp. ("EIC"), a corporation
formed by Donald E. Nigbor, Steven A. Barton and Cary T. Fu, the Company's three
executive officers. In 1988, EIC was merged into the Company, and in 1990 the
Company completed the initial public offering of its common stock.

RECENT ACQUISITIONS

In July 1996, the Company acquired all of the outstanding common stock of
EMD Technologies, Inc. ("EMD"), an independent provider of contract
manufacturing and product design services for OEMs in industries comparable to
those targeted by the Company. EMD's manufacturing services focus on
manufacturing complex printed circuit board assemblies, operating 15 surface
mount production lines at its Winona, Minnesota facilities. EMD's product design
services include the complete design and development of electronics products and
mechanical packages, from conceptual design of circuit boards to configuring
subsystems and enclosures.

In February 1998, the Company acquired all of the outstanding stock of
Lockheed Commercial Electronics Company ("LCEC"), one of New England's largest
electronics manufacturing services companies, providing a broad range of
services including printed circuit board assembly and test, system assembly and
test, prototyping, depot repair, materials procurement, and engineering support
services.

On March 1, 1999, the Company acquired certain assets from Stratus Computer
Ireland (Stratus), a wholly-owned subsidiary of Ascend Communications, Inc.
(Ascend) for approximately $48 million, subject to adjustment. In connection
with the transaction, the Company entered into a three-year supply agreement to
provide system integration services to Ascend and Stratus Holding Limited and
the Company hired 260 employees. In conjunction with the purchase of the Stratus
assets, the Company increased its revolving line of credit to $65 million and
borrowed $25 million. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations" for a description of the revolving line of
credit. Under Stratus, the plant operated as a systems integration facility for
large and very sophisticated fault-tolerant mainframe computers. The Company
will continue to operate this new Benchmark Division from the Company's Dublin,
Ireland facility with the bulk of its present staff and with additional
personnel transferred there, under a multi-year exclusive service contract with
Stratus, as a key supplier to Ascend.

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THE CONTRACT ELECTRONICS MANUFACTURING INDUSTRY

The basis for the development of the contract manufacturing industry in
recent years has been the increasing reliance by OEMs on contract manufacturing
specialists such as the Company for the manufacture of printed circuit board
assemblies. As a result of outsourcing manufacturing services, the contract
manufacturing industry in the United States grew at a compound annual rate of
21% from 1994 through 1998, according to the Institute for Interconnecting and
Packaging Electronic Circuits ("IPC"). The IPC estimated the size of the United
States contract manufacturing industry for 1998 in terms of sales to be $22.5
billion. The Company expects the trend toward outsourcing to continue and to
result in continued growth in the contract manufacturing industry. A 1997 IPC
study forecast that the contract manufacturing industry would grow at an
approximate compound annual rate of 20% through 2000 as OEMs continue to
outsource their manufacturing requirements and look to contract manufacturers to
provide additional services. Some of the advantages OEMs receive as a result of
outsourcing are:

ACCELERATION OF TIME TO MARKET. Rapid technological advances in the
Company's targeted industries require OEMs to make their products
available to their customers quickly to remain competitive. Delays in
bringing a new product to market can result in obsolescence of the product
before it becomes available. Contract manufacturers who specialize in
printed circuit board assembly are often able to provide manufacturing
services in a more timely manner than OEMs, thus allowing OEMs to reduce
the time to market for their products.

REDUCTION OF PRODUCTION COSTS. Contract manufacturers generally are
able to manufacture printed circuit board assemblies at a lower cost than
OEMs because of the efficiencies associated with specialization and
greater production volumes. Additionally, the purchasing power of contract
manufacturers allows OEMs to save on costs of procurement of components.
OEMs also benefit from the inventory management services provided by
contract manufacturers in connection with turnkey manufacturing services.

ACCESS TO ADVANCED TECHNOLOGY. Using contract manufacturers affords
OEMs access to advanced technology in printed circuit board assembly
equipment and techniques that OEMs may consider too costly for in-house
investment. The increasing use of surface mount interconnection
technology, which requires significant investments in computer-automated
equipment and the expertise to operate such equipment, is an example. Many
OEMs have been unwilling to make such investments, relying instead on
contract manufacturers for surface mount assembly. More recent
technological advancements that contract manufacturers are now able to
offer to OEMs include ball grid array and chip on board assembly
processes.

IMPROVED MANUFACTURING QUALITY. Because it is the focus of their
operations, contract manufacturers are consistently able to provide
contract manufacturing services of a higher quality than OEMs can provide
in-house. Printed circuit board assembly and other services provided by
contract manufacturers are typically a small part of the broader
operations of the OEMs.

OPPORTUNITY TO FOCUS RESOURCES. By outsourcing printed circuit board
assembly and other manufacturing services, OEMs are able to focus their
resources on their primary activities, such as research and development of
new products and marketing.

Other factors in the contract manufacturing industry may have a positive
impact on established contract manufacturers such as the Company. The increasing
cost of automated equipment used in the industry, the working capital
requirements relating to inventory and the additional services that contract
manufacturers are providing make it more difficult for smaller manufacturers and
start-up companies to compete with the services that are provided by larger,
well-capitalized companies. Furthermore, the Company believes that these factors
are driving consolidation in the industry and may provide opportunities for
growth through acquisition.

BUSINESS STRATEGY

The Company's business strategy is to provide high quality contract
electronics manufacturing services to OEMs in targeted industries. The Company
seeks to provide services that reduce OEM costs and time to market and increase
OEM product quality. The Company's strategy to achieve these objectives includes
the following key elements:

ESTABLISH AND MAINTAIN LONG-TERM RELATIONSHIPS. The Company pursues
opportunities to provide turnkey manufacturing services whereby the
Company becomes an integral part of its customers' manufacturing
operations. The Company seeks to work closely with its customers in all
phases of design and production. By aggressively marketing its services to
its targeted customers and involving design, marketing and senior
management personnel in the pursuit and maintenance of customer
relationships, the Company attempts to establish itself as the sole or
primary source for its customers' manufacturing requirements. The Company
believes that working to develop close, long-term relationships builds
customer loyalty that is difficult for competitors to overcome.

2
<PAGE>
TARGET AND MAINTAIN BALANCE AMONG SELECT OEM INDUSTRIES AND
CUSTOMERS. The Company targets industries and customers that have strict
quality control standards for their products and that have
service-intensive manufacturing requirements. The Company focuses on
complex assemblies in low to medium volumes for commercial and industrial
customers. The Company has not been, and does not intend to become, a
manufacturer of high volume printed circuit board assemblies for personal
computers or consumer-oriented products, which typically have relatively
low margins. The Company targets customers in the medical devices,
communications equipment, industrial and business computers, testing
instrumentation and industrial controls industries and seeks to maintain a
balance of customers among these industries and within each industry. By
balancing its operations among industries and customers, the Company seeks
to avoid becoming dependent on any one industry or customer. In addition,
the Company believes that the industries and customers that it targets
produce products that generally have longer life cycles, more stable
demand and less price pressure as compared to consumer-oriented products.

PROVIDE COMPREHENSIVE DESIGN AND MANUFACTURING SERVICES. The Company
believes that OEMs increasingly expect a broad range of services from
contract manufacturers and that attracting and retaining customers depends
on the Company's ability to provide such services. The Company provides
its customers with services ranging from initial product design and
development and prototype production to the manufacture of printed circuit
board assemblies, post-production testing and final assembly of customers'
products.

PURSUE OPPORTUNITIES FOR GROWTH. The Company is committed to
pursuing opportunities to grow its operations through acquiring additional
facilities or businesses and achieving additional operating efficiencies
in the Company's existing operations.

MAINTAIN FLEXIBILITY. The Company believes that many of its
customers are leaders in their respective industries, and, as a result,
routinely re-engineer their products to incorporate new and more
competitive product features. Accordingly, the Company has organized its
manufacturing operations into flexible work centers, as opposed to
dedicated production lines, which allow the Company to incorporate complex
design specifications and to respond rapidly to design changes.

SERVICES PROVIDED BY THE COMPANY

The Company provides turnkey manufacturing services, including the
purchase of customer-specified components from its extensive network of
component suppliers, assembly of the components onto printed circuit boards and
performance of post-production testing. In certain instances, the Company
completes the assembly of its customers' products at the Company's facilities by
integrating printed circuit boards into other elements of the customers'
products.

The Company provides design-for-manufacturability engineering services for
products it manufactures. With respect to product design, the Company provides
the complete design and development of new electronic products and mechanical
packages, as well as the redesign, surface mount conversion and printed circuit
board layout of existing products. The Company 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.

The Company's component procurement services for turnkey projects consist
of planning, purchasing, expediting, inspecting, warehousing and financing the
components required to manufacture printed circuit board assemblies. OEMs
increasingly have required manufacturers to purchase all or some components
directly from component manufacturers or distributors and to warehouse and
finance the components. See "-- Suppliers."

In its manufacturing services, the Company offers both surface mount and
pin-through-hole interconnection technologies. Surface mount technology is a
computer-automated process that allows the placement of a higher density of
components directly on both sides of a printed circuit board. The surface mount
process is a more recent

3
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advancement over the mature pin-through-hole technology, which normally permits
electronic components to be attached to only one side of a printed circuit board
by inserting the components into holes drilled through the board. The surface
mount process allows OEMs to use advanced circuitry while permitting the
placement of a greater number of components on a printed circuit board without
having to increase the size of the board. By allowing increasingly complex
circuits to be packaged with the components placed in closer proximity to each
other, surface mount technology greatly enhances circuit processing speed and
thus board and system performance. The surface mount process allows a reduction
in the number of printed circuit boards required per system and allows the use
of more fully automated production processes. The Company performs
pin-through-hole assembly both manually and with computer-automated component
insertion and soldering equipment. Although surface mount technology is the
leading interconnection technology, the Company intends to continue providing
pin-through-hole assembly services for its customers. Pin-through-hole
technology is of continuing viability because most printed circuit boards
assembled using surface mount technology require some pin-through-hole assembly.
In addition, the Company believes that by continuing to provide pin-through-hole
assembly services, the Company appeals to current and prospective customers that
have not shifted, or do not wish to change, their manufacturing process to
utilize surface mount technology.

Because the Company may be the sole source or a major source of printed
circuit board assemblies for a customer, frequent communication between the
Company and the customer is necessary to ensure that the Company's manufacturing
services meet the customer's specifications. Accordingly, the Company maintains
a customer service department whose personnel work closely with the customer
throughout the manufacturing process. The Company's engineering and
manufacturing personnel coordinate the implementation of new and reengineered
products with the customer, thereby providing the customer with feedback on such
issues as the overall ease of manufacture of the printed circuit board assembly
and anticipated production lead times.

Component procurement begins after component specifications are verified
and approved sources are confirmed with the customer. Concurrently, the
Company's technical personnel establish complete documentation files on
components and the appropriate set-up, assembly and testing procedures. The
Company's personnel monitor all stages of the manufacturing process in order to
provide flexible and rapid responses to the customer's requirements, including
changes in design, order size and delivery schedules. In addition, the Company
utilizes an automated materials planning system which allows the customer to
monitor the status of an order on a real-time basis.

The Company also provides testing services for completed printed circuit
board assemblies in connection with the manufacturing process. In-circuit tests
verify that the components have been inserted properly and meet certain
functional standards and that the electrical circuits have been completed
properly. These tests are performed on industry standard testing equipment using
proprietary software developed either by the customer or test consultants on a
contractual basis. In-circuit tests normally are performed on all printed
circuit board assemblies for turnkey projects. In addition, using specialized
testing equipment designed and provided by the customer, the Company performs
customized functional tests designed to ensure that the printed circuit board
assembly will perform its intended functions. Because defective components
normally fail after a relatively short period of use, customers occasionally
request that certain printed circuit board assemblies be subjected by the
Company to controlled environmental stresses, typically thermal or electrical
stresses. These procedures accelerate the effects of operational use without
affecting the useful life of the component.

The Company also offers its customers flexible, just-in-time delivery
programs allowing product shipments to be closely coordinated with the
customers' inventory requirements. Several of the Company's larger customers
utilize a just-in-time inventory management system. The Company believes that
the attractiveness of just-in-time inventory management will lead other
customers to implement such systems and, accordingly, anticipates that a greater
percentage of the Company's business will be performed on this basis in the
future.

In establishing a turnkey relationship with a manufacturer, OEMs must
incur expense in qualifying the contract manufacturer and in some cases its
sources of component supply, refining product design and manufacturing
processes, and developing mutually compatible information and reporting systems.
The Company believes that once this relationship is established, OEMs typically
experience significant difficulty in expeditiously reassigning turnkey projects
to another manufacturer and, as a result, seek sources of turnkey manufacturing
services that they perceive will be able to meet their production requirements
over a long period of time and successive product generations. Accordingly, the
Company believes that its increasing turnkey business has resulted in greater
stability in its customer base.

<PAGE>
MARKETING AND CUSTOMERS

To better implement its service-intensive business strategy, the Company
markets its services to existing and potential customers through its direct
sales force, independent marketing representatives and its executive officers.
The Company's sales force consists of nine in-house salesmen and two independent
marketing representatives, through which the Company continues to aggressively
market the enhanced service capabilities of the Benchmark Design Center located
in Winona, Minnesota. Four of the nine in-house salesmen are based at the
Winona, Minnesota facility, three at the Hudson, New Hampshire facility and one
each at the Angleton, Texas and Beaverton, Oregon facilities.

The Company targets customers in five industries and seeks to maintain a
balance in its sales to those industries. The following table sets forth the
percentages of the Company's sales to each of the five industries for 1996, 1997
and 1998.

1996 1997 1998
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Medical Devices ..................... 18% 17% 11%
Telecommunications .................. 26 21 31
Computer Systems .................... 25 39 44
Tests and Instrumentation ........... 15 11 5
Industrial Controls ................. 16 12 9

SUPPLIERS

The Company maintains an extensive network of suppliers of components and
other materials used in assembling printed circuit boards. The Company procures
components only when a purchase order or forecast is received from a customer
and occasionally utilizes components or other materials for which a supplier is
the single source of supply. Although the Company experiences component
shortages and longer lead times of various components from time to time, the
Company has generally been able to reduce the impact of the component shortages
by working with customers to reschedule deliveries, by working with suppliers to
provide the needed components using just-in-time inventory programs, or by
purchasing components at somewhat higher prices from distributors, rather than
directly from manufacturers. These procedures reduce, but do not eliminate, the
Company's inventory risk. In addition, by developing long-term relationships
with suppliers, the Company has been better able to minimize the effects of
component shortages than manufacturers without such relationships. Because of
the continued increase in demand for surface mount components, the Company
anticipates continued component shortages with respect to certain components and
longer lead times for various components from time to time.

BACKLOG

The Company's backlog was approximately $317 million at December 31, 1998,
compared to $302 million at December 31, 1997 and $230 million at December 31,
1996. Backlog consists of customer orders that are expected to be filled within
twelve months. Because orders generally may be rescheduled or cancelled by the
payment of cancellation charges and because the Company's customers update their
orders at different intervals and provide orders to be filled over different
periods, the Company's backlog does not necessarily provide an accurate measure
of the timing or amount of future sales.

COMPETITION

The contract manufacturing services provided by the Company are available
from many independent sources as well as in-house manufacturing capabilities of
current and potential customers. The Company's competitors include Solectron
Corporation, SCI Systems, Inc., The DII Group, Inc., Avex Electronics, Inc.,
Jabil Circuit, Inc. and Plexus Corp., some of which are more established in the
industry and have substantially greater financial, manufacturing or marketing
resources than the Company. The Company believes that the principal competitive
factors in its targeted markets are product quality, flexibility and timeliness
in responding to design and schedule changes, reliability in meeting product
delivery schedules, pricing, technological sophistication and geographic
location. The Company believes that it competes effectively with respect to
these factors.

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GOVERNMENTAL REGULATION

The Company's operations, and the operations of businesses that the
Company acquires, are subject to certain federal, state and local regulatory
requirements relating to environmental, waste management, and health and safety
matters. There can be no assurance that material costs and liabilities will not
be incurred or that past or future operations will not result in exposure to
injury or claims of injury by employees or the public. Although some risk of
costs and liabilities related to these matters is inherent in the Company's
business, as with many similar businesses, the Company believes that its
business is operated in substantial compliance with applicable regulations.
However, new, modified or more stringent requirements or enforcement policies
could be adopted, which could adversely affect the Company.

The Company periodically generates and temporarily handles limited amounts
of materials that are considered hazardous waste under applicable law. The
Company contracts for the off-site disposal of these materials and has
implemented a waste management program to address related regulatory issues.

EMPLOYEES

As of December 31, 1998, the Company had 2,280 employees, of whom 1,701 were
engaged in manufacturing and operations, 316 in materials control and
procurement, 84 in design and development, 40 in marketing and sales, and 139 in
administration. None of the Company's employees is subject to a collective
bargaining agreement. Management believes that the Company's relationship with
its employees is satisfactory.

EXPORT SALES

In 1998, the Company had export sales of approximately $87 million to Europe, $2
million to Canada, $92,000 to Asia, and $8,000 to Australia from the Company's
United States operations. In 1997 and 1996, the Company had export sales of
approximately $86 million and $29 million, respectively, to Europe from the
Company's United States operations.

YEAR 2000 ISSUES

The Company recognizes that it must ensure that its products and operations will
not be adversely impacted by Year 2000 software failures which can arise in
date-sensitive software applications which utilize a field of two digits rather
than four to define a specific year. Absent corrective actions, date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in system failures or miscalculations causing
disruptions to various activities and operations.

Many of the Company's business and operating systems are currently Year 2000
compliant, and the Company initiated a review of those systems during 1997 to
address those systems that are not currently Year 2000 compliant. Areas
addressed included major third-party suppliers of components of the Company's
products as well as full reviews of the Company's manufacturing equipment,
telephone and voice mail systems, security systems and other office support
systems. The Company has also initiated formal communications with significant
suppliers and customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
issues. Based on its inquiries to date, the Company believes satisfactory
progress is being made by its significant suppliers and customers on Year 2000
issues. No significant information technology initiatives have been deferred by
the Company as a result of its Year 2000 project.

In addition, the Company has selected Baan U.S.A., Inc. to provide an Enterprise
Resource Planning System, which will be Year 2000 compliant, to improve
processes and to increase efficiencies. The new Enterprise Resource Planning
System implementation is scheduled for completion at all locations by November
1999. All necessary Year 2000 upgrades of major systems, including those
supplied by vendors, have been identified and conversion strategies developed
and are under deployment.

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of the software, and costs associated with the preliminary project stage and
post-implementation stage has been and will be expensed as incurred. The year
2000 component of this system can not be readily segregated from the total cost
of the company-wide Enterprise Resource Planning System implementation. The
total amount expended on Year 2000 issues and the new Enterprise Resource
Planning System through December 31, 1998, is approximately $9 million, of which
$8.8 million related to the new Enterprise Resource Planning System
implementation and approximately $200,000 related to the cost of identifying and
communicating with third parties and installing software patches. The costs of
the Year 2000 process and the timetable on which the Company believes it will
complete any Year 2000 modifications are based on management's best estimates,
which are derived utilizing a number of assumptions of future events, including
the availability of certain resources and other factors. However, there can be
no guarantee that these estimates will be achieved and actual results could
differ materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area, the ability to locate and correct all
relevant computer codes and similar uncertainties. In addition, there can be no
assurance that the systems of other companies on which the Company's systems
rely will be converted on a timely basis or that such failure by another company
to convert would not have an adverse effect on the Company's systems.

There is considerable uncertainty inherent in assessing the Company's
vulnerability to Year 2000 problems, arising in part from the uncertainty of the
Year 2000 readiness of the Company's suppliers and customers. It is possible
that the failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business operations, and that
such failures could materially and adversely affect the Company's results of
operations, liquidity and financial condition. Based on the information
available to it, and subject to the effect of the general uncertainty on the
Company's ability to make a definitive determination, the Company does not
believe it has any material exposure to significant business interruption as a
result of the Year 2000 problem, or that the cost of remedial actions will have
a material adverse effect on its business, financial condition or result of
operations.

The steps taken by the Company to address the Year 2000 issues are expected to
reduce significantly the Company's level of uncertainty about the Year 2000
problem and, in particular, about the Year 2000 compliance and readiness of its
material third party suppliers and customers. The Company believes that, with
the implementation of the Enterprise Resource Planning System and completion of
identifying and communicating with third parties as scheduled, the possibility
of significant interruptions of normal operations should be reduced.

ITEM 2. PROPERTIES

The Company's executive offices and one of its manufacturing facilities
are located in an approximately 109,000 square foot facility on 18.9 acres of
land owned by the Company in Angleton, Texas, where the Company has six surface
mount manufacturing lines. The Company leases its approximately 52,000 square
foot facility in Beaverton, Oregon, where the Company has four surface mount
production lines, under a lease expiring in June 2002. The Company's facilities
in Winona, Minnesota comprise five leased buildings with total square footage of
approximately 137,000 and a 64,000 square foot building that the Company owns.
For the primary leased facilities in Winona, the Company has leases through July
2006, each with purchase options that expire in June 1999. The Winona facilities
include manufacturing facilities with 15 surface mount production lines and
warehouse facilities. The Company leases its approximately 200,000 square feet
facility in Hudson, New Hampshire, which contains 14 surface mount production
lines, under leases expiring in June 2000, with options to extend the leases for
an additional four years. The Company's approximate 44,000 square foot facility
in Dublin, Ireland, where the Company will consolidate the assets purchased in
March 1999 from Stratus Computer Ireland, is leased through September 2003. The
Company's Angleton, Beaverton and Hudson facilities are certified under
ISO-9002, and the Winona facilities are certified under ISO-9001. The Company
believes that its properties are and will be sufficient to conduct the Company's
operations for the foreseeable future.

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ITEM 3. LEGAL PROCEEDINGS

The Company is not currently a party to any material litigation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of 1998.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The information on page 30 of the Company's Annual Report to Stockholders
for the fiscal year ended December 31, 1998 (the "1998 Annual Report") is
incorporated herein by reference in response to this item.

ITEM 6. SELECTED FINANCIAL DATA

The information on page 31 of the 1998 Annual Report is incorporated
herein by reference in response to this item.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The information on pages 9 through 14 of the 1998 Annual Report is
incorporated herein by reference in response to this item.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company does not hold or issue derivative financial instruments in the
normal course of business. However, the Company, as a result of its
international operating activities, is exposed to market risks, including
changes in foreign currency exchange rates and interest rates, which may
adversely affect its results of operations and financial position. In seeking to
minimize the risks and/or costs associated with such activities, the Company
manages exposure to changes in interest rates by balancing the amount of its
borrowings between fixed rate and variable interest rates. The Company manages
its exposure to foreign currency exchange rates by requiring customers to pay in
U.S. dollars.

Certain financial instruments used to obtain capital are subject to market
risks from fluctuations in interest rates. As of March 31, 1999, the Company has
$30 million of fixed rate financial instruments and $47 million of variable rate
financial instruments.

The Company has a subsidiary located in the Republic of Ireland. The
Company predominantly conducts its foreign sales and purchase transactions in
U.S. dollars. Other currency exchange risks are primarily limited to current
liabilities payable in Irish pounds. Such amounts relate to foreign plant wages,
taxes and facility operating costs. Accordingly, the Company does not expect
that the effects of changes in currency exchange rates upon such non-U.S. dollar
transactions would be material. The Company does not currently hedge against
foreign currency translation risks and believes that foreign currency exchange
risk is not significant to its operations.

The information contained in this Item 7A contains forward looking
statements regarding the future financial condition and results of operations
and the Company's business operations. The word "expect" and similar expressions
are intended to identify such statements. Such statements involve risks,
uncertainties and assumptions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in Item 7 of this Form
10-K for a discussion of important factors which could cause actual results to
differ materially from the conclusions expressed in the forward-looking
statements set forth in this Item 7A, and further discussion of the Company's
exposure to market risk.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information on pages 15 through 29 of the 1998 Annual Report is
incorporated herein by reference in response to this item.

8
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information under the captions "Election of Directors," "Executive
Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Company's Proxy Statement for the 1999 Annual Meeting of Shareholders (the "1999
Proxy Statement"), to be filed not later than 120 days after the close of the
Company's fiscal year, is incorporated herein by reference in response to this
item.

ITEM 11. EXECUTIVE COMPENSATION

The information under the caption "Executive Compensation and Other
Matters" in the 1999 Proxy Statement, to be filed not later than 120 days after
the close of the Company's fiscal year, is incorporated herein by reference in
response to this item.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information under the caption "Common Stock Ownership of Certain
Beneficial Owners and Management" in the 1999 Proxy Statement, to be filed not
later than 120 days after the close of the Company's fiscal year, is
incorporated herein by reference in response to this item.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information under the caption "Certain Transactions" in the 1999 Proxy
Statement, to be filed not later than 120 days after the close of the Company's
fiscal year, is incorporated herein by reference in response to this item.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) Financial Statements, Financial Statement Schedules, and Exhibits

1. FINANCIAL STATEMENTS OF THE COMPANY

Reference is made to the Financial Statements, the reports thereon, the
notes thereto and supplementary data commencing at page 15 of the 1998 Annual
Report, which financial statements, reports, notes and data are incorporated
herein by reference in response to this item. Set forth below is a list of such
Financial Statements:

Consolidated Financial Statements of the Company
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Income for the years ended December 31, 1998,
1997 and 1996
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996

Notes to Consolidated Financial Statements

2. FINANCIAL STATEMENT SCHEDULES

All schedules for which provision is made in Regulation S-X of the
Securities and Exchange Commission are not required under the related
instructions or are inapplicable and, therefore, have been omitted.

9
<PAGE>
3. EXHIBITS

Each exhibit marked with an asterisk is filed with this Annual Report on
Form 10-K.

EXHIBIT
NUMBER DESCRIPTION

2.1 -- Purchase Agreement dated as of January 22, 1998 by and between
the Company and Lockheed Martin Corporation (incorporated herein
by reference to Exhibit 2 to the Company's Current Report on Form
8-K dated February 23, 1998).

2.2 -- Agreement and Plan of Merger dated as of March 27, 1996 by and
among the Company, Electronics Acquisition, Inc., EMD
Technologies, Inc., David H. Arnold and Daniel M. Rukavina
(incorporated herein by reference to Exhibit 2 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995).

2.3 -- Amendment No. 1 to Agreement and Plan of Merger dated as of
April 5, 1996 by and among the Company, Electronics Acquisition,
Inc., EMD Technologies, Inc., David H. Arnold and Daniel M.
Rukavina (incorporated herein by reference to Exhibit 2.2 to the
Company's Registration Statement on Form S-4 (Registration No.
333-4230)).

2.4 -- Purchase and Sale Agreement by and among Stratus Computer
Ireland, Ascend Communications Inc., BEI Electronics Ireland
Limited and Benchmark Electronics, Inc. dated January 22, 1999
(incorporated by reference herein to Exhibit 2.1 to the Company's
Current Report on Form 8-K dated January 22, 1999).

3.1 -- Restated Articles of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (Registration No. 33-46316)
(the "Registration Statement")).

3.2* -- Amended and Restated Bylaws of the Company.

3.3* -- Amendment to Amended and Restated Articles of Incorporation of
the Company adopted by the shareholders of the Company on May 20,
1997.

3.4 -- Statement of Resolution Establishing Series A Cumulative
Junior Participating Preferred Stock of Benchmark Electronics,
Inc. (incorporated by reference to Exhibit B of the Rights
Agreement dated December 11, 1998 between the Company and Harris
Trust Savings Bank, as Rights Agent, included as Exhibit 1 to the
Company's Form 8A12B filed December 11, 1998).

4.1 -- Restated Articles of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.1 to the
Registration Statement).

4.2 -- Amended and Restated Bylaws of the Company (incorporated
herein by reference to Exhibit 3.2 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998).

4.3 -- Amendment to the Restated Articles of Incorporation of the
Company adopted by the shareholders of the Company on May 20,
1997 (incorporated herein by reference to Exhibit 3.3 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998).

4.4 -- Specimen form of certificate evidencing the Common Stock
(incorporated herein by reference to Exhibit 4.3 to the
Registration Statement).

4.5 -- Rights Agreement dated December 11, 1998 between the Company
and Harris Trust Savings Bank, as Rights Agent, together with the
following exhibits thereto: Exhibit A - Form of Statement of
Resolution Establishing Series A Cumulative Junior Participating
Preferred Stock of Benchmark Electronics, Inc.; Exhibit B - Form
of Right Certificate; and Exhibit C - Summary of Rights to
Purchase Preferred Stock of Benchmark Electronics, Inc.
(incorporated by reference to Exhibit 1 to the Company's Form
8A12B filed December 11, 1998).

4.6 -- Summary of Rights to Purchase Preferred Stock of Benchmark
Electronics, Inc. (incorporated by reference to Exhibit 3 to the
Company's Form 8A12B/A filed December 22, 1998).

10
<PAGE>
10.1 -- Form of Indemnity Agreement between the Company and each of
its directors and officers (incorporated herein by reference to
Exhibit 10.11 to the Registration Statement).

10.2 -- Benchmark Electronics, Inc. Stock Option Plan dated May 11,
1990 (incorporated herein by reference to Exhibit 10.12 to the
Registration Statement).

10.3 -- Form of Benchmark Electronics, Inc. Incentive Stock Option
Agreement between the Company and the optionee (incorporated
herein by reference to Exhibit 10.13 to the Registration
Statement).

10.4 -- Form of Benchmark Electronics, Inc. Nonqualified Stock Option
Agreement between the Company and the optionee (incorporated
herein by reference to Exhibit 10.14 to the Registration
Statement).

10.5* -- Lease Agreement dated February 1, 1997 between Tektronix, Inc.
and the Company.

10.6 -- Registration Rights Agreement dated March 30, 1992 between
Mason & Hanger Corporation and the Company (incorporated herein
by reference to Exhibit 10.17 to the Registration Statement).

10.7* -- Benchmark Electronics, Inc. 1992 Incentive Bonus Plan.

10.8 -- Benchmark Electronics, Inc. 1994 Stock Option Plan for
Non-Employee Directors (incorporated herein by reference to
Exhibit 10.21 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994).

10.9 -- Amended and Restated Credit Agreement dated as of February 6,
1999 by and between the Company and Chase Bank of Texas, N.A.
(incorporated herein by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K dated March 1, 1999).

10.10 -- Lease Agreement dated July 30, 1996 by and among David H.
Arnold, Muriel M. Arnold, Daniel M. Rukavina, Patricia A.
Rukavina and EMD Associates, Inc., as amended by Amendment to
Lease dated July 30, 1996 (incorporated herein by reference to
Exhibit 10.10 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996).

10.11 -- Lease Agreement dated December 15, 1992 by and among David H.
Arnold, Muriel M. Arnold, Daniel M. Rukavina, Patricia A.
Rukavina and EMD Associates, Inc., as amended by Amendment to
Lease dated January 1, 1994, Amendment to Lease dated December
15, 1995, and Amendment to Lease dated July 30, 1996
(incorporated herein by reference to Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996).

10.12 -- Note Purchase Agreement dated as of July 30, 1996 by and
between the Company and Northwestern Mutual Life Insurance
Company (incorporated by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K dated July 30, 1996).

10.14* -- Guarantee dated September 10, 1998 by the Company in favor of
Kilmore Developments Limited.

13* -- Benchmark Electronics, Inc. Annual Report to Shareholders for
the fiscal year ended December 31, 1998.

21* -- Subsidiaries of Benchmark Electronics, Inc.

23* -- Consent of Independent Auditors concerning incorporation by
reference in the Company's Registration Statement on Form S-8
(Registration No. 33-61660, No. 333-26805, No. 333-28997 and No.
333-66889).

11
<PAGE>
27.1* -- Financial Data Schedule.

(b) Reports on Form 8-K

On December 11, 1998, the Company filed a Current Report on Form 8-K under item
5 thereof to report the adoption of a Shareholder Rights Plan.

12
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

BENCHMARK ELECTRONICS, INC.

By: /s/ DONALD E. NIGBOR
Donald E. Nigbor
PRESIDENT

Date: March 31, 1999

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated and on the dates indicated.

NAME POSITION DATE
-------- -------------- ---------
Chairman of the
/s/ John C. Custer Board of Directors March 31, 1999
- ---------------------- -------------------
John C. Custer

Director and President
/s/ Donald E. Nigbor (principal executive officer) March 31, 1999
- ---------------------- -------------------
Donald E. Nigbor

Director and Executive
- ---------------------- Vice President -------------------
Stephen A. Barton

Director and Executive
Vice President (principal
/s/ Cary T. Fu financial and accounting officer) March 31, 1999
- ---------------------- -------------------
Cary T. Fu

Director
- ---------------------- -------------------
Peter G. Dorflinger

/s/ Gerald W. Bodzy Director March 31, 1999
- ---------------------- -------------------
Gerald W. Bodzy

Director
- ---------------------- -------------------
David H. Arnold

13
<PAGE>
EXHIBIT INDEX

Each exhibit marked with an asterisk is filed with this Annual Report on
Form 10-K.

EXHIBIT
NUMBER DESCRIPTION

3.2* -- Amended and Restated Bylaws of the Company.

3.3* -- Amendment to Amended and Restated Articles of Incorporation of
the Company adopted by the shareholders of the Company on May 20,
1997.

4.1 -- Restated Articles of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.1 to the
Registration Statement).

4.2 -- Amended and Restated Bylaws of the Company (incorporated
herein by reference to Exhibit 3.2 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998).

4.4 -- Specimen form of certificate evidencing the Common Stock
(incorporated herein by reference to Exhibit 4.3 to the
Registration Statement).

14
<PAGE>
4.6 -- Summary of Rights to Purchase Preferred Stock of Benchmark
Electronics, Inc. (incorporated by reference to Exhibit 3 to the
Company's Form 8A12B/A filed December 22, 1998).

10.1 -- Form of Indemnity Agreement between the Company and each of
its directors and officers (incorporated herein by reference to
Exhibit 10.11 to the Registration Statement).

10.2 -- Benchmark Electronics, Inc. Stock Option Plan dated May 11,
1990 (incorporated herein by reference to Exhibit 10.12 to the
Registration Statement).

10.3 -- Form of Benchmark Electronics, Inc. Incentive Stock Option
Agreement between the Company and the optionee (incorporated
herein by reference to Exhibit 10.13 to the Registration
Statement).

10.4 -- Form of Benchmark Electronics, Inc. Nonqualified Stock Option
Agreement between the Company and the optionee (incorporated
herein by reference to Exhibit 10.14 to the Registration
Statement).

10.5* -- Lease Agreement dated February 1, 1997 between Tektronix, Inc.
and the Company.

10.6 -- Registration Rights Agreement dated March 30, 1992 between
Mason & Hanger Corporation and the Company (incorporated herein
by reference to Exhibit 10.17 to the Registration Statement).

10.7* -- Benchmark Electronics, Inc. 1992 Incentive Bonus Plan.

10.9 -- Amended and Restated Credit Agreement dated as of February 6,
1999 by and between the Company and Chase Bank of Texas N.A.
(incorporated herein by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K dated March 1, 1999).

10.14* -- Guarantee dated September 10, 1998 by the Company in favor of
Kilmore Developments Limited.

13* -- Benchmark Electronics, Inc. Annual Report to Shareholders for
the fiscal year ended December 31, 1998.

21* -- Subsidiaries of Benchmark Electronics, Inc.

27.1* -- Financial Data Schedule.

EXHIBIT 3.2

AMENDED AND RESTATED BYLAWS
OF
BENCHMARK ELECTRONICS, INC.

DECEMBER 21, 1990

ARTICLE 1

OFFICES AND AGENT

The Corporation may have such offices, either within or without the State
of Texas, as the Board of Directors may designate or as the business of the
Corporation may require from time to
time.

The registered office of the Corporation required by the Texas Business
Corporation Act to be maintained in the State of Texas may be, but need not be,
the same as the principal office in the State of Texas, as designated by the
Board of Directors. The address of the registered office or the identity of the
registered agent may be changed from time to time by the Board of Directors.

The address of the registered office of the Corporation is 811 Dallas
Avenue, Houston, Texas 77002, and the name of the registered agent of the
Corporation at such address is C T Corporation
System.

ARTICLE 2

SHAREHOLDERS

Section 1. ANNUAL MEETING. The annual meeting of the shareholders shall be
held on such date in each year and at such time and place as may be determined
by the Board of Directors, for the purpose of electing directors and for the
transaction of such other business as may come before the meeting. If the day
fixed for the annual meeting is a legal holiday in the State of Texas, such
meeting shall be held on the next succeeding business day. If the election of
directors is not held on the day designated for the annual meeting of the
shareholders or at any adjournment thereof, the Board of Directors shall cause
the election to be held at a special meeting of the shareholders as soon
thereafter as may be convenient.

Section 2. SPECIAL MEETINGS. Special meetings of the shareholders may be
called by (a) the President, (b) the Board of Directors, (c) the President or
the Secretary at the request in writing of a majority of the Board of Directors,
or (d) the President or the Secretary at the request in writing of the holders
of at least ten percent of all the shares entitled to vote at the proposed
special meeting. Any such request to call a special meeting of the shareholders
shall state the purpose or purposes of such meeting.

<PAGE>
Section 3. PLACE OF MEETING. The Board of Directors may designate any
place within or without the State of Texas as the place of meeting for any
annual or special meeting of shareholders called by or at the request of the
Board of Directors. If no designation is made, or if a special meeting is called
otherwise than by or at the request of the Board of Directors, the place of
meeting shall be the principal office of the Corporation in the State of Texas.

Section 4. NOTICE OF MEETING. Written or printed notice stating the place,
day and hour of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
nor more than sixty days before the date of the meeting, either personally or by
mail, by or at the direction of the President, the Secretary, or the officer or
persons calling the meeting, to each shareholder entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail addressed to the shareholder at his address as it
appears on the share transfer records of the Corporation, with postage thereon
prepaid. Attendance by a shareholder, whether in person or by proxy, at a
shareholder's meeting shall constitute a waiver of notice of such meeting of
which he has had no notice.

The notice of any meeting of shareholders may be accompanied by a form of
proxy and other proxy solicitation materials approved by the Board of Directors.

Section 5. FIXING RECORD DATES FOR MATTERS OTHER THAN CONSENTS TO ACTION.
For the purpose of determining shareholders entitled to notice of or to vote at
any meeting of shareholders or any adjournment thereof, or entitled to receive a
distribution by the Corporation (other than a distribution involving a purchase
or redemption by the Corporation of any of its own shares) or a share dividend,
or in order to make a determination of shareholders for any other proper purpose
(other than determining shareholders entitled to consent to action by
shareholders proposed to be taken without a meeting of shareholders), the Board
of Directors of the Corporation may provide that the share transfer records
shall be closed for a stated period not to exceed, in any case, sixty days. If
the share transfer records shall be closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders, such
records shall be closed for at least ten days immediately preceding such
meeting. In lieu of closing the share transfer records, the Board of Directors
may fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than sixty days and, in the
case of a meeting of shareholders, not less than ten days, prior to the date on
which the particular action requiring such determination of shareholders is to
be taken. If the share transfer records are not closed and no record date is
fixed for the determination of shareholders entitled to notice of or to vote at
a meeting of shareholders, or shareholders entitled to receive a distribution
(other than a distribution involving a purchase or redemption by the Corporation
of any of its own shares) or a share dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the Board of Directors
declaring such distribution or share dividend is adopted, as the case may be,
shall be the record date for such determination of shareholders. When a
determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in this Section 5, such determination shall apply to
any adjournment thereof except where the determination has been made through the
closing of the share transfer records and the stated period of closing has
expired.

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<PAGE>
Section 6. FIXING RECORD DATES FOR CONSENTS TO ACTION. Unless a record
date shall have previously been fixed or determined pursuant to Section 5 of
this Article 2, whenever action by shareholders is proposed to be taken by
consent in writing without a meeting of shareholders, the Board of Directors may
fix a record date for the purpose of determining shareholders entitled to
consent to that action, which record date shall not precede, and shall not be
more than ten days after, the date upon which the resolution fixing the record
date is adopted by the Board of Directors. If no record date has been fixed by
the Board of Directors and the prior action of the Board of Directors is not
required by the Texas Business Corporation Act, the record date for determining
shareholders entitled to consent to action in writing without a meeting shall be
the first date on which a signed written consent setting forth the action taken
or proposed to be taken is delivered to the Corporation by delivery to its
registered office, its principal place of business, or an officer or agent of
the Corporation having custody of the books in which proceedings of meetings of
shareholders are recorded. Delivery shall be by hand or by certified or
registered mail, return receipt requested. Delivery to the Corporation's
principal place of business shall be addressed to the President or the principal
executive officer of the Corporation. If no record date shall have been fixed by
the Board of Directors and prior action of the Board of Directors is required by
the Texas Business Corporation Act, the record date for determining shareholders
entitled to consent to action in writing without a meeting shall be at the close
of business on the date on which the Board of Directors adopts a resolution
taking such prior action.

Section 7. VOTING LIST. The officer or agent having charge of the share
transfer records of the Corporation shall make, at least ten days before each
meeting of shareholders, a complete list of the shareholders entitled to vote at
such meeting or any adjournment thereof, arranged in alphabetical order, with
the address of and the number of shares held by each, which list, for a period
of ten days prior to such meeting, shall be kept on file at the registered
office or principal place of business of the Corporation and shall be subject to
inspection by any shareholder at any time during usual business hours. Such list
also shall be produced and kept open at the time and place of the meeting and
shall be subject to the inspection of any shareholder during the whole time of
the meeting. The original share transfer records shall be prima-facie evidence
as to who are the shareholders entitled to examine such list or transfer records
or to vote at any meeting of shareholders. The failure to comply with the
requirements of this Section 7 shall not affect the validity of any action taken
at the meeting.

Section 8. QUORUM OF SHAREHOLDERS. A quorum shall be present at a meeting
of shareholders if the holders of a majority of the shares entitled to vote are
represented at the meeting in person or by proxy. Once a quorum is present at a
meeting of shareholders, the shareholders represented in person or by proxy at
the meeting may conduct such business as may be properly brought before the
meeting until it is adjourned, and the subsequent withdrawal from the meeting of
any shareholder or the refusal of any shareholder represented in person or by
proxy to vote shall not affect the presence of a quorum at the meeting. The
shareholders represented in person or by proxy at a meeting of shareholders at
which a quorum is not present may adjourn the meeting until such time and to
such place as may be determined by a vote of the holders of a majority of the
shares represented in person or by proxy at that meeting.

-3-
<PAGE>
Section 9. PROXIES. Any shareholder may vote either in person or by proxy
executed in writing by the shareholder. A telegram, telex, cablegram or similar
transmission by the shareholder, or a photographic, photostatic, facsimile or
similar reproduction of a writing executed by the shareholder, shall be treated
as an execution in writing for purposes of this Section 9. No proxy shall be
valid after eleven months from the date of its execution unless otherwise
provided in the proxy. A proxy shall be revocable unless the proxy form
conspicuously states that the proxy is irrevocable and the proxy is coupled with
an interest.

Section 10. VOTING RIGHTS. Except as otherwise expressly provided in any
resolution or resolutions adopted by the Board of Directors establishing any
series of Preferred Stock, the exclusive voting power of the Corporation shall
be vested in the Common Stock. Except as otherwise expressly provided in any
such resolution or resolutions, or as otherwise provided by the Texas Business
Corporation Act, each outstanding share of Common Stock shall be entitled to one
vote on each matter submitted to a vote at a meeting of shareholders.

Section 11. VOTING REQUIREMENT. With respect to any matter, other than the
election of directors or a matter for which the affirmative vote of the holders
of a specified portion of the shares entitled to vote is required by the Texas
Business Corporation Act, the act of the shareholders shall be the affirmative
vote of the holders of a majority of the shares entitled to vote on that matter
and represented in person or by proxy at a meeting of shareholders at which a
quorum is present.

With respect to the election of directors, a director shall be elected
only if the director receives the vote of the holders of a majority of the
shares entitled to vote in the election of directors and represented in person
or by proxy at a meeting of shareholders at which a quorum is present.

With respect to any matter for which the affirmative vote of the holders
of a specified portion of the shares entitled to vote is required by the Texas
Business Corporation Act, the act of the shareholders on that matter shall be
the affirmative vote of the holders of a majority of the shares entitled to vote
on that matter, rather than the affirmative vote otherwise required by the Texas
Business Corporation Act.

Section 12. BUSINESS AT MEETING. To be properly brought before any meeting
of shareholders for consideration, the business must be (a) specified in the
notice of meeting given pursuant to Section 4 of this Article 2, (b) properly
brought before the meeting by or at the direction of the Board of Directors, or
(c) properly brought before the meeting by a shareholder.

If a shareholder desires to bring business before a meeting for
consideration, the shareholder must submit a written notice of the proposed
business to the Secretary as provided herein. In the case of the annual meeting
of shareholders, the shareholder's notice must be received at the principal
office of the Corporation not less than sixty days in advance of the date of the
Corporation's notice of annual meeting given in connection with the previous
year's annual meeting of shareholders. If no such annual meeting was held in the
previous year or the date of the current year's annual meeting has been changed
by more than thirty days from the date contemplated in the previous year's
notice of annual meeting, the shareholder's notice must be received by the
Corporation a reasonable period

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<PAGE>
of time before the date of the Corporation's notice of annual meeting for the
current year and any accompanying solicitation of proxies are made. In the case
of a special meeting of shareholders, the shareholder's notice must be received
at the principal office of the Corporation a reasonable period of time prior to
the date of the meeting to allow sufficient time for the dissemination of
information to the shareholders entitled to vote at such meeting; provided,
however, that if at least thirty days' notice of the meeting has been given to
the shareholders, the shareholder's notice must be received by the Corporation
no later than ten days prior to the date of the meeting.

A shareholder's notice of proposed business shall set forth as to each
matter that the shareholder proposes to bring before the meeting of shareholders
the following information: (a) a brief description of the business proposed to
be brought before the meeting and the reason or reasons for conducting such
business at the meeting; (b) the name and address of the shareholder proposing
such business; (c) the class, series (if applicable), and number of shares of
the Corporation that such shareholder owns beneficially; (d) any material
interest of the shareholder in the proposed business; and (e) if the business
that the shareholder proposes to bring before the meeting of shareholders is the
election to the Board of Directors of a person or persons to be nominated by or
on behalf of the shareholder, the information set forth in Section 8 of Article
3.

After receipt of the shareholder's notice of proposed business but before
the commencement of the meeting of shareholders, the Board of Directors, to the
extent allowed by law, may consider the subject matter of the proposed business
and the reason or reasons for conducting such business at the meeting to
determine whether such business should be considered. Proposed business, notice
of which is submitted by a shareholder in accordance with the foregoing
procedures, shall be considered at the meeting of shareholders unless the Board
of Directors determines that the proposed business should not be conducted at
the meeting. If the business is not to be considered at the meeting, the Board
of Directors shall notify the presiding officer of the meeting of such
determination, and such presiding officer shall declare to the meeting that such
proposed business is not properly before the meeting and will not be considered.
In addition, with respect to any business proposed to be considered, the
presiding officer of the meeting may determine that such business has not been
brought properly before the meeting in accordance with the foregoing procedures
and, if such determination is made, such proposed business will not be
considered at the meeting.

Section 13. ACTIONS WITHOUT MEETING. Any action required by the Texas
Business Corporation Act to be taken at any annual or special meeting of
shareholders, or any action which may be taken at any annual or special meeting
of shareholders, may be taken without a meeting, without prior notice, and
without a vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holder or holders of all the shares entitled to
vote with respect to the action that is the subject of the consent.

Every written consent shall bear the date of signature of each shareholder
who signs the consent. No written consent shall be effective to take the action
that is the subject of the consent unless, within sixty days after the date of
the earliest dated consent delivered to the Corporation in the manner required
by this Section 13, a consent or consents signed by the holder or holders of

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<PAGE>
shares having not less than the minimum number of votes that would be necessary
to take the action that is the subject of the consent are delivered to the
Corporation by delivery to its registered office, its principal place of
business, or an officer or agent of the Corporation having custody of the books
in which proceedings of meetings of shareholders are recorded. Delivery shall be
by hand or by certified or registered mail, return receipt requested. Delivery
to the Corporation's principal place of business shall be addressed to the
President or principal executive officer of the Corporation.

A telegram, telex, cablegram or similar transmission by a shareholder, or
a photographic, photostatic, facsimile or similar reproduction of a writing
signed by a shareholder, shall be regarded as signed by the shareholder for
purposes of this Section 13.

Prompt notice of the taking of any action by shareholders without a
meeting by less than unanimous written consent shall be given to those
shareholders who did not consent in writing to the action.

Section 14. TELEPHONE MEETINGS. Subject to the provisions required or
permitted by the Texas Business Corporation Act for notice of meetings,
shareholders may participate in and hold a meeting of such shareholders by means
of conference telephone or similar communications equipment whereby all persons
participating in the meeting can hear and speak to each other.

ARTICLE 3

BOARD OF DIRECTORS

Section 1. POWER. The powers of the Corporation shall be exercised by or
under the authority of, and the business and affairs of the Corporation shall be
managed under the direction of, the Board of Directors of the Corporation.

Section 2. NUMBER, TENURE AND QUALIFICATIONS. The Board of Directors shall
consist of seven members. The number of directors may be increased or decreased
from time to time by amendment to these Amended and Restated Bylaws, but no
decrease shall have the effect of shortening the term of any incumbent director.
Unless removed in accordance with the provisions of these Amended and Restated
Bylaws, each director shall hold office until the next annual meeting of
shareholders, and until his successor shall have been elected and qualified. A
director need not be a resident of the State of Texas or a shareholder of the
Corporation.

Section 3. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without notice other than this Section 3 immediately after, and at
the same place as, the annual meeting of shareholders. The Board of Directors
may provide, by resolution, the time and place, either within or without the
State of Texas, for the holding of additional regular meetings without notice
other than such resolution.

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<PAGE>
Section 4. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the chairman of the Board of Directors,
the President or any two directors. The person or persons authorized to call
special meetings of the Board of Directors may fix any place, either within or
without the State of Texas, as the place for holding any special meeting called
by such person or persons.

Section 5. NOTICE. Notice of any special meeting of the Board of Directors
shall be given at least one day prior thereto by written notice delivered
personally or mailed to each director at his business address, or by telegram,
telex, telecopy or similar means of visual data transmission. If mailed, such
notice shall be deemed to be delivered three days after deposited in the United
States mail so addressed, with postage thereon prepaid. If notice is given by
telegram, telex, telecopy or similar means of visual data transmission, such
notice shall be deemed to be delivered when transmitted for delivery to the
recipient. Any director may waive notice of any meeting. The attendance of a
director at a meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of objecting
to the transaction of any business on the grounds that such meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.

Section 6. QUORUM. A majority of the number of directors fixed in Section
2 of this Article 3 shall constitute a quorum for the transaction of business at
any meeting of the Board of Directors. If less than a majority of such number of
directors is present at a meeting, a majority of the directors present may
adjourn such meeting from time to time without further notice.

Section 7. MANNER OF ACTING.

(a) ACTIONS AT MEETING. Except as provided in Paragraph (b) of this
Section 7, the act of the majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors.

(b) ACTIONS WITHOUT MEETING. Any action required or permitted to be
taken at a meeting of the Board of Directors or any committee may be taken
without a meeting if a consent in writing, setting forth the action so taken, is
signed by all the members of the Board of Directors or committee, as the case
may be. Such consent shall have the same force and effect as a unanimous vote at
a meeting. A telegram, telex, cablegram or similar transmission by a director,
or a photographic, photostatic, facsimile or similar reproduction of a writing
signed by a director, shall be regarded as signed by the director for purposes
of this Paragraph (b).

(c) TELEPHONE MEETINGS. Subject to the provisions required or
permitted by the Texas Business Corporation Act for notice of meetings, members
of the Board of Directors or any committee designated by the Board of Directors
may participate in and hold a meeting of the Board of Directors or such
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear and speak to
each other.

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<PAGE>
Section 8. NOMINATIONS FOR ELECTION. Nominations of persons for election
to the Board of Directors at the annual meeting of shareholders or any special
meeting of shareholders called for the specific purpose of electing directors
may be made at any such meeting (a) by or at the direction of the Board of
Directors, any nominating committee thereof, or any person appointed by the
Board of Directors or such committee to make such nominations, or (b) by any
shareholder entitled to vote for the election of directors who complies with the
procedures set forth in this Section 8 as well as Section 12 of Article 2.

The shareholder's notice with respect to the nomination of persons for
election to the Board of Directors shall set forth, as to each person whom the
shareholder proposes to nominate, (a) the nominee's name, age, business and
residence address; (b) the principal occupation or employment of the nominee;
(c) the class, series (if applicable), and number of shares of the Corporation
that the nominee owns beneficially; and (d) any other information relating to
the nominee that is required to be disclosed in solicitations of proxies for the
election of directors pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended, including, without limitation, the nominee's consent to
being named in the proxy statement as a nominee and to serving as a director if
elected. The Corporation may require any proposed nominee to furnish such other
information as may reasonably be required by the Corporation to determine the
eligibility of such proposed nominee to serve as a director of the Corporation.

No person shall be eligible for nomination as a director of the
Corporation at any meeting of shareholders unless such person is nominated in
accordance with the procedures set forth herein. The presiding officer of the
meeting may determine that a proposed nomination was not made in accordance with
such procedures and, if such determination is made, such proposed nomination
will not be considered at the meeting.

Section 9. REMOVAL. At any meeting of shareholders called expressly for
the purpose of removal, any director or the entire Board of Directors may be
removed, with or without cause, by a vote of the holders of a majority of the
shares then entitled to vote at an election of directors. In the event that any
director is so removed, a new director may be elected at the same meeting for
the unexpired term of the director so removed. The failure to elect a director
to fill the unexpired term of any director so removed shall be deemed to create
a vacancy in the Board of Directors.

Section 10. VACANCIES. A vacancy in the Board of Directors shall be deemed
to exist by reason of the death or resignation of a director or upon the failure
of shareholders to elect a director to fill the unexpired term of any director
removed in accordance with the provisions of Section 9 of this Article 3.

Any vacancy occurring in the Board of Directors may be filled (a) by
election at an annual or special meeting of shareholders called for that
purpose, or (b) by a majority of the remaining directors though less than a
quorum of the Board of Directors, provided that the remaining directors may not
fill more than two such directorships during the period between any two
successive annual meetings of shareholders. A director elected to fill a vacancy
shall be elected for the unexpired term of his predecessor in office.

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<PAGE>
Section 11. COMMITTEES OF BOARD OF DIRECTORS. The Board of Directors, by
resolution adopted by a majority of the full Board of Directors, may designate
from among its members one or more committees, each of which shall be comprised
of one or more of its members, and may designate one or more of its members as
alternative members of any committee, who may, subject to any limitations
imposed by the Board of Directors, replace absent or disqualified members at any
meeting of that committee. Any such committee, to the extent provided in such
resolution, shall have and may exercise all of the authority of the Board of
Directors, subject to the limitations set forth in the Texas Business
Corporation Act. The designation of a committee of the Board of Directors and
the delegation thereto of authority shall not operate to relieve the Board of
Directors, or any member thereof, of any responsibility imposed by law.

Section 12. COMPENSATION. By resolution of the Board of Directors, the
directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors or any committee, and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or any committee or a
stated salary as directors or committee members. No such payment shall preclude
any director from serving the Corporation in any other capacity and receiving
compensation therefor.

Section 13. PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of the Board of Directors or any committee at which action
on any corporate matter is taken shall be presumed to have assented to the
action taken unless his dissent shall be entered in the minutes of the meeting
or unless he shall file his written dissent to such action with the person
acting as the secretary of the meeting before the adjournment thereof or shall
forward such dissent by registered mail to the Secretary of the Corporation
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to a director who voted in favor of such action.

ARTICLE 4

OFFICERS

Section 1. OFFICES. The officers of the Corporation shall consist of a
President, one or more Vice Presidents (the number and specific titles thereof
to be determined by the Board of Directors), a Secretary and a Treasurer, each
of whom shall be elected by the Board of Directors. Such other officers,
including assistant officers, and agents as may be deemed necessary may be
elected or appointed by the Board of Directors. Any two or more offices may be
held by the same person.

Section 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation
shall be elected annually by the Board of Directors at the regular meeting of
the Board of Directors held after each annual meeting of the shareholders. If
the election of officers is not held at such meeting, such election shall be
held as soon thereafter as may be convenient. Each officer shall hold office
until his successor shall have been duly elected and qualified, or until his
earlier death, resignation or removal in accordance with the provisions of
Section 3 of this Article 4.

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<PAGE>
Section 3. REMOVAL. Any officer or agent may be removed by the Board of
Directors whenever in its judgment the best interests of the Corporation will be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the
person so removed.

Section 4. VACANCIES. A vacancy in any office occurring for any reason may
be filled by the Board of Directors. An officer elected to fill a vacancy shall
be elected for the unexpired term of his predecessor in office.

Section 5. PRESIDENT. The President shall be the chief executive officer
of the Corporation and, subject to the control of the Board of Directors,
generally shall supervise and control all of the business and affairs of the
Corporation. When present, he shall preside at all meetings of the shareholders.
He shall perform all duties incident to the office of the President and such
other duties as the Board of Directors may assign to him from time to time.

Section 6. VICE PRESIDENTS. In the absence of the President, or in the
event of his death or inability or refusal to act, the Vice President (or if
there is more than one Vice President, the Vice Presidents in the order
designated at the time of their election, or in the absence of any such desig
nation, in the order of their election) shall perform the duties of the
President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President. Each Vice President shall perform such
other duties as the President or the Board of Directors may assign to him from
time to time.

Section 7. SECRETARY. The Secretary shall (a) keep the minutes of the
meetings of the shareholders and of the Board of Directors in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these Amended and Restated Bylaws or as required by law;
(c) have custody of, and be responsible for, the corporate records and the seal
of the Corporation, and see that the seal of the Corporation is affixed to all
documents as may be necessary or appropriate; (d) keep a register of the post
office address of each shareholder furnished to the Secretary by such
shareholder; (e) have general charge of the share transfer records of the
Corporation; and (f) in general, perform all duties incident to the office of
the Secretary and such other duties the President or the Board of Directors may
assign to him from time to time.

Section 8. TREASURER. If required by the Board of Directors, the Treasurer
shall give a bond for the faithful discharge of his duties in such sum, and with
such surety or sureties, as the Board of Directors shall determine. The
Treasurer shall (a) have charge and custody of, and be responsible for, all
funds and securities of the Corporation from any source whatsoever, and deposit
all such funds in the name of the Corporation in such banks, trust companies or
other depositories as shall be selected by the Board of Directors; and (b) in
general, perform all duties incident to the office of the Treasurer and such
other duties as the President or the Board of Directors may assign to him from
time to time.

Section 9. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Assistant
Secretaries, when authorized by the Board of Directors, may sign with the
President or a Vice President certificates for shares of the Corporation, the
issuance of which shall have been authorized by the Board of

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<PAGE>
Directors. The Assistant Treasurers, if required by the Board of Directors,
shall give bonds for the faithful discharge of their duties in such sums, and
with such sureties, as the Board of Directors shall determine. The Assistant
Secretaries and the Assistant Treasurers, in general, shall perform such duties
as the Secretary or the Treasurer, respectively, the President or the Board of
Directors may assign to them from time to time.

Section 10. SALARIES. The salaries, if any, of the officers shall be fixed
by the Board of Directors from time to time, and no officer shall be prevented
from receiving such salary by reason of the fact that he also is a director of
the Corporation.

ARTICLE 5

CERTIFICATES REPRESENTING SHARES, TRANSFER AND REPLACEMENT

Section 1. CERTIFICATES REPRESENTING SHARES. Certificates representing
shares of the Corporation shall be in such form as shall be determined by the
Board of Directors. The certificates shall be signed by the President or a Vice
President and by the Secretary or an Assistant Secretary, and the signatures of
such officers on such certificates may be facsimiles. The certificates may be
sealed with the seal of the Corporation or a facsimile thereof. In case any
officer who has signed or whose facsimile signature has been placed upon any
certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer at the date of its issuance. All certificates for shares shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares represented thereby are issued, together with the
number of shares and date of issue, shall be entered in the share transfer
records of the Corporation. All certificates surrendered to the Corporation for
transfer shall be cancelled, and no new certificate shall be issued until the
former certificate for a like number of shares shall have been surrendered and
cancelled, except that in case of a lost, stolen or destroyed certificate, a new
certificate may be issued therefor as provided in Section 3 of this Article 5.

Section 2. TRANSFER OF SHARES. A transfer of shares of the Corporation
shall be made only in the share transfer records of the Corporation by the
holder of record thereof, or by his legal representative who shall furnish
proper evidence of authority to transfer, or by his attorney thereunto
authorized by power of attorney, duly executed and filed with the Secretary of
the Corporation, and on surrender for cancellation of the certificate for such
shares. The Corporation shall regard the person in whose name any shares issued
by the Corporation are registered in the share transfer records of the
Corporation at any particular time (including, without limitation, as of a
record date fixed pursuant to Section 5 or 6 of Article 2) as the owner of those
shares at that time for the purposes specified by the Texas Business Corporation
Act.

Section 3. LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation shall
issue a new certificate in place of any certificate representing shares
previously issued if the registered owner of the certificate (a) makes proof in
affidavit form that it has been lost, destroyed or wrongfully taken;

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<PAGE>
(b) requests the issuance of a new certificate before the Corporation has notice
that the certificate has been acquired by a purchaser for value in good faith
and without notice of an adverse claim; (c) gives a bond in such form, and with
such surety or sureties, with fixed or open penalty, as the Corporation may
direct, or indemnifies the Corporation (and its transfer agent and registrar, if
any) against any claim that may be made on account of the alleged loss,
destruction or theft of the certificate; and (d) satisfies any other reasonable
requirements imposed by the Corporation. If a certificate has been lost,
apparently destroyed or wrongfully taken, and the registered holder of the
shares represented thereby fails to notify the Corporation within a reasonable
time after he has notice of it, and the Corporation registers a transfer of such
shares before receiving such notification, the registered holder shall be
precluded from making any claim against the Corporation for the transfer or for
a new certificate.

ARTICLE 6

FISCAL YEAR

The Board of Directors, by resolution, shall fix the fiscal year of the
Corporation.

ARTICLE 7

DISTRIBUTIONS

The Board of Directors may authorize, and the Corporation may make,
distributions subject to any restrictions in its Articles of Incorporation and
to the limitations set forth in the Texas Business Corporation Act.

ARTICLE 8

INDEMNIFICATION

Section 1. INDEMNIFICATION. As permitted by Section G of Article 2.02-1 of
the Texas Business Corporation Act (the "Indemnification Article"), the
Corporation (a) makes mandatory the indemnification permitted under Section B of
the Indemnification Article as contemplated by Section G thereof, and (b) agrees
to advance the reasonable expenses of a director upon such director's compliance
with the requirements of Sections K and L of the Indemnification Article.

Section 2. NON-EXCLUSIVITY. The provisions of Section 1 of this Article 8
shall not be deemed exclusive of any other rights to which any director of the
Corporation may be entitled under any agreement, pursuant to a vote of the Board
of Directors, any committee thereof or the shareholders, as a matter of law or
otherwise, either as to action in his official capacity or as to action

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<PAGE>
in another capacity while holding such office, shall continue as to a person who
has ceased to be a director, and shall inure to the benefit of the heirs,
executors and administrators of such person.

Section 3. LIMITATION. No person shall be entitled to indemnification
pursuant to this Article 8 in relation to any matter as to which indemnification
shall not be permitted by law.

Section 4. DEFINED TERMS. Terms used herein that are defined in the
Indemnification Article shall have the respective meanings set forth therein.

ARTICLE 9

SEAL

The Board of Directors shall provide for a corporate seal, which shall be
circular in form and shall have inscribed thereon the name of the Corporation,
the state of incorporation, and the five-pointed Texas star.

ARTICLE 10

WAIVER OF NOTICE

Whenever any notice is required to be given to any shareholder or director
of the Corporation under the provisions of the Articles of Incorporation, these
Amended and Restated Bylaws or the Texas Business Corporation Act, a waiver
thereof in writing signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice.

ARTICLE 11

PROCEDURE

Meetings of the shareholders and of the Board of Directors shall be
conducted in accordance with the procedures contained in Roberts Rules of Order,
to the extent applicable.

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<PAGE>
ARTICLE 12

PARTICIPATION OF DIRECTORS AND
OFFICERS IN RELATED BUSINESSES

Unless otherwise provided by contract, directors and officers of the
Corporation may hold positions as directors and officers of other corporations
in related businesses, and their efforts to advance the interests of those
corporations will not create a breach of fiduciary duty to this Corporation in
the absence of bad faith.

ARTICLE 13

AMENDMENT

These Amended and Restated Bylaws may be amended or repealed, as to all or
some portion thereof, and new bylaws may be adopted, by (a) the Board of
Directors or (b) the shareholders.

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EXHIBIT 3.3

ARTICLES OF AMENDMENT TO
THE ARTICLES OF INCORPORATION
OF
BENCHMARK ELECTRONICS, INC.

Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Articles of
Incorporation:

ARTICLE ONE

The name of the Corporation is Benchmark Electronics, Inc.

ARTICLE TWO

The following amendment to the Articles of Incorporation was adopted by
the shareholders of the Corporation on May 20, 1997. The amendment increases the
authorized shares of Common Stock of the Corporation from 10,000,000 to
30,000,000 shares. The amendment changes Article Four of the Corporation's
Articles of Incorporation, and the full text of Article Four as amended is as
follows:

"ARTICLE FOUR

Section 4.1. AUTHORIZED SHARES. The aggregate number of shares which
the Corporation shall have authority to issue is 35,000,000, which shall
consist of 30,000,000 shares of Common Stock, par value $0.10 per share,
and 5,000,000 shares of Preferred Stock, par value $0.10 per share.

Section 4.2. PREFERRED STOCK. The shares of Preferred Stock may be
divided into and issued in series. The Board of Directors shall have the
authority to establish series of unissued shares of Preferred Stock by
fixing the relative rights and preferences of the shares of any series so
established, and to increase or decrease the number of shares within each
such series; provided, however, that the Board of Directors may not
decrease the number of shares within a series of Preferred Stock to less
than the number of shares within such series that are then issued. The
Preferred Stock of each such series shall have such designations,
preferences, limitations, or relative rights, as shall be set forth in the
resolution or resolutions establishing such series adopted by the Board of
Directors.

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<PAGE>
Section 4.3. VOTING RIGHTS. Except as otherwise expressly provided in any
resolution or resolutions adopted by the Board of Directors establishing
any series of Preferred Stock, the exclusive voting power of the
Corporation shall be vested in the Common Stock. Except as expressly
provided in any such resolution or resolutions, or as otherwise provided
by the Texas Business Corporation Act, each outstanding share of Common
Stock shall be entitled to one vote on each matter submitted to a vote at
a meeting of the shareholders.

Section 4.4. DENIAL OF PREEMPTIVE RIGHTS AND CUMULATIVE VOTING. No
shareholder shall have any preemptive right whatsoever. Cumulative voting
shall not be permitted."

ARTICLE THREE

The number of shares of the Corporation outstanding at the time of such
adoption was 5,742,884, all of which were entitled to vote on the foregoing
amendment.

ARTICLE FOUR

The number of shares voted for such amendment was 3,133,380; and the
number of shares voted against such amendment was 651,189.

EXECUTED this 22nd day of May, 1997.

BENCHMARK ELECTRONICS, INC.

By: /s/ DONALD E. NIGBOR

Name: DONALD E. NIGBOR

Title: PRESIDENT AND CHIEF EXECUTIVE OFFICER

-2-

EXHIBIT 10.5

LEASE AGREEMENT

This Lease Agreement is made this 1 day of February, 1997, by and between
Tektronix, Inc., an Oregon corporation having its principal place of business at
26600 S. W. Parkway, Wilsonville, Oregon 97070-1000 ("Landlord"), and Benchmark
Electronics, Inc., a Texas corporation having its place of business at 13250
S.W. Karl Braun Drive (Tektronix Building 02), Howard Vollum Park, near
Beaverton Oregon ("Tenant").

AGREEMENT

1. DESCRIPTION.

1.1 Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, 51,950 square feet of space located at 13250 S.W. Karl Braun Drive and
situated on the first and second floors of Building 02, located at the Howard
Vollum Park near Beaverton, Oregon, more particularly described on the attached
EXHIBIT A (the "Premises"), together with the appurtenances thereto and 136
unreserved off-street parking spaces situated as shown on the attached EXHIBIT
B.

1.2 ROAD ACCESS. Road access to the Premises is provided by Landlord's
privately-owned and maintained roadways located within the Howard Vollum Park.
Tenant shall have the right to use these roadways to provide access to the
Premises during the term of this Lease (subject to Landlord's once-a-year road
closure to prevent prescriptive easements). Landlord reserves the right to
relocate the roadways from time to time.

1.3 SECURITY. Tenant shall comply with all security and safety procedures
required by Landlord concerning access to and protection of Landlord's property
as it relates to the Premises.

1.4 QUIET ENJOYMENT. Tenant shall not interfere with other tenants' or
occupant's quiet enjoyment of other leased premises located in Building 02.

2. AUTHORIZED USE. The Premises may be used by Tenant for offices and light
manufacuring and for any other uses incidental thereto not prohibited by law,
ordinance or regulation. Tenant shall at its expense comply promptly with all
applicable statutes, ordinances, rules, regulations, orders and requirements in
effect during the Lease term or any part thereof regulating the use by Tenant of
the Premises. Tenant shall not use or permit the use of the Premises in any
manner that will tend to create waste or a nuisance.

Landlord has a smoke-free workplace policy which prohibits smoking by any
person in any Tektronix building located in the United States. Smoking on
Landlord's property is permitted only outside the building in which the Premises
are located, in areas other than main or visitor entrances. Tenant will comply
with this policy and will maintain a smoke-free environment in the building in
which the Premises are located.

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<PAGE>
3. LANDLORD' S WARRANTY. Landlord warrants that it has the lawful right to lease
the Premises to Tenant, that the Premises may be used for the purposes
authorized by Section 2 above, and that Landlord will defend Tenant's right to
quiet enjoyment of the Premises from the claims of all persons arising by or
through Landlord during the Lease term and any renewal thereof.

4. CONDITION OF PREMISES. Tenant has inspected the Premises and accepts them in
their present "AS IS" condition, except Landlord, at its cost, will provide and
enclose a space for Tenant's air compressor equipment in area as shown on
EXHIBIT A. Air compressor equipment will be famished and installed by Tenant and
Landlord will make the required electrical and mechanical hook-ups. Also,
Landlord will provide and install an automatic irrigation system in the lawn
area east of Building 02, as shown on EXHIBIT B. Tenant acknowledges that
Landlord has not made any representation or warranty as to the suitability of
the Premises for the conduct of Tenant's business.

5. PRIOR LEASE AGREEMENT. The prior lease agreement between Landlord and Tenant
dated October 12, 1990, as amended on August 19, 1991, January 31, 1992, January
11, 1993, May 19, 1993, September 13, 1993 and June 17, 1994, is hereby
terminated; provided, however, all of Tenant's obligations under the prior lease
shall survive such termination.

6. TERM OF LEASE-OCCUPANCY. The term of this Lease shall commence on February 1,
1997 and continue until June 30, 2002. Tenant may terminate this Lease upon
twelve (12) months prior written notice to the Landlord at any time during the
term of the Lease. Tenant shall promptly pay for the rent and other obligations
which accrue through the effective date of the Lease termination.

7. BASIC RENT. During the Lease term, Tenant shall pay to Landlord as basic rent
per month the following amount:

a. Twenty Thousand Four Hundred and Nineteen Dollars ($20,419) from
February 1, 1997 to June 30, 1997.

b. Twenty-Two Thousand Three Hundred and Thirty Four ($22,334) Dollars
from July 1, 1997 to June 30, 1999.

c. Twenty-Three Thousand Five Hundred ($23,500) Dollars from July 1,
1999 to June 30, 2000.

d. Twenty-Five Thousand ($25,000) Dollars from July 1, 2000 to June 30,
2002.

The amount of 7b above is based on Tenant paying rent on only one-half of
the second floor space until June 30, 1999, at which time rent is assigned to
the entire second floor space.

Rent shall be payable on the first day of each month in advance at the
address of Landlord first above written or at such other place as Landlord may
indicate by written notice. Rent shall be payable in lawful money of the United
States of America without notice or demand and without any deduction, offset, or
abatement. Tenant shall pay Landlord, upon demand, interest at the rate of

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<PAGE>
twelve percent (12%) per annum (but in no event to exceed the maximum rate
permitted by law) on any delinquent rental payment from the date it was due
until it is paid in full. Tenant shall also pay any sales, use, or other like
tax applicable with respect to the rental payments whether imposed on Landlord
or Tenant.

8. SERVICES AND UTILITIES. Services and utilities shall be provided to the
Premises and paid as follows:

PAID BY: PROVIDED BY:
---------- --------------
a. Electricity for Normal Tenant Landlord
Mfg./Office Use
b. Natural Gas* Tenant Landlord
c. Water and Sewer Tenant Landlord
d. Janitorial Services Tenant Tenant
e. Trash Removal** Tenant Tenant
f. Compressed Air*** Tenant Tenant
g. Fire Extinguishers Tenant Tenant
h. Elevator (Maintenance and Permits) Tenant Landlord

* Tenant shall pay Northwest Natural Gas directly for metered natural gas
usage for its area, plus reimburse Landlord a proportionate share of
charges for the natural gas provided on the low pressure gas line based on
square feet of Tenant area occupied in relation to area served in the
building by the system. This area is comprised of 45,547 square feet of
which 24,347 s.f. (53%) is occupied by the Tenant.

** Tenant shall provide and pay for dumpster(s) for its use.

*** Landlord shall provide compressed air to the Tenant for one month,
February 1, 1997 through February 28, 1997 at a rate of $200 per month. As
of March 1, 1997, Landlord will discontinue this service and Tenant shall
provide its own compressed air system and service. Tenant will thereafter
provide compressed air to the adjacent Warehouse Space at no cost to
occupants.

Landlord will provide Tenant an invoice for the services provided to the
Premises by Landlord each month which will be payable within thirty (30) days of
the invoice date. Reimbursement for electricity, natural gas, and water and
sewer shall be based on metered consumption or other mutually agreeable
allocation method.

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Tenant shall reimburse Landlord for any unusual or excessive utility
consumption. Tenant shall reimburse Landlord for the applicable services within
thirty (30) days of its receipt from
Landlord of an invoice for such services.

Landlord shall not be liable for, and Tenant shall not be entitled to, any
reduction of rental by reason of Landlord's failure to furnish any of the
foregoing services when such failure is caused by accident, breakage, repairs,
or any other cause, similar or dissimilar, beyond the reasonable control of
Landlord. Landlord shall not be liable under any circumstances for a loss of or
injury to Tenant's property or business, however occurring, through, in
connection with, or incidental to failure to furnish any of the foregoing.

9. PAYMENT OF TAXES AND ASSESSMENTS. During the lease term, Landlord shall pay
before delinquency all real property taxes and assessments which are assessed or
levied against the land or building of which the Premises are a part.

Tenant shall pay before delinquency all real and personal property taxes
on Tenant's inventory, fixtures, equipment and other personal property in or
about the Premises. In the event Tenant fails to pay before delinquency any real
or personal property tax, Landlord, at its option, may pay the delinquent tax.
All such delinquent taxes paid by Landlord, together with interest at the rate
of twelve percent (12%) per annum (but in no event to exceed the maximum rate
permitted by law), shall become immediately due and payable by Tenant to
Landlord as additional rent.

10. MAINTENANCE AND REPAIR.

10.1 LANDLORD'S OBLIGATIONS. The following shall be the responsibility of
Landlord (except where the maintenance or repair is required as a result of the
negligence of Tenant or its invitees, in which case, it shall be Tenant's
responsibility):

a. All structural repairs and maintenance which may be reasonably
necessary during the term of this Lease, including but not
limited to repairs of the foundation, exterior walls, floor
columns, and roof, and exterior painting.

b. Repair and maintenance of sidewalks, driveways, service areas,
curbs, parking areas, and landscaping.

c. Abatement and removal of asbestos containing materials
encountered during any remodel of the Tenant Lease space, as
necessary to complete the remodel.

d. Maintenance and repair of the mechanical system, when the
repair exceeds $5,000 (on a per occurrence basis).

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10.2 TENANT'S OBLIGATIONS. The following shall be the responsibility of
Tenant except where the repair or damage is due to the failure of
Landlord to perform its repair or maintenance or repair obligations
hereunder:

a. Maintenance and repair of all Tenant's own equipment and
equipment installed by Tenant.

b. Maintenance and repair of all interior walls, ceilings, doors,
windows, floors, and floor coverings of the Premises.

c. Maintenance and repair of plumbing, electrical and exhaust
systems within the Premises.

d. Maintenance and repair of the mechanical systems within the
Premises, except when the repair exceeds $5,000 (on a per
occurrence basis).

e. Replacement of light bulbs and broken glass on the Premises.

f. Any interior remodeling or redecorating. Landlord reserves the
right to approve all designs and to undertake and perform any
construction at Tenant's expense.

Tenant shall perform all other repairs and maintenance which Landlord is
not expressly required hereunder to perform. Landlord, at reasonable times
during normal business hours, may enter the Premises for the purpose of
inspecting, maintaining, and repairing the same. If Tenant fails or refuses to
make repairs which are required by this Section 10.2, Landlord may make the
repairs and charge the actual cost of repairs to Tenant. The cost thereof,
together with interest at the rate of twelve percent (12%) per annum (but in no
event to exceed the maximum rate permitted by law), shall become due and payable
as additional rent to Landlord upon demand. Except in an emergency creating an
immediate risk of personal injury or property damage, Landlord may not perform
repairs which are the obligation of Tenant and charge Tenant for the resulting
expense unless at least thirty (30) days before work is commenced, Tenant is
given notice in writing outlining the repairs required and Tenant fails within
that time to initiate such repairs in good faith.

11. EXPANSION OPTION. The Tenant shall have the right to lease an additional
3,384 square feet of space on Level 1 of the building as designated on EXHIBIT A
("Expansion Space"). All of the terms of this Lease shall apply to the rental of
the Level 1 Expansion Space except for the terms and conditions below, and the
Level 1 Expansion Space shall be considered part of the Premises when Tenant
properly exercises this option:

a. Beginning February 1, 1997, Tenant shall have a period of one
year until January 31, 1998, to exercise this option,
otherwise this option will expire. Also, the option will
expire if Landlord offers the Expansion Space to a third

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party under Section 12 and Tenant does not exercise its
right to lease the space.

b. Tenant shall provide ninety (90) days prior written notice to
Landlord of its intent to lease Expansion Space.

c. The basic rent for the Expansion space shall be .45(cent) per
square foot per month.

d. The Expansion Space is provided "As-Is." It will be the
responsibility of the Tenant to provide any fencing or
separation as required to demise the space.

12. FIRST RIGHT OF REFUSAL. If Landlord decides to offer approximately 24,000
square feet of space adjacent to the Premises, designated on EXHIBIT A
("Warehouse Space" and "Expansion Space"), or any portion thereof , for lease to
any third party, Landlord will notify Tenant in writing of its intent. Tenant
will have ten (10) days from the date of notification to respond to Landlord in
writing if Tenant intends to match the lease rate received and lease the portion
of the Warehouse Space and Expansion Space for which the offer is tendered. If
Tenant fails to notify Landlord within ten (10) days of its intent to occupy, or
if final agreement concerning the base rental rate and Tenant's improvement
allowance (if any) have not been reached by the parties within 20 days after the
date of Landlord's notice to Tenant, Tenant's rights under this paragraph shall
automatically terminate and Landlord shall be free to lease the Warehouse and
Expansion Space to third parties without further notice to the Tenant. Landlord
shall have the right to occupy the Warehouse Space, and any portion therof, for
its own or any affiliates use at any time without notification to the Tenant.

13. TELEPHONE SERVICE. Tenant shall provide its own telephone service. Landlord
reserves the right to approve all design, location, routing, and installation of
telephone lines within Building 02.

14. TENANT'S COVENANTS. Tenant shall pay the rent at the times and in the manner
aforesaid, and at expiration of the term or any renewal thereof, or upon earlier
termination due to a default of the agreement by the Tenant, shall yield up
peacefully to Landlord the Premises in as good order and repair as when
delivered to Tenant, ordinary wear and tear excepted. Tenant agrees to maintain
the Premises in a clean, attractive, and sanitary condition and not to make any
alterations, improvements, or additions to the Premises without having obtained
Landlord's prior approval, which approval shall not be unreasonably withheld. As
a condition to giving such consent, Landlord may require that Tenant remove any
such alterations, improvements or additions at the termination of the Lease and
to restore the Premises to its original condition. Any permanent improvements
made to the Premises shall become part of the real property at Landlord's
option. Tenant shall keep the Premises free from all mechanics'and materialmen's
liens in connection with any alterations, improvements or additions to the
Premises. At the termination of this Lease or any renewal thereof, Tenant shall
remove all trade fixtures, shelving, machinery, and equipment owned or installed
by Tenant, and Tenant agrees to pay for repair of any damage to the Premises
that may be caused by the removal of such trade fixtures, shelving, machinery,
and equipment.

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15. SIGN. Tenant shall have the right to display its name and trademark on signs
on or about the building leased hereunder subject, however, to Landlord's prior
approval of its design and location, as well as the approval of all governmental
agencies having jurisdiction.

16. CASUALTY INSURANCE. During the Lease term, Landlord shall maintain in full
force a policy or policies of fire insurance with extended coverage to the
extent of one hundred percent (100%) of the replacement cost of the building
leased hereunder, subject to a $500,000 deductible. Should the particular use of
the Premises by Tenant cause an increase in Landlord's insurance costs, Tenant
shall pay the amount of the increase as additional rent. Tenant shall obtain and
maintain fire insurance with extended coverage on all of its personal property
located within the Premises at one hundred percent (100%) of replacement value.

17. WAIVER OF SUBROGATION. The parties shall obtain from their respective
insurance carriers waivers of subrogation against the other party, agents,
employees and, as to Tenant, invitees. Neither party shall be liable to the
other for any loss or damage caused by fire or any of the risks enumerated in a
standard fire insurance policy with an extended coverage endorsement to the
extent such loss or damage is covered by such insurance at the time of the loss
or damage.

18. PUBLIC LIABILITY INSURANCE. During the term of this lease, Tenant shall
obtain, and keep in force for the mutual benefit of Landlord and Tenant,
commercial general liability insurance against claims for bodily injury, death,
and property damage occurring in, on or about the Premises in at least the
following minimum amounts:

Each occurrence: $1,000,000

Tenant shall provide Landlord a certificate of insurance with Landlord named
as an Additional Insured.

19. HOLD HARMLESS AND INDEMNIFY. Tenant shall indemnify, defend and hold
Landlord harmless from any and all claims arising from Tenant's use of the
Premises or from the conduct of its business, or from any activity, work or
things which may be permitted or suffered by Tenant in or about the Premises,
and shall further indemnify, defend and hold Landlord harmless from and against
any and all claims arising from any breach or default in the performance of any
obligation on Tenant's part to be performed under the provisions of this Lease
or arising from any act or omission of Tenant or any of its agents, contractors,
employees, or invitees, and from any and all costs, attorneys' fees, expenses
and liabilities incurred in the defense of any such claim or action or
proceeding brought thereon. Tenant's obligations under this Section 19 shall
survive the termination of this Lease.

20. DAMAGE AND DESTRUCTION.

20.1 If the building of which the Premises are a part is less than fifty
percent (50%) damaged or destroyed, the property shall be repaired
as follows:

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a. To the extent the damage is covered by Landlord's fire
insurance policy, repairs shall be at the expense of Landlord,
whether or not the damage occurred as a result of negligence
or willful misconduct on the part of Tenant, its employees,
agents, contractors or invitees.

b. To the extent that the damage is not covered by Landlord's
fire insurance policy, repairs shall be at the expense of the
Landlord, unless the damage was the result of the negligence
or willful misconduct of Tenant, its employees, agents,
contractors, or invitees, in which case, Tenant shall have the
obligation to perform such repairs.

c. In any event, repairs shall be accomplished with all
reasonable dispatch subject to interruptions and delays from
labor disputes and matters beyond the control of the party
responsible. Rent shall be abated to the extent the Premises
are untenantable subsequent to the damage and during the
period of repair, except when damage occurs because of the
negligence or willful misconduct of Tenant, its employees,
agents, contractors, or invitees.

20.2 If the building of which the Premises are a part is fifty percent
(50%) or more destroyed, the parties shall proceed as follows:

a. Landlord may elect to terminate the Lease as of the date of
damage or destruction by notice given to Tenant in writing not
more than thirty (30) days following such date. In such event,
all rights and obligations of the parties shall cease as of
the date of termination and Tenant shall be entitled to the
reimbursement of any prepaid rent or other amounts paid by
Tenant and attributable to the anticipated term subsequent to
termination date.

b. In absence of an election under Subsection a. above, Landlord
shall proceed to restore Premises to substantially the same
form as prior to damage or destruction so as to provide for
Tenant usable space equivalent in quantity and character to
that before damage. Work shall be commenced as soon as
reasonably possible, and thereafter shall proceed without
interruption, except for work stoppages on account of labor
disputes and matters not under control of Landlord. To the
extent the damage is covered by Landlord's fire insurance
policy, the restoration shall be at the expense of Landlord,
whether or not the damage occurred as a result of negligence
or willful misconduct on the part of Tenant, its employees,
agents, contractors, or invitees. To the extent the damage is
not covered by Landlord's fire insurance policy, restoration
shall be at the expense of Landlord, unless the damage was the
result of the negligence or willful misconduct of Tenant, its
employees, agents, contractors, or invitees, in which case,
Tenant shall have the obligation to restore.

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c. In either event, rent shall be abated from the date of damage
or destruction, except when the damage or destruction occurs
because of the negligence or willful misconduct of Tenant, its
employees, agents, contractors, or invitees, and Landlord
elects to rebuild.

20.3 With respect to the deductible amount under Landlord's fire
insurance policy and any repairs or restoration required under
Subsections 20.1 or 20.2 above, the repairs or restoration to which
the deductible would apply shall be at the expense of Landlord,
unless the damage was the result of the negligence or willful
misconduct of Tenant, its employees, agents, contractors or
invitees, in which case, Tenant shall have the obligation to repair
or restore.

21. CONDEMNATION.

21.1 If a portion of the Premises is condemned and Subsection 21.2 below
does not apply, the Lease shall continue on the following terms:

a. Landlord shall be entitled to all of the proceeds of
condemnation and Tenant shall have no claim against Landlord
as a result of condemnation.

b. Landlord shall proceed as soon as reasonably possible to make
such repairs and alterations to the Premises as are necessary
to restore the remaining Premises to a condition as comparable
as reasonably practicable to that existing at the time of
condemnation. Landlord may, but shall not be required to,
perform alterations prior to the actual taking after the
portion to be taken has been finally determined. Rent shall be
abated to the extent Premises are untenantable during period
of alteration and repair.

c. After the date on which title vests in the condemning
authority or an earlier date on which alterations or repairs
are commenced by Landlord to restore the balance of the
property in anticipation of taking, the rent shall be reduced
commensurately with the reduction in value of the Premises as
an economic unit on account of the partial taking.

d. If a portion of the Landlord's property not included in the
Premises is taken and severance damages are awarded on account
of the Premises, or an award is made for detriment to the
Premises as a result of a change in grade of the adjacent
streets, or other activity by a public body not involving a
physical taking of any portion of the land, this shall be
regarded as a partial condemnation to which Subsections a. and
c. apply, and the rent shall be reduced to the extent of
diminution of value of the Premises as though a portion had
been physically taken.

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21.2 If a condemning authority takes all the Premises or a portion
sufficient to render the remaining Premises reasonably unsuitable
for the use which Tenant was then making of the Premises, the Lease
shall terminate as of the date title vests in the condemning
authorities. Landlord shall be entitled to all the proceeds of
condemnation and Tenant shall have no claim against Landlord as a
result of the condemnation and Tenant shall have no claim against
Landlord as a result of the condemnation.

21.3 Sale of all or part of the Premises to a purchaser with power of
eminent domain in the face of a bona fide threat of the exercise of
such power shall be treated as a taking by condemnation.

21.4 Tenant reserves all rights it may have against the condemning
authority in any condemnation action, including but not limited to
damages for damage to Tenant's business or for damage to Tenant's
trade fixtures and removable
personal property.

22. ASSIGNMENT AND SUBLETTING. This Lease may not be assigned nor the Premises
sublet by Tenant without the prior written consent of Landlord; such consent
shall not be unreasonably withheld. Regardless of Landlord's consent, no
subletting or assignment shall release Tenant from its obligations under this
Lease.

23. ASSIGNMENT OF LEASE AS SECURITY. Tenant agrees that if this Lease is
assigned as additional security for any mortgage or deed of trust of Landlord,
and Tenant is furnished with notice thereof, including the name and address of
the mortgagee or trustee, then Tenant shall not terminate this Lease because of
a default by the Landlord without first notifying the mortgagee or trustee,
specifying the default in reasonable detail, and affording the mortgagee or
trustee a reasonable opportunity to make performance on behalf of Landlord.

24. TIME OF ESSENCE. Time is of the essence with respect to Tenant's and
Landlord's performance under this Lease.

25. LANDLORD'S ACCESS. Landlord and its agents shall have the right to enter the
Premises at reasonable times for the purpose of inspecting same, showing same to
prospective tenants, purchasers, or lenders, and making sure alterations,
repairs, improvements, or additions to the Premises as Landlord may deem
necessary or desirable including maintenance and alterations to the building
telephone equipment that is located within the Premises. Landlord may at any
time place on or about the Premises any ordinary "For Sale or Lease" signs
without rebate of rent or liability to Tenant.

26. EXEMPTION OF LANDLORD FROM LIABILITY. Tenant hereby agrees that Landlord
shall not be liable for injury to Tenant's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Tenant, Tenant's employees, invitees, customers, or any other persons in or
about the Premises; nor shall Landlord be liable for injury to the person of
Tenant, Tenant's employees, agents, or contractors and invitees; whether such
damage or injury is caused by or results from fire, steam, electricity, gas,
water or rain, or from the breakage,

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obstruction, or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause whatsoever; and
whether said damage or injury results from conditions arising upon the Premises
or from other sources or places and regardless of whether the cause of such
damage or injury or the means of repairing the same is inaccessible to Landlord
or Tenant.

27. LANDLORD'S RIGHT TO CURE DEFAULTS. If Tenant fails to perform any obligation
under this Lease, Landlord shall have the option to do so after thirty (30)
days'prior written notice to Tenant. All of Landlord's expenditures to correct
the default shall be additional rent and shall be reimbursed by Tenant on demand
with interest at the rate of twelve percent (12%) per annum (but in no event to
exceed the maximum rate permitted by law) from the date of expenditure by
Landlord until payment by Tenant.

28. DEFAULT. The following shall be events of default:

a. DEFAULT IN RENT. Failure of Tenant to pay any basic rent or
additional rent required hereunder when due and such failure
continues for at least ten (10) days.

b. DEFAULT IN OTHER COVENANTS. Failuxe of Tenant to comply with any
term or condition, or fulfill any obligation of the Lease (other
than payment of basic rent or additional rent) within thirty (30)
days after receipt of written notice from Landlord specifying the
nature of the default with reasonable particularity. If the default
is of such a nature that it cannot be completely remedied within the
thirty (30) day period, this provision shall be complied with if
Tenant begins correction of the default within the thirty (30) day
period and thereafter proceeds with reasonable diligence and in good
faith to effect the remedy as soon as practicable.

c. INSOLVENCY. An assignment by Tenant for benefit of creditors; filing
by Tenant of a voluntary petition in bankruptcy; an adjudication
that Tenant is bankrupt, or appointment of a receiver of the
properties of Tenant; the filing of any involuntary petition of
bankruptcy and failure of Tenant to secure a dismissal of the
petition within sixty (60) days after filing; attachment of or the
levying of execution on the leasehold interest and failure of Tenant
to secure discharge of the attachment or release of the levy of
execution within ten (10) days.

d. ABANDONMENT. The abandonment of the Premises by Tenant.

29. REMEDIES OF LANDLORD FOR BREACH BY TENANT. Upon the occurrence of an event
of default, Landlord at its option and in addition to any other rights and
remedies it may have may pursue any one or more of the following courses of
action:

a TERMINATION. The Lease may be terminated at the option of Landlord
by notice in writing to Tenant. If the Lease is not terminated by
election of Landlord or otherwise, Landlord shall be entitled to
recover damages from Tenant for the default. If the

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Lease is terminated, Tenant's liability to Landlord for damages
shall survive such termination, and Landlord may reenter, take
possession of the Premises and remove any persons or property by
legal action or by self-help with the use of reasonable force and
without liability for damages.

b. RELETTING. Following re-entry or abandonment, Landlord may relet the
Premises, and in that connection, may make any suitable alterations
or refurbish the Premises, or both, or change the character or use
of the Premises, but Landlord shall not be required to relet for any
use or purpose other than that specified in the Lease, or which
Landlord may reasonably consider injurious to Premises, or to any
tenant which Landlord may reasonably consider objectionable.
Landlord may relet all or part of the Premises, alone or in
conjunction with other properties, for a term longer or shorter than
the term of this Lease, upon any reasonable terms and conditions,
including the granting of some rent-free occupancy or other rent
concession.

c. DAMAGES. In the event of termination on default, Landlord shall be
entitled to recover immediately without waiting until the due date
of any future rent or the date fixed for expiration of the Lease
term, the following amounts as damages:

(1) All unpaid rent (together with interest at the rate of twelve
percent (12%) per annum (but in no event to exceed the maximum
rate permitted by law) from the date due until the date paid)
accruing from the date due until the earlier of the date of
trial or award or until the date a new tenant has been, or
with the exercise of reasonable efforts could have been,
secured.

(2) The reasonable costs of re-entry and reletting, including
without limitation the cost of any clean-up, refurbishing,
removal of Tenant's property and fixtures, or any other
expense occasioned by Tenant's failure to quit the Premises
upon termination and to leave them in the required condition,
any remodeling costs, reasonable attorney fees, court costs,
broker commissions, and advertising costs.

(3) Any excess of the value of rent and all of Tenant's other
obligations under this Lease over the reasonable expected
return from the Premises for the period commencing on the
earlier of the date of trial or the date the Premises are
relet and continuing through the end of the term. The present
value of future amounts will be computed using a discount rate
equal to the prime loan rate of major Oregon banks in effect
on the date of trial.

d. RIGHT TO SUE MORE THAN ONCE. Landlord may sue periodically to
recover damages during the period corresponding to the remainder of
the Lease term, and no action for damages shall bar a later action
for damages subsequently accruing.

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e. REMEDIES CUMULATIVE. The foregoing remedies shall be in addition to,
and shall not exclude, any other remedy available to Landlord under
applicable law.

30. LANDLORD'S LIABILITY. The term "Landlord" as used herein shall mean only the
owner or owners at the time in question of the fee title of the land on which
the Premises are situated. In the event of any transfer of such title, Landlord
herein named (and, in case of any subsequent transfers, the then grantor) shall
be relieved from and after the date of such transfer of all liability with
respect to Landlord's obligations thereafter to be performed, provided that any
security deposit in the hands of Landlord or the then grantor at the time of
such transfer in which Tenant has an interest shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Landlord shall be
binding on Landlord's successors and assigns only during their respective
periods of ownership.

31. HAZARDOUS MATERIALS. For purposes of this Lease, Hazardous Material means
any material or substance which may pose a present or future threat to human
health or the environment, including Hazardous Waste as that term is used in the
Resources Conservation and Recovery Act (42 USC 6901 et seq.) and Hazardous
Substances as that term is used in the Comprehensive Environmental Response,
Compensation, and Liability Act (42 USC 9601 et seq.). Tenant warrants and
represents that the only Hazardous Material it intends to use, store, generate,
release, deposit, or emit in connection with its use of the Premises are those
listed on the attached Exhibit E.

Tenant shall not use, store, generate, release, deposit, or emit any
additional Hazardous Material in connection with its use of the Premises, nor
shall Tenant increase the volume or change the manner of use, storage,
generation, release, deposit, or emission of any Hazardous Material that has
previously been approved by Landlord, without prior written notification to
Landlord and Landlord's written approval of the change. Such notification shall
inform Landlord about the proposed change, its environmental significance, the
classification of any additional waste, and precautions to be taken by Tenant
with regard to the additional Hazardous Material or the increase or change in
use, storage, generation, release, or deposit. Landlord reserves the right, in
its sole discretion, to request additional information and to withhold its
approval.

Tenant shall comply with all laws governing the use, storage, generation,
release, deposit, or emission of Hazardous Material in connection with its use
of the Premises.

Tenant shall indemnify, defend (with counsel satisfactory to Landlord),
and hold harmless Landlord, its present and future officers, directors,
employees, contractors, and agents from and against any and all liabilities,
penalties, fines, forfeitures, demands, claims, costs, and expenses incidental
thereto, including the cost of defense, settlement, and reasonable attorneys'
fees, which any or all of them may hereafter suffer, incur, be responsible for,
or pay out as a result of bodily injuries (including death) to any person,
damage (including loss of use) to any property (public or private),
contamination or other adverse effects on the environment, or any violation or
alleged violation of any statute, ordinance, order, rule, or regulation of any
governmental entity or agency to the extent caused by, arising out of, or
connected with the presence of any Hazardous Material on the Premises, which
Hazardous Material is on the Premises as a result of the act or omission of

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Tenant, its officers, employees, agents, contractors, or invitees. Tenant's
obligations under this Section 31 shall survive any termination of the Lease.

32. EMERGENCY RESPONSE. Tenant shall be required to become familiar with
Landlord's emergency response procedures and notification process effective in
Building 02. A complete description of Tektronix' procedures and evacuation maps
shall be obtained by Tenant from Landlord. These procedures, contact persons,
and maps may be changed from time to time. In the event of an emergency within
Building 02, the following procedures should be followed by Tenant:

32.1 TYPES OF EMERGENCIES AND PROCEDURES TO BE FOLLOWED.

32.1.1 SPRINKLER FLOW ALARM. This alarm is caused by a flow in
the sprinkler system and triggers an alarm with Tektronix
Security. When the alarm is triggered, Tektronix Security
will immediately contact the Fire Department and the
Tektronix Emergency Response Team (the "ER Team"). If the
Tenant determines there is any danger to employees, Tenant
should instruct its employees to evacuate the building
immediately and proceed to a designated assembly point. A
management representative for Tenant should report to the
Building Command Post. If Tenant becomes aware that the
sprinkler flow alarm has been triggered because of a
broken sprinkler head or pipe, Tenant shall call 627-3333
immediately to report the problem.

32.1.2 FIRE CALL-IN. In the event of a fire, Tenant shall call
627-3333 immediately. Tektronix Security will immediately
contact the Fire Department and the ER Team. Tenant shall
follow the evacuation procedures described above.

32.1.3 BUILDING EVACUATION ALARM. Building 02 has an evacuation
alarm system that can be activated by pulling one of the
alarm stations which are located throughout the building.
Anyone activating the alarm should call 627-3333
immediately to report the problem. The evacuation alarm is
also triggered automatically by sprinkler water flow
detectors. The same procedures for evacuating the building
and reporting to the Command Post should be followed as
outlined for the sprinkler flow alarm. The ER Team will
determine the cause of the alarm, take appropriate
actions, and restore the alarm system.

32.1.4 MEDICAL EMERGENCY. In case of a medical emergency, Tenant
should call 911 immediately to report the problem.

32.2 TENANT RESI2ONSIBILITIES. As part of Building 02's emergency plan,
the following actions are expected of Tenant to help protect life,
environment, and property:

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32.2.1 EMERGENCY PLAN. Tenant shall prepare an emergency plan
covering the desired actions of its employees for all
types of emergencies. This plan shall be consistent with
Tektronix emergency plans for Building 02.

32.2.2 MANAGEMENT REPRESENTATIVES. Tenant shall designate
management representatives to report to the Building
Command Post in the event of an emergency. These
individuals shall be knowledgeable of Building 02
emergency procedures and shall have the authority to make
decisions regarding Tenant's operations, property, and
personnel,

32.2.3 BUILDING 02 COMMAND POST. Tenant shall know the location
of the Building 02 Command Post and shall have a
designated management representative report to the Command
Post in an emergency. This is the point of initial
response for the Fire Department, Tektronix ER Team, and
other emergency services.

32.2.4 TRAINING. Tenant shall provide appropriate emergency
procedure training for its employees, including:

a) Informing Tenant's employees, contractors, agents,
etc. of the actions required in all types of
emergencies;

b) Posting emergency numbers, designated assembly areas,
the Building 02 Command Post; and

c) Coordinating emergency system test with Tektronix
Security and Building 02 tenants.

32.3 TEKTRONIX EMERGENCY RESPONSE TEAM. Tektronix has formed the ER Team to
respond to emergencies on the Beaverton campus. The ER Team is currently
comprised of members who are trained for various types of emergencies, building
system operations, incident command, first-aid, and CPR. In an emergency, the ER
Team reports to the emergency Command Post, sets up communications, and takes
whichever actions are deemed appropriate under the circumstances, including
calling in back-up support. Although the ER Team's purpose is to assist in
emergencies, it is not required to respond in all instances or to provide all of
the services outlined above. These services will be provided to Tenant without
charge (except for repair or cleanup of damage resulting from Tenant's actions).
In the event the ER Team responds to an emergency, neither Tektronix nor its
employees will be liable under any circumstances for loss of or injury to
property, however occurring, through or in connection with ER Team activities.
Tektronix and its employees shall not be liable for injury to persons unless the
injury results from Tektronix' gross negligence or willful misconduct. Tenant
will defend, indemnify, and hold Tektronix and its employees harmless from any
and all such excluded claims by employees of Tenant. The ER Team or ER Team
services to Building 02 may also be terminated by Tektronix at any time and for
any reason.

-15-
<PAGE>
33. ATTORNEYS' FEES. In the event any suit, action, or proceeding is brought by
either party to establish, obtain, or enforce any right under this Lease, or for
recovery of any amount due hereunder, or for breach of any covenant, term, or
condition hereof, or for any matter in any way arising from the execution of
this Lease, the prevailing party in such suit, action, or proceeding, including
an appeal to an appellate court arising therefrom, shall be entitled to recover
reasonable attorneys' fees in addition to costs and disbursements.

34. NOTICES. All notices required or permitted by law or by this Lease to be
given to Tenant or to Landlord shall be given by depositing the same in
registered or certified U.S. mail, postage prepaid and addressed as follows:

For Landlord: The Secretary
Tektronix, Inc.
P.O. Box 1000, M/S 63-LAW
Wilsonville, Oregon 97070-1000

For Tenant: Benchmark Electronics, Inc.
802 West Brazos Park Drive
Clute, Texas 77531
Attention: President

or to such other place as either party at any time may designate by written
notice to the other party.

35. HOLDING OVER. In the event the Tenant holds over after the termination of
this Lease or any renewal thereof, thereafter, the tenancy shall be from
month-to-month on the terms and conditions of this Lease at one hundred
twenty-five percent (125%) of the then monthly rental rate, in the absence of a
written agreement to the contrary. Landlord may terminate any holdover tenancy
on ten (10) days'prior written notice. Tenant waives any notice which would
otherwise be provided by law with respect to a month-to-month tenancy. All
options and rights of first refusal, if any, shall be deemed terminated and be
of no force and effect during the month-tomonth tenancy.

36. BENEFITS CUMULATIVE. Each and every one of the rights, remedies, and
benefits provided by this Lease shall be cumulative and shall not be exclusive
of any other of said rights, remedies and benefits allowed by law.

37. WAIVERS. Waiver by either party of strict performance of any provision of
this Lease shall not be a waiver of or prejudice the party's right to require
strict performance of the same provision in the future.

38. LEGALLY BINDING. This lease shall be binding upon and inure to the benefit
of the parties and their respective heirs, representatives, successors, and
assigns.

39. CHOICE OF LAW. This Lease shall be governed by the laws of the State of
Oregon.

-16-
<PAGE>
40. SECTION HEADINGS. Section headings are inserted in this Lease for
convenience only and are not to be construed as restricting the meaning of the
Section to which they refer.

41. ENTIRE AGREEMENT. This Lease and the Exhibits attached hereto embody the
entire agreement of the parties with regard to the subject matter of this Lease.
This Agreement supersedes all prior communications, representations, or
agreements, verbal or written, between the parties to it and may not be amended
except in a writing signed by the party affected by the change.

42. REAL ESTATE COMMISSION. Landlord and Tenant each represent to the other that
no finder, broker, or agent has been involved in this transaction. Each party
agrees to defend, hold harmless, and indemnify the other party from and against
any and all claims, demands, and payments of any such fee or commission by
persons claiming by, through, or under such party.

IN WITNESS WHEREOF, the parties have caused this Lease to be executed by
their duly authorized officers as of the date first written above.

LANDLORD: TENANT:
TEKTRONIX, INC. BENCHMARK ELECTRONICS, INC.

By: /s/ JOHN P. KARALIS By: /s/ DONALD E. NIGBOR
John P. Karalis Donald E. Nigbor

Title: SENIOR VICE PRESIDENT Title: PRESIDENT

-17-
<PAGE>
EXHIBIT LIST

Exhibit A - Premises Description
Exhibit B - Parking Area
Exhibit C - None
Exhibit D - None
Exhibit E - Hazardous Material List

-18-
<PAGE>
EXHIBIT A

PREMISES DESCRIPTION

Map of Leased Premises

-19-
<PAGE>
EXHIBIT B

PARKING AREA

Map of Parking Area

-20-
<PAGE>
EXHIBIT E

HAZARDOUS MATERIAL LIST

Normal materials commonly used in electronics assembly
operations, Solder, Flux, Alcohol, Adhesives, Conformal Coating,
Lubricants and Cleaning Agents.

-21-

EXHIBIT 10.7

BENCHMARK ELECTRONICS, INC. 1992
INCENTIVE BONUS PLAN

SECTION 1. PURPOSE OF PLAN. The purpose of the Benchmark Electronics, Inc.
1992 Incentive Bonus Plan (this "Plan") is to establish a mechanism for
providing supplementary compensation as an incentive and reward to eligible
management employees who, through industry, ability, attitude and exceptional
service, contribute materially to the success of Benchmark Electronics, Inc.
(the "Company").

SECTION 2. CERTAIN DEFINITIONS. For the purposes of this Plan, the
following terms shall have the indicated meanings:

(a) EMPLOYEE: any employee of the Company or any of its subsidiaries in
active service at the close of the Plan Year who has been designated by the
Committee as eligible to receive awards under this Plan.

(b) NET INCOME: the net income, if any, of the Company and its
subsidiary(ies), if any, for a Plan Year as shown in the audited statement of
operations covering such Plan Year prepared by the independent public
accountants for the Company and such
subsidiary(ies).

(d) PLAN YEAR: the period commencing January 1 and ending December 31.

(e) SALES: the sales of the Company and its subsidiary(ies), if any, for a
Plan Year as shown in the audited statement of operations covering such Plan
Year prepared by the independent public accountants for the Company and such
subsidiary(ies).

SECTION 3. ADMINISTRATION OF PLAN.

(a) COMMITTEE. This Plan shall be administered by the Compensation
Committee (the "Committee") designated by the Board of Directors of the Company,
which also shall designate the chairman of the Committee. No member of the
Committee shall be entitled to act or decide any matter relating to himself or
any of his rights or benefits under this Plan.

(b) COMMITTEE POWERS. The Committee shall be deemed to have and to be
exercising all of the powers of the Board of Directors in the performance of any
of the powers and duties delegated to it under this Plan, including, without
limitation, the selection of Participants and the determination of the amount of
award to be awarded each Participant under this Plan.

-1-
<PAGE>
(c) COMMITTEE ACTION. The Committee shall establish its own procedures and
the time and place of its meetings and provide for the keeping of minutes of all
meetings. A majority of the members of the Committee shall constitute a quorum
for the transaction of business at a meeting of the Committee. Any action of the
Committee may be taken upon the affirmative vote of a majority of the members of
the Committee at a meeting or, at the direction of its Chairman, without a
meeting, by mail, telegraph or telephone, provided that all of the members of
the Committee are informed by mail or telegraph of their right to vote on the
proposal and of the outcome of the vote thereon.

(d) COMMITTEE DETERMINATIONS CONCLUSIVE. The Committee shall have full
power and authority to construe, interpret and administer this Plan. All
decisions, actions or interpretations of the Committee, including determinations
as to which Employees shall receive awards and as to the amount of such awards,
shall be final, binding and conclusive upon all persons.

(e) LIABILITY OF COMMITTEE MEMBERS. No member of the Committee shall be
personally liable by reason of any contract or other instrument executed by him
or on his behalf in his capacity as a member of the Committee nor for any
mistake of judgment made in good faith.

SECTION 4. DURATION OF PLAN. The effective date of this Plan is May 6,
1992. This Plan shall continue from year to year at the discretion of the
Company, but no awards need be made in any Plan Year and awards shall be made
under this Plan only at the direction of, and solely in the discretion of, the
Committee.

SECTION 5. DETERMINATION, ALLOCATION AND PAYMENT OF BONUS.

(a) TOTAL AMOUNT OF BONUS AWARDS. The total amount of bonus awards to be
made under this Plan for any Plan Year shall be determined by the Committee
based on Sales and Net Income
for the Plan Year.

(b) GUIDELINES. For any Plan Year, Sales and Net Income must meet or
exceed, or in combination with other factors satisfy, levels targeted by the
Company in its business plan, as established at the beginning of each fiscal
year, for any bonus awards to be made under this Plan. Aggregate bonus awards
for any Plan Year to all Participants under this Plan may not exceed seven
percent (7%) of the Company's Net Income for such Plan Year.

(c) DETERMINATION OF BONUS. The Committee shall determine, in its sole
discretion, the total amount of bonus awards, if any, to be made to the persons
specified herein for any Plan Year based on the Committee's evaluation of the
Company's financial condition and results of operations, the Company's business
and prospects, and such other criteria as it shall determine to be relevant or
appropriate.

(d) ALLOCATION OF BONUSES AMONG KEY EMPLOYEES. The Committee shall
determine, in its sole discretion, the specific amounts of bonus awards to be
made to particular key Employees based on the Committee's evaluation of each
such Employee's position, performance, industry,

-2-
<PAGE>
service, current compensation and benefits, and such other criteria as it shall
determine to be relevant or appropriate. In addition, an Employee may receive a
bonus award hereunder if, in the judgment of the Committee, such Employee has
made an outstanding contribution to the Company, over and above the performance
required and expected in the normal course of business.

(e) PAYMENT OF BONUS. Bonus awards shall be paid by the Company when and
as deemed appropriate by the Committee. All payments to be made hereunder shall
be paid in cash from the general funds of the Company, and no special or
separate fund shall be established and no segregation of assets shall be made to
assure payments of such amounts.

SECTION 6. WITHHOLDING OF TAXES. The Company shall deduct from the amount
of all bonus awards paid under this Plan any taxes required to be withheld by
the federal or any state or local government. Allocated bonus awards may be used
by the Company to offset any amounts owed to the Company.

SECTION 7. LIMITATION OF RIGHTS. Nothing contained in this Plan shall give
any Employee the right to be retained in the employment of the Company or affect
the right of the Company to dismiss any Employee. The adoption of this Plan
shall not constitute a contract between the Company and any Employee. No
Employee shall receive any right to be granted an award hereunder, nor shall any
such award be considered as compensation under any employee benefit plan of the
Company except as otherwise determined. No Employee shall have any right, title
or interest whatsoever in or to any investments which the Company may make to
aid it in meeting its obliga tions hereunder. Nothing contained in this Plan,
and no action taken pursuant to its provisions, shall create or be construed to
create a trust of any kind, or a fiduciary relationship between the Company and
any Employee or any other person. No Participant shall have any right greater
than the right of an unsecured general creditor of the Company.

SECTION 8. NONALIENATION OF AWARDS. No bonus award under this Plan shall
be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or
charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber
or charge the same will be void and of no effect.

SECTION 9. AMENDMENT OR TERMINATION. The Board of Directors reserves the
right at any time to amend, suspend or terminate this Plan, in whole or in part,
for any reason and without the consent of any Employee or Participant; provided,
however, that no such amendment shall adversely affect the rights of
Participants with respect to amounts awarded prior to such amendment.

SECTION 10. GOVERNING LAW. This Plan shall be construed, administered and
governed in all respects under the laws of the State of Texas.

-3-
<PAGE>
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing by the Board of Directors of the Company, the Company has caused this
Plan to be duly executed in its name and on its behalf by its proper officers
thereunto duly authorized as of May 6, 1992.

BENCHMARK ELECTRONICS, INC.

By: /s/ DONALD E. NIGBOR
Donald E. Nigbor,
President

ATTEST:

/s/ CARY T. FU
Cary T. Fu,
Executive Vice President

-4-

EXHIBIT 10.14

GUARANTEE

THIS INDENTURE made the 10th day of September, 1998 between the within
named KILMORE DEVELOPMENTS LIMITED (hereinafter called the "Lessor" which
expression shall include its successors and assigns) of the one part, and
BENCHMARK ELECTRONICS INC. of 3000 Technology Drive, Angleton, Texas, 77515,
United States of America of the other part.

W I T N E S S E T H THAT:

In consideration of the within named Lessor having agreed at our request
to accept the within named Lessee as Lessee upon the terms of the within written
Indenture, we guarantee the payment by the within named Lessee to the within
named Lessor of the rent (including any increases thereof payable under the
within Indenture and all other monies whatsoever payable by the within named
Lessee to the within named Lessor under the within Indenture and the performance
and observance by the within named Lessee of the covenants and conditions
stipulations and agreements on its part contained in the within Indenture upon
the following terms:

I. If the within named Lessee shall make any default in payment of the
rent payable under the within Indenture (including any increases
thereof) or of any part thereof or any other monies whatsoever
payable by the within named Lessee under the within Indenture for
the space of one month, we shall, upon a written request by the
within named Lessor, pay forthwith such sum or sums;

II. If the within named Lessee shall make any default in the observance
or performance of any of the covenants, conditions, agreements or
stipulations on its part contained in the within Indenture, we will
pay to the within named Lessor all losses, damages, expenses,
charges and costs which the within named Lessor shall be entitled to
recover by reason of such default to the extent to which the within
named Lessor shall be unable to recover them from the within named
Lessee, together with all costs, expenses and charges incurred by
the Lessor in any way in connection with this Guarantee or the
enforcement or discharge of our obligations hereunder, including
such costs, expenses and any charges incurred by the Lessor in the
enforcement of any judgment either in this or any other
jurisdiction.

III. This Guarantee shall continue for as long as the term created by the
within Indenture is vested in the within named Lessee and shall
extend to the acts and defaults of the within named Lessee during
the said term and during the said term shall not be revocable or
discharged by the liquidation of us or by the liquidation of the
within named Lessee.

-1-
<PAGE>
PROVIDED ALWAYS and it is hereby agreed and declared that any neglect or
forbearance on the part of the within named Lessor in endeavoring to obtain
payment of the said rent and any increases thereof or other monies when the same
shall become due and payable by the within named Lessee to the within named
Lessor under the within Indenture, or to enforce the performance and observance
of the said covenants and conditions, stipulations and agreements to be observed
and performed by the within named Lessee in respect thereof or any license,
consent or permission which may be granted by the within named Lessor to the
within named Lessee, or any compromise or arrangement made by the within named
Lessor with the within named Lessee shall not release or exonerate or in any way
affect the liability of us to the within named Lessor or prejudice the rights or
remedies of the within named Lessor under this Guarantee.

IV. If the within named Lessee being a Company shall go into
liquidation, whether voluntary or compulsory (except for the purpose
of amalgamation or reconstruction), or being an individual shall
become bankrupt and the Liquidator or Official Assignee or Trustee
in Bankruptcy shall disclaim the within Indenture and the within
named Lessor shall serve notice in writing on us pursuant to this
clause within three (3) months from the date of such disclaimer, we
shall, at our expense, forthwith accept from the within named Lessor
a Lease (hereinafter called the "New Lease") of the demised premises
and execute a counterpart thereof for a term commencing on the date
of such disclaimer and continuing during the residue of the term
created by the within Indenture, such new Lease to contain the like
Lessee's and Lessor's covenants respectively and the like provisos
and conditions in all respects (including the proviso for re-entry)
as are contained in the within Indenture, but such new Lease shall
be without prejudice to all liability of us under this Guarantee up
to the date of such disclaimer.

APPLICABLE LAW

This Guarantee and all relationships created thereby shall in all respects be
governed by and construed and interpreted in accordance with the Laws of
Ireland.

JURISDICTION

The Courts of Ireland shall have jurisdiction over any action to enforce the
Lessor's rights under this Guarantee and in respect of all disputes arising
under this Guarantee, and for that purpose Benchmark Electronics Inc. hereby
submits to the jurisdiction of the Courts of Ireland and agrees that all
summonses, notices or processes required to be served upon it for the purposes
of such action or any other legal proceedings shall be deemed to be properly
served if addressed and delivered to them care of Arthur Cox Solicitors, Arthur
Cox Building, Earisfort Terrace, Dublin 2, who Benchmark Electronics Inc.
irrevocably appoints as agents for acceptance of service of all such documents.

-2-
<PAGE>
WAIVER

We hereby waive any right to require the Lessor to proceed against the Lessee or
to pursue any other remedy whatsoever which may be available to the Lessor
before proceeding against us.

NOTICES

Any Demand or Notice required to be made, given to or served on us under this
Guarantee is duly and validly made, given or served if addressed to us and
delivered personally or sent by prepaid Registered or Recorded Delivery post or
sent by telegraphic facsimile transmission addressed to our registered office or
to our last known address or place of business in Ireland or to Arthur Cox
Solicitors, Arthur Cox Building, Earlsfort Terrace, Dublin 2, whom we
irrevocably appoint as our agent for acceptance of service of any such Demand or
Notice.

PRESENT when the Common Seal of
BENCHMARK ELECTRONICS INC.
WAS AFFIXED HERETO:

/s/ DONALD E. NIGBOR

/s/ CARY FU

-3-

EXHIBIT 13

New Business Horizons
Benchmark Electronics
1998 Annual Report

Financial Highlights
Benchmark Electronics, Inc. and Subsidiaries
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
(In thousands, except per-share data) 1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales ..................................... $524,065 325,229 201,296 97,353 98,168
Income from operations .................... $ 30,720 25,112 15,391 9,250 8,778
Net income ................................ $ 16,372 15,090 8,864 6,148 5,769
Earnings per common share (diluted) ....... $ 1.35 1.26 0.96 0.75 0.71
Working capital ........................... $ 86,265 87,879 72,586 37,285 30,890
Total assets .............................. $241,896 190,322 168,174 57,037 48,333
Long-term debt ............................ $ 46,111 30,330 30,485 -- --
Shareholders' equity ...................... $138,001 120,872 104,999 46,624 40,131
Weighted average common and
equivalent shares outstanding (diluted) 12,098 12,004 9,218 8,213 8,176
</TABLE>
The Company at a Glance

Benchmark Electronics, Inc. provides contract manufacturing and design
services to original equipment manufacturers (OEMs) in the electronics industry,
including manufacturers of medical devices, communications equipment, industrial
and business computers, and testing and industrial instruments. The company
specializes in assembling high quality, technologically complex printed circuit
boards with computer-automated equipment using surface mount and pin-thru-hole
interconnection technology for customers requiring low-to-medium volume
assembly. The company frequently works with customers from product design stages
through ongoing production and provides manufacturing services for successive
product generations.

About the Cover

With a solid U.S. presence, Benchmark expanded its manufacturing
capabilities to Dublin, Ireland.

Table of Contents

The Company at a Glance .................................. 1

Financial Highlights ..................................... 1

President's Letter ....................................... 2

New Business Horizons .................................... 6

Management's Discussion and Analysis ..................... 9

Consolidated Financial Statements......................... 15

Notes to Consolidated Financial Statements ............... 19

Independent Auditors' Report ............................. 29

Management's Report ...................................... 29

Quarterly Financial Data ................................. 30

Market for the Registrant's Common Equity
and Related Shareholder Matters ........................ 30

Selected Financial Data .................................. 31

Corporate and Shareholder Data ........................... 32

President's letter
Dear Shareholder

It is once again my pleasure to report record-breaking financial results for
Benchmark Electronics, Inc.

Charts of Sales, Income, Diluted EPS with cutline "Benchmark achieved
record-breaking financial results for calendar year 1998."
<PAGE>
Our continued growth, coupled with the acquisition of Lockheed Commercial
Electronics Company, generated record sales during 1998: $524,065,077. That's 61
percent greater than our 1997 sales.

This remarkable revenue growth is even more impressive when measured against
the electronic contract manufacturing industry's average. Once again, our sales
grew at more than twice the rate of our average competitor's, according to data
compiled by the Institute for Interconnecting and Packaging Electronic Circuits
(IPC). Compounded since 1994, in fact, our growth rate far surpasses that of our
industry as a whole.

Shareholders will be pleased to learn that Benchmark's net income also
reached a record high of $16,372,470; that represents diluted earnings per share
(EPS) of $1.35.

The company's outstanding level of performance is reflected in our year-end
record high backlog of business on the firm's order books, which reached
$317,000,000 as of December 31, 1998.

Chart of Compound Average Growth Rate Comparison with cutline "Benchmark's
compound sales revenue growth more than doubled that of the IPC average for
1994-1998."

Benchmark's newly-acquired division, the former Lockheed Commercial
Electronics Company, reflected the same sort of dramatic improvements in sales
and profits which marked the company as a whole. This new operation has been
renamed Benchmark Electronics, Inc.--Hudson Division. Details on this new
operation are given in the body of this Annual Report, below, but you should
know that the new Hudson Division made a significant contribution to our
company's record financial results in 1998.

The formation of a company-wide enterprise resource planning (ERP)
organization, mentioned in my Shareholder's Letter of 1998, is well under way.
The evaluation and selection team chose a well-regarded ERP operation software
package, and its implementation has begun, with installation and training in
progress. Company-wide use is planned for the end of this current business year.

The ERP system affords us the capability of streamlining many of the
departmental functions of our company, such as purchasing and inventory
management. That makes us more competitive in the immediate future; and in the
long term, it provides the powerful and flexible Management Information Systems
(MIS) capabilities we need to effect the global site expansions we plan.

In a related move, we made significant progress toward planned compliance
with Year 2000 (Y2K) requirements, working not only with our own internal
departments and divisions but with customers and suppliers to put in place a
master plan. Because so many of our customers look to us to provide them with
"just in time" inventory supply, we are committed to full Y2K
compliance--internally, and with those customers and our own suppliers.

Finally, I can declare that our ongoing search for significant growth
opportunities continues. Last year, we began discussions with Ascend
Communications, Inc., regarding the acquisition of certain assets of their
System Integration Facility in Dublin, Ireland. We formally announced this
strategic move in January of 1999. The new operation, and its vital importance
to our company's long-term goals, is discussed in more detail later in this
report. In summary, though, this European facility and the business it brings
with it can be expected to provide the foundation for our expansion into "New
Business Horizons" in the European continent.

Let me close this letter, then, on behalf of the entire Benchmark management
group and our domestic employees, by extending a warm welcome to our new team in
Ireland.

Sincerely,
Donald E. Nigbor
President and Chief Executive Officer
March 17, 1999

Photo of Don Nigbor with cutline "Donald E. Nigbor President and CEO"

New Business Horizons

During 1998, Benchmark pursued its strategic plan for development. We
focused on broadening our customer service capabilities, building upon the prior
acquisitions of EMD Technologies, Inc., in the Midwest, and more recently,
Lockheed Commercial Electronics Company, in New England.

By the end of the year, we had successfully integrated the newly-acquired
Lockheed facility, now operating as Benchmark's Hudson Division. We were
fortunate to retain the excellent management group, staff, and well-trained
employee base at this operation, which provide us the resources we need for
future regional growth.

One of our most significant achievements in the development of customer
service capabilities this past year was the establishment of product
introduction centers at each of our facilities. These centers specialize in
pre-manufacturing services, such as printed circuit board (PCB) layout, together
with component engineering review, product design (including design for
manufacturability), design for testing, and test development. Concentration on
these areas increases our manufacturing capabilities, allowing us to better
serve our customers while cutting our costs.

<PAGE>
Photo of Dublin facility with cutline "The Dublin facility is an ideal
platform from which to launch our European expansion."

It was that same focus on broadening customer service capability which led
us to establish a Dublin, Ireland, greenfield operation as a cornerstone toward
projected global expansion.

Our long-standing European customer, Stratus Computers, Inc., was acquired
by Ascend Communications, Inc., a top-tier firm in the high growth segment of
the telecommunications industry, last summer. We opened negotiations with
Ascend, and in early 1999 were able to announce the acquisition of certain
assets of the Stratus manufacturing facility in Dublin.

Chart of Market Segments with cutline "Benchmark's 1998 sales by market
segment." Under Stratus, the plant operated as a systems integration facility
for large and very sophisticated fault-tolerant mainframe computers. We will
continue to operate this new Benchmark division, with the bulk of its present
staff and with additional personnel transferred there, under a multi-year
exclusive service contract with Stratus, as a key supplier to Ascend.

This transaction supports the planned expansion of our manufacturing
capabilities, and enhances long-term customer relations. It represents our
company's growth philosophy, focused on key opportunities congruent with
Benchmark's strategic plans. Benchmark requires that any acquisition provide a
combination of experienced management teams, customer growth opportunities, and
geographic presence in high technology regions. Many opportunities do not meet
these criteria; each of our acquired divisions does and will.

While experiencing rapid expansion over the past five years, Benchmark
maintained a conservative approach to growth, building on our solid management
infrastructure to support our developing organization. Benchmark enhances the
local capabilities of each of our divisions with information sharing via our
wide area network, and our intranet is another vital part of interplant
communications. These tools are used to maximize our local engineering and
materials expertise and leverage our extensive knowledge base.

A key element of our expansion strategy is to provide each of our customers
with the comprehensive local services they require. For our global customers, as
well as our regional and local ones, we can furnish every element from design
engineering through order fulfillment.

Map: Global Expansion with cutline "Our growth strategy of selective
acquisitions expands our capabilities and meet the needs of our target markets."

Now, with a solid U.S. presence and a cornerstone facility in Ireland, our
focus will be on expanding our future operations throughout Europe and into
Asia. In so doing, we will continue our successful strategy of selective
acquisitions of OEM assets which provide opportunities to expand our customer
service capabilities, to meet the future needs of our target markets.

Management's Discussion and Analysis of Financial Condition and Results of
Operations

The following Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the "Selected Financial
Data" and the Consolidated Financial Statements of the Company and the notes
thereto appearing elsewhere herein. This Annual Report contains certain
forward-looking statements regarding future financial condition and results of
operations and the Company's business operations. The words "expect,"
"estimate," "anticipate," "predict," and similar expressions are intended to
identify forward-looking statements. Such statements involve risks,
uncertainties and assumptions. The important factors that could cause actual
results to differ materially from the forward looking statements include,
without limitation, the integration of the operations of Lockheed Commercial
Electronics Company and the assets in Ireland purchased from Stratus Computers;
changes in customer concentration; the absence of long term sales contracts;
dependence on the growth of the medical device, communications equipment,
industrial and business computer, testing instrumentation and industrial
controls industries; availability of customer specified components; dependence
on certain key executives; and competition from other providers of contract
manufacturing services. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual outcomes
may very materially from those indicated.

Acquisition

On February 23, 1998, the Company acquired Lockheed Commercial Electronics
Company (LCEC) for $70 million in cash and the Company paid $0.7 million in
acquisition costs. LCEC, situated in Hudson, New Hampshire, is one of New
England's largest electronics manufacturing services companies, providing a
broad range of services including printed circuit board assembly and test,
system assembly and test, prototyping, depot repair, materials procurement, and
engineering support services. The transaction was accounted for under the
purchase method of accounting, and, accordingly, the results of operations of
LCEC since February 23, 1998 have been included in the accompanying consolidated
statements of income. The acquisition resulted in goodwill of approximately
$29.5 million, which is being amortized on a straight line basis over 15 years.
The effects of this acquisition should be considered when comparing the
Company's financial performance during 1998 and 1997. See Note 2 of Notes to
Consolidated Financial Statements.

In connection with the acquisition of LCEC, the Company obtained $40
million through borrowings under a five-year term

<PAGE>
loan (the Term Loan) with a commercial bank. See Note 5 of Notes to Consolidated
Financial Statements and "Liquidity and Capital Resources."

Results of Operations

The following table presents the percentage relationship that certain items in
the Company's Consolidated Statements of Income bear to sales for the periods
indicated.

Percentage of Sales
Year ended December 31,

1998 1997 1996
------ ------ ------
Sales ......................................... 100.0% 100.0% 100.0%
Cost of sales ................................. 90.1 87.8 88.4
------ ------ ------
Gross profit ............................. 9.9 12.2 11.6
Selling, general and administrative expenses .. 3.4 3.9 3.6
Amortization of goodwill ...................... .6 .5 .3
------ ------ ------
Income from operations ................... 5.9 7.8 7.7
------ ------ ------
Other income (expense) ........................ (.7) (.5) (.5)
------ ------ ------
Income before income taxes ............... 5.2 7.4 7.2
Income tax expense ............................ 2.0 2.7 2.8
------ ------ ------
Net Income ............................... 3.2% 4.6% 4.4%
------ ------ ------

Year Ended December 31, 1998 Compared With Year Ended December 31, 1997
Sales in 1998 increased $198.8 million, or 61.1% over 1997 sales. The net
increase in sales resulted primarily from increased sales volume from the
acquisition of LCEC on February 23, 1998, existing customers, and the addition
of new customers, which was offset by reduced sales to a major customer during a
period of organizational change.

A substantial percentage of the Company's sales have been to a small
number of customers, and the loss of a major customer, if not replaced, would
adversely affect the Company. During 1998, the Company's three largest customers
accounted for approximately 53% of the Company's sales, and the Company's
largest customer accounted for approximately 28% of sales. The Company's future
sales are dependent on the success of its customers, some of which operate in
businesses associated with rapid technological change and consequent product
obsolescence. Developments adverse to the Company's major customers or their
products, or the failure of a major customer to pay for components or services,
could have an adverse effect on the Company.

The Company had a record year-end backlog of $317 million at December
31, 1998, as compared to the 1997 year-end backlog of $302 million. Although the
Company expects to fill substantially all of this backlog in 1999, at December
31, 1998, the Company had no long-term agreements with its customers and
customer orders can be canceled, changed or delayed by customers. The timely
replacement of canceled, changed or delayed orders with orders from new
customers cannot be assured, nor can there be any assurance that any of the
Company's current customers will continue to utilize the Company's services.

Gross profit increased $12.1 million, or 30.6% over 1997. Gross profit
as a percentage of sales decreased from 12.2% for 1997 to 9.9% for 1998. The
increase in gross profit was due primarily to higher sales volumes and normal
changes in product mix and customer mix. The Company's gross profit reflects a
number of factors, including product mix, the level of start up costs and
efficiencies associated with new programs, capacity utilization of surface mount
and other equipment, and pricing within the electronics industry. All of these
factors are continually changing and are interrelated, making it impracticable
to determine separately the effect of each factor. The decrease in gross profit
as a percentage of sales during 1998 was due primarily to a less profitable
customer mix, and a reduced capacity utilization, at the LCEC facility.

Selling, general and administrative expenses increased $4.9 million, or
37.9%, from 1997 to $17.7 million in 1998. In order to satisfy the increased
level of business activity and to continue the development and improvement of
the systems and processes necessary to accommodate future growth, the Company
has continued to add personnel. The increase in selling, general and
administrative expenses reflects these additional personnel and related
departmental expense, as well as the additional administrative expenses
resulting from the inclusion of LCEC for ten months of 1998. The Company
anticipates selling, general and administrative expenses will continue to
increase in nominal terms as the Company continues to build the internal
management and support systems necessary to support higher revenue levels.

The amortization of goodwill for the years ended December 31, 1998 and
1997 was $3.3 million and $1.7 million, respectively. Interest expense incurred
by the Company on the debt incurred in connection with the acquisitions of LCEC
in 1998 and EMD Technologies, Inc. (EMD) in 1996 was approximately $4.4 million
and $2.5 million, respectively, in 1998 and 1997. The
<PAGE>
increased amortization and interest expense in 1998 resulted from the additional
goodwill and debt incurred in connection with the acquisition of LCEC during
1998.

Interest income was approximately $0.5 million in 1998 compared to $1.2
million in 1997. The decrease was due to the use of a portion of the Company's
cash and interest bearing marketable securities to fund the acquisition of LCEC.

Income tax expense of $10.5 million represented an effective tax rate of
39.1% for the year ended December 31, 1998, compared with an effective tax rate
of 37% for the year ended December 31, 1997. The increase is due primarily to
the increase in nondeductible amortization of goodwill.

The Company reported net income of approximately $16.4 million, or
diluted earnings of $1.35 per share, for 1998 compared with net income of
approximately $15.1 million, or diluted earnings of $1.26 per share for 1997.
The approximately $1.3 million increase in net income during 1998 was a result
of the combined effects of the acquisition of LCEC and the overall increase in
revenues resulting from the factors discussed above.

Year Ended December 31, 1997 Compared With Year Ended December 31, 1996
Sales in 1997 increased $123.9 million, or 61.6% over 1996 sales. The increase
in sales resulted primarily from increased sales volume from existing customers,
the addition of new customers and the acquisition of EMD on July 30, 1996.

The Company had a then record year-end backlog of $302 million at
December 31, 1997, as compared to the 1996 year-end backlog of $230 million.

Gross profit increased $16.3 million, or 69.8% over 1996. Gross profit
as a percentage of sales increased from 11.6% for 1996 to 12.2% for 1997. The
increase in gross profit was due primarily to higher sales volumes and normal
changes in product mix and customer mix. The Company's gross profit reflects a
number of factors, including product mix, the level of start up costs and
efficiencies associated with new programs, capacity utilization of surface mount
and other equipment, and pricing within the electronics industry. All of these
factors are continually changing and are interrelated, making it impracticable
to determine separately the effect of each factor. The increase in gross profit
as a percentage of sales during 1997 was due primarily to the product mix and
the initiation of new programs during 1996.

Selling, general and administrative expenses increased $5.6 million, or
77.3%, from 1996 to $12.8 million. In order to satisfy the increased level of
business activity and to continue the development and improvement of the systems
and processes necessary to accommodate future growth, the Company has continued
to add personnel. The increase in selling, general and administrative expenses
reflects these additional personnel and related departmental expense, as well as
the additional administrative expenses resulting from the inclusion of EMD in
the full year of 1997.

The amortization of goodwill associated with the acquisition of EMD for
the year ended December 31, 1997 and 1996 was $1.7 million and $0.7 million,
respectively. Interest expense incurred by the Company on the debt incurred in
connection with the acquisition of EMD was approximately $2.5 million and $1.4
million, respectively, in 1997 and 1996. The increased amortization and interest
expense in 1997 reflected the effect of including EMD's operations for a full
year.

Interest income was approximately $1.2 million in 1997 compared to $0.4
million in 1996. The increase was due to the investment by the Company of
available cash in interest bearing marketable securities and cash equivalents.

Income tax expense of $8.9 million represented an effective tax rate of
37% for the year ended December 31, 1997, compared with an effective tax rate of
38.8% for the year ended December 31, 1996. The decrease was due to the benefit
from the use of a foreign sales corporation and non-taxable interest earned on
municipal investments partially offset by nondeductible amortization of
goodwill.

The Company reported net income of approximately $15.1 million, or
diluted earnings of $1.26 per share, for 1997 compared with net income of
approximately $8.9 million, or diluted earnings of $0.96 per share for 1996. The
approximately $6.2 million increase in net income during 1997 was a result of
the combined effects of the acquisition of EMD and the overall increase in
income from operations resulting from the factors discussed above.

Liquidity and Capital Resources

The Company has financed its growth and operations through funds generated from
operations, proceeds from the sale of its common stock and funds borrowed under
its credit facilities.

Cash provided by operating activities was $56.9 million, $19.3 million
and $12.3 million in 1998, 1997 and 1996, respectively. In 1998, substantial
decreases in inventory and accounts receivable, net of effects from the
acquisition of LCEC, and increases in net income, depreciation and amortization
were partially offset by increases in accounts payable. The Company's
inventories have decreased from $61.1 million at December 31, 1997 to $53.7
million at December 31, 1998, reflecting improved

<PAGE>
customer forecasting and the Company's emphasis on supply chain management. In
1997, substantial increases in inventory were partially offset by net income,
depreciation and amortization, and increases in accounts payable. The Company's
inventories increased from $48.1 million at December 31, 1996 to $61.1 million
at December 31, 1997, reflecting the Company's increased sales and backlog
during this period. In 1996, substantial increases in accounts receivable were
offset by net income, depreciation and amortization, and increases in accounts
payable and accrued liabilities and decreases in inventory, net of effects from
the acquisition of EMD. The Company's accounts receivable and inventories
increased from $20.2 million and $23.0 million, respectively, at December 31
1995 to $39.2 million and $48.1 million, respectively at December 31, 1996,
reflecting the Company's increased sales during this period. The Company expects
increases in inventories to support the anticipated growth in sales. The Company
continued and is continuing the practice of purchasing components only after
customer orders are received, which mitigates, but does not eliminate, the risk
of loss on inventories. 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 the Company. The Company has not
experienced significant supply constraints in the past year nor does it expect
to in the near future.

Cash used in investing activities was $78.7 million, $12.4 million and
$49.0 million, respectively, for the years ended December 31, 1998, 1997 and
1996. On February 23, 1998, the Company completed its acquisition of LCEC for
approximately $70.7 million in cash. See Note 2 of Notes to Consolidated
Financial Statements. Capital expenditures of $12.2 million during 1998
consisted primarily of test and manufacturing production equipment and computer
equipment to support the Company's implementation of the new ERP system. During
1998, the Company invested $7.4 million on the new ERP software system. Capital
expenditures of $10.4 million during 1997 were primarily concentrated in surface
mount assembly, test and manufacturing production equipment. The Company
completed the planned expansion of its production capacity at the Angleton plant
during 1996, after which the Company had 12 surface mount assembly lines in
operation at the Angleton plant. Capital expenditures of $8.7 million during
1996 were primarily concentrated in the expansion of the Angleton facility and
surface mount assembly equipment associated with this expansion. On July 30,
1996, the Company completed its acquisition of EMD for approximately $30.8
million in cash. See Note 2 of Notes to Consolidated Financial Statements. The
Company used $11.4 million of proceeds from the sale of interest bearing
marketable securities during 1998, for the purpose of paying a portion of the
purchase price of LCEC. During 1997 and 1996, the Company invested $2.3 million
and $9.5 million, respectively of available cash in interest bearing marketable
securities.

Cash provided by financing activities was $23.9 million, $0.4 million
and $47.7 million, respectively, for the years ended December 31, 1998, 1997 and
1996. During 1998, cash provided by financing activities consisted primarily of
$40.0 million of proceeds from the issuance of long-term debt offset by $16.2
million of principal payments on long-term debt. During 1997, cash provided by
financing activities consisted primarily of $0.7 million of proceeds from stock
options exercised, offset by $0.2 million of principal payments on long-term
debt. During 1996, cash provided by financing activities consisted primarily of
$30 million of proceeds from the issuance of long-term debt, $28.5 million of
net proceeds from the public offering of common shares, offset by $10.9 million
of principal payments on long-term debt.

On March 1, 1999, the Company acquired certain assets from Stratus
Computer Ireland (Stratus), a wholly-owned subsidiary of Ascend Communications,
Inc. (Ascend), for approximately $48 million, subject to adjustment. Under the
terms of the agreement, Ascend will outsource the manufacture of certain of its
systems to the Company for at least three years and the Company hired
approximately 260 employees. In conjunction with the purchase of the Stratus
assets, the Company increased its revolving line of credit to $65 million and
borrowed $25 million. The Company is entitled to borrow under the line of credit
up to the lesser of $65 million or the sum of 75% of its eligible accounts
receivable and 25% of its eligible inventories. As of December 31, 1998, the
Company had no outstanding debt under its line of credit.

The Company'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 the Company's business as with many similar businesses. Management
believes that the Company's business is operated in substantial compliance with
applicable environmental, waste management, health and safety regulations.

The Company may require additional capital to finance further
enhancements to or acquisitions or expansions of its manufacturing capacity.
Management believes that the level of working capital will continue to grow at a
rate generally consistent with the growth of the Company's operations. Although
no assurance can be given that future financing will be available on terms
acceptable to the Company, the Company may seek additional funds from time to
time through public or private debt or equity offerings or through bank
borrowings to the extent permitted by its existing debt agreements. Management
believes that the existing cash balances, funds generated from operations, and
borrowings under Company's credit facility will be sufficient to permit the
Company to meet its liquidity requirements in 1999 and for the foreseeable
future.

The Company does not hold or issue derivative financial instruments in
the normal course of business. Inflation and changing prices have not
significantly affected the Company's operating results or the markets in which
the Company performs services during recent years.

<PAGE>
Year 2000 Issues

Many of the Company's business and operating systems are currently Year
2000 compliant, and the Company initiated a review of those systems during 1997
to address those systems that are not currently Year 2000 compliant. Areas
addressed included major third-party suppliers of components of the Company's
products as well as full reviews of the Company's manufacturing equipment,
telephone and voice mail systems, security systems and other office support
systems. The Company has also initiated formal communications with significant
suppliers and customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
issues. Based on its inquiries to date, the Company believes satisfactory
progress is being made by its significant suppliers and customers on Year 2000
issues. No significant information technology initiatives have been deferred by
the Company as a result of its Year 2000 project.

In addition, the Company has selected Baan U.S.A., Inc. to provide an
Enterprise Resource Planning System, which will be Year 2000 compliant, to
improve processes and to increase efficiencies. The new Enterprise Resource
Planning System implementation is scheduled for completion at all locations by
November 1999. All necessary Year 2000 upgrades of major systems, including
those supplied by vendors, have been identified and conversion strategies
developed and are under deployment.

The estimated total cost to address the Company's Year 2000 issues,
including the cost associated with the new Enterprise Resource Planning System,
is approximately $13.5 million. Costs incurred and expected to be incurred
consist primarily of the cost of Company personnel involved in updating
applications and operating systems and the costs of software updates and patches
(many of which are provided free of charge from the vendors). The estimated
total cost associated with the purchase and implementation of the new Enterprise
Resource Planning System is approximately $13 million. The costs of this
software will be capitalized and amortized over the estimated useful life of the
software, and costs associated with the preliminary project stage and
post-implementation stage has been and will be expensed as incurred. The year
2000 component of this system can not be readily segregated from the total cost
of the company-wide Enterprise Resource Planning System implementation. The
total amount expended on Year 2000 issues and the new Enterprise Resource
Planning System through December 31, 1998, is approximately $9 million, of which
$8.8 million related to the new Enterprise Resource Planning System
implementation and approximately $200,000 related to the cost of identifying and
communicating with third parties and installing software patches. The costs of
the Year 2000 process and the timetable on which the Company believes it will
complete any Year 2000 modifications are based on management's best estimates,
which are derived utilizing a number of assumptions of future events, including
the availability of certain resources and other factors. However, there can be
no guarantee that these estimates will be achieved and actual results could
differ materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area, the ability to locate and correct all
relevant computer codes and similar uncertainties. In addition, there can be no
assurance that the systems of other companies on which the Company's systems
rely will be converted on a timely basis or that such failure by another company
to convert would not have an adverse effect on the Company's systems.

The steps taken by the Company to address the Year 2000 issues are
expected to reduce significantly the Company's level of uncertainty about the
Year 2000 problem and, in particular, about the Year 2000 compliance and
readiness of its material third party suppliers and customers. The Company
believes that, with the implementation of the Enterprise Resource Planning
System and completion of identifying and communicating with third parties as
scheduled, the possibility of significant interruptions of normal operations
should be reduced.

Accordingly, and as the program is on schedule to be completed during
the fall of 1999, the Company has not formulated a worse case scenario in the
event its Year 2000 project is not completed in a timely manner. The Company has
a contingency plan in place in the event all scheduled implementations are not
completed by the end of 1999. All necessary Year 2000 upgrades of major systems
and software patches, including those supplied by vendors, have been identified
and conversion strategies are under deployment.
<PAGE>
Consolidated Balance Sheets
Benchmark Electronics, Inc. and Subsidiaries
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 l997
------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ................................................ $ 23,076,582 $ 21,029,347
Accounts receivable, net ................................................. 57,178,757 39,772,435
Income taxes receivable ...................................................... 1,120,343 313,594
Inventories .............................................................. 53,718,247 61,133,963
Prepaid expenses and other assets ........................................ 1,896,888 1,545,110
Deferred tax asset ....................................................... 2,488,328 1,359,205
------------- -------------
Total current assets .............................................. 139,479,145 125,153,654
Property, plant and equipment ................................................ 80,826,164 54,061,241
Accumulated depreciation ..................................................... (35,264,179) (23,245,264)
------------- -------------
Net property, plant and equipment ................................. 45,561,985 30,815,977
Goodwill, net ................................................................ 48,906,481 22,680,551
Marketable securities ........................................................ -- 11,430,757
Other ........................................................................ 7,948,086 240,859
------------- -------------
$ 241,895,697 $ 190,321,798
------------- -------------
Liabilities and Shareholders' Equity Current liabilities:
Current installments of long-term debt ................................... $ 8,199,910 $ 155,505
Accounts payable ......................................................... 37,046,161 31,694,123
Accrued liabilities ...................................................... 7,968,412 5,424,939
------------- -------------
Total current liabilities ......................................... 53,214,483 37,274,567
Long-term debt, excluding current installments ............................... 46,110,646 30,329,828
Deferred tax liability ....................................................... 4,569,654 1,845,846
Shareholders' equity:
Preferred shares, $.10 par value; 5,000,000 shares authorized, none issued -- --
Common shares, $.10 par value; 30,000,000 shares authorized: issued
11,676,967 and 11,623,252, respectively; outstanding 11,627,483
and 11,573,768, respectively ......................................... 1,162,748 1,157,376
Additional paid-in capital ............................................... 70,159,115 69,407,600
Retained earnings ........................................................ 66,800,001 50,427,531
Less treasury shares, at cost, 49,484 shares ............................. (120,950) (120,950)
------------- -------------
Total shareholders' equity ........................................ 138,000,914 120,871,557
Commitments and contingencies
------------- -------------
$ 241,895,697 $ 190,321,798
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Income
Benchmark Electronics, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Sales ........................................ $ 524,065,077 $ 325,229,015 $ 201,296,320
Cost of sales ................................ 472,354,251 285,630,163 177,981,328
------------- ------------- -------------
Gross profit ......................... 51,710,826 39,598,852 23,314,992
Selling, general and administrative expenses . 17,680,338 12,817,317 7,227,833
Amortization of goodwill ..................... 3,310,661 1,669,740 695,722
------------- ------------- -------------
Income from operations ............... 30,719,827 25,111,795 15,391,437
Interest expense ............................. (4,393,528) (2,472,183) (1,441,834)
Interest income .............................. 479,075 1,162,958 442,384
Other income ................................. 84,663 149,276 90,880
------------- ------------- -------------
Income before income taxes ........... 26,890,037 23,951,846 14,482,867
Income tax expense ........................... 10,517,567 8,862,183 5,619,352
------------- ------------- -------------
Net income ........................... $ 16,372,470 $ 15,089,663 $ 8,863,515
------------- ------------- -------------
Earnings per share:
Basic .................................... $ 1.41 $ 1.31 $ 0.99
Diluted .................................. $ 1.35 $ 1.26 $ 0.96
------------- ------------- -------------
Weighted average number of shares outstanding:
Basic .................................... 11,594,271 11,508,407 8,976,192
Diluted .................................. 12,098,349 12,003,741 9,217,801
------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Shareholders' Equity
Benchmark Electronics, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Additional Total
Common paid-in Retained Treasury shareholders'
Shares shares capital earnings shares equity
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1995 .... 8,042,800 $ 804,280 $ 19,466,385 $ 26,474,353 $ (120,950) $ 46,624,068
Common shares issued in public
offering, net of expenses ... 2,033,000 203,300 28,287,841 -- -- 28,491,141
Stock options exercised ........ 51,340 5,134 402,310 -- -- 407,444
Federal tax benefit of stock
options exercised ........... -- -- 88,536 -- -- 88,536
Acquisition of
EMD Technologies, Inc. ..... 1,349,928 134,992 20,375,814 -- -- 20,510,806
Net income ..................... -- -- -- 8,863,515 -- 8,863,515
Effect of difference between
fair value and cost of shares
released from collateral .... -- -- 13,904 -- -- 13,904
------------- ------------- ------------- ------------- ------------- -------------
Balances, December 31, 1996 .... 11,477,068 1,147,706 68,634,790 35,337,868 (120,950) 104,999,414
Stock options exercised ........ 96,700 9,670 669,927 -- -- 679,597
Federal tax benefit of stock
options exercised .......... -- -- 154,820 -- -- 154,820
Net income ..................... -- -- -- 15,089,663 -- 15,089,663
Other .......................... -- -- (51,937) -- -- (51,937)
------------- ------------- ------------- ------------- ------------- -------------
Balances, December 31, 1997 .... 11,573,768 1,157,376 69,407,600 50,427,531 (120,950) 120,871,557
Stock options exercised ........ 53,715 5,372 487,870 -- -- 493,242
Federal tax benefit of
stock options exercised .... -- -- 263,645 -- -- 263,645
Net income ..................... -- -- -- 16,372,470 -- 16,372,470
------------- ------------- ------------- ------------- ------------- -------------
Balances, December 31, 1998 .... 11,627,483 $ 1,162,748 $ 70,159,115 $ 66,800,001 $ (120,950) $ 138,000,914
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Cash Flows
Benchmark Electronics, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .................................................... $ 16,372,470 $ 15,089,663 $ 8,863,515
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization ............................. 13,306,975 10,150,586 5,723,922
Amortization of premiums on marketable securities ......... 46,026 342,193 25,940
Deferred income taxes ..................................... 2,305,482 (314,801) 408,346
Federal tax benefit of stock options exercised ............ 263,645 154,820 88,536
Amortization of goodwill .................................. 3,310,661 1,669,740 695,722
Gain on the sale of property, plant and equipment ......... (3,696) (86,973) (42,878)
ESOP shares contribution .................................. -- -- 13,904
Changes in operating assets and liabilities, net of effects
from acquisitions of businesses:
Accounts receivable .................................... 7,403,982 (589,806) (10,119,586)
Income taxes receivable ................................ (806,749) 74,270 994,179
Inventories ............................................ 30,930,316 (13,033,625) 3,131,340
Prepaid expenses and other assets ...................... (353,729) (729,367) (124,259)
Accounts payable ....................................... (15,369,675) 7,341,651 1,782,239
Accrued liabilities .................................... (552,417) (779,596) 895,208
------------ ------------ ------------
Net cash provided by operations ..................... 56,853,291 19,288,755 12,336,128
Cash flows from investing activities:
Additions to property, plant and equipment .................... (12,204,071) (10,352,112) (8,684,400)
Additions to capitalized software ............................. (7,383,410) -- --
Proceeds from the sale of property, plant and equipment ....... 182,810 168,912 75,281
Acquisitions, net of cash acquired ............................ (70,679,312) -- (30,833,300)
Proceeds from the sale of marketable securities ............... 11,384,731 -- --
Purchase of marketable securities ............................. -- (2,264,716) (9,534,174)
------------ ------------ ------------
Net cash used in investing activities .................. (78,699,252) (12,447,916) (48,976,593)
Cash flows from financing activities:
Net proceeds from public offering of common shares ............ -- (51,937) 28,491,141
Proceeds from issuance of long-term debt ...................... 40,000,000 -- 30,000,000
Principal payments on long-term debt .......................... (16,174,777) (239,165) (10,928,329)
Debt issuance costs ........................................... (425,269) -- (315,114)
Proceeds from stock options exercised ......................... 493,242 679,597 407,444
------------ ------------ ------------
Net cash provided by financing activities .............. 23,893,196 388,495 47,655,142
Net increase in cash and cash equivalents ......................... 2,047,235 7,229,334 11,014,677
Cash and cash equivalents at beginning of year .................... 21,029,347 13,800,013 2,785,336
Cash and cash equivalents at end of year .......................... $ 23,076,582 $ 21,029,347 $ 13,800,013
------------ ------------ ------------
Supplemental disclosures of cash flow information:
Income taxes paid ............................................. $ 8,755,264 $ 8,491,894 $ 4,171,224
------------ ------------ ------------
Interest paid ................................................. $ 4,264,706 $ 2,537,089 $ 369,021
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements

Note 1 -- Summary of Significant Accounting Policies

(a) Business

Benchmark Electronics, Inc. (the Company) is a Texas corporation which provides
contract manufacturing and design services to original equipment manufacturers
(OEMs) in select industries, including medical devices, communications
equipment, industrial and business computers, testing instruments, and
industrial controls.

(b) Principles of Consolidation The consolidated financial statements
include the financial statements of Benchmark Electronics, Inc. and its wholly
owned subsidiaries. All significant intercompany balances and transactions have
been eliminated in consolidation.

(c) Cash and Cash Equivalents The Company considers all highly liquid debt
instruments with an original maturity of three months or less to be cash
equivalents.

(d) Marketable Securities Management determines the appropriate
classification of its investments in debt and equity securities at the time of
purchase and reevaluates such determination at each balance sheet date. Debt
securities for which the Company does not have the intent or ability to hold to
maturity are classified as available for sale. Securities available for sale are
carried at fair value, with the unrealized gains and losses, net of tax,
reported in shareholders' equity as other comprehensive income. Held-to-maturity
securities are recorded at amortized cost, adjusted for the amortization or
accretion of premiums or discounts to maturity.

Such amortization and interest are included in interest income. Realized
gains and losses from the sale of available for sale securities are included in
other income or expense and are determined on a specific identification method.

At December 31, 1997, the Company's investments in marketable securities
consisted of Texas state guaranteed obligation bonds with an amortized cost of
$4,831,833, fair value of $4,851,000 and unrealized gain of $19,167; Lynnwood,
Washington guaranteed obligation bonds with an amortized cost of $4,359,096,
fair value of $4,362,000 and unrealized gain of $2,904; Austin, Texas guaranteed
obligation bonds with an amortized cost of $1,213,257, fair value of $1,212,000,
and unrealized loss of $1,257; and Maryland state guaranteed obligation bonds
with an amortized cost of $1,026,571, fair value of $1,032,000, and unrealized
gain of $5,429. These investments were sold during 1998 in connection with the
purchase of Lockheed Commercial Electronics Company (LCEC).

(e) Inventories

Inventories include material, labor and overhead and are stated at the lower of
cost (first-in, first-out) or market.

(f) Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation is calculated on
the straight-line method over the useful lives of the assets, which range from
three to thirty years. Leasehold improvements are amortized on the straight-line
method over the shorter of the useful life of the improvement or the remainder
of the lease term.

In assessing and measuring impairment of long-lived assets, the Company
applies the provisions of Statement of Financial Accounting Standard (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable.

(g) Goodwill and Other Assets

Goodwill, which represents the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over the period of
expected benefit of 15 years. The accumulated amortization of goodwill at
December 31, 1998 and 1997 was $5,676,123 and $2,365,462, respectively. The
carrying value of goodwill will be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the acquired
assets may not be recoverable. If the sum of the estimated future cash flows
(undiscounted) expected to result from the use and eventual disposition of an
asset is less than the carrying amount of the asset, an impairment loss is
recognized. Measurement of an impairment loss is based on the fair value of the
asset. Other assets consists of capitalized software costs, which are amortized
over the estimated useful life of the related software and deferred financing
costs, which are amortized over the life of the related debt. During 1998,
$7,383,410 of software costs was capitalized in connection with the new ERP
system implementation. The accumulated amortization of deferred financing costs
at December 31, 1998 and 1997 was $207,311 and $85,521, respectively.

(h) Earnings Per Share

Basic earnings per share is computed using the weighted average number of shares
outstanding. Diluted earnings per share is computed using the weighted average
number of shares outstanding adjusted for the incremental shares attributed to
outstanding stock options to purchase common stock. Incremental shares of
504,078, 495,334, and 241,609 in 1998, 1997 and 1996, respectively, were used in
the calculation of diluted earnings per share. Options to purchase 3,000 and
124,000 shares of common stock in 1998 and 1997, respectively, were not included
in the computation of diluted earnings per share because the option exercise
price was greater than the average market price of the common stock.

(i) Revenue Recognition

<PAGE>
Revenues are recognized at the time the circuit boards are shipped to the
customer, for both turnkey and consignment method sales. Under the consignment
method, OEMs provide the Company with the electronic components to be assembled,
and the Company recognizes revenue only on the labor used to assemble the
product.

(j) Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred
income taxes are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.

(k) Stock Option Plans

On January 1, 1996, the Company adopted the provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation", which permits entities to recognize
as expense over the vesting period the fair value of all stock-based awards on
the date of grant. Alternately, SFAS No. 123 also allows entities to continue to
apply the provisions of Accounting Principles Board (APB) Opinion No. 25
"Accounting for Stock Issued to Employees", and provide pro forma net income and
pro forma earnings per share disclosures for employee stock option grants made
in 1995 and future years as if the fair-value-based method defined in SFAS No.
123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123. Under APB Opinion No. 25, compensation expense is recorded on
the date of grant only if the current market price of the underlying stock
exceeds the exercise price.

(l) Use of Estimates

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
accordance with generally accepted accounting principles. Actual results could
differ from those estimates.

(m) Fair Values of Financial Instruments

The fair values of the Company's cash equivalents, accounts receivable, accrued
liabilities, and accounts payable approximated their carrying values due to the
short-term maturities of these instruments. The estimated fair value of
long-term debt approximates its carrying value based on the Company's current
incremental borrowing rates for similar types of borrowing agreements.

(n) Comprehensive Income

On January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for reporting and presentation of
comprehensive income and its components in a full set of financial statements.
The Company currently does not have any items that require additional
presentation of other comprehensive income. Accordingly, adoption of SFAS No.
130 did not affect the Company's consolidated financial statements.

(o) Business Segments

On January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company currently
operates in a single business segment. Accordingly, adoption of SFAS No. 131 did
not affect the Company's consolidated financial statements.

(p) Capitalized Software Costs

On January 1, 1998, the Company adopted the American Institute of Certified
Public Accountants (AICPA) statement of Position (SOP) 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" on a
prospective basis. SOP 98-1 establishes criteria for capitalizing certain costs
related to internal-use software. The adoption of SOP 98-1 did not have a
material impact on the Company's financial position, results of operations or
liquidity.

(q) Recently Enacted Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes methods of accounting for derivative financial instruments and
hedging activities related to those instruments as well as other hedging
activities. The Company expects that the adoption of SFAS No. 133 will have no
material impact on its financial position, results of operations or liquidity.

In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-up Activities." SOP 98-5 requires that all start-up costs related to new
operations must be expensed as incurred. In addition, all start-up costs that
were capitalized in the past must be expensed when SOP 98-5 is adopted. The
Company expects that the adoption of SOP 98-5 will have no material impact on
its financial position, results of operations or cash flows. The Company will be
required to implement SOP 98-5 in 1999.

Note 2 -- Acquisitions

On February 23, 1998, the Company completed the acquisition of LCEC for
$70,679,312 in cash. LCEC, situated in Hudson, New Hampshire, provides a broad
range of services including printed circuit board assembly and test, system
assembly and test, prototyping, depot repair, materials procurement, and
engineering support services. The transaction was accounted for under the
<PAGE>
purchase method of accounting, and accordingly, the results of operations of
LCEC since February 23, 1998 have been included in the consolidated statements
of income. The acquisition resulted in goodwill of $29,536,591 that is being
amortized on a straight-line basis over 15 years.

The net purchase price was allocated as follows:
Working capital, other than cash ......................... $ 30,574,621
Property, plant and equipment ............................ 15,904,987
Goodwill ................................................. 29,536,591
Other liabilities ........................................ (3,095,890)
Deferred income taxes .................................... (2,240,997)
------------
Purchase price, net of cash received .................. $ 70,679,312
------------

The following unaudited summary pro forma condensed financial information
reflects the acquisition of LCEC as if the acquisition had occurred on January
1, 1997 for purposes of the consolidated statements of income. The summary pro
forma information is not necessarily representative of what the Company's
results of operations would have been had the acquisition in fact occurred on
January 1, 1997 and is not intended to project the Company's results of
operations for any future period or date. (in thousands, except per share data)

1998 1997
-------- --------
Net sales ............................................ $548,335 607,439
Gross Profit ......................................... 50,091 52,069
Income from operations ............................... 27,004 25,615
Net income ........................................... 13,796 12,453
Earnings per share:
Basic .............................................. $ 1.19 1.08
Diluted ............................................ $ 1.14 1.04
Weighted average number of shares outstanding:
Basic .............................................. 11,594 11,508
Diluted ............................................ 12,098 12,003

On July 30, 1996, the Company completed its acquisition of EMD Technologies,
Inc. (EMD). This business, headquartered in Winona, Minnesota, was acquired for
1,349,928 shares of common stock, $30,447,033 in cash, and the Company paid
$2,208,136 in acquisition costs. The transaction was accounted for under the
purchase method of accounting, and accordingly, the results of operations of EMD
since July 30, 1996 have been included in the consolidated statements of income.
The acquisition resulted in goodwill of $25,046,013, which is being amortized on
a straight line basis over 15 years.

The net purchase price was allocated as follows:
Working capital, other than cash ......................... $ 10,638,671
Property, plant and equipment ............................ 17,598,785
Other assets ............................................. 12,379
Goodwill ................................................. 25,046,013
Other liabilities ........................................ (1,951,742)
------------
Purchase price, net of cash received .................. $ 51,344,106
------------
Net cash portion of purchase price ....................... $ 30,833,300
Common stock issued ...................................... 20,510,806
------------
Purchase price, net of cash received ..................... $ 51,344,106
------------

Note 3 -- Inventories

Inventory costs are summarized as follows:

December 31,
---------------------------------
1998 1997
----------- -----------
Raw materials ...................... $39,230,450 41,837,205
Work in process .................... 14,487,797 19,296,758
----------- -----------
$53,718,247 61,133,963
----------- -----------
<PAGE>
Note 4 -- Property, Plant and Equipment Property, plant and equipment consists
of the following:

December 31,
-------------------------------
1998 1997
----------- -----------

Land ................................... $ 391,969 391,969
Buildings .............................. 8,441,221 8,417,497
Machinery and equipment ................ 64,189,215 38,025,436
Furniture and fixtures ................. 6,856,395 6,480,183
Vehicles ............................... 14,383 14,383
Leasehold improvements ................. 750,111 731,773
Construction in progress ............... 182,870 --
----------- -----------
$80,826,164 54,061,241
----------- -----------

Note 5 -- Borrowing Facilities Long-term debt consists of the following:
December 31,
1998 1997
----------- -----------

Senior note ............................ $30,000,000 30,000,000
Term loan .............................. 24,000,000 --
Other .................................. 310,556 485,333
----------- -----------
Total long-term debt ................ 54,310,556 30,485,333
Less current installments .............. 8,199,910 155,505
----------- -----------
Long-term debt ......................... $46,110,646 30,329,828
----------- -----------

In order to finance a portion of the cash consideration for the acquisition
of EMD, the Company issued a $30 million, 8.02% Senior Note due 2006 ("Senior
Note") to Northwestern Mutual Life Insurance Company. The Senior Note is
unsecured and guaranteed by each of the Company's United States subsidiaries.
Principal on the Senior Note is payable in annual installments of $5.0 million
beginning July 31, 2001 with a final installment on the unpaid principal amount
due July 31, 2006. Interest on the Senior Note is payable semi-annually on
January 31st and July 31st.

The purchase agreement relating to the Senior Note (the "Purchase
Agreement") includes customary affirmative and negative covenants and restricts
the ability of the Company to incur additional debt and to pay dividends. Upon
any prepayment of all or a portion of the Senior Note, the Company is obligated
to pay the holder a premium on the amount prepaid. The Purchase Agreement
contains a provision that in the event of a change of control (defined generally
to mean the acquisition by a person or group (as defined in the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder) of
beneficial ownership of more than 50% of the total voting power of the
outstanding voting stock of the Company), the Company must offer to repurchase
the Senior Note at par plus any prepayment penalty.

In connection with the acquisition of LCEC on February 23, 1998, the
Company obtained $40 million through borrowings under a five-year term loan (the
Term Loan) with a commercial bank. Principal on the Term Loan is payable in
quarterly installments of $2.0 million beginning June 30, 1998 with a final
installment of the unpaid principal amount due March 31, 2003. The Term Loan
bears interest, at the Company's option, at either the bank's Eurodollar rate
plus .625% to 1.375% or its prime rate, and interest is payable quarterly. The
margin on the Eurodollar rate fluctuates with the Company's ratio of debt to
earnings before interest, taxes, depreciation and amortization (EBITDA). The
Term Loan includes customary affirmative and negative covenants and restricts
the Company's ability to incur additional indebtedness and to pay dividends. As
of December 31, 1998, the Company had $24 million outstanding under the Term
Loan bearing interest at rates ranging from 5.8125% to 6.0625%.

The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1998 are as follows: 1999, $8,199,910; 2000,
$8,019,693; 2001, $13,020,699; 2002, $5,021,756; 2003, $5,022,867 and thereafter
$15,025,631.

The Company has a $25 million revolving line of credit with a commercial
bank. The Company is entitled to borrow under the line of credit up to the
lesser of $25 million or the sum of 75% of its eligible accounts receivable and
25% of its eligible inventories. Interest on the line of credit is payable
quarterly, at the Company's option, at either the bank's Eurodollar rate plus
.625% to 1.375%

<PAGE>
or its prime rate. A commitment fee of 0.25% per annum on the unused portion of
the line of credit is payable quarterly in arrears. The line of credit agreement
contains certain financial covenants and restricts the ability of the Company to
incur additional debt without the consent of the bank and to pay dividends. The
line of credit matures on March 31, 2003. As of December 31, 1998 and 1997, the
Company had no borrowings outstanding under this line of credit.

Note 6 -- Commitments

The Company has several noncancelable operating leases for office space,
manufacturing facilities and manufacturing equipment that expire through 2006.
Rental expense for each of the years in the three-year period ended December 31,
1998 was $2,493,146, $1,354,607 and $921,526, respectively.

The Company leases manufacturing and office facilities in Minnesota from a
partnership whose partners include stockholders and a director of the Company.
These operating leases have initial terms of eight to ten years, expiring
through December 2006 with annual renewals thereafter. Total rent expense
associated with these leases for the years ended December 31, 1998, 1997 and
1996 was $828,900, $828,900 and $413,784, respectively.

Aggregate annual rental payments on future lease commitments at December
31, 1998 were as follows:

1999 ........................... $ 2,043,007
2000 ........................... 1,651,734
2001 ........................... 1,613,734
2002 ........................... 1,463,734
2003 ........................... 1,152,123
Thereafter ....................... 2,150,425
-----------
$10,074,757
-----------

Note 7 -- Common Stock and Stock Option Plans

During 1996, the Company issued 2,033,000 shares of common stock in a public
offering for net proceeds of $28,491,141.

The Company's stock option plan authorizes the Company, upon recommendation
of the compensation committee of the Board of Directors, to grant options to
purchase a total of 3,200,000 shares of the Company's common stock to key
employees of the Company.

The stock option plan provides for the discretionary granting by the
Company of "incentive stock options" within the meaning of Section 422A of the
Internal Revenue Code of 1986, as amended, as well as nonqualified stock
options. The exercise price of any incentive stock option must not be less than
the fair market value of the common stock on the date of grant. The stock
options will terminate no later than 10 years after the date of grant. Although
options may vest in increments over time, they historically have become 20%
vested two years after the options are granted and 100% vested after 5 years.

In December of 1994, the Board of Directors of the Company adopted the
Benchmark Electronics, Inc., 1994 Stock Option Plan for Non-Employee Directors
(the "Plan") for the benefit of members of the Board of Directors of the Company
or its Affiliates who are not employees of the Company or its Affiliates (as
defined in the Plan). The aggregate number of shares of Common Stock for which
options may be granted under the Plan is 200,000.

Under the terms of the Plan, each member of the Board of Directors of the
Company or its Affiliates who was not an employee of the Company or any of its
Affiliates on the date of the grant (a "Non-Employee Director") will receive a
grant of an option to purchase 3,000 shares of the Company's Common Stock upon
the date of his election or re-election to the Board of Directors. Additionally,
any Non-Employee Director who was a director on the date the Board of Directors
adopted the Plan received (a) an option to purchase 6,000 shares of Common Stock
for the fiscal year in which the Plan was adopted by the Board of Directors and
(b) an option to purchase shares of Common Stock in amount equal to (i) 6,000,
multiplied by (ii) the number of consecutive fiscal years (immediately preceding
the fiscal year during which the Plan was adopted) that the individual served as
a director of the Company, provided that the number under clause (ii) shall not
exceed three (3). During 1998, 1997 and 1996, pursuant to the Plan, 12,000,
24,000 and 30,000 options, respectively, were granted to Directors to purchase
shares of Common Stock at an exercise price of $21.38, $16.32 and $14.69 per
share, respectively.

<PAGE>
The following table summarizes the activities relating to the Company's
stock option plans:

WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
---------- -------------

Balance at December 31, 1995 ................ 801,200 $ 9.85
Granted .................................. 653,000 $ 14.43
Exercised ................................ (51,340) $ 8.13
Canceled ................................. (45,200) $ 13.80
---------- -------------
Balance at December 31, 19961, .............. 357,660 $ 12.00
Granted .................................. 426,000 $ 19.27
Exercised ................................ (96,700) $ 7.03
Canceled ................................. (96,800) $ 15.95
---------- -------------
Balance at December 31, 1997 ................ 1,590,160 $ 14.11
Granted .................................. 653,000 $ 20.99
Exercised ................................ (53,715) $ 9.18
Canceled ................................. (80,000) $ 17.94
---------- -------------
Balance at December 31, 1998 ................ 2,109,445 $ 16.22
---------- -------------

The following table summarizes information concerning currently outstanding
and exercisable options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ -----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF OUTSTANDING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ---------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$4.38-$10 ...... 170,200 4.16 $ 7.37 170,200 $ 7.37
$10-$15 ........ 887,245 6.71 $ 13.18 424,785 $ 12.49
$15-$20 ........ 532,000 8.41 $ 17.40 39,200 $ 15.88
$20-$25 ........ 393,000 8.94 $ 21.99 12,000 $ 21.35
$25-$30 ........ 127,000 8.52 $ 26.50 -- --
----------- ----------- -------- ----------- --------
2,109,445 646,185
----------- ----------- -------- ----------- --------
</TABLE>
At December 31, 1998, the range of exercise prices and weighted average
remaining contractual life of outstanding options was $4.38 - $26.88 and 7.74
years, respectively.

At December 31, 1998, 1997 and 1996, the number of options exercisable was
646,185, 492,920 and 500,340, respectively, and the weighted average exercise
price of those options was $11.51, $10.30 and $9.20, respectively.

The Company applies APB Opinion No. 25 in accounting for its stock option
plans and, accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income would have been approximately $13,916,901, or
$1.15 per share diluted during 1998, $13,396,245, or $1.11 per share diluted
during 1997, and $7,851,515, or $0.85 per share diluted during 1996. Pro forma
net income reflects only options granted since 1995. The weighted average fair
value of the options granted during 1998, 1997, and 1996 is estimated as $6.41,
$8.55 and $5.23, respectively, on the date of grant using the Black-Scholes
option-pricing model with the following assumptions: no dividend yield for all
years, volatility of 30% for all years, risk-free interest rate of 4.33% to
5.86% in 1998, 5.46% to 6.57% in 1997 and 5.31% to 6.57% in 1996, assumed annual
forfeiture rate of 5% for all years, and an expected life of 4 years in 1998 and
5 years in 1997 and 1996.

Note 8 -- Income Taxes Income tax expense (benefit) consists of:

Year ended December 31,
--------------------------------------------
1998 1997 1996
----------- ----------- -----------
Federal - current ............. $ 7,275,581 8,178,203 4,322,471
State - current ............... 936,504 998,781 888,535
Federal/State - deferred ...... 2,305,482 (314,801) 408,346
----------- ----------- -----------
$10,517,567 8,862,183 5,619,352
----------- ----------- -----------
<PAGE>
Income tax expense differed from the amounts computed by applying the U.S.
federal statutory income tax rate to pretax income as a result of the following:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Tax at statutory rate ............. $ 9,411,513 8,383,146 4,924,175
State taxes, net of federal benefit 608,728 649,208 586,433
Tax exempt interest ............... (165,288) (386,658) (49,882)
Tax benefit from use of
foreign sales corporation ...... (349,727) (393,839) (139,218)
Effect of foreign operations ...... 132,364 -- --
Amortization of goodwill .......... 1,122,751 562,413 236,545
Other ............................. (242,774) 47,913 61,299
------------ ------------ ------------
Total income tax expense .......... $ 10,517,567 8,862,183 5,619,352
------------ ------------ ------------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1998 and 1997 are presented below:

1998 1997
----------- -----------
Deferred tax assets:
Carrying values of inventories ............ $ 1,358,217 710,124
Accrued liabilities deductible
for tax purposes on a cash basis ....... 1,130,111 649,081
----------- -----------
2,488,328 1,359,205
Less valuation allowance ..................... -- --
----------- -----------
Net deferred tax assets ................. $ 2,488,328 1,359,205
----------- -----------
Deferred tax liabilities:
Plant and equipment, due to
differences in depreciation ............ $(4,442,867) (1,797,228)
Other ........................................ (126,787) (48,618)
----------- -----------
Gross deferred tax liability ................. (4,569,654) (1,845,846)
-----------
Net deferred tax liability .............. $(2,081,326) (486,641)
----------- -----------

Note 9 -- Major Customers

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 evaluation of its customers' financial
condition and generally does not require collateral or other security from its
customers and would incur an accounting loss equal to the carrying value of the
accounts receivable if its customer failed to perform according to the terms of
the credit arrangement.

Sales to major customers were as follows for the indicated periods:

YEAR ENDED DECEMBER 31,
------------------------------------------
(IN THOUSANDS) 1998 1997 1996
-------- -------- --------

Customer A .................. $148,674 -- --
Customer B .................. 70,908 42,983 28,638
Customer C .................. 58,424 120,500 33,680
Customer D .................. 19,033 13,381 8,938
Customer E .................. 18,919 -- --

In 1998, the Company had export sales of approximately $87 million to
Europe, $2 million to Canada, $92,000 to Asia, and $8,000 to Australia from the
Company's United States operations. In 1997 and 1996, the Company had export
sales of approximately $86 million and $29 million, respectively, to Europe from
the Company's United States operations.

Note 10 -- Employee Benefit Plans
<PAGE>
The Company has a defined contribution plan qualified under Section 401(k) of
the Internal Revenue Code for the benefit of its employees. The Plan covers all
employees with at least one year of service. The Company has agreed to
contribute an amount equal to 50% of each participant's contributions to the
extent such participant's contribution does not exceed 4% of their compensation
for the year and 1% of each participant's compensation. A participant's
contribution may not exceed 20% of annual compensation, or the maximum amount
allowed as determined by the Internal Revenue Code. The Company may also make
discretionary contributions to the plan. During 1998, 1997 and 1996 the Company
made contributions to the plan of approximately $1,098,000, $689,000 and
$430,000, respectively.

Effective May 6, 1992, the Company adopted an Incentive Bonus Plan ("Bonus
Plan") for the benefit of its employees, including executive officers. The Bonus
Plan replaced the Company's Incentive Bonus Plan which was adopted in 1990. The
Bonus Plan is administered by the Compensation Committee. The total amount of
cash bonus awards to be made under the Bonus Plan for any plan year depends
primarily on the Company's sales and net income for such year.

For any plan year, the Company's sales and net income must meet or exceed,
or in combination with other factors satisfy, levels targeted by the Company in
its business plan, as established at the beginning of each fiscal year, for any
bonus awards to be made. Aggregate bonus awards to all participants under the
Bonus Plan may not exceed 7% of the Company's net income. The Compensation
Committee has the authority to determine the total amount of bonus awards, if
any, to be made to the eligible employees for any plan year based on its
evaluation of the Company's financial condition and results of operations, the
Company's business and prospects, and such other criteria as it may determine to
be relevant or appropriate. The Company expensed $1,434,000 in 1998, $738,000 in
1997 and $320,000 in 1996 in conjunction with the bonus plans.

Note 11 -- Concentrations of Business Risk

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.

Note 12 -- Contingencies

The Company is involved in various legal actions arising in the ordinary course
of business. In the opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on the Company's consolidated
financial position, results of operations or liquidity.

Note 13-- Event Subsequent to Date of Auditors' Report (unaudited)

On March 1, 1999, the Company acquired certain assets from Stratus Computer
Ireland (Ireland), a wholly-owned subsidiary of Ascend Communications, Inc.
(Ascend) for approximately $48 million, subject to adjustment. In connection
with the transaction, the Company entered into a three-year supply agreement to
provide system integration services to Ascend and Stratus Holding Limited and
the Company hired 260 employees. In conjunction with the purchase of the Stratus
assets, the Company increased its revolving line of credit to $65 million and
borrowed $25 million.

<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Benchmark Electronics, Inc.:

We have audited the accompanying consolidated balance sheets of Benchmark
Electronics, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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 Benchmark
Electronics, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.

KPMG LLP

Houston, Texas
January 22, 1999
<PAGE>
Management's Report

The management of Benchmark Electronics, Inc. has prepared and is
responsible for the consolidated financial statements and related financial data
contained in this report. The consolidated financial statements were prepared in
accordance with generally accepted accounting principles and necessarily include
certain amounts based upon management's best estimates and judgments. The
financial information contained elsewhere in this annual report is consistent
with that in the consolidated financial statements.

The Company maintains internal accounting control systems that are adequate
to prepare financial records and to provide reasonable assurance that the assets
are safeguarded from loss or unauthorized use. We believe these systems are
effective, and the cost of the systems does not exceed the benefits obtained.

The Audit Committee, composed exclusively of outside directors, has
reviewed all financial data included in this report. The committee meets
periodically with the Company's management and independent public accountants on
financial reporting matters. The independent public accountants have complete
access to the Audit Committee and may meet with the committee, without
management present, to discuss their audit results and opinions on the quality
of financial reporting.

The role of independent public accountants is to render a professional,
independent opinion on management's financial statements to the extent required
by generally accepted auditing standards. Benchmark's responsibility is to
conduct its affairs according to the highest standards of personal and corporate
conduct.

Donald E. Nigbor Cary T. Fu
President & Chief Executive Officer Executive Vice President

Corporate Information
Quarterly Financial Data (unaudited)

The following table sets forth certain unaudited quarterly information with
respect to the Company's results of operations for the years 1998, 1997 and
1996. Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share may not equal
the total earnings per share amounts for the fiscal year.
(In thousands, except per share data)

1998 Quarter
--------------------------------------------
1st 2nd 3rd 4th
-------- -------- -------- --------
Sales .......................... $108,046 132,636 139,645 143,738
Gross profit ................... 10,905 12,681 13,545 14,580
Net income ..................... 3,742 3,735 4,182 4,713
Earnings per common share:
Basic ....................... .32 .32 .36 .41
Diluted ..................... .31 .32 .35 .38

1997 Quarter
--------------------------------------------
1st 2nd 3rd 4th
-------- -------- -------- --------
Sales .......................... $ 75,724 78,156 83,183 88,166
Gross profit ................... 9,242 9,466 10,157 10,734
Net income ..................... 3,291 3,557 4,013 4,229
Earnings per common share:
Basic ....................... .29 .31 .35 .37
Diluted ..................... .28 .30 .33 .35
<PAGE>
1996 Quarter
--------------------------------------------
1st 2nd 3rd 4th
-------- -------- -------- --------
Sales .......................... $ 30,383 33,500 62,304 75,109
Gross profit ................... 3,825 4,484 6,550 8,456
Net income ..................... 1,839 2,025 2,365 2,635
Earnings per common share:
Basic ....................... .23 .25 .26 .24
Diluted ..................... .22 .24 .26 .24

Market for the Registrant's Common Equity and Related Shareholder Matters
The Company's Common Stock is listed on the New York Stock Exchange under the
symbol "BHE." The following table shows the high and low sales prices for the
Common Stock as reported on the New York Stock Exchange for the fiscal quarters
(or portions thereof) indicated, as adjusted for the July 1997 stock split.

1 2 3 4
-------- -------- ------- --------
1997
High ................................ $16 5/16 20 1/4 28 3/16 29 15/16
Low ................................. $14 1/4 13 3/16 20 22

1998
High ................................ $28 1/4 24 15/16 25 1/2 37 1/2
Low ................................. $21 1/8 18 1/2 17 5/8 17 7/8

1999 (through March 19, 1999)
High ................................ $38 1/2 -- -- --
Low ................................. $28 1/8 -- -- --

The last reported sale price of Common Stock on March 19, 1999, as reported
by the New York Stock Exchange, was $28 3/4. There were approximately 100 record
holders of Common Stock as of March 19, 1999.

The Company has not paid any cash dividends on the Common Stock in the past
and anticipates that, for the foreseeable future, it will retain any earnings
available for dividends for use in its business.

Selected Financial Data
Benchmark Electronics, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------
(In thousands, except per-share data) 1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Selected Statements of Income Data
Sales ...................................... $ 524,065 $ 325,229 $ 201,296 $ 97,353 $ 98,168
Cost of sales .............................. 472,354 285,630 177,981 85,113 86,236
--------- --------- --------- --------- ---------
Gross profit .......................... 51,711 39,599 23,315 12,240 11,932
Selling, general and administrative expenses 17,680 12,817 7,228 2,990 3,154
Amortization of goodwill ................... 3,311 1,670 696 -- --
---------
Income from operations ................ 30,720 25,112 15,391 9,250 8,778
Interest expense ........................... (4,394) (2,472) (1,442) -- --
Interest income ............................ 479 1,163 442 268 252
Other income (expense) ..................... 85 149 92 13 11
Income tax expense ......................... (10,518) (8,862) (5,619) (3,383) (3,272)
--------- --------- --------- --------- ---------
Net income ............................ $ 16,372 $ 15,090 $8,864 $ 6,148 $ 5,769
--------- --------- --------- --------- ---------
Basic earnings per common share (1)
Earnings per common share (1) ......... $ 1.41 $ 1.31 $ 0.99 $ 0.77 $ 0.72
--------- --------- --------- --------- ---------
Weighted average number of
shares outstanding .................. 11,594 11,508 8,976 8,031 7,998
--------- --------- --------- --------- ---------
Diluted earnings per common share (1)
Earnings per common share (1) ......... $ 1.35 $ 1.26 $ 0.96 $ 0.75 $ 0.71
--------- --------- --------- --------- ---------
Weighted average number of
shares outstanding .................. 12,098 12,004 9,218 8,213 8,176
--------- --------- --------- --------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
(In thousands) 1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Selected Balance Sheet Data
Working capital ........... $ 86,265 $ 87,879 $ 72,586 $ 37,285 $ 30,890
Total assets .............. 241,896 190,322 168,174 57,037 48,333
Long-term debt ............ 46,111 30,330 30,485 -- --
Shareholders' equity ...... $138,001 $120,872 $104,999 $ 46,624 $ 40,131
</TABLE>
(1) See Note 1 of Notes to Consolidated Financial Statements for the basis of
computing earnings per common share.

Corporate and Shareholder Data
Officers
Donald E. Nigbor (1)
President and Chief Executive Officer

Steven A. Barton (2)
Executive Vice President

Cary T. Fu (1)
Executive Vice President

Lenora A. Gurton
Secretary

Gayla J. Delly
Treasurer

Christopher Nawrocki
Vice President;
President of Benchmark Electronics, Inc. -Winona Division

General Counsel
Bracewell & Patterson, L.L.P.
Houston, Texas

Independent Auditors
KPMG LLP
Houston, Texas

Directors
David H. Arnold
President and Chairman of the Board
DCM Tech, Inc.
Winona, Minnesota
(Machine Tool Manufacturing)
<PAGE>
John C. Custer (4)
Retired - Former Chairman of the Board
Mason & Hanger-Silas Mason Co., Inc.
Lexington, Kentucky
(Technical services contracting and engineering firm)

Steven A. Barton
Executive Vice President
Benchmark Electronics, Inc.

Gerald W. Bodzy (3)
Senior Vice President and Managing Director
Stephens Inc.
Houston, Texas
(Investment banking)

Peter G. Dorflinger (3) (4)
President and Chief Operating Officer
GlasTech, Inc.
Austin, Texas
(Dental products manufacturer)

Cary T. Fu
Executive Vice President
Benchmark Electronics, Inc.

Donald E. Nigbor
President and Chief Executive Officer
Benchmark Electronics, Inc.

(1) Executive Officer
(2) Part-time since June 1993
(3) Member of Audit Committee
(4) Member of Compensation Committee

Notices

Stock Transfer Agent and Registrar
Communications concerning stock transfer requirements, lost certificates or
changes of address should be directed to:
Harris Trust and Savings Bank
c/o Harris Trust Company of New York
88 Pine Street, 19th floor
New York, NY 10005 800/926-1269.

Stock Trading
The common stock of Benchmark Electronics, Inc. trades on the New York Stock
Exchange under the symbol BHE.

SEC Form 10-K
Benchmark will provide a copy of the company's Annual Report on Form 10-K
(without exhibits) for the fiscal year ended December 31, 1998, filed with the
Securities and Exchange Commission, without charge upon written request to:
Gayla J. Delly
Treasurer
Benchmark Electronics, Inc.
3000 Technology Drive
Angleton, TX 77515
<PAGE>
Financial Mailing List
Shareholders whose stock is held in trust or by a brokerage firm may receive
timely financial mailings directly from Benchmark by writing to Ms. Gayla J.
Delly at the above address.

Annual Meeting
Shareholders are invited to attend the Benchmark Electronics, Inc. annual
meeting, which will be held at 10:00 a.m. on Tuesday, May 11, 1999, at the
Doubletree Hotel at Allen Center, 400 Dallas Street, Houston, Texas.

This annual report is printed on recycled paper.

Back Cover:
Benchmark logo

3000 Technology Drive
Angleton, Texas 77515
(409) 849-6550
www.bench.com

EXHIBIT 21

SUBSIDIARIES OF BENCHMARK ELECTRONICS, INC.

Benchmark Electronics FSC, Inc., a Barbados corporation

BEI Electronics Ireland Limited, a Republic of Ireland private limited company

All subsidiaries are wholly owned, directly or indirectly, by Benchmark
Electronics, Inc.

EXHIBIT 23

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
Benchmark Electronics, Inc.:

We consent to incorporation by reference in the registration statements on
Form S-8 (No. 33-61660, No. 333-26805, No. 333-28997 and No. 333-66889) of
Benchmark Electronics, Inc. of our report dated January 22, 1999, related to the
consolidated balance sheets of Benchmark Electronics, Inc. and subsidiaries as
of December 31, 1998 and 1997, and the related consolidated statements of
income, shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1998, which report is incorporated by
reference in the December 31, 1998 annual report on Form 10-K of Benchmark
Electronics, Inc.

KPMG LLP

Houston, Texas
March 29, 1999

<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 23,076,582
<SECURITIES> 0
<RECEIVABLES> 57,178,757
<ALLOWANCES> 0
<INVENTORY> 53,718,247
<CURRENT-ASSETS> 139,479,145
<PP&E> 80,826,164
<DEPRECIATION> 35,264,179
<TOTAL-ASSETS> 241,895,697
<CURRENT-LIABILITIES> 53,214,483
<BONDS> 46,110,646
0
0
<COMMON> 1,162,748
<OTHER-SE> 136,838,166
<TOTAL-LIABILITY-AND-EQUITY> 241,875,697
<SALES> 524,065,077
<TOTAL-REVENUES> 524,065,077
<CGS> 472,354,251
<TOTAL-COSTS> 490,034,592
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,393,528
<INCOME-PRETAX> 26,890,037
<INCOME-TAX> 10,517,567
<INCOME-CONTINUING> 16,372,470
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,372,470
<EPS-PRIMARY> 1.41
<EPS-DILUTED> 1.35

</TABLE>