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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-K
FOR ANNUAL AND TRANSITION REPORT PURSUANT TO SECTIONS 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
(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, 1999
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)
______________________
TEXAS 74-2211011
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
3000 TECHNOLOGY DRIVE
ANGLETON, TEXAS 77515
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(979) 849-6550
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 $0.10 per share New York Stock Exchange, Inc.
Preferred Stock Purchase Rights New York Stock Exchange, Inc.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
______________________
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 28, 1999, the number of outstanding shares of Common Stock was
16,272,226. 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 $570.5 million.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Portions of the Company's Annual Report to Shareholders for the fiscal year
ended December 31, 1999 (Part II Items 5-8 and Part IV Item 14(a)(1)).
(2) Portions of the Company's Proxy Statement for the 2000 Annual Meeting of
Shareholders (Part III, Items 10-13).
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<PAGE>
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business....................................................... 1
Item 2. Properties..................................................... 7
Item 3. Legal Proceedings.............................................. 8
Item 4. Submission of Matters to Vote of Security Holders.............. 8
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder 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.................................................. 9
Item 8. Financial Statements and Supplementary Data.................... 9
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
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PART I
ITEM 1. BUSINESS
GENERAL
Benchmark Electronics, Inc. (the "Company") is a leading provider of
electronics manufacturing services (EMS) to original equipment manufacturers
("OEMs") in the telecommunication, enterprise computer and peripherals,
high-end video/audio/entertainment, industrial control, testing and
instrumentation, computer and medical markets. We have 14 facilities in 8
countries. We offer OEMs a turnkey EMS solution, from initial product design to
volume production and direct order fulfillment. We provide advanced engineering
services including product design, printed circuit board (PCB) layout,
quick-turn prototyping and test development. We believe that we have developed
strengths in the manufacturing process for large, complex, high-density
assemblies as well as having the ability to manufacture high and low volume
products in lower cost regions such as Latin America, Eastern Europe and
Southeast Asia. As OEM's expand internationally, they are increasingly requiring
their EMS partners to have strategic regional locations and global procurement
abilities. We believe a global manufacturing solution increases our ability to
be responsive to our customers' needs by providing accelerated time-to-market
and time-to-volume production of high quality products. These enhanced
capabilities should enable us to build stronger strategic relationships with our
customers and to become a more integral part of their operations.
Substantially all of our manufacturing services are provided on a turnkey
basis, whereby we purchase customer-specified components from our suppliers,
assemble the components on finished PCBs, perform post-production testing and
provide our customer with production process and testing documentation. We offer
our customers flexible, "just-in-time" delivery programs allowing product
shipments to be closely coordinated with our customers' inventory requirements.
In certain instances, we complete the assembly of our customers' products at our
facilities by integrating printed circuit board assemblies into other elements
of our customers' products. We also provide manufacturing services on a
consignment basis, whereby we, utilizing components provided by the customer,
provide only assembly and post-production testing services. We currently operate
a total of 49 surface mount production lines at our domestic facilities in
Angleton, Texas; Beaverton, Oregon; Hudson, New Hampshire; Huntsville, Alabama;
Pulaski, Tennessee; and Winona, Minnesota; and 32 surface mount production lines
at our international facilities in Cork and Dublin, Ireland; Campinas, Brazil;
Csongrad, Hungary; Guadalajara, Mexico; Singapore; East Kilbride, Scotland; and
Katrineholm, Sweden.
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
Since July 1996, we have completed four acquisitions. These acquisitions
have broadened our service offerings, diversified our customer base with leading
OEMs and expanded our geographic presence. These acquisitions were:
o AVEX ELECTRONICS, INC.AND RELATED COMPANIES. On August 24, 1999, we
completed the acquisition of AVEX, one of the largest privately-held
contract manufacturers. This acquisition provided us a global presence
with 14 facilities in 8 countries and a sales base of approximately
$1.5 billion on a pro forma basis for 1999. With this acquisition, we
became the sixth largest publicly held EMS provider in the world based
on 1998 pro forma sales. This acquisition expanded our customer base
to approximately 90 OEMs in a broader range of end user markets.
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o STRATUS COMPUTER IRELAND. On March 1, 1999, we acquired certain assets
from Stratus, and in connection with the transaction entered into a
three-year supply agreement to provide system integration services to
Ascend and Stratus Holdings Limited. The acquired assets increased our
ability to provide a broad range of services to the European market
and enhanced our systems integration and box build engineering
capabilities.
o LOCKHEED COMMERCIAL ELECTRONICS COMPANY. In February 1998, we acquired
Lockheed Commercial Electronics Company. This acquisition provided us
with manufacturing capacity in the northeastern United States and 19
additional customers. Now operated as our Hudson, New Hampshire
division, the facility provides a broad range of services including
PCB assembly and test, system assembly and test, prototyping, depot
repair, materials procurement, and engineering and design support
services.
o EMD TECHNOLOGIES, INC. In July 1996, we acquired EMD Technologies,
Inc., an independent provider of electronics manufacturing and product
design services. Now operated as our Winona, Minnesota division, this
facility provides a complete range of enhanced product design and
subsystem and enclosure configuration. In addition to design services,
this acquisition provided us with manufacturing capabilities in the
midwestern United States and 19 additional customers.
We believe our primary competitive advantages are our design,
manufacturing, testing and supply chain management capabilities. We offer our
customers complete and flexible manufacturing solutions that provide accelerated
time-to-market, time-to-volume production, and reduced production costs. As a
result of working closely with our customers and responding promptly to their
needs, we have become an integral part of their operations. In addition, our
workforce is led by a management team that founded the Company and has an
average of 18 years of industry experience.
BUSINESS STRATEGY
Our goal is to be the EMS outsourcing provider of choice to leading OEMs in
the high growth segments of the electronics industry. To meet this goal, we have
implemented the following strategies:
o MAINTAIN AND DEVELOP CLOSE, LONG-TERM RELATIONSHIPS WITH CUSTOMERS.
Our core strategy is to maintain and establish long-term relationships
with leading OEMs in expanding industries by becoming an integral part
of our customers' manufacturing operations. To this end, we work
closely with our customers throughout the design, manufacturing and
distribution process, and we offer flexible and responsive services.
We believe we develop stronger customer relationships by relying on
our local management teams that respond to frequently changing
customer design specifications and production requirements.
o FOCUS ON PRODUCTS IN HIGH GROWTH SECTORS. EMS providers produce
products for a wide range of OEMs in different industries. The product
scope ranges from easy to assemble, low-cost high-volume products
targeted for the consumer market to complicated state-of-the-art,
mission critical electronic hardware. Similarly, OEM customers range
from consumer-oriented companies that compete primarily on price and
redesign their products every year to high-end telecommunications and
enterprise computer manufacturers that compete on technology and
quality. We currently offer state-of-the-art products for industry
leaders who require advanced engineering design and production
services as well as offering high volume manufacturing capabilities to
our customer base. Our ability to offer both of these services enables
us to expand our business relationships.
o DELIVER COMPLETE HIGH AND LOW VOLUME MANUFACTURING SOLUTIONS GLOBALLY.
We believe OEMs increasingly require a wide range of advanced
engineering and manufacturing services in order to reduce their costs
and accelerate their time-to-market and time-to-volume production.
Building on our integrated engineering and manufacturing capabilities,
we offer services from initial product design and test to final
product assembly and distribution to the OEMs' customers. With the
AVEX acquisition, we also offer our customers high volume production
in low cost regions of the world, such as Brazil, Hungary and Mexico.
These full service capabilities allow us to offer customers the
flexibility to move quickly from design and initial introduction to
production and distribution.
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o LEVERAGE ADVANCED TECHNOLOGICAL CAPABILITIES. Our traditional
strengths in the manufacturing processes for large, complex
high-density assemblies enable us to offer customers advanced design,
technology and manufacturing solutions for their primary products. We
provide this engineering expertise through our design capabilities in
each of our facilities, and in our design centers located in Winona,
Minnesota, Huntsville, Alabama and Cork, Ireland. We believe our
capabilities help our customers improve product performance and reduce
costs.
o CONTINUE OUR GLOBAL EXPANSION. A strategically positioned facilities
network can simplify and shorten an OEM's supply chain and reduce the
time it takes to bring product to market. We are committed to pursuing
geographic expansion in order to support our global customers with
cost-effective and timely delivery of quality products and services
worldwide. Our AVEX acquisition significantly expanded our service
scope to provide a global manufacturing solution to our customers at
14 facilities located in Brazil, Hungary, Ireland, Mexico, Scotland,
Singapore, Sweden and the United States.
o SELECTIVELY PURSUE STRATEGIC ACQUISITIONS. We have completed four
acquisitions since July 1996 and will continue to selectively seek
acquisition opportunities. Our acquisitions have enhanced our business
in the following ways:
o Expanded geographic presence;
o Enhanced customer growth opportunities;
o Developed strategic relationships;
o Broadened service offerings;
o Diversified into new market sectors; and
o Added experienced management teams.
We believe that growth by selective acquisitions is critical for achieving
the scale, flexibility and breadth of customer services required to remain
competitive in the EMS industry.
ELECTRONICS MANUFACTURING SERVICES INDUSTRY
Many OEMs in the electronics industry are increasingly using electronics
manufacturing service providers in their business and manufacturing strategies
and are seeking to outsource a broad range of manufacturing and related
engineering services. Outsourcing allows OEMs to take advantage of the
manufacturing expertise and capital investments of EMS providers, thereby
enabling OEMs to concentrate on what they believe to be their core strengths,
such as product development, marketing and sales. OEMs utilize electronics
manufacturing service providers to enhance their competitive position by:
o Reducing capital investment requirements and fixed overhead costs;
o Accessing advanced manufacturing and design capabilities;
o Reducing production costs;
o Accelerating time-to-market and time-to-volume production;
o Improving inventory management and purchasing power; and
o Accessing worldwide manufacturing capabilities.
Industry sources estimate that the overall market for EMS will have grown at a
compound annual rate of 25% from 1996 to 2002. In addition, according to
industry sources the EMS industry's revenues accounted for approximately 16% of
the cost of goods sold in the electronics industry in 1998. By 2001, industry
sources estimate that this percentage will increase to 26%.
SERVICES PROVIDED BY THE COMPANY
ENGINEERING. Our approach is to coordinate and integrate our design,
prototype and other engineering capabilities. Through this approach, we provide
a broad range of engineering services and, in some cases,
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dedicated production lines for prototypes. These services strengthen our
relationships with manufacturing customers and attract new customers requiring
advanced engineering services.
To assist customers with initial design, we offer CAE and CAD-based design,
engineering for manufacturability, circuit board layout and test development. We
also coordinate industrial design and tooling for product manufacturing. After
product design, we offer quickturn prototyping. During this process, we assist
with the transition to volume production. By participating in product design and
prototype development, we can reduce manufacturing costs and accelerate the
time-to-volume production.
MATERIALS PROCUREMENT AND MANAGEMENT. Materials procurement and management
consists of the planning, purchasing, expediting and warehousing of components
and materials. Our inventory management and volume procurement capabilities
contribute to cost reductions and reduce total cycle time. Our materials
strategy is focused on leveraging our procurement volume corporate wide while
providing local execution for maximum flexibility at the division level. In
addition, our Ireland facility has developed material processes required to
support high-end computer system integration operations.
ASSEMBLY AND MANUFACTURING. Our assembly and manufacturing operations
include PCB and subsystem assembly, box build and systems integration. A
substantial portion of our sales are derived from the manufacture and assembly
of complete products. We employ various inventory management techniques such as
just-in-time, ship-to-stock and autoreplenish programs. As OEMs seek to provide
greater functionality in smaller products, they increasingly require more
sophisticated manufacturing technologies and processes. Our investment in
advanced manufacturing equipment and our experience in innovative packaging and
interconnect technologies (such as chip scale packaging and ball grid array)
enable us to offer a variety of advanced manufacturing solutions.
TESTING. We offer computer-aided testing of assembled PCBs, subsystems and
systems, which contributes significantly to our ability to deliver high-quality
products on a consistent basis. We work with our customers to develop
product-specific test strategies. Our test capabilities include manufacturing
defect analysis, in-circuit tests and functional tests. We either custom design
test equipment and software ourselves or use test equipment and software
provided by our customers. In addition, we provide environmental stress tests of
board or system assemblies.
DISTRIBUTION. We offer our customers flexible, just-in-time delivery
programs allowing product shipments to be closely coordinated with customers'
inventory requirements. Increasingly, we ship products directly into customers'
distribution channels or directly to the end-user. We believe that this service
can provide our customers with a more comprehensive solution and enable them to
be more responsive to market demands.
MARKETING AND CUSTOMERS
We market our services through a direct sales force and independent
marketing representatives. In addition, our divisional and executive management
teams are an integral part of our sales and marketing teams. During 1999, our
two largest customers, Lucent and EMC, each represented in excess of 10% of
total sales and, in the aggregate, represented 34% of total sales.
The following table sets forth the percentages of the Company's sales by
industry for 1999, 1998 and 1997.
1999 1998 1997
----- ----- -----
Telecommunication............................ 39% 31% 21%
Enterprise Computer & Peripherals............ 30 44 39
Industrial Controls.......................... 9 9 12
Medical...................................... 6 11 17
High-end Video/Audio/Entertainment........... 6 -- --
Computer..................................... 6 -- --
Testing & Instrumentation.................... 4 5 11
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SUPPLIERS
We maintain a network of suppliers of components and other materials used
in assembling printed circuit boards. We procure 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 we experience component shortages and longer lead times of
various components from time to time, we have 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, our inventory risk. In addition, by
developing long-term relationships with suppliers, we have 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, we anticipate shortages and longer lead times for certain components
to occur from time to time.
BACKLOG
The Company's backlog was approximately $1 billion at December 31, 1999,
compared to $317 million at December 31, 1998. The December 31, 1999 figure
includes backlog amounts for the recently acquired AVEX operations. Although the
Company's expects to fill substantially all of its backlog in 2000, at December
31, 1999 the Company does not have long-term agreements will all of 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.
Because of these factors, backlog is not a meaningful indicator of future
financial results.
COMPETITION
The electronics manufacturing services we provide are available from many
independent sources as well as in-house manufacturing capabilities of current
and potential customers. The Company's competitors include Celestica, Inc.,
Flextronics International Ltd., Jabil Circuit, Inc., SCI Systems, Inc. and
Solectron Corporation, who may be more established in the industry and have
substantially greater financial, manufacturing or marketing resources than we
do. We believe that the principal competitive factors in our 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.
GOVERNMENTAL REGULATION
Our operations, and the operations of businesses that we acquire, are
subject to certain foreign, federal, state and local regulatory requirements
relating to environmental, waste management, and health and safety matters. The
Company believes it operates in substantial compliance with all applicable
requirements. However, material costs and liabilities may arise from these
requirements or from new, modified or more stringent requirements. In addition,
past, current and future operations may give rise to claims of exposure by
employees or the public or to other claims or liabilities relating to
environmental, waste management or health and safety concerns.
We periodically generate and temporarily handle limited amounts of
materials that are considered hazardous waste under applicable law. We contract
for the off-site disposal of these materials and have implemented a waste
management program to address related regulatory issues.
EMPLOYEES
As of December 31, 1999, we employed 5,856 people, of whom 4,580 were
engaged in manufacturing and operations, 614 in materials control and
procurement, 119 in design and development, 79 in marketing and sales, and 464
in administration. Although a majority of our workforce is non-union, employees
in our
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facilities in Brazil, Mexico and Sweden are unionized, and work councils have
been established at our facilities in Cork, Ireland, Scotland and Sweden.
INTERNATIONAL OPERATIONS
Benchmark has 14 manufacturing facilities in the Americas, Europe, and Asia
regions to serve its customers. Benchmark is operated and managed geographically
and management evaluates performance and allocates Benchmark's resources on a
geographic basis. See Note 10 of Notes to Consolidated Financial Statements for
segment information. Prior to the acquisition in 1999, all of our operations
were in the Americas region. In 1999, approximately 19% of our sales were from
operations outside of the United States. As a result of continuous customer
demand overseas, we expect foreign sales to increase. Our foreign sales and
operations are subject to risk of doing business abroad, including fluctuations
in the value of currency, export duties, import controls and trade barriers,
including stoppages, longer payment cycles, greater difficulty in accounts
receivable collection, burdens of complying with wide variety of foreign laws
and, in certain parts of the world, political instability. While, to date, these
factors have not adversely materially affected Benchmark's results of
operations, we cannot assure that there will not be an adverse impact in the
future.
YEAR 2000 ISSUES
The "year 2000 problem" arose because of the potential software failures
that could arise in date-sensitive software applications utilizing a field of
two-digits rather than four to define a specific year. Absent corrective
actions, date-sensitive software could recognize a date using "00" as the year
1900 rather than the year 2000.
The Company initiated a review of its business and operating systems during
1997 to address those systems that were not year 2000 compliant, and also worked
with its customers and vendors to remediate year 2000 issues. As of December 31,
1999, the Company has spent approximately $700,000 in addressing year 2000
issues.
The Company suffered no significant failures in any system or product upon
the date change from December 31, 1999 to January 1, 2000. Management of the
Company is not aware of any vendor used by the Company for data processing or
related services that experienced a material failure of its product or service
due to year 2000 problems. Although many of the critical dates related to
potential year 2000 problems have passed, some experts predict that year 2000
related failures could occur throughout the year. The Company will continue to
monitor this issue in the ordinary course of business for delayed effects or
future problems.
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ITEM 2. PROPERTIES
Benchmark currently has 14 facilities worldwide.
[INSERT WORLD MAP WITH LOCATIONS]
The following chart summarizes the facilities owned or leased by Benchmark
and its subsidiaries:
<TABLE>
<CAPTION>
LOCATION SQ.FT. FUNCTION OWNERSHIP
- -------------------------- --------- ----------------------------- ---------
<S> <C> <C> <C>
Angleton, TX............. 109,000 Executive, manufacturing, and Owned
procurement
Beaverton, OR............ 52,000 Manufacturing Leased
Campinas, Brazil......... 40,000 Manufacturing Leased
Csongrad, Hungary........ 40,000 Manufacturing Leased
Cork, Ireland............ 28,000 Manufacturing and design Owned
Dublin, Ireland.......... 74,000 Manufacturing and procurement Leased
East Kilbride, Scotland.. 90,000 Manufacturing and procurement Owned
Guadalajara, Mexico...... 230,000 Manufacturing Leased
Hudson, NH............... 200,000 Manufacturing and procurement Leased
Huntsville, AL........... 276,000 Manufacturing, design and and Owned
Katrineholm, Sweden...... 60,000 procurement Leased
Manufacturing
Pulaski, TN.............. 112,500 Manufacturing Owned
Singapore................ 59,000 Manufacturing and procurement Leased
Winona, MN............... 201,000 Manufacturing and procurement Leased, Owned
---------
Total 1,571,500
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</TABLE>
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ITEM 3. LEGAL PROCEEDINGS
On October 18, 1999, we announced that our third quarter earnings
announcement would be delayed and subsequently, on October 22, we announced our
earnings for the third quarter were below the level of the same periods during
1998 and were below expectations. Several class action lawsuits were filed in
federal district court in Houston, Texas against Benchmark and two of its
officers and directors alleging violations of the federal securities laws. The
lawsuits seek to recover unspecified damages. We deny the allegations in the
lawsuits, however, and further deny that such allegations provide a basis for
recovery of damages as we believe that we have made all required disclosures on
a timely basis. We intend to vigorously defend against these actions.
Pursuant to the terms of the Amended and Restated Stock Purchase Agreement
dated August 12, 1999 whereby Benchmark acquired all of the stock of AVEX and
Kilbride Holdings B.V from J.M. Huber Corporation ("Seller"), Benchmark was
required to agree upon a closing working capital adjustment with the Seller by
November 22, 1999. We were unable to reach an agreement with the Seller prior to
the November 22, 1999 deadline and entered into several agreements extending
this deadline. At the present time, the parties still have not reached an
agreement and have hired an independent accounting firm to serve as arbitrator
to resolve the dispute and to calculate the final closing working capital
adjustment. Management is unable to predict when the arbitrator will be
releasing its findings but estimates that the net closing working capital
adjustment will be in the range of $20 to $40 million. Management has made its
best estimate of the ultimate resolution of this arbitration proceeding.
However, the final working capital adjustment could have a significant effect on
the final purchase price and the allocation of the purchase price.
Benchmark filed suit against Seller in the United States District Court for
the Southern District of Texas for breach of contract, fraud and negligent
misrepresentation on December 14, 1999 and is seeking an unspecified amount of
damages in connection with the contract. On January 5, 2000, Seller filed suit
in the United States District Court for the Southern District of New York
alleging that Benchmark failed to comply with certain obligations under the
contract requiring Benchmark to register shares of its common stock issued to
Seller as partial consideration for the acquisition. Seller's suit has been
consolidated with Benchmark's suit in the United States District Court for the
Southern District of Texas. Management intends to vigorously pursue its claims
against Seller and defend against Seller's allegations.
The Company is also involved in various other 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 or results of operations.
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 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The information on page 35 of the Company's Annual Report to Stockholders
for the fiscal year ended December 31, 1999 (the "1999 Annual Report") is
incorporated herein by reference in response to this item.
ITEM 6. SELECTED FINANCIAL DATA
The information on page 36 of the 1999 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 16 of the 1999 Annual Report is
incorporated herein by reference in response to this item.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information on pages 15 through 16 of the 1999 Annual Report is
incorporated herein by reference in response to this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information on pages 17 through 35 of the 1999 Annual Report is
incorporated herein by reference in response to this item.
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 2000 Annual Meeting of Shareholders (the
"2000 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 2000 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 2000 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 2000
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 17 of the 1999 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, 1999 and 1998
Consolidated Statements of Income for the years ended December 31, 1999,
1998 and 1997
Consolidated Statements of Shareholders' Equity and Comprehensive Income
for the years ended December 31, 1999, 1998 and 1997
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Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997
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, the information is included in the Consolidated Financial
Statements and notes thereto, or are inapplicable and, therefore, have been
omitted.
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 the Company 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).
2.5 -- Amended and Restated Stock Purchase Agreement dated as of
August 12, 1999 by and between the Company and J. M. Huber
Corporation (incorporated by reference herein to Exhibit 2 to
the Company's Current Report on Form 8-K dated August 24, 1999
and filed on September 8, 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 (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).
3.3 -- Amendment to Amended and 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)
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).
10
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
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 the Company
(incorporated by reference to Exhibit 3 to the Company's Form
8A12B/A filed December 22, 1998).
4.7 -- Indenture dated as of August 13, 1999 by and between the
Company and Harris Trust Company of New York, as trustee
(incorporated by reference from Exhibit 99.3 to Benchmark's
Form 8-K dated August 24, 1999 and filed on
September 8, 1999).
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 -- Benchmark Electronics, Inc. 1992 Incentive Bonus Plan
(incorporated herein by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1988).
10.6 -- 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).
10.7* -- Benchmark Electronics, Inc. 401(k) Employee Savings Plan.
10.8 -- Benchmark Electronics, Inc. Employee Stock Purchase Plan
(incorporated by reference to Exhibit 99.1 to the Company's
Registration Statement on Form S-8 (Registration
Number 333-76207)).
10.9 -- 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).
10.10 -- 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).
10.11 -- Lease Agreement dated February 1, 1997 between Tektronix, Inc.
and the Company (incorporated herein by reference to
Exhibit 10.5 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998).
10.12* -- Lease Agreement dated February 29, 2000 between Millikan
Properties, LLC and the Company.
11
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.13 -- 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).
10.14 -- 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).
10.15* -- CE Facility Lease dated February 23, 1998 by and between the
Company and Lockheed Martin Corporation.
10.16* -- Sander's Sublease dated February 23, 1998 by and between the
Company and Sanders, a Lockheed Martin Company and a division
of Lockheed Martin Corporation.
10.17* -- First Amendment to CE Facility Lease dated February 21, 2000
by and between the Company and Lockheed Martin Corporation.
10.18* -- First Amendment to Sanders Sublease dated February 24, 2000
by and between the Company and Sanders, a Lockheed Martin
Company and a division of Lockheed Martin Corporation
10.19* -- Lease Agreement dated February 22, 1999 by and between
Serto, S.A. de C.V. and AVEX Electronics de
Mexico, S.R.L. de C.V.
10.20* -- Sublease Agreement dated February 22, 1999 by and between
Operadora Farmaceutica, S.A. de C.V. and AVEX Electronics de
Mexico, S.R.L. de C.V.
10.21 -- 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).
10.22 -- Guarantee dated September 10, 1998 by the Company in favor of
Kilmore Developments Limited (incorporated herein by reference
to Exhibit 10.14 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998).
10.23 -- Credit Agreement dated as of August 24, 1999 by and among the
Company, the lenders party thereto and Chase Bank of Texas,
National Association, as administrative agent (incorporated by
reference from Exhibit 99.1 to Benchmark Electronics, Inc.'s
Form 8-K dated August 24, 1999 and filed on
September 8, 1999).
10.24 -- Registration Rights Agreement dated as of August 24, 1999 by
and between the Company and J. M. Huber Corporation
(incorporated by reference from Exhibit 99.2 to Benchmark
Electronics, Inc.'s Form 8-K dated August 24, 1999
and filed on September 8, 1999).
10.25 -- Registration Agreement dated as of August 9, 1999 by and among
the Company, Salomon Smith Barney Inc. and
Chase Securities Inc. (incorporated by reference from
Exhibit 99.4 to Benchmark Electronics, Inc.'s Form 8-K dated
August 24, 1999 and filed on September 8, 1999).
12* -- Statement regarding Computation of Ratios.
13* -- Benchmark Electronics, Inc. Annual Report to Shareholders for
the fiscal year ended December 31, 1999.
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,
No. 333-66889 and No. 333-76207).
27.1* -- Financial Data Schedule.
99.1* -- Unaudited Pro Forma Condensed Combined Statement of
Operations.
12
<PAGE>
(b) The following Current Reports on Form 8-K were filed by the Company
during the quarter ended December 31, 1999 or during the period from December
31, 1999 to the date of this Form 10-K:
The Company's Current Report on Form 8-K dated and filed on
November 23, 1999.
The Company's Current Report on Form 8-K dated and filed on
December 15, 1999.
The Company's Current Report on Form 8-K dated and filed on
February 8, 2000.
13
<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 30, 2000
Pursuant to the requirements of the Securities 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.
SIGNATURE POSITION DATE
----------- ------------------------------ --------------
/s/ JOHN C. CUSTER Chairman of the Board of March 30, 2000
JOHN C. CUSTER Directors
/s/ DONALD E. NIGBOR Director and President March 30, 2000
DONALD E. NIGBOR (principal executive officer)
STEPHEN A. BARTON Director and Executive Vice
President
/s/ CARY T. FU Director and Executive Vice March 30, 2000
CARY T. FU President (principal financial
and accounting officer)
PETER G. DORFLINGER Director
/s/ GERALD W. BODZY Director March 30, 2000
GERALD W. BODZY
DAVID H. ARNOLD Director
14
EXHIBIT 10.7
ADOPTION AGREEMENT #011
NONSTANDARDIZED CODE SS.401(K) PROFIT SHARING PLAN
The undersigned, BENCHMARK ELECTRONICS, INC. ("Employer"), by executing
this Adoption Agreement, elects to become a participating Employer in the TEXAS
COMMERCE BANK NATIONAL ASSOCIATION Defined Contribution Master Plan (basic plan
document 1903 by adopting the accompanying Plan and Trust in full as if the
Employer were a signatory to that Agreement. The Employer makes the following
elections granted under the provisions of the Master Plan.
ARTICLE I
DEFINITIONS
1.02 TRUSTEE. The Trustee executing this Adoption Agreement is: (CHOOSE
(A) OR (B))
[_] (a) A discretionary Trustee. See Section 10.03[A] of the Plan.
[x] (b) A nondiscretionary Trustee. See Section 10.03(B) of the Plan.
[NOTE: THE EMPLOYER MAY NOT ELECT OPTION (B) IF A CUSTODIAN EXECUTES
THE ADOPTION AGREEMENT.]
1.03 PLAN. The name of the Plan as adopted by the Employer is BENCHMARK
ELECTRONICS, INC. 401(K) EMPLOYEE SAVINGS PLAN.
1.07 EMPLOYEE. The following Employees are not eligible to participate
in the Plan: (CHOOSE (A) OR AT LEAST ONE OF (B) THROUGH (G))
[_] (a) No exclusions.
[x] (b) Collective bargaining employees (as defined in Section 1.07 of the
Plan). [Note: IF THE EMPLOYER EXCLUDES UNION EMPLOYEES FROM THE PLAN,
THE EMPLOYER MUST BE ABLE TO PROVIDE EVIDENCE THAT RETIREMENT BENEFITS
WERE THE SUBJECT OF GOOD FAITH BARGAINING.]
[x] (c) Nonresident aliens who do not receive any earned income (as defined
in Code ss.911(d)(2)) from the Employer which constitutes United States
source income (as defined in Code ss.861(a)(3)).
[_] (d) Commission Salesmen.
[_] (e) Any Employee compensated on a salaried basis.
[_] (f) Any Employee compensated on an hourly basis.
[_] (g) (SPECIFY)________________________________________________.
LEASED EMPLOYEES. Any Leased Employee treated as an Employee under Section 1.31
of the Plan, is: (CHOOSE (H) OR (I))
[x] (h) Not eligible to participate in the Plan.
[_] (i) Eligible to participate in the Plan, unless excluded by reason of
an exclusion classification elected under this Adoption Agreement
Section 1.07.
RELATED EMPLOYERS. If any member of the Employer's related group (as defined in
Section 1.30 of the Plan) executes a Participation Agreement to this Adoption
Agreement, such member's Employees are eligible to
1
<PAGE>
participate in this Plan, unless excluded by reason of an exclusion
classification elected under this Adoption Agreement Section 1.07. In addition:
(CHOOSE (J) OR (K))
[x] (j) No other related group member's Employees are eligible to
participate in the Plan.
[_] (k) The following nonparticipating related group member's Employees are
eligible to participate in the Plan unless excluded by reason of an
exclusion classification elected under this Adoption Agreement Section
1.07: .
1.12 COMPENSATION.
TREATMENT OF ELECTIVE CONTRIBUTIONS. (CHOOSE (A) OR (B))
[x] (a) "Compensation" includes elective contributions made by the Employer
on the Employee's behalf.
[_] (b) "Compensation" does not include elective contributions.
MODIFICATIONS TO COMPENSATION DEFINITION. (CHOOSE (C) OR AT LEAST ONE OF (D)
THROUGH (J))
[_] (c) No modifications other than as elected under Options (a) or (b).
[_] (d) The Plan excludes Compensation in excess of $____________________.
[_] (e) In lieu of the definition in Section 1.12 of the Plan, Compensation
means any earnings reportable as W-2 wages for Federal income tax
withholding purposes, subject to any other election under this Adoption
Agreement Section 1.12.
[_] (f) The Plan excludes bonuses.
[_] (g) The Plan excludes overtime.
[_] (h) The Plan excludes Commissions.
[_] (i) Compensation will not include Compensation from a related employer
(as defined in Section 1.30 of the Plan) that has not executed a
Participation Agreement in this Plan unless, pursuant to Adoption
Agreement Section 1.07, the Employees of that related employer are
eligible to participate in this Plan.
[x] (j) (SPECIFY) W-2 WAGES MEANS WAGES FOR FEDERAL INCOME TAX WITHHOLDING
PURPOSES, AS DEFINED UNDER CODESS.3401(A), PLUS ALL OTHER PAYMENTS TO
AN EMPLOYEE IN THE COURSE OF THE EMPLOYER'S TRADE OR BUSINESS, FOR
WHICH THE EMPLOYER MUST FURNISH THE EMPLOYEE A WRITTEN STATEMENT UNDER
CODE &SS.6041(D) AND 6051(A)(3), DISREGARDING ANY RULES LIMITING THE
REMUNERATION INCLUDED AS WAGES UNDER THIS DEFINITION BASED ON THE
NATURE OR LOCATION OF THE EMPLOYMENT OR SERVICE PERFORMED. AS LONG AS
THE INSTRUCTIONS TO BOX 10 OF FORM W-2 ARE CONSISTENT WITH THE
INSTRUCTIONS FOR THE 1991 FORM W-2, THE EMPLOYER MAY TREAT THE AMOUNT
REPORTED IN BOX 10 AS SATISFYING THIS DEFINITION. IN ADDITION, THE PLAN
EXCLUDES REIMBURSEMENT OR OTHER EXPENSE ALLOWANCES, FRINGE BENEFITS
(CASH AND NONCASH), MOVING EXPENSES, DEFERRED COMPENSATION AND WELFARE
BENEFITS.
If, for any Plan Year, the Plan uses permitted disparity in the contribution or
allocation formula elected under Article III, any election of Options (f), (g),
(h) or (j) is ineffective for such Plan Year with respect to any Nonhighly
Compensated Employee.
2
<PAGE>
SPECIAL DEFINITION FOR MATCHING CONTRIBUTIONS. "Compensation" for purposes of
any matching contribution formula under Article III means: (CHOOSE (K) OR (L)
ONLY IF APPLICABLE)
[x] (k) Compensation as defined in this Adoption Agreement Section 1.12.
[_] (l) (SPECIFY) ___________ .
SPECIAL DEFINITION FOR SALARY REDUCTION CONTRIBUTIONS. An Employee's salary
reduction agreement applies to his Compensation determined prior to the
reduction authorized by that salary reduction agreement, with the following
exceptions: (CHOOSE (M) OR AT LEAST ONE OF (N) OR (O), IF APPLICABLE)
[x] (m) No exceptions.
[_] (n) If the Employee makes elective contributions to another plan
maintained by the Employer, the Advisory Committee will determine the
amount of the Employee's salary reduction contribution for the
withholding period: (CHOOSE (1) OR (2))
[_] (1) After the reduction for such period of elective
contributions to the other plan(s).
[_] (2) Prior to the reduction for such period of elective
contributions to the other plan(s).
[_] (o) (SPECIFY) ______________________________________.
1.17 PLAN YEAR/LIMITATION YEAR.
PLAN YEAR. Plan Year means: (CHOOSE (A) OR (B))
[x] (a) The 12 consecutive month period ending every DECEMBER 31.
[_] (b) (SPECIFY)________________________________________.
LIMITATION YEAR. The Limitation Year is: (CHOOSE (C) OR (D))
[x] (c) The Plan Year.
[_] (d) The 12 consecutive month period ending every ____________________.
1.18 EFFECTIVE DATE.
NEW PLAN. The "Effective Date" of the Plan is _______________.
RESTATED PLAN. The restated Effective Date is APRIL 1, 1997.
This Plan is a substitution and amendment of an existing retirement
plan(s)originally established JANUARY 1, 1990. [NOTE: SEE THE EFFECTIVE DATE
ADDENDUM.]
1.27 HOUR OF SERVICE. The crediting method for Hours of Service is:
(CHOOSE (A) OR (B))
[x] (a) The actual method.
[_] (b) The __________________ equivalency method, except:
[_] (1) No exceptions.
3
<PAGE>
[_] (2) The actual method applies for purposes of: (CHOOSE AT
LEAST ONE)
[_] (i) Participation under Article II.
[_] (ii) Vesting under Article V.
[_] (iii) Accrual of benefits under Section 3.06.
[NOTE: ON THE BLANK LINE, INSERT "DAILY," "WEEKLY," "SEMI-MONTHLY PAYROLL
PERIODS" OR "MONTHLY."]
1.29 SERVICE FOR PREDECESSOR EMPLOYER. In addition to the predecessor
service the Plan must credit by reason of Section 1.29 of the Plan, the Plan
credits Service with the following predecessor employer(s): ELECTRONICS
ACQUISITION, INC., EMD ASSOCIATES, INC. Service with the designated predecessor
employer(s) applies: (CHOOSE AT LEAST ONE OF (A) OR (B); (C) IS AVAILABLE ONLY
IN ADDITION TO (A) OR (B))
[x] (a) For purposes of participation under Article II.
[x] (b) For purposes of vesting under Article V.
[_] (c) Except the following Service:___________________________________ .
[NOTE: IF THE PLAN DOES NOT CREDIT ANY PREDECESSOR SERVICE UNDER THIS PROVISION,
INSERT "N/A" IN THE FIRST BLANK LINE. THE EMPLOYER MAY ATTACH A SCHEDULE TO THIS
ADOPTION AGREEMENT, IN THE SAME FORMAT AS THIS SECTION 1.29, DESIGNATING
ADDITIONAL PREDECESSOR EMPLOYERS AND THE APPLICABLE SERVICE CREDITING
ELECTIONS.]
1.31 LEASED EMPLOYEES. If a Leased Employee is a Participant in the
Plan and also participates in a plan maintained by the leasing organization:
(CHOOSE (A) OR (B))
[N/A] (a) The Advisory Committee will determine the Leased Employee's
allocation of Employer contributions under Article III without taking
into account the Leased Employee's allocation, if any, under the
leasing organization's plan.
[_] (b) The Advisory Committee will reduce a Leased Employee's allocation
of Employer nonelective contributions (other than designated qualified
nonelective contributions) under this Plan by the Leased Employee's
allocation under the leasing organization's plan, but only to the
extent that allocation is attributable to the Leased Employee's service
provided to the Employer. The leasing organization's plan:
[_] (1) Must be a money purchase plan which would satisfy the
definition under Section 1.31 of a safe harbor plan,
irrespective of whether the safe harbor exception applies.
[_] (2) Must satisfy the features and, if a defined benefit plan,
the method of reduction described in an addendum to this
Adoption Agreement, numbered 1.31.
4
<PAGE>
ARTICLE II
EMPLOYEE PARTICIPANTS
2.01 ELIGIBILITY.
ELIGIBILITY CONDITIONS. To become a Participant in the Plan, an Employee must
satisfy the following eligibility conditions: (CHOOSE (A) OR (B) OR BOTH; (C) IS
OPTIONAL AS AN ADDITIONAL ELECTION.)
[x] (a) Attainment of age 21 (SPECIFY AGE, NOT EXCEEDING 21).
[x] (b) Service requirement. (CHOOSE ONE OF (1) THROUGH (3).)
[x] (1) One Year of Service.
[_] (2) ___ months (not exceeding 12) following the Employee's
Employment Commencement Date.
[_] (3) One Hour of Service.
[_] (c) Special requirements for non-401(k) portion of plan. (MAKE
ELECTIONS UNDER (1) AND UNDER (2))
(1) The requirements of this Option (c) apply to participation in:
(CHOOSE AT LEAST ONE OF (I) THROUGH (iii))
[_] (i) The allocation of Employer nonelective
contributions and Participant forfeitures.
[_] (ii) The allocation of Employer matching
contributions (including forfeitures allocated as
matching contributions).
[_] (iii) The allocation of Employer qualified
nonelective contributions.
(2) For participation in the allocations described in (1), the
eligibility conditions are: (CHOOSE AT LEAST ONE OF (I) THROUGH (IV))
[_] (i) __ (one or two) Year(s) of Service, without an
intervening Break in Service (as described in Section
2.03(A) of the Plan) if the requirement is two Years
of Service.
[_] (ii) __ months (not exceeding 24) following the
Employee's Employment Commencement Date.
[_] (iii) One Hour of Service.
[_] (iv) Attainment of age ___ (SPECIFY AGE, NOT
EXCEEDING 21).
PLAN ENTRY DATE. "Plan Entry Date" means the Effective Date and: (CHOOSE (D),
(E) OR (F)
[_] (d) Semi-annual Entry Dates. The first day of the Plan Year and the
first day of the seventh month of the Plan Year.
[_] (e) The first day of the Plan Year.
[x] (f) (SPECIFY ENTRY DATES) JANUARY 1, APRIL 1, JULY 1, OCTOBER 1
COINCIDENT WITH COMPLETION OF ELIGIBILITY REQUIREMENTS OR UNDER (G)
BELOW, WHICHEVER IS EARLIER.
5
<PAGE>
TIME OF PARTICIPATION. An Employee will become a Participant (and, if
applicable, will participate in the allocations described in Option (c)(1)),
unless excluded under Adoption Agreement Section 1.07, on the Plan Entry Date
(if employed on that date): (CHOOSE (G), (H) OR (I))
[x] (g) immediately following
[_] (h) immediately preceding
[_] (i) nearest
the date the Employee completes the eligibility conditions described in Options
(a) and (b) (or in Option (c)(2) if applicable) of this Adoption Agreement
Section 2.01. [NOTE: THE EMPLOYER MUST COORDINATE THE SELECTION OF (G), (H) OR
(I) WITH THE "PLAN ENTRY DATE" SELECTION IN (D), (E) OR (f). UNLESS OTHERWISE
EXCLUDED UNDER SECTION 1.07, THE EMPLOYEE MUST BECOME A PARTICIPANT BY THE
EARLIER of.- (1) THE FIRST DAY OF THE PLAN YEAR BEGINNING AFTER THE DATE THE
EMPLOYEE COMPLETES THE AGE AND SERVICE REQUIREMENTS OF CODE SS.410(A); OR (2) 6
MONTHS AFTER THE DATE THE EMPLOYEE COMPLETES THOSE REQUIREMENTS.]
DUAL ELIGIBILITY. The eligibility conditions of this Section 2.01 apply to:
(CHOOSE (J) OR (K))
[x] (j) All Employees of the Employer, except: (CHOOSE (1) OR (2))
[x] (1) No exceptions.
[_] (2) Employees who are Participants in the Plan as of the
Effective Date.
[_] (k) Solely to an Employee employed by the Employer after
________________. If the Employee was employed by the Employer on or
before the specified date, the Employee will become a Participant:
(CHOOSE (1), (2) OR (3))
[_] (1) On the latest of the Effective Date, his Employment
Commencement Date or the date he attains age _____ (not to
exceed 21).
[_] (2) Under the eligibility conditions in effect under the Plan
prior to the restated Effective Date. If the restated Plan
required more than one Year of Service to participate, the
eligibility condition under this Option (2) for participation
in the Code ss.401(k) arrangement under this Plan is one Year
of Service for Plan Years beginning after December 31, 1988.
[FOR RESTATED PLANS ONLY]
[_] (3) (SPECIFY)________________________________________________
2.02 YEAR OF SERVICE - PARTICIPATION.
HOURS OF SERVICE. An Employee must complete: (CHOOSE (A) OR (B))
[x] (a) 1,000 Hours of Service
[_] (b) __ Hours of Service
during an eligibility computation period to receive credit for a Year of
Service. [NOTE: THE HOURS OF SERVICE REQUIREMENT MAY NOT EXCEED 1,000.]
6
<PAGE>
ELIGIBILITY COMPUTATION PERIOD. After the initial eligibility computation period
described in Section 2.02 of the Plan, the Plan measures the eligibility
computation period as: (CHOOSE (C) OR (D))
[_] (c) The 12 consecutive month period beginning with each anniversary of
an Employee's Employment Commencement Date.
[x] (d) The Plan Year, beginning with the Plan Year which includes the
first anniversary of the Employee's Employment Commencement Date.
2.03 BREAK IN SERVICE - PARTICIPATION. The Break in Service rule described
in Section 2.03(B) of the Plan: (CHOOSE (A) OR (B))
[x] (a) Does not apply to the Employer's Plan.
[_] (b) Applies to the Employer's Plan.
2.06 ELECTION NOT TO PARTICIPATE. The Plan: (CHOOSE (A) OR (B))
[x] (a) Does not permit an eligible Employee or a Participant to elect not
to participate.
[_] (b) Does permit an eligible Employee or a Participant to elect not to
participate in accordance with Section 2.06 and with the following
rules: (COMPLETE (1), (2), (3) AND (4))
(1) An election is effective for a Plan Year if filed no later
than ___________________________________.
(2) An election not to participate must be effective for at least
___ Plan Year(s).
(3) Following a re-election to participate, the Employee or
Participant:
[_] (i) May not again elect not to participate for any
subsequent Plan Year.
[_] (ii) May again elect not to participate, but not
earlier than the ____________Plan Year following the
Plan Year in which the re-election first was
effective.
(4) (SPECIFY)_____________________________ [INSERT "NIA"
IF NO OTHER RULES APPLY].
ARTICLE III
EMPLOYER CONTRIBUTIONS AND FORFEITURES
3.01 AMOUNT.
PART I. [OPTIONS (A) THROUGH (G)] AMOUNT OF EMPLOYER'S CONTRIBUTION. The
Employer's annual contribution to the Trust will equal the total amount of
deferral contributions, matching contributions, qualified nonelective
contributions and nonelective contributions, as determined under this Section
3.01. (CHOOSE ANY COMBINATION OF (A), (B), (C) AND (D), OR CHOOSE (E))
[x] (a) Deferral contributions (Codess.401(k) arrangement). (CHOOSE (1) OR
(2) OR BOTH)
[x] (1) Salary reduction arrangement. The Employer must contribute
the amount by which the Participants have reduced their
Compensation for the Plan Year, pursuant to their salary
reduction agreements on file with the Advisory Committee. A
reference in the Plan to salary reduction contributions is a
reference to these amounts.
7
<PAGE>
[_] (2) Cash or deferred arrangement. The Employer will contribute
on behalf of each Participant the portion of the Participant's
proportionate share of the cash or deferred contribution which
he has not elected to receive in cash. See Section 14.02 of
the Plan. The Employer's cash or deferred contribution is the
amount the Employer may from time to time deem advisable which
the Employer designates as a cash or deferred contribution
prior to making that contribution to the Trust.
[x] (b) MATCHING CONTRIBUTIONS. The Employer will make matching
contributions in accordance with the formula(s) elected in Part II of
this Adoption Agreement Section 3.01.
[x] (c) DESIGNATED QUALIFIED NONELECTIVE CONTRIBUTIONS. The Employer, in
its sole discretion, may contribute an amount which it designates as a
qualified nonelective contribution.
[x] (d) NONELECTIVE CONTRIBUTIONS. (CHOOSE ANY COMBINATION OF (1) THROUGH
(4))
[x] (1) Discretionary contribution. The amount (or additional
amount) the Employer may from time to time deem advisable.
[_] (2) The amount (or additional amount) the Employer may from
time to time deem advisable, separately determined for each of
the following classifications of Participants: (CHOOSE (I) OR
(II))
[_] (i) Nonhighly Compensated Employees and Highly
Compensated Employees.
[_] (ii) (SPECIFY CLASSIFICATIONS)
_________________________________________.
Under this Option (2), the Advisory Committee will allocate the amount
contributed for each Participant classification in accordance with Part
11 of Adoption Agreement Section 3.04, as if the Participants in that
classification were the only Participants in the Plan.
[_] (3) ___% of the Compensation of all Participants under the
Plan, determined for the Employer's taxable year for which it
makes the contribution. [NOTE: THE PERCENTAGE SELECTED MAY NOT
EXCEED 15 % . ]
[_] (4) ___% of Net Profits but not more than $_____________.
[_] (e) FROZEN PLAN. This Plan is a frozen Plan effective _________. The
Employer will not contribute to the Plan with respect to any period
following the stated date.
NET PROFITS. The Employer: (CHOOSE (0 OR (G))
[x] (f) Need not have Net Profits to make its annual contribution under
this Plan.
[_] (g) Must have current or accumulated Net Profits exceeding
$____________ to make the following contributions: (CHOOSE AT LEAST
ONE)
[_] (1) Cash or deferred contributions described in Option (a)(2).
[_] (2) Matching contributions described in Option (b), except:
[_] (3) Qualified nonelective contributions described in Option
(c).
[_] (4) Nonelective contributions described in Option (d).
8
<PAGE>
The term "Net Profits" means the Employer's net income or profits for any
taxable year determined by the Employer upon the basis of its books of account
in accordance with generally accepted accounting practices consistently applied
without any deductions for Federal and state taxes upon income or for
contributions made by the Employer under this Plan or under any other employee
benefit plan the Employer maintains. The term "Net Profits" specifically
excludes N/A . [Note: ENTER "NIA" IF NO EXCLUSIONS APPLY.]
If the Employer requires Net Profits for matching contributions and the Employer
does not have sufficient Net Profits under Option (g), it will reduce the
matching contribution under a fixed formula on a prorata basis for all
Participants. A Participant's share of the reduced contribution will bear the
same ratio as the matching contribution the Participant would have received if
Net Profits were sufficient bears to the total matching contribution all
Participants would have received if Net Profits were sufficient. If more than
one member of a related group (as defined in Section 1.30) execute this Adoption
Agreement, each participating member will determine Net Profits separately but
will not apply this reduction unless, after combining the separately determined
Net Profits, the aggregate Net Profits are insufficient to satisfy the matching
contribution liability. "Net Profits" includes both current and accumulated Net
Profits.
PART II. [OPTIONS (H) THROUGH (J)] MATCHING CONTRIBUTION FORMULA. [NOTE: IF THE
EMPLOYER ELECTED OPTION (B), COMPLETE OPTIONS (H), (I) AND (J).]
[x] (h) AMOUNT OF MATCHING CONTRIBUTIONS. For each Plan Year, the
Employer's matching contribution IS: (CHOOSE ANY COMBINATION OF (1),
(2), (3), (4) AND (5))
[x] (1) An amount equal to 50% of each Participant's eligible
contributions for the Plan Year.
[_] (2) An amount equal to _____% of each Participant's first tier
of eligible contributions for the Plan Year, plus the
following matching percentage(s) for the following subsequent
tiers of eligible contributions for the Plan .
[_] (3) Discretionary formula.
[_] (i) An amount (or additional amount) equal to a
matching percentage the Employer from time to time
may deem advisable of the Participant's eligible
contributions for the Plan Year.
[_] (ii) An amount (or additional amount) equal to a
matching percentage the Employer from time to time
may deem advisable of each tier of the Participant's
eligible contributions for the Plan Year.
[_] (4) An amount equal to the following percentage of each
Participant's eligible contributions for the Plan Year, based
on the Participant's Years of Service:
NUMBER OF YEARS OF SERVICE MATCHING PERCENTAGE
____ ____
____ ____
____ ____
____ ____
____ ____
The Advisory Committee will apply this formula by determining
Years of Service as follows: ________________________________.
9
<PAGE>
[_] (5) A Participant's matching contributions may not: (CHOOSE
(I) OR (II))
[_] (i) Exceed ______________________________.
[_] (ii) Be less than __________________________.
RELATED EMPLOYERS. If two or more related employers (as defined in
Section 1.30) contribute to this Plan, the related employers may elect
different matching contribution formulas by attaching to the Adoption
Agreement a separately completed copy of this Part II. NOTE: SEPARATE
MATCHING CONTRIBUTION FORMULAS CREATE SEPARATE CURRENT BENEFIT
STRUCTURES THAT MUST SATISFY THE MINIMUM PARTICIPATION TEST OF CODE
SS.401 (A) (26). ]
[x] (i) DEFINITION OF ELIGIBLE CONTRIBUTIONS. Subject to the requirements
of Option (j), the term "eligible contributions" means: (CHOOSE ANY
COMBINATION OF (1) THROUGH (3))
[x] (1) Salary reduction contributions.
[_] (2) Cash or deferred contributions (including any part of the
Participant's proportionate share of the cash or deferred
contribution which the Employer defers without the
Participant's election).
[_] (3) Participant mandatory contributions, as designated in
Adoption Agreement Section 4.01. See Section 14.04 of the
Plan.
[x] (j) AMOUNT OF ELIGIBLE CONTRIBUTIONS TAKEN INTO ACCOUNT. When
determining a Participant's eligible contributions taken into account
under the matching contributions formula(s), the following rules apply:
(CHOOSE ANY COMBINATION OF (1) THROUGH (4))
[_] (1) The Advisory Committee will take into account all eligible
contributions credited for thePlan Year.
[x] (2) The Advisory Committee will disregard eligible
contributions exceeding 6 % .
[_] (3) The Advisory Committee will treat as the first tier of
eligible contributions, an amount not exceeding:
_____________________________.
The subsequent tiers of eligible contributions are:
________________________.
[_] (4) (SPECIFY)
PART 111. [OPTIONS (K) AND (1)]. SPECIAL RULES FOR CODESS.401(K) ARRANGEMENT.
(CHOOSE (K) OR (1), OR BOTH, AS APPLICABLE)
[x] (k) SALARY REDUCTION AGREEMENTS. The following rules and restrictions
apply to an Employee's salary reduction agreement: (MAKE A SELECTION
UNDER (1), (2), (3) AND (4))
(1) Limitation on amount. The Employee's salary reduction
contributions: (CHOOSE (I) OR AT LEAST ONE OF (II) OR (III))
[_] (i) No maximum limitation other than as provided in
the Plan.
10
<PAGE>
[x] (ii) May not exceed 17% of Compensation for the Plan
Year, subject to the annual additions limitation
described in Part 2 of Article III and the 402(g)
limitation described in Section 14.07 of the Plan.
[_] (iii) Based on percentages of Compensation must equal
at least ________________.
(2) An Employee may revoke, on a prospective basis, a salary reduction
agreement: (CHOOSE (I), (II), (III) OR (IV))
[_] (i) Once during any Plan Year but not later than
_______ of the Plan Year.
[_] (ii) As of any Plan Entry Date.
[_] (iii) As of the first day of any month.
[x] (iv) (SPECIFY, BUT MUST BE AT LEAST ONCE PER PLAN
YEAR) AS OF THE FIRST DAY OF ANY PAYROLL PERIOD.
(3) An Employee who revokes his salary reduction agreement may file a
new salary reduction agreement with an effective date: (CHOOSE (I),
(II), (III) OR (IV))
[_] (i) No earlier than the first day of the next Plan
Year.
[x] (ii) As of any subsequent Plan Entry Date . [_] (iii)
As of the first day of any month subsequent to the
month in which he revoked an Agreement.
[_] (iv) (SPECIFY, BUT MUST BE AT LEAST ONCE PER PLAN
YEAR FOLLOWING THE PLAN YEAR OF REVOCATION)
____________________________________.
(4) A Participant may increase or may decrease, on a prospective basis,
his salary reduction percentage or dollar amount: (CHOOSE (I), (II),
(III) OR (IV))
[_] (i) As of the beginning of each payroll period.
[_] (ii) As of the first day of each month.
[x] (iii) As of any Plan Entry Date.
[_] (iv) (SPECIFY, BUT MUST PERMIT AN INCREASE OR A
DECREASE AT LEAST ONCE PER PLAN YEAR) ___.
[_] (1) CASH OR DEFERRED CONTRIBUTIONS. For each Plan Year for which the
Employer makes a designated cash or deferred contribution, a
Participant may elect to receive directly in cash not more than the
following portion (or, if less, the 402(g) limitation described in
Section 14.07 of the Plan) of his proportionate share of that cash or
deferred contribution: (CHOOSE (1) OR (2))
[_] (1) All or any portion.
[_] (2) _____________________% .
11
<PAGE>
3.04 CONTRIBUTION ALLOCATION. The Advisory Committee will allocate
deferral contributions, matching contributions, qualified nonelective
contributions and nonelective contributions in accordance with Section 14.06 and
the elections under this Adoption Agreement Section 3.04.
PART I. [OPTIONS (A) THROUGH (D)]. SPECIAL ACCOUNTING ELECTIONS. (CHOOSE
WHICHEVER ELECTIONS ARE APPLICABLE TO THE EMPLOYER'S PLAN)
[x] (a) MATCHING CONTRIBUTIONS ACCOUNT. The Advisory Committee will
allocate matching contributions to a Participant's: (CHOOSE (1) OR (2);
(3) IS AVAILABLE ONLY IN ADDITION TO (1))
[x] (1) Regular Matching Contributions Account.
[_] (2) Qualified Matching Contributions Account.
[_] (3) Except, matching contributions under Option(s) _ of
Adoption Agreement Section 3.01 are allocable to the Qualified
Matching Contributions Account.
[x] (b) SPECIAL ALLOCATION DATES FOR SALARY REDUCTION CONTRIBUTIONS. The
Advisory Committee will allocate salary reduction contributions as of
the Accounting Date and as of the following additional allocation
dates: AS SOON AS ADMINISTRATIVELY FEASIBLE FOLLOWING RECEIPT BY THE
TRUSTEE.
[x] (c) SPECIAL ALLOCATION DATES FOR MATCHING CONTRIBUTIONS. The Advisory
Committee will allocate matching contributions as of the Accounting
Date and as of the following additional allocation dates: AS SOON AS
ADMINISTRATIVELY FEASIBLE FOLLOWING RECEIPT BY THE TRUSTEE.
[x] (d) DESIGNATED QUALIFIED NONELECTIVE CONTRIBUTIONS. Definition of
Participant. For purposes of allocating the designated qualified
nonelective contribution, "Participant" means: (CHOOSE (1), (2) OR (3))
[_] (1) All Participants.
[_] (2) Participants who are Nonhighly Compensated Employees for
the Plan Year.
[x] (3) (SPECIFY) PARTICIPANTS EMPLOYED ON THE LAST DAY OF THE
PLAN YEAR WHO ARE NONHIGHLY COMPENSATED EMPLOYEES FOR THE PLAN
YEAR.
PART II. METHOD OF ALLOCATION - NONELECTIVE CONTRIBUTION. Subject to any
restoration allocation required under Section 5.04, the Advisory Committee will
allocate and credit each annual nonelective contribution (and Participant
forfeitures treated as nonelective contributions) to the Employer Contributions
Account of each Participant who satisfies the conditions of Section 3.06, in
accordance with the allocation method selected under this Section 3.04. If the
Employer elects Option (e)(2), Option (g)(2) or Option (h), for the first 3% of
Compensation allocated to all Participants, "Compensation" does not include any
exclusions elected under Adoption Agreement Section 1.12 (other than the
exclusion of elective contributions), and the Advisory Committee must take into
account the Participant's Compensation for the entire Plan Year. (CHOOSE AN
ALLOCATION METHOD UNDER (E), (F), (G) OR (H); (I) IS MANDATORY IF THE EMPLOYER
ELECTS (F), (G) OR (H); (J) IS OPTIONAL IN ADDITION TO ANY OTHER ELECTION.)
[x] (e) Nonintegrated Allocation Formula. (CHOOSE (1) OR (2))
[x] (1) The Advisory Committee will allocate the annual
nonelective contributions in the same ratio that each
Participant's Compensation for the Plan Year bears to the
total Compensation of all Participants for the Plan Year.
12
<PAGE>
[_] (2) The Advisory Committee will allocate the annual
nonelective contributions in the same ratio that each
Participant's Compensation for the Plan Year bears to the
total Compensation of all Participants for the Plan Year. For
purposes of this Option (2), "Participant" means, in addition
to a Participant who satisfies the requirements of Section
3.06 for the Plan Year, any other Participant entitled to a
top heavy minimum allocation under Section 3.04(B), but such
Participant's allocation will not exceed 3 % of his
Compensation for the Plan Year.
[_] (f) TWO-TIERED INTEGRATED ALLOCATION FORMULA - MAXIMUM DISPARITY.
First, the Advisory Committee will allocate the annual Employer
nonelective contributions in the same ratio that each Participant's
Compensation plus Excess Compensation for the Plan Year bears to the
total Compensation plus Excess Compensation of all Participants for the
Plan Year. The allocation under this paragraph, as a percentage of each
Participant's Compensation plus Excess Compensation, must not exceed
the applicable percentage (5.7 % , 5.4 % or 4.3 %) listed under the
Maximum Disparity Table following Option (i).
The Advisory Committee then will allocate any remaining nonelective
contributions in the same ratio that each Participant's Compensation
for the Plan Year bears to the total Compensation of all Participants
for the Plan Year.
[_] (g) THREE-TIERED INTEGRATED ALLOCATION FORMULA. First, the Advisory
Committee will allocate the annual Employer nonelective contributions
in the same ratio that each Participant's Compensation for the Plan
Year bears to the total Compensation of all Participants for the Plan
Year. The allocation under this paragraph, as a percentage of each
Participant's Compensation may not exceed the applicable percentage
(5.7%, 5.4% or 4.3%) listed under the Maximum Disparity Table following
Option (i). Solely for purposes of the allocation in this first
paragraph, "Participant" means, in addition to a Participant who
satisfies the requirements of Section 3.06 for the Plan Year: (CHOOSE
(1) OR (2))
[_] (1) No other Participant.
[_] (2) Any other Participant entitled to a top heavy minimum
allocation under Section 3.04(B), but such Participant's
allocation under this Option (g) will not exceed 3 % of his
Compensation for the Plan Year.
As a second tier allocation, the Advisory Committee will allocate the
nonelective contributions in the same ratio that each Participant's
Excess Compensation for the Plan Year bears to the total Excess
Compensation of all Participants for the Plan Year. The allocation
under this paragraph, as a percentage of each Participant's Excess
Compensation, may not exceed the allocation percentage in the first
paragraph.
Finally, the Advisory Committee will allocate any remaining nonelective
contributions in the same ratio that each Participant's Compensation
for the Plan Year bears to the total Compensation of all Participants
for the Plan Year.
[_] (h) FOUR-TIERED INTEGRATED ALLOCATION FORMULA. First, the Advisory
Committee will allocate the annual Employer nonelective contributions
in the same ratio that each Participant's Compensation for the Plan
Year bears to the total Compensation of all Participants for the Plan
Year, but not exceeding 3% of each Participant's Compensation. Solely
for purposes of this first tier allocation, a "Participant" means, in
addition to any Participant who satisfies the requirements of Section
3.06 for the Plan Year, any other Participant entitled to a top heavy
minimum allocation under Section 3.04(B) of the Plan.
13
<PAGE>
As a second tier allocation, the Advisory Committee will allocate the
nonelective contributions in the same ratio that each Participant's
Excess Compensation for the Plan Year bears to the total Excess
Compensation of all Participants for the Plan Year, but not exceeding 3
% of each Participant's Excess Compensation.
As a third tier allocation, the Advisory Committee will allocate the
annual Employer contributions in the same ratio that each Participant's
Compensation plus Excess Compensation for the Plan Year bears to the
total Compensation plus Excess Compensation of all Participants for the
Plan Year. The allocation under this paragraph, as a percentage of each
Participant's Compensation plus Excess Compensation, must not exceed
the applicable percentage (2.7 % , 2.4 % or 1.3 %) listed under the
Maximum Disparity Table following Option (i).
The Advisory Committee then will allocate any remaining nonelective
contributions in the same ratio that each Participant's Compensation
for the Plan Year bears to the total Compensation of all Participants
for the Plan Year.
[_] (i) EXCESS COMPENSATION. For purposes of Option (f), (g) or (h),
"Excess Compensation" means Compensation in excess of the following
Integration Level: (CHOOSE (1) OR (2))
[_] (1) __% (not exceeding 100%) of the taxable wage base, as
determined under Section 230 of the Social Security Act, in
effect on the first day of the Plan Year: (CHOOSE ANY
COMBINATION OF (I) AND (II) OR CHOOSE (III))
[_] (i) Rounded to _______________ (but not exceeding the
taxable wage base).
[_] (ii) But not greater than $_______.
[_] (iii) Without any further adjustment or limitation.
[_] (2) $_____________ [NOTE: NOT EXCEEDING THE TAXABLE WAGE BASE
FOR THE PLAN YEAR IN WHICH THIS ADOPTION AGREEMENT FIRST IS
EFFECTIVE.]
MAXIMUM DISPARITY TABLE. For purposes of Options (f), (g) and (h), the
applicable percentage is:
<TABLE>
<CAPTION>
INTEGRATION LEVEL (AS APPLICABLE PERCENTAGES FOR APPLICABLE PERCENTAGES
PERCENTAGE OF TAXABLE WAGE BASE) OPTION (F) OR OPTION (G) FOR OPTION (H)
- -------------------------------- ------------------------ --------------
<S> <C> <C>
100% 5.7% 2.7%
More than 80 % but less than 100% 5.4% 2.4%
More than 20% (but not less than $10,001)
and not more than 80 % 4.3% 1.3%
20 % (or $10,000, if greater) or less 5 .7% 2.7%
</TABLE>
[_] (j) ALLOCATION OFFSET. The Advisory Committee will reduce a
Participant's allocation otherwise made under Part II of this Section
3.04 by the Participant's allocation under the following qualified
plan(s) maintained by the
Employer:_____________________________________.
14
<PAGE>
The Advisory Committee will determine this allocation reduction:
(CHOOSE (1) OR (2))
[_] (1) By treating the term "nonelective contribution" as
including all amounts paid or accrued by the Employer during
the Plan Year to the qualified plan(s) referenced under this
Option (j). If a Participant under this Plan also participates
in that other plan, the Advisory Committee will treat the
amount the Employer contributes for or during a Plan Year on
behalf of a particular Participant under such other plan as an
amount allocated under this Plan to that Participant's Account
for that Plan Year. The Advisory Committee will make the
computation of allocation required under the immediately
preceding sentence before making any allocation of nonelective
contributions under this Section 3.04.
[_] (2) In accordance with the formula provided in an addendum to
this Adoption Agreement, numbered 3.040).
TOP HEAVY MINIMUM ALLOCATION - METHOD OF COMPLIANCE. If a Participant's
allocation under this Section 3.04 is less than the top heavy minimum allocation
to which he is entitled under Section 3.04(B): (CHOOSE (K) OR (1))
[x] (k) The Employer will make any necessary additional contribution to the
Participant's Account, as described in Section 3.04(B)(7)(a) of the
Plan.
[_] (1) The Employer will satisfy the top heavy minimum allocation under
the following plan(s) it maintains:__________________________________.
However, the Employer will make any necessary additional contribution
to satisfy the top heavy minimum allocation for an Employee covered
only under this Plan and not under the other plan(s) designated in this
Option (1). See Section 3.04(B)(7)(b) of the Plan.
If the Employer maintains another plan, the Employer may provide in an addendum
to this Adoption Agreement, numbered Section 3.04, any modifications to the Plan
necessary to satisfy the top heavy requirements under Code ss.416.
RELATED EMPLOYERS. If two or more related employers (as defined in Section 1.30)
contribute to this Plan, the Advisory Committee must allocate all Employer
nonelective contributions (and forfeitures treated as nonelective contributions)
to each Participant in the Plan, in accordance with the elections in this
Adoption Agreement Section 3.04: (CHOOSE (M) OR (N))
[x] (m) Without regard to which contributing related group member employs
the Participant.
[_] (n) Only to the Participants directly employed by the contributing
Employer. If a Participant receives Compensation from more than one
contributing Employer, the Advisory Committee will determine the
allocations under this Adoption Agreement Section 3.04 by prorating
among the participating Employers the Participant's Compensation and,
if applicable, the Participant's Integration Level under Option (i).
3.05 FORFEITURE ALLOCATION. Subject to any restoration allocation
required under Sections 5.04 or 9.14, the Advisory Committee will allocate a
Participant forfeiture in accordance with Section 3.04: (CHOOSE (A) OR (B); (C)
AND (D) ARE OPTIONAL IN ADDITION TO (A) OR (B))
[x] (a) As an Employer nonelective contribution for the Plan Year in which
the forfeiture occurs, as if the Participant forfeiture were an
additional nonelective contribution for that Plan Year.
15
<PAGE>
[_] (b) To reduce the Employer matching contributions and nonelective
contributions for the Plan Year: (CHOOSE (1) OR (2))
[_] (1) in which the forfeiture occurs.
[_] (2) immediately following the Plan Year in which the
forfeiture occurs.
[x] (c) To the extent attributable to matching contributions: (CHOOSE (1),
(2) OR (3))
[_] (1) In the manner elected under Options (a) or (b).
[_] (2) First to reduce Employer matching contributions for the
Plan Year: (CHOOSE (I) OR (II))
[_] (i) in which the forfeiture occurs,
[_] (ii) immediately following the Plan Year in which the
forfeiture occurs,
then as elected in Options (a) or (b).
[x] (3) As a discretionary matching contribution for the Plan Year
in which the forfeiture occurs, in lieu of the manner elected
under Options (a) or (b).
[_] (d) First to reduce the Plan's ordinary and necessary administrative
expenses for the Plan Year and then will allocate any remaining
forfeitures in the manner described in Options (a), (b) or (c),
whichever applies. If the Employer elects Option (c), the forfeitures
used to reduce Plan expenses:
(CHOOSE (1) OR (2))
[_] (1) relate proportionately to forfeitures described in Option
(c) and to forfeitures described in Options (a) or (b).
[_] (2) relate first to forfeitures described in Option ___.
ALLOCATION OF FORFEITED EXCESS AGGREGATE CONTRIBUTIONS. The Advisory Committee
will allocate any forfeited excess aggregate contributions (as described in
Section 14.09): (CHOOSE (E), (0 OR (G))
[x] (e) To reduce Employer matching contributions for the Plan Year:
(CHOOSE (1) OR (2))
[x] (1) in which the forfeiture occurs.
[_] (2) immediately following the Plan Year in which the
forfeiture occurs.
[_] (f) As Employer discretionary matching contributions for the Plan Year
in which forfeited, except the Advisory Committee will not allocate
these forfeitures to the Highly Compensated Employees who incurred the
forfeitures.
[_] (g) In accordance with Options (a) through (d), whichever applies,
except the Advisory Committee will not allocate these forfeitures under
Option (a) or under Option (c)(3) to the Highly Compensated Employees
who incurred the forfeitures.
16
<PAGE>
3.06 ACCRUAL OF BENEFIT.
COMPENSATION TAKEN INTO ACCOUNT. For the Plan Year in which the Employee first
becomes a Participant, the Advisory Committee will determine the allocation of
any cash or deferred contribution, designated qualified nonelective contribution
or nonelective contribution by taking into account: (CHOOSE (A) OR (B))
[x] (a) The Employee's Compensation for the entire Plan Year.
[_] (b) The Employee's Compensation for the portion of the Plan Year in
which the Employee actually is a Participant in the Plan.
ACCRUAL REQUIREMENTS. Subject to the suspension of accrual requirements of
Section 3.06(E) of the Plan, to receive an allocation of cash or deferred
contributions, matching contributions, designated qualified nonelective
contributions, nonelective contributions and Participant forfeitures, if any,
for the Plan Year, a Participant must satisfy the conditions described in the
following elections: (CHOOSE (C) OR AT LEAST ONE OF (D) THROUGH (F))
[_] (c) SAFE HARBOR RULE. If the Participant is employed by the Employer on
the last day of the Plan Year, the Participant must complete at least
one Hour of Service for that Plan Year. If the Participant is not
employed by the Employer on the last day of the Plan Year, the
Participant must complete at least 501 Hours of Service during the Plan
Year.
[x] (d) HOURS OF SERVICE CONDITION. The Participant must complete the
following minimum number of Hours of Service during the Plan Year:
(CHOOSE AT LEAST ONE OF (1) THROUGH (5))
[x] (1) 1,000 Hours of Service.
[_] (2) (SPECIFY, BUT THE NUMBER OF HOURS OF SERVICE MAY NOT
EXCEED 1,000) ________.
[x] (3) No Hour of Service requirement if the Participant
terminates employment during the Plan Year on account of:
(CHOOSE (I), (II) OR (III))
[x] (i) Death.
[x] (ii) Disability.
[x] (iii) Attainment of Normal Retirement Age in the
current Plan Year or in a prior Plan Year.
[_] (4) Hours of Service (not exceeding 1,000) if the Participant
terminates employment with the Employer during the Plan Year,
subject to any election in Option (3).
[x] (5) No Hour of Service requirement for an allocation of the
following contributions: MATCHING CONTRIBUTIONS.
[x] (e) EMPLOYMENT CONDITION. The Participant must be employed by the
Employer on the last day of the Plan Year, irrespective of whether he
satisfies any Hours of Service condition under Option (d), with the
following exceptions: (CHOOSE (1) OR AT LEAST ONE OF (2) THROUGH (5))
[_] (1) No exceptions.
[x] (2) Termination of employment because of death.
[x] (3) Termination of employment because of disability.
17
<PAGE>
[x] (4) Termination of employment following attainment of Normal
Retirement Age.
[x] (5) No employment condition for the following
contributions: MATCHING CONTRIBUTIONS.
[_] (f) (SPECIFY OTHER CONDITIONS, IF APPLICABLE): _______________________.
SUSPENSION OF ACCRUAL REQUIREMENTS. The suspension of accrual requirements of
Section 3.06(E) of the Plan: (CHOOSE (G), (H) OR (I))
[_] (g) Applies to the Employer's Plan.
[x] (h) Does not apply to the Employer's Plan.
[_] (i) Applies in modified form to the Employer's Plan, as described in an
addendum to this Adoption Agreement, numbered Section 3.06(E).
SPECIAL ACCRUAL REQUIREMENTS FOR MATCHING CONTRIBUTIONS. If the Plan allocates
matching contributions on two or more allocation dates for a Plan Year, the
Advisory Committee, unless otherwise specified in Option (1), will apply any
Hours of Service condition by dividing the required Hours of Service on a
prorata basis to the allocation periods included in that Plan Year. Furthermore,
a Participant who satisfies the conditions described in this Adoption Agreement
Section 3.06 will receive an allocation of matching contributions (and
forfeitures treated as matching contributions) only if the Participant satisfies
the following additional condition(s): (CHOOSE (J) OR AT LEAST ONE OF (K) OR
(1))
[_] (j) No additional conditions.
[_] (k) The Participant is not a Highly Compensated Employee for the Plan
Year. This Option (k) applies to: (CHOOSE (1) OR (2))
[_] (1) All matching contributions.
[_] (2) Matching contributions described in Option(s) of Adoption
Agreement Section 3.01.
[x] (l) (SPECIFY) EXCESS MATCHING CONTRIBUTIONS WILL BE FORFEITED UNLESS
DISTRIBUTED PURSUANT TO SECTION 14.08 OR 14.09.
3.15 MORE THAN ONE PLAN LIMITATION. If the provisions of Section 3.15
apply, the Excess Amount attributed to this Plan equals: (CHOOSE (A), (B) OR
(C))
[_] (a) The product of:
(i) the total Excess Amount allocated as of such date (including
any amount which the Advisory Committee would have allocated but
for the limitations of Code ss.415), times
(ii) the ratio of (1) the amount allocated to the Participant as
of such date under this Plan divided by (2) the total amount
allocated as of such date under all qualified defined
contribution plans (determined without regard to the limitations
of Code ss.415).
[x] (b) The total Excess Amount.
[_] (c) None of the Excess Amount.
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<PAGE>
3.18 DEFINED BENEFIT PLAN LIMITATION.
APPLICATION OF LIMITATION. The limitation under Section 3.18 of the Plan:
(CHOOSE (A) OR (B))
[x] (a) Does not apply to the Employer's Plan because the Employer does not
maintain and never has maintained a defined benefit plan covering any
Participant in this Plan.
[_] (b) Applies to the Employer's Plan. To the extent necessary to satisfy
the limitation under Section 3.18, the Employer will reduce: (CHOOSE
(1) OR (2))
[_] (1) The Participant's projected annual benefit under the
defined benefit plan under which the Participant participates.
[_] (2) Its contribution or allocation on behalf of the
Participant to the defined contribution plan under which the
Participant participates and then, if necessary, the
Participant's projected annual benefit under the defined
benefit plan under which the Participant participates.
[NOTE: IF THE EMPLOYER SELECTS (A), THE REMAINING OPTIONS IN THIS SECTION 3.18
DO NOT APPLY TO THE EMPLOYER'S PLAN.]
COORDINATION WITH TOP HEAVY MINIMUM ALLOCATION. The Advisory Committee will
apply the top heavy minimum allocation provisions of Section 3.04(B) of the Plan
with the following modifications: (CHOOSE (C) OR AT LEAST ONE OF (D) OR (E))
[_] (c) No modifications.
[_] (d) For Non-Key Employees participating only in this Plan, the top
heavy minimum allocation is the minimum allocation described in Section
3.04(B) determined by substituting ___ % (not less than 4%) for "3 % ,"
except: (CHOOSE (I) OR (II))
[_] (i) No exceptions.
[_] (ii) Plan Years in which the top heavy ratio exceeds 90%.
[_] (e) For Non-Key Employees also participating in the defined benefit
plan, the top heavy minimum is: (CHOOSE (1) OR (2))
[_] (1) 5 % of Compensation (as determined under Section 3.04(B)
or the Plan) irrespective of the contribution rate of any Key
Employee, except: (CHOOSE (I) OR (II))
[_] (i) No exceptions.
[_] (ii) Substituting "7 1/2%" for "5%" if the top heavy
ratio does not exceed 90% .
[_] (2) 0%. [NOTE: THE EMPLOYER MAY NOT SELECT THIS OPTION (2)
UNLESS THE DEFINED BENEFIT PLAN SATISFIES THE TOP HEAVY
MINIMUM BENEFIT REQUIREMENTS OF CODESS.416 FOR THESE NON-KEY
EMPLOYEES.]
ACTUARIAL ASSUMPTIONS FOR TOP HEAVY CALCULATION. To determine the top heavy
ratio, the Advisory Committee will use the following interest rate and mortality
assumptions to value accrued benefits under a defined benefit
plan:__________________ .
If the elections under this Section 3.18 are not appropriate to satisfy the
limitations of Section 3.18, or the top heavy requirements under Code ss.416,
the Employer must provide the appropriate provisions in an addendum to this
Adoption Agreement.
19
<PAGE>
ARTICLE IV
PARTICIPANT CONTRIBUTIONS
4.01 PARTICIPANT NONDEDUCTIBLE CONTRIBUTIONS. The Plan: (CHOOSE (A) OR
(B); (C) IS AVAILABLE ONLY WITH (B))
[x] (a) Does not permit Participant nondeductible contributions.
[_] (b) Permits Participant nondeductible contributions, pursuant to
Section 14.04 of the Plan.
[_] (c) The following portion of the Participant's nondeductible
contributions for the Plan Year are mandatory contributions under
Option (i)(3) of Adoption Agreement Section 3.01: (CHOOSE (1) OR (2))
[_] (1) The amount which is not less than: ______________________.
[_] (2) The amount which is not greater than: ___________________.
ALLOCATION DATES. The Advisory Committee will allocate nondeductible
contributions for each Plan Year as of the Accounting Date and the following
additional allocation dates: (CHOOSE (D) OR (E))
[_] (d) No other allocation dates.
[_] (e) (SPECIFY)______________________________.
As of an allocation date, the Advisory Committee will credit all nondeductible
contributions made for the relevant allocation period. Unless otherwise
specified in (e), a nondeductible contribution relates to an allocation period
only if actually made to the Trust no later than 30 days after that allocation
period ends.
4.05 PARTICIPANT CONTRIBUTION - WITHDRAWAL/DISTRIBUTION. Subject to the
restrictions of Article VI, the following distribution options apply to a
Participant's Mandatory Contributions Account, if any, prior to his Separation
from Service: (CHOOSE (A) OR AT LEAST ONE OF (B) THROUGH (D))
[_] (a) No distribution options prior to Separation from Service.
[_] (b) The same distribution options applicable to the Deferral
Contributions Account prior to the Participant's Separation from
Service, as elected in Adoption Agreement Section 6.03.
[_] (c) Until he retires, the Participant has a continuing election to
receive all or any portion of his Mandatory Contributions Account if:
(CHOOSE (1) OR AT LEAST ONE OF (2) THROUGH (4))
[_] (1) No conditions.
[_] (2) The mandatory contributions have accumulated for at least
Plan Years since the Plan Year for which contributed.
[_] (3) The Participant suspends making nondeductible
contributions for a period of months.
[_] (4) (SPECIFY) ________________________________________.
[_] (d) (SPECIFY) _____________________________.
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<PAGE>
ARTICLE V
TERMINATION OF SERVICE - PARTICIPANT VESTING
5.01 NORMAL RETIREMENT. Normal Retirement Age under the Plan is:
(CHOOSE (A) OR (B))
[x] (a) 65 [STATE AGE, BUT MAY NOT EXCEED AGE 65].
[_] (b) The later of the date the Participant attains _________ years of
age or the _________ anniversary of the first day of the Plan Year in
which the Participant commenced participation in the Plan. [THE AGE
SELECTED MAY NOT EXCEED AGE 65 AND THE ANNIVERSARY SELECTED MAY NOT
EXCEED THE 5TH.]
5.02 PARTICIPANT DEATH OR DISABILITY. The 100 % vesting rule under
Section 5.02 of the Plan: (CHOOSE (A) OR CHOOSE ONE OR BOTH OF (B) AND (C))
[_] (a) Does not apply.
[x] (b) Applies to death.
[x] (c) Applies to disability.
5.03 VESTING SCHEDULE.
DEFERRAL CONTRIBUTIONS ACCOUNT/QUALIFIED MATCHING CONTRIBUTIONS
ACCOUNT/QUALIFIED NONELECTIVE CONTRIBUTIONS ACCOUNT/MANDATORY CONTRIBUTIONS
ACCOUNT. A Participant has a 100% Nonforfeitable interest at all times in his
Deferral Contributions Account, his Qualified Matching Contributions Account,
his Qualified Nonelective Contributions Account and in his Mandatory
Contributions Account.
REGULAR MATCHING CONTRIBUTIONS ACCOUNT/EMPLOYER CONTRIBUTIONS ACCOUNT. With
respect to a Participant's Regular Matching Contributions Account and Employer
Contributions Account, the Employer elects the following vesting schedule:
(CHOOSE (A) OR (B); (C) AND (D) ARE AVAILABLE ONLY AS ADDITIONAL OPTIONS)
[_] (a) Immediate vesting. 100% Nonforfeitable at all times. [NOTE: THE
EMPLOYER MUST ELECT OPTION (A) IF THE ELIGIBILITY CONDITIONS UNDER
ADOPTION AGREEMENT SECTION 2.01 (C) REQUIRE 2 YEARS OF SERVICE OR MORE
THAN 12 MONTHS OF EMPLOYMENT.]
21
<PAGE>
[x] (b) Graduated Vesting Schedules.
<TABLE>
<CAPTION>
TOP HEAVY SCHEDULE NOT TOP HEAVY SCHEDULE
(MANDATORY) (OPTIONAL)
Years of Nonforfeitable Years of Nonforfeitable
SERVICE PERCENTAGE SERVICE PERCENTAGE
--------- -------------- --------- ------------
<S> <C> <C>
Less than 1 0% Less than 1 %
1 0% 1 %
2 20% 2 %
3 40% 3 %
4 60% 4 %
5 80% 5 %
6 or more 100% 6 %
7 or more 100%
</TABLE>
[_] (c) Special vesting election for Regular Matching Contributions
Account. In lieu of the election under Options (a) or (b), the Employer
elects the following vesting schedule for a Participant's Regular
Matching Contributions Account: (CHOOSE (1) OR (2))
[_] (1) 100% Nonforfeitable at all times.
[_] (2) In accordance with the vesting schedule described in the
addendum to this Adoption Agreement, numbered 5.03(c). [NOTE:
IF THE EMPLOYER ELECTS THIS OPTION (C) (2), THE ADDENDUM MUST
DESIGNATE THE APPLICABLE VESTING SCHEDULE (S) USING THE SAME
FORMAT AS USED IN OPTION (B).]
[NOTE: UNDER OPTIONS (B) AND (C) (2), THE EMPLOYER MUST COMPLETE A TOP HEAVY
SCHEDULE WHICH SATISFIES CODE SS.416. THE EMPLOYER, AT ITS OPTION, MAY COMPLETE
A NON TOP HEAVY SCHEDULE. THE NON TOP HEAVY SCHEDULE MUST SATISFY CODESS.411
(A)(2). ALSO SEE SECTION 7.05 OF THE PLAN.]
[x] (d) The Top Heavy Schedule under Option (b) (and, if applicable, under
Option (c)(2)) applies: (CHOOSE (1) OR (2))
[_] (1) Only in a Plan Year for which the Plan is top heavy.
[x] (2) In the Plan Year for which the Plan first is top heavy and
then in all subsequent Plan Years. [NOTE: THE EMPLOYER MAY NOT
ELECT OPTION (D) UNLESS IT HAS COMPLETED A NON TOP HEAVY
SCHEDULE.]
MINIMUM VESTING. (CHOOSE (E) OR (F))
[x] (e) The Plan does not apply a minimum vesting rule.
[_] (f) A Participant's Nonforfeitable Accrued Benefit will never be less
than the lesser of $ or his entire Accrued Benefit, even if the
application of a graduated vesting schedule under Options (b) or (c)
would result in a smaller Nonforfeitable Accrued Benefit.
LIFE INSURANCE INVESTMENTS. The Participant's Accrued Benefit attributable to
insurance contracts purchased on his behalf under Article XI is: (CHOOSE (G) OR
(H))
[N/A] (g) Subject to the vesting election under Options (a), (b) or (c).
[_] (h) 100% Nonforfeitable at all times, irrespective of the vesting
election under Options (b) or (c)(2).
22
<PAGE>
5.04 CASH-OUT DISTRIBUTIONS TO PARTIALLY-VESTED PARTICIPANTS/
RESTORATION OF FORFEITED ACCRUED BENEFIT. The deemed cash-out rule described in
Section 5.04(C) of the Plan: (CHOOSE (A) OR (B))
[_] (a) Does not apply.
[x] (b) Will apply to determine the timing of forfeitures for 0% vested
Participants. A Participant is not a 0% vested Participant if he has a
Deferral Contributions Account.
5.06 YEAR OF SERVICE - VESTING.
VESTING COMPUTATION PERIOD. The Plan measures a Year of Service on the basis of
the following 12 consecutive month periods: (CHOOSE (A) OR (B))
[x] (a) Plan Years.
[_] (b) Employment Years. An Employment Year is the 12 consecutive month
period measured from the Employee's Employment Commencement Date and
each successive 12 consecutive month period measured from each
anniversary of that Employment Commencement Date.
HOURS OF SERVICE. The minimum number of Hours of Service an Employee must
complete during a vesting computation period to receive credit for a Year of
Service is: (CHOOSE (C) OR (D))
[x] (c) 1,000 Hours of Service.
[_] (d) ______________ Hours of Service. [NOTE: THE HOURS OF SERVICE
REQUIREMENT MAY NOT EXCEED 1,000.]
5.08 INCLUDED YEARS OF SERVICE - VESTING. The Employer specifically
excludes the following Years of Service: (CHOOSE (A) OR AT LEAST ONE OF (B)
THROUGH (E))
[x] (a) None other than as specified in Section 5.08(a) of the Plan.
[_] (b) Any Year of Service before the Participant attained the age of .
Note: The age selected may not exceed age 18.]
[_] (c) Any Year of Service during the period the Employer did not maintain
this Plan or a predecessor plan.
[_] (d) Any Year of Service before a Break in Service if the number of
consecutive Breaks in Service equals or exceeds the greater of 5 or the
aggregate number of the Years of Service prior to the Break. This
exception applies only if the Participant is 0% vested in his Accrued
Benefit derived from Employer contributions at the time he has a Break
in Service. Furthermore, the aggregate number of Years of Service
before a Break in Service do not include any Years of Service not
required to be taken into account under this exception by reason of any
prior Break in Service.
[_] (e) Any Year of Service earned prior to the effective date of ERISA if
the Plan would have disregarded that Year of Service on account of an
Employee's Separation from Service under a Plan provision in effect and
adopted before January 1, 1974.
23
<PAGE>
ARTICLE VI
TIME AND METHOD OF PAYMENTS OF BENEFITS
CODE SS.411(D)(6) PROTECTED BENEFITS. The elections under this Article VI may
not eliminate Code ss.411(d)(6) protected benefits. To the extent the elections
would eliminate a Code ss.41l(d)(6) protected benefit, see Section 13.02 of the
Plan. Furthermore, if the elections liberalize the optional forms of benefit
under the Plan, the more liberal options apply on the later of the adoption date
or the Effective Date of this Adoption Agreement.
6.01 TIME OF PAYMENT OF ACCRUED BENEFIT.
DISTRIBUTION DATE. A distribution date under the Plan means ANY DY OF THE PLAN
YEAR . [Note: THE EMPLOYER MUST SPECIFY THE APPROPRIATE DATE (S). THE SPECIFIED
DISTRIBUTION DATES PRIMARILY ESTABLISH ANNUITY STARTING DATES AND THE NOTICE AND
CONSENT PERIODS PRESCRIBED BY THE PLAN. THE PLAN ALLOWS THE TRUSTEE AN
ADMINISTRATIVELY PRACTICABLE PERIOD OF TIME TO MAKE THE ACTUAL DISTRIBUTION
RELATING TO A PARTICULAR DISTRIBUTION DATE.]
NONFORFEITABLE ACCRUED BENEFIT NOT EXCEEDING $3,500. Subject to the limitations
of Section 6.01(A)(1), the distribution date for distribution of a
Nonforfeitable Accrued Benefit not exceeding $3,500 is: (CHOOSE (A), (B), (C),
(D) OR (E))
[_] (a) __________of the ___________ Plan Year beginning after the
Participant's Separation from Service.
[x] (b) AS SOON AS ADMINISTRATIVELY FEASIBLE FOLLOWING RECEIPT BY THE
TRUSTEE OF THE LAST PARTICIPANT DEPOSIT following the Participant's
Separation from Service.
[_] (c) ___ of the Plan Year after the Participant incurs ___ Break(s) in
Service (as defined in Article V).
[_] (d) ____ following the Participant's attainment of Normal Retirement
Age, but not earlier than ___ days following his Separation from
Service.
[_] (e) (SPECIFY) ______________________________________.
NONFORFEITABLE ACCRUED BENEFIT EXCEEDS $3,500. See the elections under Section
6.03.
DISABILITY. The distribution date, subject to Section 6.01(A)(3), is: (CHOOSE
(0, (G) OR (H))
[_] (f) after the Participant terminates employment because of disability.
[x] (g) The same as if the Participant had terminated employment without
disability.
[_] (h) (SPECIFY) ________________________________________________________.
HARDSHIP. (CHOOSE (I) OR (J))
[x] (i) The Plan does not permit a hardship distribution to a Participant
who has separated from Service.
[_] (j) The Plan permits a hardship distribution to a Participant who has
separated from Service in accordance with the hardship distribution
policy stated in: (CHOOSE (1), (2) OR (3))
[_] (1) Section 6.01(A)(4) of the Plan.
[_] (2) Section 14.11 of the Plan.
[_] (3) The addendum to this Adoption Agreement, numbered Section
6.01.
24
<PAGE>
DEFAULT ON A LOAN. If a Participant or Beneficiary defaults on a loan made
pursuant to a loan policy adopted by the Advisory Committee pursuant to Section
9.04, the Plan: (CHOOSE (K), (L) OR (M))
[x] (k) Treats the default as a distributable event. The Trustee, at the
time of the default, will reduce the Participant's Nonforfeitable
Accrued Benefit by the lesser of the amount in default (plus accrued
interest) or the Plan's security interest in that Nonforfeitable
Accrued Benefit. To the extent the loan is attributable to the
Participant's Deferral Contributions Account, Qualified Matching
Contributions Account or Qualified Nonelective Contributions Account,
the Trustee will not reduce the Participant's Nonforfeitable Accrued
Benefit unless the Participant has separated from Service or unless the
Participant has attained age 591/2 .
[_] (1) Does not treat the default as a distributable event. When an
otherwise distributable event first occurs pursuant to Section 6.01 or
Section 6.03 of the Plan, the Trustee will reduce the Participant's
Nonforfeitable Accrued Benefit by the lesser of the amount in default
(plus accrued interest) or the Plan's security interest in that
Nonforfeitable Accrued Benefit.
[_] (m) (SPECIFY)______________________________________________________.
6.02 METHOD OF PAYMENT OF ACCRUED BENEFIT. The Advisory Committee will
apply Section 6.02 of the Plan with the following modifications: (CHOOSE (A) OR
AT LEAST ONE OF (B), (C), (D) AND (E))
[_] (a) No modifications.
[_] (b) Except as required under Section 6.01 of the Plan, a lump sum
distribution is not available: ____.
[x] (c) An installment distribution: (CHOOSE (1) OR AT LEAST ONE OF (2) OR
(3))
[_] (1) Is not available under the Plan.
[_] (2) May not exceed the lesser of - years or the maximum period
permitted under Section 6.02.
[x] (3) (SPECIFY) ONLY A SERIES OF INSTALLMENTS CHOSEN BY THE
MEMBER WITH A MINIMUM PAYMENT EACH YEAR BEGINNING WITH THE
YEAR THE MEMBER TURNS AGE 70'H.
[x] (d) The Plan permits the following annuity options: A STRAIGHT LIFE
ANNUITY; SINGLE LIFE ANNUITIES WITH CERTAIN PERIODS OF FIVE, TEN, OR
FIFTEEN YEARS; A SINGLE LIFE ANNUITY WITH INSTALLMENT REFUND;
SURVIVORSHIP LIFE ANNUITIES WITH INSTALLMENT REFUND AND SURVIVOR
PERCENTAGES OF 50, 66 2/3, OR 100; FIXED PERIOD ANNUITIES FOR ANYNERIOD
OF WHOLE MONTHS WHICH IS NOT LESS THAN SIXTY AND DOES NOT EXCEED THE
LIFE EXPECTANCY OF THE MEMBER AND THE NAMED BENEFICIARY AS PROVIDED
WHERE THE LIFE EXPECTANCY IS NOT RECALCULATED.
Any Participant who elects a life annuity option is subject to the
requirements of Sections 6.04(A), (B), (C) and (D) of the Plan. See
Section 6.04(E). [NOTE: THE EMPLOYER MAY SPECIFY ADDITIONAL ANNUITY
OPTIONS IN AN ADDENDUM TO THIS ADOPTION AGREEMENT, NUMBERED 6.02(D).]
[x] (e) If the Plan invests in qualifying Employer securities, as described
in Section 10.03(F), a Participant eligible to elect distribution under
Section 6.03 may elect to receive that distribution in Employer
securities only in accordance with the provisions of the addendum to
this Adoption Agreement, numbered 6.02(e).
25
<PAGE>
6.03 BENEFIT PAYMENT ELECTIONS.
PARTICIPANT ELECTIONS AFTER SEPARATION FROM SERVICE. A Participant who is
eligible to make distribution elections under Section 6.03 of the Plan may elect
to commence distribution of his Nonforfeitable Accrued Benefit: (CHOOSE AT LEAST
ONE OF (A) THROUGH (C))
[_] (a) As of any distribution date, but not earlier than _________ of the
________ Plan Year beginning after the Participant's Separation from
Service.
[x] (b) As of the following date(s): (CHOOSE AT LEAST ONE OF OPTIONS (1)
THROUGH (6))
[_] (1) Any distribution date after the close of the Plan Year in
which the Participant attains Normal Retirement Age.
[x] (2) Any distribution date following his Separation from
Service with the Employer.
[_] (3) Any distribution date in the _______________Plan Year(s)
beginning after his Separation from Service.
[_] (4) Any distribution date in the Plan Year after the
Participant incurs __________ Break(s) in Service (as defined
in Article V).
[_] (5) Any distribution date following attainment of age
________and completion of at least ___ Years of Service (as
defined in Article V).
[_] (6) (SPECIFY) ______________________________________________.
[_] (c) (SPECIFY)
The distribution events described in the election(s) made under Options
(a), (b) or (c) apply equally to all Accounts maintained for the Participant
unless otherwise specified in Option (c).
PARTICIPANT ELECTIONS PRIOR TO SEPARATION FROM SERVICE - REGULAR MATCHING
CONTRIBUTIONS ACCOUNT AND EMPLOYER CONTRIBUTIONS ACCOUNT. Subject to the
restrictions of Article VI, the following distribution options apply to a
Participant's Regular Matching Contributions Account and Employer Contributions
Account prior to his Separation from Service: (CHOOSE (D) OR AT LEAST ONE OF (E)
THROUGH (H))
[_] (d) No distribution options prior to Separation from Service.
[_] (e) Attainment of Specified Age. Until he retires, the Participant has
a continuing election to receive all or any portion of his
Nonforfeitable interest in these Accounts after he attains: (CHOOSE (1)
OR (2))
[_] (1) Normal Retirement Age.
[_] (2) ______years of age and is at least ____% vested in these
Accounts. [NOTE: IF THE PERCENTAGE IS LESS THAN 100%, SEE THE
SPECIAL VESTING FORMULA IN SECTION 5.03.]
[_] (f) After a Participant has participated in the Plan for a period of
not less than years and he is 100% vested in these Accounts, until he
retires, the Participant has a continuing election to receive all or
any portion of the Accounts. [NOTE: THE NUMBER IN THE BLANK SPACE MAY
NOT BE LESS THAN 5.]
26
<PAGE>
[x] (g) Hardship. A Participant may elect a hardship distribution prior to
his Separation from Service in accordance with the hardship
distribution policy: (CHOOSE (1), (2) OR (3); (4) IS AVAILABLE ONLY AS
AN ADDITIONAL OPTION)
[_] (1) Under Section 6.01(A)(4) of the Plan.
[x] (2) Under Section 14.11 of the Plan.
[_] (3) Provided in the addendum to this Adoption Agreement,
numbered Section 6.03.
[_] (4) In no event may a Participant receive a hardship
distribution before he is at least ___% vested in these
Accounts. [NOTE: IF THE PERCENTAGE IN THE BLANK IS LESS THAN
100%, SEE THE SPECIAL VESTING FORMULA IN SECTION 5.03.]
[_] (h) (SPECIFY)
[NOTE: THE EMPLOYER MAY USE AN ADDENDUM, NUMBERED 6.03, TO PROVIDE ADDITIONAL
LANGUAGE AUTHORIZED BY OPTIONS (B) (6), (C), (G) (3) OR (H) OF THIS ADOPTION
AGREEMENT SECTION 6.03. ]
PARTICIPANT ELECTIONS PRIOR TO SEPARATION FROM SERVICE - DEFERRAL CONTRIBUTIONS
ACCOUNT, QUALIFIED MATCHING CONTRIBUTIONS ACCOUNT AND QUALIFIED NONELECTIVE
CONTRIBUTIONS ACCOUNT. Subject to the restrictions of Article VI, the following
distribution options apply to a Participant's Deferral Contributions Account,
Qualified Matching Contributions Account and Qualified Nonelective Contributions
Account prior to his Separation from Service: (CHOOSE (I) OR AT LEAST ONE OF (J)
THROUGH (1))
[_] (i) No distribution options prior to Separation from Service.
[x] (j) Until he retires, the Participant has a continuing election to
receive all or any portion of these Accounts after he attains: (CHOOSE
(1) OR (2))
[_] (1) The later of Normal Retirement Age or age 591/2.
[x] (2) Age 591/2(at least 591/2).
[x] (k) Hardship. A Participant, prior to this Separation from Service, may
elect a hardship distribution from his Deferral Contributions Account
in accordance with the hardship distribution policy under Section 14.11
of the Plan.
[_] (1) (SPECIFY) ___________________________________________________.
[NOTE: OPTION (1) MAY NOT PERMIT IN SERVICE DISTRIBUTIONS PRIOR TO AGE
59~'Z (OTHER THAN HARDSHIP) AND MAY NOT MODIFY THE HARDSHIP POLICY
DESCRIBED IN SECTION 14.11.]
SALE OF TRADE OR BUSINESS/SUBSIDIARY. If the Employer sells substantially all of
the assets (within the meaning of Code ss.409(d)(2)) used in a trade or business
or sells a subsidiary (within the meaning of Code ss.409(d)(3)), a Participant
who continues employment with the acquiring corporation is eligible for
distribution from his Deferral Contributions Account, Qualified Matching
Contributions Account and Qualified Nonelective Contributions Account: (CHOOSE
(M) OR (N))
[_] (m) only as described in this Adoption Agreement Section 6.03 for
distributions prior to Separation from Service.
27
<PAGE>
[x] (n) As if he has a Separation from Service. After March 31, 1988, a
distribution authorized solely by reason of this Option (n) must
constitute a lump sum distribution, determined in a manner consistent
with Code ss.401(k)(10) and the applicable Treasury regulations.
6.04 ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND SURVIVING SPOUSES. The
annuity distribution requirements of Section 6.04: (CHOOSE (A) OR (B))
[_] (a) Apply only to a Participant described in Section 6.04(E) of the
Plan (relating to the profit sharing exception to the joint and
survivor requirements).
[x] (b) Apply to all Participants.
ARTICLE IX
ADVISORY COMMITTEE - DUTIES WITH RESPECT TO PARTICIPANTS' ACCOUNTS
9.10 VALUE OF PARTICIPANT'S ACCRUED BENEFIT. If a distribution (other
than a distribution from a segregated Account and other than a corrective
distribution described in Sections 14.07, 14.08, 14.09 or 14.10 of the Plan)
occurs more than 90 days after the most recent valuation date, the distribution
will include interest at: (CHOOSE (A), (B) OR (C))
[x] (a) 0 % per annum. [NOTE: THE PERCENTAGE MAY EQUAL 0 % . ]
[_] (b) The 90 day Treasury bill rate in effect at the beginning of the
current valuation period.
[_] (c) (SPECIFY)__________________________________________.
9.11 ALLOCATION AND DISTRIBUTION OF NET INCOME GAIN OR LOSS. Pursuant
to Section 14.12, to determine the allocation of net income, gain or loss:
(COMPLETE ONLY THOSE ITEMS, IF ANY, WHICH ARE APPLICABLE TO THE EMPLOYER'S PLAN)
[x] (a) For salary reduction contributions, the Advisory Committee will:
(CHOOSE (1), (2), (3), (4) OR (5))
[_] (1) Apply Section 9.11 without modification.
[_] (2) Use the segregated account approach described in Section
14.12.
[_] (3) Use the weighted average method described in Section
14.12, based on a ____weighting period.
[_] (4) Treat as part of the relevant Account at the beginning of
the valuation period ____% of the salary reduction
contributions: (CHOOSE (I) OR (II))
[_] (i) made during that valuation period.
[_] (ii) made by the following specified time:
[x] (5) Apply the allocation method described in the addendum to
this Adoption Agreement numbered 9.11(a).
[x] (b) For matching contributions, the Advisory Committee will: (CHOOSE
(1), (2), (3) OR (4))
[_] (1) Apply Section 9.11 without modification.
28
<PAGE>
[_] (2) Use the weighted average method described in Section
14.12, based on a ____weighting period.
[_] (3) Treat as part of the relevant Account at the beginning of
the valuation period __% of the matching contributions
allocated during the valuation period.
[x] (4) Apply the allocation method described in the addendum to
this Adoption Agreement numbered 9.11(b).
[_] (c) For Participant nondeductible contributions, the Advisory Committee
will: (CHOOSE (1), (2), (3), (4) OR (S))
[_] (1) Apply Section 9.11 without modification.
[_] (2) Use the segregated account approach described in Section
14.12.
[_] (3) Use the weighted average method described in Section
14.12, based on a _________ weighting period.
[_] (4) Treat as part of the relevant Account at the beginning of
the valuation period _____% of the Participant nondeductible
contributions: (CHOOSE (I) OR (II))
[_] (i) made during that valuation period.
[_] (ii) made by the following specified time:
[_] (5) Apply the allocation method described in the addendum to
this Adoption Agreement numbered 9.11(c).
ARTICLE X
TRUSTEE AND CUSTODIAN, POWERS AND DUTIES
10.03 INVESTMENT POWERS. Pursuant to Section 10.03[F] of the Plan, the
aggregate investments in qualifying Employer securities and in qualifying
Employer real property: (CHOOSE (A) OR (B))
[_] (a) May not exceed 10% of Plan assets.
[x] (b) May not exceed 100 % of Plan assets. [NOTE: THE PERCENTAGE MAY NOT
EXCEED 100 % . ]
10.14 VALUATION OF TRUST. In addition to each Accounting Date, the
Trustee must value the Trust Fund on the following valuation date(s): (CHOOSE
(A) OR (B))
[_] (a) No other mandatory valuation dates.
[x] (b) (SPECIFY) ANY DAY OF THE PLAN YEAR UPON WHICH ASSETS CAN BE
PURCHASED OR SOLD, COMMONLY REFERRED TO AS "DAILY" ACCOUNTING.
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EFFECTIVE DATE ADDENDUM
(RESTATED PLANS ONLY)
The Employer must complete this addendum only if the restated Effective
Date specified in Adoption Agreement Section 1.18 is different than the restated
effective date for at least one of the provisions listed in this addendum. In
lieu of the restated Effective Date in Adoption Agreement Section 1.18, the
following special effective dates apply: (CHOOSE WHICHEVER ELECTIONS APPLY)
[_] (a) COMPENSATION DEFINITION. The Compensation definition of Section
1.12 (other than the $200,000 limitation) is effective for Plan Years
beginning after _____________. [Note: MAY NOT BE EFFECTIVE LATER THAN
THE FIRST DAY OF THE FIRST PLAN YEAR BEGINNING AFTER THE EMPLOYER
EXECUTES THIS ADOPTION AGREEMENT TO RESTATE THE PLAN FOR THE TAX REFORM
ACT OF 1986, IF APPLICABLE.]
[_] (b) ELIGIBILITY CONDITIONS. The eligibility conditions specified in
Adoption Agreement Section 2.01 are effective for Plan Years beginning
after ______________________.
[_] (c) SUSPENSION OF YEARS OF SERVICE. The suspension of Years of Service
rule elected under Adoption Agreement Section 2.03 is effective for
Plan Years beginning after ____________________.
[_] (d) CONTRIBUTION/ALLOCATION FORMULA. The contribution formula elected
under Adoption Agreement Section 3.01 and the method of allocation
elected under Adoption Agreement Section 3.04 is effective for Plan
Years beginning after ___________________.
[_] (e) ACCRUAL REQUIREMENTS. The accrual requirements of Section 3.06 are
effective for Plan Years beginning after ___________________.
[_] (t) EMPLOYMENT CONDITION. The employment condition of Section 3.06 is
effective for Plan Years beginning after ___________________.
[_] (g) ELIMINATION OF NET PROFITS. The requirement for the Employer not to
have net profits to contribute to this Plan is effective for Plan Years
beginning after _________________________. [NOTE: THE DATE SPECIFIED
MAY NOT BE EARLIER THAN DECEMBER 31, 1985.]
[_] (h) VESTING SCHEDULE. The vesting schedule elected under Adoption
Agreement Section 5.03 is effective for Plan Years beginning after
_______________________.
[_] (i) ALLOCATION OF EARNINGS. The special allocation provisions elected
under Adoption Agreement Section 9.11 are effective for Plan Years
beginning after ___________________.
[_] (j) (SPECIFY)_________________________________________________________.
For Plan Years prior to the special Effective Date, the terms of the
Plan prior to its restatement under this Adoption Agreement will control for
purposes of the designated provisions. A special Effective Date may not result
in the delay of a Plan provision beyond the permissible Effective Date under any
applicable law requirements.
30
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EXECUTION PAGE
The Trustee (and Custodian, if applicable), by executing this Adoption
Agreement, accepts its position and agrees to all of the obligations,
responsibilities and duties imposed upon the Trustee (or Custodian) under the
Master Plan and Trust. The Employer hereby agrees to the provisions of this Plan
and Trust, and in witness of its agreement, the Employer by its duly authorized
officers, has executed this Adoption Agreement, and the Trustee (and Custodian,
if applicable) signified its acceptance, on this _____________________day
of______________________, 1997.
Name and EIN of Employer: BENCHMARK ELECTRONICS, INC. EIN: #74-2211011
Signed: _______________________________________________________________________
Name(s) of Trustee: TEXAS COMMERCE BANK NATIONAL ASSOCIATION
Signed: _______________________________________________________________________
_______________________________________________________________________
Name of Custodian:_____________________________________________________________
Signed: ______________________________________________________________________
[NOTE: A TRUSTEE IS MANDATORY, BUT A CUSTODIAN IS OPTIONAL. SEE SECTION 10.03 OF
THE PLAN.]
PLAN NUMBER. The 3-digit plan number the Employer assigns to this Plan for ERISA
reporting purposes (Form 5500 Series) is: 001.
USE OF ADOPTION AGREEMENT. Failure to complete properly the elections in this
Adoption Agreement may result in disqualification of the Employer's Plan. The
3-digit number assigned to this Adoption Agreement (see page 1) is solely for
the Master Plan Sponsor's recordkeeping purposes and does not necessarily
correspond to the plan number the Employer designated in the prior paragraph.
MASTER PLAN SPONSOR. The Master Plan Sponsor identified on the first page of the
basic plan document will notify all adopting employers of any amendment of this
Master Plan or of any abandonment or discontinuance by the Master Plan Sponsor
of its maintenance of this Master Plan. For inquiries regarding the adoption of
the Master Plan, the Master Plan Sponsor's intended meaning of any plan
provisions or the effect of the opinion letter issued to the Master Plan
Sponsor, please contact the Master Plan Sponsor at the following address and
telephone number: P.O. BOX 2558, AVE$TA DIVISION, HOUSTON, TEXAS 77252-8342
(713) 750-7906.
RELIANCE ON OPINION LETTER. The Employer may not rely on the Master Plan
Sponsor's opinion letter covering this Adoption Agreement. For reliance on the
Plan's qualification, the Employer must obtain a determination letter from the
applicable IRS Key District office.
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<PAGE>
PARTICIPATION AGREEMENT
FOR PARTICIPATION BY RELATED GROUP MEMBERS (PLAN SECTION 1.30)
The undersigned Employer, by executing this Participation Agreement,
elects to become a Participating Employer in the Plan identified in Section 1.03
of the accompanying Adoption Agreement, as if the Participating Employer were a
signatory to that Agreement. The Participating Employer accepts, and agrees to
be bound by, all of the elections granted under the provisions of the Master
Plan as made by BENCHMARK ELECTRONICS, INC., the Signatory Employer to the
Execution Page of the Adoption Agreement.
1. The Effective Date of the undersigned Employer's participation
in the designated Plan is: APRIL 1, 1997.
2. The undersigned Employer's adoption of this Plan constitutes:
[_] (a) The adoption of a new plan by the Participating Employer.
[x] (b) The adoption of an amendment and restatement of a plan currently
maintained by the Employer, identified as Benchmark Electronics, Inc.
401(k) Employee Savings Plan, and having an original effective date of
JANUARY 1, 1990.
Dated this _________ day of _____________________, 1997.
Name of Participating Employer: ELECTRONICS ACQUISITION, INC.
Signed:_______________________________________________
Participating Employer's EIN: 76-0511592
ACCEPTANCE BY THE SIGNATORY EMPLOYER TO THE EXECUTION PAGE OF THE ADOPTION
AGREEMENT AND BY THE TRUSTEE.
Name of Signatory Employer: BENCHMARK ELECTRONICS, INC.
Accepted:_____________________
[Date] Signed:______________________________________
Name(s) of Trustee: Texas Commerce Bank National
Association
Accepted:_____________________
[Date] Signed:______________________________________
[NOTE: EACH PARTICIPATING EMPLOYER MUST EXECUTE A SEPARATE PARTICIPATION
AGREEMENT. SEE THE EXECUTION PAGE OF THE ADOPTION AGREEMENT FOR IMPORTANT MASTER
PLAN INFORMATION.]
32
<PAGE>
PARTICIPATION AGREEMENT
FOR PARTICIPATION BY RELATED GROUP MEMBERS (PLAN SECTION 1.30)
The undersigned Employer, by executing this Participation Agreement,
elects to become a Participating Employer in the Plan identified in Section 1.03
of the accompanying Adoption Agreement, as if the Participating Employer were a
signatory to that Agreement. The Participating Employer accepts, and agrees to
be bound by, all of the elections granted under the provisions of the Master
Plan as made by BENCHMARK ELECTRONICS, INC., the Signatory Employer to the
Execution Page of the Adoption Agreement.
1. The Effective Date of the undersigned Employer's participation
in the designated Plan is: APRIL 1, 1997.
2. The undersigned Employer's adoption of this Plan constitutes:
[_] (a) The adoption of a new plan by the Participating Employer.
[x] (b) The adoption of an amendment and restatement of a plan currently
maintained by the Employer, identified as Benchmark Electronics Inc.
401(k) Employee Savings Plan, and having an original effective date of
JANUARY 1, 1990.
Dated this ____________ day of __________________, 1997.
Name of Participating Employer: EMD ASSOCIATES, INC.
Signed:________________________________________
Participating Employer's EIN: 41-1235318
ACCEPTANCE BY THE SIGNATORY EMPLOYER TO THE EXECUTION PAGE OF THE ADOPTION
AGREEMENT AND BY THE TRUSTEE.
Name of Signatory Employer: BENCHMARK ELECTRONICS, INC.
Accepted:______________
[Date] Signed:_____________________________________
Name(s) of Trustee: Texas Commerce Bank National
Association
Accepted:______________
[Date] Signed:_____________________________________
[NOTE: EACH PARTICIPATING EMPLOYER MUST EXECUTE A SEPARATE PARTICIPATION
AGREEMENT. SEE THE EXECUTION PAGE OF THE ADOPTION AGREEMENT FOR IMPORTANT MASTER
PLAN INFORMATION.]
33
<PAGE>
ADDENDUM 5.03(A)
ADOPTION AGREEMENT #011
NONSTANDARDIZED CODE SS.401(K) PROFIT SHARING PLAN
In lieu of the special vesting formula used in Section 5.03(A), to determine the
Participant's Nonforfeitable Accrued Benefit derived from Employer
contributions, the Advisory Committee will use the following formula: P(AB +
D)-D.
To apply this formula, "P" is the Participant's current vesting percentage at
the relevant time, "AB" is the Participant's Employer-derived Accrued Benefit at
the relevant time and "D" is the amount of the earlier distribution.
34
<PAGE>
ADDENDUM 6.02(E) TO
ADOPTION AGREEMENT #011
NONSTANDARDIZED CODE SS.401(K) PROFIT SHARING PLAN
ADDITIONAL PROVISIONS CONCERNING QUALIFYING EMPLOYER SECURITIES
The following additional provisions concerning qualifying employer securities
are included as part of the Adoption Agreement completed by Benchmark
Electronics, Inc. ("Employer"), in accordance with Section 6.02(e) of the
Adoption Agreement:
(1) ESTABLISHMENT OF THE BENCHMARK ELECTRONICS, INC. COMMON STOCK FUND. The
investment options in Section 10.03[F] of the Plan include the ability
to invest in "qualifying employer securities", as defined in section
407(d)(5) of ERISA, which specifically includes shares of common stock
of Benchmark Electronics, Inc., a Texas corporation ("Benchmark
Electronics, Inc. Common Stock"). Texas Commerce Bank National
Association ("Trustee") is expressly authorized to invest so much of
the Trust Fund (up to 100% thereof as provided in Section 10.03 of the
Adoption Agreement) in Benchmark Electronics, Inc. Common Stock as is
necessary to invest Participant Account balances in Benchmark
Electronics, Inc. Common Stock in accordance with the directions of the
Participants under Section 10.03[B] of the Plan.
(2) DIVIDENDS AND INCOME. All cash dividends, stock dividends, stock splits
received by the Trustee with respect to Benchmark Electronics, Inc.
Common Stock previously credited to a Participant's Account shall be
credited to that Account upon receipt by the Trustee. All cash
dividends will be used to purchase shares of Benchmark Electronics,
Inc. Common Stock.
(3) PURCHASES AND SALES OF COMMON STOCK. Except as provided below with
respect to matching purchases and sales, all purchases and sales of
Benchmark Electronics, Inc. Common Stock shall be on the open market,
unless other arrangements are mutually agreed upon in writing by the
Employer and the Trustee. Such purchases and sales of Benchmark
Electronics, Inc. Common Stock shall be made in accordance with the
following rules:
(a) In making purchases of Benchmark Electronics, Inc. Common
Stock on the open market, the Trustee shall execute the
purchases or sales of shares as soon as reasonably possible
following the receipt of instructions from the Participant,
and shall do so, in so far as reasonably possible, in the same
manner for all Participants similarly situated. The Trustee
shall determine, in its sole discretion (but in so far as
reasonably possible, treating all Participants similarly
situated in the same manner) the average price assigned to
shares of Benchmark Electronics, Inc. Common Stock purchased
in the "pricing period" during which such sale or purchase
occurs.
(b) The Trustee may, in its discretion, make separate trades or
may match the pending purchase and sale orders and only
execute the "net" purchase or sale. The price of such "net"
transaction (or the verage price assigned as provided in (a)
if applicable) shall be deemed to be the price paid or
obtained for the shares. The Trustee shall take any action
that it deems to be necessary or appropriate to ensure to the
extent, if any, necessary to comply with applicable law that
there is payment of no more, or receipt of no less, than
"adequate consideration" (as that term is defined in Section
3(18) of ERISA and regulations or other guidance issued
thereunder by the appropriate governmental authority) on the
date of the transaction (as determined by the Trustee) in the
case of the purchase or sale of Benchmark Electronics, Inc.
Common Stock.
35
<PAGE>
(c) Any brokerage commissions, transfer fees and other similar
expenses actually incurred in any such sale or purchase shall
be equitably allocated among the shares purchased and sold
(including, without limitation, net transaction shares) during
such pricing period.
(d) Purchases shall be made only in full shares. Any cash
allocated to a Participant's Benchmark Electronics, Inc.
Common Stock Account which is not so invested shall be
invested in a money market fund within a reasonable time of
its receipt.
(e) It shall be the responsibility of the Employer to insure that
the Plan is registered under the Federal Securities Act of
1933, and no purchase of shares will be made if the Trustee
knows such registration is not in effect.
(4) VOTING AND TENDER OF SHARES. The right to vote ("VOTING RIGHTS") and
the right to tender ("TENDER RIGHTS") shares allocated to a
Participant's Account(s) shall be passed through to such Participant.
The Company may appoint an agent, (hereinafter "DESIGNATED AGENT") who
shall be responsible for soliciting and tabulating proxies and tenders
from Plan Participants or, in the absence of any such appointment, the
Trustee shall perform such functions (future references shall, for
convenience, assume a Designated Agent has been appointed). The Trustee
shall provide Participant data required for such solicitation via
magnetic media to the Designated Agent, to the extent the Participant
account records contain the information required. Such information
includes, but is not limited to: Participant name, Participant social
security number, number of Benchmark Electronics, Inc. Common Stock
shares held on the record date, and Participant mailing address. The
Employer will provide the same information and materials to the
Designated Agent (and to the Trustee for its records) for distribution
to Plan Participants as is provided to other holders of Benchmark
Electronics, Inc. Common Stock, and the Designated Agent shall certify
to the Trustee that all such materials have been mailed or otherwise
sent to all Participants. The results of the Participant's exercise of
his Voting Rights or his Tender Rights will be provided by the
Designated Agent to the Trustee in time for the Trustee to vote or
tender (as the case may be) the shares in accordance with Participants'
instructions.
In the absence of the exercise of his Voting Rights or his Tender
Rights, shares held in a Participant's Account(s) shall not be voted or
tendered (as the case may be) by the Trustee. Shares held in the Trust
other than in Participants' Account(s) shall not be voted or tendered
by the Trustee except at the specific written direction of the
Employer.
Participant voting instructions may be transmitted in any reasonable
form agreed upon by the Trustee and the Designated Agent.
The Trustee and the Designated Agent shall act with respect to all
matters relating to the exercise of Voting Rights and Tender Rights in
such a way as to reasonably insure that there is no disclosure to the
Employer or a related party of a Participant's vote or of acceptance of
a tender offer. Notwithstanding the foregoing, unless otherwise advised
in writing by the representative of the Employer responsible for
working with the Trustee and Designated Agent to maintain
confidentiality, the Trustee may furnish the Employer with information
relating to the overall purchase, sale, voting, tender or similar
matters relating to all of the shares held by the Trustee so long as
such information does not identify, and cannot be reasonably
anticipated as identifying the actions of any specific Participant with
respect to such shares.
Without limiting the generality of the foregoing, the Designated Agent
shall establish procedures for the exercise of Tender Rights which will
insure that a Participant who has directed any Designated Agent to
tender or withhold from tender any or all of the shares may, at any
time prior to the tender offer withdrawal deadline, instruct the
Designated Agent to withdraw or tender, and the Designated Agent shall
withdraw or tender such shares prior to the tender offer or withdrawal
deadline. A Participant shall not be limited as to the number of
instructions to tender or withdraw that the Participant may give to the
Designated Agent.
36
<PAGE>
Agent shall withdraw or tender such shares prior to the tender offer or
withdrawal deadline. A Participant shall not be limited as to the
number of instructions to tender or withdraw that the Participant may
give to the Designated Agent.
(5) DISTRIBUTION OF ACCRUED BENEFITS. The portion of a Participant's
Accrued Benefit payable under Article VI (other than a Hardship
Withdrawal, which shall always be distributed in cash) shall be
distributed entirely in cash or entirely by delivery of shares as
directed by the Participant. In the event the Participant directs a
distribution in cash, the Trustee shall sell the shares allocated to
his Account as near as reasonably possible (as determined under a
uniform procedure designed to treat Participants similarly situated in
a similar manner) to the date of distribution.
With regards to shares of Benchmark Electronics, Inc. Common Stock
attributable to the Employer Stock Ownership Plan, if such shares are
not readily tradable on an established securities market, the following
provisions would apply:
1) To liquidate Benchmark Electronics, Inc. Common Stock to cash,
the Trustee may sell such Benchmark Electronics, Inc. Common
Stock to the Employer or Participating Employer. The proceeds
of such sales of Benchmark Electronics, Inc. Common Stock
shall be included in such Participant 's Accrued Benefit
payable.
2) In making sales of Benchnnark Electronics, Inc. Common Stock,
the Trustee shall exercise its discretion with respect to the
timing of such sales. If Benchmark Electronics, Inc. Common
Stock is sold to the Employer or a Participating Employer, the
sales price shall be determined by the Trustee as follows:
Benchmark Electronics, Inc. Common Stock shall be valued by
the Trustee on the basis of independent appraisals obtained
and approved by the Employer on a periodic basis.
3) In making purchases of Benchmark Electronics, Inc. Common
Stock, the Trustee shall exercise its discretion with respect
to the timing of such purchases and the determination of the
average prices assigned to shares of Benchmark Electronics,
Inc. Common Stock purchased over such period of time as the
Trustee deems appropriate. If the Trustee is an officer,
director or affiliate of the Employer, any purchase of
Benchmark Electronics, Inc. Common Stock shall be effected in
accordance with provisions of Rule lOb-18 of the Securities
Exchange Act of 1934.
4) No commissions or other fees shall be payable with respect to
any transaction with the Employer or a Participating Employer.
5) If Company Stock is distributed to a Participant, a
Participant has a right to require the Employer to repurchase
the Company Stock distributed to such Participant under a fair
valuation formula. Such Stock shall be subject to the
provisions of a put option. The put option shall be exercised
only by a Participant, by the Participant's donees, or by a
person (including an estate or its distributee) to whom the
Company Stock passes by reason of the Participant 's death.
The put option must permit a Participant to sale the Company
Stock to the Employer. Under no circumstances may the put
option bind the Plan. However, it shall grant the Plan an
option to assume the rights and obligations of the Employer at
the time that the put option is exercised.
The put option shall commence as of the day following the date
the Company Stock is distributed to the Former Participant and
end on the 60th day thereafter and if not exercised within
such 60 day period, an additional 60 day option shall commence
on the first day of the fifth month of the Plan .Year next
following the date the Stock was distributed to the Former
Participant. However, in the case of Company Stock that was
distributed but ceases to be so
37
<PAGE>
traded within either of the 60 day periods described herein,
the Employer must notify each holder of such Company Stock in
writing on or before the tenth day after the date the Company
Stock ceases to be so traded that the remainder of the
applicable 60 day period the Company Stock is subject to the
put option. The number of days between the tenth day and the
date on which the notice is actually given, if later than the
tenth day, must be added to the duration of the put option.
The put option is exercised by the holder notifying the
Employer in writing that the put option is being exercised;
the notice shall state the name and address of the holder and
the number of shares to be sold. The period during which a put
option is exercisable does not include any time when a
distributee is unable to exercise it because the party bound
by the put option is prohibited from honoring it by applicable
Federal or State law. The price at which a put option must be
exercisable is the value of the Company Stock determined by
the Employer and Trustee as described above.
(6) ACCOUNT REALIGNMENT. Participants may realign account investments at
any time, including, without limitation, the Benchmark Electronics,
Inc. Common Stock Account.
(7) PARTIAL ACCOUNT LIQUIDATION. All in-service account liquidations, for
such events as withdrawals, fee payments, or participant loans, shall
be prorata, across all funds in the source or sources liquidated
including, without limitation, Benchmark Electronics, Inc. Common
Stock.
38
<PAGE>
ADDENDUM 9.11
ADOPTION AGREEMENT #011
NONSTANDARDIZED CODE SS.401(K) PROFIT SHARING PLAN
Sections 9.11 (a)(5) and (b)(4) apply with the following modifications:
Participants shall not be entitled to share in any earnings allocated after
payment of the entire vested balance except to the extent the funds were
advanced from the Participant's account at the time of payment.
Contributions received in an account subsequent to the distribution of the total
vested balance shall be entitled to earnings until the vested balance is
distributed.
39
EXHIBIT 10.12
LEASE AGREEMENT
This Lease Agreement (the "Lease") is made as of this 29th day of February
2000, by and between MILLIKAN PROPERTIES, LLC, an Oregon limited liability
company, having its principal place of business at 1701 SE Columbia River Drive,
Vancouver, Washington 98661 ("Landlord"), and BENCHMARK ELECTRONICS, INC., a
Texas corporation, having its principal place of business at 3000 Technology
Drive, Angleton, Texas 77515 ("Tenant").
RECITALS
WHEREAS, Landlord owns Lot 7 in the Tektronix Business Park in Beaverton,
Oregon (the "Land"), on which is situated an approximately 76,947 square foot
building (the "Building"). (The Land and the Building, together with all
appurtenances thereto, are collectively referred to as the "Property"); and
WHEREAS, pursuant to that certain Lease Agreement dated February 1, 1997
between Tenant and Landlord's predecessor in interest (the "Existing Lease"),
Tenant currently occupies and uses the portion of the Property consisting of
approximately 51,950 square feet of space in the Building, and 136 unreserved
parking spaces, as more specifically described in the Existing Lease; and
WHEREAS, Tenant wishes to expand its leasehold interest to include that
portion of the Building on the Property which it does not currently lease and to
enter into a new ten-year lease (with two five-year renewal options) with
Landlord for the entire Building.
NOW, THEREFORE, in consideration of the premises and conditions herein
contained, the parties agree as follows:
AGREEMENT
1. DEMISE OF PREMISES.
a. DEMISE. Landlord hereby leases to Tenant, and Tenant hereby
leases from Landlord, the Property, including approximately 70,647 square feet
of space on the first floor of the Building and approximately 6,300 square feet
of space on the second floor of the Building (collectively, the "Premises"). The
Premises are located at 3725 SW Hocken Avenue and are depicted in Exhibits A-1
and A-2, which are incorporated herein by reference. The Premises shall include
all appurtenances thereto and the right to use all off-street parking spaces in
the parking lot on the Land, as shown on Exhibit A-2. In addition, Landlord
shall provide Tenant with 35 parking spaces on Lot 8 in Tektronix Business Park,
in an area designated by Landlord. In the event Landlord requires such parking
spaces as a result of changes to the occupancy of the buildings on Lot 8,
Landlord shall have the right to expand the current parking lot on the Premises
by an additional 35 spaces (as Landlord's sole cost and expense and without
reimbursement by Tenant) and substitute such parking for the parking on Lot 8.
b. TERM OF LEASE. The term of this Lease shall commence on the
Effective Date (defined in Section 2) and shall continue for a period of 10
years thereafter, unless sooner terminated pursuant to any other provision
hereof (the "Initial Term"). Landlord hereby grants to Tenant the right and
option to extend the Initial Term for two (2) successive renewal terms of five
(5) years each (each a "Renewal Term") for an aggregate additional ten (10)
years, to begin upon the expiration of the Initial Term or the preceding Renewal
Term, as applicable. Tenant's exercise of each such option shall be accomplished
by delivering to Landlord written notice of Tenant's election to renew no later
than twelve
1
<PAGE>
(12) months prior to the expiration of the preceding term; provided, however,
that Landlord shall advise Tenant in writing of the renewal option fifteen (15)
months prior to the expiration of the preceding Initial Term and any Renewal
Term. All of the other terms, provisions and covenants of this Lease shall apply
to the Renewal Terms, including the rental adjustment set forth in Section 4(a).
c. AUTHORIZED USE. Tenant represents that it intends to use the
Premises as a electronics manufacturing facility. Tenant, as well as any
permitted assignee or sublessee, shall be allowed to use the Premises for any
other purpose that (i) is legal, (ii) is not morally offensive, (iii) is in full
compliance with all applicable and governing zoning, business and use codes as
evidenced by the proper permits and certificates of occupancy, and (iv) will not
put excessive loads on the electrical, mechanical, plumbing or other operating
systems within the Building. Tenant shall provide Landlord with at least fifteen
(15) days' advance written notice of any proposed change in use of the Premises.
In addition, Tenant shall not store any items outside of the Premises except
when shipping or receiving product at the loading dock serving the Building and
except for storage of items used in the operation of Tenant's business at the
Property provided that they are stored in an organized manner which complies
with all applicable governmental regulations.
2. DELIVERY OF ADDITIONAL SPACE. Following Tektronix, Inc's surrender of
its space in the Building, containing approximately 24,997 square feet (the
"Expansion Space"), Landlord shall deliver vacant, broom-clean possession of the
Expansion Space to Tenant upon not less than five (5) business days' prior
written notice to Tenant. The date on which Landlord so delivers the Expansion
Space to Tenant is referred to as the "Effective Date." Landlord anticipates
that the Effective Date will occur on or about June 1, 2000. Subject to the
foregoing, Tenant shall accept the Expansion Space in its "as-is" condition.
3. LANDLORD'S WARRANTY. Landlord warrants that it has lawful right to
lease the Premises to Tenant, and that Landlord will defend Tenant's right to
quiet enjoyment of the Premises from the claims of all persons arising by,
through or under Landlord during the Lease term.
4. RENT.
a. BASE RENT. Tenant shall pay to Landlord as Base Rent the sum of
$39,938.50 per month, subject to increase as hereinafter provided. Base Rent
shall be payable on the first day of each month (in advance and without demand)
and shall be deemed delinquent if not paid on or before the tenth day of each
month. Base Rent and additional rent for the first and last months of the Lease
term shall be prorated on a daily basis. Effective on and as of each three-year
anniversary of the Effective Date within the Initial Term and any renewal term,
the Base Rent last payable hereunder shall increase by seven and one-half
percent (7 1/2%).
b. ADDITIONAL RENT. In addition to the Base Rent, Tenant shall be
responsible for (i) Real Property Taxes (as described Section 8), (ii) Utilities
(as described in Section 7), (iii) Insurance Premiums (as described in Section
11, (iv) and Maintenance Expenses (as described in Section 6(b)). The Real
Property Taxes, Utilities, Insurance Premiums and Maintenance Expenses are
collectively referred to as "Additional Rent". Tenant shall pay Additional Rent
directly to the service providers as more specifically set forth herein.
Therefore, (I) beginning on the thirty-seventh (37th) month following the
Effective Date, the Base Rent will increase from $39,938.50 per month to
$42,933.89 and (ii) similar 7-1/2 percent increases will occur at the beginning
of the 73rd, 109th (and if Tenant elects to exercise its option for one or both
Renewal Terms, on the 145th, 181st and 217th month) month following the
Effective Date.
c. INTEREST. All amounts of money payable by Tenant to Landlord
hereunder, if not paid when due, after expiration of any applicable grace
period, shall bear interest from the due date until
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paid at the rate of twelve percent (12%) per annum, but not in any event more
than the maximum legal rate.
d. MANNER OF PAYMENT. All payments due from Tenant to Landlord shall
be made to Landlord without deduction or offset in lawful money of the United
States of America at Landlord's address for notices, or to such other person or
at such other place as Landlord may designate in writing to Tenant from time to
time. Subject to the limitation as set forth in Section 20(d), Tenant shall have
the right to offset any Base Rent owed to Landlord any amounts expended to cure
any default by Landlord hereunder if Landlord fails to pay such amounts within
ten (10) days' after Tenant's written demand therefor.
5. COMPLIANCE WITH LAWS, INDEMNITY.
a. COMPLIANCE WITH LAWS. Tenant shall promptly comply with all laws,
statutes, ordinances and governmental rules, regulations and requirements
(collectively "Laws") now in force or which may hereafter be in force, with the
requirements of any board of fire underwriters (or other similar body now or
hereafter constituted) or of any insurance underwriters or inspectors, and with
any directive issued pursuant to any law by any public officer or officers,
insofar as any thereof relate to Tenant's use or occupancy of the Premises.
Tenant shall bear the cost and expense of complying with any such Laws,
requirements or directives unless such costs and expenses are specifically
allocated to Landlord elsewhere in this Lease.
b. TENANT INDEMNITY. Tenant shall indemnify, defend and hold
Landlord harmless from and against any and all claims, losses, liabilities or
expenses (collectively, "Losses") arising from (i) Tenant's use of the Premises
or from the conduct of its business on or about the Premises, or from any
activity, work or things which may be permitted or suffered by Tenant in or
about the Premises, (ii) 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, (iii) 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 Tenant, its officers, employees, agents,
contractors, or invitees occurring during the term of this Lease or the term of
the Existing Lease; and (iv) from any and all costs, attorneys' fees and
expenses incurred in the defense of any action or proceeding brought thereon.
Tenant's obligations under this subsection (b) shall survive termination of this
Lease.
c. LANDLORD INDEMNITY. Landlord shall indemnify, defend and hold
Tenant harmless from and against any and all Losses arising from (i) the use of
the Premises by Landlord; (ii) contamination (as a Hazardous Material or
otherwise) of the Premises caused or permitted by Landlord or existing prior to
Tenant's occupancy of the Building or any asbestos in the Premises except for
the asbestos containing materials described in that certain Asbestos Survey
Report dated August 1996 prepared by PBS Environmental, a copy of which has been
provided to Tenant; (iii) any breach or default in the performance of any
obligation on Landlord's part to be performed under the provisions of this Lease
or arising from any act or omission of Landlord or any of its agents, officers,
contractors, employees, or invitees (including any misrepresentation or breach
of warranty by Landlord); and (iv) from any and all costs, attorneys' fees and
expenses incurred in the defense of any action or proceeding brought thereon.
Landlord's obligations under this subsection (c) shall survive termination of
this Lease. Notwithstanding anything to the contrary herein contained, in the
event the roof contains any asbestos, Landlord shall be responsible for all
necessary removal, remediation and other costs in accordance with Section 6(a).
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6. IMPROVEMENTS; REPAIRS AND MAINTENANCE.
a. LANDLORD'S OBLIGATIONS. Landlord shall, at its sole cost and
expense and without reimbursement by Tenant, make the repairs and replacements
described in Exhibit B hereto. In addition, Landlord (at its sole cost and
expense) shall be responsible for repairing and replacing, as necessary, the
structure, foundation and roof of the Building in good order and for performing
ordinary maintenance of the parking lot and landscaping of the Property
(excluding snow and ice removal). Landlord represents and warrants that any such
repairs will be done in a professional manner and will comply with all
applicable federal, state and local Laws.
b. TENANT'S OBLIGATIONS. Except as provided in subsection (a) above,
Tenant shall, at its sole cost and expense, keep the entire Property in good
condition and state of repair. Without limiting the generality of the foregoing,
Tenant shall be responsible for (i) all maintenance, repairs and replacements to
the Building (other than the structure, foundation or roof), (ii) all
maintenance, repairs and replacements to the electrical, plumbing, HVAC and
other mechanical systems serving the Building and common areas on the Property,
(iii) all maintenance, repairs and replacements to the common areas on the
Property, including snow and ice removal, except that Landlord shall be
responsible for ordinary maintenance of the parking lot and landscaping of the
Property. Throughout the Lease term, Tenant shall keep in force third-party
maintenance agreements as described in the attached Exhibit C. Tenant represents
and warrants that any repairs and replacements made by Tenant will comply with
all applicable federal, state and local Laws.
c. TENANT IMPROVEMENTS AND ALLOWANCES. Following delivery of the
Expansion Space, Tenant shall, except as provided in subsection (a) above, be
solely responsible for promptly improving the Expansion Space (and Tenant's
existing space) to make the Building suitable for Tenant's purposes, in
compliance with all applicable Laws, building codes and requirements of public
authorities (including those of the Fire Marshall). All of such improvements
shall be at Tenant's sole cost and expense subject to the construction
allowances of Landlord hereinafter provided. All improvements to the Premises
shall be (i) made pursuant to plans and specifications prepared by Tenant's
architect and approved by Landlord in advance, which approval shall not be
unreasonably withheld, conditioned or delayed, and (iii) of first-class
materials and workmanship. Once approved, the plans and specifications shall be
attached to this Lease as Exhibit D. Landlord shall provide Tenant with an
allowance of $700,000.00 for such improvements. In addition, in the event
governmental authorities require Tenant to make seismic upgrades to the
Building, Landlord shall reimburse Tenant for all reasonable cost incurred by
Tenant in making such upgrades. Tenant shall use its commercially reasonable
efforts to avoid triggering any seismic upgrade requirements in connection with
its improvements to the Building. Landlord shall disburse such allowances as
work progresses upon receipt of written disbursement requests describing the
work for which the payment is being requested, accompanied by paid invoices and
appropriate lien waivers. Landlord may retain 10% from each disbursement
request. Landlord shall pay the retainage to Tenant upon receipt of a copy of a
certificate of occupancy with respect to the Expansion Space (if one is required
before occupancy) and copies of final lien waivers from all subcontractors and
suppliers.
7. SERVICES AND UTILITIES. Services and utilities shall be provided to the
Premises and paid as follows:
PAID BY: PROVIDED BY:
-------- ------------
a. Electricity Tenant Tenant
b. Natural Gas Tenant Tenant
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c. Water and Sewer Tenant Tenant
d. Janitorial Services and Trash Removal Tenant Tenant
e. Telephone Service Tenant Tenant
Landlord shall not be liable for, and Tenant shall not be entitled to, any
reduction of rental by reason of Tenant's inability to obtain (or failure of)
any of the foregoing services unless Landlord intentionally or negligently
caused such failure/inability to obtain.
8. PAYMENT OF TAXES AND ASSESSMENTS.
a. PROPERTY TAXES. As used herein, "property taxes" means real
property taxes and assessments and any newly created charge or fee relating to
the ownership or use of the Property or any fee imposed in lieu of real property
taxes. During the Lease term, Tenant shall pay, at least fifteen (15) days prior
to the date due, all property taxes which are assessed or levied against the
Property. Upon Landlord's request, Tenant shall furnish Landlord with
satisfactory evidence of payment of such taxes. Tenant shall have the right to
contest, in appropriate proceedings and in good faith, at its own expense, the
amount of any property tax, so long as Landlord's interest in the Property is
not jeopardized thereby.
b. TENANT'S PROPERTY. 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.
c. LANDLORD'S RIGHT TO CURE. In the event Tenant fails to pay when
due any real or personal property tax, Landlord at its option may pay the past
due tax. All such past due 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.
9. TENANT'S COVENANTS. Tenant shall pay all rent when due, and at
expiration or termination of the term hereof, shall yield up peacefully to
Landlord the Premises in as good order and repair as when delivered to Tenant,
damage by fire and extended coverage perils, ordinary wear and tear, war, riot,
public disaster, act of any governmental authority and other damage for which
Tenant is not responsible, and Tenant's permitted improvements hereunder,
excepted. Tenant agrees to maintain the Premises in a clean, attractive and
sanitary condition, to replace all glass broken or damaged during the term of
this Lease with glass of the same quality as that broken or damaged, and not to
make any alterations, improvements, or additions to the Premises (other than
those specifically set forth on Exhibit D) without having obtained Landlord's
prior written consent, which consent 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 their 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 construction liens in
connection with any alterations, improvements or additions to the Premises. At
the termination of this Lease, Tenant shall remove all trade fixtures and any
and all machinery, equipment and other items of personal property installed by
Tenant in the Premises or located in the Premises or elsewhere on the Land, and
surrender the Premises to Landlord broom-clean. Tenant agrees promptly to
repair, at its expense, damage to the Premises that may be caused by the removal
of such trade fixtures and personal property.
10. SIGNS. Tenant shall have the right to display its name and trademark
on signs on the Building leased hereunder and on any monuments on the Land,
subject however to Landlord's prior approval of design and location (which
approval shall not be unreasonably withheld), as well as the approval of all
governmental agencies having jurisdiction.
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11. INSURANCE/WAIVER OF SUBROGATION.
a. CASUALTY. During the term of this Lease, Landlord shall obtain
and maintain from a financially responsible insurance company a policy of
insurance covering loss of or damage to the Property in the full amount of its
replacement value. Such policy shall provide protection against all perils
included within the classification of fire, extended coverage, vandalism,
earthquake, liability, malicious mischief, special extended perils (all risk),
sprinkler leakage and rental interruption. Tenant shall reimburse Landlord for
the cost of such insurance within thirty (30) days after Landlord provides
Tenant with an invoice for such insurance. Tenant shall be liable for the
payment of any deductible amount under such insurance policies maintained
pursuant to this subsection (a) in an amount not to exceed Ten Thousand Dollars
($10,000); provided, however, that Landlord shall be obligated to reimburse
Tenant for such deductible in the event any claim resulted from Landlord's
intentional conduct or negligence. Tenant shall bear the expense of any
insurance insuring the property of the Tenant on the Premises against casualty
risks, but shall not be required to insure.
b. LIABILITY. Tenant shall at its sole expense obtain from a
financially responsible insurance company, and keep in force throughout the term
hereof for the mutual benefit of Landlord and Tenant, a policy of commercial
general liability insurance (sometimes known as broad form comprehensive general
liability insurance) insuring Tenant against liability for bodily injury,
property damage (including loss of use of property) and personal injury arising
out of the operation, use or occupancy of the Premises. Tenant shall name
Landlord as an additional insured under such policy. The initial amount of such
insurance shall be Two Million Dollars ($2,000,000) per occurrence. At
Landlord's request, Tenant shall provide Landlord a certificate of insurance.
Tenant shall be responsible for any deductible under such insurance. Tenant's
liability insurance shall be primary, not contributing with or in excess of any
liability coverage maintained by Landlord.
c. WAIVER OF SUBROGATION. The parties shall obtain from their
respective insurance carriers waivers of subrogation against the other party,
agents, employees and 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 if such insurance
was obtainable at the time of such loss or damage.
12. DAMAGE AND DESTRUCTION.
a. If the Premises are partly damaged (i.e., less than fifty percent
(50%) of the Premises is untenantable as a result of such damage and less than
fifty percent (50%) of Tenant's operations are materially impaired) and Landlord
does not elect to terminate the Lease pursuant to subsection (b) below, the
Premises shall be repaired as follows:
(1) If the damage is caused by a risk which would be covered
by a standard property/casualty insurance policy with an endorsement for
extended coverage or which is actually covered by insurance maintained by
Landlord, repairs shall be at the expense of the Landlord whether or not the
damage occurred as the result of fault on the part of Tenant, its employees,
agents, contractors or invitees.
(2) If the damage occurred from a risk which would not be
covered by insurance of the kind described in subsection (1) above and, in
addition, such damage in fact was not covered by other insurance maintained by
Landlord (an "Uninsured Loss"), repairs shall be at the expense of the Landlord.
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(3) All 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; provided, however, that in the
event the Premises cannot be repaired within 150 days from the date of casualty
(subject to force majeure), Tenant shall have the right to terminate this Lease
without penalty. Base Rent and Additional Rent shall be abated to the extent the
Premises are untenantable subsequent to the damage and during the period of
repair. In addition, if as a result of such casualty Tenant cannot use at least
sixty (60%) of its manufacturing facilities in the Building, then Base Rent and
Additional Rent shall abate completely unless and to the extent Tenant
nevertheless continues to occupy and conduct business from the Premises.
b. If the insurance proceeds received by Landlord are not sufficient
to pay the entire cost of repair, if the Premises are fifty percent (50%) or
more destroyed or if the cause of the damage is not covered by the insurance
policy which Landlord maintains under Section 11(a), Landlord may elect either
to (i) repair the damage as soon as reasonably possible, but in no event later
than 150 days after the occurrence of such damage, in which case this Lease
shall remain in full force and effect, or (ii) terminate this Lease as of the
date the damage occurred. Landlord shall notify Tenant within thirty (30) days
after receipt of notice of the occurrence of the damage whether Landlord elects
to repair the damage or terminate the Lease. If Landlord elects to terminate the
Lease, Tenant may elect to continue this Lease in full force and effect, in
which case Tenant shall repair the damage to the Premises. Tenant shall pay the
cost of such repairs, except that upon satisfactory completion of such repairs,
Landlord shall deliver to Tenant any insurance proceeds received by Landlord for
the damage repaired by Tenant. Tenant shall give Landlord written notice of such
election within ten (10) days after receiving Landlord's termination notice.
c. If the Premises is destroyed or damaged and Landlord or Tenant
repairs or restores the Premises pursuant to the provisions of this Section,
Base Rent and Additional Rent payable during the period of such damage, repair
and/or restoration shall be reduced according to the degree, if any, to which
Tenant's use of the Premises is impaired. In addition, if as a result of such
casualty Tenant cannot use at least sixty (60%) of its manufacturing facilities
in the Building, then Base Rent and Additional Rent shall abate completely
unless and to the extent Tenant nevertheless continues to occupy and conduct
business from the Premises.
d. Notwithstanding anything to the contrary herein provided, if (i)
the damage to the Premises occurs during the last six (6) months of the Lease
term, (ii) such damage will require more than thirty (30) days to repair and
(iii) the estimated cost of repair shall exceed ten percent (10%) of the
monetary value of the portion of the Premises, either Landlord or Tenant may
elect to terminate this Lease without penalty as of the date the damage
occurred, regardless of the sufficiency of any insurance proceeds. The party
electing to terminate this Lease shall give written notification to the other
party of such election within thirty (30) days after Tenant's notice to Landlord
of the occurrence of the damage.
e. With respect to any deductible amount under Landlord's insurance
and any repairs or restoration required of Landlord under this Section, the
repairs or restoration to which the deductible would apply shall be at the
expense of Tenant, unless the damage was the result of the fault of Landlord,
its employees, agents, contractors or invitees, in which case Landlord shall be
responsible for the amount of the deductible.
13. CONDEMNATION. If all or any portion of the Premises is taken under the
power of eminent domain or sold under the threat of that power (collectively
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs first.
If more than twenty percent (20%) of the floor area of the Building in which the
Premises is located, or which is located on the Premises, is taken, either
Landlord or Tenant may terminate this Lease as of the
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date the condemning authority takes title or possession, by delivering written
notice to the other within ten (10) days after receipt of written notice of such
taking (or in the absence of such notice, within ten (10) days after the
condemning authority takes title or possession). If neither Landlord nor Tenant
terminates this Lease, this Lease shall remain in effect as to the portion of
the Premises not taken, except that the Base Rent and Additional Rent shall be
reduced in proportion to the reduction in the floor area of the Premises. Any
Condemnation award or payment shall be distributed in the following order: (a)
first, to any ground lessor, mortgagee or beneficiary under a deed of trust
encumbering the Premises, the amount of its interest in the Premises; (b)
second, to Tenant, only the amount of any award specifically designated for loss
of or damage to Tenant's trade fixtures or removable personal property, moving
expenses, unamortized capital expenses made pursuant to this Lease (less any
improvement allowances paid by Landlord hereunder), and increased rents; and (c)
third, to Landlord, the remainder of such award, whether as compensation for
reduction in the value of the leasehold, the taking of the fee, or otherwise. If
this Lease is not terminated, Landlord shall repair (at its expense) any damage
to the Premises caused by the Condemnation, except that Landlord shall not be
obligated to repair any damage for which Tenant has been reimbursed by the
condemning authority. If the severance damages received by Landlord are not
sufficient to pay for such repair, Landlord shall have the right to either
terminate this Lease or make such repair at Landlord's expense.
14. ASSIGNMENT AND SUBLETTING. Tenant shall have the right to sublet or
assign its interest in the Premises upon the written consent of the Landlord,
which shall not be unreasonably withheld. Tenant's request for consent to any
such transfer shall set forth in writing the details of the proposed transfer,
including the name, business and financial condition of the prospective
transferee, financial details of the proposed transfer (e.g., the term of and
the rent and security deposit payable under any proposed assignment or
sublease), and any other information Landlord deems relevant. Landlord shall be
required to consent to such sublet or assignment so long as (i) Tenant agrees to
remain financially responsible for the payment of rent and all of its other
obligations under this Lease, (ii) the proposed subtenant or assignee intends to
use the Premises in a manner permitted under this Lease, and (iii) the proposed
subtenant or assignee does not pose a threat to the integrity of the Premises.
15. SUBORDINATION, ESTOPPEL CERTIFICATES.
a. SUBORDINATION. This Lease shall be subject and subordinated at
all times to the lien of any mortgage or deed of trust now or hereafter placed
on or against the Premises or on or against Landlord's interest or estate
therein, all without the necessity of having further instruments executed on the
part of Tenant to effectuate such subordination. Notwithstanding the foregoing,
in the event of a foreclosure of any such mortgage or deed of trust or of any
other action or proceeding for the enforcement thereof, or of any sale
thereunder, this Lease will not be barred, terminated, cut off or foreclosed nor
will the rights and possession of Tenant hereunder be disturbed if Tenant shall
not then be in default in the payment of rent or otherwise be in default under
the terms of this Lease, and Tenant shall attorn to the purchaser at such
foreclosure, sale or other action or proceeding. Tenant agrees to execute and
deliver promptly such further instruments evidencing such subordination of this
Lease to the lien of any such mortgage or deed of trust as may reasonably be
required by Landlord's lender. Tenant's covenant to subordinate this Lease is
conditioned upon each such senior instrument containing the commitments
specified in the second sentence of this subsection (a).
b. ESTOPPEL CERTIFICATE. From time to time, but on not less than ten
(10) days' prior notice by Landlord, Tenant will execute, acknowledge and
deliver to Landlord a certificate, using a form provided by Landlord or its
lender, certifying (1) that this Lease is unmodified and in full force and
effect (or, if there have been modifications, that this Lease is in full force
and effect, as modified, and stating the date and nature of each such
modification), (2) the date, if any, to which Base Rent and other sums payable
hereunder have been paid, (3) that no notice has been received by Tenant of any
default which
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has not been cured, except as to defaults specified in such certificate, and (4)
such other matters as may be reasonably requested by Landlord or its lender. Any
such certificate may be relied upon by any prospective purchaser, mortgagee or
beneficiary under any deed of trust of the Property or any part thereof
16. ASSIGNMENT OF LEASE AS SECURITY. Tenant agrees that if this Lease is
assigned as additional security for any mortgage or deed of trust of the
Landlord, and the Tenant is furnished with notice thereof, including the name
and address of the mortgagee or beneficiary, then the Tenant shall not terminate
this Lease because of a default by the Landlord, without first notifying the
mortgagee or beneficiary, specifying the default in reasonable detail and
affording the mortgagee or beneficiary a reasonable opportunity (not to exceed
thirty (30) days) to make performance on behalf of Landlord.
17. TENANT DEFAULT. The following shall be events of default by Tenant:
a. DEFAULT IN RENT. Failure of Tenant to pay any Rent or Other
Charges required hereunder when due and such failure continues for at least ten
(10) days after receipt of written notice from Landlord specifying such failure.
b. DEFAULT IN OTHER COVENANTS. Failure of Tenant to comply with any
term or condition or fulfill any obligation of the Lease (other than the payment
of 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
30-day period, this provision shall be complied with if Tenant begins correction
of the default within the 30-day period and thereafter proceeds with reasonable
diligence and in good faith to effect the remedy as soon as practicable.
c. INSOLVENCY. If Tenant makes a general assignment or general
arrangement for the benefit of creditors; (ii) if a petition for adjudication of
bankruptcy or for reorganization or rearrangement is filed by or against Tenant
and is not dismissed within thirty (30) days; (iii) if a trustee or receiver is
appointed to take possession of substantially all of Tenant's assets located at
the Premises or of Tenant's interest in this Lease and possession is not
restored to Tenant within thirty (30) days; or (iv) if substantially all of
Tenant's assets located at the Premises or of Tenant's interest in this Lease is
subjected to attachment, execution or other judicial seizure which is not
discharged within thirty (30) days.
18. LANDLORD'S DEFAULT. The following shall be events of default by
Landlord:
a. DEFAULT IN COVENANTS. Failure of Landlord to comply with any term
or condition or fulfill any obligation of the Lease within thirty (30) days
after receipt of written notice from Tenant 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 30-day period, this provision shall be
complied with if Landlord begins correction of the default within the 30-day
period and thereafter proceeds with reasonable diligence and in good faith to
effect the remedy as soon as practicable.
b. INSOLVENCY. If Landlord makes a general assignment or general
arrangement for the benefit of creditors; (ii) if a petition for adjudication of
bankruptcy or for reorganization or rearrangement is filed by or against
Landlord and is not dismissed within thirty (30) days; (iii) if a trustee or
receiver is appointed to take possession of substantially all of Landlord's
assets located at the Premises or of Landlord's interest in this Lease and
possession is not restored to Landlord within thirty (30) days; or (iv) if
substantially all of Landlord's assets located at the Premises or of Landlord's
interest in this Lease is subjected to attachment, execution or other judicial
seizure which is not discharged within thirty (30) days.
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19. 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 at law, in equity, under this Lease or otherwise, may
pursue any one or more of the following courses of action:
a. RIGHT TO CURE. Landlord may enter the Premises, if necessary, and
cure said default at the expense of Tenant and the cost thereof shall be deemed
additional rent, bear interest as provided in Section 4(c), and be paid by
Tenant upon written demand of Landlord.
b. TERMINATION. Provided that the default in question was material
and that Tenant was provided with an additional 30-day period to cure the
default within such period, 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 actual
direct damages from Tenant for the default; provided, however, that Landlord
shall use commercially reasonable efforts to mitigate its damages. If the Lease
is terminated, Tenant's liability to Landlord for damages shall survive such
termination, and Landlord may re-enter, take possession of the Premises and
remove any persons or property by any means allowed by law and without liability
for damages.
c. RELETTING. Following re-entry or abandonment, Landlord may relet
the Premises, and in that connection, may prepare the Premises for reletting.
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 reasonable
rent-free occupancy or other rent concession. Landlord shall use commercially
reasonable efforts to mitigate its damages.
d. 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 Base Rent and Additional 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 commercially reasonable
efforts could have been, secured.
(2) The reasonable costs of re-entry and reletting, including
without limitation the actual 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 necessary 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 to 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.
(4) Landlord's damages shall be reduced to the extent they
could have been mitigated through the exercise of commercially reasonable
efforts and to the extent, if any, that they are
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duplicative. Landlord shall not be entitled to any consequential, incidental or
special damages except to the extent, if any, that they are specifically
provided above in this Section 19(d).
20. REMEDIES OF TENANT FOR BREACH BY LANDLORD. Upon the occurrence of an
event of default, Tenant, at its option and in addition to any other rights and
remedies it may have at law, in equity, under this Lease or otherwise, may
pursue any one or more of the following courses of action:
a. TERMINATE THE LEASE. Provided that the default in question was
material and that Landlord was provided with an additional 30-day period to cure
the default, and Landlord failed to cure the default within such additional
30-day period, Tenant shall have the option of terminating the Lease. In such
case, it shall immediately surrender possession of the Premises to Landlord and
shall be entitled to recover from Landlord all actual direct damages incurred by
Tenant by reason of Landlord's default, including (1) the difference between the
rent Tenant would have paid under the Lease and the rent Tenant is obligated to
pay under any lease entered to replace this Lease; (2) all expenses incurred in
vacating the premises, searching for a new facility, entering into a new lease,
and moving into a new facility; and (3) any other amount necessary to compensate
Tenant for all the actual direct damages proximately caused by Landlord's
failure to perform its obligations under the Lease or which the ordinary course
of things would be likely to result therefrom; provided, however, that Tenant
shall be obligated to use it commercially reasonable efforts to mitigate its
damages and Tenant shall not be entitled to any consequential, incidental or
special damages, except to the extent, if any, that they are specifically
provided above in this Section 20(a).
b. MAINTAIN ITS RIGHT TO POSSESSION. Tenant shall have the option of
maintaining its right to possession. In such case, this Lease shall continue in
effect and Tenant shall have the right to remedy any Landlord default and deduct
the cost of remedying any such default from any Base Rent due Landlord hereunder
if Landlord fails to pay such cost within ten (10) days after written demand
therefor.
c. OTHER REMEDIES. Tenant shall have the right to pursue any other
remedy now or hereafter available to Landlord under the laws or judicial
decisions of the state in which the Premises is located. Tenant shall have the
right to remedy any Landlord default and deduct the cost of remedying any such
default from any Base Rent due Landlord hereunder if Landlord fails to pay such
costs within ten (10) days after written demand therefor.
d. OFFSET LIMITATION. In no event shall Tenant offset more
than fifty percent (50%) of the Base Rent due to Landlord for each month.
21. ATTORNEY'S 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 amounts 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 its reasonable attorney's fees in addition to costs and
disbursements.
22. NOTICES. All notices, demands, consents or other communications
required or permitted by law or by this Lease to be given to Tenant or to
Landlord shall be given by personal delivery (including by reputable overnight
delivery service) or by depositing the same in registered or certified U.S.
mail, postage prepaid and addressed as follows:
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For Landlord: For Tenant:
1701 SE Columbia River Drive 3750 SW Hocken Avenue
Vancouver, Washington 98661 Beaverton, Oregon 97005
Attention: James E. John Attention: Plant Manager
With a copy to:
3000 Technology Drive
Angleton, Texas 77515
Attention: Legal Department
or to such other place as either party at any time may designate by written
notice to the other party.
23. 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 at the same monthly rental rate, in the absence of a written agreement
to the contrary.
24. 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.
25. 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.
26. LEGALLY BINDING. This Lease shall be binding upon and inure to the
benefit of the parties and their respective heirs, representatives, successor
and permitted assigns.
27. CHOICE OF LAW. This Lease shall be governed by the law of the State of
Oregon.
28. 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 or subsection to which they refer.
29. 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.
30. HAZARDOUS MATERIALS
a. 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 the term is used in the Resource,
Conservation, and Recovery Act (42 USC 6901 et seq.) and Hazardous Substances as
that term is used in the Comprehensive Environmental Response and Liability Act
(42 USC 9601 et seq.).
b. Landlord makes no representation or warranty, express or implied,
with respect to the environmental condition of the Premises. Tenant acknowledges
that portions of the Premises may contain asbestos and that tenants at the
Premises and in the vicinity thereof, use or have used Hazardous
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Materials in the conduct of their business. Landlord's liability to remedy any
Hazardous Materials found on the Premises is limited to that set forth in
Section 5(c) herein.
c. Landlord acknowledges Tenant's need (i) to use and generate
certain Hazardous Material on the Premises in the ordinary course of its
business and (ii) to store and treat certain Hazardous Material on the Premises.
The Hazardous Materials Tenant intends to use are described in Exhibit "E"
hereto. The parties acknowledge that Tenant has previously delivered to Landlord
the MSDS sheets for all Hazardous Materials Tenant has used in its current
operations.
d. Tenant shall be fully and completely responsible for all damage
to the Premises caused by any of Tenant's waste and by-product generation,
production, use, storage, treatment or disposal of Hazardous Material on the
Premises.
e. Tenant shall comply with all ongoing environmental and
governmental monitoring and reporting requirements and provide Landlord with a
copy of each and every report related to these matters at the same times as such
are issued to the authorities governing the hazardous materials compliance. As
soon as a contamination problem is identified, Tenant will (i) give written
notice to Landlord and (ii) move to immediately correct the problem. Tenant
shall be obligated to take all steps reasonably necessary to assure that
Hazardous Materials do not leak onto, or penetrate into, the Building slab or
floor, or otherwise contaminate the Premises. If required by law, idle materials
or chemicals shall be stored in fully contained enclosures specifically designed
to contain the materials being stored. These measures shall be taken at Tenant's
expense. Tenant will be required to immediately report any environmental
incident to Landlord.
31. ACCESS. Landlord, and its agents and authorized representatives
(including without limitation surveyors, engineers, environmental consultants,
and contractors, and those of Landlord's current and prospective lenders), may
enter the Premises to (1) inspect the same; (2) exhibit the same to prospective
purchasers, mortgagees or tenants; (3) determine whether Tenant is complying
with all its obligations hereunder; (4) supply any service to be provided by
Landlord to Tenant hereunder; (5) post notices of nonresponsibility; (6) post
"to Lease" signs of reasonable size upon the Premises during the last 365 days
of the term hereof; and (7) make repairs required of Landlord under the terms
hereof or repairs to any adjoining space or utility services or make repairs,
alterations or additions to any other portion of the Building; provided,
however, that all such work shall be done as promptly as reasonable possible and
so as to cause as little interference to Tenant as reasonably possible. Landlord
shall give Tenant at least seventy-two (72) hours prior written notice to
establish a mutually acceptable appointment time of such entry, except in the
case of an emergency. In the event of an emergency, Landlord shall have the
right to use any and all means which Landlord may deem proper to open the doors
to the Premises to obtain entry to the Premises. Tenant may require Landlord and
its invitees to sign a non-disclosure agreement related to Tenant's customers
and products
32. 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.
Notwithstanding any provision of this Lease to the contrary, the liability of
Landlord under this Lease will be limited to Landlord's interest in the
Property, and any judgement against Landlord or Landlord's owners will be
enforceable solely against Landlord's interest in the Property, except that such
limitation shall not apply if and to the extent Landlord is liable to Tenant
under clause (ii) of Section 5(c) hereof dealing with Hazardous Materials.
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33. INTEGRATION. There are no oral agreements between Landlord and Tenant
affecting this Lease. This Lease supersedes and cancels any and all previous
negotiations, arrangements, agreements and understandings, if any, between
Landlord and Tenant with respect to the subject matter of this Lease.
34. AMENDMENT. This Lease may not be amended or modified except by the
written agreement of the parties. This Lease may not be amended or modified
orally.
35. CONSTRUCTION AND INTERPRETATION. The use in this Lease of the words
"including", "such as", and words of similar import following any general
statement, term, or matter shall not be construed to limit such statement, term,
or other matter in any manner, whether or not the language of non-limitation
(such as "without limitation" or "but not limited to") is used in connection
therewith, but rather shall be deemed to refer to all other items or matters
that could reasonably fall within the scope of the general statement, term, or
matter. All provisions of this Lease have been negotiated at arm's length and
this Lease shall not be construed for or against any party by reason of the
authorship or alleged authorship of any provision hereof. If any provision of
this Lease shall be determined to be illegal or unenforceable, such
determination shall not affect any other provision of this Lease and all such
other provisions shall remain in full force and effect.
36. TIME OF ESSENCE. Time is of the essence with respect to each of
Tenant's and Landlord's performance under this Lease.
37. EXPANSION OF BUILDING. With Landlord's prior written consent, which
shall not be unreasonably withheld, Tenant may, at its sole cost and expense,
construct an addition to the Building upon receipt of all necessary governmental
approvals and permits. Tenant shall be responsible for all governmental
conditions and requirements imposed as a result of such expansion, including any
off-site work. Any such expansion shall be (i) pursuant to plans and
specifications prepared by a licensed architect and approved by Landlord, which
approval shall not be unreasonably withheld, (ii) of first-class materials and
workmanship, and (iii) the property of Landlord at the end of the Lease term
without compensation to Tenant. Tenant shall not be required to pay any rent for
any additional space created as a result of its expansion of the Building under
this Section 37. Tenant shall be solely responsible for all maintenance and
repair of any addition it chooses to construct, which it shall maintain in good
condition.
38. TERMINATION OF EXISTING LEASE. On and as of the Effective Date, the
Existing Lease shall terminate and be of no further force and effect except for
any accrued payment obligations and for any indemnity obligations which by their
terms survive termination of the Existing Lease.
IN WITNESS WHEREOF, the Parties have executed this lease as of the date
first written above.
LANDLORD: TENANT:
MILLIKAN PROPERTIES, LLC BENCHMARK ELECTRONICS, INC.
By:/S/ JAMES E. JOHN By:/S/ GAYLA DELLY
Name: James E. John Name: Gayla Delly
Title: President Title: Treasurer
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EXHIBIT LIST
Exhibit A-1 Premises Location
Exhibit A-2 Premises Location
Exhibit B Landlord Repairs/Replacements/Tenant Improvements
Exhibit C Maintenance Agreements
Exhibit D Approved Tenant Work
Exhibit E Hazardous Materials
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EXHIBIT 10.15
CE FACILITY LEASE
This Lease Agreement (this "Lease") is made this 23rd day of
February,1998, by and between Lockheed Martin Corporation, a Maryland
corporation ("Landlord"), and Benchmark Electronics, Inc., a Texas corporation
("Tenant").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Landlord is the owner of the real property and an office building
consisting of approximately 250,000 square feet, located within the Pope
Technical Park in Hillsborough County, New Hampshire, commonly known as Building
#2, 65 River Road, Hudson, New Hampshire 03051 (the "Premises"), a map of which
is attached hereto as Exhibit A;
WHEREAS, pursuant to the terms of the Purchase Agreement between Landlord
and Tenant dated as of January 22, 1998 (together with all Exhibits, Schedules
and Attachments thereto, the "Purchase Agreement"), Tenant has agreed to lease
the Premises from Landlord on the terms and conditions set forth in this Lease;
and
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties contained herein and contained in the Purchase Agreement, the
parties agree as follows:
ARTICLE I
TERM
Section 1.01 Term. The term (the "Prime Term") of this Lease shall
commence on the date hereof (the "Commencement Date") and shall continue for a
period of two years thereafter (the "Expiration Date").
Section 1.02 ADDITIONAL TERM. In the event that Tenant shall desire to
extend this Lease at the end of the Prime Term, Tenant shall be permitted to
extend this Lease for one additional term for a period of up to four years
following the expiration of the Prime Term (the "Additional Term"). Tenant shall
provide Landlord written notice of the intent to lease the Premises for the
Additional Term at least 90 days before the expiration of the Prime Term. Upon
receipt of such written notice by Landlord, Landlord and Tenant shall negotiate
in good faith a lease for the Premises for the Additional Term on terms and
conditions consistent with the general market for the lease of commercial
facilities of the type, location and size of the Premises at that time (the
"General Market Rate"). Notwithstanding the foregoing, in the event that despite
such good faith negotiations Landlord and Tenant are unable
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to agree on the General Market Rate for the Additional Term, the General Market
Rate shall be determined in accordance with the provisions of Section 1.03
below.
Section 1.03. APPRAISAL.
(a) In the event that Landlord and Tenant cannot agree on the General
Market Rate within 60 days of the Expiration Date, then either party may invoke
its right to appraisal as set forth in this Section 1.03.
(b) To invoke its right to appraisal, the invoking party (the "Invoking
Party") shall send written notice to the other party (the "Non-Invoking Party")
stating that it is invoking its right to appraisal and naming an appraiser with
substantial experience in commercial real estate matters in the general area in
which the CE Facility is located, who shall be a member of the Appraisal
Institute or some other comparable organization. Within 10 days after such
notice, the Non-Invoking Party shall name an appraiser who is also so qualified
and shall provide the Invoking Party with written notice of the same. Within 10
days thereafter, the two appraisers so selected (the "First Appraisers") shall
select a third appraiser (the "Outside Appraiser").
(c) The appraisers (the First Appraisers and the Outside Appraiser) shall
attempt to determine the General Market Rate for the Premises. In making such
determination, the appraisers shall take into account that the Additional Rent
set forth in Section 3.02 of this Lease shall continue without interruption. In
the event that the First Appraisers are unable to determine a single General
Market Rate within 20 days after the date the Outside Appraiser was selected,
each of the First Appraisers shall set his or her own General Market Rate. In
the event that the General Market Rate determined by either of the First
Appraisers is within 10% (a "Close Appraisal") of the General Market Rate
established by the Outside Appraiser (the "Outside Appraisal"), the average of
the Close Appraisal or the Close Appraisals, as the case may be, and the Outside
Appraisal shall be the General Market Rate. In the event that neither appraisal
by the First Appraisers is a Close Appraisal, the General Market Rate shall be
(i) the Outside Appra.isal if it falls between the other two appraisals, (ii)
the average of the Outside Appraisal and the lower of the other two appraisals
if the outside Appraisal is lower than both of the other two appraisals, and
(iii) the average of the Outside Appraisal and the higher of the other two
appraisals if the Outside Appraisal is higher than both of the other two
appraisals. The General Market Rate so determined shall be conclusive and
binding upon the parties.
(d) Each party shall bear all of the costs and expenses of the appraiser
selected by it and the parties shall share equally the costs of the outside
Appraiser.
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ARTICLE II
THE PREMISES
Section 2.01 USE OF PREMISES. Tenant may use and occupy the Premises
during the term of this Lease for offices or light manufacturing and for no
other purposes except with the prior written consent of Landlord, provided that
any such use of the Premises shall at all times comply in all material respects
with all applicable laws and regulations, including zoning and land use laws and
regulations.
Section 2.02 ACCESS, UTILITIES, AND PARKING. Landlord shall provide Tenant
with adequate rights (i) of ingress and egress from a publicly dedicated road to
the Premises and (ii) to public utilities in order to operate the Premises in
the manner currently being utilized. Additionally, Tenant shall be entitled to
the use of the parking lots located within the Premises sufficient to
accommodate (i) those employees that work for Lockheed Commercial Electronics
Company immediately prior to the Commencement Date and (ii) a reasonable number
of additional employees that may be employed by Tenant at the Premises in the
future.
Section 2.03 SERVICES PROVIDED BY LANDLORD. Landlord shall provide Tenant
electric power, water, sewer, fire protection (consisting only of sprinklers,
fire extinguishers and smoke detectors), outside maintenance services (including
plowing for the roads and parking lots of the Premises) for the Premises, in the
manner that these services have been supplied to Lockheed Commercial Electronics
Company by Landlord prior to the execution of this Lease. Tenant shall reimburse
Landlord for expenses incurred in providing these services pursuant to the terms
of Section 3.02.
Section 2.04 SERVICES NOT PROVIDED BY LANDLORD. Tenant, at its own
expense, shall be responsible for plant engineering services (including, but not
limited to, procuring heating and air conditioning maintenance and repair,
ordinary interior repair, maintenance and security for the Premises), janitorial
services, trash removal and interior window washing for the Premises.
ARTICLE III
RENT
Section 3.01 BASE RENT. Tenant shall pay Landlord $382,000 per year as
rent for the Premises during the Prime Term in equal, consecutive, monthly
installments of $31,834 (the "Prime Term Rent"). The first monthly payment of
the Prime Term Rent shall be due and payable on the Commencement Date. Each
subsequent payment of the Prime Term Rent shall be due and payable on the same
calendar day of each month for the term of this Lease. In the event any such
Prime Term Rent shall not have been paid by the close of business on the fifth
calendar day following the due date
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for such Prime Term Rent, Tenant shall pay to Landlord a late fee equal to 5% of
the overdue amount.
Section 3.02 ADDITIONAL RENT. Tenant shall pay as additional rent the
costs associated with real property taxes, casualty and liability insurance
policies, and the services provided by Landlord pursuant to Section 2.03 for the
Premises (the "Additional Rent"). The Additional Rent shall be pro rated based
on Tenant's percentage occupancy of the Premises. Tenant acknowledges that for
the purposes of this Lease, Tenant shall be deemed to occupy 74% of the Premises
for so long as a portion of the Premises is subleased pursuant to that certain
sublease between Tenant (as Sublessor) and Sanders, a Lockheed Martin Company
("Sanders") and a division of Landlord (as Sublessee) dated of even date
herewith (the "Sublease"). If at any time during the term of this Lease Sanders
ceases to occupy a portion of the Premises pursuant to the Sublease, then Tenant
shall be deemed to occupy 100% of the Premises for the purposes of calculating
the Additional Rent pursuant to this Section 3.02. Notwithstanding any provision
of this Section 3.02 to the contrary, Tenant shall also pay as Additional Rent
89% of the cost of electric power for the Premises during the term of this Lease
on the condition that Sanders occupies a portion of the Premises under the
Sublease. In the event Sanders does not occupy a portion of the Premises,
pursuant to the Sublease, at any time during the term of this Lease, then Tenant
shall pay 100% of the cost of electric power for the Premises. The provisions of
the preceding sentence shall be altered by agreement of the parties, if
accomplishing the foregoing presents unreasonable difficulties under, or is
otherwise required by, applicable State of New Hampshire utilities laws. Any
such Additional Rent shall be due and payable within 10 days of receipt by
Tenant of a written request for payment thereof and reasonable documentation
regarding such Additional Rent.
ARTICLE IV
SIGNS
Section 4.01 SIGNS. Tenant shall have the right, at its expense, to
maintain within or on the exterior of the Building, or at its entrance to the
Premises, such signs, directories or marquees as shall serve to identify Tenant
and to direct guests to Tenant's place of business. Such signs, directories, or
marquees shall be subject to Landlord's approval, which shall not be
unreasonably withheld. Landlord agrees to identify Tenant prominently, at
Tenant's expense, by a sign located at the entrance to the Premises as soon as
reasonably practicable after the Commencement Date, such sign to be of a design
mutually approved by Landlord and Tenant and subject to compliance with local
zoning ordinances.
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ARTICLE V
TRANSFER AND SUBLETTING
Section 5.01 TRANSFER AND SUBLETTING. Tenant shall not sublet, assign,
transfer, vacate or in any manner dispose of the premises or any part thereof
for all or any part of the term of this Lease, other than pursuant to the
Sanders Sublease, without the prior written consent of Landlord. Notwithstanding
the above, Tenant may assign this Lease to Lockheed Commercial Electronics
company its successors and assigns, without first obtaining the prior written
consent of Landlord. In the event Tenant assigns this Lease to Lockheed
Commercial Electronics Company, Tenant shall remain at all times liable for any
amounts owed to Landlord pursuant to this Lease.
ARTICLE VI
SURRENDER OF PREMISES
Section 6.01 SURRENDER OF PREMISES. On the Expiration Date, Tenant shall
peaceably surrender the Premises in its current condition, reasonable wear and
tear excepted, and ensure that the Premises are broom clean. Prior to the
Expiration Date, Tenant shall remove from the Premises all Hazardous Substances
(as defined in Section 13.01) used within, in, or as part of its business that
were placed in or on the Premises on or after the Closing Date. However, nothing
in this Lease shall require either Landlord or Tenant to remove asbestos
containing building materials present upon the Premises prior to the
Commencement Date. Any personal property left upon the Premises on the
Expiration Date shall be deemed to be abandoned by Tenant.
ARTICLE VII
SALE OF PREMISES
Section 7.01 COOPERATION BETWEEN PARTIES. Tenant acknowledges that
Landlord may actively market the Premises for sale to a third party at any time
during the Prime Term or tine Additional Term of this Lease.
ARTICLE VIII
IMPROVEMENTS TO PREMISES
Section 8.01 ALTERATIONS AND ADDITIONS. Tenant shall not make any
alterations, additions, or improvements over $25,000 to the Premises without the
prior written consent of Landlord. In no event shall any structural change or
any change or modification to the structure of the Premises' heating,
electrical, or plumbing services be undertaken by Tenant or an employee or agent
of Tenant Without Landlord's prior written consent. Any approved alterations,
additions, or improvements, shall. be done in accordance with the applicable
county, city and State laws and
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ordinances and building and zoning rules and regulations. Tenant hereby
expressly assumes full responsibility for all damages and for injuries which may
result to any person or property by reason of or resulting from said
alterations, additions, or improvements, and shall hold Landlord harmless with
respect thereto, except with respect to those injuries and damages arising out
of Landlord's fault or negligence. On the Expiration Date, all alterations,
additions, and improvements to the Premises shall become the property of
Landlord.
Section 8.02 APPROVAL OF LANDLORD REQUIRED. No such alterations, additions
or improvements over $25,000 may be commenced in the Premises, until Tenant has
prepared or had prepared plans and specifications for the work and obtained
Landlord's written approval therefor.
Section 8.03 PAYMENT BY TENANT. Tenant shall pay, when due, any and all
sums of money that may be due for any labor services, materials, supplies or
equipment alleged to have been furnished or to be furnished to or for Tenant in,
on, or about the Premises and which may be secured by any mechanics, material or
other liens against the Premises or of Landlord's interest therein, and Tenant
shall cause each such lien to be fully discharged and released at the time the
performance of any obligation secured by any such lien matures or becomes due.
Landlord reserves the right at any or all times to alter the Premises or add
thereto so long as it does not have an adverse effect on Tenant's right to quiet
enjoyment of the Premises.
ARTICLE IX
LIABILITY
Section 9.01 LIABILITY. Landlord in no event shall be liable for, and
Tenant shall indemnify and hold harmless Landlord from, any damage or injury to
Tenant or any agent or employee of Tenant including, without limitation,
business invitees and contract laborers, or to any person or persons coming upon
the Premises in connection with the occupancy by Tenant of the Premises, or to
any goods, chattels or other property of Tenant, or any other person or persons
which may during the term of this Lease be located in the Premises, unless
Landlord was responsible for such injury through Landlord's own negligence or
intentional act. Landlord shall not be liable for, and Tenant shall indemnify
and hold harmless Landlord from, any damage to Tenant's personal property and to
personal property of others in Tenant's possession or under Tenant's care and
control located within the Premises whether such damage is caused or contributed
to by fire, water, rain, snow, breakage of pipes, Acts of God, leakage, or in
the event that such damage is due to the fault or negligence of Tenant, its
agents or employees, business invitees, and contract laborers, unless Landlord
was responsible for such damage through Landlord's own negligence or intentional
act. Tenant shall carry insurance to cover damage by fire or other casualty to
Tenant's personal property.
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ARTICLE X
INSPECTION
Section 10.01 LANDLORD'S INSPECTION. Upon prior notice, Landlord and
persons designated by Landlord have the right to enter the Premises at
reasonable hours to examine the same and to do such work as Landlord is
obligated to do under the terms of this Lease, or to do such work as Landlord
shall deem necessary for the safety or preservation of the Premises; provided
however, that the same shall not interfere unreasonably with the conduct of
Tenant's business.
Section 10.02 OUIET ENJOYMENT. Subject to the terms of this Lease,
Landlord covenants that if Tenant pays the rent pursuant to Section 3.01 and the
Additional Rent, performs all of its obligations provided for hereunder and
observes all of the other provisions hereof, Tenant shall at all times during
the Prime Term peaceably and quietly have, hold and enjoy the Premises, without
any interruption or disturbance from Landlord.
ARTICLE XI
INDEMNIFICATION
Section 11.01 INDEMNIFICATION. Tenant shall defend and indemnify Landlord
and agrees to hold Landlord harmless from any injury, cost or damage to Landlord
or Landlord's agents or employees and from any and all liability for injury to
third persons or damage to the property of third persons, including expenses,
and reasonable counsel fees occurring by reason of any negligent or unlawful
acts or omissions of Tenant, Tenant's agents, consultants, contract laborers and
invitees or employees.
Section 11.02. ENVIRONMENTAL INDEMNIFICATION. Tenant shall defend and
indemnify Landlord and agrees to hold Landlord harmless from any and all Damages
(as defined below) arising during or after the term of this Lease from or in
connection with the use, storage, generation, disposal, discharge, release or
emission of Hazardous Substances (as defined in Section 13.01) in, on or about
the Premises by Tenant, Tenant's agents, employees, contractors or invitees.
This indemnification shall expressly include, without limitation, any and all
such Damages due to any Remedial Action (as defined below), and shall survive
indefinitely after the expiration or termination of this Lease.
For the purposes of this Section 11.02, "Damages" means all demands,
claims, actions or causes of action, assessments, losses, damages, costs,
expenses, liabilities, judgments, awards, fines, sanctions, penalties, charges
and amounts paid in settlement, including, without limitation, reasonable costs,
fees and expenses of attorneys, experts, accountants, appraisers, consultants,
witnesses, investigators and any other agents or representatives of such person
(with such amounts to be determined net of any
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resulting tax benefit and net of any refund or reimbursement of any portion of
such amounts, including, without limitation, reimbursement by way of insurance,
third party indemnification or the inclusion of any portion of such amounts as a
cost under Government Contracts), but specifically excluding (i) any costs
incurred by or allocated to Landlord with respect to time spent by employees of
Landlord or any of its affiliates, (ii) any consequential, exemplary or punitive
damages and (iii) the decrease in the value of any asset to the extent that such
valuation is based on a use of such asset other than its use as of the
commencement Date.
For the purposes of this section 11.02, "Remedial Action(s)" means the
investigation, clean-up or remediation of contamination or environmental
degradation or damage caused by, related to or arising from the generation, use,
handling, treatment, storage, transportation, disposal, discharge, release, or
emission of Hazardous Substances, including, without limitation, investigations,
response and remedial actions under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, corrective action under the
Resource Conservation and Recovery Act of 1976, as amended, and clean-up
requirements under similar state Environmental Laws (as defined in Section
13.01).
ARTICLE XII
MAINTENANCE
Section 12.01 MAINTENANCE OF PREMISES. Tenant agrees to maintain the
Premises, including the heating and electrical systems for the Premises, in
substantially the same condition as they are on the Commencement Date,
reasonable wear and tear, and damage by fire and other casualty excepted,
acknowledging that the Premises are now in good condition. Tenant shall not
permit the Premises to be overloaded, damaged, stripped or defaced, nor suffer
any waste.
ARTICLE XIII
ENVIRONMENTAL SAFETY
Section 13.01 HAZARDOUS SUBSTANCES. Tenant shall not cause or permit any
Hazardous Substances (as defined below) to be used, stored, generated or
disposed of in, on or about the Premises by Tenant, its agents, employees,
contractors or invitees, except for such Hazardous Substances as are normally
utilized in an office or light manufacturing environment. Any such Hazardous
Substances permitted on the Premises as hereinabove provided, and all containers
therefor, shall be used, kept, stored and disposed of in a manner that complies
with all Environmental Laws. Tenant shall not discharge, release or emit
Hazardous Substances on or about the Premises so as to pollute or contaminate
air, soil (including
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sediment and subsurface soil), or water (including groundwater). Any testing,
control, or treatment of discharges, releases or emissions of Hazardous
Substances required as a result of Tenant's use and occupancy of the Premises
shall be solely the responsibility of Tenant, and costs incurred by Landlord in
effecting any such tests, controls, or treatment shall be reimbursed by Tenant
to Landlord upon demand as Additional Rent. Landlord reserves the right to enter
upon the Premises at any time throughout the term of this Lease to assure
compliance with this Section 13.01.
For the purposes of this Section 13.01 and Sections 6.01 and 11.02,
"Hazardous Substances" means substances defined as "hazardous substances,"
"hazardous materials," "hazardous wastes," "pollutants," or "contaminants," and
any toxic, radioactive, ignitable, corrosive, reactive or otherwise hazardous
substance, waste, or material, including, without limitation, asbestos and
petroleum, its derivatives, by-products and other hydrocarbons, in each case as
regulated under any Environmental Law.
For the purposes of this Section 13.01 and Section 11.02, "Environmental
Laws" means any and all past, present or future federal, state, local and
foreign statutes, laws, regulations, ordinances, judgments, orders, codes,
injunctions, judicial decisions, permits or governmental restrictions or
agreements with an governmental authorit which relate to the environment, human
health and safety, or to pollutants, contaminants, wastes or chemicals or any
toxic, radioactive, ignitable, corrosive, reactive or otherwise hazardous
substances, wastes or materials or which impose liability for or standards of
conduct concerning the manufacture, processing, generation, distribution, use;
treatment, storage, disposal, cleanup, transport or handling of Hazardous
Substances including, the Resource Conservation and Recovery Act of 1976, as
amended, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, the Superfund Amendment and Reauthorization Act of
1984, as amended, the Toxic Substances Control Act, as amended, any other
so-called "Superfund" or "Superlien" law, and the Occupational Safety and Health
Act of 1970, as amended.
ARTICLE XIV
BREACH
Section 14.01 BREACH OR DEFAULT BY TENANT. Any breach by Tenant of any
conditions of this Lease, other than payment of the rent pursuant to Section
3.01, may be cured by Landlord for the account of and at the expense of Tenant,
and any sums so advanced shall be paid to Landlord 14 days after Landlord
provides Tenant of notice thereof. Further, if Tenant shall fail to pay the rent
pursuant to Section 3.01 or the Additional Rent within 14 days after being due
and receiving a written demand therefor, Landlord shall have the right to
recover the rent owed (together with any applicable late fee) and to reenter and
take possession of the
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Premises and cancel and annul the remainder of this Lease. If Tenant defaults in
any condition or covenant of the Lease or in performing the same, and fails to
correct such default within 14 days of receiving the written notice of Landlord
thereof, Landlord may, at its option, terminate this Lease; provided that such
default is a default that by its nature is curable within such 14- day period.
Section 14.02 BREACH OR DEFAULT BY LANDLORD. If Landlord defaults in any
condition or covenant of the Lease or in performing the same, and fails to
correct such default within 14 days of receiving written notice of Tenant
thereof, Tenant may, at its option, terminate this Lease on the condition that
such default is by its nature curable within such 14-day period.
ARTICLE XV
TAXES
Section 15.01 REALTY TAXES. Landlord shall pay all real property taxes
which have been or may be assessed by any lawful authority against the Premises.
Tenant shall reimburse Landlord for the real property taxes related to the
Premises as Additional Rent as provided for in Section 3.02.
Section 15.02 PERSONAL PROPERTY TAXES. Tenant shall be liable for the
payment of all taxes levied against any of Tenant's personal property or trade
fixtures placed in, on, or about the Premises, including, without limitation,
the shelves, counters, vaults, vault doors, wall safes, partitions, machinery,
and electrical or electronic equipment. If Landlord is required to pay any of
such taxes, Tenant upon demand shall promptly reimburse Landlord therefor.
ARTICLE XVI
INSURANCE
Section 16.01 LIABILITY INSURANCE. From the Commencement Date until the
expiration of this Lease, Tenant shall carry and keep.in full force and effect
at all times for the protection of Landlord and Tenant, comprehensive general
liability insurance for bodily injury, death' and damage to the property of
others, including Tenant's legal liability for damage to the Premises and
blanket contractual liability, with respect to all business conducted from the
Premises and the use and occupancy thereof, including the activities, operations
and work conducted or performed by Tenant, by any other person on behalf of
Tenant, by those for whom Tenant is in law responsible, and by any other person
on the Premises and/or accessing the recreational facilities, with minimum
limits of coverage of at least $1,000,000 for each occurrence of property damage
and bodily injury with an aggregate of $3,000,000. Notwithstanding the
foregoing, Landlord shall have the right to require Tenant to increase the
minimum
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limits of coverage set forth above, from time to time, to the standard limits of
coverage required for comparable property in the Hudson, New Hampshire area.
Section 16.02 FIRE AND CASUALTY INSURANCE. Tenant shall obtain and
maintain in full force and effect at all times insurance policies against fire,
theft, vandalism, malicious mischief, leakage and such additional perils as now
are or hereafter may be included in a standard extended coverage endorsement
from time to time in general use in the Hudson, New Hampshire area, insuring all
of the improvements comprising the Premises, as well as Tenant's improvements in
the Premises, in an amount equal to not less than the full replacement value
thereof.
Section 16.03 POLICY REQUIREMENTS. All insurance policies carried by
Tenant pursuant to this Article XVI, and any other insurance policies carried by
Tenant with respect to the Premises, shall: (i) be designated as "Primary" and
be issued in form acceptable to Landlord by good and solvent insurance companies
licensed to do business in the State of New Hampshire and reasonably
satisfactory to Landlord; (ii) name Landlord and any other parties in interest,
from time to time designated by notice from Landlord to Tenant, as an additional
insured; (iii) provide for at least 30 days prior written notice to Landlord of
any cancellation or material alteration of such policy or of any defaults
thereunder; (iv) contain an express waiver of any right of subrogation by the
insurance company against Landlord and Landlord's employees and agents; (v)
contain an automatic increase in insurance endorsement providing appropriate
inflation protection; and (vi) have such other form and content as Landlord may
reasonably require. On the commencement Date, Tenant shall provide Landlord with
a Certificate of Insurance reciting the foregoing as evidence of such coverage.
ARTICLE XVII
BANKRUPTCY, WAIVER OR DEFAULT
Section 17.01 BANKRUPTCY, WAIVER OR DEFAULT. In the event Tenant files a
voluntary petition in bankruptcy, makes assignment for the benefit of creditors,
or is adjudged a bankrupt, or if a receiver, trustee or custodian is appointed
for Tenant by any court, or if Tenant files any petition for relief under any
section of the bankruptcy laws of the United States now in force or hereafter
enacted, or if Tenant takes advantage of any insolvency act, or if the interest
of Tenant shall be sold under any execution or other legal process issued out of
any court, or if Tenant shall abandon or vacate the Premises during the term of
this Lease, or if Tenant shall breach any promise or covenant herein, then in
any such event it shall be lawful for Landlord at any time thereafter, at its
option upon 10 days written notice to Tenant, to re-enter said premises and
again have possession thereof and occupy the same as if this Lease had not been
made, and thereupon this Lease shall cease and become null and void.
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ARTICLE XVIII
SUBORDINATION
Section 18.01 SUBORDINATION. This Lease shall be subject and subordinate
to any and all mortgages, deeds of trust and other instruments in the nature of
a mortgage, now or at any time hereafter recorded, other than the Mortgage and
Promissory Note dated July 28, 1982 between Hi-Tension Realty Corporation,
Mortgagor, and Ernest Chalifoux, Ethel Chalifoux and Mildred Chalifoux,
Mortgagees, which Landlord has represented and does represent to Tenant is
invalid, and Tenant shall, when requested, promptly execute and deliver such
written instruments as shall be necessary to show the subordination of this
Lease to said mortgages, deeds of trust or other such instruments in the nature
of a mortgage. Notwithstanding anything in this Lease to the contrary, a
condition precedent to the effectiveness of the subordination described in this
paragraph, shall be that the holder of any mortgage, ground lease or other
security instrument to which this Lease is to be subordinated or to whom Tenant
is to attorn, shall agree pursuant to a written agreement (hereinafter referred
to as a "Non-Disturbance Agreement") delivered to Tenant, that (i) so long as
Tenant is not in default under this Lease (beyond any period given to Tenant
hereunder to cure such default), Tenant's use and occupancy of the Premises and
its rights under this Lease shall not be disturbed or affected by the
termination of such ground or underlying lease prior to the expiration or
termination of this Lease or by any foreclosure or other action (or by the
delivery or acceptance of a deed or other conveyance or transfer in lieu
thereof) which may be instituted or undertaken in order to enforce any right or
remedy available to the holder of such instrument, (ii) Tenant shall not be
named as a party defendant in any foreclosure, summary or any other action
commenced by any such ground or underlying lessor or secured party, and (iii)
any party succeeding to the interest of Landlord as a result of any such
enforcement action or otherwise shall be bound to Tenant, and Tenant shall be
bound to it, under all of the terms, covenants and conditions of this Lease with
the same force and effect as if such party were the original Landlord under this
Lease. Landlord covenants and agrees that it will obtain and deliver to Tenant a
Non-Disturbance Agreement in accordance with the foregoing provisions from the
then holder(s) of any mortgage, deed of trust, ground lease or other security
instrument affecting the Premises on or before the date the Premises are ready
for occupancy, failing which tenant may, at its option, terminate this Lease
whereupon any prepaid rent or other prepaid charges or deposits paid by Tenant
to Landlord shall be immediately refunded.
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ARTICLE XIX
MISCELLANEOUS
Section 19.01 NOTICES. All notices, requests and other communications to
any party hereunder shall be in writing (including telecopy or similar writing)
and shall be given:
if to Landlord:
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817
Attention: Senior Vice President and
Chief Financial Officer
Facsimile: (301) 897-6083
with a copy to:
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817
Attention: Senior Vice President and
General Counsel
Facsimile: (301) 897-6791
and
Miles & Stockbridge P.C.
10 Light Street
Baltimore, Maryland 21202
Attention: Glenn C. Campbell
Facsimile: (410) 385-3700
if to Tenant:
Benchmark Electronics, Inc.
3000 Technology Drive
Angleton, Texas 77515
Attention: President and Chief
Executive Officer
Telecopy: (409) 848-5269
with a copy to:
Bracewell & Patterson, L.L.P.
2900 South Tower Penzoil Place
Houston, Texas 77002
Attention: John R. Brantley
Facsimile: (713) 221-1212
or to such addresses or telecopy numbers and with such other copies, as such
party may hereafter specify for the purpose of notice to the other parties. Each
such notice, request or other
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communication shall be effective (I) if given by telecopy, when such telecopy is
transmitted to the telecopy number specified in this Section 19.01 and evidence
of receipt is received or (ii) if given by any other means, upon delivery or
refusal of delivery at the address specified in this Section 19.01.
Section 19.02 EMINENT DOMAIN. If the whole or any part of the Premises
shall be taken by public authority under the power of eminent domain, then the
term of this Lease shall cease on the part so taken from the day that possession
of that part shall be required for any purpose by said public authority, and the
rent and the Additional Rent shall be paid up to that day, and if such portion
of the Premises are so taken as to, in Tenant's opinion, destroy the usefulness
of the Premises for the purpose for which the Premises were leased, then, from
that day, Tenant shall have the right either to terminate this Lease and declare
the same null and void, or to continue in the possession of the remainder of the
same under the terms herein provided, except that the rent shall be reduced in
proportion to the amount of the Premises taken based on the value of the portion
taken to the value of the remaining part. All damages awarded for such taking
shall belong to and be the property of Landlord, including such damages as shall
be awarded as compensation for diminution in value to the leasehold, provided,
however, that Landlord shall not be entitled to any portion of the award made to
Tenant for Tenant's furnishings or Tenant's business relocation expenses.
Section 19.03 DESTRUCTION OF PREMISES. If, during the term of this Lease,
the Premises are totally or partially destroyed from any cause, rendering the
Premises totally or partially inaccessible or unusable, Landlord shall restore
the destruction if the restoration can be made under the existing laws and can
be completed within 120 working days after the destruction. Such destruction
shall not terminate the Lease. During the period that the Premises are being
restored Tenant shall neither pay nor owe the rent pursuant to either Section
3.01 or the Additional Rent to Landlord. If the restoration cannot be made
within 120 days, then within 10 days after such destruction Tenant or Landlord
can terminate this Lease immediately by giving written notice and neither party
shall have any further obligation to the other with respect to this Lease.
Section 19.04 ENTIRE AGREEMENT. Except as otherwise expressly contemplated
by the Purchase Agreement, this Lease and the Purchase Agreement contain all
representations, understandings, agreements and commitments of Landlord and
Tenant. The Lease between Lockheed Sanders, Inc. and CE dated September 26,
1987, as amended and any other written or oral statements or promises of any
type whatsoever shall be null and void and of no effect whatsoever in the
interpretation of this Lease.
Section 19.05 APPLICABLE LAW; JURISDICTION. This Lease shall be construed
in accordance with the laws of the State of New Hampshire without reference to
the conflicts of laws principles
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thereof. The forum for any disputes arising hereunder shall be a court of
competent jurisdiction sitting in the State of New Hampshire, and by executing
this Lease, Landlord and Tenant consent to such jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed on the date first above written.
LANDLORD:
LOCKHEED MARTIN CORPORATION
By:__________________________(SEAL)
Name:
Title:
TENANT:
BENCHMARK ELECTRONICS, INC.
By:___________________________(SEAL)
Name:
Title:
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[PICTURE OF LAYOUT OF PROPERTY]
EXHIBIT 10.16
SANDERS SUBLEASE
This Sublease (this "Sublease") is made this 23rd day of February 1998,
by and between Benchmark Electronics, Inc., a Texas corporation ("Sublessor"),
and Sanders, a Lockheed Martin Company and a division of Lockheed Martin
Corporation, a Maryland corporation ("Sublessee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Sublessor is the lessee under a prime lease (the "Prime Lease")
for an office building located within the Pope Technical Park in Hillsborough
County, New Hampshire, commonly known as Building #2, 65 River Road, Hudson, New
Hampshire 03051 (the "Building");
WHEREAS, Sublessee currently occupies approximately 52,000 square feet on
the second floor of the Building and makes use of the Common Areas (as
hereinafter defined) of the Building, together the 52,000 square feet and the
Common Areas shall be referred to as the "Premises"); and
WHEREAS, Sublessee desires to lease from Sublessor the Premises on the
terms and conditions set forth in this Sublease;
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties contained herein, the parties agree as follows:
ARTICLE I
TERM
Section 1.01 TERM. The term (the "Prime Term") of this Sublease (the
"Term") shall commence on the date hereof (the "Commencement Date") and shall
continue for a period of two years thereafter.
Section 1.02 ADDITIONAL TERMS.
(a) In the event that Sublessee shall desire to extend this Sublease at
the end of the Prime Term, Sublessee shall provide Sublessor with written notice
of such desire and of the desired term of any such extension, which term shall
be a period of up to four years following expiration of the Prime Term (the
"Additional Term"), at least 90 days before the expiration of the Prime Term.
The Rent (as defined herein) for the Additional Term shall be the same, on a per
square foot basis, as the Rent paid by Sublessor
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during the Additional Term of the Prime Lease. All other terms and conditions of
this Sublease shall remain in full force and effect during the Additional Term
of this Sublease.
(b) Notwithstanding anything contained herein to the contrary, Sublessee
acknowledges and agrees that Sublessor's right to Sublease the Premises for the
Prime Term and Additional Term is subject to its right to sublease under the
Prime Lease, and the continuation of the Prime Lease beyond the Prime Term of
the Prime Lease. If the Prime Lease expires or terminates prior to the
expiration or termination of this Sublease, Sublessee acknowledges that all of
its rights hereunder shall terminate simultaneously therewith and, upon such
event Sublessor shall have no further obligation to sublease the Premises to
Sublessor hereunder.
Section 1.03 SUBLESSOR'S OPTION TO TERMINATE. At any time during the Prime
Term or the Additional Term of this Sublease, Sublessor may, upon at least 12
months prior written notice to Sublessee, terminate Sublessee's interest in this
Sublease and Sublessee shall vacate the Premises pursuant to such written
notice.
ARTICLE II
THE PREMISES
Section 2.01 USE OF PREMISES. Sublessee may use and occupy the Premises
during the term of this Sublease for offices, a research and development lab,
engineering or manufacturing and for no other purposes except with the prior
written consent of Sublessor, provided that any such use of the Premises shall
at all time comply with all applicable laws and regulations, including zoning
and land use laws and regulations.
Section 2.02 USE OF COMMON AREAS. Sublessee shall also have the use of the
following common areas of the Building (the "Common Areas"):
(i) the cafeteria;
(ii) the hallways, lobby areas, elevators, and other
areas of ingress and egress from the Building;
(iii) the bathrooms;
(iv) the conference center;
(v) the shipping and receiving dock;
(vi) the nurse facilities;
(vii) the shower facilities;
(viii) photocopying and reproduction services; and
(ix) the parking facilities, including five specially
designated executive parking spaces, for executive personnel
of Sublessee (two of which being in the parking lot in front
of the Building and three of which being in the parking lot
located at the southerly side of the Building)
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Section 2.03 SERVICES PROCURED BY SUBLESSEE. Sublessee shall procure
electric power, water, sewer, fire protection (consisting only of sprinklers,
fire extinguishers and smoke detectors), outside maintenance services (including
plowing for the roads and parking lots of the Building) for the Premises
directly from the Landlord (as defined in the Prime Lease).
Section 2.04 SERVICES PROVIDED BY SUBLESSOR. Sublessor shall provide plant
engineering services (including, but not limited to, heating and air
conditioning maintenance and repair, ordinary interior repair, maintenance and
security for the Premises), janitorial services, trash removal and interior
window washing for the Premises. Sublessee shall reimburse Sublessor for
expenses incurred in providing these services pursuant to the terms of Section
3.02.
Section 2.05 COMPLIANCE WITH LAWS. Sublessee shall comply with all
applicable federal, state and local laws, ordinances and regulations with
respect to its use and occupancy of the Premises. Sublessee shall not permit the
conduct of any business trade or occupation on the Premises, or anything to be
done thereon which may void or make voidable any policy of insurance held by
Sublessor thereon, or which will be unlawful, improper, noisy or offensive or
contrary to any federal, state or local laws or regulations.
ARTICLE III
RENT
Section 3.01 MONTHLY RENT. Sublessee shall pay Sublessor $8,320 per month
as rent for the Premises during the Prime Term of this Sublease (the "Rent").
The first payment of the Rent shall be due and payable on the Commencement Date.
Each subsequent payment of the Rent shall be due and payable on the same
calendar day of each month for the term of the Sublease. In the event any such
Rent shall not have been paid by the close of business on the fifth calendar day
following the due date for such Rent, Sublessee shall pay to Sublessor a late
fee equal to 5% of the overdue amount.
Section 3.02 ADDITIONAL RENT. Sublessee shall pay as additional rent the
costs associated with the services provided by Sublessor pursuant to Section
2.04 for the Premises (the "Additional Rent"). The Additional Rent shall be pro
rated based on Sublessee's percentage occupancy of the Premises. Sublessee
acknowledges that for the purposes of this Sublease, Sublessee shall be deemed
to occupy 26% of the Premises.
ARTICLE IV
SIGNS
Section 4.01 SIGNS. Sublessee shall have the right, at its expense, to
maintain within or on the exterior of the Building such signs, directories or
marquees as shall serve to identify Sublessee
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and to direct guests to Sublessee's place of business. Such signs, directories,
or marquees shall besubject to Sublessor's approval, which shall not be
unreasonably withheld. Sublessor agrees to prominently identify Sublessee by a
sign located at the entrance to the Building as soon as reasonably practical
after the Commencement Date, such sign to be of a design mutually approved by
Sublessor and Sublessee and subject to compliance with local zoning ordinances.
ARTICLE V
TRANSFER AND SUBLETTING
Section 5.01 TRANSFER AND SUBLETTING. Sublessee shall not sublet, assign,
transfer, vacate or in any manner dispose of the Premises or any part thereof
for all or any part of the term of this Sublease without the prior written
consent of Sublessor.
ARTICLE VI
SURRENDER OF PREMISES
Section 6.01 SURRENDER OF PREMISES. On the Termination Date, Sublessee
shall peaceably surrender the Premises in its current condition, reasonable wear
and tear excepted. Neither Sublessor nor Sublessee shall be required to remove
asbestos containing building materials present upon the Premises as of the
Commencement Date. Any personal property left upon the Premises on the
Termination Date shall be deemed abandoned by Sublessee.
ARTICLE VII
IMPROVEMENTS TO PREMISES
Section 7.01 ALTERATIONS AND ADDITIONS. Sublessee shall not make any
alterations, additions, or improvements over $25,000 to the Premises without the
prior written consent of Sublessor. In no event shall any structural change or
any change or modification to the structure of the Premises' heating,
electrical, or plumbing services be undertaken by Sublessee or an employee or
agent of Sublessee without Sublessor's prior written consent. Any approved
alterations, additions, or improvements, shall be done in accordance with the
applicable county, city and State laws and ordinances and building and zoning
rules and regulations. Sublessee hereby expressly assumes full responsibility
for all damages and for injuries which may result to any person or property by
reason of or resulting from said alterations, additions, or improvements, and
shall hold Sublessor harmless with respect thereto, except with respect to those
injuries and damages arising out of Sublessor's fault or negligence. On the
Termination Date, all alterations, additions, and improvements to the Premises
shall become the property of Sublessor.
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Section 7.02 APPROVAL OF SUBLESSOR REQUIRED. No such alterations,
additions or improvements may be commenced in the premises, until Sublessee has
prepared or had prepared plans and specifications for the work and obtained
Sublessor's written. approval therefor.
Section 7.03 PAYMENT BY SUBLESSEE. Sublessee shall pay, when due, any and
all sums of money that may be due for any labor services, materials, supplies or
equipment alleged to have been furnished or to be furnished to or for Sublessee
in, on, or about the Premises and which may be secured by any mechanics,
material or other liens against the Premises or of Sublessor's interest therein,
and Sublessee shall cause each such lien to be fully discharged and released at
the time the performance of any obligation secured by any such lien matures or
becomes due. Sublessor does not own the building.
ARTICLE VIII
LIABILITY
Section 8.01 LIABILITY. Sublessor in no event shall be liable for, and
Sublessee shall indemnify and hold harmless Sublessor from, any damage or injury
to Sublessee or any agent or employee of Sublessee, or to any person or persons
coming upon the Premises in connection with the occupancy by Sublessee of the
Premises, or to any goods, chattels or other property of Sublessee, or any other
person or persons which may during the term of this Sublease be located in the
Premises unless Sublessor was responsible for such injury through Sublessor's
own negligence or intentional act. Sublessor shall not be liable for, and
Sublessee shall indemnify and hold harmless Sublessor from, any damage to
Sublessee's personal property located within the Premises whether such damage is
caused or contributed to by water, rain, snow, breakage of pipes, or leakage, in
the event that such damage is due to the fault or negligence of Sublessee, its
agents or employees. Sublessee shall carry insurance to cover damage by fire or
other casualty to Sublessee's personal property.
ARTICLE IX
INSPECTION
Section 9.01 SUBLESSOR'S INSPECTION. Subject to governmental security
regulations and Sublessee's reasonable proprietary requirements, and upon prior
notice, Sublessor and persons designated by Sublessor have the right to enter
the Premises at reasonable hours to examine the same and to do such work as
Sublessor is obligated to do under the terms of this Sublease, or to do such
work as Sublessor shall deem necessary for the safety or preservation of the
Premises; provided however, that the same shall not interfere unreasonably with
the conduct of Sublessee's business.
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Section 9.02 QUIET ENJOYMENT. Subject to the terms of this sublease,
Sublessor covenants that, if Sublessee pays the Rent, performs all of its
obligations provided for hereunder and observes all of the other provisions
hereof, Sublessee shall at all times during the Term peaceably and quietly have,
hold and enjoy the Premises, without any interruption or disturbance from
Sublessor.
ARTICLE X
INDEMNIFICATION
Section 10.01 INDEMNIFICATION. Sublessee shall defend and indemnify
Sublessor and agrees to hold Sublessor harmless from any injury, cost or damage
to Sublessor or Sublessor's agents or employees and from any and all liability
for injury to third persons or damage to the property of third persons,
including expenses, and reasonable counsel fees to the extent occurring by
reason of any negligent or unlawful acts or omissions of Sublessee, Sublessee's
agents or employees occurring in, on, or about the Premises.
Section 10.02. ENVIRONMENTAL INDEMNIFICATION. Sublessee shall defend and
indemnify Sublessor and agrees to hold Sublessor harmless from any and all
Damages (as defined below) arising during or after the term of this Sublease
from or in connection with the use, storage, generation, disposal, discharge,
release or emission of Hazardous Substances (as defined in Section 12.01) in, on
or about the Premises by Sublessee, Sublessee's agents, employees, contractors
or invitees. This indemnification shall expressly include, without limitation,
any and all such Damages due to any Remedial Action (as defined below), and
shall survive indefinitely after the expiration or termination of this Sublease.
For the purposes of this Section 10.02, "Damages" means all demands,
claims, actions or causes of action, assessments, losses, damages, costs,
expenses, liabilities, judgments, awards, fines, sanctions, penalties, charges
and amounts paid in .settlement, including, without limitation, reasonable
costs, fees and expenses of attorneys, experts, accountants, appraisers,
consultants, witnesses, investigators and any other agents or representatives of
such ,person (with such amounts to be determined net of any resulting tax
benefit and net of any refund or reimbursement of any portion of such amounts,
including, without limitation, Reimbursement by way of insurance, third party
indemnification or the inclusion of any portion of such amounts as a cost under
Government Contracts), but specifically excluding (i) any costs incurred by or
allocated to Sublessor with respect to time spent by employees of Sublessor or
any of its affiliates, (ii) any consequential, exemplary or punitive damages and
(iii) the decrease in the value of any asset to the extent that such valuation
is based on a use of such asset other than its use as of the Commencement Date.
VI-6
<PAGE>
For the purposes of this Section 10.02, "Remedial Action (s)" means the
investigation, clean-up or remediation of contamination or environmental
degradation or damage caused by, related to or arising from the generation, use,
handling, treatment, storage, transportation, disposal, discharge, release, or
emission of Hazardous Substances, including, without limitation, investigations,
response and remedial actions under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, corrective action under the
Resource Conservation and Recovery Act of 1976, as amended, and clean-up
requirements under similar state Environmental Laws (as defined in Section
12.01).
ARTICLE XI
MAINTENANCE
Section 11.01 MAINTENANCE OF PREMISES. Sublessee agrees to maintain the
Premises, including the heating and electrical systems in the Premises, in
substantially the same condition as they are on the Commencement Date,
reasonable wear and tear, and damage by fire and other casualty excepted,
acknowledging that the Premises are now in good condition. Sublessee shall not
permit the Premises to be overloaded, damaged, stripped or defaced, nor suffer
any waste.
ARTICLE XII
ENVIRONMENTAL SAFETY
Section 12.01 HAZARDOUS SUBSTANCES. Sublessee shall not cause or permit
any Hazardous Substances (as defined below) to be used, stored, generated or
disposed of in, on or about the Premises by Sublessee, its agents, employees,
contractors or invitees, except for such Hazardous Substances as are normally
utilized in an office or light manufacturing environment. Any such Hazardous
Substances permitted on the Premises as hereinabove provided, and all containers
therefor, shall be used, kept, stored and disposed of in a manner that complies
with all Environmental Laws. Sublessee shall not discharge, release or emit
Hazardous Substances on or about the Premises so as to pollute or contaminate
air, soil (including sediment and subsurface soil), or water (including
groundwater). Any testing, control, or treatment of discharges, releases or
emissions of Hazardous Substances required as a result of Sublessee's use and
occupancy of the Premises shall be solely the responsibility of Sublessee, and
costs incurred by Sublessor in effecting any such tests, controls, or treatment
shall be reimbursed by Sublessee to Sublessor upon demand as additional rent.
Sublessor reserves the right to enter upon the Premises at any time throughout
the term of this Lease to assure compliance with this Section 12.01.
For the purposes of this Section 12.01 and Section 10.02, "Hazardous
Substances" means substances defined as "hazardous substances," "hazardous
materials," "hazardous wastes,"
VI-7
<PAGE>
pollutants," or "contaminants," and any toxic, radioactive, ignitable,
corrosive, reactive or otherwise hazardous substance, waste, or material,
including, without limitation, asbestos and petroleum, its derivatives,
by-products and other hydrocarbons, in each case as regulated under any
Environmental Law.
For the purposes of this Section 12.01 and Section 10.02, "Environmental
Laws" means any and all. past, present or future federal, state, local and
foreign statutes, laws, regulations, ordinances, judgments, orders, codes,
injunctions, judicial decisions, permits or governmental restrictions or
agreements with any governmental authority, which relate to the environment,
human health and safety, or to pollutants, contaminants, wastes or chemicals or
any toxic, radioactive, ignitable, corrosive, reactive or otherwise hazardous
substances, wastes or materials or which impose liability for or standards of
conduct concerning the manufacture, processing, generation, distribution, use,
treatment, storage, disposal, cleanup, transport or handling of Hazardous
Substances including, the Resource Conservation and Recovery Act of 1976, as
amended, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, the Superfund Amendment and Reauthorization Act of
1984, as amended, the Toxic Substances Control Act, as amended, any other
so-called "Superfund" or "Superlien" law, and the Occupational Safety and Health
Act of 1970, as amended.
ARTICLE XIII
BREACH
Section 13.01 BREACH OR DEFAULT BY SUBLESSEE. Any breach by Sublessee of
any conditions of this Sublease, other than payment of the Rent pursuant to
Section 3.01 may be cured by Sublessor for the account of and at the expense of
Sublessee, and any sums so advanced shall be paid to Sublessor on the first day
of the following month. Further, if Sublessee shall fail to pay the Rent within
10 days after being due and having been provided with a written demand therefor,
Sublessor shall have the right to recover the Rent owed (together with any
applicable late fee) and to reenter and take possession of the Premises and.
cancel and annul the remainder of this Sublease. If Sublessee defaults in any
condition or covenant of the Sublease or in performing the same, and-fails to
correct such default within 10 days of receiving the written notice of Sublessor
thereof, Sublessor may, at its option, terminate this Sublease.
ARTICLE XIV
TAXES
Section 14.01 REALTY TAXES. As between Sublessee and Sublessor, all real
property taxes which have been or may be assessed by any lawful authority
against the Building and the
VI-8
<PAGE>
Premises shall be paid in accordance with the terms of the Prime Lease.
Section 14.02 PERSONAL PROPERTY TAXES. Sublessee shall be liable for the
payment of all taxes levied against any of Sublessee's personal property or
trade fixtures placed in, on, or about the Premises, including, without
limitation, the shelves, counters, vaults, vault doors, wall safes, partitions,
machinery, and electrical or electronic equipment. If Sublessor is required to
pay any of such taxes, Sublessee upon demand shall promptly reimburse Sublessor
therefor.
ARTICLE XV
INSURANCE
Section 15.01 LIABILITY INSURANCE. During the Term, Sublessee shall carry
and keep in full force and effect at all times for the protection of Sublessor
and Sublessee, comprehensive general liability insurance for bodily injury,
death and damage to property of others, including Sublessee's legal liability
for damage to the Premises and blanket contractual liability, with respect to
all business conducted from the Premises and the use and occupancy thereof
including the activities, operations and work conducted or performed by
Sublessee, by any other person on behalf of Sublessee, by those for whom
Sublessee is in law responsible, and by any other person on the Premises, with
minimum limits of coverage of at least $1,000,000 for each occurrence of
property damage and bodily injury with an aggregate of $3,000,000.
Notwithstanding the foregoing, Sublessor shall have the right to require
Sublessee to increase the minimum limits of coverage set forth above, from time
to time, to the standard limits of coverage required for comparable property in
the Hudson, New Hampshire area.
Section 15.02 FIRE AND CASUALTY INSURANCE. Sublessee shall obtain and
maintain in full force and effect throughout the Term insurance policies against
fire, theft, vandalism, malicious mischief, leakage and such additional perils
as now are or hereafter may be included in a standard extended coverage
endorsement from time to time in general use in the Hudson, New Hampshire area,
insuring all of the improvements comprising part of the Premises, as well as
Sublessee's improvements in the Premises, in an amount equal to not less than
the full replacement value thereof.
Section 15.03 POLICY REQUIREMENTS. All insurance policies carried by
Sublessee pursuant to this Article XV, and any other insurance policies carried
by Sublessee with respect to the Premises, shall: (i) be issued in form
acceptable to Sublessor by good and solvent insurance companies licensed to do
business in the State of New Hampshire and reasonably satisfactory to Sublessor;
(ii) name Sublessor and any other parties in interest, from time to time
designated by notice from Sublessor to Sublessee, as an additional insured;
(iii) provide for at least 30 days prior
VI-9
<PAGE>
written notice to Sublessor of any cancellation or material alteration of such
policy or of any defaults thereunder; (iv) contain an express waiver of any
right of subrogation by the insurance company against Sublessor and Sublessor's
agents; (v) contain an automatic increase in insurance endorsement providing
appropriate inflation protection; and (vi) have such other form and content as
Sublessor may reasonably require.
ARTICLE XVI
BANKRUPTCY, WAIVER OR DEFAULT
Section 16.01 BANKRUPTCY. WAIVER OR DEFAULT. In the event Sublessee files
a voluntary petition in bankruptcy, makes assignment for the benefit of
creditors, or is adjudged a bankrupt, or if a receiver, trustee or custodian is
appointed for Sublessee by any court, or if Sublessee files any petition for
relief under any section of the bankruptcy laws of the United States now in
force or hereafter enacted, or if Sublessee takes advantage of any insolvency
act, or if the interest of Sublessee shall be sold under any execution or other
legal process issued out of any court, or if Sublessee shall abandon or vacate
the Premises during the term of this Sublease, or if Sublessee shall breach any
promise or covenant herein, then in any such event it shall be lawful for
Sublessor at any time thereafter, at its option upon ten 10 days written notice
to Sublessee, to re-enter said premises and again have possession thereof and
occupy the same as if this Sublease had not been made, and thereupon this
Sublease shall cease and become null and void.
ARTICLE XVII
SUBORDINATION
Section 17.01 SUBORDINATION. This Sublease shall be subject and
subordinate to any and all mortgages, deeds of trust and other instruments in
the nature of a mortgage, now or at any time hereafter, a lien or liens on the
property of which the Premises are a part and Sublessee shall, when requested,
promptly execute and deliver such written instruments as shall be necessary to
show the subordination of this Sublease to said mortgages, deeds of trust or
other such instruments in the nature of a mortgage.
ARTICLE XVIII
MISCELLANEOUS
Section 18.01 NOTICES. All notices, requests and other communications to
any party hereunder shall be in writing (including telecopy or similar writing)
and shall be given,
VI-10
<PAGE>
if to Sublessee:
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817
Attention: Senior Vice President and
Chief Financial Officer
Facsimile: (301) 897-6083
with a copy to:
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817
Attention: Senior Vice President and
General Counsel
Facsimile: (301) 897-6791
and
Miles & Stockbridge P.C.
10 Light Street
Baltimore, Maryland 21202
Attention: Glenn C. Campbell
Facsimile: (410) 385-3700
if to Sublessor:
Benchmark Electronics, Inc.
3000 Technology Drive
Angleton, Texas 77515
Attention: President and Chief
Executive Officer
Telecopy: (409) 848-5269
with a copy to:
Bracewell & Patterson, L.L.P.
2900 South Tower Pennzoil Place
Houston, Texas 77002
Attention: John R. Brantley
Facsimile: (713) 221-1212
or to such addresses or telecopy numbers and with such other copies, as such
party may hereafter specify for the purpose of notice to the other parties. Each
such notice, request or other communication shall be effective (i) if given by
telecopy, when such telecopy is transmitted to the telecopy number specified in
this Section 18.01 and evidence of receipt is received or (ii) if given by any
other means, upon delivery or refusal of delivery at the address specified in
this Section 18.01.
VI-11
<PAGE>
Section 18.02 EMINENT DOMAIN. If the whole or any part of the Premises
shall be taken by public authority under the power of eminent domain, then the
term of this Sublease shall cease on the part so taken from the day that
possession of that part shall be required for any purpose by said public
authority, and the Rent shall be paid up to that day, and if such portion of the
Premises are so taken as to, in Sublessee's opinion, destroy the usefulness of
the Premises for the purpose for which the Premises were leased, then, from that
day, Sublessee shall have the right either to terminate this Sublease and
declare the same null and void, or to continue in the possession of the
remainder of the same under the terms herein provided, except that the Rent
shall be reduced in proportion to the amount of the Premises taken based on the
value of the portion taken to the value of the remaining part. All damages
awarded for such taking shall belong to and be the property of Sublessor,
including such damages as shall be awarded as compensation for diminution in
value to the leasehold,. provided, however, that Sublessor shall not be entitled
to any portion of the award made to Sublessee for Sublessee's furnishings or
Sublessee's business relocation expenses.
Section 18.03 DESTRUCTION OF PREMISES. If, during the term of this
Sublease, the Premises are totally or partially destroyed from any cause,
rendering the Premises totally or partially inaccessible or unusable, Sublessor
shall restore the destruction if the restoration can be made under the existing
laws and can be completed within 120 working days after the destruction. Such
destruction shall not terminate the Sublease. During the period that the
premises are being restored Sublessee shall neither pay nor owe the Rent to
Sublessor. If the restoration cannot be made within 120 days, then within 10
days after such destruction Sublessee or Sublessor can terminate this Sublease
immediately by giving written notice and, thereafter, neither party shall bear
any further liability under this Sublease.
Section 18.04 ENTIRE AGREEMENT. This Sublease contains all
representations, understandings, agreements and commitments of Sublessor and
Sublessee, and any other written or oral statements of promises of any type
whatsoever shall be null and void and of no effect whatsoever in the
interpretation of this Sublease.
Section 18.05 APPLICABLE LAW; JURISDICTION. This Sublease shall be
construed in accordance with the laws of the State of New Hampshire without
reference to the conflicts of laws principles thereof. The forum for any
disputes arising hereunder shall be a court of competent jurisdiction sitting in
the State of New Hampshire, and by executing this Lease, Landlord and Tenant
consent to such jurisdiction.
VI-12
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Sublease to be executed
the date first above written.
SUBLESSOR:
BENCHMARK ELECTRONICS, INC.
By:_________________________________(SEAL)
Name:
Title:
SUBLESSEE:
LOCKHEED MARTIN CORPORATION
By:_________________________________(SEAL)
Name:
Title:
VI-13
EXHIBIT 10.17
FIRST AMENDMENT TO CE FACILITY LEASE
THIS FIRST AMENDMENT TO CE FACILITY LEASE is made and entered into this 21st day
of February, 2000, by and between LOCKHEED MARTIN CORPORATION, a Maryland
corporation ("Landlord"), and BENCHMARK ELECTRONICS, INC., a Texas corporation
("Tenant").
WITNESSETH:
WHEREAS, by CE Facility Lease (the "Lease"), dated the 23rd day of February 1998
made by and between the aforementioned Landlord and Tenant, Landlord did demise
and lease unto Tenant and Tenant did hire and lease from landlord approximately
250,000 square feet located within the Pope Technical Park in Hillsborough
County, New Hampshire, commonly known as Building #2, 65 River Road, Hudson, New
Hampshire 03051 (the "Premises"); and
WHEREAS, Tenant, under the provisions of Section 1.02 of the Lease, wishes to
exercise its option to extend the term of the Lease for one additional term of
four (4) years following the expiration of the prime term of the Lease; and
WHEREAS, Landlord is agreeable to such extension; and
NOW, THEREFORE, in consideration of the mutual covenants and agreements of the
parties contained herein, Landlord and Tenant agree that the Lease shall be
amended in accordance with the following terms and conditions:
1. At the expiration of the prime term of the Lease, the term shall be extended
for an additional period of four (4) years commencing February 23, 2000 and
expiring on February 22, 2004.
2. The Annual Base Rent for the period February 23, 2000 through February 22,
2001 shall be $6.50 per square foot or $1,625,000 and shall escalate at a
rate of 2.5% per year thereafter yielding a rate for the period February 23,
2001 through February 22, 2002 of $6.66 per square foot or $1,665,000; for
the period February 23, 2002 through February 22, 2003 of $6.83 per square
foot or $1,707,500; and for the period February 23, 2003 through February 22,
2004 of $7.00 per square foot or $1,750,000.
3. All other terms, conditions, covenants and/or obligations set forth in the
Lease shall remain in full force and effect unless expressly modified herein.
IN WITNESS WHEREOF, the Parties have caused this First Amendment To CE Facility
Lease to be executed on the date first above written.
LANDLORD: TENANT:
LOCKHEED MARTIN CORPORATION BENCHMARK ELECTRONICS, INC.
By LMC Properties, Inc. Attorney In
Fact Under Irrevocable Power of
Attorney dated 6/5/96
By:_________________________________ By:_____________________________
Name: Name:
As Its: As Its:
Date: Date:
EXHIBIT 10.18
FIRST AMENDMENT TO SANDERS SUBLEASE
THIS FIRST AMENDMENT TO SANDERS SUBLEASE is made and entered into this 24th day
of February, 2000, by and between BENCHMARK ELECTRONICS, INC., a Texas
corporation ("Sublessor"), and [SANDERS, A LOCKHEED MARTIN COMPANY AND A
DIVISION OF] LOCKHEED MARTIN CORPORATION, a Maryland corporation ("Sublessee").
WITNESSETH:
WHEREAS, Sublessor is the lessee under a prime lease (the "Prime Lease") for an
office building located within the Pope Technical Park in Hillsborough County,
New Hampshire, commonly known as Building #2, 65 River Road, Hudson, New
Hampshire 03051 (the "Building"); and
WHEREAS, the Sanders Sublease (the "Sublease") was made by and between Sublessor
and Sublessee on the 23rd day of February, 1998; and
WHEREAS, Sublessee currently occupies approximately 52,000 square feet on the
second floor of the Building and makes use of the common areas, as defined in
the Sublease, together the 52,000 square feet and the common areas comprising
the "Premises"; and
WHEREAS, Sublessor, under the provisions of Section 1.02 of the Prime Lease, has
exercised its option to extend the term of the Prime Lease for one additional
term of four (4) years following the expiration of the prime term of the Prime
Lease; and
WHEREAS, Sublessee, under the provisions of Section 1.02 of the Sublease wishes
to exercise its option to extend the term of the Sublease for a period which
shall not terminate later than April 20, 2000; and
WHEREAS, Sublessor is agreeable to such extension; and
NOW, THEREFORE, in consideration of the mutual covenants and agreements of the
parties contained herein, Sublessor and Sublessee agree that the Lease shall be
amended in accordance with the following terms and conditions:
1. At the expiration of the prime term of the Sublease, the term shall be
extended for an additional period commencing February 23, 2000 and expiring
not later than April 20, 2000.
2. The Annual Base Rent for this period shall be $6.50 per square foot or
$338,000. The monthly installments of rent for this additional period shall
be $28,166.67. The daily rental rate shall be $908.60. The last installment
of rent is intended to cover the period March 23, 2000 to April 20, 2000. If
Sublessee remains in the space for this entire period, the rental for that
period associated with the last installment of rent shall be for 29 days or
$26,349.40. If Sublessee vacates the space prior to April 20, 2000, the rent
shall be calculated using the daily rate as herein set forth.
<PAGE>
3. All other terms, conditions, covenants and/or obligations set forth in the
Sublease shall remain in full force and effect.
4. All capitalized terms not set forth herein shall have the meaning set
forth in the Sublease.
IN WITNESS WHEREOF, the Parties have caused this First Amendment To Sanders
Sublease to be executed on the date as indicated in the first sentence of this
agreement.
SUBLESSOR: SUBLESSEE:
BENCHMARK ELECTRONICS, INC. SANDERS, A LOCKHEED MARTIN
COMPANY AND A DIVISION OF
LOCKHEED MARTIN CORPORATION
By LMC Properties, Inc. Attorney In Fact
Under Irrevocable Power of Attorney dated
6/5/96
By:______________________________ By:________________________________________
Name: Name:
As Its: As Its:
Date: Date:
EXHIBIT 10.19
LEASE AGREEMENT, HEREINAFTER "THE AGREEMENT" EXECUTED BY AND BETWEEN THE
COMMERCIAL ASSOCIATION SERTO, S.A. DE C.V., THROUGH ITS LEGAL REPRESENTATIVE MR.
MAURICIO BENAVIDES PEREZ, REPRESENTING THE MENTIONED CORPORATION AND THROUGH ITS
OWN RIGHT AS DEPOSITORY OF THE INDUSTRIAL PLANT, HEREIN AFTER AND FOR THE
PURPOSES OF THIS AGREEMENT REFERRED TO AS THE LESSOR, AND BY THE COMMERCIAL
ASSOCIATION "AVEX ELECTRONICS DE MEXICO, S.R.L. DE C.V., THROUGH ITS
REPRESENTATIVE MR. STEPHEN A. NEVEU, HEREIN AFTER AND FOR THE PURPOSES OF THIS
AGREEMENT REFERRED TO AS "LESSEE", WHICH AGREEMENT IS SUBJECT TO THE FOLLOWING
DECLARATIONS AND CLAUSES:
D E C L A R A T I O N S
- ------------------------------------------------------------------------------
I.- THE LESSOR DECLARES through its legal representative:
a)That it is a corporation duly incorporated according to the laws of the
Mexican Republic, with sufficient capacity to execute the present AGREEMENT, as
evidenced in Public Deed Number 1150, dated October 9, 1981, granted before
Attorney Ramiro A. Bravo Rivera, Public Notary number 18 of Monterrey Nuevo
Leon, which is duly recorded at the Public Registry of Property and Commerce
under number 1274, Folio 189, Volume 249, Book 3, second AUXILIARY, deeds of
Commercial Companies Commerce section dated Dec. 3, 1981.
b)That its representative C.P. MAURICIO BENAVIDES PEREZ, has sufficient
authority to execute the present AGREEMENT, and that his authority has not been
revoked or limited in any way, as evidenced in public deed 41,114 dated August
7, 1995, granted before Jesus Montano Garcia Public Notary Number 60 of
Monterrey Nuevo Leon.
c)That its corporate purposes includes the possibility of binding itself in
accordance with the terms of the present agreement.
d).-That THE LESSOR, as OWNER and possessor of the INDUSTRIAL PLANT, has
sufficient legal entitlement, and is able to guarantee LESSEE, in the terms of
this agreement, the peaceful and temporary use and enjoyment of an area of
approximately 17,945 Square meters (SEVENTEEN THOUSAND NINE HUNDRED FORTY FIVE
SQUARE METERS)
<PAGE>
which are composed by approximately 5,000 (FIVE THOUSAND SQUARE METERS) of
warehouse space, approximately 578 (FIVE HUNDRED SEVENTY EIGHT SQUARE METERS) of
office area, which totally add approximately 5,578 square meters of construction
and the rest of the area are green areas and parking for approximately 12,367
Square meters, herein after THE INDUSTRIAL PLANT which is located in the
PROPERTY of approximately 25,001 (twenty five thousand and one square meters)
located in Circuito de la Productividad Number 132 in the Industrial Park
Guadalajara with the location meter and bounds described in the blue print
provided by the LESSOR and attached to this agreement as exhibit "2".
e).-That it has the sufficient authority to compromise in lease THE INDUSTRIAL
PLANT to the LESSEE, having previously obtained for said purposes, every and
each one of the authorizations necessary for the execution of this Agreement,
which authorizations include but are not limited the authorization from The
Technical Committee for The Condominium Parque Industrial Guadalajara to change
the use of the land which is attached to this agreement as exhibit "3", as well
as the necessary authorization from BANCO MERCANTIL DEL NORTE, SOCIEDAD ANONIMA,
INSTITUCION DE BANCA MULTIPLE, GRUPO FINANCIERO BANORTE, as beneficiary of a
mortgage on the land and as pledge creditor connected to the rights derived from
the LEASE AGREEMENT executed by SERTO S.A. DE C.V. (AS LESSOR) and OPERADORA
FARMACEUTICA DE OCCIDENTE, S.A. DE C.V. (AS LESSEE) attached to this agreement
as exhibit "4".
f)That in this act it grants the option to purchase the INDUSTRIAL PLANT to the
LESSEE having compiled with the conditions established herein for said purposes.
g)That simultaneously to the signature of this agreement it appears to the
execution of a SUBLEASE AGREEMENT in which OPERADORA FARMACEUTICA DE OCCIDENTE
S.A. de C.V. (As SUBLESSOR) executes with the LESSEE for an area of 7,056 SQUARE
METERS which is attached herein as exhibit "11".
h).-That its address for all legal effects is 400 Calle Rio Panuco Oriente en la
Colonia del Valle, Garza Garcia Nuevo Leon, c.p. 66220.
i).-That its intention is to execute and in fact they hereby execute this LEASE
agreement in the terms and conditions established herein.
<PAGE>
II.- THE LESSEE declares through its legal representative:
a).-That it is a corporation legally incorporated according to the Mexican laws
with sufficient capacity to execute this Agreement, as evidenced by Public Deed
Number 4,953 dated June 27, 1997, granted before Mr. Jose Luis Villavicencio,
Public Notary Number 218 of Mexico City Federal District, and recorded at the
Public Registry of Property of Guadalajara, Jalisco, under inscription 64-65,
volume 647, First Book of said registry, dated July 16, 1997.
b).-That its representative, MR. STEPHEN A. NEVEU has the sufficient authority
to execute this Agreement, which authorities have not been revoked or limited in
any way, as evidenced in the resolutions taken on January 13th, 1999, by the
totality of the partners of Avex Electronics de Mexico S.R.L. de C.V. in which
the representative was granted a special power to contract in regards to this
transaction.
c).-That within its corporate purpose it may become bound to the terms of this
agreement.
d).-That its intention is to execute the present AGREEMENT to use THE INDUSTRIAL
PLANT to carry out its industrial activities and to install
equipment,machinery,and offices in order to perform its purposes which mainly
consist on designing, manufacturing, industrializing, processing and carrying
out product engineering work; purchase, sell, import, export, assemble and
distribute all types of materials and products; and render all types of
services, including technical assistance, maintenance, and repair, to itself or
to third parties.
e).- That its address for all legal effects will be the same address as the
INDUSTRIAL PLANT. Copy of any notice related with the present agreement should
be sent to Bismarck 192 B.P. Vallarta Norte, Guadalajara, Jalisco, MEXICO.
III.- MR. MAURICIO BENAVIDES DECLARES:
a).-That according to the three credit agreements executed with BANCO MERCANTIL
DEL NORTE, SOCIEDAD ANONIMA INSTITUCION DE BANCA MULTIPLE, GRUPO FINANCIERO
BANORTE, which are identified herein after, he was personally appointed
<PAGE>
depository of THE PROPERTY in the mortgage guarantee granted over the totality
of the surface, as well as in the pledge guarantee derived from the rights
arisen from the LEASE AGREEMENT executed by SERTO, S.A. DE C.V. (As lessor) and
OPERADORA FARMACEUTICA DE OCCIDENTE, S.A. de C.V. (As lessee) rights over the
INDUSTRIAL PLANT, having obtained the consent from said institution as evidenced
in document attached as exhibit "4", as well as from any other institution, or
authority, of which eventually its consent could be required for the execution
of this document.
THE CONTRACTS REFERRED TO ABOVE ARE THE FOLLOWING:
i).-Simple Credit Operating Agreement contained in Public Deed number 28,890,
dated December 20, 1995, executed by BANORTE (AS CREDITOR) AND LOMAS DE SATELITE
SOCIEDAD ANONIMA DE CAPITAL VARIABLE (AS DEBTOR), for the amount of $1,584,333
UDIS (One million five hundred eighty four thousand and three hundred thirty
three investment units) granting also the guarantees by SERTO S.A. DE C.V., as
referred to in the preceding paragraph.
ii).-Simple Credit Opening Agreement contained in Public Deed number 28,936,
dated December 29, 1995, and executed by BANORTE (AS CREDITOR), AND LOMAS DE
SATELITE SOCIEDAD ANONIMA DE CAPITAL VARIABLE (AS DEBTOR), for the amount of
$7,000,000.00 (Seven million new pesos national currency) granting also the
guarantees referred to before.
iii).-Simple Credit Opening Agreement, with mortgage and pledge guarantees,
which is contained in Public Deed number 31,529 dated February 27, 1998, and
executed by BANORTE (AS CREDITOR), and SERTO, S.A. DE C.V. (AS DEBTOR), for the
amount of $3,000,000.00 (Three million pesos national currency), granting also
the guarantees referred to before.
IV.- THE PARTIES DECLARE:
a)That for purposes of this AGREEMENT the terms listed below will have the
following meanings:
a.1).- AGREEMENT: the present Lease Agreement of THE INDUSTRIAL PLANT.
<PAGE>
a.2).- THE INDUSTRIAL PLANT: the surface subject to the lease, formed by the
warehouse area, with an approximate extension of 17,945 Sq. Mts. ( Seventeen
thousand nine hundred forty five square meters) which are composed of 5,000 sq.
mts. (five thousand square meters) of warehouse space and 578 sq. mts. (five
hundred seventy eight square meters) of office areas, which totally add
approximately 5,578 sq. mts. (Five thousand five hundred seventy eight meters)
of construction and the rest are green areas and parking space for approximately
12,367 square meters herein after THE INDUSTRIAL PLANT of which a blue print
provided by the LESSOR is attached as exhibit "12". The INDUSTRIAL PLANT is
located in the property of an approximate 25,001 sq. mts. (Twenty five thousand
and one square meters) located in the following address: Circuito de la
Productividad number 132 in the Guadalajara Industrial Park and that for easier
identification, a blue print will be attached hereto as Exhibit "2", provided by
LESSOR which signed by the parties is an integral part of it.
a.3).- BEGINNING DATE.- the day from which this agreement will be effective and
when the validity of the agreement will be calculated, which will be the day
when the LESSEE, as such, occupies the INDUSTRIAL PLANT.
a.4).- TERMINATION DATE.- the last valid date of this agreement, unless the
parties agree to exercise the extensions contemplated in this agreement, in said
case the termination date will be the last valid date of the mentioned
extension.
a.5).- VALIDITY.- the elapsed period between the BEGINNING DATE and the
TERMINATION DATE.
a.6).- AUTHORIZED USES.- the industrial activities to be carried out by the
LESSEE which have been authorized to take place in THE INDUSTRIAL PLANT by THE
LESSOR and that are in accordance with the land use regulations of the location
of the INDUSTRIAL PLANT, as well as with the municipal licenses for the
operation of the company that the LESSEE will perform, according to the main
activity that has been described in the declarations of this agreement. It is
essential for this agreement to have effects between the parties that said
activities are authorized by the competent Municipal authority, as well as to
grant in its opportunity the corresponding construction permits for the intended
construction in said INDUSTRIAL PLANT, if they are not approved it is a cause to
terminate the agreement in advance.
<PAGE>
a.7).- CONSUMER PRICE INDEX (CPI) The Consumer Price Index, determined by the
Ministry of Labor and the Labor and Statistics Department published monthly in
the United States of America.
a.8) ACCOUNT TO DEPOSIT RENT PAYMENT.- The account NO. 109793801 of Bank of
Commerce of the city of Brownsville, Texas. In which the LESSEE shall pay the
rent, by electronic wire transfer of funds, deposit or check.
b).- That it is their intention to execute and in fact they execute, this
AGREEMENT in the terms and conditions specified in this document,according to
the previous declarations and to the following:
C L A U S E S
SUBJECT MATTER
FIRST .- LESSOR delivers in this act in lease to LESSEE, who receives and
accepts, the temporary use and enjoyment of the INDUSTRIAL PLANT, under the
conditions and status of use described in a general manner in exhibit "7"of this
agreement, and under the terms and conditions established herein.
PRICE
SECOND.- a) The price for the lease that LESSEE is bound to pay for the term of
the occupation of the INDUSTRIAL PLANT is the amount of USCY $21,642.64 (Twenty
one thousand six hundred forty two and sixty four cents U.S. CURRENCY) monthly,
plus the corresponding Value Added Tax. The payment shall be made monthly in
advance, within the first 5 days of each month.
b) The parties agree that the rent referred to in the preceding paragraph, will
begin to be paid on March 15, 1999, provided that LESSOR has physically, legally
and materially received the possession of the INDUSTRIAL PLANT, on that date or
before and this agreement has been executed.
<PAGE>
c) The price of the sublease should be paid in United States Dollars or in
Mexican currency, according to the official exchange rate published by the Bank
of Mexico in the Official Gazette of the Federation for the compliance of
obligations in dollars, from the immediate prior day in which the payment in
question is made, in accordance with the preceding paragraph.
d) The rent shall be paid by LESSEE to LESSOR by electronic transfer of funds,
deposits or check, at the discretion of LESSEE in the ACCOUNT FOR THE RENT
PAYMENT that LESSOR indicates, or in the one that LESSOR indicates in the future
to LESSEE in writing at least fifteen working days in advance.
e) LESSOR shall give LESSEE monthly receipt for the payment of rent and of the
corresponding V.A.T., which receipt shall comply with all fiscal requirements,
be issued with the date of rent payment, and contain the amount paid in United
States Dollars and the corresponding amount in Mexican Pesos, according to the
exchange rate of the date payment is made as published in the Official Gazette
of the Federation for the compliance of obligations.
f)It is expected that the price of the lease could be adjusted every anniversary
of this agreement, in the same percentage that the CONSUMER PRICE INDEX
increases (CPI) published in the United States of America.
TERM OF THE AGREEMENT
THIRD.- This AGREEMENT has an initial term of two years compulsory and binding
for both parties. Such term will begin to be considered from the date of the
initial date of this Agreement and will conclude on the termination date of the
initial term or any of its extensions, or in the event that an anticipated
termination cause operates or the rescission of this agreement. The initial term
may be extended for up to three occasions for a term of two additional years in
regards with the first two extensions and for one year in case of the last
extension.
LESSEE shall exercise the above referred to right to extend, through a written
notice delivered to SUBLESSOR at least 30 days before the date of the
termination of the initial agreement.
<PAGE>
In the event that the extension or extensions referred to in this clause take
place, the agreement the original terms and conditions will survive and the
parties will be bound by it irrespective of time or place.
LESSEE may terminate this agreement without any responsibility during the term
of any of the extensions referred in the corresponding clauses of this
agreement, by notifying LESSOR at least 90 days before the termination date.
USE OF THE INDUSTRIAL PLANT AND DEPOSIT
FOURTH.- LESSEE may only use the leased INDUSTRIAL PLANT to carry out the
activities contemplated in its corporate purposes and described in the
declarations of this agreement. This use may not be modified without previous
consent from LESSOR.
LESSEE delivers in this act to LESSOR a deposit equivalent to one month's rent,
that is, an amount of USCY$ 21,642.64 (Twenty one thousand six hundred forty two
and sixty four cents U.S. CURRENCY), which shall be fully reimbursed by
SUBLESSOR at the termination date of this agreement, unless SUBLESSEE causes
damages to the INDUSTRIAL PLANT not derived from the normal use, or when on the
delivery date the corresponding water, light and electricity receipts contracted
by THE LESSEE to operate in the INDUSTRIAL PLANT have not been paid in which
case both parties will decide the use of the mentioned deposit.
This agreement constitutes the most effective receipt available by law, in
regards to the delivery of said amount to SUBLESSOR.
AGREEMENT REGISTRATION
FIFTH.- If it is considered convenient during the term of this agreement the
parties will register this agreement at the Public Registry of Property and
Commerce of Guadalajara, in compliance with article 2105 of the Civil Code for
the State of Jalisco. The expenses, fees and registration cost of the
registration at the Public Registry or before any other authority, as well as
the applicable"Legal Business Tax",if any, as well as any other right or tax
shall be covered equally by LESSOR and LESSEE.
<PAGE>
For purposes of the previous paragraph, any of the following persons will be
authorized, who indistinctly could make the necessary process for the
registration of the present agreement before the Public Registry or before any
authority. Said persons are the following: Mauricio Alberto Benavides Morales,
Martha Cecilia Cortes Munoz and/or Hugo Cuesta Leano.
MODIFICATIONS TO THE PROPERTY AND TO THE INDUSTRIAL PLANT
SIXTH.- Any material or substantial modification that alters or affects the
structure of the INDUSTRIAL PLANT must be previously authorized by THE LESSOR,
who is bound to respond to a request of that nature within 15 days from the
request. Modifications to support manufacturing facilities and logistics will
not require prior approval.
The modifications proposed by LESSEE and already approved by LESSOR include, but
are not limited to the ones listed in exhibit "8" of this agreement. The parties
agree that the fact that the proposed modifications by LESSEE listed in the
exhibit mentioned, do not bind in any way SUBLESSEE to carry them out,
therefore, LESSEE will have a discretional authority to determine whether it
carries them out or not, according to its interests.
In the event that LESSEE intends to carry out additional modifications to the
ones listed in the exhibit referred to above, the provision of paragraph one of
this clause will apply.
On the date THE INDUSTRIAL PLANT is vacated,LESSEE may remove all and each of
the improvements or modifications made to the INDUSTRIAL PLANT, with the only
limitation that the removal of said improvements do not affect the structure of
THE INDUSTRIAL PLANT, in which case, the parties may negotiate a price for the
modifications made that LESSOR has an interest to keep in the INDUSTRIAL PLANT
and LESSEE will discretionally determine whether such improvements will be left
in exchange for the price offered.
TAXES AND RIGHTS FOR SERVICES AND CONDOMINIUM FEES
SEVENTH.- The property taxes caused THE INDUSTRIAL PLANT during the term of this
AGREEMENT, as well as any other current or future tax or right on THE INDUSTRIAL
PLANT will be covered by LESSOR.
The Value Added Tax on the rent, or its substitute according to the applicable
laws, will be covered by LESSEE.
<PAGE>
The charges for water consumption to be paid to the Intermunicipal Water and
Sewer System (SIAPA), as well as the amounts for telephone services and lights
services will be paid by LESSEE. The foregoing in the understanding that the
charges for the connections have been previously paid, since the INDUSTRIAL
PLANT already has such services.
The ordinary charges for maintenance charged by the Association of Co-owners of
Parque Industrial Guadalajara, will be covered by LESSEE, however, the charges
or extraordinary fees, or any other charge inherent to the owners of the
property in the Industrial Park, will be covered by LESSOR.
LESSEE, with the collaboration of LESSOR shall either execute or modify the
agreement with the Federal Electricity Commission for the supplying of
electricity according to the characteristics and consumption required by the
equipment to be installed in the leased INDUSTRIAL PLANT.
MAINTENANCE, CONSTRUCTIONS AND APPRECIATION.
EIGHTH.- LESSEE will take care by itself, of maintaining, cleaning, and making
minor repairs to THE INDUSTRIAL PLANT.
In the event that the city council or any other authority with jurisdiction,
including the Co- owners Association of Parque Industrial Guadalajara, either
directly or indirectly agree to carry out constructions or works that generates
an obligation to pay to any of them for the benefit to THE INDUSTRIAL PLANT,
this charges will be absorbed by LESSOR who is bound to hold LESSEE harmless
from any claim or request for this reason.
All major repairs needed in the INDUSTRIAL PLANT, as well as in the ceilings,
floors, internal or external walls and foundations, will be covered by LESSOR.
The LESSOR delivers the INDUSTRIAL PLANT guarantying that the ceilings, floors,
internal or external walls and foundations are dully sealed, water proof,
without leaking, complying with the customary construction standards, granting
the guarantee for two years as of the signature of this agreement and binding to
provide the corresponding maintenance.
<PAGE>
Also, LESSOR will be responsible for the damages and losses that any defect in
the construction or foundation of THE INDUSTRIAL PLANT causes to LESSEE, to any
other party, or to their assets, or from any defect or structural damage of the
INDUSTRIAL PLANT, that impedes or snags LESSEE to operate in a normal way in the
same, unless said defect or structural damage has been caused by an
irresponsible use of the LESSEE.
ADVERTISEMENT
NINTH .- LESSOR authorizes LESSEE to paint or install in THE INDUSTRIAL PLANT,
announcements related to the industrial and commercial activities of LESSEE,
with no more limitations than the ones established in the Municipal Regulations.
The taxes, rights and expenses originated from this concept will be covered
exclusively by LESSEE.
SUBLEASE AND TRANSFER
TENTH. - THE LESSEE may sublease the totality or part of THE INDUSTRIAL PLANT to
its affiliated companies or subsidiaries prior notification to LESSOR. LESSEE
may sublease part or all the INDUSTRIAL PLANT to any third party, with the prior
consent from LESSOR,in the understanding that the LESSEE should adjust in its
case to the provisions of this agreement.
LESSEE would also be able to transfer its rights and obligations with prior
written authorization from LESSOR, who will grant it as long as the transferee,
complies with the following condition:
That the proposed transferee has the sufficient solvency to cover the
established obligations in this AGREEMENT and the ones legally applicable, to
consider the solvency of said transferee it should be classified in a similar
credit level as the one that would correspond to the LESSEE.
Once the transfer has been expressly accepted, and that the corresponding
transferee has been authorized by LESSOR, and it has signed the corresponding
agreement, having delivered the possession of THE INDUSTRIAL PLANT, LESSEE will
be released from the rights and obligations generated in this AGREEMENT, in the
understanding that the new transferee assumes the totality of the obligations,
as well as the corresponding rights. Also,
<PAGE>
LESSEE will be released from said rights and obligations, once they have vacated
THE INDUSTRIAL PLANT.
EXTENSION
ELEVENTH.- LESSEE will have the right to extend the term of this AGREEMENT for
three occasions for additional terms of 2 (two) years for the first two
extensions and for 1 (one) year for the last extension, from the expiration of
the initial term referred to in clause third hereof, or in its case, from the
expiration of the extension if the extension right has been exercised,with prior
notice to the LESSOR at least 30 days before the termination of the initial term
of this AGREEMENT or that of the corresponding extension.
In the event that LESSEE exercises his right to extend as established in this
clause, it will have the right, during the term of said extension to terminate
this agreement at any time, by giving written notification to LESSOR, 90
(ninety) days in advance.
INDIVISIBILITY OF THE OBLIGATION WITH THE LEASE AGREEMENT
CLAUSE TWELFTH.- The parties declare that on the same date of execution of this
agreement, LESSEE executes with OPERADORA FARMACEUTICA DE OCCIDENTE S.A. DE
C.V., a SUBLEASE AGREEMENT of an area of 7,056 Sq Mts. (SEVEN THOUSAND, FIFTY
SIX SQUARE METERS) of construction, plus parking area and green areas, located
within the INDUSTRIAL PLANT which have been identified in Exhibit "1". The
parties also declare that because the areas are parts, and because they are
indivisible without affecting the use to which LESSEE intends to devote the
INDUSTRIAL PLANT to, the parties agree to link both agreements in such way that
the revocation, cancellation or anticipated termination of any of them,
automatically causes the revocation, cancellation or termination of the other,
and in such a way that neither of them may survive or continue to be in force
and effect, if the other one is not in force and effect as well. Therefore, the
obligations and rights of the parties to this agreement and those of the
mentioned lease agreement, are considered for legal effects indivisible.
DELIVERY OF THE INDUSTRIAL PLANT
CLAUSE THIRTEENTH.- Once the term of this lease agreement and that of its
extensions, if any, have come to an end, LESSEE shall deliver LESSOR the
INDUSTRIAL PLANT in the terms of this AGREEMENT and in the conditions it was
received, except for the modifications and improvements made that LESSEE decides
to leave in the
<PAGE>
INDUSTRIAL PLANT and except to the deterioration of the normal use of the
INDUSTRIAL PLANT.
The modifications and improves made to the INDUSTRIAL PLANT during the term of
this AGREEMENT, that cannot be removed without damaging the structure will be
kept in benefit of LESSOR, the rest of the improvements that are removable may
be removed by LESSEE.
OPTION TO PURCHASE AND RIGHT OF FIRST REFUSAL
CLAUSE FOURTEENTH - LESSEE will have an option to purchase the INDUSTRIAL PLANT,
which right may be exercised at any time during the term of this agreement or
those of its extensions, in the event that LESSOR, have financial difficulties
that imply a risk that any of them could be declared in bankrupt or in
bankruptcy process, or that in any way use, enjoyment or possession of the
INDUSTRIAL PLANT by LESSEE is under risk during the term of this agreement or
any of its extensions. LESSOR as legitimate owner of the INDUSTRIAL PLANT,
grants in this act the Option to Purchase to the SUBLESSEE.
In order for LESSEE to exercise said option, the conditions referred to in the
preceding paragraph should exist. In said case LESSEE should notify in writing
to LESSOR, 45 forty five calendar days before the intended date of execution of
the documents in which the transfer of THE INDUSTRIAL PLANT will be established
in favor of LESSEE or in favor of whom it appoints.
The price of the sale-purchase will be calculated according to the appraisals
conducted to determine the value of the INDUSTRIAL PLANT, in the understanding
that for such purpose, LESSOR and LESSEE, will appoint each one an expert
appraiser, and both will appoint a third expert appraiser, which expert's
opinion will be the one determining the value of the INDUSTRIAL PLANT. That
value will be used as basis to determine the price of the sale-purchase, in the
event that LESSEE decides to exercise its option to purchase.
The parties agree that for the purposes of the appraisal of the INDUSTRIAL
PLANT, the conditions to be taken as basis will be the ones in which THE
INDUSTRIAL PLANT is found before LESSOR has made any improvements and
modifications carried out during the term of this agreement, that is, the expert
appraisers should make their appraisals without considering the appreciation of
the improvements and modifications made by the LESSEE to the INDUSTRIAL PLANT.
<PAGE>
For the purposes of the foregoing, LESSEE has made an appraisal before making
the improvements to the INDUSTRIAL PLANT, where the status in which the
INDUSTRIAL PLANT was found is detailed and its value at the time of the
signature of this agreement is expressed in national currency. To calculate the
value of the INDUSTRIAL PLANT in dollars the exchange rate used will be the one
published in the Daily Gazette of the federation for the compliance of
obligations in dollars on the date of the signature of this agreement, said
appraisal will be attached as exhibit 9, the referred appraisal should be
considered by the expert appraisers when they carried out their appraisal in the
event that the LESSEE decides to exercise the option to purchase established
herein. In the event that LESSEE decides to exercise the option to purchase the
price to be used for the option to purchase will be covered by the LESSEE to
SERTO S.A. de C.V. in dollars United States Currency at the exchange rate on the
date of signature of this agreement.
LESSOR, in this act expressly confers the option to purchase THE IDUSTRIAL PLANT
to LESSEE, which can be exercised if the condition established in the first
paragraph of this clause is complied, LESSOR is bound to use the price of the
sale-purchase to release THE INDUSTRIAL PLANT from any encumbrance, in order for
it to be transferred to LESSEE free from any encumbrance or limitation. In case
that LESSOR cannot release an encumbrance, it accepts that from the price of the
sale-purchase, the amount of the encumbrance will be proportionally reduced,
such deduction being calculated by the expert that appraises said plant for the
exercise of the option to purchase.
LESSEE will also have the right of first refusal to acquire the INDUSTRIAL PLANT
in case there is an intention to transfer it. For this purpose, LESSOR, shall
notify LESSEE that there is an interested person or entity in acquiring the
INDUSTRIAL PLANT. Such notice shall contain the terms and conditions in which
the third party is willing to acquire the INDUSTRIAL PLANT. LESSEE will have a
term of 15 (fifteen) days from the date it undoubtedly received the
corresponding notice, to equal the conditions that LESSOR presents, or to notify
LESSOR its lack of interest in the acquisition. The present right will be valid
during the term of the present agreement and its extensions.
Once the initial validity term of two years of this agreement have expired and
its extensions concluded, LESSEE will have the preferential right for a new
lease, as long as it agrees and
<PAGE>
declares it within the following 8 (eight) days from the date it was notified of
the price of the rent and other terms that LESSOR proposes for the new
extension, which shall be in equal conditions with regards to other potential
lessees.
RESCISSION OF THE LEASE
CLAUSE FIFTEENTH.- This lease agreement may be rescinded by LESSOR as a result
of the following events:
a).- Lack of payment by LESSEE within the first 15 (fifteen) days of each month,
during three consecutive months.
b).- If LESSEE is voluntarily or obligated to a bankruptcy or bankruptcy
process.
c).- If a process to dissolve and liquidate LESSEE is started.
d).- If LESSEE makes substantial modifications to the leased INDUSTRIAL PLANT,
affecting the structure and foundations without written authorization form
LESSOR.
e).- Termination for any reason of the lease agreement attached to this document
as Exhibit "11".
LESSEE will have a right, but not an obligation to early terminate this
agreement without any penalty, in the case that for any reason and at any time
it cannot use the INDUSTRIAL PLANT for the purposes it was leased, or in the
event that the competent authorities do not grant construction permit for the
intended modifications in the INDUSTRIAL PLANT according to the project attached
herein as exhibit "8" or in the case that there is a change in the political,
social or financial conditions of the country that could prevent it to continue
with the profitable operation of its activities in the INDUSTRIAL PLANT.
LESSEE may also terminate this agreement without any responsibility, in case
that for any reason or motive, not directly attributable to it, the permits or
authorizations to operate in the INDUSTRIAL PLANT are canceled or revoked, or
that for any cause out of its control, the use, enjoyment or peaceful possession
of THE INDUSTRIAL PLANT is impeded or altered by any third party.
<PAGE>
In the event that for the reasons referred to the preceding paragraphs the
LESSEE decides to early terminate this agreement, LESSOR compromises to
negotiate in good faith a fair compensation for LESSEE for the investments,
improvements and modifications made to the INDUSTRIAL PLANT which if required,
should be appraised by an expert appraiser, following the same mechanism
established to determine the value of the INDUSTRIAL PLANT in the clause related
with the option to purchase.
EXPANSION OR IMPROVEMENTS
CLAUSE SIXTEENTH.- LESSOR expressly authorizes LESSEE to carry out the
improvements and modifications referred in Exhibit "8" of this document, in the
understanding that the foregoing shall not be construed as an obligation for
LESSEE to carry them out. LESSEE may request LESSOR to expand or create of
additional improvements. LESSOR will analyze the request presented by LESSEE
being bound to respond within the following ten days from the date it was
notified, in the understanding that the additional modifications will be made
with prior written express authorization from LESSOR.
The expansions that in its case might be carried out in the terms of the clause,
will be subject to the preferential rights to lease and to the option to
purchase contemplated in the corresponding clause of AGREEMENT.
In case that LESSEE makes expansions or constructs additional surfaces in the
INDUSTRIAL PLANT, this will not be considered for the rent payment referred in
the corresponding clause of this agreement, since they will stay in benefit of
the INDUSTRIAL PLANT at the termination of the initial term of the agreement and
its extensions.
VISIT AND INSPECTION
CLAUSE SEVENTEENTH. - LESSEE shall authorize LESSOR or the persons it appoints,
access to the INDUSTRIAL PLANT, to verify the use of it, as well as its status
and situation, with a prior written notice that LESSOR shall provide at least
ten working days in advance, as long as said visit does not alter the normal
activities of LESSEE in the INDUSTRIAL PLANT, and it take place during working
days and hours.
AUTHORITY OF LESSOR TO ENCUMBER OR TRANSFER ITS RIGHTS
CLAUSE EIGHTEENTH.- LESSOR may transfer or encumber the rights derived form the
lease agreement, with prior written authorization from LESSEE. SUBLESSOR
expressly binds not to cede, encumber or transfer the rights derived from this
agreement to any
<PAGE>
company related with the trade business or activity carried out by the
SUBLESSEE. In case that there is a new SUBLESSOR, it will be surrogated in the
obligations and will have the rights and obligations derived from this
AGREEMENT.
The foregoing in the understanding that the powers granted to LESSOR referred to
in this clause, may not be exercised in regards to individuals or companies, or
entities, dedicated to the same activity as the LESSEE, or to any branch or
subsidiary of them, or that for any reason there would exist a conflict of
interest between the new LESSOR and the LESSEE, without prior written consent
from LESSEE.
COMMISSION
CLAUSE NINETEENTH.- Any commission originated in regards to this agreement shall
be paid directly by the LESSOR.
CLAUSE TWENTIETH.- THE LESSEE binds to obtain an Insurance policy in favor of
the LESSOR with full coverage in order to protect against the following risks:
fire, earthquakes, tornadoes, hurricanes, explosions, snow storms, damages
caused by car accidents, damages caused by smoke, vandalism, theft and other
risks that could be covered by a full coverage policy, with a coverage amount
that covers the value of the damages that could be suffered by the INDUSTRIAL
PLANT.
INSURANCE
The insurance will be valid during the term of this agreement. In the event that
the LESSOR cedes or transfers in any way the rights derived from this LEASE
agreement, the policy should be modified to add the transferee as beneficiary of
the policy, including rent payment if necessary.
The premium to be paid for the insurance referred in the present clause will be
covered by the LESSEE.
GUARANTEE TO THE LESSEE
CLAUSE TWENTY FIRST.- THE LESSOR in this act grants its consent, agree to hold
the LESSEE harmless, of any conflict, process, or claim resulting form
application of the ecological regulations, of State or Federal nature applicable
to the subject matter of the lease, that could be originated, with regards to
the observations referred in the environmental study mentioned in exhibit "10"
of this Agreement.
<PAGE>
For purposes of the preceding paragraph, the parties agree that the
obligations of THE LESSEE or returning the leased property in the conditions it
was received, it will be subject to consider for purposes of returning it, that
on the receipt date of possession of the lease property, the land and soil in
which the property is constructed, and found in the conditions mentioned in the
referred Exhibit "7".
In regards to the soil of the PROPERTY in which the INDUSTRIAL PLANT is
constructed, if form the result of the analysis practiced it is necessary to
carried out any actions to solve the status of the soil, this will be an
obligation of the LESSOR, who is binded to carried them out and to cover
expenses originated.
INTERPRETATION AND RESOLUTION OF CONFLICTS
CLAUSE TWENTY SECOND.- For everything related with the construction and
performance of this agreement the parties agree to submit to the provisions of
the laws for the State of Jalisco, Mexico.
In regards to the resolution of any controversy that could arise the parties
shall try to solve it through good faith negotiations during 60 (sixty) days
following form that when the controversy or dispute arises. If once said term
has elapsed the parties do not come to an agreement, said controversy will be
solved through Arbitration before The Commercial Arbitration and Mediation
Center for the Americas CAMCA according to their rules.
The Arbitral Procedure will be in this city of Guadalajara, Jalisco, and it will
be handled before only one arbitrator, which will be appointed by mutual
agreement by THE LESSOR and THE LESSEE. In case that the parties do not agree on
the appointment of one arbitrator, each one will appoint one arbitrator who will
appoint a third arbitrator, which will be appointed following the referred
rules.
The language to be used in the arbitration will be Spanish, except for the
Arbitral Resolution, which should be issued in English and Spanish, the arbitral
resolution will be definitive and should voluntarily adopted by the parties. In
case that the parties do not voluntarily adopt the issued resolution, same will
be presented for its execution before the Jurisdiction of a competent Judge in
the City of Guadalajara, Jalisco.
<PAGE>
The losing party, will be responsible for the fees, expenses and costs of the
prevailing party, originated from the Arbitration and its execution.
LANGUAGE
CLAUSE TWENTY THIRD.- This agreement has been prepared in English and Spanish.
In the case that there is an inconsistency between the two versions, the Spanish
version will prevail.
Having read the present AGREEMENT and being aware of its scope and content, the
parties ratify and sign it in three copies in the city of Guadalajara, Jalisco
on February 22, 1999 (nineteen ninety nine) along with two witnesses that
also subscribe it, in all and each one of the ________ pages.
THE LESSOR
/s/C.P. MAURICIO BENAVIDES PEREZ
SERTO S.A. DE C.V.
Repr: C.P. Mauricio Benavides Perez
THE LESSEE
/s/STEPHEN A. NEVEN
AVEX ELECTRONICS DE MEXICO, SRL, DE C.V.
Repr: Stephen A. Neven
DEPOSITARY
/s/C.P. MAURICIO BENAVIDES PEREZ
C. P. Mauricio Benavides Perez
WITNESS WITNESS
/s/ /s/
EXHIBIT 10.20
SUBLEASE AGREEMENT, HEREINAFTER "THE AGREEMENT" EXECUTED BY AND BETWEEN THE
COMMERCIAL ASSOCIATION OPERADORA FARMACEUTICA, S.A. DE C.V., THROUGH ITS LEGAL
REPRESENTATIVE LIC. JAVIER RODRIGUEZ LUCIO, HEREIN AFTER AND FOR THE PURPOSES OF
THIS AGREEMENT REFERRED TO AS "SUBLESSOR", AND THE COMMERCIAL ASSOCIATION "AVEX
ELECTRONICS DE MEXICO, S.R.L. DE C.V., THROUGH ITS REPRESENTATIVE MR. STEPHEN A.
NEVEU, HEREINAFTER AND FOR THE PURPOSES OF THIS AGREEMENT REFERRED TO AS
"SUBLESSEE", WITH THE APPEARANCE OF THE COMPANY SERTO, S.A. DE C.V., REPRESENTED
IN THIS ACT BY MR. MAURICIO BENAVIDES PEREZ, AS REPRESENTATIVE OF THE MENTIONED
CORPORATION AND ON ITS OWN RIGHT AS DEPOSITORY OF THE INDUSTRIAL PLANT; WHICH
AGREEMENT IS SUBJECT TO THE FOLLOWING DECLARATIONS AND CLAUSES:
D E C L A R A T I O N S
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I. - THE SUBLESSOR declares through its legal representative:
a) That it is a corporation duly incorporated according to the laws of the
Mexican Republic, with sufficient capacity to execute the present AGREEMENT, as
evidenced in Public Deed Number 23, 139, dated July 13, 1989, granted before
Attorney Jesus Montano Garcia, Public Notary number 60 of Monterrey Nuevo Leon,
which is duly recorded at the Public Registry of Property and Commerce under
number 2011, volume 325, Book 3, Commerce section dated December 15, 1989.
b)That its representative Lic. Javier Rodriguez Lucio, has sufficient authority
to execute the present AGREEMENT, and that his authority has not been revoked or
limited in any way, as evidenced in public deed 23, 739 dated October 6, 1989
granted before Jesus Montano Garcia Public Notary Number 60 of Monterrey Nuevo
Leon which is duly recorded at the Public Registry of Property and commerce
under number 5661, volume 191-114 Book 4, Commerce section dated December 15,
1989.
c)That its corporate purposes includes the possibility of binding itself in
accordance with the terms of the present agreement.
d)That on August 1, 1995, it executed a lease Agreement with SERTO S.A. DE C.V.,
owner of the INDUSTRIAL PLANT, (THE LEASE AGREEMENT). The term of THE LEASE
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AGREEMENT is 10 years from the date it was signed, and it is currently in full
force and effect.
e)That Clause fourteenth of THE LEASE AGREEMENT expressly authorizes the
SUBLESSEE to sublease or temporarily assign the rights derived from the LEASE
AGREEMENT, with a prior written authorization from SERTO S.A. DE C.V.
f).-That THE SUBLESSOR, as LESSEE and possessor of the INDUSTRIAL PLANT, has
sufficient legal entitlement, and is able to guarantee THE SUBLESSEE, in the
terms of the present agreement, the peaceful and temporary use and enjoyment of
an approximate are of 7,056 Square meters (SEVEN THOUSAND FIFTY SIX SQUARE
METERS) of the Industrial plant located within THE PROPERTY with an approximate
total are of 25,001mts2. (TWENTY FIVE THOUSAND ONE SQUARE METERS). SAID AREAS
ARE ESTABLISHED ACCORDING TO THE BLUEPRINT PROVIDED BY SUBLESSOR which is
attached to this agreement as exhibit "1".
Said PROPERTY pertains to a warehouse located within the leased property with an
approximate area of (7,056 sq. mts. SEVEN THOUSAND FIFTY SIX SQUARE METERS) of
the "INDUSTRIAL PLANT", to another warehouse are of approximately (5,00 sq. Mts
FIVE THOUSAND SQUARE METERS) herein after "THE INDUSTRIAL PLANT" and to an
office area of approximately 578 sq. Mts. (FIVE HUNDRED SEVENTY EIGHT SQUARE
METERS). The total approximate area is 12,634 sq. mts. (TWELVE THOUSAND SIX
HUNDRED THIRTY FOUR SQUARE METERS) of construction and the rest of the surface
are green areas and parking. These areas are referred to in this agreement as
"THE PROPERTY", and are located in Circuito de la Productividad 132, of the
Guadalajara Industrial Park, with the location, metes and bounds described in
the blue print provided by the SUBLESSOR attached to the present AGREEMENT as
Exhibit "2".
g).-That it has the sufficient authority to compromise in sublease THE
INDUSTRIAL PLANT to the SUBLESSEE, having previously obtained for said purposes,
every and each one of the authorizations necessary for the execution of this
Agreement, which authorizations include but are not limited (i)the authorization
to sublease of Clause fourteenth of the LEASE AGREEMENT, requirement is fully
complied with the appearance of SERTO S.A. DE C.V. to the execution of the
present document, and (ii) the authorization from the Technical Committee for
The Condominium Parque Industrial Guadalajara to change the use of the land, as
well as (iii) the necessary authorization from BANCO MERCANTIL DEL NORTE,
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SOCIEDAD ANONIMA, INSTITUCION DE BANCA MULTIPLE, GRUPO FINANCIERO BANORTE, as
beneficiary of a mortgage on the land and as pledge creditor connected to the
rights derived from the LEASE AGREEMENT executed by SERTO S.A. DE C.V. (AS
LESSOR) and OPERADORA FARMACEUTICA DE OCCIDENTE, S.A. DE C.V. (AS LESSEE) which
are attached to this agreement as exhibit "4" said authorizations were granted
to the Corporation Serto, S.A. de C.V.
h).- That its address for all legal effects is Ave. Pino Suarez No. 602 Sur
Colonia Centro C.P. 64000 Monterrey Nuevo Leon.
i).- That its intention is to execute and in fact they hereby execute the
present sublease agreement in the terms and conditions established herein.
II.- THE SUBLESSEE declares through its legal representative:
a).-That it is a corporation legally incorporated according to the Mexican laws
with sufficient capacity to execute the present Agreement, as evidenced by
Public Deed Number 4,953 dated June 27, 1997, granted before Mr. Jose Luis
Villavicencio, Public Notary Number 218 of Mexico City Federal District, and
recorded at the Public Registry of Property of Guadalajara, Jalisco, under
inscription 64-65 volume 647, First book of said registry, dated July 16, 1997.
b).- That its representative, MR. STEPHEN A. NEVEU has the sufficient authority
to execute the present Agreement, which authorities have not been revoked or
limited in any way, as evidenced in the resolution taken on January 13th, 1999,
by the totality of the partners of Avex Electronics de Mexico S.R.I. de C.V. in
which the representative was granted a special power to contract in regards to
this transaction.
c).-That within its corporate purpose it may become bound to the terms of the
present agreement.
d).- That its intention is to execute the present AGREEMENT to use THE
INDUSTRIAL PLANT to carry out its industrial activities and to install
equipment, machinery, and offices in order to perform its purposes which mainly
consist on designing, manufacturing, industrializing, processing and carrying
out product engineering work; purchase, sell, import, expert, assemble and
distribute all types of materials and products; and render all
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types of services, including technical assistance, maintenance, and repair, to
itself or to third parties.
e).- That its address for all legal effects will be the same address as the
INDUSTRIAL PLANT. Copy of any notice related with this agreement should be sent
to Bismark 192 P.B. Vallarta Norte, Guadalajara, Jalisco, MEXICO.
III.- THE CORPORATION SERTO S.A. DE C.V. DECLARES THROUGH ITS LEGAL
REPRESENTATIVE:
a).-That as legitimate owner of the INDUSTRIAL PLANT, it appears to the
execution of the present document to ratify its consent for the SUBLESSOR to
grant THE INDUSTRIAL PLANT in sublease to the SUBLESSEE, according to the terms
of this agreement.
b).- That with its appearance to the execution of this agreement, it strictly
complies to the provision of clause fourteenth of the LEASE AGREEMENT regarding
the authorization required for the SUBLESSOR to sublease the INDUSTRIAL PLANT,
and that through its appearance to the execution of this document it is aware
and expressly approves the terms in which the authorized sublease will take
place.
c).- That it also appears to Grant an Option to purchase, which is granted to
the SUBLESSEE in this agreement, once the established conditions in this
agreement have been complied with for said effect.
d).- That it recognizes that in order for the LEASE AGREEMENT to be compatible
with the terms of this agreement, simultaneously to the signature of this
document, a modification to the LEASE AGREEMENT is signed in such a way that the
terms and conditions of this agreement become totally compatible with the ones
of the referred agreement, which is attached as exhibit "5".
e).- That due to the fact that this agreement will have effects over the total
are of THE PROPERTY referred in Exhibit "2", simultaneously with the execution
of this document, it executes a LEASE AGREEMENT with the SUBLESSEE for the rest
of the area of THE PROPERTY, that is, for an approximate area of 5,578 Sq. Mts.
(FIVE THOUSAND FIVE HUNDRED SEVENTY EIGHT SQUARE METERS) formed by approximately
5,000 Sq Mts. (FIVE THOUSAND SQUARE FEET) of warehouse and approximately 578 Sq.
Mts.
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(FIVE HUNDRED SEVENTY EIGHT SQUARE METERS) of offices and the
corresponding green areas, with the location, metes and bounds referred to in
the LEASE AGREEMENT which is attached to the present agreement as exhibit "6".
IV.- MR. MAURICIO BENAVIDES DECLARES:
a).-That according to the three credit agreements executed with BANCO MERCANTIL
DEL NORTE, SOCIEDAD ANONIMA INSTITUCION DE BANCA MULTIPLE, GRUPO FINANCIERO
BANORTE, which are identified herein after, he was personally appointed
depository of THE PROPERTY in the mortgage guarantee granted over the totality
of the area, as well as in the pledge guarantee derived from the rights arisen
from the LEASE AGREEMENT executed by SERTO, S.A. DE C.V. (As lessor and
Operadora Farmaceutica de Occidente, S.A. de C.V. as lessee) rights over the
INDUSTRIAL PLANT, having obtained the consent from said institution as evidenced
in document attached as exhibit "4", as well as from any other institution, or
authority, of which eventually its consent could be required for the execution
of this document.
THE CONTRACTS REFERRED TO ABOVE ARE THE FOLLOWING:
i).-Simple Credit Opening Agreement contained in Public Deed number 28,890,
dated December 20, 1995, executed by BANORTE (AS CREDITOR) AND LOMAS DE SATELITE
SOCIEDAD ANONIMA DE CAPITAL VARIABLE (AS DEBTOR), for the amount of $1,584,333
UDIS (One million five hundred eighty four thousand and three hundred thirty
three investment units) granting also the guarantees by SERTO S.A. DE C.V., as
referred to in the preceding paragraph.
ii).- Simple Credit Opening Agreement contained in Public Deed number 28,936,
dated December 29, 1995, and executed by BANORTE (AS CREDITOR) AND LOMAS DE
SATELITE SOCIEDED ANONIMA DE CAPITAL VARIABLE (AS DEBTOR), for the amount of
$7,000,000.00 (Seven million new pesos national currency) granting also the
guarantees referred to before.
iii).- Simple Credit Opening Agreement, with mortgage and pledge guarantees,
which is contained Public Deed number 31,529 dated February 27, 1998, and
executed by BANORTE (AS CREDITOR), and SERTO, S.A. DE C.V. (AS DEBTOR), for the
amount
<PAGE>
of $3,000,000.00 (Three million pesos national currency), granting also the
guarantees referred to before.
V.- THE PARTIES DECLARE:
a)That for purposes of this AGREEMENT the terms listed below will have the
following meanings:
a.1).- AGREEMENT: the present Sublease Agreement of THE INDUSTRIAL PLANT.
a.2).- THE INDUSTRIAL PLANT: the area subject to the sublease, formed by
Building or warehouse area, with an approximate extension of 7,056 Sq. Mts.
(seven thousand fifty six square meters) of built areas and by , which are
located in the following address: Circuito de la Productividad number 132 in the
Guadalajara Industrial Park and that for easier identification, a blue print
will be attached hereto as Exhibit "1", which signed by the parties is an
integral part of it.
a.3).- BEGINNING DATE.- the day from which this agreement will be effective and
when the validity of the agreement will be calculated, which will be the day
when the SUBLESSEE, as such, occupies the INDUSTRIAL PLANT.
a.4).- TERMINATION DATE.- the last valid day of this agreement, unless the
parties agree to exercise the extensions contemplated in this agreement. In said
case the termination date will be the last day of validity of the referred
extension.
a.5).- VALIDITY.- the elapsed period between the BEGINNING DATE and the
TERMINATION DATE.
a.6).- AUTHORIZED USES.- the industrial activities to be carried out by the
SUBLESSEE which have been authorized to take place in THE INDUSTRIAL PLANT by
THE SUBLESSOR and that are in accordance with the land use regulations of the
location of the INDUSTRIAL PLANT, as well as with the municipal licenses for the
operation of the company that the SUBLESSEE will perform, according to the main
activity that has been described in the declarations of this agreement. It is
essential for this agreement to have effects between the parties that said
activities are authorized by the competent Municipal
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authority, as well as to grant in its opportunity the corresponding construction
permits for the intended construction in said INDUSTRIAL PLANT, if they are not
approved it is a cause to terminate the agreement in advance.
a.7).- CONSUMER PRICE INDEX (CPI) The Consumer Price Index, determined by the
Ministry of Labor and the Labor and Statistics Department published monthly in
the United States of America.
a.8).- ACCOUNT TO DEPOSIT RENT PAYMENT: The account NO. 7096917-01 of
International Bank of Commerce, with code ABA 114902528 in the city of Laredo
Texas in which the SUBLESSEE shall pay the rent, by electronic wire transfer of
funds, deposit or check.
b).-That it is their intention to execute and in fact they execute, the present
AGREEMENT in the terms and conditions specified in this document, according to
the previous declarations and to the following:
C L A U S E S
SUBJECT MATTER
FIRST.- SUBLESSOR delivers in this act in lease to SUBLESSEE, who receives and
accepts, the temporary use and enjoyment of the INDUSTRIAL PLANT, under the
conditions and status of use described in a general manner in exhibit "7" of
this agreement, and under the terms and conditions established herein.
PRICE
SECOND.- a) The price for the sublease that SUBLESSEE is bound to pay for the
term of the occupation of the INDUSTRIAL PLANT is the amount of USCY $27,377.28
(Twenty seven thousand, three hundred seventy seven and twenty eight cents, U.S.
CURRENCY) monthly, plus the corresponding Value Added Tax. The payment shall be
made monthly in advance within the first 5 (five) days of each month.
<PAGE>
b) The parties agree that the rent referred to in the preceding paragraph, will
begin to be paid on March 15, 1999, provided that SUBLESSOR has physically,
legally and materially received the possession of the INDUSTRIAL PLANT, on that
date or before and this agreement has been executed.
c) The price of the sublease should be paid in United States Dollars or in
Mexican currency, according to the official exchange rate published by the Bank
of Mexico in the Official Gazette of the Federation for the compliance of
obligations in dollars, from the immediate prior day in which the payment in
question is made.
d) The rent shall be paid by SUBLESSEE to SUBLESSOR by electronic transfer of
funds, deposit or check, at the discretion of SUBLESSEE in the ACCOUNT FOR THE
RENT PAYMENT that SUBLESSOR indicates, or in the one that SUBLESSOR indicates in
the future to SUBLESSEE in writing at least fifteen working days in advance.
e) SUBLESSOR shall give SUBLESSEE monthly receipts for the payment of rent and
of the corresponding V.A.T., which receipt shall comply with all fiscal
requirements, be issued with the date of rent payment, and contain the amount
paid in United States Dollars and the corresponding amount in Mexican Pesos,
according to the exchange rate of the date payment is made as published in the
Official Gazette of the Federation for the compliance of obligations.
f) It is expected that the price of the lease could be adjusted every
anniversary of this agreement, in the same percentage that the CONSUMER PRICE
INDEX increases (CPI) published in the United States of America.
TERM OF THE AGREEMENT
THIRD.- This AGREEMENT has an initial term of two years compulsory and binding
for both parties. Such term will begin to be considered from the date of the
initial date of this Agreement and will conclude on the termination date of the
initial term or any of its extensions, or in the event that an anticipated
termination cause operates or the rescission of this agreement. The initial term
may be extended for up to three occasions for a term of two additional years in
regards with the first two extensions and for one year in case of the last
extension.
<PAGE>
SUBLESSEE shall exercise the above referred right to extend, through a written
notice delivered to SUBLESSOR at least 30 days before the date of termination of
the initial agreement.
In the event that the extension or extensions referred to in this clause take
place, the original terms and conditions of the agreement will survive and the
parties will be bound by it irrespective of time or place.
SUBLESSEE may terminate this agreement, without any responsibility during the
term of any of the extensions referred in the corresponding clauses of this
agreement, by notifying SUBLESSOR at least 90 days before the termination date.
USE OF THE INDUSTRIAL PLANT AND DEPOSIT
FOURTH.- SUBLESSEE may only use the leased INDUSTRIAL PLANT to carry out the
activities contemplated in its corporate purposes and described in the
declarations of this agreement. This use may not be modified without previous
consent from SUBLESSOR.
SUBLESSEE delivers in this act to SUBLESSOR a deposit equivalent to one month's
rent, that is, an amount of USCY $27,377.28 (TWENTY SEVEN THOUSAND, THREE
HUNDRED SEVENTY SEVEN AND TWENTY EIGHT CENTS U.S. CURRENCY), which shall be
fully reimbursed by SUBLESSOR at the termination date of this agreement, unless
SUBLESSEE causes damages to the INDUSTRIAL PLANT not derived from the normal
use, or when on the delivery date the corresponding water, light and electricity
receipts contracted by THE SUBLESSEE to operate in the INDUSTRIAL PLANT have not
been paid in which case both parties will decide the use of the mentioned
deposit.
This agreement constitutes the most effective receipt available by law, in
regards to the delivery of said amount to SUBLESSOR.
AGREEMENT REGISTRATION
FIFTH.- If it is considered convenient during the term of this agreement, the
parties will register this agreement at the Public Registry of Property and
Commerce of Guadalajara, in compliance with article 2105 of the Civil Code for
the State of Jalisco. The expenses, fees and registration cost of the
inscription at the Public Registry or before any other authority, as well as the
applicable "Legal Business Tax," if any, as well as any other right or tax shall
be covered equally by SUBLESSOR and SUBLESSEE.
<PAGE>
For purposes of the previous paragraph, any of the following persons will be
authorized, who indistinctly could make the necessary process for the
registration of this agreement before the Public Registry or before any
authority. Said persons are the following:
Lic. Javier Rodriguez Lucio
Lic. Martha Cecilia Cortes Munoz
Lic. Hugo Cuesta Leano
MODIFICATIONS TO THE PROPERTY AND TO THE INDUSTRIAL PLANT.
SIXTH.- Any material or substantial modification that alters or affects the
structure of the INDUSTRIAL PLANT must be previously authorized by THE
SUBLESSOR, who is bound to respond to a request of that nature within 15 days
from the request. Modifications to support manufacturing facilities and
logistics will not require prior approval.
The modifications proposed by SUBLESSEE and already approved by SERTO, S.A. de
C.V. and SUBLESSOR include, but are not limited to the ones listed in exhibit
"8" of this agreement. The parties agree that the fact that the proposed
modifications by SUBLESSEE are listed in the exhibit mentioned, do not bind in
any way SUBLESSEE to carry them out, therefore, SUBLESSEE will have a
discretional authority to determine whether it carries them out or not,
according to its interests.
In the event that SUBLESSEE intends to carry out additional modifications to the
ones listed in the exhibit referred to above, the provisions of paragraph one of
this clause will apply.
On the date THE INDUSTRIAL PLANT is vacated, SUBLESSEE may remove all and each
of the improvements or modifications made to THE INDUSTRIAL PLANT, with the only
limitation that the removal of said improvements do not affect the structure of
THE INDUSTRIAL PLANT, in which case the parties may negotiate a price for the
modifications made that Serto S.A. de C.V. and the SUBLESSOR has an interest to
keep in the INDUSTRIAL PLANT and SUBLESSEE will discretionally determine whether
such improvements will be left in exchange for the price offered.
TAXES AND RIGHTS FOR SERVICES AND CONDOMINIUM FEES
<PAGE>
SEVENTH.- The property taxes caused by THE INDUSTRIAL PLANT during the term of
this agreement, as well as any other current or future tax or right on THE
INDUSTRIAL PLANT will be covered by SUBLESSOR.
The Value Added Tax on the rent, or its substitute according to the applicable
laws, will be covered by SUBLESSEE.
The charges for water consumption to be paid to the Intermunicipal Water and
Sewer System (SIAPA), as well as the amounts for telephone services and light
services will be paid by SUBLESSEE. The foregoing in the understanding that the
charges for the connections have been previously paid, since THE INDUSTRIAL
PLANT already has such services.
The ordinary charges for maintenance charged by the Association of Co-owners of
Parque Industrial Guadalajara, will be covered by SUBLESSEE, however, the
charges or extraordinary fees, or any other charge inherent to the owners of the
property in the Industrial Park, will be covered by SUBLESSOR.
SUBLESSEE, with the collaboration of SUBLESSOR shall either execute or modify
the agreement with the Federal Electricity Commission for the supplying of
electricity according to the characteristics and consumption required by the
equipment to be installed in the leased INDUSTRIAL PLANT.
For said purpose the parties agree that according to the budget made by the
Federal Electricity Commission for the increase of supply of electricity
required by the INDUSTRIAL PLANT each party binds to pay up to the amount of
$350,000.00 (three hundred fifty thousand pesos) Mexican Currency.
MAINTENANCE, CONSTRUCTIONS AND APPRECIATION
EIGHTH.- SUBLESSEE will take care by itself, of maintaining, cleaning, and
making minor repairs to THE INDUSTRIAL PLANT.
In the event that the city council or any other authority with jurisdiction,
including the Co- owners Association of Parque Industrial Guadalajara, either
directly or indirectly agree to carry out constructions or works that generates
an obligation to pay to any of them for the benefit to THE INDUSTRIAL PLANT,
this charges will be absorbed by SUBLESSOR who is bound to hold SUBLESSEE
harmless from any claim or request for this reason.
<PAGE>
All major repairs needed in THE INDUSTRIAL PLANT, as well as in the ceilings,
floors, internal or external walls and foundations, will be covered by
SUBLESSOR.
The SUBLESSOR delivers THE INDUSTRIAL PLANT guaranteeing that the ceilings,
floors, internal or external walls and foundations are duly sealed,
waterproofed, without leaking, complying with the customary construction
standards, granting the guarantee for two years as of the signature of this
agreement and binding to provide the corresponding maintenance.
Also, SUBLESSOR will be responsible for the damages and losses that any defect
in the construction of foundation of THE INDUSTRIAL PLANT causes to SUBLESSEE,
to any other party, or to their assets, or from any defect or structural damage
of THE INDUSTRIAL PLANT, that impedes or snags SUBLESSEE to operate in a normal
way in the same unless said defect or structural damage has been caused by an
irresponsible use of the SUBLESSEE.
ADVERTISEMENT
NINTH.- SUBLESSOR authorizes SUBLESSEE to paint or install in THE INDUSTRIAL
PLANT announcements related to the industrial and commercial activities of
SUBLESSEE, with no more limitations than the ones established in the Municipal
Regulations.
The taxes, rights and expenses originated from this concept will be covered
exclusively by SUBLESSEE.
SUBLEASE AND TRANSFER
TENTH.- The SUBLESSEE may sublease the totality or part of THE INDUSTRIAL PLANT
to its affiliated companies or subsidiaries prior notification to SUBLESSOR.
SUBLESSEE may sublease part or all THE INDUSTRIAL PLANT to any third party, with
the prior consent from SUBLESSOR, in the understanding that the SUBLESSEE should
adjust in its case to the provisions of this agreement.
SUBLESSEE would also be able to transfer its rights and obligations with prior
written authorization from SUBLESSOR, who will grant it as long as the
transferee complies with the following condition:
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That the proposed transferee has the sufficient solvency to cover the
established obligations in the present AGREEMENT and the ones legally
applicable, to consider the solvency of said transferee it should be classified
in a similar credit level as the one that would correspond to the SUBLESSEE.
Once the transfer has been expressly accepted, and that the corresponding
transferee has been authorized by SUBLESSOR, and it has signed the corresponding
agreement, having delivered the possession of THE INDUSTRIAL PLANT, SUBLESSEE
will be released from the rights and obligations generated in this AGREEMENT in
the understanding that the new transferee assumes the totality of the
obligations, as well as the corresponding rights. Also, SUBLESSEE will be
released from said rights and obligations once they have vacated THE INDUSTRIAL
PLANT.
EXTENSION
ELEVENTH.- SUBLESSEE will have the right to extend the term of this AGREEMENT
for three occasions for additional terms of 2 (two) years for the first two
extensions and for 1 (one) year for the last extension, from the expiration of
the initial term referred to in clause three hereof, or in its case, from the
expiration of the extension if the extension right has been exercised, with
prior notice to the SUBLESSOR at least 30 days before the termination of the
initial term of this AGREEMENT or that of the corresponding extension.
In the event that SUBLESSEE exercises his right to extend as established in this
clause, it will have the right, during the term of said extension, to terminate
this agreement at any time by giving written notification to SUBLESSOR 90
(ninety) days in advance.
INDIVISIBILITY OF THE OBLIGATION WITH THE LEASE AGREEMENT
CLAUSE TWELFTH.- The parties declare that on the same date of execution of this
agreement SUBLESSEE executes with Serto S.A. de C.V., a LEASE AGREEMENT of an
area of 5,578 Sq. Mts. (FIVE THOUSAND, FIVE HUNDRED SEVENTY EIGHT SQUARE METERS)
of construction, plus parking area and green areas, located within the
INDUSTRIAL PLANT which have been identified in exhibit "6." the parties also
declare that because the areas are parts, and because they are indivisible
without affecting the use to which SUBLESSEE intends to devote THE INDUSTRIAL
PLANT to, the parties agree to link both agreements in such way that the
revocation, cancellation or termination of any of them, automatically causes the
revocation, cancellation or termination of the other, and in such a way that
neither of them may survive or continue to be in force and effect, if the
<PAGE>
other one is not in force and effect as well. Therefore, the obligations and
rights of the parties to this agreement and those of the mentioned lease
agreement are considered for legal effects as indivisible.
DELIVERY OF THE INDUSTRIAL PLANT
CLAUSE THIRTEENTH.- Once the term of this Sublease agreement and that of its
extensions, if any, have come to an end, SUBLESSEE shall deliver SUBLESSOR the
INDUSTRIAL PLANT in the terms of this AGREEMENT and in the conditions it was
received, except for the modifications and improvements made that SUBLESSEE
decides to lease in THE INDUSTRIAL PLANT and except to the deterioration of the
normal use of the INDUSTRIAL PLANT.
The modifications and improvements made to the INDUSTRIAL PLANT during the term
of this AGREEMENT that cannot be removed without damaging the structure will be
kept in benefit of SUBLESSOR, the rest of the improvements that are removable
may be removed by SUBLESSEE.
The SUBLESSEE binds to provide on the date of delivery of the INDUSTRIAL PLANT
to the SUBLESSOR copies of totally paid receipts for the services of water,
light, telephone and electricity by THE SUBLESSEE, corresponding to the last
month that THE INDUSTRIAL PLANT was occupied.
OPTION TO PURCHASE AND RIGHT OF FIRST REFUSAL
CLAUSE FOURTEENTH.- SUBLESSEE will have an option to purchase the INDUSTRIAL
PLANT, which right may be exercised at any time during the term of this
agreement or those of its extensions. Serto S.A. de C.V., as legitimate owner of
the INDUSTRIAL PLANT, by appearing to the execution of this document, grants in
this act to THE SUBLESSEE the option to purchase, the referred option to
purchase could be exercised in the event that SUBLESSOR or Serto S.A. de C.V.
have financial difficulties that imply a risk that any of them could be declared
in bankruptcy or in bankruptcy process, or that in any way use, enjoyment or
possession of THE INDUSTRIAL PLANT by SUBLESSEE is under risk during the term of
this agreement or any of its extensions.
In order for SUBLESSEE to exercise said option, the conditions referred to in
the preceding paragraph should exist. In said case SUBLESSEE should notify in
writing to SUBLESSOR and to Serto S.A. de C.V., 45 (forty-five) calendar days
before the intended date of execution
<PAGE>
of the documents in which the transfer of THE INDUSTRIAL PLANT will be
established in favor of SUBLESSEE or in favor of whom it appoints.
The price of the sale-purchase will be calculated according to the appraisals
conducted to determine the value of the INDUSTRIAL PLANT, in the understanding
that for such purpose, Serto S.A. de C.V. and SUBLESSEE, will appoint each one
an expert appraiser, and both will appoint a third expert appraiser, which
expert's opinion will be the one determining the value of the INDUSTRIAL PLANT.
That value will be used as basis to determine the price of the sale-purchase, in
the event that SUBLESSOR decides to exercise its option to purchase.
The parties agree that for the purposes of the appraisal of the INDUSTRIAL PLANT
the conditions to be taken as basis will be the ones in which THE INDUSTRIAL
PLANT is found before SUBLESSEE has made any improvements and modifications
carried out during the term of this agreement, that is, the expert appraisers
should make their appraisals without considering the appreciation of the
improvements and modifications made by the SUBLESSEE to the INDUSTRIAL PLANT.
For the purposes of the foregoing, SUBLESSEE has made an appraisal before making
the improvements to THE INDUSTRIAL PLANT, where the status in which the
INDUSTRIAL PLANT was found is detailed and its value at the time of the
signature of this agreement is expressed in national currency. To calculate the
value of the INDUSTRIAL PLANT in dollars the exchange rate used will be the one
published in the Daily Gazette of the federation for the compliance of
obligations in dollars on the date of the signature of this agreement, said
appraisal will be attached as exhibit 9, the referred appraisal should be
considered by the expert appraisers when they carried out their appraisal in the
event that the SUBLESSEE decides to exercise the option to purchase established
herein. In the event that SUBLESSEE decides to exercise the option to purchase
the price to be used for the option to purchase will be covered by the SUBLESSEE
to Serto S.A. de C.V., in dollars United States Currency at the exchange rate on
the date of signature of this agreement.
Serto S.A. de C.V., owner of the property in which THE INDUSTRIAL PLANT is
constructed, in this act expressly confers the option to purchase THE INDUSTRIAL
PLANT to SUBLESSEE, said option could be exercised if it is complied with first
paragraph of this clause.
<PAGE>
SERTO S.A. de C.V. being bound to use the price of the sale-purchase to release
THE INDUSTRIAL PLANT from any encumbrance, in order for it to be transferred to
SUBLESSEE free from any encumbrance of limitation. In case that Serto S.A. de
C.V. cannot release an encumbrance, it accepts that from the price of the
sale-purchase, the amount of the encumbrance will be proportionally reduced,
such deduction being calculated by the expert that appraises said plant for the
exercise of the option to purchase.
SUBLESSEE will also have the right of first refusal to acquire the INDUSTRIAL
PLANT in case that Serto S.A. de C.V. or SUBLESSOR intend to transfer it. For
the purpose, SUBLESSOR and/or Serto S.A. de C.V., shall notify SUBLESSEE that
there is an interested person or entity in acquiring the INDUSTRIAL PLANT. Such
notice shall contain the terms and conditions in which the third party is
willing to acquire the INDUSTRIAL PLANT. SUBLESSEE will have a term of 15
(fifteen) days from the date it undoubtedly received the corresponding notice,
to equal the conditions that Serto S.A. de C.V. or the SUBLESSOR present, or to
notify SUBLESSOR its lack of interest in the acquisition. The present right will
be valid during the term of the present agreement and its extensions.
Once the initial validity term of two years of this agreement have expired and
its extensions concluded, SUBLESSEE will have the preferential right for a new
lease, a long as it agrees and declares it within the following 8 (eight) days
from the date it was notified of the price of the rent and other terms that
SUBLESSOR proposes for the new extension, which shall be in equal conditions
with regards to other potential lessees.
RESCISSION OF THE LEASE
CLAUSE FIFTEENTH.- The lease agreement may be rescinded by SUBLESSOR as a result
of the following events:
a).- Lack of payment by SUBLESSEE within the first 15 (fifteen) days of each
month for three consecutive months.
b).- If SUBLESSEE is voluntarily or obligated to a bankruptcy or bankruptcy
process.
c).- If a process to dissolve and liquidate SUBLESSEE is started.
<PAGE>
d).- If SUBLESSEE makes substantial modifications to the leased INDUSTRIAL
PLANT, affecting the structure and foundations without written authorization
from SUBLESSOR.
e).- Termination for any reason of the lease agreement attached to this document
as Exhibit 6.
SUBLESSEE will have a right, but not an obligation to early terminate this
agreement without any penalty, in the case that for any reason and at any time
it cannot use the INDUSTRIAL PLANT for the purposes it was leased, or in the
event that the competent authorities do not grant construction permit for the
intended modifications in the INDUSTRIAL PLANT according to the project attached
herein as exhibit 8 or in the case that there is a change in the political,
social or financial conditions of the country that could prevent it to continue
with the profitable operation of its activities in the INDUSTRIAL PLANT.
SUBLESSEE may also terminate this agreement without any responsibility, in case
that for any reason or motive, not directly attributable to it, the permits or
authorizations to operate in the INDUSTRIAL PLANT are canceled or revoked, or
that for any cause out of its control, the use, enjoyment or peaceful possession
of THE INDUSTRIAL PLANT is impeded or altered by any third party.
In the event that for the reasons referred to in the preceding paragraphs the
SUBLESSEE decides to early terminate this agreement, SUBLESSOR and Serto S.A. De
C.V. compromise to negotiate in good faith a fair compensation for SUBLESSEE for
the investments, improvements and modifications made to the INDUSTRIAL PLANT,
which if required, should be appraised by an expert appraiser, following the
same mechanism established to determine the value of the INDUSTRIAL PLANT in the
clause related with the option to purchase.
EXPANSION OR IMPROVEMENTS.
CLAUSE SIXTEENTH.- SUBLESSOR expressly authorizes SUBLESSEE to carry out the
improvements and modifications referred in Exhibit "8" of this document, in the
understanding that the foregoing shall not be construed as an obligation for
SUBLESSEE to carry them out. SUBLESSEE may request SUBLESSOR to expand or create
of additional improvements. SUBLESSOR will analyze the request presented by
SUBLESSEE being bound to respond within the following ten days from the date it
was notified, in the
<PAGE>
understanding that the additional modifications will be made with prior written
express authorization from SUBLESSOR.
The expansions that in its case might be carried out in the terms of this
clause, will be subject to the preferential rights to lease and to the option to
purchase contemplated in the corresponding clause of this AGREEMENT.
In case that SUBLESSEE makes expansions or constructs additional surfaces in the
INDUSTRIAL PLANT, this will not be considered for the rent payment referred in
the corresponding clause of this agreement, since they will stay in benefit of
the INDUSTRIAL PLANT at the termination of the initial term of the agreement and
its extensions.
VISIT AND INSPECTION.
CLAUSE SEVENTEENTH.- SUBLESSEE shall authorize SUBLESSOR or the persons it
appoints, access to the INDUSTRIAL PLANT, to verify the use of it, as well as
its status and situation, with a prior written notice that SUBLESSOR shall
provide at least ten working days in advance; as long as said visit does not
alter the normal activities of SUBLESSEE in the INDUSTRIAL PLANT, and it takes
place during working days and hours.
AUTHORITY OF SUBLESSOR TO ENCUMBER OR TRANSFER ITS RIGHTS.
CLAUSE EIGHTEENTH.- SUBLESSOR may transfer or encumber the rights derived from
the sublease agreement, with prior written notification to SUBLESSEE. SUBLESSOR
expressly binds not to cede, encumber or transfer the rights derived form this
agreement to any company related with the trade business or activity carried out
by the SUBLESSEE. In case that there is a new SUBLESSOR, it will be surrogated
in the obligations and will have the rights and obligations derived from this
AGREEMENT.
The foregoing in the understanding that the powers granted to SUBLESSOR referred
to in this clause, may not be exercised in regards to individuals or companies,
or entities, dedicated to the same activity as the SUBLESSEE, or to any branch
or subsidiary of them, or that for any reason there would exist a conflict of
interest between the new SUBLESSOR and the SUBLESSEE, unless the prior written
consent from SUBLESSEE is granted.
COMMISSION
<PAGE>
CLAUSE NINETEENTH.- Any commission originated in regards to this agreement shall
be paid directly by the SUBLESSOR.
INSURANCE
CLAUSE TWENTIETH.- THE SUBLESSEE binds to obtain an Insurance policy in favor of
the SUBLESSOR with full coverage in order to protect against the following
risks: fire, earthquakes, tornadoes, hurricanes, explosions, snow storms,
damages caused by car accidents, damages caused by smoke, vandalism, theft and
other risks that could be covered by a full coverage policy, with a coverage
amount that covers the value of the damages that could be suffered by the
INDUSTRIAL PLANT.
The insurance will be valid during the term of this agreement. In the event that
the SUBLESSOR cedes or transfers in any way the rights derived from this
SUBLEASE agreement, the policy should be modified to add the transferee as
beneficiary of the policy, including rent payment if necessary.
The premium to be paid for the insurance referred in the present clause will be
covered by the SUBLESSEE.
GUARANTEE TO THE SUBLESSEE.
CLAUSE TWENTY FIRST.- THE SUBLESSOR and Serto, S.A. de C.V. who in this act
grants its consent, agree to hold the SUBLESSEE harmless, of any conflict,
process, or claim resulting from the application of the ecological regulations
of State or Federal nature applicable to the subject matter of the sublease,
that could be originated, with regards to the observations referred in the
environmental study mentioned in exhibit 10 of the present Agreement.
For purposes of the preceding paragraph, the parties agree that the
obligations of THE SUBLESSEE of returning the leased property in the conditions
it was received, it will be subject to consider for purposes of returning it,
that on the receipt date of possession of the lease property, the land and soil
in which the property is constructed, are found in the conditions mentioned in
the referred Exhibit "10".
In regards to the soil in which the PROPERTY is constructed the INDUSTRIAL
PLANT as a result of the analysis practiced to it, if it is consider necessary
to carried out action or actions to remedy the status of said soil this will be
an obligation of the
<PAGE>
SUBLESSOR, who binds to carry them out and to cover the expenses as a result of
said actions.
INTERPRETATION AND RESOLUTION OF CONFLICTS.
CLAUSE TWENTY SECOND.- For everything related with the Interpretation and
performance of this agreement the parties agree to submit to the provisions of
the laws for the State of Jalisco, Mexico.
In regards to the resolution of any controversy that could arise the parties
shall try to solve it through good faith negotiations during 60 (sixty) days
following from that when the controversy or dispute arises. If once said terms
has elapsed the parties do not come to an agreement, said controversy will be
solved through Arbitration before The Commercial Arbitration and Mediation
Center for the American CAMCA according to their rules.
The Arbitral Procedure will be in this city of Guadalajara, Jalisco, and it will
be handle before only one arbitrator, which will be appointed by mutual
agreement by THE SUBLESSOR and THE SUBLESSEE. In case that the parties do not
agree on the appointment of one arbitrator, each one will appoint one arbitrator
who will appoint a third arbitrator, which will be appointed following the
referred rules.
The language to be used in the arbitration will be Spanish, except for the
Arbitral Resolution, which should be issued in English and Spanish, the arbitral
resolution will be definitive and should be voluntarily adopted by the parties.
In case that the parties do not voluntarily adopt the issued resolution, some
will be presented for its execution before the Jurisdiction of a competent Judge
in the City of Guadalajara, Jalisco.
The losing party, will be responsible for the fees, expenses and costs of the
prevailing party, originated from the Arbitration and its execution.
LANGUAGE.
CLAUSE TWENTY THIRD.- This agreement has been prepared in English and Spanish.
In the case that there is an inconsistency between the two versions, the Spanish
version will prevail.
Having read the present AGREEMENT and being aware of its scope and content, the
parties ratify and sign it in three copies in the city of Guadalajara, Jalisco,
on February 22, 1999 (nineteen ninety nine) along with two witnesses that also
subscribe it, in all and each one of its pages.
THE SUBLESSOR
/S/Lic. Javier Rodriguez Lucio
OPERADORA FARMACEUTICA DE OCCIDENTE, S.A. DE C.V.
Rep. Lic. Javier Rodriguez Lucio
THE SUBLESSEE
/S/ Stephen A. Neveu
AVEX ELECTRONICS DE MEXICO, SRL. DE C.V.
Rep. Stephen A. Neveu
SERTO, S.A. DE C.V.
/S/C.P. Mauricio Benavides Perez
Rep. C.P. Mauricio Benavides Perez
DEPOSITARY
/S/C.P. Mauricio Benavides Perez
C.P. Mauricio Benavides Perez
/S/
WITNESS WITNESS
EXHIBIT 12
BENCHMARK ELECTRONICS, INC.
RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
EARNINGS
Income before income taxes and extraordinary item $ 20,276 $ 26,890 $ 23,952 $ 14,483 $ 9,531
Fixed charges .................................... 11,637 5,346 2,983 1,774 71
-------- -------- -------- -------- --------
Income before income taxes, extraordinary item and
fixed charges ................................ 31,913 32,236 26,935 16,257 9,602
======== ======== ======== ======== ========
FIXED CHARGES
Debt issuance costs .............................. 570 122 60 25 --
Interest expense ................................. 9,696 4,393 2,472 1,442 --
Interest component of rental expense ............. 1,371 831 452 307 71
-------- -------- -------- -------- --------
Total fixed charges .............................. 11,637 5,346 2,984 1,774 71
======== ======== ======== ======== ========
Earnings to fixed charges ratio:
Actual ...................................... 2.74 x 6.03 x 9.03 x 9.16 x 134.75 x(1)
</TABLE>
(1) Differences in calculated amount due to rounding.
EXHIBIT 13
Achieving Global Presence
Benchmark Electronics
Annual Report 1999
Financial Highlights
Benchmark Electronics, Inc. and Subsidiaries
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------
(in thousands, except per-share data)
<S> <C> <C> <C> <C> <C>
Sales .............................. $877,839 524,065 325,229 201,296 97,353
Income from operations ............. $ 28,623 30,720 25,112 15,391 9,250
Net income ......................... $ 11,974 16,372 15,090 8,864 6,148
Earnings per common share
(diluted) ...................... $ .80 1.35 1.26 0.96 0.75
Working capital .................... $177,926 86,265 87,879 72,586 37,285
Total assets ....................... $760,837 241,896 190,322 168,174 57,037
Long-term debt ..................... $202,811 46,111 30,330 30,485 --
Shareholders' equity ............... $281,935 138,001 120,872 104,999 46,624
Weighted average common and
equivalent shares outstanding .. 15,010 12,098 12,004 9,218 8,213
</TABLE>
The Company at a Glance
Benchmark Electronics, Inc. is a leading independent provider of electronics
manufacturing services (EMS) to original equipment manufacturers (OEMs) in the
telecommunication, enterprise computer and peripherals, high-end
video/audio/entertainment, industrial control, testing and instrumentation,
computer and medical device markets. The company offers OEMs a global turnkey
EMS solution, from initial product design to volume production and direct order
fulfillment. The company provides advanced engineering services, including
product design, printed circuit board (PCB) layout, quick-return prototyping and
test development.
Table of Contents
The Company at a Glance ................................................... 1
Financial Highlights ...................................................... 1
President's Letter ........................................................ 2
Achieving Global Presence ................................................. 5
Management's Discussion and Analysis ...................................... 9
Consolidated Financial Statements ......................................... 17
Notes to Consolidated Financial Statements ................................ 21
Independent Auditors' Report .............................................. 34
Management's Report ....................................................... 34
Quarterly Financial Data .................................................. 35
Market for the Registrant's Common Equity
and Related Shareholder Matters ......................................... 35
Selected Financial Data ................................................... 36
Corporate and Shareholder Data ............................................ ISBC
President's Letter
Dear Shareholder:
Once again it is my pleasure to present to you the Benchmark Electronics Inc.
financial reports for the fiscal year ending December 31, 1999.
The electronics industry continues to grow at a rapid pace. This growth
coupled with the growing trend of outsourcing by OEMs has fueled phenomenal
growth and consolidation activity within the EMS industry. Benchmark's revenue
growth likewise continues to exceed the average growth rate for the EMS
industry. Acquisitions have represented a significant portion of the Company's
growth strategy.
In 1999, Benchmark Electronics, Inc. once again posted record sales for the
year.
Our continued growth resulted from the consistent application of our
fundamental business strategies and practices, which coupled internal growth
with the acquisition of AVEX Electronics Inc. to generate record sales of
$877,838,540, a 68% increase over our 1998 sales. Benchmark's level of
performance is reflected in our record-high one billion dollars in backlog as of
December 31, 1999.
(Bar charts: Sales, Income, Diluted EPS)
<PAGE>
(Bar chart: Compound Average Growth Rate Comparison)
Highlights of the Year
During 1999, the Benchmark team achieved significant progress in line with
our fundamental business strategies. We took our first major steps toward
becoming a recognized top tier EMS provider, with annualized sales in excess of
$1 billion. This moved Benchmark from a number 12 position in the EMS industry
in 1998 to the number 6 position for 1999 (Electronic Business Magazine).
Another key accomplishment, in line with our strategies, is our global
expansion. Benchmark became a supplier in four continents during 1999; North and
South America, Asia and Europe. As discussed in more detail further on in this
year's shareholder report, we are now present in 14 different facility locations
worldwide. This global footprint gives us the foundation for enhanced customer
service, quick response with localized service to our multi-national customers,
and secures our foundation for continued growth and expansion. During 1999,
Benchmark expanded its industry leading customer base, focusing on the medium
volume/high mix and on the high volume sectors of our industry.
In light of the overall accomplishments of 1999, I am disappointed to report
that after 40 successive quarters of record breaking increasing sales and
profits, that Benchmark's net income was not a record level for 1999. Our net
income of $11,974,430 translated to a diluted earnings per share of $.80.
Achieving significant economies of scale, and "top line growth," are very
important in the contract manufacturing industry. Rapid expansion of revenues
provides us with important leverage in the procurement of components and
subsystems. Since the cost of the components can be greater than 80% of the cost
of goods for a product, cutting our procurement costs enables us to be more
competitive and aggressive in pricing to our customers.
There were several other significant areas that I want to discuss.
Acquisition Integration
During 1999 we focused on emphasizing employee attention to our customers,
which is a traditional Benchmark strength, thus improving long-standing customer
relationships. We implemented organizational changes, initiated overhead
reduction efforts and streamlined the combined corporate structure. These
measures sharpened the focus of the organization, provided more responsive and
timely service to our customers, and improved our efficiency in meeting
customers' needs.
Sales and Marketing Highlights
During 1999 Benchmark strengthened its focus on sales and marketing. We
combined the efforts of the medium volume/higher mix teams with the high volume
programs, aggressively cross-selling our medium volume/higher mix services to
existing high volume accounts and vice-versa. Already, this strategy has yielded
record quotation activities from our traditional customer base, and generated
similar activity from prospective customers seeking new programs.
Our sales and marketing activities during 1999 produced record program
bookings, especially in the traditional medium volume segments, which I believe
will provide a strong basis for growth during 2000 and subsequent years.
It is my pleasure to thank our shareholders for their continued support over
the years. I must also reiterate my praise for the dedicated Benchmark
management team for their commitment to providing our organization with stable
leadership. Our team draws on many years of industry experience and integrity,
and is developing an enviable track record for successful strategic
acquisitions. Given the dramatic change in the revenue, scope of service, and
geographic presence that we accomplished during 1999, Benchmark management's
focus on organizational and material synergies should provide a very strong
foundation for continued growth in the electronics manufacturing industry for
the new millennium.
Sincerely yours,
Donald E. Nigbor
President and Chief Executive Officer
March 24, 2000
(Photo Donald E. Nigbor)
Achieving the Global Presence in the EMS Industry
Excellence and Innovation
During 1999, Benchmark dramatically expanded both the company's size and the
scope of services it offers to EMS clients.
We believe the efforts of the Benchmark management team during 1999
positioned the company in the top tier of the EMS industry, provided us with the
purchasing power to offer competitive solutions to our customers . . . located
us in new strategic markets . . . prepared us for penetration into high volume
electronic sectors . . . and lastly resulted in a company providing a very broad
band of services to customers. Currently many of our top tier competitors engage
primarily in high volume/low cost
<PAGE>
manufacturing. Benchmark's capabilities are based on solid experience and
state-of-the-art expertise in the medium volume/high mix assembly, test and
configuration, as well as in those high volume/low cost applications.
Expansion
At the beginning of fiscal year 1999, our manufacturing facilities were
located in the United States, with a box-build facility in Dublin, Ireland.
Pursuing our strategic goals of global expansion and broadening services, by the
end of 1999, we had become a global EMS provider, with 14 locations in 8
countries, with more than one and one- half million square feet of facility
space, and with a staff of more than 7,000 associates worldwide. Our dramatic
expansion has given us a presence in key growth markets within the electronics
manufacturing industry.
In Europe, we added four facilities, in the countries of Ireland, Scotland,
Sweden and Hungary, in order to provide local responsive service to our global,
multi-national electronic customers. These facilities provide design
manufacturing of circuit board assemblies, testing of products, box-builds and
depot repair and upgrade services for customers in Europe.
We also added significant capabilities in South America with a location in
Campinas, Brazil. The Brazil facility is key for growth in this region due to
the high duties imposed by the Brazilian government and the requirements of a
number of our Fortune 100 customers that Benchmark manufacture and distribute
electronic products within this important growth area and emerging
consumer/industrial markets.
Our expansion on the North American continent also continued during 1999. We
added two large domestic facilities in Huntsville, Alabama, and Pulaski,
Tennessee, to provide specialized capabilities in the component procurement,
circuit board design assembly and test areas and box build/final system
integration. The locations of the added facilities in North America were
complementary to our existing domestic facilities, providing additional
geographic coverage and regional support for the Benchmark customer base.
(World Map: Geographic Locations)
South of the border our new Guadalajara, Mexico, plant has a headcount of
over 1,300 associates and is one of the fastest growing operations within the
Benchmark family. Mexico offers a competitive cost structure for the Americas.
Guadalajara itself is a world recognized center for electronic manufacturing,
drawing on a large pool of trained technical and professional staff and a
dedicated direct labor pool that is readily available.
During 1999 the Guadalajara operation moved into a new facility that
consistently exceeds customer expectations as to both its capabilities and its
efficiency. Governor Alberto Cardenas Jiminez of the State of Jalisco visited
the Guadalajara facility in September for our dedication and expressed support
for our expansion of high technology production efforts within this region.
(Pie Chart: Market Segments)
Finally, in 1999 we expanded into the Asian market with a medium
volume/higher mix presence in Singapore. This facility provides us with a strong
complement of management staff, capabilities and resources to expand into other
lower cost areas of Asia, such as Malaysia and Mainland China, to provide our
customer base with the overall global Benchmark model of engineering and
prototype capabilities, medium volume/high mix and high volume/low cost
manufacturing options.
We are favorably positioned to grow further into Asia and to penetrate other
industrial/consumer markets to further diversify our customer base.
Computerized Resource Planning System
During 1999, we began implementing the Baan enterprise resource planning
(ERP) system. Upon completion, the entire corporation will be linked with a
powerful planning system designed to maximize our competitive capabilities
through component procurement leveraging plus flexible plant loading and
scheduling. We anticipate utilizing this system as a tool to manage global
revenue growth.
<PAGE>
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 contains certain forward-looking statements regarding our
future financial condition and results of operations and our business
operations. The words "may," "intend," "will," "expect," "anticipate,"
"objective," "projection," "forecast," "plan," "management believes,"
"estimate," "continue," "should," "strategy" or "position" or the negatives of
those terms or other variations of them or by comparable terminology are
intended to identify forward-looking statements. We have based these statements
on our current expectations about future events. Although we believe that our
expectations reflected in or suggested by our forward-looking statements are
reasonable, we cannot assure you that these expectations will be achieved. Our
actual results may differ materially from what we currently expect. Important
factors which could cause our actual results to differ materially from the
forward-looking statements include, without limitation, integration of the
operations of AVEX Electronics, Inc. and Kilbride Holdings B.V. (AVEX);
incurrence of operating losses at AVEX after our acquisition of AVEX; the
resolution of the pending legal proceedings discussed in this report; the loss
of one or more of our major customers; changes in our customer concentration;
the absence of long-term sales contracts with our customers; our dependence on
the growth of the enterprise computer, telecommunications, medical device,
industrial control, testing and instrumentation, networking/servers and high-end
video/audio/entertainment industries; risks associated with international
operations; the availability and cost of customer specified components; our
dependence on certain key executives; the effects of domestic and foreign
environmental laws; the volatility of the price of our common stock; and
competition from other providers of electronics manufacturing services. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual outcomes may vary materially from those
indicated.
Recent Acquisitions
On August 24, 1999, we acquired AVEX from J.M. Huber Corporation (the
"Seller"). As consideration for the acquisition, the Company paid the Seller
$265.3 million in cash at closing, subject to certain adjustments, including a
working capital adjustment, and issued to the Seller one million shares of the
Company's Common Stock. The transaction was accounted for under the purchase
method of accounting, and, accordingly, the results of operations of AVEX since
August 24, 1999 have been included in the Company's financial statements. The
acquisition resulted in goodwill of approximately $131.1 million, which is being
amortized on a straight line basis over 15 years. In order to finance the AVEX
acquisition, the Company (i) obtained a term loan (Term Loan) from a syndicate
of commercial banks in the amount of $100 million, (ii) obtained a new revolving
credit facility permitting draws of up to $125 million, subject to a borrowing
base calculation, and borrowed $46 million under such facility and (iii) issued
$80.2 million in convertible subordinated debt. In connection with the AVEX
acquisition, the Company borrowed $30 million under the new revolving credit
facility to refinance the Company's prior Senior Note. Certain disputes have
arisen between the Company and the Seller relating to the AVEX acquisition
resulting in legal proceedings between the parties over certain aspects of the
transaction. See Notes 2, 5 and 13 of Notes to Consolidated Financial
Statements.
On March 1, 1999, we acquired certain assets from Stratus, a wholly owned
subsidiary of Ascend Communications, Inc. (Ascend) for approximately $42.3
million in cash, as adjusted. The acquisition price was allocated $6.1 million
to equipment and other assets, and $36.2 million to inventories. Stratus
provided systems integration services for large and sophisticated fault-tolerant
mainframe computers. In connection with the transaction, the Company entered
into a three-year supply agreement to provide these system integration services
to Ascend and Stratus Holdings Limited and the Company hired approximately 260
employees. See Note 2 of Notes to Consolidated Financial Statements.
On February 23, 1998, we acquired LCEC for $70 million in cash and the
Company paid $0.7 million in acquisition costs. LCEC, situated in Hudson, New
Hampshire, was 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
Company's financial statements. The acquisition resulted in goodwill of
approximately $29.5 million, which is being amortized on a straight line basis
over 15 years. See Note 2 of Notes to Consolidated Financial Statements.
The inclusion in the Company's accounts of the operations of AVEX, the
systems integration facility in Ireland and LCEC are responsible for a
substantial portion of the variations in the results of the Company's operations
(including components thereof) from period to period. The effects of these on
the Company's reported financial condition, liquidity and results of operations
should be considered when reading the financial information contained herein.
The acquisition of AVEX constitutes a significant expansion of the Company's
operations. Accordingly, the potential effect of the AVEX acquisition on the
Company's future financial condition, liquidity and results of operations should
be considered when reading the historical financial information and related
discussions set forth in the following section.
<PAGE>
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. The financial information and the discussion below should be read in
conjunction with the Consolidated Financial Statements and Notes thereto.
Percentage of Sales
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Sales ......................................... 100.0% 100.0% 100.0%
Cost of sales ................................. 92.3 90.1 87.8
-------- -------- --------
Gross profit .............................. 7.7 9.9 12.2
Selling, general and administrative expenses .. 3.7 3.4 3.9
Amortization of goodwill ...................... .7 .6 .5
-------- -------- --------
Income from operations .................... 3.3 5.9 7.8
Other income (expense) ........................ (1.0) (.7) (.5)
-------- -------- --------
Income before income taxes and
extraordinary item ..................... 2.3 5.2 7.4
Income tax expense ............................ .8 2.0 2.7
-------- -------- --------
Income before extraordinary item .......... 1.5 3.2 4.6
Extraordinary item - loss on extinguishment
of debt, net of tax ......................... .1 -- --
-------- -------- --------
Net Income ................................ 1.4% 3.2% 4.6%
======== ======== ========
</TABLE>
Year Ended December 31, 1999 Compared With Year Ended December 31, 1998 Sales
in 1999 increased $353.8 million, or 67.5%, over 1998 sales. The sales growth
was attributed to the acquisition of AVEX, the operation of the systems
integration facility in Dublin, Ireland, and increases in sales volume from both
existing and new customers.
Americas - Within the Americas, the sales growth of approximately $186
million in fiscal 1999 was primarily due to the acquisition of the AVEX
facilities in Huntsville, Alabama, Pulaski, Tennessee and Guadalajara, Mexico,
and demand increases from existing and new customers.
Europe - Benchmark's new locations in Europe were the result of acquisitions.
Benchmark acquired AVEX and acquired certain assets from Stratus, in Dublin,
Ireland on March 1, 1999. The addition of these sites resulted in the increase
in net sales of approximately $154 million and operating income of approximately
$12 million for 1999 in Europe.
Asia - Benchmark's facility in Singapore was an AVEX facility. This acquired
facility gave rise to the net sales of approximately $13 million and operating
income of approximately $.8 million for Asia in 1999.
Benchmark continues to expand the diversification of our customer base
between countries, market segments and product lines within market segments.
As a result of Benchmark's international sales and facilities, Benchmark's
operations are subject to the risks of doing business abroad. These dynamics
have not had a material adverse effect on Benchmark's results of operations
through December 31, 1999, however, we cannot assure that there will not be an
adverse impact in the future. See "Market Risks" for factors pertaining to our
international sales and fluctuations in the exchange rates of foreign currency
for further discussion of potential adverse effects in operating results
associated with the risks of doing business abroad.
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 1999, the Company's three largest customers accounted
for approximately 39.2% of the Company's sales, and the Company's largest
customer accounted for approximately 17.5% 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.
AVEX's largest customer in 1998 has substantially reduced its purchases from
AVEX during 1999 as a result of changed circumstances affecting this customer's
products, and another large customer is currently undergoing a period of
organizational change and has reduced its purchases as a result.
<PAGE>
The Company had a record year-end backlog of approximately $1 billion at
December 31, 1999, as compared to the 1998 year-end backlog of $317 million. The
December 31, 1999 figure includes backlog amounts for the recently acquired AVEX
operations. Although the Company expects to fill substantially all of its
backlog in 2000, at December 31, 1999 the Company does not have long-term
agreements with all of 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. Because of these factors, backlog is not a
meaningful indicator of future financial results.
Gross profit increased $15.8 million, or 30.6%, over 1998. Gross profit as a
percentage of sales decreased from 9.9% for 1998 to 7.7% for 1999. The increase
in gross profit was due primarily to higher sales attributable to the AVEX
acquisition, as well as the operation of the new systems integration facility in
Ireland and changes in product and customer mix occurring in the ordinary course
of business. The decrease in gross profit as a percentage of sales during 1999
was due primarily to the higher costs and lower than expected contribution of
AVEX, as well as the slower ramping up of new projects of Benchmark and AVEX
during the last six months of 1999, which resulted in significant
underabsorption of costs. For the foreseeable future, Benchmark's gross margin
is expected to depend primarily on facility utilization, product mix, start-up
of new programs, pricing within the electronics industry, and the integration
costs of acquisitions. The gross margins at each facility and Benchmark as a
whole may continue to fluctuate. Increases in start up costs associated with new
programs and competitive pricing within the electronics industry could impact
our gross margin.
Selling, general and administrative expenses (SG&A) for 1999 increased $14.8
million, or 83.7% from 1998 to $32.5 million in 1999. The increase in SG&A
expenses for 1999 is primarily the result of the acquisition of AVEX.
Additionally, the increase in SG&A expenses reflects the investment in the
business infrastructure such as personnel and other related corporate and
administrative expenses to support the increased size and complexity of our
business. We anticipate SG&A expenses will continue to increase in absolute
dollars in the future as we continue to develop the infrastructure necessary to
support our current and prospective business.
Goodwill is amortized on a straight-line basis over an estimated life of 15
years. The amortization of goodwill for the years ended December 31, 1999 and
1998 was $6.4 million and $3.3 million, respectively. Interest expense incurred
by the Company, including the debt incurred in connection with the recent
acquisitions, was approximately $9.7 million and $4.4 million, respectively, in
1999 and 1998. The increased amortization and interest expense in 1999 resulted
from the additional goodwill and debt incurred in connection with the
acquisition of AVEX during 1999. The Company expects amortization of goodwill
and interest expense in future periods to reflect the increased goodwill and
indebtedness.
Interest income was approximately $0.6 million in 1999 compared to $0.5
million in 1998.
Income tax expense (including $0.7 million of benefit allocated to the
extraordinary item) of $6.3 million represented an effective tax rate of 34.5%
for the year ended December 31, 1999, compared with an effective tax rate of
39.1% for the year ended December 31, 1998. The decrease is due primarily to
lower foreign tax rates applicable to a portion of pretax income in 1999,
partially offset by nondeductible amortization of goodwill.
In connection with the financing of the acquisition of AVEX, the Company
prepaid the 8.02% Senior Note due 2006. An extraordinary loss of $1.3 million
(net of income tax benefit of $0.7 million) was incurred as a result of the
early extinguishment of this indebtedness. See Note 5 of Notes to Consolidated
Financial Statements.
The Company reported net income of approximately $12.0 million, or diluted
earnings of $0.80 per share, for 1999 compared with net income of approximately
$16.4 million, or diluted earnings of $1.35 per share for 1998. The
approximately $4.4 million decrease in net income during 1999 was a result of
the combined effects of the acquisition of AVEX, the slower ramping up of new
projects which resulted in significant underabsorption of costs, the
extraordinary loss on extinguishment of debt and the increase in interest
expense.
Year ended December 31, 1998 compared with year ended Decenber 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 partially 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 had a then record year-end backlog of $317 million at December
31, 1998, as compared to the 1997 year-end backlog of $302 million.
<PAGE>
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. The increase in selling, general and
administrative expenses reflects 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 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 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.
Liquidity and Capital Resources
The Company has financed its growth and operations through funds generated
from operations, proceeds from the sale of its securities and funds borrowed
under its credit facilities.
Cash provided by operating activities was $69.9 million, $56.9 million and
$19.3 million in 1999, 1998 and 1997, respectively. In 1999, significant
decreases in accounts receivable, net of effects from the acquisition of AVEX,
increases in accounts payable, and increases in depreciation and amortization
were offset by increases in inventories and decreases in accrued liabilities,
net of effects from the acquisition of AVEX. The Company's inventories increased
from $53.7 million at December 31, 1998 to $214.6 million at December 31, 1999,
reflecting the Company's acquisitions of AVEX and certain assets from Stratus
during 1999 and increased sales and backlog during this period. 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 offset by increases in accounts payable. The Company's
inventories decreased from $61.1 million at December 31, 1997 to $53.7 million
at December 31, 1998, reflecting improved 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
decreases 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. 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.
Cash used in investing activities was $333.7 million, $78.7 million and $12.4
million, respectively, for the years ended December 31, 1999, 1998 and 1997. On
August 24, 1999, the Company completed the AVEX acquisition with $265.3 million
paid in cash at closing. On March 1, 1999, the Company completed the purchase of
inventories and equipment from Stratus for $42.3 million in cash. 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 $23.8 million during 1999 consisted primarily of test
and computer equipment. 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
1999 and 1998, the Company invested $2.5 and $7.4 million, respectively on the
new ERP
<PAGE>
software system. Capital expenditures of $10.4 million during 1997 were
primarily concentrated in surface mount assembly, test and manufacturing
production equipment. 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, the Company invested $2.3
million of available cash in interest bearing marketable securities.
Cash provided by financing activities was $249.8 million, $23.9 million and
$0.4 million, respectively, for the years ended December 31, 1999, 1998 and
1997. In August 1999 in connection with the AVEX acquisition, the Company
borrowed $100 million under the Term Loan, $76 million under the Revolving
Credit Facility and issued $80.2 million principal amount of 6% Convertible
Subordinated Notes. In connection with the purchase of the assets from Stratus
on March 1, 1999, the Company borrowed $25 million. In June 1999, the Company
completed a public offering of 3,525,000 shares of its common stock and used a
portion of the net proceeds of $93.7 million to repay borrowings under its bank
credit facilities. Principal payments on long-term debt and debt issuance costs
totaled $58.4 million and $6.4 million, respectively, during 1999. 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.
Principal on the Term Loan is payable in twenty quarterly installments,
commencing December 31, 1999 with an installment of $3 million. Thereafter,
quarterly installments of $4 million, $4.5 million, $5 million and $5.5 million
are due during 2000, 2001,2002 and 2003, respectively. The final three
installments of $7 million are due on the last day of March, June and September
2004.
The Company has a $125 million revolving line of credit facility (the
Revolving Credit Facility) with a commercial bank. The Company is entitled to
borrow under the Revolving Credit Facility up to the lesser of $125 million or
the sum of 75% of its eligible accounts receivable, 45% of its eligible
inventories and 50% of its eligible fixed assets. Interest on the Revolving
Credit Facility and the Term Loan is payable quarterly, at the Company's option,
at either the bank's Eurodollar rate plus 1.25% to 2.50% or its prime rate plus
0.00% to 1.00%, based upon the Company's debt ratio as specified in the
agreement. A commitment fee of 0.375% to 0.500% per annum on the unused portion
of the Revolving Credit Facility is payable quarterly in arrears. The Revolving
Credit Facility matures on September 30, 2004. As of December 31, 1999, the
Company had $41.5 million outstanding under the Revolving Credit Facility,
bearing interest at rates ranging from 8.6875% to 9.5%, $5.2 million outstanding
letters of credit and $41.9 million was available for future borrowings.
The Term Loan and the Revolving Credit Facility (collectively the Facility)
is secured by the Company's domestic inventory and accounts receivable, 100% of
the stock of the Company's domestic subsidiaries, and 65% of the voting capital
stock of each direct foreign subsidiary and substantially all of the other
tangible and intangible assets of the Company and its domestic subsidiaries. The
Facility contains customary financial covenants and restricts the ability of the
Company to incur additional debt without the consent of the bank, to pay
dividends, to sell assets, and to merge or consolidate with other persons.
The Company has outstanding $80.2 million principal amount of 6% Convertible
Subordinated Notes (Notes). The indenture relating to the Notes contains
covenants affirmative and negative covenants including covenants restricting the
Company's ability to merge or engage in certain other extraordinary corporate
transactions unless certain conditions are satisfied. Upon the occurrence of a
change of control of the Company (as defined in the indenture relating to the
Notes), each holder of Notes will have the right to require the Company to
repurchase all or part of the Holder's notes at 100% of the face amount thereof,
plus accrued and unpaid interest. See Note 5 of Notes to Consolidated Financial
Statements.
The Company's operations, and the operations of businesses it acquires, are
subject to certain foreign, federal, state and local regulatory requirements
relating to environmental, waste management, health and safety matters. The
Company believes it operates in substantial compliance with all applicable
requirements and the Company seeks to ensure that newly acquired businesses
comply or will comply substantially with applicable requirements. However,
material costs and liabilities may arise from these requirements or from new,
modified or more stringent requirements in the future. In addition, past,
current and future operations may give rise to claims of exposure by employees
or the public, or to other claims or liabilities relating to environmental,
waste management or health and safety concerns.
The Company may require additional capital to finance further enhancements to
or acquisitions or ex-pansions 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. Management
continually evaluates potential strategic acquisitions and investments, but at
the present time, we have no understandings, commitments or agreements with
respect to any such acquisition or investment. 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.
<PAGE>
At December 31, 1999, the Company's debt to total capitalization ratio was
44%, as compared to 28% at December 31, 1998. Our acquisitions in 1999 have
significantly increased our leverage ratio and decreased our interest coverage
ratio. The level of indebtedness, among other things, could make it difficult
for us to obtain any necessary financing in the future for other acquisitions,
working capital, capital expenditures, debt service requirements and other
expenses; limit our flexibility in planning for, or reacting to changes in, our
business; and make us more vulnerable in the event of an economic downturn in
our business.
Management believes that the existing cash balances, funds generated from
operations and borrowings under the Revolving Credit Facility will be sufficient
to permit the Company to meet its liquidity requirements for the foreseeable
future. Pursuant to the terms of the purchase agreement in connection with the
acquisition of AVEX on August 24, 1999, the Company was required to agree upon a
closing working capital adjustment with the Seller by November 22, 1999. The
Company was unable to reach an agrement with the Seller prior to the November
22, 1999 deadline and has entered into several agreements extending this
deadline. At the present time, the parties still have not reached an agreement
and have hired an independent accounting firm to serve as arbitrator to resolve
the dispute and to calculate the final closing working capital adjustment. The
Company is unable to predict when the arbitrator will be releasing its findings
but estimates that the net closing working capital adjustment will be in the
range of $20 to $40 million. Management has made its best estimate of the
ultimate resolution of this arbitration proceeding. However, the final working
capital adjustment could have a significant effect on the final purchase price
and the allocation of the purchase price. The Company has recorded a current
liability at December 31, 1999 for the estimated amount, and expects to fund any
amount required from operating cash flows and borrowings under the Revolving
Credit Facility. See Note 13 of Notes to Consolidated Financial Statements.
Market Risks
The Company has exposure to interest rate risk with the variable rate
revolving credit and term loan facilities. These facilities are based on the
spread over the bank's Eurodollar rate. The following table presents principal
cash flows and related interest rates by year of maturity for debt obligations.
The variable interest rate for future years assumes the same rate as December
31, 1999.
Expected Year of Maturity ($ In '000'S)
<TABLE>
<CAPTION>
TOTAL AND
FAIR VALUE AT
DECEMBER 31,
DEBT 2000 2001 2002 2003 2004 THEREAFTER 1999
- ---- -------- -------- -------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Convertible subordinated notes ... -- -- -- -- -- $ 80,200 $ 80,200
Fixed interest rate ............ 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00%
Variable Rate Term Loan .......... $ 16,000 $ 18,000 $ 20,000 $ 22,000 $ 21,000 -- $ 97,000
Average interest rate .......... 8.72% 8.72% 8.72% 8.72% 8.72% 8.72% 8.72%
Variable Rate Revolving
Credit Facility ................ -- -- -- -- $ 41,500 -- $ 41,500
Average interest rate .......... 9.27% 9.27% 9.27% 9.27% 9.27% 9.27% 9.27%
</TABLE>
Subsequent to December 31, we entered into an interest rate swap transaction
for a notional amount of $47 million under which we pay a fixed rate of interest
hedging against the variable interest rates charged by the Term Loan facility.
The interest rate swap expires in the year 2003, which coincides with maturity
dates on the Term Loan.
Our international sales are a growing portion of our net sales; we are
exposed to risks associated with operating internationally, including the
following:
o Foreign currency exchange risk
o Import and export duties, taxes and regulatory changes
o Inflationary economics or currencies
o Economic and political instability
Historically, the Company has not held or issued derivative financial
instruments. We do not use derivative financial instruments for speculative
purposes. The Company's policy is to maintain a hedged position for certain
significant transaction exposures. These exposures are primarily, but not
limited to, vendor payments and inter-company balances in currencies other than
the functional currency of the operating entity. Our international operations in
some instances operate with natural hedge because both operating expenses and a
portion of sales are denominated in local currency. As of December 31, 1999,
Benchmark did not have any hedging contracts in place.
<PAGE>
Enterprise Resource Planning System
The Company has selected Baan U.S.A., Inc. to provide an Enterprise Resource
Planning (ERP) system to improve processes and to increase efficiencies. The
estimated total cost associated with the purchase and implementation of the new
ERP 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 have been and will be expensed as incurred. The total amount expended on
the new ERP system through December 31, 1999, is approximately $11.6 million.
Year 2000
The "year 2000 problem" arose because of the potential software failures that
could arise in date-sensitive software applications utilizing a field of
two-digits rather than four to define a specific year. Absent corrective
actions, date-sensitive software could recognize a date using "00" as the year
1900 rather than the year 2000.
The Company initiated a review of its business and operating systems during
1997 to address those systems that were not year 2000 compliant, and also worked
with its customers and vendors to remediate year 2000 issues. As of December 31,
1999 the Company has spent approximately $700,000 in addressing year 2000
issues.
The Company suffered no significant failures in any system or product upon
the date change from December 31, 1999 to January 1, 2000. Management of the
Company is not aware of any vendor used by the Company for data processing or
related services that experienced a material failure of its product or service
due to year 2000 problems. Although many of the critical dates related to
potential 2000 problems have passed, some experts predict that year 2000 related
failures could occur throughout the year. The Company will continue to monitor
this issue in the ordinary course of business for delayed effects or future
problems.
<PAGE>
Consolidated Balance Sheets
Benchmark Electronics, Inc. and Subsidiaries
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 l998
------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ............................. $ 9,436,780 $ 23,076,582
Accounts receivable, net .............................. 197,238,536 57,178,757
Income taxes receivable ............................... 3,351,026 1,120,343
Inventories ........................................... 214,554,363 53,718,247
Prepaid expenses and other assets ..................... 15,498,830 1,896,888
Deferred tax asset .................................... 2,333,874 2,488,328
------------- -------------
Total current assets ............................ 442,413,409 139,479,145
Property, plant and equipment ............................ 175,773,905 80,826,164
Accumulated depreciation ................................. (53,765,670) (35,264,179)
------------- -------------
Net property, plant and equipment ............... 122,008,235 45,561,985
Goodwill, net ............................................ 172,790,906 48,906,481
Other .................................................... 23,624,863 7,948,086
------------- -------------
$ 760,837,413 $ 241,895,697
============= =============
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of other long-term debt .......... $ 19,183,736 $ 8,199,910
Accounts payable ...................................... 215,971,292 37,046,161
Accrued liabilities ................................... 29,332,611 7,968,412
------------- -------------
Total current liabilities ....................... 264,487,639 53,214,483
------------- -------------
Revolving line of credit ................................. 41,500,000 --
Convertible subordinated notes ........................... 80,200,000 --
Other long-term debt, excluding current installments ..... 81,110,646 46,110,646
Other long-term liability ................................ 5,939,000 --
Deferred tax liability ................................... 5,665,291 4,569,654
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 16,290,010 and 11,676,967,
respectively; outstanding 16,240,526 and
11,627,483, respectively ........................... 1,624,052 1,162,748
Additional paid-in capital ............................ 200,980,304 70,159,115
Retained earnings ..................................... 78,774,431 66,800,001
Accumulated other comprehensive income ................ 677,000 --
Less treasury shares, at cost, 49,484 shares .......... (120,950) (120,950)
------------- -------------
Total shareholders' equity ...................... 281,934,837 138,000,914
Commitments and contingencies
------------- -------------
$ 760,837,413 $ 241,895,697
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Income
Benchmark Electronics, Inc. and Subsidiaries
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Sales ................................................. $ 877,838,540 $ 524,065,077 $ 325,229,015
Cost of sales ......................................... 810,309,375 472,354,251 285,630,163
------------- ------------- -------------
Gross profit .................................... 67,529,165 51,710,826 39,598,852
Selling, general and administrative expenses .......... 32,476,575 17,680,338 12,817,317
Amortization of goodwill .............................. 6,429,575 3,310,661 1,669,740
------------- ------------- -------------
Income from operations .......................... 28,623,015 30,719,827 25,111,795
Interest expense ...................................... (9,696,301) (4,393,528) (2,472,183)
Interest income ....................................... 604,896 479,075 1,162,958
Other income .......................................... 744,868 84,663 149,276
------------- ------------- -------------
Income before income taxes and extraordinary item 20,276,478 26,890,037 23,951,846
Income tax expense .................................... 7,005,360 10,517,567 8,862,183
------------- ------------- -------------
Income before extraordinary item ................ 13,271,118 16,372,470 15,089,663
Extraordinary item - loss on extinguishment of debt ... (1,296,688) -- --
------------- ------------- -------------
Net income ................................... $ 11,974,430 $ 16,372,470 $ 15,089,663
============= ============= =============
Earnings per share:
Basic:
Income before extraordinary item ................ $ 0.94 $ 1.41 $ 1.31
Extraordinary item .............................. (0.09) -- --
------------- ------------- -------------
Earnings per share .............................. $ 0.85 $ 1.41 $ 1.31
============= ============= =============
Diluted:
Income before extraordinary item ................ $ 0.88 $ 1.35 $ 1.26
Extraordinary item .............................. (0.08) -- --
------------- ------------- -------------
Earnings per share .............................. $ 0.80 $ 1.35 $ 1.26
============= ============= =============
Weighted average number of shares outstanding:
Basic .............................................. 14,081,235 11,594,271 11,508,407
Diluted ............................................ 15,009,842 12,098,349 12,003,741
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Shareholders' Equity and Comprehensive Income
Benchmark Electronics, Inc. and Subsidiaries
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS'
SHARES SHARES CAPITAL EARNINGS INCOME SHARES EQUITY
---------- ---------- ------------ ----------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
Common shares issued in
public offering net
of expenses ........... 3,525,000 352,500 93,339,051 -- -- -- 93,691,551
Stock options exercised .. 65,850 6,585 796,657 -- -- -- 803,242
Federal tax benefit of
stock options exercised -- -- 321,893 -- -- -- 321,893
Common shares issued
under Employee Stock
Purchase Plan .......... 22,193 2,219 451,588 -- -- -- 453,807
Acquisition of Avex
Electronics, Inc. ...... 1,000,000 100,000 35,912,000 -- -- -- 36,012,000
Net income ............... -- -- -- 11,974,430 -- -- 11,974,430
Foreign currency
translation adjustments -- -- -- -- 677,000 -- 677,000
---------- ---------- ------------ ----------- -------- ---------- -------------
Comprehensive income ..... -- -- -- -- -- -- 12,651,430
Balances,
---------- ---------- ------------ ----------- -------- ---------- ------------
December 31, 1999 ........ 16,240,526 $1,624,052 $200,980,304 $78,774,431 $677,000 $(120,950) $281,934,837
========== ========== ============ =========== ======== ========== ============
</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,
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .................................................. $ 11,974,430 $ 16,372,470 $ 15,089,663
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization ............................ 24,636,726 13,306,975 10,150,586
Amortization of premiums on marketable securities ........ -- 46,026 342,193
Deferred income taxes .................................... 840,796 2,305,482 (314,801)
Federal tax benefit of stock options exercised ........... 321,893 263,645 154,820
Amortization of goodwill ................................. 6,429,575 3,310,661 1,669,740
Gain on the sale of property, plant and equipment ........ (454,622) (3,696) (86,973)
Extraordinary loss on extinguishment of debt ............. 1,296,688 -- --
Changes in operating assets and liabilities, net
of effects from acquisitions of businesses:
Accounts receivable ................................... 10,745,221 7,403,982 (589,806)
Income taxes receivable ............................... (1,532,912) (806,749) 74,270
Inventories ........................................... (10,681,325) 30,930,316 (13,033,625)
Prepaid expenses and other assets ..................... 734,667 (353,729) (729,367)
Accounts payable ...................................... 38,489,889 (15,369,675) 7,341,651
Accrued liabilities ................................... (12,931,801) (552,417) (779,596)
------------- ------------- -------------
Net cash provided by operations .................... 69,869,225 56,853,291 19,288,755
Cash flows from investing activities:
Additions to property, plant and equipment .................. (23,871,457) (12,204,071) (10,352,112)
Additions to capitalized software ........................... (2,484,721) (7,383,410) --
Proceeds from the sale of property, plant and equipment ..... 1,467,684 182,810 168,912
Acquisitions, net of cash acquired .......................... (308,877,450) (70,679,312) --
Proceeds from the sale of marketable securities ............. -- 11,384,731 --
Purchase of marketable securities ........................... -- -- (2,264,716)
------------- ------------- -------------
Net cash used in investing activities ................. (333,765,944) (78,699,252) (12,447,916)
Cash flows from financing activities:
Net proceeds from public offering of common shares .... 93,691,551 -- (51,937)
Proceeds from issuance of long-term debt .............. 221,700,000 40,000,000 --
Principal payments on long-term debt .................. (58,473,174) (16,174,777) (239,165)
Repayment premium on extinguishment of debt ........... (1,994,905) -- --
Debt issuance costs ................................... (6,389,392) (425,269) --
Proceeds from employee stock purchase plan ............ 453,807 -- --
Proceeds from stock options exercised ................. 803,242 493,242 679,597
------------- ------------- -------------
Net cash provided by financing activities ............. 249,791,129 23,893,196 388,495
------------- ------------- -------------
Effect of exchange rate changes ................................ 465,788 -- --
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents ........... (13,639,802) 2,047,235 7,229,334
------------- ------------- -------------
Cash and cash equivalents at beginning of year ................. 23,076,582 21,029,347 13,800,013
------------- ------------- -------------
Cash and cash equivalents at end of year ....................... $ 9,436,780 $ 23,076,582 $ 21,029,347
============= ============= =============
Supplemental disclosures of cash flow information:
Income taxes paid ........................................... $ 8,194,884 $ 8,755,264 $ 8,491,894
============= ============= =============
Interest paid ............................................... $ 8,603,752 $ 4,264,706 $ 2,537,089
============= ============= =============
</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
electronics manufacturing and design services to original equipment
manufacturers (OEMs) in select industries, including enterprise computer and
peripherals, telecommunications, medical devices, industrial control, testing
and instrumentation, high-end video/audio/entertainment and computers. The
Company has manufacturing operations located in the Americas, Europe and Asia.
(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) Inventories
Inventories include material, labor and overhead and are stated at the lower of
cost (principally first-in, first-out method) or market.
(e) 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.
(f) 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, 1999 and 1998 was $12,105,698 and $5,676,123, respectively. The
carrying value of goodwill will be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the goodwill may
not be recoverable. The Company assesses the recoverability of goodwill by
determining whether the amortization of goodwill over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
business. The amount of goodwill impairment, if any, is measured based on
projected discounted operating cash flows compared to the carrying value of
goodwill. Other assets consist primarily of prepaid pension costs, 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 1999 and 1998, $2,484,721 and $7,383,410 of
software costs were capitalized in connection with the new ERP system
implementation. The accumulated amortization of deferred financing costs at
December 31, 1999 and 1998 was $777,766 and $207,311, respectively.
(g) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
In assessing and measuring the impairment of long-lived assets, the Company
applies the provisions of Statement of Financial Accounting Standards (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. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
(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
928,607, 504,078, and 495,334 in 1999, 1998 and 1997, respectively, were used in
the calculation of diluted earnings per share. Options to purchase 312,000,
3,000 and 124,000 shares of common stock in 1999, 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. The effect of the if-converted method for the 6% Convertible Subordinated
Notes (the Notes) is antidilutive and the weighted average portion of the
1,995,025 of potential common shares has not been considered in computing
diluted earnings per share in 1999.
<PAGE>
(i) Revenue Recognition
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) Employee Stock Plans
The Company applies the intrinsic value-based method of accounting prescribed by
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations, in accounting for its stock option
plan and its Employee Stock Purchase Plan. As such, compensation expense would
be recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. SFAS No. 123, "Accounting for
Stock-Based Compensation," established accounting and disclosure requirements
using a fair value-based method of accounting for stock-based employee
compensation plans. As allowed by SFAS No. 123, the Company has elected to
continue to apply the intrinsic value-based method of accounting described
above, and has adopted the disclosure requirements of SFAS No. 123.
(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 is equivalent to its carrying value as the applicable interest
rates approximate current market rates.
(n) Capitalized Software Costs
On January 1, 1998, the Company adopted the American Institute of Certified
Public Accountants (AICPA) State-ment of Position (SOP) 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use". 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 and results of operations.
(o) Foreign Currency
For foreign subsidiaries using the local currency as their functional currency,
assets and liabilities are translated at exchange rates in effect at the balance
sheet date and income and expenses are translated at average exchange rates. The
effects of these translation adjustments are reported in other comprehensive
income. Exchange gains and losses arising from transactions denominated in a
currency other than the functional currency of the entity involved are included
in income (expense) and totaled approximately $(1,549,000) in 1999.
(p) Start-up Costs
On January 1, 1999, the Company adopted the AICPA 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 adoption of SOP 98-5 did not have a material impact on the Company's
financial position and results of operations.
(q) Derivative Financial Instruments
The Company enters into interest rate swap agreements to reduce its exposure to
market risks from changing interest rates. For interest rate swaps, the
differential to be paid or received is accrued and recognized in interest
expense and may change as market interest rates change. If a swap is terminated
prior to its maturity, the gain or loss is recognized over the remaining
original life of the swap if the item hedged remains outstanding, or
immediately, if the item hedged does not remain outstanding. If the swap is not
terminated prior to maturity, but the underlying hedged item is no longer
outstanding, the interest rate swap is marked to market and any unrealized gain
or loss is recognized immediately.
<PAGE>
(r) Recently Enacted Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. It requires that companies recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The Company expects to adopt SFAS No. 133 on
January 1, 2001, but has not determined the impact on its financial position,
results of operations or liquidity.
Note 2 -- Acquisitions
On August 24, 1999, the Company completed the acquisition of all of the
outstanding capital stock of AVEX Electronics, Inc. and Kilbride Holdings, B.V.
(AVEX) from J.M. Huber Corporation (Seller). AVEX has manufacturing plants or
design centers in the United States in Huntsville, Alabama and Pulaski,
Tennessee, and elsewhere in Campinas, Brazil, Csongrad, Hungary, Guadalajara,
Mexico, Cork, Ireland, Singapore, East Kilbride, Scotland, and Katrineholm,
Sweden. In consideration of the capital stock of AVEX, the Company paid $265.3
million in cash at closing, subject to certain adjustments, including a working
capital adjustment, and issued one million shares of the Company's Common Stock
to the Seller. In addition, the Company paid $5.2 million in acquisition costs.
In order to finance the AVEX acquisition, the Company (i) obtained a term loan
from a syndicate of commercial banks in the amount of $100 million, (ii)
obtained a new revolving credit facility permitting draws of up to $125 million,
subject to a borrowing base calculation, and borrowed $46 million under such
facility and (iii) issued $80.2 million in Notes. In connection with the AVEX
acquisition, the Company borrowed $30 million under the new revolving credit
facility to refinance existing debt pursuant to the Company's prior Senior Note
(see Note 5). The AVEX acquisition was accounted for using the purchase method
of accounting, and, accordingly, the results of operations of AVEX since August
24, 1999 have been included in the accompanying consolidated statements of
income.
The acquisition resulted in goodwill of approximately $131.1 million that is
being amortized on a straight-line basis over 15 years. Pursuant to the terms of
the purchase agreement in connection with the acquisition of AVEX on August 24,
1999, the Company was required to agree upon a closing working capital
adjustment with the Seller by November 22, 1999. The Company was unable to reach
an agrement with the Seller prior to the November 22, 1999 deadline and has
entered into several agreements extending this deadline. At the present time,
the parties still have not reached an agreement and have hired an independent
accounting firm to serve as arbitrator to resolve the dispute and to calculate
the final closing working capital adjustment. The Company is unable to predict
when the arbitrator will be releasing its findings but estimated that the net
closing working capital adjustment will be in the range of $20 to $40 million.
Management has made its best estimate of the ultimate resolution of this
arbitration proceeding. However, the final working capital adjustment could have
a significant effect on the final purchase price and the allocation of the
purchase price.
The net purchase price has been allocated as follows (in thousands):
Working capital, other than cash ............... $ 135,040
Property, plant and equipment .................. 71,492
Goodwill ....................................... 131,134
Other assets ................................... 9,567
Other liabilities .............................. (5,629)
Deferred income taxes .......................... (1,229)
Long-term debt ................................. (4,457)
---------
Purchase price, net of cash received ......... $ 335,918
=========
Net cash portion of purchase price ............. $ 266,570
Estimated adjustments to cash portion
of purchase price ............................ 33,336
Common stock issued ............................ 36,012
---------
Purchase price, net of cash received ........... $ 335,918
=========
<PAGE>
On March 1, 1999, the Company acquired certain equipment and inventories from
Stratus Computer Ireland (Stratus), a wholly owned subsidiary of Ascend
Communications, Inc. (Ascend) for approximately $42.3 million in cash, as
adjusted. The acquisition price was allocated $6.1 million to equipment and
other assets, and $36.2 million to inventories. Stratus provided systems
integration services for large and sophisticated fault-tolerant mainframe
computers. In connection with the transaction, the Company entered into a
three-year supply agreement to provide these system integration services to
Ascend and Stratus Holdings Limited and the Company hired approximately 260
employees.
On February 23, 1998, the Company completed its acquisition of Lockheed
Commercial Electronics Company (LCEC) for $70.7 million 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 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 that is being amortized on a
straight-line basis over 15 years.
The net purchase price was allocated as follows (in thousands):
Working capital, other than cash ............ $ 30,575
Property, plant and equipment ............... 15,905
Goodwill .................................... 29,536
Other liabilities ........................... (3,096)
Deferred income taxes ....................... (2,241)
--------
Purchase price, net of cash received ...... $ 70,679
========
The following unaudited pro forma condensed consolidated financial
information reflects the acquisitions of AVEX and LCEC as if they had occurred
on January 1, 1998, excluding the loss on extraordinary item of $1,296,688 ($.09
per share diluted). The summary pro forma information is not necessarily
representative of what the Company's results of operations would have been had
the acquisitions of AVEX and LCEC in fact occurred on January 1, 1998, and is
not intended to project the Company's results of operations for any future
period or date.
1999 1998
---------- ---------
(in thousands,
except per share data)
Net sales ........................................ $1,518,013 1,389,380
Gross profit ..................................... 75,510 33,729
Income (loss) from operations .................... 4,652 (45,144)
Income (loss) before extraordinary item .......... (10,088) (44,065)
Income (loss) before extraordinary
item per share:
Basic ........................................ $ (0.66) (3.50)
Diluted ...................................... $ (0.66) (3.50)
Weighted average number of shares outstanding:
Basic ........................................ 15,387 12,594
Diluted ...................................... 15,387 12,594
Note 3 -- Inventories
Inventory costs are summarized as follows:
December 31,
-----------------------------------
1999 1998
------------- -------------
Raw materials ............... $ 191,952,023 42,740,718
Work in process ............. 42,602,796 14,487,797
Obsolescence reserve ........ (20,000,456) (3,510,268)
------------- -------------
$ 214,554,363 53,718,247
============= =============
During 1999, the Company added inventory reserves in connection with the
acquisition of AVEX totaling $14,578,706. In addition, the Company charged
$1,911,482 to operating expenses. During 1998 and 1997, inventory reserves
charged to operations were $582,791 and $300,000 respectively, inventory
disposed from reserves totaled $1,923,927 and $679,441, respectively, and the
Company added inventory reserves in connection with the acquisition of LCEC in
1998 totaling $3,100,000.
<PAGE>
Note 4 -- Property, Plant and Equipment
Property, plant and equipment consists of the following:
December 31,
--------------------------------
1999 1998
------------ ------------
Land ............................ $ 2,910,509 391,969
Buildings ....................... 24,775,691 8,441,221
Machinery and equipment ......... 132,867,646 64,189,215
Furniture and fixtures .......... 11,041,208 6,856,395
Vehicles ........................ 286,174 14,383
Leasehold improvements .......... 3,394,352 750,111
Construction in progress ........ 498,325 182,870
------------ ------------
$175,773,905 80,826,164
============ ============
Note 5 -- Borrowing Facilities
Other long-term debt consists of the following:
December 31,
-------------------------------
1999 1998
------------ ------------
Term loan ........................ $ 97,000,000 24,000,000
Senior note ...................... -- 30,000,000
Other ............................ 3,294,382 310,556
------------ ------------
Total other long-term debt ..... 100,294,382 54,310,556
Less current installments ........ 19,183,736 8,199,910
------------ ------------
Other long-term debt ............ $ 81,110,646 46,110,646
============ ============
In order to finance the acquisition of AVEX, the Company obtained $100
million through borrowings under a five-year term loan (the Term Loan) through a
syndicate of commercial banks. Principal on the Term Loan is payable in
quarterly installments in annual amounts of $16 million in 2000, $18 million in
2001, $20 million in 2002, $22 million in 2003 and $21 million in 2004. The Term
Loan bears interest, at the Company's option, at either the bank's Eurodollar
rate plus 1.25% to 2.50% or its prime rate plus 0.00% to 1.00%, based upon the
Company's debt ratio as specified in the agreement and interest is payable
quarterly. As of December 31, 1999, the Company had $97 million outstanding
under the Term Loan, bearing interest at rates ranging from 8.6875% to 8.75%. As
of December 31, 1998, the Company had $24 million outstanding under a previous
term loan obtained in connection with the acquisition of LCEC. In June 1999, the
Company repaid all amounts outstanding under the previous term loan with the
proceeds from a public offering of the Company's common stock.
In connection with the financing of the acquisition of AVEX, the Company
prepaid the 8.02% Senior Note (the Senior Note) due 2006. An extraordinary loss
of $1,296,688 (net of income tax benefit of $698,217) was incurred as a result
of the early extinguishment of the Senior Note.
The Company has a $125 million revolving line of credit facility (the
Revolving Credit Facility) with a commercial bank. The Company is entitled to
borrow under the Revolving Credit Facility up to the lesser of $125 million or
the sum of 75% of its eligible accounts receivable, 45% of its eligible
inventories and 50% of its eligible fixed assets. Interest on the Revolving
Credit Facility is payable quarterly, at the Company's option, at either the
bank's Eurodollar rate plus 1.25% to 2.50% or its prime rate plus 0.00% to
1.00%, based upon the Company's debt ratio as specified in the agreement. A
commitment fee of 0.375% to 0.500% per annum on the unused portion of the
Revolving Credit Facility is payable quarterly in arrears. The Revolving Credit
Facility matures on September 30, 2004. As of December 31, 1999, the Company had
$41.5 million outstanding under the Revolving Credit Facility, bearing interest
at rates ranging from 8.6875% to 9.5%, $5.2 million outstanding letters of
credit and $41.9 million was available for future borrowings.
The Term Loan and the Revolving Credit Facility (collectively the Facility)
is secured by the Company's domestic inventory and accounts receivable, 100% of
the stock of the Company's domestic subsidiaries, and 65% of the voting capital
stock of each direct foreign subsidiary and substantially all of the other
tangible and intangible assets of the Company and its domestic subsidiaries. The
Facility contains customary financial covenants and restricts the ability of the
Company to incur additional debt without the consent of the bank, to pay
dividends, to sell assets, and to merge or consolidate with other persons.
In August 1999, the Company issued $80.2 million principal amount of the
Notes due August 15, 2006. The Notes are convertible, unless previously redeemed
or repurchased, at the option of the holder at any time after 90 days following
the date of original issuance and prior to maturity, into shares of the
Company's common stock at an initial conversion price of $40.20 per share,
subject to adjustment in certain events. The Notes are convertible into a total
of 1,995,025 shares of the Company's common stock. Interest is payable February
15 and August 15 each year, commencing on February 15, 2000.
<PAGE>
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1999 are as follows: 2000, $19,183,736; 2001,
$18,019,693; 2002, $20,020,699; 2003, $22,021,756; and 2004, $62,548,498.
Note 6 -- Commitments
The Company leases certain manufacturing equipment, office equipment, vehicles
and office, warehouse and manufacturing facilities under operating leases. Some
of the leases provide for escalation of the lease payments as maintenance costs
and taxes increase. The leases expire through 2010. Leases for office space and
manufacturing facilities generally contain renewal options. Rental expense for
each of the years in the three-year period ended December 31, 1999 was
$3,862,011, $2,493,146 and $1,354,607, 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 August 2006 with annual renewals thereafter. Total rent expense
associated with these leases for the years ended December 31, 1999, 1998 and
1997 was $826,753, $828,900 and $828,900, respectively.
In connection with the acquisition of AVEX, the Company assumed prepaid
operating leases of manufacturing equipment with initial terms of three years
that expire through 2001. The lease expense associated with these leases for the
period from August 24 through December 31, 1999 was $1,522,031.
The Company has no significant capital lease obligations. Aggregate annual
rental payments on future lease commitments at December 31, 1999 were as
follows:
2000 2001 2002 2003 2004 Thereafter Total
- ---------- --------- --------- --------- --------- --------- -----------
$5,626,948 4,190,230 3,780,602 3,401,926 1,622,514 4,337,468 $22,959,688
The Company enters into contractual commitments to deliver products and
services in the ordinary course of business. The Company believes that all such
contractual commitments will be met or renegotiated such that no material
adverse financial impact on the Company's financial position, results of
operations or liquidity will result from these commitments.
Note 7 -- Common Stock and Stock Option Plans
During 1999, the Company issued 3,525,000 shares of common stock in a public
offering for net proceeds of $93,691,551.
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 non qualified 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 1999, 1998 and 1997, pursuant to the Plan, 12,000,
12,000 and 24,000 options, respectively, were granted to Directors to purchase
shares of common stock at an exercise price of $32.13, $21.38 and $16.32 per
share, respectively.
In April, 1999, the Board of Directors adopted the Benchmark Electronics,
Inc. Employee Stock Purchase Plan (the Purchase Plan). Under the Purchase Plan,
employees meeting specific employment qualifications are eligible to participate
and can purchase shares semi-annually through payroll deductions at the lower of
85% of the fair market value of the stock at the commencement or end of the
offering period. The Purchase Plan permits eligible employees to purchase common
stock through payroll deductions for up to the lesser of 17% of qualified
compensation or $25,000. As of December 31, 1999, 477,840 shares remain
available for issuance under the Purchase Plan. The weighted-average fair value
of the purchase rights granted during 1999 was $7.22.
<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, 1996 ............ 1,357,660 $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
Granted ............................... 715,650 $31.01
Exercised ............................. (65,850) $12.20
Canceled .............................. (145,850) $24.09
---------- ------
Balance at December 31, 1999 ............ 2,613,395 $19.93
========== ======
The following table summarizes information concerning currently outstanding
and exercisable options:
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
- -------- ----------- ----------- -------- ----------- --------
$4.38-$10 158,700 3.16 $ 7.37 158,700 $ 7.42
$10-$15 810,795 5.83 $ 13.18 504,345 $ 12.74
$15-$20 512,900 7.46 $ 17.44 84,480 $ 15.56
$20-$25 351,850 7.95 $ 21.93 15,120 $ 21.89
$25-$30 298,000 8.58 $ 28.40 24,000 $ 26.50
$30-$35 481,150 9.05 $ 31.42 12,000 $ 32.13
--------- -------
2,613,395 798,645
========= =======
At December 31, 1999, the range of exercise prices and weighted average
remaining contractual life of outstanding options was $4.38 - $32.13 and 7.39
years, respectively.
At December 31, 1999, 1998 and 1997, the number of options exercisable was
798,645, 646,185 and 492,920, respectively, and the weighted average exercise
price of those options was $12.86, $11.51 and $10.30, 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 $7,923,820, or
$0.53 per share diluted during 1999, $13,916,901, or $1.15 per share diluted
during 1998, and $13,396,245, or $1.11 per share diluted during 1997. The
weighted average fair value of the options granted during 1999, 1998, and 1997
is estimated as $9.06, $6.41 and $8.55, 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 50% for 1999 and 30% for 1998 and
1997, risk-free interest rate of 4.46% to 5.83% in 1999, 4.33% to 5.86% in 1998
and 5.46% to 6.57% in 1997, assumed annual forfeiture rate of 16% for 1999 and
5% for 1998 and 1997, and an expected life of 4 years in 1999, 4 years in 1998
and 5 years in 1997.
Note 8 -- Income Taxes
Income tax expense (benefit) based on income before income taxes and
extraordinary item consists of:
Year ended December 31,
-------------------------------------------
1999 1998 1997
---------- ---------- ---------
Federal - current ............ $2,996,245 7,275,581 8,178,203
State - current .............. 908,337 936,504 998,781
Foreign - current ............ 2,259,982 -- --
Federal/state - deferred ..... 1,146,422 2,305,482 (314,801)
Foreign - deferred ........... (305,626) -- --
---------- ---------- ---------
$7,005,360 10,517,567 8,862,183
========== ========== =========
<PAGE>
Total income tax expense for 1999 is $6,307,143, including the $698,217
benefit allocated to the extraordinary loss. Additionally, a benefit of $818,955
was allocated to goodwill for initial recognition of acquired tax benefits for
which no benefit had been provided.
Income tax expense differed from the amounts computed by applying the U.S.
federal statutory income tax rate to income before income tax and extraordinary
item as a result of the following:
Year ended December 31,
---------------------------------------
1999 1998 1997
---------- ----------- ----------
Tax at statutory rate .......... $7,096,768 9,411,513 8,383,146
State taxes, net of federal
benefit .................... 590,419 608,728 649,203
Tax exempt interest ............ (208,331) (165,288) (386,658)
Tax benefit from use of
foreign sales corporation ... (340,740) (349,727) (393,839)
Effect of foreign operations ... (1,615,644) 132,364 --
Amortization of goodwill ....... 1,481,304 1,122,751 562,413
Other .......................... 1,584 (242,774) 47,918
---------- ----------- ----------
Total income tax expense ....... $7,005,360 $10,517,567 8,862,183
========== =========== ==========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
December 31,
----------------------------
1999 1998
----------- -----------
Deferred tax assets:
Carrying values of inventories ........ $ 946,321 1,358,217
Accrued liabilities deductible
for tax purposes on a cash basis ... 1,387,553 1,130,111
Net operating loss carryforwards ...... 5,079,005 --
----------- -----------
7,412,879 2,488,328
Less valuation allowance ................ (5,079,005) --
----------- -----------
Net deferred tax assets ............. $ 2,333,874 $ 2,488,328
=========== ===========
Deferred tax liabilities:
Plant and equipment, due to
differences in depreciation ........ $(5,548,060) (4,442,867)
Other ................................... (117,231) (126,787)
----------- -----------
Gross deferred tax liability ............ (5,665,291) (4,569,654)
----------- -----------
Net deferred tax liability .......... $(3,331,417) (2,081,326)
=========== ===========
The valuation allowance for deferred tax assets as of January 1, 1999 and
1998 was zero. The net change in the total valuation allowance for the year
ended December 31, 1999 was an increase of $5,079,005. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. Based upon the level of historical taxable
income and projections for future taxable income over the periods which the
deferred tax assets are deductible, management believes it is more likely than
not the Company will realize the benefits of these deductible differences, net
of the existing valuation allowances at December 31, 1999. At December 31, 1999,
the Company had operating loss carryforwards of approximately $16.2 million and
$3.4 million in Singapore and Brazil, respectively, with unlimited loss
carry-forward lives pursuant to local country tax laws. The utilization of these
net operating loss carryforwards is limited to the future operations of the
Company in the tax jurisdictions in which such carryforwards arose. Any tax
benefits that are realized in the future from the utilization of these
carryforwards will be reported as a reduction of goodwill.
<PAGE>
Worldwide income before income taxes and extraordinary item for the years
ended December 31, 1999, 1998 and 1997, consisted of the following (in
thousands):
1999 1998 1997
------- ------- -------
United States .............. $10,294 27,336 23,952
Foreign .................... 9,982 (446) --
------- ------- -------
$20,276 26,890 23,952
======= ======= =======
Cumulative undistributed earnings of the foreign subsidiaries amounted to
$13.5 million as of December 31, 1999. The Company considers earnings from its
foreign subsidiaries to be indefinitely reinvested and, accordingly, no
provision for U.S. federal and state income taxes has been made for these
earnings. Upon distribution of foreign subsidiary earnings in the form of
dividends or otherwise, the Company would be subject to U.S. income taxes
(subject to adjustment for foreign tax credits).
In addition, for a period of up to ten years the Company will be subject to
taxes in Ireland at rates substantially less than the statutory tax rates for
that jurisdiction. As a result of these reduced rates, income tax expense for
the year ended December 31, 1999 is approximately $998,000 (approximately $0.07
per share diluted) lower than the amount computed by applying the statutory tax
rates.
Note 9 -- Major Customers
The Company's customers operate in industries that are, to a varying extent,
subject to rapid technological change, vigorous competition and short product
life cycles. 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. As of December 31, 1999 and 1998, the Company had an
allowance for doubtful accounts totaling $7,705,423 and $100,000, respectively.
During 1999, the Company added allowance for doubtful accounts in connection
with the acquisition of AVEX totaling $7,332,472 and charged $272,951 to
operating expenses. During 1998 and 1997, accounts receivable write-offs totaled
$56,128 and $643,872, respectively, and amounts charged to operations totaled
$18,000 during 1997.
Sales to major customers were as follows for the indicated periods:
Year ended December 31,
---------------------------------
1999 1998 1997
-------- ------- -------
(in thousands)
Customer A .............................. $153,694 58,424 120,500
Customer B .............................. 143,173 148,674 --
Customer C .............................. 46,838 -- --
Customer D .............................. 46,776 -- --
Customer E .............................. * 70,908 42,983
*During 1999, this major customer underwent a period of organizational
change.
<PAGE>
Note 10 -- Segment and Geographic Information
The Company has 14 manufacturing facilities in the Americas, Europe, and Asia
regions to serve its customers. The Company is operated and managed
geographically. The Company's management evaluates performance and allocates the
Company's resources on a geographic basis. Intersegment sales, primarily
constituting sales from the Americas to Europe, are generally recorded at prices
that approximate arm's length transactions. Operating segments' measure of
profitability is based on income from operations. Certain corporate expenses,
including items such as insurance and software licensing costs, are allocated to
these operating segments and are included for performance evaluation.
Amortization expense associated with capitalized software costs is allocated to
these operating segments, but the related assets are not allocated. The
accounting policies for the reportable operating segments are the same as for
the Company taken as a whole. Beginning in 1999, the Company had three
reportable operating segments: the Americas, Europe, and Asia. Prior to the
acquisitions in 1999, all of the Company's operations were in the Americas
region. Information about operating segments for the fiscal year ended December
31, 1999, was as follows:
1999
---------
(in thousands)
Net sales:
Americas ......................................... $ 724,963
Europe ........................................... 219,393
Asia ............................................. 14,393
Elimination of intersegment sales ................ (80,910)
---------
$ 877,839
=========
Depreciation and amortization:
Americas ......................................... $ 19,221
Europe ........................................... 5,180
Asia ............................................. 235
Corporate - goodwill ............................. 6,430
---------
$ 31,066
=========
Income from operations:
Americas ......................................... $ 26,140
Europe ........................................... 11,040
Asia ............................................. 826
Corporate and intersegment eliminations .......... (9,383)
---------
$ 28,623
=========
Capital expenditures:
Americas ......................................... $ 20,364
Europe ........................................... 3,347
Asia ............................................. 160
---------
$ 23,871
=========
Total assets:
Americas ......................................... $ 424,521
Europe ........................................... 128,814
Asia ............................................. 12,808
Corporate ........................................ 194,694
---------
$ 760,837
=========
Corporate assets consist primarily of goodwill, capitalized software costs
and debt financing costs.
<PAGE>
The following enterprise-wide information is provided in accordance with SFAS
No.131. Geographic net sales information reflects the destination of the product
shipped. Long-lived assets information is based on the physical location of the
asset.
1999
--------
(in thousands)
Net sales derived from:
Printed circuit boards ........................ $756,552
Systems integration and box build ............. 121,287
--------
$877,839
========
Geographic net sales:
United States ................................. $659,134
Europe ........................................ 168,193
Asia and other ................................ 50,512
--------
$877,839
========
Long-lived assets:
United States ................................. $ 99,221
Europe ........................................ 24,538
Asia and other ................................ 21,874
--------
$145,633
========
Note 11 -- Employee Benefit Plans
The Company has defined contribution plans qualified under Section 401(k) of
the Internal Revenue Code for the benefit of its U.S. employees. The plans cover
all U.S. employees with at least one year of service. Under the provisions of
the plans, the Company will match a portion of each participant's contribution.
The Company may also make discretionary contributions to the plans. During 1999,
1998 and 1997 the Company made contributions to the plans of approximately
$1,659,000, $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. No bonus amounts were accrued or expensed in 1999.
The Company expensed $1,434,000 in 1998 and $738,000 in 1997 in conjunction with
the Bonus Plan.
AVEX had a defined benefit pension plan covering substantially all of its
employees. The benefits are based on years of service and the employee's
compensation. The AVEX defined benefit pension plan was frozen on September 12,
1999 and terminated effective December 31, 1999.
In addition to the AVEX defined benefit pension plan, AVEX had a
post-retirement medical plan that provides postretirement medical benefits to
full-time employees who meet minimum age and service requirements. The plan is
subject to cost-sharing features such as deductibles and coinsurance. The AVEX
post-retirement medical plan was frozen as to eligibility on October 31, 1999,
and will not provide medical benefits to any additional participant.
<PAGE>
The following table sets forth the AVEX plans' benefit obligations, fair
value of plan assets, and funded status at December 31, 1999.
POSTRETIREMENT
PENSION BENEFITS BENEFITS
- -------------- ------------- --------
(In Thousands)
Change in benefit obligation:
Benefit obligation at August 24 ............... $ 12,452 $ 5,788
Service cost .................................. -- 136
Interest cost ................................. 322 153
Benefits paid ................................. (399) (55)
Actuarial loss ................................ 29 245
-------- --------
Benefit obligation at end of year ............. 12,404 6,267
-------- --------
Change in plan assets:
Fair value of plan assets at August 24 ........ 18,034 --
Actual return on plan assets .................. 998 --
Employer contribution ......................... -- 55
Benefits paid ................................. (399) (55)
-------- --------
Fair value of plan assets at end of year ...... 18,633 --
-------- --------
Funded status ................................. 6,229 (6,267)
Unrecognized actuarial losses (gains) ......... (647) 478
-------- --------
Prepaid (accrued) benefit cost
recognized in the consolidated
balance sheet ............................. $ 5,582 $ (5,789)
======== ========
Weighted-average assumptions:
Discount rate ................................. 8.0% 7.75%
Expected return on plan assets ................ 9.0% N/A
For measurement purposes, a 8.0% annual rate of increase in the per capita
cost of covered health care costs was assumed for 2000. The rate was assumed to
decrease gradually to 5.0% for 2006 and remain level thereafter.
The components of net periodic benefit costs for the period are as follows:
PENSION POSTRETIREMENT
BENEFITS BENEFITS
-------- --------------
AUGUST 24 TO DECEMBER 31,
-------------------------
1999 1999
-------- ---------
(in thousands)
Service cost ............................. $ -- $ 136
Interest cost ............................ 322 153
Expected return on assets ................ (524) --
----- -----
Net periodic benefit costs (income) ...... $(202) $ 289
===== =====
Note 12 -- Concentrations of Business Risk
Substantially all of the Company's sales are derived from EMS in which the
Company purchases components specified by its customers. 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 13 -- Contingencies
On October 18, 1999, the Company announced that its third quarter earnings
announcement would be delayed and subsequently, on October 22, the Company
announced its earning for the third quarter were below the level of the same
periods during 1998 and were below expectations. Several class action lawsuits
were filed in federal district court in Houston, Texas against the Company and
two of its officers and directors alleging violations of the federal securities
laws. The lawsuit seeks to recover unspecified damages. The Company denies the
allegations in the lawsuits, however, and further denies that such allegations
provide a basis for recovery of damages as the Company believes that it has made
all required disclosures on a timely basis. Management intends to vigorously
defend against these actions.
<PAGE>
Benchmark filed suit against Seller in the United States District Court for
the Southern District of Texas for breach of contract, fraud and negligent
misrepresentation on December 14, 1999 and is seeking an unspecified amount of
damages in connection with the Amended and Restated Stock Purchase Agreement
dated August 12, 1999 between the parties whereby Benchmark acquired all of the
stock of AVEX from Seller. On January 5, 2000, Seller filed suit in the United
States District Court for the Southern District of New York alleging that
Benchmark failed to comply with certain obligations under the contract requiring
Benchmark to register shares of its common stock issued to Seller as partial
consideration for the acquisition. Seller's suit has been consolidated with
Benchmark's suit in the United States District Court for the Southern District
of Texas. Management intends to vigorously pursue its claims against Seller and
defend against Seller's allegations.
The Company is also involved in various other 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 or results of operations.
<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, 1999 and 1998, and the
related consolidated statements of income, shareholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 1999. 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, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
KPMG LLP
Houston, Texas
February 8, 2000
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
<PAGE>
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 1999, 1998 and
1997. 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.
1999 QUARTER
1ST 2ND 3RD 4TH
-------- ------- ------- -------
(in thousands, except per share data)
Sales ............................. $146,546 162,621 229,870 338,802
Gross profit ...................... 14,690 16,854 13,764 22,222
Income before extraordinary item .. 5,037 5,605 1,336 1,293
Extraordinary item- loss on
extinguishment of debt ......... -- -- (1,297) --
Net income ........................ 5,037 5,605 39 1,293
Earnings per common share:
Basic ........................ .43 .44 .00 .08
Diluted ...................... .40 .41 .00 .08
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
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.
1 2 3 4
------- -------- ------ ------
1998
High ................................. $28 1/4 24 15/16 25 1/2 37 1/2
Low .................................. $21 1/8 18 3/8 17 5/8 17 7/8
1999
High ................................. $38 7/8 35 15/16 43 13/16 37 7/8
Low .................................. $26 7/8 27 1/8 31 5/16 12
2000 (through March 24, 2000)
High ................................. $36
Low .................................. $17 13/16
The last reported sale price of Common Stock on March 24, 2000, as reported
by the New York Stock Exchange, was $35 1/16. There were approximately 107
record holders of Common Stock as of March 24, 2000.
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.
<PAGE>
Selected Financial Data
Benchmark Electronics, Inc. and Subsidiaries
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(in thousands, except per-share data)
<S> <C> <C> <C> <C> <C>
Selected Statements of Income Data
Sales ................................. $ 877,839 $ 524,065 $ 325,229 $ 201,296 $ 97,353
Cost of sales ......................... 810,309 472,354 285,630 177,981 85,113
--------- --------- --------- --------- ---------
Gross profit ...................... 67,530 51,711 39,599 23,315 12,240
Selling, general and
administrative expenses ............ 32,477 17,680 12,817 7,228 2,990
Amortization of goodwill .............. 6,430 3,311 1,670 696 --
--------- --------- --------- --------- ---------
Income from operations ............ 28,623 30,720 25,112 15,391 9,250
Interest expense ...................... (9,696) (4,394) (2,472) (1,442) --
Interest income ....................... 605 479 1,163 442 268
Other income .......................... 744 85 149 92 13
Income tax expense .................... (7,005) (10,518) (8,862) (5,619) (3,383)
--------- --------- --------- --------- ---------
Income before extraordinary
item ........................... 13,271 16,372 15,090 8,864 6,148
Extraordinary item - loss on
extinguishment of debt ............. (1,297) -- -- -- --
--------- --------- --------- --------- ---------
Net Income ............................ 11,974 $ 16,372 $ 15,090 $ 8,864 $ 6,148
========= ========= ========= ========= =========
Earnings per share(1):
Basic Income before extraordinary
item ........................ $ 0.94 $ 1.41 $ 1.31 $ 0.99 $ 0.77
Extraordinary item ............. (0.09) -- -- -- --
--------- --------- --------- --------- ---------
Earnings per share(1) .......... $ 0.85 $ 1.41 $ 1.31 $ 0.99 $ 0.77
========= ========= ========= ========= =========
Diluted:
Income before extraordinary
item ........................ $ 0.88 $ 1.35 $ 1.26 $ 0.96 $ 0.75
Extraordinary item ............. (0.08) -- -- -- --
--------- --------- --------- --------- ---------
Earnings per share(1) .......... $ 0.80 $ 1.35 $ 1.26 $ 0.96 $ 0.75
========= ========= ========= ========= =========
Weighted average number of
shares outstanding
Basic ............................. 14,081 11,594 11,508 8,976 8,031
Diluted ........................... 15,010 12,098 12,004 9,218 8,213
========= ========= ========= ========= =========
Ratio of earnings to
fixed charges ...................... 2.74x 6.03x 9.03x 9.16x 134.75x
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Selected Balance Sheet Data
Working capital ........... $177,926 $ 86,265 $ 87,879 $ 72,586 $ 37,285
Total assets .............. 760,837 241,896 190,322 168,174 57,037
Long-term debt ............ 202,811 46,111 30,330 30,485 --
Shareholders' equity ...... $281,935 $138,001 $120,872 $104,999 $ 46,624
</TABLE>
(1) See Note 1 of Notes to Consolidated Financial Statements for the basis of
computing earnings per common share.
<PAGE>
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(3)
Former President and
Chairman of the Board
DCM Tech, Inc.
Winona, Minnesota
(Machine Tool Manufacturing)
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)
Independent Consultant
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
<PAGE>
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
Attn: Shareholder Services
311 West Monroe Street, 11th floor
Chicago, IL 60606 312/588-4283.
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, 1999, 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
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 16, 2000, at the
Doubletree Hotel at Allen Center, 400 Dallas Street, Houston, Texas.
This annual report is printed on recycled paper.
(Benchmark logo)
3000 Technology Drive
Angleton, Texas 77515
(979) 849-6550
www.bench.com
EXHIBIT 21
SUBSIDIARIES OF BENCHMARK ELECTRONICS, INC.
BEI Electronics Ireland Ltd., a Republic of Ireland private limited company
Benchmark Electronics FSC, Inc., a Barbados corporation
Benchmark Electronics Huntsville Inc., an Alabama corporation
AVEX Holdings, Inc., a Delaware corporation
Benchmark Electronics AB, a Swedish corporation
Benchmark Electronics Pte Ltd., a Singapore corporation
AVEX Constitution, Inc., a Delaware corporation
AVEX Liberty, Inc., a Delaware corporation
Benchmark Electronics de Mexico, S. de R.L. de C.V., a Mexican corporation
Benchmark Electronics Servicios, S. de R.L. de C.V., a Mexican corporation
AVEX International Corporation, an Alabama corporation
Benchmark Electronics Ltda, a Brazilian corporation
Benchmark BV Holdings, Inc., a Delaware corporation
Tedok B.V., a Netherlands corporation
Kilbride Holdings B.V., a Netherlands corporation
Benchmark Electronics UK Ltd, a Scottish corporation
Burle Caribe Holdings Limited, an Ireland corporation
Burle Cayman Holdings Limited, an Ireland corporation
Benchmark Electronics Cork, an Ireland corporation
Benchmark Elektronikai Termekeket Gyarto Fekekisegu Tarsasag (Benchmark
Elektronikai Kft.), a Hungarian corporation
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 , No.333-66889 and No. 333-76207)
of Benchmark Electronics, Inc. of our report dated February 8, 2000, related to
the consolidated balance sheets of Benchmark Electronics, Inc. and subsidiaries
as of December 31, 1999 and 1998, and the related consolidated statements of
income, shareholders' equity and comprehensive income, and cash flows for each
of the years in the three-year period ended December 31, 1999, which report is
incorporated by reference in the December 31, 1999 annual report on Form 10-K of
Benchmark Electronics, Inc.
KPMG LLP
Houston, Texas
March 30 , 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 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-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 9,436,780
<SECURITIES> 0
<RECEIVABLES> 197,238,536
<ALLOWANCES> 0
<INVENTORY> 214,554,363
<CURRENT-ASSETS> 442,413,409
<PP&E> 175,773,905
<DEPRECIATION> 53,765,670
<TOTAL-ASSETS> 760,837,413
<CURRENT-LIABILITIES> 264,487,639
<BONDS> 202,810,646
0
0
<COMMON> 1,624,052
<OTHER-SE> 280,310,785
<TOTAL-LIABILITY-AND-EQUITY> 760,837,413
<SALES> 877,838,540
<TOTAL-REVENUES> 877,838,540
<CGS> 810,309,375
<TOTAL-COSTS> 842,785,950
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,696,301
<INCOME-PRETAX> 20,276,478
<INCOME-TAX> 7,005,360
<INCOME-CONTINUING> 13,271,118
<DISCONTINUED> 0
<EXTRAORDINARY> 1,296,688
<CHANGES> 0
<NET-INCOME> 11,974,430
<EPS-BASIC> 0.85
<EPS-DILUTED> 0.80
</TABLE>
EXHIBIT 99.1
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
The following unaudited pro forma condensed combined statement of operations
gives effect to the acquisition by Benchmark of all the outstanding capital
stock of AVEX Electronics, Inc. and its subsidiaries and certain affiliates
("AVEX") as if it occurred as of January 1, 1998.
The AVEX acquisition was accounted for under the purchase method of
accounting. The unaudited pro forma condensed combined statement of operations
is based on the historical financial statements of Benchmark and AVEX and the
estimates and assumptions in the notes to the unaudited pro forma condensed
combined statement of operations. The unaudited pro forma condensed combined
statement of operations for the year ended December 31, 1998 has been previously
filed on a Current Report on Form 8-K dated August 24, 1999 and filed on
September 8, 1999 (the "Current Report"). No pro forma balance sheet at December
31, 1999 has been provided as the AVEX acquisition is included in Benchmark's
historical balance sheet at December 31, 1999.
The unaudited pro forma condensed combined statement of operations should
be read in conjunction with the historical financial statements of Benchmark and
AVEX and "Management's Discussion and Analysis of Financial Conditions and
Results of Operations" of Benchmark. The unaudited pro forma condensed combined
statement of operations does not purport to represent what Benchmark's results
of operations would actually have been if the AVEX acquisition had been
consummated on the indicated date, nor are they necessarily indicative of
Benchmark's results of operations for any future period.
Pursuant to the terms of the purchase agreement in connection with the
acquisition of AVEX on August 24, 1999, the Company was required to agree upon a
closing working capital adjustment with the Seller by November 22, 1999. The
Company was unable to reach an agreement with the Seller prior to the November
22, 1999 deadline and has entered into several agreements extending this
deadline. At the present time, the parties still have not reached an agreement
and have hired an independent accounting firm to serve as arbitrator to resolve
the dispute and to calculate the final closing working capital adjustment.
Management is unable to predict when the arbitrator will be releasing its
findings but estimates that the net closing working capital adjustment will be
in the range of $20 to $40 million. Management has made its best estimate of the
ultimate resolution of this arbitration proceeding. However, the final working
capital adjustment could have a significant effect on the final purchase price
and the allocation of the purchase price.
Reference should be made to the unaudited pro forma condensed combined
financial statements filed on the Current Report for additional information
regarding the estimates and assumptions inherent in the preparation of this
statement
<PAGE>
BENCHMARK ELECTRONICS, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------- ------------------------
BENCHMARK AVEX (A) ADJUSTMENTS COMBINED
--------- -------- ----------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Sales ................................................................... $ 877,839 $ 640,174 $1,518,013
Cost of sales ........................................................... 810,309 632,194 1,442,503
------------------------ -------------------------
Gross profit ....................................................... 67,530 7,980 75,510
Selling, general & administrative expenses .............................. 32,477 33,313 (5,456)b 58,516
(1,818)d
Amortization of goodwill ................................................ 6,430 -- 5,912 c 12,342
------------------------ -------------------------
Income (loss) from operations ...................................... 28,623 (25,333) 1,362 4,652
Interest and other income - net ......................................... 1,350 108 (300)e 1,158
Interest expense ........................................................ (9,696) (13,941) 13,941 f (21,330)
(882)g
(10,752)h
------------------------ -------------------------
Income (loss) before taxes and extraordinary item .................. 20,277 (39,166) 3,369 (15,520)
Income taxes ............................................................ 7,005 960 1,179 i (5,432)
(14,576)j
------------------------ -------------------------
Income (loss) before extraordinary item ............................ 13,272 (40,126) 16,766 (10,088)
Income (loss) before extraordinary item per common share - Basic ........ $ 0.94 $ (0.66)
Income (loss) before extraordinary item per common share - Diluted ...... $ 0.88 $ (0.66)
Weighted average common shares outstanding:
Basic ............................................................... 14,081 1,306 k 15,387
Diluted ............................................................. 15,010 377 k 15,387
</TABLE>
See accompanying notes to unaudited pro forma condensed combined statement of
operations.
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENTS OF OPERATIONS
Adjustments have been made to the unaudited pro forma condensed combined
financial statements to reflect the following:
(a) Includes the historical results of operations of AVEX for the period to
August 24, 1999 the consummation date of the acquisition.
(b) To eliminate the historical costs related to (i) certain redundant
executive headquarter costs (ii) the termination of intercompany services
previously provided by the Seller to AVEX under an intercompany arrangement
that included fees based on the estimated utilization of Seller's
resources; (iii) AVEX's domestic defined benefit pension plan, which plan
and the obligations thereunder are not being continued by Benchmark; offset
by (iv) the costs that Benchmark will incur to replace the Seller's
intercompany services arrangement. A summary of such adjustments follows
(in thousands):
FOR THE PERIOD ENDED
--------------------
DECEMBER 31,
1999
------------
Redundant executive headquarter costs ....................... $(2,948)
Historical intercompany service fee ......................... (2,384)
Historical cost of pension plan not continued ............... (791)
Benchmark replacement of intercompany services arrangement .. 667
-------
Total ................................................... $(5,456)
=======
(c) To record amortization of goodwill over an estimated useful life of 15
years.
(d) To eliminate adjustments to the 1998 write down of certain assets related
to AVEX's San Jose, California facility, which were not acquired by
Benchmark, included in AVEX's historical financial statements.
(e) To reduce interest income related to cash balances utilized in funding a
portion of the AVEX acquisition.
(f) To eliminate intercompany interest expense with the Seller and interest on
AVEX notes payable not assumed under the Stock Purchase Agreement.
(g) To record amortization of debt issuance costs over the life of the
applicable debt instruments.
(h) To record interest expense at 7.75%, 7.75%, and 6.0% on the amounts
outstanding under the Revolving Credit Facility, Term Loan, and the Notes,
respectively, based on current interest rates. A change in the interest
rate of 1/8 of a percent would result in a change in annual interest
expense related to the amounts outstanding under the Revolving Credit
Facility and Term Loan of approximately $220,000.
(i) To record income tax adjustments related to the above pro forma
adjustments.
(j) To adjust AVEX historical income tax expense as if AVEX was included in the
consolidated federal income tax return of Benchmark. In the historical
combined financial statements of AVEX, federal income taxes were provided
as if AVEX filed a separate income tax return.
(k) The following information reconciles the number of shares used to compute
historical and pro forma earnings (loss) per common share (in thousands):
FOR THE YEAR ENDED
------------------
DECEMBER 31,
1999
------------------
BASIC DILUTED
------- -------
Benchmark historical .................................. 14,081 15,010
Common shares issued in AVEX acquisition
on a pro forma basis as of January 1, 1999 .......... 644 644
Common shares issued in public offering
on pro forma basis as of January 1, 1999 ............ 662 662
Elimination of Benchmark stock options -- antidilutive
on a pro forma basis in 1999 ......................... -- (929)
------- -------
15,387 15,387
======= =======
The effect of the if-converted method for the Notes is antidilutive and 2.5
million of potential common shares have not been considered in computing diluted
earnings per common share.
