<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
================================================================================
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period from _____________ to ______________
Commission File No. 0-27232
BENCHMARQ MICROELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2532442
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17919 WATERVIEW PARKWAY
DALLAS, TEXAS 75252
(Address of principal executive offices) (Zip code)
(972) 437-9195
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---------- ----------
As of November 6, 1997, there were 6,926,097 shares of the registrant's common
stock outstanding.
<PAGE>
CAUTIONARY STATEMENT
The Company wishes to caution readers that the following important factors,
in addition to others noted throughout this Form 10-Q, in some cases have
affected, and in the future could affect, the Company's actual results and could
cause the Company's actual results for the fourth quarter of 1997, and beyond,
to differ materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company, including, without limitation, statements made
regarding the Company's dependence on TSMC (as defined herein) for future supply
of wafers in Note 4 of the "Notes to Financial Statements", future product sales
-----------------------------
contained in Part I, Item 2, in the section entitled "Overview", average
--------
selling prices, gross margins and improved market opportunities contained in
Part I, Item 2, in the section entitled "Results of Operations-Gross Margin",
----------------------------------
research and development expenses contained in Part I, Item 2, in the section
entitled "Results of Operations-Research and Development", selling, general and
----------------------------------------------
administrative expenses contained in Part I, Item 2, in the section entitled
"Results of Operations-Selling, General and Administrative", capital
- ----------------------------------------------------------
expenditures and cash requirements contained in Part I, Item 2, in the section
entitled "Liquidity and Capital Resources", and comments regarding litigation
-------------------------------
contained in Part II, Item 1, in the section entitled "Litigation" and Note 5 to
----------
"Notes to Financial Statements":
-----------------------------
-- an accelerated decline in the average selling prices for the Company's
battery management products, NVSRAM (as defined herein) products and RTC
(as defined herein) products;
-- insufficient expansion of the Company's production capacity to meet the
sales demand for battery management products;
-- unfavorable currency exchange rate fluctuations that lead to international
pricing pressure and/or lower international sales;
-- slower or declining acceptance of battery management products, NVSRAM
products or RTC products;
-- increases in the prices of materials and components, especially, wafers,
SRAMs (as defined herein) and batteries;
-- timing or delay of new product introductions by the Company or its
competitors;
-- loss of key personnel;
-- excess production capacity;
-- inability to achieve acceptable margins on the non-proprietary components
included in certain NVSRAM, RTC and battery management products;
-- timing and size of significant orders;
-- inability to utilize wafer capacity committed to under the terms of the
Option Agreement with TSMC (as defined herein);
-- changes in product mix;
-- advances in technologies;
-- growth of selling, general and administrative expense at a rate faster
than that of sales and revenues;
-- adverse rulings in patent infringement and product liability litigation;
-- labor disputes; and
-- failure to comply with government regulations.
In addition, the Company refers readers to the discussion of certain risk
factors pertaining to the Company contained in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996 and in the Company's
prospectus, dated December 1, 1995, as supplemented on December 21, 1995.
2
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BENCHMARQ MICROELECTRONICS, INC.
INDEX TO FORM 10-Q
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at September 30, 1997 (unaudited)
and December 31, 1996........................................... 4
Consolidated Statements of Income for the Three and Nine Months
Ended September 30, 1997 and 1996 (unaudited)................... 5
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30 1997 and 1996 (unaudited).......................... 6
Notes to Consolidated Financial Statements (unaudited).......... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................. 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................... 15
Item 6. Exhibits and Reports on Form 8-K................................ 15
Signatures .............................................................. 16
3
<PAGE>
BENCHMARQ MICROELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
(unaudited)
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 5,773,708 $ 2,575,350
Short-term investments........................................................ 13,170,052 12,878,526
Receivables, net of allowance for doubtful accounts and estimated returns of
$61,955 and $388,471 at September 30, 1997 and December 31, 1996............ 4,783,016 4,410,448
Inventories................................................................... 4,242,795 4,035,175
Deferred income tax assets.................................................... 523,164 660,095
Prepaid expenses and other assets............................................. 1,634,169 354,978
----------- -----------
Total current assets...................................................... 30,126,904 24,914,572
Property and equipment, at cost:
Furniture and fixtures........................................................ 1,128,775 810,553
Equipment..................................................................... 5,109,694 3,976,191
Computer software............................................................. 536,925 520,809
----------- -----------
6,775,394 5,307,553
Accumulated depreciation...................................................... 3,928,123 2,806,832
----------- -----------
2,847,271 2,500,721
Equipment under capital lease obligations...................................... 3,935,882 4,274,173
Accumulated amortization...................................................... 1,192,384 1,067,143
----------- -----------
2,743,498 3,207,030
Prepayment for product purchases............................................... 5,040,000 5,880,000
Noncurrent deferred income tax and other assets................................ 44,324 306,784
----------- -----------
Total assets.............................................................. $40,801,997 $36,809,107
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 2,412,897 $ 1,852,516
Note payable.................................................................. 1,380,000 3,380,000
Payroll and related benefits.................................................. 526,648 618,154
Other accrued liabilities..................................................... 687,563 837,223
Deferred income on shipments to distributors.................................. 1,158,446 1,219,800
Current obligations under capital leases...................................... 1,251,186 1,311,905
----------- -----------
Total current liabilities................................................. 7,416,740 9,219,598
Obligations under capital leases, less current obligations..................... 740,957 1,259,927
Deferred income taxes.......................................................... 272,982 -
Stockholders' equity...........................................................
Common stock, $ .001 par value, 50,000,000 shares authorized;
6,976,414 and 6,841,808 shares issued at September 30, 1997 and
December 31, 1996, respectively.......................................... 6,976 6,842
Additional paid-in capital.................................................... 25,955,816 24,932,678
Retained earnings............................................................. 6,408,626 1,392,162
Net unrealized gain on short-term investments,................................ 12,700 10,700
Treasury stock, 64,000 common shares, at cost................................. (12,800) (12,800)
----------- -----------
Total stockholders' equity................................................ 32,371,318 26,329,582
----------- -----------
Total liabilities and stockholders' equity................................ $40,801,997 $36,809,107
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES
4
<PAGE>
BENCHMARQ MICROELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------------------------- --------------------------
<S> <C> <C> <C> <C>
Net revenues.............................. $10,809,740 $10,519,122 $33,979,349 $28,061,885
Cost of sales............................. 4,885,511 5,677,989 15,888,890 15,811,719
----------- ----------- ----------- -----------
Gross margin.............................. 5,924,229 4,841,133 18,090,459 12,250,166
Operating expenses:
Research and development............... 760,148 754,481 2,392,332 2,044,708
Selling, general, and administrative... 2,797,754 2,121,534 8,252,675 5,967,486
----------- ----------- ----------- -----------
Total operating expenses............... 3,557,902 2,876,015 10,645,007 8,012,194
----------- ----------- ----------- -----------
Income from operations.................... 2,366,327 1,965,118 7,445,452 4,237,972
Other income (expense):
Interest income........................ 165,496 171,555 484,092 513,609
Interest expense....................... (41,357) (57,464) (139,750) (151,599)
Other.................................. 6,937 - (29,930) (37,999)
----------- ----------- ----------- -----------
Income before provision for income taxes.. 2,497,403 2,079,209 7,759,864 4,561,983
Provision (benefit) for income taxes...... 849,100 (26,300) 2,743,400 140,000
----------- ----------- ----------- -----------
Net income................................ $ 1,648,303 $ 2,105,509 $ 5,016,464 $ 4,421,983
=========== =========== =========== ===========
Net income per common and
common equivalent share................ $0.21 $0.29 $0.65 $0.61
=========== =========== =========== ===========
Shares used in computing net income per
common and common equivalent share..... 7,901,999 7,333,755 7,745,412 7,299,261
=========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
BENCHMARQ MICROELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
------------- ------------
<S> <C> <C>
Operating Activities:
Net income....................................................... $ 5,016,464 $ 4,421,983
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................. 1,493,028 1,180,568
Loss on disposition of fixed assets........................... 29,930 37,999
Deferred income taxes......................................... 635,679 (494,985)
Tax benefit of employee stock options......................... 654,659 -
Changes in operating assets and liabilities:
Receivables................................................ (361,568) (284,605)
Inventories................................................ (207,620) (1,017,651)
Prepaid expenses and other assets.......................... (402,497) 103,823
Accounts payable........................................... 560,381 (132,455)
Income taxes payable....................................... (104,271) 465,882
Deferred income on shipments to distributors............... (61,354) 867,373
Accrued liabilities........................................ (136,895) 309,981
------------ ------------
Net cash provided by operating activities........................ 7,115,936 5,457,913
Investing Activities:
Prepayment for product purchases................................. (2,000,000) (2,500,000)
Investment in short-term investments............................. (46,835,297) (30,042,645)
Maturities of short-term investments............................. 46,545,771 17,893,130
Capital expenditures............................................. (928,454) (1,201,123)
------------ ------------
Net cash used by investing activities............................ (3,217,980) (15,850,638)
Financing Activities:
Proceeds from issuance of common stock upon exercise of options.. 368,613 64,655
Proceeds from issuance of common stock, net of offering costs.... - 584,384
Principal payments under capital lease obligations............... (1,068,211) (988,609)
------------ ------------
Net cash used by financing activities............................ (699,598) (339,570)
------------ ------------
Net change in cash and cash equivalents.......................... 3,198,358 (10,732,295)
Cash and cash equivalents at beginning of period................. 2,575,350 12,653,260
------------ ------------
Cash and cash equivalents at end of period....................... $ 5,773,708 $ 1,920,965
============ ============
Supplemental Cash Flows Information:
Cash paid for interest........................................ $ 139,750 $ 151,599
============ ============
Cash paid for income taxes.................................... $ 2,094,460 $ 169,103
============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
BENCHMARQ MICROELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
1. INTERIM FINANCIAL INFORMATION
The accompanying unaudited financial statements have been prepared by
BENCHMARQ Microelectronics, Inc. (the "Company" or "BENCHMARQ") in accordance
with the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting solely of normal
recurring adjustments) necessary for a fair statement of the results for the
interim periods presented have been included. Operating results for the three
and nine month periods ended September 30, 1997, are not necessarily indicative
of the results that may be expected for the year ending December 31, 1997. For
further information, refer to the financial statements and the footnotes thereto
included in the BENCHMARQ Microelectronics, Inc. annual report on Form 10-K for
the year ended December 31, 1996.
2. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per share amounts are computed using the weighted average number
of common and common equivalent shares. For the three and nine month periods
ended September 30, 1997, common equivalent shares consisted of stock options
(using the treasury stock method). For the three and nine month periods ended
September 30, 1996, common equivalent shares consisted of stock options and
warrants (using the treasury stock method).
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share, which is required to be adopted by the Company on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary or "basic" earnings
per share, the dilutive effect of stock options will be excluded. The impact is
expected to result in an increase in primary or "basic" earnings per share for
the third quarter ended September 30, 1997 and 1996 of $0.03 per share, for each
period. The impact is expected to result in an increase in basic earnings per
share for the nine months ended September 30, 1997 and 1996 of $0.09 and $0.06
per share, respectively. The impact of Statement No. 128 on the calculation of
fully diluted or "diluted" earnings per share for these periods is not expected
to be material.
3. INVENTORIES
Inventories are stated at the lower of standard cost, which approximates
actual cost determined on a first-in, first-out basis, or market.
<TABLE>
<CAPTION>
Inventories, net, consist of the following:
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Finished goods............................... $1,895,831 $1,737,739
Work-in-process.............................. 1,209,775 1,145,276
Raw materials................................ 1,137,189 1,152,160
---------- ----------
$4,242,795 $4,035,175
========== ==========
</TABLE>
7
<PAGE>
BENCHMARQ MICROELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
4. COMMITMENTS
The Company currently obtains substantially all of its semiconductor wafers
for use in its products from Taiwan Semiconductor Manufacturing Company
("TSMC"). The Company expects to remain dependent on TSMC for substantially all
of its wafer capacity for the foreseeable future. In May 1996, the Company
entered into an Option Agreement with TSMC (the "Option Agreement"). Pursuant to
the Option Agreement, the Company has committed to purchase and TSMC has
committed to provide specified quantities of wafers at prevailing market prices
during the years 1997 through 2000. Additionally, the Company has an option to
purchase and TSMC has committed to provide certain additional wafers (the
"Option Wafers") to be purchased during the years 1997 through 2000. The
Company has agreed to pay $5,880,000 as an advance payment for the Option Wafers
TSMC has committed to provide during the term of the Option agreement, of which
$2,500,000 was paid in May 1996. The Company issued a promissory note due March
31, 1997, for the remaining $3,380,000. Effective March 31, 1997, the Company
and TSMC amended the Option Agreement to incorporate the use by the Company of a
proposed new TSMC manufacturing process and to reschedule until December 31,
1997, $1,380,000 of the note payable originally due on March 31, 1997. The
Company paid $2,000,000 as scheduled on March 31, 1997. The advanced payment,
which is being credited at specified amounts upon purchase of the Option Wafers,
will be forfeited if such wafers are not purchased in a given year.
Additionally, the Company has reclassified to "prepaid expenses" the portion of
the as yet uncredited advanced payment for Option Wafers from which it believes
it will benefit in 1997.
5. CONTINGENCY
BENCHMARQ filed a declaratory judgment action against Dallas Semiconductor
Corporation ("DSC") in January 1997 to resolve certain allegations of patent
infringement asserted against BENCHMARQ by DSC. BENCHMARQ filed its action
against DSC in the United States District Court for the Eastern District of
Texas, Sherman Division. BENCHMARQ had previously sought declaratory relief in
a similar action filed in December 1995 which was dismissed on June 25, 1996,
based on DSC's assurance to the court that it had not charged BENCHMARQ with
patent infringement. The parties failed to reach agreement in subsequent
negotiations. Since the filing of the suit by BENCHMARQ in January 1997 in
Sherman, Texas, DSC filed a lawsuit against BENCHMARQ in February 1997 in the
United States District Court for the Northern District of Texas, Dallas
Division, alleging infringement of some of the same patents at issue in the
Sherman litigation filed in December 1995 and January 1997 by the Company. In
its lawsuit, DSC is seeking injunction against patent infringement, damages for
lost profit (which may under certain circumstances be trebled), pre and post
judgment interest and attorney's fees. To date DSC has not specified an amount
of monetary damages to which it alleges it is entitled. Subsequently, the
courts determined that the two cases will be combined into one case in the
United States District Court for the Eastern District of Texas. The Company is
confident that it has not violated any of the patents asserted by DSC and
intends to vigorously pursue its case. However, due to the uncertainties
associated with any litigation, the ultimate outcome cannot presently be
determined.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
BENCHMARQ was incorporated in 1989 and is engaged in the design,
development and marketing of mixed-signal integrated circuits ("ICs") and
electronic modules for portable and power-sensitive electronic systems. The
Company introduced its first products in October 1990, and made its first
shipments, principally of nonvolatile static random access memory ("NVSRAM")
modules, in December 1990. In August 1991, the Company shipped its initial
battery management product and in December 1991 shipped its first real-time-
clock ("RTC") product.
BENCHMARQ currently is directing the majority of its research and
development efforts to the development of battery management products, which are
its strategic focus. Currently, the Company's battery management product line is
comprised of: ICs that measure and report the charge capacity of a rechargeable
battery ("Gas Gauge ICs"); ICs that control battery charging ("Charger ICs");
and ICs that protect against excessive charging and discharging of Lithium Ion
batteries. In addition, the Company's battery management product line includes
modules that incorporate certain of the Company's battery management ICs. The
Company's primary objective is to continue to grow sales of battery management
products, which have been the Company's largest revenue product line for the
last eight consecutive quarters, to a more dominant position within the
Company's revenue structure. Ongoing efforts to develop NVSRAM and RTC products
have been selective and relatively modest. The Company believes that its
revenues from RTC products and NVSRAM products will not increase materially over
the long-term and may decline due to competitive pressure. Accordingly, the
Company expects that favorable future operating results will be substantially
dependent upon its ability to expand sales of battery management products. There
can be no assurance, however, that the Company will be successful in
substantially increasing sales of battery management products, or that sales of
RTC products or NVSRAM products will not decline more rapidly than anticipated.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1997, Compared with Three Months Ended
September 30, 1996 and June 30, 1997
Net Revenues. Total net revenues in third quarter 1997 were approximately
$10.8 million, a 3% increase over the same period in 1996. This increase was
due principally to increased unit sales of Gas Gauge ICs into the portable
personal computer ("PC") market, and increased unit sales of high density NVSRAM
modules which sell into communications and mass storage markets. Revenues from
sales of PC RTC products declined in the third quarter of 1997 as compared with
the same period in 1996 due to increased competitive factors for clocks in the
PC market.
The Company's total net revenues for the third quarter of 1997 declined 6%
from the second quarter of 1997 primarily due to lower unit sales of NVSRAM
products into the communications and mass storage markets. However, unit sales
of Gas Gauge ICs grew 35% from the second quarter of 1997 and in large part
drove a 16% increase in battery management revenues as compared to the second
quarter of 1997. Much of the sequential growth in battery
9
<PAGE>
management revenues resulted from demand for the Company's first Gas Gauge IC to
be targeted at SMBus PC applications. Shipments of RTC products decreased
slightly from the second quarter of 1997, and represented only 15% of total net
revenues for the third quarter of 1997.
Revenues from sales of battery management products comprised 57% of the
Company's total net revenues in the third quarter of 1997, up from 46% in the
second quarter of 1997. This change reflects the impact of both the increased
demand for Gas Gauge ICs in the portable PC market and the decrease in sales of
NVSRAM products. Within the battery management product line, Gas Gauge IC
revenues continued to represent the largest source of battery management
revenues.
Average selling prices for all three product lines were relatively flat
compared with second quarter 1997.
Revenue generated from RTC royalties and other miscellaneous sources was
0.7% of total revenue in the third quarter 1997, compared with 0.4% in the third
quarter 1996.
The following table sets forth (for the periods indicated) the amount (in
thousands) and percentage of total net revenues by type of product:
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1997 1996
--------------- ---------------
<S> <C> <C> <C> <C>
Battery Management Products $ 6,167 57.1% $ 5,384 51.2%
NVSRAM Products 2,893 26.8 2,125 20.2
RTC Products 1,673 15.4 2,967 28.2
RTC Royalties/Other 77 0.7 43 0.4
-------------- --------------
Total Net Revenue $10,810 100.0% $10,519 100.0%
============== ==============
</TABLE>
The Company's revenues from international customers accounted for
approximately $7.6 million, or 70% of total net revenues, for the quarter ended
September 30, 1997, compared to $7.7 million, or 73% of total net revenues, for
the comparable period in 1996. During the third quarter of 1997, approximately
56% of the Company's total net revenues was derived from customers in the Asia-
Pacific region. The Company's distributor in Taiwan accounted for approximately
$2.7 million, or 25%, of the Company's total net revenues in the third quarter
of 1997. The Company's distributor in Japan accounted for approximately $1.3
million, or 12%, of the Company's total net revenues in the third quarter of
1997. No other customer directly accounted for greater than 10% of the total
net revenues in the third quarter of 1997.
Export sales are subject to a variety of risks, including those arising
from fluctuations in currency exchange rates, tariffs, import restrictions and
other trade barriers, unexpected changes in regulatory requirements, longer
accounts receivable payment cycles, potentially adverse tax consequences and
export license requirements. Because the Company's international sales have to
date been denominated in U.S. dollars, increases in the value of the U.S. dollar
could increase the price in local currencies of the Company's products in
foreign markets and make the Company's products relatively more expensive than
competitors' products that are denominated in local currencies.
Gross Margin. The Company's gross margin represented 54.8% of total net
revenues for the three months ended September 30, 1997 and 46.0% for the
comparable period in 1996. Gross margin increased by approximately $1,083,000,
or 22%, to approximately $5.9 million for the
10
<PAGE>
third quarter of 1997, compared to $4.8 million in the third quarter of 1996.
The improvement in gross margin as a percentage of revenues as compared to the
third quarter of 1996 was due to a strong mix of battery management and high
density NVSRAM module product sales, reductions in certain product costs and
lower unit sales of low margin RTC modules.
The Company expects that average selling prices, primarily with respect to
its RTC and NVSRAM products will continue to decline. The Company believes that
its ability to increase gross margins and maintain or increase its gross margins
as a percentage of revenues over the long-term will primarily require it to
increase its sales of battery management products. There can be no assurance,
however, that the Company will be able to achieve these objectives.
Research and Development. The Company's research and development expense
was essentially flat in the third quarter of 1997 at $760,000 compared to
$754,000 in the third quarter of 1996. As a percentage of total net revenues,
research and development expense decreased to approximately 7.0% in the third
quarter of 1997 from 7.2% in the third quarter of 1996.
The Company intends to continue to make a significant investment in
research and development, particularly with respect to battery management
product opportunities, and believes that research and development expense will
therefore increase in absolute dollars.
Selling, General and Administrative. Selling, general and administrative
expense increased approximately $676,000 to $2.8 million in the third quarter of
1997 as compared to the same period in 1996 in large part due to increases in
compensation and litigation expenses. Selling, general and administrative
expense represented approximately 25.9% and 20.2% of total net revenues in the
third quarter of 1997 and 1996, respectively. Selling, general and
administrative expense in absolute dollars is expected to continue to increase
as the Company expands its business.
Other Income (Expense). Other income (expense), consists primarily of
interest earned on short-term investments, net of interest expense on capital
lease obligations. In the third quarter of 1997, the Company realized net other
income of approximately $131,000, compared to $114,000 in the third quarter of
1996. This increase is primarily due to higher average balances of invested
funds.
Provision for Income Taxes. The Company generated pre-tax income during
the third quarter of 1997 and 1996. The Company employed an effective tax rate
of 34% and recorded a provision for income tax of $849,100 in the third quarter
of 1997. Conversely, the pre-tax income generated during the third quarter of
1996 was substantially offset by net operating loss carryforwards from prior
operating periods. The Company also recognized a net deferred tax asset which
resulted in a net income tax benefit of $26,300 in the third quarter 1996.
Nine Months Ended September 30, 1997, Compared with Nine Months Ended September
30, 1996
Net Revenues. Total net revenues for the nine months ended September 30,
1997 were approximately $34.0 million, a 21% increase over the same period in
1996. This increase was due principally to increased unit sales of Gas Gauge ICs
into the portable PC market, increased unit sales of Charger IC devices, which
are typically sold into mobile communications, consumer, and power tool
applications, and increased unit sales of high density NVSRAM modules, which are
sold into communications and mass storage markets. Revenues from RTC products
declined 17% in the nine months ended September 30, 1997 as compared to the same
period in 1996 due to increased competitive factors for clocks in the PC market.
Revenue generated
11
<PAGE>
from RTC royalties and other miscellaneous sources was 0.6% of total revenue for
the nine months ended September 30, 1997, compared with 1.0% for the nine months
ended September 30, 1996.
The following table sets forth for the periods indicated the amount (in
thousands) and percentage of total net revenues by type of product:
<TABLE>
<CAPTION>
Nine Months Ended September 30
--------------------------------
1997 1996
--------------- ---------------
<S> <C> <C> <C> <C>
Battery Management Products $16,201 47.7% $12,572 44.8%
NVSRAM Products 11,105 32.7 7,422 26.4
RTC Products 6,443 19.0 7,791 27.8
RTC Royalties/Other 230 0.6 277 1.0
-------------- --------------
Total Net Revenue $33,979 100.0% $28,062 100.0%
============== ==============
</TABLE>
The Company's revenues from international customers accounted for
approximately $22.2 million, or 65% of total net revenues, for the nine months
ended September 30, 1997, compared to $18.7 million, or 67% of total net
revenues, for the comparable period in 1996. During the nine months ended
September 30, 1997, approximately 53% of the Company's total net revenues was
derived from customers in the Asia-Pacific region. The Company's distributor in
Taiwan accounted for approximately $6.3 million, or 18%, of total net revenues
for the nine months ended September 30, 1997. No other customer directly
accounted for greater than 10% of the total net revenues for the nine months
ended September 30, 1997.
Gross Margin. The Company's gross margin represented 53.2% and 43.7% of
total net revenues for the nine months ended September 30, 1997 and 1996,
respectively. Gross Margin increased by approximately $5.8 million, or 48%, to
approximately $18.1 million for the nine months ended September 30, 1997,
compared to $12.3 million for the nine months ended September 30, 1996. The
improvement in gross margin as a percentage of revenues for the nine months
ended September 30, 1997 as compared to the same period in 1996 was due to a
strong mix of battery management and high density NVSRAM module product sales,
reductions in certain product costs and lower unit sales of low margin RTC
modules.
Research and Development. The Company's research and development expense
increased approximately 17% to $2.4 million for the nine months ended September
30, 1997 as compared to approximately $2.0 million for the nine months ended
September 30, 1996. This increase was due primarily to increased expenses
related to development tooling. As a percentage of total revenues, research and
development expense decreased to approximately 7.0% for the nine months ended
September 30, 1997 from 7.3% for the comparable period in 1996.
Selling, General and Administrative. Selling, general and administrative
expense increased by approximately $2.3 million to $8.3 million for the nine
months ended September 30, 1997 as compared to the same period in 1996. This
increase was due primarily to increases in compensation, litigation, and other
general expenses. Selling, general and administrative expense represented 24.3%
and 21.3% of total net revenues for the nine months ended September 30, 1997 and
1996, respectively.
Other Income (Expense). Other income (expense), consists primarily of
interest earned on short-term investments, net of interest expense on capital
lease obligations. For the nine
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months ended September 30, 1997, the Company realized net other income of
approximately $314,000, compared to $324,000 for the same period in 1996. This
decrease primarily reflects a greater proportion of investments being place in
tax-free instruments.
Provision for Income Taxes. The Company generated pre-tax income during the
nine months ended September 30, 1997 and 1996. The Company employed an effective
tax rate of 35% and recorded a provision for income tax of $2,743,400 for the
nine months ended September 30, 1997. Conversely, the pre-tax income generated
during the nine months ended September 30, 1996 was substantially offset by net
operating loss carryforwards from prior operating periods and the recognition of
a net deferred tax asset. A provision for income tax of $140,000 was recorded
for the nine months ended September 30, 1996, consisting of alternative minimum
tax and state income tax.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital needs are to finance accounts receivable,
inventories and additions of capital assets. Approximately $7.1 million of cash
was generated by operating activities during the nine months ended September 30,
1997 as compared to $5.5 million in the comparable period in 1996.
Net cash used in investing activities of approximately $3.2 million during
the nine months ended September 30, 1997 was principally attributable to the
$2.0 million prepayment for certain quantities of wafers pursuant to the Option
Agreement under which TSMC is committed to supply and the Company is committed
to purchase wafers. In addition, approximately $928,000 was used for capital
expenditures consisting in large part of assembly and engineering equipment and
office expansion. Comparatively, net cash used in investing activities during
the nine months ended September 30, 1996 amounted to approximately $15.9 million
and consisted primarily of the investment of much of the Company's cash
equivalents into short-term investments to improve interest income and, to a
lesser extent, a $2.5 million prepayment pursuant to the Option Agreement with
TSMC and capital expenditures for assembly and test expansion.
Financing activities have consisted primarily of the issuance of equity and
payments made pursuant to capital lease obligations. Financing activities used
cash during the nine months ended September 30, 1997 of approximately $700,000,
which consisted of proceeds of approximately $369,000 from issuances of stock
and payments of approximately $1.1 million under capital lease obligations.
During the comparable nine months ended September 30, 1996, financing activities
used net cash of approximately $340,000, consisting of payments under capital
lease obligations and partially offset by issuances of stock to the underwriters
of the Company's IPO to cover over-allotments.
The Company's principal sources of liquidity are cash generated from
operations as well as cash and cash equivalents and short-term investments of
approximately $18.9 million at September 30, 1997. The Company's short-term
investments are primarily in municipal and tax free bonds. The Company recently
negotiated a $1.3 million increase and extension to an outstanding equipment
lease line of credit with BancBoston Leasing Inc. ("BancBoston"). At October 31,
1997, approximately $1.5 million was available for use, although purchase orders
totaling approximately $1.1 million were outstanding against the credit line. In
addition, the Company recently negotiated a new master lease agreement with
BancBoston. Equipment leases
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under the new agreement will be classified as operating leases as opposed to
capital leases as was the case with the old agreement.
The Company anticipates capital asset additions to range between $1.0
million and $1.5 million for the remainder of 1997, a large part of which will
be used to expand product test capacity for certain of its battery management
products, a portion of which may be financed by equipment operating leases.
The Company believes that existing cash balances and other capital
resources will be sufficient to meet the Company's cash requirements for normal
operations at least through 1998. However, the Company may also seek to
establish additional lines of credit to augment its funding of operating
activities. There can be no assurance that such additional financing, if
required, will be available on terms acceptable to the Company, if at all.
In addition, the Company may, from time to time, as market and business
conditions warrant, invest in or acquire complementary businesses, products,
technologies and additional sources of wafer supply. The Company also may seek
additional equity or debt financing. The sale of additional equity or
convertible debt securities could result in dilution to the Company's
stockholders. There can be no assurance that such additional financing, if
required, will be available on terms acceptable to the Company, if at all.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
BENCHMARQ filed a declaratory judgment action against Dallas Semiconductor
Corporation ("DSC") in January 1997 to resolve certain allegations of patent
infringement asserted against BENCHMARQ by DSC. BENCHMARQ filed its action
against DSC in the United States District Court for the Eastern District of
Texas, Sherman Division. BENCHMARQ had previously sought declaratory relief in
a similar action filed in December 1995 which was dismissed on June 25, 1996,
based on DSC's assurance to the court that it had not charged BENCHMARQ with
patent infringement. The parties failed to reach agreement in subsequent
negotiations. Since the filing of the suit by BENCHMARQ in January 1997 in
Sherman, Texas, DSC filed a lawsuit against BENCHMARQ in February 1997 in the
United States District Court for the Northern District of Texas, Dallas
Division, alleging infringement of some of the same patents at issue in the
Sherman litigation filed in December 1995 and January 1997 by the Company. In
its lawsuit, DSC is seeking injunction against patent infringement, damages for
lost profit (which may under certain circumstances be trebled), pre and post
judgment interest and attorney's fees. To date DSC has not specified an amount
of monetary damages to which it alleges it is entitled. Subsequently, the
courts determined that the two cases will be combined into one case in the
United States District Court for the Eastern District of Texas. The Company is
confident that it has not violated any of the patents asserted by DSC and
intends to vigorously pursue its case. However, due to the uncertainties
associated with any litigation, the ultimate outcome cannot presently be
determined.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
The exhibits filed as a part of this report are listed below.
Exhibit No. Description
----------- -----------
10.1 Master Equipment Lease dated as of September 16, 1997,
by and between the Company and BancBoston Leasing Inc.
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed by the Company during the quarter ended
September 30, 1997
15
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SIGNATURES
PURSUANT TO THE REQUIREMENTS 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.
BENCHMARQ MICROELECTRONICS, INC.
NOVEMBER 7, 1997 /s/ ALAN R. SCHUELE
------------------------------
ALAN R. SCHUELE
PRESIDENT AND
CHIEF EXECUTIVE OFFICER (PRINCIPAL
EXECUTIVE OFFICER)
NOVEMBER 7, 1997 /S/ REGINALD B. MCHONE
------------------------------
Reginald B. McHone
VICE PRESIDENT, FINANCE AND
ADMINISTRATION, CHIEF FINANCIAL
OFFICER (PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER) AND SECRETARY
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EXHIBIT 10.1
MASTER LEASE AGREEMENT
This MASTER LEASE AGREEMENT, dated as of the 16th day of September, 1997 ("Lease
Agreement") is made at Boston, Massachusetts by and between BancBoston Leasing
Inc. ("Lessor"), a Massachusetts corporation with its principal place of
business at 100 Federal Street, Boston, Massachusetts 02110 and Benchmarq
Microelectronics, Inc. ("Lessee"), a Delaware corporation with its principal
place of business at 17919 Waterview Parkway, Dallas, TX 75252.
IN CONSIDERATION OF the mutual promises and covenants contained herein,
Lessor and Lessee hereby agree as follows:
1. Property Leased. At the request of Lessee and subject to the terms and
conditions of this Lease Agreement, Lessor shall lease to Lessee and Lessee
shall lease from Lessor such personal property ("Equipment") as may be mutually
agreed upon by Lessor and Lessee. The Equipment shall be selected by or ordered
at the request of Lessee, identified in one or more equipment schedules
substantially in the form of Exhibit A attached hereto ("Equipment Schedule")
and accepted by Lessee in one or more certificates of acceptance ("Certificate
of Acceptance") in the form of Exhibit B attached hereto. Each Equipment
Schedule executed by Lessor and Lessee and each Certificate of Acceptance
executed by Lessee shall constitute a part of this Lease Agreement.
2. Certain Definitions.
2.1 The "Acquisition Cost" shall mean the total cost of the Equipment
paid by Lessor as set forth in the applicable Equipment Schedule.
2.2 The "Commencement Date" shall mean the date on which the Equipment
identified in the applicable Equipment Schedule is accepted and placed in
service by Lessee under this Lease Agreement. Each Commencement Date shall be
evidenced by the Certificate of Acceptance applicable to such Equipment
Schedule.
2.3 The "Rent Start Date" shall mean either (i) the first day of the month
following the month in which the Commencement Date occurs or (ii) the
Commencement Date, if the Commencement Date occurs on the first day of the
month.
2.4 The "Monthly Rent" shall mean the amount set forth in the applicable
Equipment Schedule as Monthly Rent for the Equipment identified on such
Equipment Schedule.
2.5 The "Daily Rent" shall mean one-thirtieth (1/30) of the Monthly Rent.
2.6 The words "herein", "hereof", and "hereunder" shall refer to this
Lease Agreement as a whole and not to any particular section. All other
capitalized terms defined in this Lease Agreement shall have the meanings
assigned thereto.
3. Initial Term of Lease; Payment of Rent.
<PAGE>
3.1 The term of lease for the Equipment ("Initial Term") shall begin on
the Commencement Date set forth in the applicable Certificate of Acceptance and
shall continue during and until the expiration of the number of full calendar
months set forth in the applicable Equipment Schedule, measured from the Rent
Start Date. The Initial Term may not be cancelled or terminated except as set
forth in Section 10.2 below.
3.2 At the expiration of the Initial Term, Lessor and Lessee may extend
the lease of the Equipment for any period as they may agree upon in writing
("Extended Term") at the then fair market rental value of the Equipment, as
determined in good faith by Lessor.
3.3 Aggregate Daily Rent shall be due and payable by Lessee on the Rent
Start Date in an amount equal to the Daily Rent multiplied by the actual number
of days elapsed from, and including, the Commencement Date to, but excluding,
the Rent Start Date. The Monthly Rent shall be due and payable on the Rent
Start Date and, thereafter on the first day of each month of the Initial Term or
any Extended Term. All Daily Rents and Monthly Rents shall be paid to Lessor at
its office in Boston, Massachusetts.
4. Acceptance of Equipment; Exclusion of Warranties.
4.1 Lessee shall signify its acceptance of the Equipment identified in
the applicable Equipment Schedule by promptly executing and delivering to Lessor
a Certificate of Acceptance. Lessee acknowledges that its execution and
delivery of the Certificate of Acceptance shall conclusively establish, as
between Lessor and Lessee, that the Equipment has been inspected by Lessee, is
in good repair and working order, is of the design, manufacture and capacity
selected by Lessee, and is accepted by Lessee under this Lease Agreement.
4.2 In the event the Equipment is ordered by Lessor from a manufacturer
or supplier at the request of Lessee, Lessor shall not be required to pay the
Acquisition Cost for such Equipment unless and until the applicable Certificate
of Acceptance has been received by Lessor. Lessee hereby agrees to indemnify,
defend and hold Lessor harmless from any liability to any manufacturer or
supplier arising from the failure of Lessee to lease any Equipment which is
ordered by Lessor at the request of Lessee or for which Lessor has assumed an
obligation to purchase.
4.3 Lessor leases the Equipment to Lessee and Lessee leases the
Equipment from Lessor "AS IS" and "WITH ALL FAULTS". Lessee hereby acknowledges
that (i) Lessor is not a manufacturer, supplier or dealer of such Equipment nor
an agent thereof; and (ii) LESSOR HAS NOT MADE, DOES NOT MAKE, AND HEREBY
DISCLAIMS ANY REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH
RESPECT TO THE EQUIPMENT INCLUDING, BUT NOT LIMITED TO, ITS DESIGN, CAPACITY,
CONDITION, MERCHANTABILITY, OR FITNESS FOR USE OR FOR ANY PARTICULAR PURPOSE.
Lessee further acknowledges that Lessor is not responsible for any repairs,
maintenance, service, latent or other defects in the Equipment or in the
operation thereof, or for compliance of any Equipment with requirements of any
laws, ordinances, governmental rules or regulations including, but not limited
to, laws with respect to environmental matters, patent, trademark, copyright or
trade secret infringement, or for any direct or consequential damages arising
out of the use of or inability to use the Equipment.
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4.4 Provided no Event of Default, as defined in Section 16 below, has
occurred and is continuing, Lessor agrees to cooperate with Lessee, at the sole
cost and expense of Lessee, in making any claim against a manufacturer or
supplier of the Equipment arising from a defect in such Equipment. At the
request of Lessee, Lessor shall assign to Lessee all warranties on the Equipment
available from any manufacturer or supplier to the full extent permitted by the
terms of such warranties and by applicable law.
5. Ownership; Inspection; Maintenance and Use.
5.1 The Equipment shall at all times be the sole and exclusive property
of Lessor. Any Equipment subject to titling and registration laws shall be
titled and registered by Lessee on behalf of and in the name of Lessor at the
sole cost and expense of Lessee. Lessee shall cooperate with and provide Lessor
with any information or documents necessary for titling and registration of the
Equipment. Upon the request of Lessor, Lessee shall execute any documents or
instruments which may be necessary or appropriate to confirm, to record or to
give notice of the ownership of the Equipment by Lessor including, but not
limited to, financing statements under the Uniform Commercial Code. Lessee, at
the request of Lessor, shall affix to the Equipment, in a conspicuous place, any
label, plaque or other insignia supplied by Lessor designating the ownership of
the Equipment by Lessor.
5.2 The Equipment shall be located at the address specified in the
applicable Equipment Schedule and shall not be removed therefrom without the
prior written consent of Lessor. Lessor, its agents or employees shall have the
right to enter the premises of Lessee, upon reasonable notice and during normal
business hours, for the purpose of inspecting the Equipment.
5.3 Lessee shall pay all costs, expenses, fees and charges whatsoever
incurred in connection with the use and operation of the Equipment. Lessee
shall, at all times and at its own expense, keep the Equipment in good repair
and working order, reasonable wear and tear excepted. Any maintenance contract
required by a manufacturer or supplier for the care and upkeep of the Equipment
shall be entered into by Lessee at its sole cost and expense. Lessee shall
permit the use and operation of the Equipment only by personnel authorized by
Lessee and shall comply with all laws, ordinances or governmental rules and
regulations relating to the use and operation of the Equipment.
6. Alterations and Modifications. Lessee may make, or cause to be made
on its behalf, any improvement, modification or addition to the Equipment with
the prior written consent of Lessor, provided, however, that such improvement,
modification or addition is readily removable without causing damage to or
impairment of the functional effectiveness of the Equipment. To the extent that
such improvement, modification or addition is not so removable, it shall
immediately become the property of Lessor and thereupon shall be considered
Equipment for all purposes of this Lease Agreement.
7. Quiet Enjoyment; No Defense, Set-Offs or Counterclaims.
7.1 Provided no Event of Default, as defined in Section 16 below, has
occurred and is continuing, Lessee shall have the quiet enjoyment and use of the
Equipment in the ordinary
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<PAGE>
course of its business during the Initial Term or any Extended Term without
interruption by Lessor or any person or entity claiming through or under Lessor.
7.2 Lessee acknowledges and agrees that ANY DAMAGE TO OR LOSS,
DESTRUCTION, OR UNFITNESS OF, OR DEFECT IN THE EQUIPMENT, OR THE INABILITY OF
LESSEE TO USE THE EQUIPMENT FOR ANY REASON WHATSOEVER, SHALL NOT (i) GIVE RISE
TO ANY DEFENSE, COUNTERCLAIM, OR RIGHT OF SET-OFF AGAINST LESSOR, OR (ii) PERMIT
ANY ABATEMENT OR RECOUPMENT OF, OR REDUCTION IN DAILY OR MONTHLY RENT, OR (iii)
RELIEVE LESSEE OF THE PERFORMANCE OF ITS OBLIGATIONS UNDER THIS LEASE AGREEMENT
INCLUDING, BUT NOT LIMITED TO, ITS OBLIGATION TO PAY THE FULL AMOUNT OF DAILY
RENT AND MONTHLY RENT, WHICH OBLIGATIONS ARE ABSOLUTE AND UNCONDITIONAL, unless
and until this Lease Agreement is terminated with respect to such Equipment in
accordance with the provisions of Section 10.2 below. Any claim that Lessee may
have which arises from a defect in or deficiency of the Equipment shall be
brought solely against the manufacturer or supplier of the Equipment and Lessee
shall, notwithstanding any such claim, continue to pay Lessor all amounts due
and to become due under this Lease Agreement.
8. Adverse Claims and Interests.
8.1 Except for any liens, claims, mortgages, pledges, encumbrances or
security interests created by Lessor, Lessee shall keep the Equipment, at all
times, free and clear from all liens, claims, mortgages, pledges, encumbrances
and security interests and from all levies, seizures and attachments. Without
limitation of the covenants and obligations of Lessee set forth in the preceding
sentence, Lessee shall immediately notify Lessor in writing of the imposition of
any prohibited lien, claim, levy or attachment on or seizure of the Equipment at
which time Lessee shall provide Lessor with all relevant information in
connection therewith.
8.2 Lessee agrees that the Equipment shall be and at all times shall
remain personal property. Accordingly, Lessee shall take such steps as may be
necessary to prevent any person from acquiring, having or retaining any rights
in or to the Equipment by reason of its being affixed or attached to real
property.
9. Indemnities; Payment of Taxes.
9.1 Lessee hereby agrees to indemnify, defend and hold harmless Lessor,
its agents, employees, successors and assigns from and against any and all
claims, actions, suits, proceedings, costs, expenses, damages and liabilities
whatsoever arising out of or in connection with the manufacture, ordering,
selection, specifications, availability, delivery, titling, registration,
rejection, installation, possession, maintenance, ownership, use, leasing,
operation or return of the Equipment including, but not limited to, any claim or
demand based upon any STRICT OR ABSOLUTE LIABILITY IN TORT and upon any
infringement or alleged infringement of any patent, trademark, trade secret,
license, copyright or otherwise. All costs and expenses incurred by Lessor in
connection with any of the foregoing including, but not limited to, reasonable
legal fees, shall be paid by Lessee on demand.
9.2 Lessee hereby agrees to indemnify, defend and hold Lessor harmless
against all Federal, state and local taxes, assessments, licenses, withholdings,
levies, imposts, duties,
4
<PAGE>
assessments, excise taxes, registration fees and other governmental fees and
charges whatsoever, which are imposed, assessed or levied on or with respect to
the Equipment or its use or related in any way to this Lease Agreement ("Tax
Assessments") except for taxes on or measured by the net income of Lessor
determined substantially in the same manner as under the Internal Revenue Code
of 1986, as amended. Lessee shall file all returns, reports or other such
documents required in connection with the Tax Assessments and shall provide
Lessor with copies thereof. If, under local law or custom, Lessee is not
authorized to make the filings required by a taxing authority, Lessee shall
notify Lessor in writing and Lessor shall thereupon file such returns, reports
or documents. Without limiting any of the foregoing, Lessee shall indemnity,
defend and hold Lessor harmless from all penalties, fines, interest payments,
claims and expenses including, but not limited to, reasonable legal fees,
arising from any failure of Lessee to comply with the requirements of this
Section 9.2.
9.3 The obligations and indemnities of Lessee under this Section 9 for
events occurring or arising during the Initial Term or any Extended Term shall
continue in full force and effect, notwithstanding the expiration or other
termination of this Lease Agreement.
10. Risk of Loss; Loss of Equipment.
10.1 Lessee hereby assumes and shall bear the entire risk of loss for
theft, damage, seizure, condemnation, destruction or other injury whatsoever to
the Equipment from any and every cause whatsoever. Such risk of loss shall be
deemed to have been assumed by Lessee from and after such risk passes from the
manufacturer or supplier by agreement or pursuant to applicable law.
10.2 In the event of any loss, seizure, condemnation or destruction of
the Equipment or damage to the Equipment which cannot be repaired by Lessee,
Lessee shall immediately notify Lessor in writing. Within thirty (30) days of
such notice, during which time Lessee shall continue to pay Monthly Rent, Lessee
shall, at the option of Lessor, either (i) replace the Equipment with equipment
of the same type and manufacture and in good repair, condition and working
order, transfer title to such equipment to Lessor free and clear of all liens,
claims and encumbrances, whereupon such equipment shall be deemed Equipment for
all purposes of this Lease Agreement, or (ii) pay to Lessor an amount equal to
the present value of both the aggregate of the remaining unpaid Monthly Rents
and the anticipated residual value of the Equipment plus any other costs
actually incurred by Lessor. Lessor and Lessee agree that the residual value of
the Equipment at the expiration of the Initial Term is reasonably anticipated to
be not less than twenty (20) percent of the Acquisition Cost of the Equipment.
The present value shall be determined by discounting the aggregate of the
remaining unpaid Monthly Rents and the anticipated residual value of the
Equipment to the date of payment by Lessee at the rate of five (5) percent per
annum. When and as requested by Lessor, Lessee shall also pay to Lessor amounts
due pursuant to Section 18 below, if any, arising as a result of the loss,
seizure, replacement, condemnation or destruction of the Equipment. Any
insurance or condemnation proceeds received by Lessor shall be credited to the
obligation of Lessee under this Section 10.2 and the remainder of such proceeds,
if any, shall be paid to Lessee by Lessor in full compensation for the loss of
the leasehold interest in the Equipment by Lessee.
10.3 Upon any replacement of or payment for the Equipment as provided in
Section 10.2 above, this Lease Agreement shall terminate only with respect to
the Equipment so
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replaced or paid for, and Lessor shall transfer to Lessee title only to such
Equipment "AS IS," "WITH ALL FAULTS", and WITH NO WARRANTIES WHATSOEVER, EITHER
EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR USE OR FOR ANY PARTICULAR PURPOSE. Lessee shall
pay any sales or use taxes due on such transfer.
11. Insurance.
11.1 Lessee shall keep the Equipment insured against all risks of loss or
damage from every cause whatsoever occurring during the Initial Term, or any
Extended Term for an amount not less than the higher of the full replacement
value of the Equipment or the aggregate of unpaid Daily Rent and Monthly Rent
for the balance of the Initial Term, or the Extended Term. Lessee shall also
carry public liability insurance, both personal injury and property damage,
covering the Equipment, and Lessee shall be liable for any deductible portions
of all required insurance.
11.2 All insurance required under this Section 11 shall name Lessor as
additional insured and loss payee. Such insurance shall also be with such
insurers and shall be in such forms and amounts as are satisfactory to Lessor.
All applicable policies shall provide that no act, omission or breach of
warranty by Lessee shall give rise to any defense against payment of the
insurance proceeds to Lessor. Lessee shall pay the premiums for such insurance
and, at the request of Lessor, deliver to Lessor duplicates of such policies or
other evidence satisfactory to Lessor of such insurance coverage. In any event,
Lessee shall provide Lessor with endorsements upon the policies issued by the
insurers which evidence the existence of insurance coverage required by this
Section 11 and by which the insurers agree to give Lessor written notice at
least twenty (20) days prior to the effective date of any expiration,
modification, reduction, termination or cancellation of any such policies.
11.3 The proceeds of insurance required under this Section 11 and
payable as a result of loss or damage to the Equipment shall be applied as set
forth in Section 10.2 above. Upon the occurrence of an Event of Default as
defined in Section 16 below, Lessee hereby irrevocably appoints Lessor as its
attorney-in-fact, which power shall be deemed coupled with an interest, to make
claim for, receive payment of, execute and endorse all documents, checks or
drafts received in payment for loss or damage under any insurance policies
required by this Section 11.
11.4 Notwithstanding anything herein, Lessor shall not be under any duty
to examine any evidence of insurance furnished hereunder, or to ascertain the
existence of any policy or coverage, or to advise Lessee of any failure to
comply with the provisions of this Section 11.
12. Surrender To Lessor. Immediately upon the expiration of the Initial
Term or any Extended Term or at any other termination of this Lease Agreement,
Lessee shall surrender the Equipment to Lessor in good repair and working order,
reasonable wear and tear excepted, by assembling and delivering the Equipment,
ready for shipment, to a place or carrier, as Lessor may designate, within the
state in which the Equipment was originally delivered to Lessee or to which the
Equipment was thereafter moved with the written consent of Lessor. All costs of
removal, assembly, packing and delivery of such Equipment to the place
designated by Lessor shall be borne by Lessee.
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13. Fair Market Value Purchase Option. Lessor hereby grants to Lessee
the option to purchase all, but not less than all, Equipment set forth on any
Equipment Schedule at the expiration of the applicable Initial Term or Extended
Term. Any such purchase shall be for cash in an amount equal to the then fair
market value of such Equipment, as determined in good faith by Lessor. This
purchase option may be exercised by Lessee, provided that no Event of Default,
as defined in Section 16 below, has occurred and is continuing. Lessee shall
notify Lessor in writing of its intention to exercise its purchase option at
least thirty (30) days prior to the expiration of the Initial Term or any
Extended Term. Upon payment of the fair market value by Lessee to Lessor,
Lessor shall transfer title to the Equipment to Lessee "AS IS", "WITH ALL
FAULTS", and WITH NO WARRANTIES WHATSOEVER, EITHER EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR
USE OR FOR ANY PARTICULAR PURPOSE.
14. Financial Statements. Lessee shall annually, within ninety (90)
days after the close of the fiscal year for Lessee, furnish to Lessor financial
statements of Lessee, including a balance sheet as of the close of such year and
statements of income and retained earnings for such year, prepared in accordance
with generally accepted accounting principles, consistently applied from year to
year, and certified by independent public accountants for Lessee. If requested
by Lessor, Lessee shall also provide quarterly financial statements of Lessee,
similarly prepared for each of the first three quarters of each fiscal year,
certified (subject to normal year-end audit adjustments) by the chief financial
officer of Lessee and furnished to Lessor within sixty (60) days following the
end of the quarter, and such other financial information as may be reasonably
requested by Lessor.
15. Delayed Payment Charge. Lessee shall pay to Lessor interest upon the
amount of any Daily Rent, Monthly Rent or other sums not paid by Lessee when due
and owing under this Lease Agreement, from the due date thereof until paid, at
the rate of one and one half (1-1/2) percent per month, but if such rate
violates applicable law, then the maximum rate of interest allowed by such law.
16. Default.
16.1 The occurrence of any of the following events shall constitute an
event of default ("Event of Default") under this Lease Agreement.
(a) Lessee fails to pay any Daily Rent or any Monthly Rent when due
and such failure to pay continues for ten (10) consecutive days; or
(b) Lessee fails to pay any other sum required hereunder, and such
failure continues for a period of ten (10) days following written notice
from Lessor; or
(c) Lessee fails to maintain the insurance as required by Section
11 above and such failure continues for ten (10) days after written notice
from Lessor; or
(d) Lessee violates or fails to perform any other term, covenant or
condition of this Lease Agreement or any other document, agreement or
instrument executed pursuant hereto or in connection herewith, which
failure is not cured within thirty (30) days after written notice from
Lessor; or
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(e) Lessee ceases to exist or terminates its independent operations
by reason of any discontinuance, dissolution, liquidation, merger, sale of
substantially all of its assets, or otherwise ceases doing business as a
going concern; or
(f) Lessee (i) applies for or consents to the appointment of, or the
taking of possession by, a receiver, custodian, trustee, liquidator or
similar official for itself or for all or a substantial part of its
property, (ii) is generally not paying its debts as such debts become due,
(iii) makes a general assignment for the benefit of its creditors, (iv)
commences a voluntary case under the United States Bankruptcy Code, as now
or hereafter in effect, seeking liquidation, reorganization or other relief
with respect to itself or its debts, (v) files a petition seeking to take
advantage of any other law providing for the relief of debtors, (vi) takes
any action under the laws of its jurisdiction of incorporation or
organization similar to any of the foregoing, or (vii) takes any corporate
action for the purpose of effecting any of the foregoing; or
(g) A proceeding or case is commenced, without the application or
consent of Lessee, in any court of competent jurisdiction, seeking (i) the
liquidation, reorganization, dissolution, winding up of Lessee or
composition or readjustment of the debts of Lessee, (ii) the appointment of
a trustee, receiver, custodian, liquidator or similar official for Lessee
or for all or any substantial part of its assets, or (iii) similar relief
with respect to Lessee under any law providing for the relief of debtors;
or an order for relief is entered with respect to Lessee in an involuntary
case under the United States Bankruptcy Code, as now or hereafter in
effect, or an action under the laws of the jurisdiction of incorporation or
organization of Lessee, similar to any of the foregoing, is taken with
respect to Lessee without its application or consent; or
(h) Lessee makes any representation or warranty herein or in any
statement or certificate at any time given in writing pursuant to or in
connection with this Lease Agreement, which is false or misleading in any
material respect; or
(i) Lessee defaults under any promissory note, credit agreement, loan
agreement, conditional sales contract, guaranty, lease, indenture, bond,
debenture or other material obligation whatsoever, and a party thereto or a
holder thereof is entitled to accelerate the obligations of Lessee
thereunder; or Lessee defaults in meeting any of its trade, tax or other
current obligations as they mature, unless such obligations are being
contested diligently and in good faith; or
(j) Any party to any guaranty, letter of credit, subordination or
credit agreement or other undertaking, given for the benefit of Lessor and
obtained in connection with this Lease Agreement, breaches, fails to
continue, contests, or purports to terminate or to disclaim such guaranty,
letter of credit, subordination or credit agreement or other undertaking;
or such guaranty, letter of credit, subordination agreement or other
undertaking becomes unenforceable; or a guarantor of this Lease Agreement
shall die, cease to exist or terminate its independent operations.
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16.2 No waiver by Lessor of any Event of Default shall constitute a
waiver of any other Event of Default or of the same Event of Default at any
other time.
17. Remedies.
17.1 Upon the occurrence of an Event of Default and while such Event of
Default is continuing, Lessor, at its sole option, upon its declaration, and to
the extent not inconsistent with applicable law, may exercise any one or more of
the following remedies:
(a) Lessor may terminate this Lease Agreement whereupon all rights
of Lessee to the quiet enjoyment and use of the Equipment shall cease;
(b) Whether or not this Lease Agreement is terminated, Lessor may
cause Lessee, at the sole cost and expense of Lessee, to return any or all
of the Equipment promptly to the possession of Lessor in good repair and
working order, reasonable wear and tear excepted. Lessor, at its sole
option and through its employees, agents or contractors, may peaceably
enter upon the premises where the Equipment is located and take immediate
possession of and remove the Equipment, all without liability to Lessor,
its employees, agents or contractors for such entry. LESSEE HEREBY WAIVES,
TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHTS TO NOTICE
AND/OR HEARING PRIOR TO THE REPOSSESSION OR REPLEVIN OF THE EQUIPMENT BY
LESSOR, ITS EMPLOYEES, AGENTS OR CONTRACTORS;
(c) Lessor may proceed by court action to enforce performance by
Lessee of this Lease Agreement or pursue any other remedy Lessor may have
hereunder, at law, in equity or under any applicable statute, and recover
such other actual damages as may be incurred by Lessor;
(d) Lessor may recover from Lessee damages, not as a penalty but as
liquidation for all purposes and without limitation of any other amounts
due from Lessee under this Lease Agreement, in an amount equal to the sum
of (i) any unpaid Daily Rents and/or Monthly Rents due and payable for
periods prior to the repossession of the Equipment by Lessor plus any
interest due thereon pursuant to Section 15 above, (ii) the present value
of all future Monthly Rents required to be paid over the remaining Initial
Term or any Extended Term after repossession of the Equipment by Lessor,
determined by discounting such future Monthly Rents to the date of payment
by Lessee at a rate of five (5) percent per annum, and (iii) all costs and
expenses incurred in searching for, taking, removing, storing, repairing,
restoring, refurbishing and leasing or selling such Equipment; or
(e) Lessor may sell, lease or otherwise dispose of any or all of
the Equipment, whether or not in the possession of Lessor, at public or
private sale and with or without notice to Lessee, which notice is hereby
expressly waived by Lessee, to the extent permitted by and not inconsistent
with applicable law. Lessor shall then apply against the obligations of
Lessee hereunder the net proceeds of such sale, lease or other disposition,
after deducting therefrom (i) the present value of the residual value of
the Equipment at the expiration of the Initial Term, which is anticipated
by Lessor and Lessee to be not less than twenty (20) percent of the
Acquisition Cost, such present
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value to be determined by discounting the residual value to the date of
sale, lease or other disposition at a rate of five (5) percent per annum,
and (ii) all costs incurred by Lessor in connection with such sale, lease
or other disposition including, but not limited to, costs of
transportation, repossession, storage, refurbishing, advertising or other
fees. Lessee shall remain liable for any deficiency, and any excess of such
proceeds over the total obligations owed by Lessee shall be retained by
Lessor. If any notice of such sale, lease or other disposition of the
Equipment is required by applicable law, ten (10) days written notice to
Lessee shall be deemed reasonable.
17.2 No failure on the part of Lessor to exercise, and no delay in
exercising, any right or remedy hereunder shall operate as a waiver thereof. No
single or partial exercise of any right or remedy hereunder shall preclude any
other or further exercise thereof or the exercise of any other right or remedy.
Each right and remedy provided hereunder is cumulative and not exclusive of any
other right or remedy including, without limitation, any right or remedy
available to Lessor at law, by statute or in equity.
17.3 Lessee shall pay all costs and expenses including, but not limited
to, reasonable legal fees incurred by Lessor arising out of or in connection
with any Event of Default or this Lease Agreement. Lessee shall also be liable
for any amounts due and payable to Lessor under any other provision of this
Lease Agreement including, but not limited to, amounts due and payable under
Section 18 below.
18. Tax Indemnification.
18.1 Lessee represents and warrants that the Equipment is and will
remain, during the entire Initial Term and any Extended Term, property used in a
trade or business or for the production of income within the meaning of Section
167 of the Internal Revenue Code of 1986, as amended ("Code"). Lessee further
acknowledges and agrees that, pursuant to the Code, Lessor or its affiliated
group, as defined in Section 1504 of the Code ("Affiliated Group"), shall be
entitled to deductions for the recovery of the Acquisition Cost of the Equipment
over the recovery period as set forth in the applicable Equipment Schedule,
using the Accelerated Cost Recovery System as provided by Section 168 (b) (1) of
the Code ("ACRS Deductions").
18.2 If as a result of any reason or circumstance whatsoever, except as
specifically set forth in Section 18.3 below, Lessor or its Affiliated Group
shall not be entitled to, shall not be allowed, shall suffer recapture of or
shall lose any ACRS Deductions, then Lessee shall pay to Lessor, upon demand, a
sum to be computed by Lessor in the following manner. Such sum, after deduction
of all federal, state and local income taxes payable by Lessor as a result of
the receipt of such sum, shall be sufficient to restore Lessor or its Affiliated
Group to substantially the same position, on an after-tax basis, as it would
have been in but for the loss of such ACRS Deductions. In making its
computation, Lessor or its Affiliated Group shall Considers but shall not be
limited to, the following factors: (i) the amounts and timing of any net loss of
tax benefits resulting from any such lack of, entitlement to or loss, recapture,
or disallowance of ACRS Deductions but offset by any tax benefits derived from
any depreciation or other capital recovery deductions or exclusions from income
allowed to Lessor or its Affiliated Group with respect to the same Equipment;
(ii) penalties, interest or other charges imposed; (iii) differences in tax
years involved; and (iv) the time value of money at a reasonable rate
determined, in good faith, by Lessor. For purposes of computation only, the
amount of indemnification payments
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hereunder shall be calculated on the assumption that Lessor and its Affiliated
Group have or will have, in all tax years involved, sufficient taxable income
and the tax liability to realize all tax benefits and incur all losses of tax
benefits at the highest marginal Federal corporate income tax rate in each year.
Upon request, Lessor shall provide Lessee with the methods of computation used
in determining any sum that may be due and payable by Lessee under this Section
18.
18.3 Lessee shall not be obligated to pay any sums required under this
Section 18 in the event that lack of entitlement to, or loss, recapture or
disallowance of any ACRS Deductions results from one or more of the following
events: (i) a disqualifying disposition due to the sale of the Equipment by
Lessor when no Event of Default, as defined in Section 16 above, has occurred,
(ii) a failure of Lessor or its Affiliated Group to timely claim any ACRS
Deductions for the Equipment in its tax return, and/or (iii) the fact that
Lessor or its Affiliated Group does not have, in any taxable year or years,
sufficient taxable income or tax liability to realize the benefit of any ACRS
Deductions that are otherwise allowable to Lessor or its Affiliated Group.
18.4 The representations, obligations and indemnities of Lessee under
this Section 18 shall continue in full force and effect, notwithstanding the
expiration or other termination of this Lease Agreement.
19. Assignment; Sublease.
19.1 Lessor may sell, assign or otherwise transfer all or any part of
its right, title and interest in and to the Equipment and/or this Lease
Agreement to a third-party assignee, subject to the terms and conditions of this
Lease Agreement including, but not limited to, the right to the quiet enjoyment
of the Equipment by Lessee as set forth in Section 7.1 above. Such assignee
shall assume all of the rights and obligations of Lessor under this Lease
Agreement and shall relieve Lessor therefrom. Thereafter, all references to
Lessor herein shall mean such assignee. Notwithstanding any such sale,
assignment or transfer, the obligations hereunder shall remain absolute and
unconditional as set forth in Section 7.2 above.
19.2 Lessor may also pledge, mortgage or grant a security interest in the
Equipment and assign this Lease Agreement as collateral. Each such pledgee,
mortgagee, lienholder or assignee shall have any and all rights as may be
assigned by Lessor but none of the obligations of Lessor hereunder. Any pledge,
mortgage or grant of security interest in the Equipment or assignment of this
Lease Agreement shall be subject to the terms and conditions hereof including,
but not limited to, the right to the quiet enjoyment of the Equipment by Lessee
as set forth in Section 7.1 above. Lessor, by reason of such pledge, mortgage,
grant of security interest or collateral assignment, shall not be relieved of
any of its obligations hereunder which shall remain absolute and unconditional
as set forth in Section 7.2 above. Upon the written request of Lessor, Lessee
shall acknowledge such obligations the pledgee, mortgagee, lienholder or
assignee.
19.3 LESSEE SHALL NOT SELL, TRANSFER, ASSIGN, SUBLEASE, CONVEY OR PLEDGE
ANY OF ITS INTEREST IN THIS LEASE AGREEMENT OR ANY OF THE EQUIPMENT, WITHOUT THE
PRIOR WRITTEN CONSENT OF LESSOR. Any such sale, transfer, assignment, sublease,
conveyance or pledge, whether by operation of law or otherwise, without the
prior written consent of Lessor, shall be void.
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20. Optional Performance By Lessor. If an Event of Default, as defined
in Section 16 above, occurs and is continuing, Lessor in its sole discretion may
pay or perform such obligation in whole or in part, without thereby becoming
obligated to pay or to perform the same on any other occasion or to pay any
other obligation of Lessee. Any payment or performance by Lessor shall not be
deemed to cure any Event of Default hereunder. Upon such payment or performance
by Lessor, Lessee shall pay forthwith to Lessor the amount of such payment or an
amount equal to all costs and expenses of such performance, as well as any
delayed payment charges on such amounts as set forth in Section 15 above.
21. Compliance and Approvals. Lessee warrants and agrees that this Lease
Agreement and the performance by Lessee of all of its obligations hereunder have
been duly authorized, do not and will not conflict with any provision of the
charter or bylaws of Lessee or of any agreement, indenture, lease or other
instrument to which Lessee is a party or by which Lessee or any of its property
is or may be bound. Lessee warrants and agrees that this Lease Agreement does
not and will not require any governmental authorization, approval, license or
consent except those which have been duly obtained and will remain in effect
during the entire Initial Term and any Extended Term.
22. Miscellaneous.
22.1 The section headings are inserted herein for convenience of
reference and are not part of and shall not affect the meaning or interpretation
of this Lease Agreement.
22.2 Any provision of this Lease Agreement which is unenforceable in
whole or in part in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such unenforceability without invalidating any
remaining part or other provision hereof and shall not be affected in any manner
by reason of such enforceability in any other jurisdiction. The validity and
interpretation of this Lease Agreement and the rights and obligations of the
parties hereto shall be governed in all respects by the laws of The Commonwealth
of Massachusetts without giving effect to the conflicts of laws provisions
thereof.
22.3 This Lease Agreement, including all Equipment Schedules and
Certificates of Acceptance, constitutes the entire agreement between Lessor and
Lessee. Lessor and Lessee agree that this Lease Agreement shall not be amended,
altered or changed except by a written agreement signed by the parties hereto.
LESSEE ACKNOWLEDGES THAT THERE HAVE BEEN NO REPRESENTATIONS, EXPRESS OR IMPLIED,
BY LESSOR OTHER THAN AS SET FORTH HEREIN AND LESSEE EXPRESSLY CONFIRMS THAT IT
HAS NOT RELIED UPON ANY REPRESENTATIONS BY LESSOR, EXCEPT THOSE SET FORTH
HEREIN, AS A BASIS FOR ENTERING INTO THIS LEASE AGREEMENT.
22.4 Any notice required to be given by Lessee or Lessor hereunder shall
be deemed adequately given if sent by registered or certified mail, return
receipt requested, to the other party at their respective addresses stated
herein or at such other place as either party may designate in writing to the
other.
22.5 Lessee agrees to execute and deliver such additional documents and
to perform such further acts as may be reasonably requested by Lessor in order
to carry out and effectuate
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the purposes of this Lease Agreement. Upon the written request of Lessor, Lessee
further agrees to execute any instrument necessary for filing or recording this
Lease Agreement or to confirm the ownership of the Equipment by Lessor. Lessor
is hereby authorized to insert in any Equipment Schedule the serial numbers of
the Equipment and other identifying marks or similar information and to sign, on
behalf of Lessee, any Uniform Commercial Code financing statements.
22.6 This Lease Agreement cannot be cancelled or terminated except as
expressly provided herein.
22.7 Whenever the context of this Lease Agreement requires, the singular
includes the plural and the plural includes the singular. Whenever the word
Lessor is used herein, it includes all assignees and successors in interest of
Lessor. If more than one Lessee are named in this Lease Agreement, the
liability of each shall be joint and several.
22.8 All agreements, indemnities, representations and warranties of
Lessee made herein and all rights and remedies of Lessor shall survive the
expiration or other termination of this Lease Agreement, whether or not
expressly provided herein.
22.9 Any waiver of any power, right, remedy or privilege of Lessor
hereunder shall not be effective unless in writing signed by Lessor.
22.10 This Lease Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, Lessor and Lessee, each by its duly authorized officer
or agent, have duly executed and delivered this Lease Agreement, which is
intended to take effect as a sealed instrument, as of the day and year first
written above.
Benchmarq Microelectronics, Inc.
By /s/ R. Scott Schaefer
----------------------
Title Corporate Controller & Assistant Secretary
------------------------------------------
Accepted at Boston, Massachusetts
BANCBOSTON LEASING INC.
By /s/ Susan Sintros
-----------------
Title Assistant Vice President
------------------------
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RIDER NO. 1 TO THE
MASTER LEASE AGREEMENT
This Rider No. 1 (the "Rider") is entered into between BancBoston Leasing
Inc. ("Lessor") and Benchmarq Microelectronics, Inc. ("Lessee"), and is
contemporaneous with and amends the Master Lease Agreement dated as of September
16 , 1997 (the "Lease Agreement") between Lessor and Lessee. It is the
intention of Lessor and Lessee that, upon execution, this Rider shall constitute
a part of the Lease Agreement.
IN CONSIDERATION OF the mutual covenants and promises as hereinafter set
forth, Lessor and Lessee hereby agree as follows:
1. All capitalized terms used in this Rider shall, unless otherwise
defined, have the meanings set forth in the Lease Agreement.
2. At the end of Section 2.4 of the Lease Agreement before the period,
insert the following: "plus the Administration Fee (as defined in Section 23
below) as set forth on such Equipment Schedule";
3. Delete Section 2.5 in its entirety and replace it with the following:
"2.5 The "Daily Rent" shall mean the Acquisition Cost multiplied by
the rate used to calculate the Monthly Rent as shown on each Equipment Schedule,
based on a 360 day year.";
4. In the fourth line of Section 5.3 of the Lease Agreement, after the
word "... comply ..." insert the words "... in all material respects ...".
5. Delete the first sentence of Section 6 of the Lease Agreement and
replace with the following:
"Lessee may make or cause to be made on its behalf, any improvement or any
minor modification or addition to the Equipment which does not decrease the
value of the Equipment. Lessee may also make or cause to be made on its behalf
any other improvement, modification or addition to the Equipment with the prior
written consent of Lessor, provided, however, that such improvement,
modification or addition is readily removable without causing damage to or
impairment of the functional effectiveness of the Equipment."
6. In the second line of Section 7.2 of the Lease Agreement after the
word "... WHATSOEVER ..." insert the words "... (OTHER THAN THE INABILITY TO USE
THE EQUIPMENT RESULTING FROM LESSOR'S BREACH OF Section 7.1 above) ...".
7. In the third line of Section 9.1 of the Lease Agreement, after the
word "... ownership ..." insert the words "... (other than relating to liens
arising by or through Lessor) ...".
8. In the fourth line of Section 9.2 of the Lease Agreement after the
word "... income ..." insert the words "... or revenue ...".
9. In the ninth line of Section 10.2 of the Lease Agreement delete the
words "... of five (5) percent ..." and insert in lieu thereof the words "...
set forth on the applicable Equipment Schedule as the Discount Rate ...".
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10. At the end of Section 10.3 of the Lease Agreement add the following:
"Notwithstanding the above, Lessor shall warrant that title to the
Equipment shall be free and clear of all liens, claims and encumbrances arising
by or through Lessor."
11. In the first line of Section 11.1 of the Lease Agreement after the
words "... against all ..." insert the word "... insurable ...".
12. In the second sentence of Section 11.2 of the Lease Agreement delete
the words "... such insurers ..." and insert in lieu thereof the words "... The
Travelers Insurance Company of Connecticut or other insurer satisfactory to
Lessor ...".
13. At the end of Section 13 of the Lease Agreement add the following:
"Notwithstanding the above, Lessor shall warrant that title to the
Equipment shall be free and clear of all liens, claims and encumbrances arising
by or through Lessor...".
14. At at the end of Section 14 of the Lease Agreement add the following:
"Lessee shall also provide a copy of the foregoing to:
BankBoston N.A.
Mail Stop 01 08 06
P.O. Box 2016
Boston, MA 02106-2016
Attn.: Joseph Massimo"
15. At the end of Section 14 of the Lease Agreement add the following:
"SECTION 14A. FINANCIAL COVENANTS.
14A.1. The following defined terms shall have the meanings assigned:
(a) CONSOLIDATED NET WORTH. At any date as of which the amount thereof
shall be determined, the consolidated total assets of the Lessee and its
Subsidiaries minus the sum of any amounts attributable to the value of any
minority interests in Subsidiaries and Consolidated Total Liabilities.
(b) CONSOLIDATED TOTAL LIABILITIES. At any date as of which the amount
thereof shall be determined, all obligations that should, in accordance with
generally accepted accounting principles, be classified as liabilities on the
consolidated balance sheet of the Lessee and its Subsidiaries, including in any
event all Indebtedness.
(c) INDEBTEDNESS. As applied to the Lessee and its Subsidiaries, (i) all
obligations for borrowed money or other extensions of credit, including all
obligations representing the deferred purchase price of property, other than
accounts payable arising in the ordinary course of business, (ii) all
obligations evidenced by bonds, notes, debentures or other similar instruments,
(iii) all obligations secured by any mortgage, pledge, security interest or
other lien on property owned or acquired by the Lessee or any of its
Subsidiaries whether or not the obligations secured thereby shall have been
assumed, (iv) that portion of all obligations arising under capital leases that
is required to be capitalized on the consolidated balance sheet of the Lessee
and its Subsidiaries, (v) all guarantees, and (vi) all obligations that are
immediately due and payable out of the proceeds of or production from property
now or hereafter owned or acquired by the Lessee or any of its Subsidiaries.
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(d) SUBSIDIARY. Any corporation, association, joint stock company,
business trust or other similar organization of which 50% or more of the
ordinary voting power for the election of a majority of the members of the board
of directors or other governing body of such entity is held or controlled by the
Lessee or a Subsidiary of the Lessee; or any other such organization the
management of which is directly or indirectly controlled by the Lessee or a
Subsidiary of the Lessee through the exercise of voting power or otherwise; or
any joint venture, whether incorporated or not, in which the Lessee has a 50%
ownership interest.
(e) ACCOUNTING TERMS. All terms of an accounting character shall have the
meanings assigned thereto by generally accepted accounting principles applied on
a basis consistent with the financial statements referred to in Section 14.
14A.2. During the Lease Term, Lessee represents, covenants and agrees
as follows:
(a) CONSOLIDATED TOTAL LIABILITIES TO CONSOLIDATED NET WORTH RATIO. The
Lessee shall at all times maintain a ratio of Consolidated Total Liabilities to
Consolidated Net Worth not in excess of 0.75 : 1.00.
(b) QUICK RATIO. Lessee shall at all times maintain a "Quick Ratio" of
(i) cash and cash equivalents plus accounts receivable plus short-term
investments to (ii) current liabilities of not less than 1.50 : 1.0 as of the
end of each fiscal quarter.
(c) COMPLIANCE CERTIFICATE. Lessee further agrees to quarterly provide to
Lessor a certificate of compliance substantially in the form attached hereto as
Schedule A with a copy to:
BankBoston, N. A.
Mail Stop 01 08 06
P.O. Box 2016
Boston, MA 02106-2016
Attn.: Joseph Massimo"
(e) PROFITS. Lessee shall, as of the end of each quarter, earn profit
before taxes of not less than $500,000."
16. In the first line of Section 16.1(g) of the Lease Agreement after the
word "... Lessee ..." insert the words "... and is not stayed or dismissed
within fifteen (15) days ...".
17. At the end of Section 16.1(j) of the Lease Agreement, immediately
before the period, insert the following:
"... and Lessor has not received in lieu thereof a substitute guaranty or
other collateral acceptable to Lessor ...".
18. At the end of Section 16.1(j) of the Lease Agreement delete the period
and add the following:
"; or (k) Lessee violates or fails to perform any representation, covenant
or agreement set forth in Section 14A.2."
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19. In the fourth line of Section 17.1(b) of the Lease Agreement after the
word "... Lessor ..." insert the words "... (except that Lessor shall be liable
for its gross negligence)...".
20. At the beginning of the last sentence in Section 17.1(e) of the Lease
Agreement add the words "... Notwithstanding anything to the contrary above,
...".
21. Delete Section 18 of the Lease Agreement and insert the following:
"18. Tax Indemnification
18.1 This Lease Agreement has been entered into by Lessor and Lessee under
the assumption that Lessor or its affiliated group ("Affiliated Group"), as
defined in Section 1504 of the Internal Revenue Code of 1986, as amended, (the
"Code") will be treated as the owner of the Equipment and will be entitled to
such deductions and other benefits that are provided by the Code including,
without limitation, deductions for the recovery of the Acquisition Cost of the
Equipment, over the recovery period ("Recovery Period") set forth on the
applicable Equipment Schedule, using the Accelerated Cost Recovery System as
provided by Section 168 of the Code ("ACRS Deductions").
18.2 Lessee represents, covenants and warrants the following:
(a) Neither Lessee, nor any affiliate of Lessee, nor any other party (i)
has claimed or will claim any ACRS Deductions, or any other deductions in the
nature of cost recovery or depreciation with respect to the Equipment, or (ii)
has made or will make any election under the Code regarding the method or the
period for cost recovery or deductions for personal property which will be
binding upon Lessor and which will adversely affect the assumptions set forth in
Section 18.1 above with respect to the Equipment or (iii) shall, at any time,
take any action or file any returns or other documents inconsistent with the
assumptions set forth in Section 18.1 above.
(B) In the event the Equipment has been sold to Lessor by Lessee and
leased back from Lessor by Lessee, such Equipment does not constitute property
placed in service in a churning transaction within the meaning of Section
168(f)(5) of the Code.
(c) The Equipment has not been manufactured or produced in any foreign
country which is subject to an Executive Order of the President of the United
States that would deny the availability of ACRS Deductions to Lessor.
(d) The Acquisition Cost of the Equipment does not exceed the fair market
value of the Equipment.
(e) When delivered and accepted under the Lease Agreement, the Equipment
will not require any improvements, modifications, or additions (other than
ancillary or incidental items of removable equipment) in order to be rendered
complete for its intended use by Lessee.
(f) At the time the Equipment is accepted under the Lease Agreement,
Lessee and, if applicable, any member of its Affiliated Group shall have been
fully reimbursed for any portion of the Acquisition Cost of the Equipment which
it may have furnished; furthermore, on the applicable Commencement Date and
during the Initial Term, neither Lessee nor any member of its Affiliated Group
shall have any investment in the Equipment.
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<PAGE>
(g) The Equipment will be placed in service on the applicable
Commencement Date and will be used in a trade or business or will be held for
the production of income within the meaning of Section 167 of the Code.
(h) From the applicable Commencement Date and during the Initial Term,
the Equipment will constitute and will be treated as (i) "recovery property"
within the meaning of Section 168 of the Code, and (ii) property with the
Recovery Period set forth in the applicable Equipment Schedule determined in
accordance with Section 168(c) of the Code.
(i) From the applicable Commencement Date and during the Initial Term,
the Equipment will not constitute, or be treated as, (i) "tax exempt use
property" within the meaning of Section 168(h) of the Code which would cause
Lessor to fail to realize, lose, or suffer diminution, deferral, or recapture of
any of the ACRS Deductions described in Section 18.1 above, or (ii) "limited use
property" within the meaning of Rev. Proc. 76-30, 1976 C. B. 647.
(j) During the Initial Term, the Equipment will not be used
"predominantly outside the United States" within the meaning of Section
168(g)(4) of the Code.
(k) During the Initial Term, Lessor shall not be required to include in
its gross income for Federal income tax purposes any amount derived from the
cost of any alteration, addition, improvement, modification, replacement, or
substitution of the Equipment or from any refund or credit from the manufacturer
or supplier of the Equipment.
18.3 A tax loss ("Tax Loss") shall be deemed to have occurred under this
Section 18 if Lessor or its Affiliated Group, for Federal income tax purposes,
shall not be entitled to, shall not be allowed, shall suffer recapture of or
shall lose any of the ACRS Deductions, as a result of:
(a) Lessee's breach of, or its failure to comply with, any
representation, covenant, or warranty set forth in Section 18.2 above, or the
inaccuracy of any such representation;
(b) the occurrence of an Event of Default as defined in Section 16 of the
Lease Agreement;
(c) the replacement, substitution, loss, seizure, condemnation,
destruction or governmental requisitioning of the Equipment; or
(d) any act (whether or not permitted or required under this Lease
Agreement) or any omission of Lessee, any affiliate of Lessee, any sublessee or
assignee of Lessee, or any entity, other than Lessor, having possession, control
or use of the Equipment (whether or not such possession, control or use may be
authorized or unauthorized).
18.4 If a Tax Loss occurs, then Lessee shall pay to Lessor, upon demand, a
sum to be computed by Lessor in the following manner. Such sum, after deduction
of all Federal, state and local income taxes payable by Lessor as a result of
the receipt of such sum, shall be sufficient to restore Lessor or its Affiliated
Group to substantially the same position, on an aftertax basis, as it would have
been in but for the loss of such ACRS Deductions. In making its computation,
Lessor or its Affiliated Group shall consider, but shall not be limited to, the
following factors: (i) the amounts and timing of any net loss of tax benefits
resulting from any such lack of entitlement to or loss, recapture, or
disallowance of ACRS Deductions but offset by any tax benefits derived from any
depreciation or other capital recovery deductions or exclusions from income
allowed to Lessor or its Affiliated Group with respect to the same Equipment;
(ii) penalties, interest or other charges imposed; (iii) difference in tax years
involved; and (iv) the time value of money at a reasonable rate determined, in
good faith, by Lessor. For purposes of computation only, the
18
<PAGE>
amount of indemnification payments hereunder shall be calculated on the
assumption that Lessor and its Affiliated Group have or will have, in all tax
years involved, sufficient taxable income and tax liability to realize all tax
benefits and incur all losses of tax benefits at the highest marginal Federal
corporate income tax rate in each year. Upon request, Lessor shall provide
Lessee with the methods of computation used in determining any sum that may be
due and payable by Lessee under this Section 18.
18.5 (a) Upon receipt by Lessor of written advice from the Internal
Revenue Service of a proposed disallowance or adjustment which gives rise to an
indemnity obligation under this Section 18 (the "Claim"), Lessor will notify
Lessee in writing. Upon the written request of Lessee which must be received by
Lessor within 45 days of such notice, Lessor shall contest the Claim provided
that (i) an Event of Default under Section 16 of this Lease Agreement has not
occurred and is continuing, (ii) Lessee has furnished Lessor with a written
opinion of independent tax counsel acceptable to Lessor to the effect that there
is a meritorious defense to the Claim and the success for such defense is more
likely than not, and (iii) Lessee shall have agreed, in writing, to pay Lessor,
on demand and regardless of the outcome, all expenses which Lessor may incur in
contesting the Claim including, without limitation, legal and accounting fees.
Lessor shall, thereupon, contest the Claim in any permissible forum selected by
Lessor either by resisting payment of the Claim or by making payment of the
Claim and suing for a refund. If Lessor determines to pay the Claim and sue for
a refund, Lessee shall, within 10 days of Lessor's written request, pay to
Lessor an amount equal to the sum, on an after-tax basis, of the Claim which the
Internal Revenue Service requires to be paid. During any proceedings in
connection with the Claim, Lessor shall control all negotiations and litigation
but shall, from time to time, consult with Lessee or its counsel. Upon any
adverse decision on the Claim in the forum chosen by Lessor, Lessor shall
institute an appeal if requested to do so by Lessee provided that independent
tax counsel acceptable to Lessor furnishes Lessor with a written opinion to the
effect that there is a meritorious basis for an appeal and the success for such
appeal is more likely than not. Notwithstanding the foregoing, Lessor shall not
be obligated to appeal any such adverse decision beyond the United States
District Courts or the United States Tax Court.
(b) A "Final Determination" of the Claim means a final decision of the
Internal Revenue Service or a court of competent jurisdiction after all contests
or appeals requested by Lessee pursuant to Section 18.5(a) have been either
exhausted or terminated as may be agreed upon by Lessor and Lessee. If the Final
Determination of the Claim is all or parfly adverse to Lessor, the liability of
Lessee to indemnify Lessor shall be fixed and payable as provided in Section
18.4 provided, however, that Lessor shall credit Lessee with any amounts
previously paid by Lessee under Section 18.5(a) above. If the Final
Determination of the Claim is all or partly in favor of Lessor, then Lessor,
upon receipt of any refund from the Internal Revenue Service, shall reimburse
Lessee the portion of such refund which exceeds the indemnity obligation of
Lessee under this Section 18 with respect to any portion of the Claim not
resolved in favor of Lessor.
(c) Notwithstanding the provisions of this Section 18.5, Lessor may
decline to contest all or any portion of the Claim upon written notice to Lessee
and Lessee shall thereupon be relieved of its obligation to indemnify Lessor
under this Section 18 with respect to the portion of the Claim described in the
notice.
(d) Nothing in this Section 18.5 shall be construed as granting any right
to Lessee to request a contest of any lack of entitlement to, or any loss,
disallowance or recapture of ACRS Deductions arising in connection with events
described in Section 10 of the Lease Agreement, or from a sale or other
disposition of the Equipment upon an Event of Default as set forth in Section 16
of the Lease Agreement.
19
<PAGE>
18.6 The representations, obligations and indemnities of Lessee under
this Section 18 shall continue in full force and effect, notwithstanding the
expiration or other termination of this Lease Agreement."
22. In the second line of Section 19.1 of the Lease Agreement after the
word "... assignee ..." insert the words "... with the prior written consent of
Lessee, such consent not to be unreasonably withheld and ...".
23. In the fourth line of Section 19.2 of the Lease Agreement, delete
the word "... Lessor ..." and replace with the word "... Lessee ...".
24. Delete the third sentence in Section 22.3 of the Lease Agreement and
replace with the following:
"LESSOR AND LESSEE ACKNOWLEDGE AND AGREE THAT THERE HAVE BEEN NO
REPRESENTATIONS, EXPRESS OR IMPLIED, BY THE OTHER PARTY, OTHER THAN AS SET FORTH
HEREIN AND EACH PARTY EXPRESSLY CONFIRMS THAT IT HAS NOT RELIED UPON ANY
REPRESENTATIONS BY THE OTHER PARTY, EXCEPT THOSE SET FORTH HEREIN, AS A BASIS
FOR ENTERING INTO THIS LEASE AGREEMENT."
25. Add the following section following Section 22 of the Lease
Agreement:
"23. Monthly Administration Fee. Lessee agrees to pay to Lessor a monthly
fee ("Administration Fee") for administration of the Lease Agreement, including
performing such functions as filing and maintaining precautionary lease filings
in the form of Uniform Commercial Code filings, monitoring lease-line
commitments (if any), preparing and processing purchase agreements and
assignments with manufacturers and suppliers, preparing and filing state and
local tax returns, and various other such functions performed by Lessor in
connection with this Lease Agreement and the Equipment. The Administration Fee
shall be set forth on the applicable Equipment Schedule and shall be payable
during the Initial Term and any Extended Term at the same times and in the same
manner as the Monthly Rent."
The terms and conditions of this Rider shall prevail where there may be
conflicts or inconsistencies with the terms and conditions of the Lease
Agreement.
20
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee, each by its duly authorized officer
or agent, have duly executed and delivered this Rider which is intended to take
effect as a sealed instrument as of the date of the Lease Agreement.
BENCHMARQ MICROELECTRONICS, INC.
By: /s/ R. Scott Schaefer
---------------------
Title: Corporate Controller & Assistant Secretary
------------------------------------------
Accepted at Boston, Massachusetts
BANCBOSTON LEASING INC.
By: /s/ Susan Sintros
-----------------
Title: Assistant Vice President
------------------------
21
<PAGE>
SCHEDULE A
REPORT OF CHIEF FINANCIAL OFFICER
[Financial Covenants pursuant to Section 14A.2 of the Master Lease Agreement
dated as of the __ day of September, 1997]
I, _________________________, the Chief Financial Officer of Benchmarq
Microelectronics, Inc. (the "Lessee") hereby certify on behalf of Lessee that:
1. RATIO OF CONSOLIDATED TOTAL LIABILITIES TO CONSOLIDATED NET WORTH
(SECTION 14A.2(a))
(i) Consolidated total assets of
the Lessee and its Subsidiaries $
----------
(ii) Excluded item /1/ (if any) $
----------
(iii) Consolidated Total Liabilities
of the Lessee and its Subsidiaries $
----------
(iv) Consolidated Net Worth
[(i) minus the sum of
(ii) and (iii)] $
----------
(v) Ratio of Consolidated Total
Liabilities to Consolidated
Net Worth [(iii) to (iv)
expressed as a ratio] ----------
Required Ratio (v): 0.75:1.00
2. QUICK RATIO (SECTION 14A.2(b))
(i) cash and cash equivalents plus accounts receivable
----
plus short-term investments $
---- ----------
(ii) current liabilities $
----------
(iii) Ratio of [(i) to (ii)] ----------
Required Ratio (v): 1.50:1.00
- -----------------------------------
/1/ Excluded item is the value of minority interests in subsidiaries of $_____.
22
<PAGE>
3. INCOME (LOSS) (SECTION 14A.2(e))
(i) Profit before taxes for
immediately ended fiscal quarter
$
----------
(ii) Profit before taxes for
preceding fiscal quarter $
----------
Required profit before taxes status: Not less than $500,000
23
<PAGE>
SCHEDULE B
LIENS AND ENCUMBRANCES (14A.2(d)(ii))
24
<PAGE>
CERTIFICATION OF RESOLUTIONS AND OFFICERS
ADOPTED BY LESSEE
I, R. SCOTT SCHAEFER, do hereby certify that I am the duly, qualified and
acting Assistant Secretary of Benchmarq Microelectronics, Inc. a Delaware
corporation (the "Corporation"), and, as such, have custody of the records of
the Corporation, including the minutes of the meetings of its Board of
Directors. I further certify that, by unanimous consent the Board of Directors
on September 24, 1997, the attached resolutions were duly adopted.
I certify that the resolutions attached are in full force and effect, as of
the date hereof, and have not been modified or rescinded in any respect. I
further certify that there is no provision in the Articles or Certificate of
Incorporation or By-laws of the Corporation limiting or qualifying the power of
the Board of Directors to adopt the foregoing resolutions, that the same are in
conformity with provisions of the Articles or Certificate of Incorporation and
By-laws, and that no shareholder consent is required in connection with any
action authorized by such resolutions.
I further certify that the following persons are duly qualified and acting
officers of the Corporation, each of whom has been duly elected or appointed to
and currently holds the office set forth opposite his or her name. Each such
officer, whose signature is hereby certified, is empowered to act for and on
behalf of the Corporation in the transactions contemplated by the foregoing
resolutions:
Name Title Specimen Signature
R. Scott Schaefer Corporate Controller /s/ R. Scott Schaefer
- ----------------- -------------------- ---------------------
Reginald B. McHone VP Finance & Admin & CFO /s/ Reginald B. McHone
- ------------------ ------------------------ ----------------------
IN WITNESS WHEREOF, I have executed this Certificate and affixed the seal of
the Corporation on the 26th day of September, 1997.
/s/ R. Scott Schaefer
---------------------
Assistant Secretary
(CORPORATE SEAL)
Confirmed
/s/ Reginald B. McHone
- ----------------------
Vice President and Chief Financial Officer
*If the Secretary/Clerk is authorized to act on behalf of the Corporation in
connection with the above resolutions, this Certification must also be confirmed
by another officer.
25
<PAGE>
EXHIBIT A
EQUIPMENT SCHEDULE NO. __
This Equipment Schedule No. ______ is hereby made a part of the MASTER LEASE
AGREEMENT dated as of September 16, 1997 between BancBoston Leasing Inc., as
Lessor, and Benchmarq Microelectronics, Inc., as Lessee.
1. EQUIPMENT DESCRIPTION (including quantity, model/feature, identification
and/or serial number):
2. ACQUISITION COST:
--------------------
3. LEASE TERM:
--------------------
4. MONTHLY RENT:
--------------------
5. RECOVERY PERIOD
--------------------
6. INSTALLATION SITE:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LESSOR: LESSEE:
BANCBOSTON LEASING INC. BENCHMARQ MICROELECTRONICS, INC.
By: By:
------------------------------ ---------------------------------
Title: Title:
--------------------------- ------------------------------
26
<PAGE>
EXHIBIT B
CERTIFICATE OF ACCEPTANCE
TO: BANCBOSTON LEASING INC.
100 FEDERAL STREET
BOSTON, MA 02110
Pursuant to the MASTER LEASE AGREEMENT dated as of September 16, 1997 (the
"Lease Agreement") between BancBoston Leasing Inc. (the "Lessor") and the
undersigned (the lessee), the equipment described on Equipment Schedule No.____
(the Equipment) has been delivered to the location set forth in such
Equipment Schedule, has been found to be in good repair and working order.
The Equipment has been accepted and placed in service by Lessee for all
purposes under the Lease Agreement on ___________________, 19__ (the
"Commencement Date")
Lessee represents, warrants and covenants that: (a) as of the Commencement
Date, all representations set forth in Section 18 of the Lease Agreement apply
to the Equipment accepted hereunder; (b) in the event of a sale and leaseback of
the Equipment, neither Lessee nor any member of its Affiliated Group as defined
in the Lease Agreement has made or will make any election under the Internal
Revenue Code of 1986, as amended (the Code) affecting the depreciation of the
Equipment or any class of property which would apply to the Equipment after the
sale of the Equipment to Lessor by Lessee; (c) in the event of a sale leaseback
of the Equipment, the Equipment will not constitute property placed in service
in a churning transaction within the meaning of section 168(f)(5) of the code;
(d) neither Lessee nor any member of its Affiliated Group filing a consolidated
Federal Income Tax Return will take any deduction for recovery of the cost of
the Equipment; (e) the Equipment has been placed in service under the Lease
Agreement on the Commencement Date; and (f) neither Lessee nor any member of its
Affiliated Group has any investment in the cost of the Equipment.
The execution of this Certificate of Acceptance by Lessee shall not be
construed, in any way, to release or to waive the obligations of any
manufacturer or supplier for any warranties with respect to the Equipment.
The Certificate of Acceptance applicable to Equipment Schedule No. ________
shall constitute a part of the Lease Agreement.
IN WITNESS WHEREOF Lessee, by its duly authorized officer or agent, has
executed and delivered this Certificate of Acceptance which is intended to take
effect as a sealed instrument.
Benchmarq Microelectronics, Inc.
--------------------------------
By:
-----------------------------
27
<PAGE>
RIDER NO. 1
TO
EQUIPMENT SCHEDULE NO. __
TO
MASTER LEASE AGREEMENT
This Rider No. 1 (the "Rider") is entered into between BancBoston Leasing
Inc. ("Lessor") and Benchmarq Microelectronics, Inc. ("Lessee"), and is
contemporaneous with and amends Equipment Schedule No. __ (the "Equipment
Schedule") to that certain Master Lease Agreement dated as of September 16,
1997, including any riders thereto (together the "Lease Agreement") by and
between Lessor and Lessee. It is the intention of Lessor and Lessee that, upon
execution, this Rider shall constitute a part of the Lease Agreement as it
applies to the Equipment Schedule.
IN CONSIDERATION OF the mutual covenants and promises as hereinafter set
forth, Lessor and Lessee hereby agree as follows:
1. All capitalized terms used herein shall have the meanings assigned to
them in the Lease Agreement. The terms of the Rider shall apply only to the
Equipment set forth on the Equipment Schedule.
2. At the end of the new Section 23 of the Lease Agreement, add the
following:
"24. Early Termination and Equipment Purchase. On the fourth
anniversary of the Rent Start Date applicable to this Equipment Schedule
(the "Termination Date"), Lessee shall have the option to terminate the
Lease Agreement in order to purchase all, but not less than all, of the
Equipment set forth on the Equipment Schedule provided that (i) Lessee
shall have given Lessor sixty (60) days prior written notice of its
intention to terminate the Lease Agreement and to purchase all of the
Equipment, and (ii) no Event of Default (or event which upon the passing of
time or the giving of notice, or both, would constitute an Event of
Default) has occurred and is continuing. On or prior to the Termination
Date, Lessee shall pay to Lessor the anticipated fair market value of the
Equipment on the Termination Date which Lessor and Lessee agree shall be
equal to ___% of the Acquisition Cost applicable to the Equipment (the
"Termination Purchase Price"), in addition to all amounts of Monthly Rent
due and owing including, without limitation, Monthly Rent due and owing on
the Termination Date. Upon payment of the Termination Purchase Price, the
Lease Agreement shall be terminated with respect to the Equipment provided,
however, that any liability or obligation of Lessee under the Lease
Agreement with respect to such Equipment shall survive for events occurring
during the Lease Term. Lessor shall thereupon transfer title to the
Equipment to Lessee "AS IS", "WITH ALL FAULTS", and "WITH NO WARRANTIES
WHATSOEVER, EITHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY
WARRANTIES OF MERCHANTIBILITY OR FITNESS FOR USE OR FOR PARTICULAR
PURPOSE."
The terms and conditions of this Rider shall prevail where there may be
conflicts or inconsistencies with the terms and conditions of the Lease
Agreement as it applies to the Equipment Schedule.
28
<PAGE>
BENCHMARQ MICROELECTRONICS, INC.
By:
-----------------------------------
Title:
--------------------------------
BANCBOSTON LEASING INC.
By:
----------------------------------
Title:
-------------------------------
29
<PAGE>
Rider No. 2
-
TO
EQUIPMENT SCHEDULE NO.__
TO
MASTER LEASE AGREEMENT
This Rider No. 2 (the "Rider") is entered into between BancBoston Leasing
-
Inc. ("Lessor") and Benchmarq Microelectronics, Inc. ("Lessee"), and is
contemporaneous with and amends Equipment Schedule No. __ (the "Equipment
Schedule") to that certain Master Lease Agreement dated as of September 16,
-------------
1997, including any riders thereto (together, the "Lease Agreement") by and
- ----
between Lessor and Lessee. It is the intention of Lessor and Lessee that, upon
execution, this Rider shall constitute a part of the Equipment Schedule and the
Lease Agreement.
IN CONSIDERATION OF the mutual covenants and promises as hereinafter set
forth, Lessor and Lessee hereby agree as follows:
1. All capitalized terms used in this Rider shall, unless otherwise
defined, have the meanings set forth in the Lease Agreement. The terms of this
Rider shall apply only to the Equipment set forth on the Equipment Schedule and
the Rider shall constitute a part of the Lease Agreement.
2. Replace Section 3.2 of the Lease Agreement with the following:
"3.2 Provided no Event of Default shall have occurred and be continuing,
the term of this lease shall be automatically extended for successive monthly
periods ("Extended Term") until terminated by either party giving to the other
not more than twelve, nor less than six months prior written notice of Lessee's
election to either purchase, renew or surrender the Equipment, or Lessor's
election to terminate the Lease Agreement. Any such notice of election shall be
effective only on the last day of the Initial Term or the Extended Term, if any,
and shall be sent to Lessor via certified mail, return receipt requested, or
overnight courier, at the address first written in the Lease Agreement, Attn.:
Equipment Management Group. In no event, however, shall the Extended Term
exceed 12 months unless mutually agreed to in writing by both parties."
3. Replace Section 5.3 of the Lease Agreement with the following:
"Lessee shall pay all costs, expenses, fees and charges whatsoever incurred
in connection with the use and operation of the Equipment. In accordance with
manufacturer's recommended maintenance plan, lessee shall, at all times and at
its own expense, keep the Equipment in good repair and working order, reasonable
wear and tear excepted. Any maintenance contract required by a manufacturer or
supplier for the care and upkeep of the Equipment shall be entered into by
Lessee at its sole cost and expense. Lessee shall purchase service contracts
whenever available, and shall provide copies of such contracts to Lessor
promptly upon execution. Lessee shall permit the use and operation of the
Equipment only by competent and licensed (if required) personnel authorized by
Lessee and shall comply with all laws, ordinances, industry standards,
governmental rules and regulations relating to the use and operation of the
Equipment."
4. Replace Section 12 of the Lease Agreement with the following:
"12.1 SURRENDER TO LESSOR. Provided Lessee has properly elected to exercise
its surrender option, or alternatively, upon any other termination of this Lease
Agreement, Lessee shall surrender the Equipment to Lessor by assembling and
delivering the Equipment, ready for shipment, to a place or carrier, as Lessor
may designate, within North America. Lessor shall be immediately authorized to
show the surrendered Equipment to potential buyers upon receipt of notice of
Lessee's election to surrender the Equipment during Lessee's normal business
hours, provided Lessor notifies Lessee at least two business days prior to any
such visit. Upon surrender, the Equipment shall be complete and in good repair
and working order for its originally intended purpose, operate within its rated
30
<PAGE>
capacity, reasonable wear and tear excepted, including, without limitation, (a)
all software and documentation, if any, originally supplied with the Equipment
shall be returned to Lessor, and any or all software enhancements/upgrades made
by the manufacturer or Lessee shall become the property of Lessor. Archival or
other copies made for other purposes shall be destroyed; (b) the Equipment shall
be complete, with all parts, pieces, cabling and accessories, and all literature
and manuals, including but not limited to, all operating instructions, service
manuals, original diagrams, historical records and maintenance documentation
(including without limitation records of all preventive maintenance and repairs,
indicating date and meter usage reading of the same); (c) the Equipment shall be
in compliance with the manufacturer's recommended tolerances for operation and
performance in all material respects, or in the absence of any such recommended
tolerances, in conformity with industry standards, and in any event, with all
applicable laws, ordinances or governmental rules and regulations; (d) Lessee
shall provide Lessor a complete inventory listing of the Equipment, complete
with model numbers, serial numbers and description of modifications made, if
any; (e) the Equipment shall be capable of being immediately assembled and
operated by a third party without further repair, replacement, alteration or
improvement; (f) all costs incurred to deinstall, prepare for shipment, or
transport the Equipment shall be borne by the Lessee, and conducted in
accordance with the manufacturer's recommendations and specifications, or in
their absence, with generally accepted industry standards for new machines at
the time of Lease expiration; (g) the equipment must be decontaminated, steamed
cleaned and free of any hazardous waste material in accordance to all
governmental regulations and any required certificates will be forwarded to
Lessor; and (h) shall remove all decals and markings, insignias, numbers and all
other Lessee identification from the equipment in a professional manner without
physical damage. Lessee shall make use of any special transportation devices and
methods which were used to deliver the Equipment to Lessee, including but not
limited to, cushion padding, metal skids, lifting slings or brackets and
climate-controlled, air ride vans.
Should Lessee fail to comply with the provisions set forth in this section,
the Initial Term or any Extended Term of the applicable Equipment Schedule shall
be extended on a month-to-month basis until all of Lessee's obligations are
fulfilled or until Lessor terminates the applicable Equipment Schedule by thirty
(30) days written notice to Lessee.
The terms and conditions of this Rider shall prevail where there may be
conflicts or inconsistencies with the terms and conditions of the Lease
Agreement as it applies to the Equipment set forth on the Equipment Schedule.
IN WITNESS WHEREOF, Lessor and Lessee, each by its duly authorized officer
or agent, have duly executed and delivered this Rider which is intended to take
effect as a sealed instrument as of the date of the Lease Agreement.
BENCHMARQ MICROELECTRONICS, INC.
--------------------------------
By:
------------------------------------
Title:
---------------------------------
Accepted at Boston, Massachusetts
BANCBOSTON LEASING INC.
By:
------------------------------------
Title:
---------------------------------
31
<PAGE>
EXHIBIT 11
BENCHMARQ MICROELECTRONICS, INC.
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1997 1996 1997 1996
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Earnings:
Net income...................................... $1,648 $2,105 $5,016 $4,422
====== ====== ====== =======
Shares:
Weighted average common shares outstanding...... 6,889 6,671 6,839 6,610
Weighted average common equivalent shares:
Add: Common shares issued on assumed
exercise of stock options and warrants.. 1,618 1,242 1,431 1,137
Less: Shares assumed repurchased 605 579 525 448
------ ------ ------ -------
Weighted average common and common equivalent
shares.......................................... 7,902 7,334 7,745 7,299
====== ====== ====== =======
Earnings per common and common equivalent share... $ 0.21 $ 0.29 $ 0.65 $ 0.61
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1997 CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,773,708
<SECURITIES> 13,170,052
<RECEIVABLES> 4,844,971
<ALLOWANCES> 61,955
<INVENTORY> 4,242,795
<CURRENT-ASSETS> 30,126,904
<PP&E> 10,711,276
<DEPRECIATION> 5,120,507
<TOTAL-ASSETS> 40,801,997
<CURRENT-LIABILITIES> 7,416,740
<BONDS> 0
0
0
<COMMON> 6,976
<OTHER-SE> 32,364,342
<TOTAL-LIABILITY-AND-EQUITY> 40,801,997
<SALES> 33,979,349
<TOTAL-REVENUES> 33,979,349
<CGS> 15,888,890
<TOTAL-COSTS> 26,533,897
<OTHER-EXPENSES> 29,930
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 139,750
<INCOME-PRETAX> 7,759,864
<INCOME-TAX> 2,743,400
<INCOME-CONTINUING> 5,016,464
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,016,464
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0.65
</TABLE>
