10-Q

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 May 31, 2002

OR

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

FOR THE TRANSITION PERIOD FROM ___________ TO _____________

Commission file number 1-11098

SOLECTRON CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	94-2447045
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

777 Gibraltar Drive
Milpitas, California 95035

(Address of principal executive offices including zip code)

(408) 957-8500

(Registrant’s telephone number, including area code)

     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 reports), and (2) has been subject to such filing requirements for the past 90 days.

     YES [X]  NO [   ]

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

     At July 1, 2002, 823,849,559 shares of Common Stock of the Registrant were outstanding.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		Notes to Condensed Consolidated Financial Statements
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II. OTHER INFORMATION
	Item 1: Legal Proceedings
	Item 2: Changes in Securities
	Item 3: Defaults upon Senior Securities
	Item 4: Submission of Matters to a Vote of Security Holders
	Item 5: Other Information
	Item 6: Exhibits and Reports on Form 8-K
SIGNATURE
INDEX TO EXHIBITS
EXHIBIT 10.1
EXHIBIT 10.2

SOLECTRON CORPORATION

INDEX TO FORM 10-Q

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets at May 31, 2002 and August 31, 2001	3
	Condensed Consolidated Statements of Operations for the three and nine months ended May 31, 2002 and 2001	4
	Condensed Consolidated Statements of Comprehensive Income (loss) for the three and nine months ended May 31, 2002 and 2001	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended May 31, 2002 and 2001	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 2.	Changes in Securities	37
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Submission of Matters to a Vote of Security Holders	37
Item 5.	Other Information	38
Item 6.	Exhibits and Reports on Form 8-K	38
Signature		38

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SOLECTRON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)

				May 31,			August 31,
				2002			2001
				(unaudited)
ASSETS
Current assets:
	Cash, cash equivalents and short-term investments			$	2,806.6		$	2,790.1
	Restricted cash, cash equivalents and short-term investments				425.7			—
	Accounts receivable, net				2,016.7			2,443.6
	Inventories				2,098.7			3,209.9
	Prepaid expenses and other current assets				706.4			410.0
		Total current assets			8,054.1			8,853.6
Net property and equipment					1,439.6			1,304.7
Goodwill					4,506.1			1,987.2
Other assets					878.6			934.4
Total assets				$	14,878.4		$	13,079.9
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Short-term debt			$	1,650.2		$	306.2
	Accounts payable				1,552.5			1,786.1
	Accrued employee compensation				213.2			166.5
	Accrued expenses				593.8			363.7
	Other current liabilities				119.3			216.3
		Total current liabilities			4,129.0			2,838.8
Long-term debt					3,250.8			5,027.5
Other long-term liabilities					95.8			62.9
		Total liabilities			7,475.6			7,929.2
Commitments and contingencies
Stockholders’ equity:
	Common stock				0.8			0.7
	Additional paid-in capital				6,625.4			3,877.6
	Retained earnings				1,068.7			1,531.6
	Accumulated other comprehensive losses				(292.1	)		(259.2	)
			Total stockholders’ equity		7,402.8			5,150.7
Total liabilities and stockholders’ equity				$	14,878.4		$	13,079.9

See accompanying notes to condensed consolidated financial statements.

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SOLECTRON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)

				Three Months Ended						Nine Months Ended
				May 31,			May 31,			May 31,			May 31,
				2002			2001			2002			2001
Net sales				$	3,032.8		$	3,983.4		$	9,159.6		$	15,097.4
Cost of sales					2,821.6			3,677.7			8,546.6			13,818.8
Gross profit					211.2			305.7			613.0			1,278.6
Operating expenses:
	Selling, general and administrative				225.1			203.1			602.8			580.8
	Research and development				20.4			19.5			54.1			55.8
	Goodwill amortization expense				—			52.3			—			87.8
	Acquisition costs				—			0.3			—			29.5
	Restructuring & impairment costs				313.4			285.0			561.0			310.3
			Operating income (loss)		(347.7	)		(254.5	)		(604.9	)		214.4
Interest income					14.0			22.7			55.3			95.9
Interest expense					(72.2	)		(48.2	)		(177.4	)		(128.0	)
Income (loss) before income taxes and extraordinary gain					(405.9	)		(280.0	)		(727.0	)		182.3
Income tax provision (benefit)					(118.9	)		(94.3	)		(232.4	)		55.5
Income (loss) before extraordinary gain					(287.0	)		(185.7	)		(494.6	)		126.8
Extraordinary gain, net of tax					2.6			—			31.7			—
		Net income (loss)		$	(284.4	)	$	(185.7	)	$	(462.9	)	$	126.8
Basic net income (loss) per share:
Income (loss) before extraordinary gain				$	(0.35	)	$	(0.28	)	$	(0.64	)	$	0.20
Extraordinary gain, net of income tax					—			—			0.04			—
				$	(0.35	)	$	(0.28	)	$	(0.60	)	$	0.20
Diluted net income per share:
Income (loss) before extraordinary gain				$	(0.35	)	$	(0.28	)	$	(0.64	)	$	0.19
Extraordinary gain, net of income tax					—			—			0.04			—
				$	(0.35	)	$	(0.28	)	$	(0.60	)	$	0.19
Shares used in per-share calculation:
		Basic			823.2			654.1			768.4			636.9
		Diluted			823.2			654.1			768.4			653.1

See accompanying notes to condensed consolidated financial statements.

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SOLECTRON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
(Unaudited)

		Three Months Ended						Nine Months Ended
		May 31,			May 31,			May 31,			May 31,
		2002			2001			2002			2001
Net income (loss)		$	(284.4	)	$	(185.7	)	$	(462.9	)	$	126.8
Other comprehensive income (loss):
	Foreign currency translation adjustments		83.3			(72.0	)		(35.3	)		(101.1	)
	Unrealized gain (loss) on investments and derivatives		4.7			(0.2	)		2.3			(4.9	)
Comprehensive income (loss)		$	(196.4	)	$	(257.9	)	$	(495.9	)	$	20.8

Accumulated foreign currency translation losses were $294.4 million at May 31, 2002 and $259.4 million at August 31, 2001. Accumulated unrealized gains on investments and derivatives were $2.3 million at May 31, 2002, and $0.2 million at August 31, 2001.

See accompanying notes to condensed consolidated financial statements.

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SOLECTRON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)

					Nine Months Ended
					May 31,			May 31,
					2002			2001
Cash flows from operating activities:
	Net income (loss)				$	(462.9	)	$	126.8
	Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
			Depreciation and amortization			299.5			389.8
			Amortization of debt issuance costs and accretion of discount on notes payable			105.7			108.8
			Tax benefit associated with the exercise of stock options			3.5			40.1
			Extraordinary gain, net of tax			(31.7	)		—
			Loss (gain) on disposal of property and equipment			(2.3	)		3.2
			Impairment of property and equipment and other long-term assets			334.3			139.4
			Other			—			18.6
			Changes in operating assets and liabilities:
				Accounts receivable		797.6			84.9
				Inventories		1,501.2			(21.9	)
				Prepaid expenses and other current assets		(267.8	)		(27.0	)
				Accounts payable		(374.5	)		(989.9	)
				Accrued expenses and other current liabilities		78.5			(103.1	)
			Net cash provided by (used in) operating activities			1,981.1			(230.3	)
Cash flows from investing activities:
	Change in restricted cash					(425.7	)		—
	Sales and maturities of short-term investments					534.8			1,169.1
	Purchases of short-term investments					(533.6	)		(540.5	)
	Acquisition of business, net of cash acquired					(231.3	)		(2,391.4	)
	Acquisition of manufacturing assets and locations					(102.2	)		(84.0	)
	Capital expenditures					(189.0	)		(454.9	)
	Purchase of facilities under synthetic leases					(179.3	)		—
	Proceeds from sale of property and equipment					100.0			83.6
	Other					(31.6	)		(148.5	)
			Net cash used in investing activities			(1,057.9	)		(2,366.6	)
Cash flows from financing activities:
	Net proceeds from bank lines of credit					528.1			121.0
	Repayment of borrowings under bank lines of credit					(629.3	)		(113.8	)
	Proceeds from issuance of ACES and Senior notes					1,553.8			—
	Net proceeds from long-term debt					152.4			1,544.2
	Repurchase of LYONS					(1,861.0	)		—
	Principal payments on long-term debt					(603.0	)		(15.3	)
	Common stock repurchase					(4.5	)		—
	Net proceeds from stock issued under option and employee purchase plans					30.1			54.8
	Net proceeds from issuance of common stock					—			1,429.0
	Other					(21.8	)		17.0
			Net cash provided by (used in) financing activities			(855.2	)		3,036.9
Effect of exchange rate changes on cash and cash equivalents						(53.8	)		(69.5	)
Net increase (decrease) in cash and cash equivalents						14.2			370.5
Cash and cash equivalents at beginning of period						2,482.3			1,475.5
Cash and cash equivalents at end of period					$	2,496.5		$	1,846.0
SUPPLEMENTAL DISCLOSURES
Cash paid (received) during the period:
		Income taxes			$	(30.6	)	$	144.5
		Interest			$	42.0		$	11.0
Non-cash investing and financing activities:
		Issuance of common stock for business combination, net of cash acquired			$	2,513.3		$	—

See accompanying notes to condensed consolidated financial statements.

6

SOLECTRON CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

NOTE 1 — Basis of Presentation

The accompanying unaudited condensed consolidated balance sheet as of May 31, 2002, and the related unaudited condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended May 31, 2002 and 2001, and cash flows for the nine months ended May 31, 2002 and 2001, have been prepared on substantially the same basis as the annual consolidated financial statements. Management believes the financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position, operating results and cash flows for the periods presented. The condensed consolidated balance sheet as of August 31, 2001 was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended August 31, 2001, included in the Company’s Annual Report to Stockholders.

The Company’s third quarter of fiscal 2002 ended May 31, 2002, its third quarter of fiscal 2001 ended June 1, 2001. For clarity of presentation, the Company has indicated its third fiscal quarters as having ended on May 31.

Certain prior-year amounts have been reclassified to conform with the current-year presentation.

NOTE 2 — Inventories

Inventories consisted of (in millions):

	May 31,		August 31,
	2002		2001
Raw materials	$	1,522.6	$	2,503.5
Work-in-process		275.8		331.0
Finished goods		300.3		375.4
Total	$	2,098.7	$	3,209.9

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NOTE 3 — Net Income (Loss) Per Share

The following table sets forth the computation of basic and diluted net income (loss) per share for the three- and nine-month periods ended May 31, 2002 and 2001.

			Three Months Ended						Nine Months Ended
			May 31,			May 31,			May 31,			May 31,
			2002			2001			2002			2001
						(in millions, except per share data)
Income (loss) before extraordinary gain			$	(287.0	)	$	(185.7	)	$	(494.6	)	$	126.8
Extraordinary gain, net of tax				2.6			—			31.7			—
Net income (loss) — diluted			$	(284.4	)	$	(185.7	)	$	(462.9	)	$	126.8
Weighted average shares — basic				823.2			654.1			768.4			636.9
Common shares issuable upon exercise of stock options				—			—			—			16.2
Weighted average shares — diluted				823.2			654.1			768.4			653.1
Basic net income per share:
Income (loss) before extraordinary gain			$	(0.35	)	$	(0.28	)	$	(0.64	)	$	0.20
	Extraordinary gain per share			—			—			0.04			—
		Net income (loss) per share	$	(0.35	)	$	(0.28	)	$	(0.60	)	$	0.20
Diluted net income per share:
Income (loss) before extraordinary gain			$	(0.35	)	$	(0.28	)	$	(0.64	)	$	0.19
	Extraordinary gain per share			—			—			0.04			—
		Net income (loss) per share	$	(0.35	)	$	(0.28	)	$	(0.60	)	$	0.19

The calculation for the three- and nine-month periods ended May 31, 2002 did not include the 61.2 million common shares issuable upon conversion of the Company’s Liquid Yield Option Notes (LYONs), or 64.7 million options to purchase common stock outstanding at May 31, 2002, as the effect would have been antidilutive. In addition, the calculation for the three-month and nine-month periods ended May 31, 2002 did not include 112.1 million and 66.9 million common shares, respectively, issuable upon conversion of the Company’s Adjustable Conversion-Rate Equity Security Units (ACES), as the effect would have been antidilutive.

For the three-month period ended May 31, 2001, a total of 45.5 million options were not included in the calculation because the effect would have been antidilutive. For the nine-month period ended May 31, 2001, the exercise prices for 15.3 million options were greater than the average market prices of Solectron’s common stock for this period. Consequently, these options were not included in the calculation because the effect would have been antidilutive. In addition, the calculation for the three- and nine-month periods ended May 31, 2001, did not include 108.6 million and 97.9 million common shares, respectively, issuable upon conversion of the Company’s LYONs, as the effect would have been antidilutive.

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NOTE 4 — Commitments and contingencies

Synthetic Leases

The Company and its subsidiaries have three synthetic lease agreements relating to five manufacturing sites. The Company has accounted for these arrangements as operating leases in accordance with Statement of Financial Accounting Standards No. 13, Accounting for Leases, as amended. The leases have expiration dates in 2002 to 2004. At the end of the lease term, the Company has an option, subject to certain conditions to purchase the facility for the “Termination Value,” which approximates original cost, or to cause a third party to purchase the property for the Termination Value. If the Company, one of its subsidiaries, or a third party purchases the facility for less than the Termination Value or if the property is not purchased, the Company or the subsidiary leasing the facility, will be contingently liable under a first loss clause for up to 85% of original cost of the facility, which percentage of original cost was approximately $105 million in the aggregate as of May 31, 2002. The Company is entitled to any proceeds from a sale of the property to a third party in excess of the Termination Value. The approximate maximum Termination Values for each of the leases are provided below, which have been fully cash collateralized by the Company:

A)	$52 million — Milpitas, CA
B)	$13 million — San Jose, CA
C)	$58 million for one site in Columbia, SC; and two sites in Fremont, CA

If the Company determines that it is probable that the expected fair value of the property at the end of the lease term will be less than the Termination Value, the Company will accrue the expected loss on a straight line basis over the remaining lease term.

Each lease agreement contains various affirmative, negative and, except for C), financial covenants. A default under a lease, including violation of these covenants, may require the Company to purchase the facility (or facilities) for the Termination Value. Monthly lease payments are generally based on the 30-day LIBOR index (1.84% as of May 31, 2002) plus an interest rate margin, which may vary depending upon the Company’s, Moody’s, Standard and Poor’s ratings, based on the Termination Value. Prior to May 31, 2002, the Company obtained written waivers of breaches of financial covenants contained in the leases for A) and B) above. As of May 31, 2002, the Company was not in breach of any covenants since it obtained waivers from each of the financial institutions, other than for C), for which no waiver was necessary. The waivers have expiration dates of August 1, 2002. These waivers were sought and obtained in relation to the Company’s capital raising activities from December 2001 to February 2002. As of May 31, 2002, the Company provided $65 million of cash as collateral in support of these waivers under these lease agreements. The Company believes it will be able to refinance these leases with other institutions. If the Company is not able to refinance these leases, the Company will be required to purchase the facilities for an aggregate purchase price of $65 million on or before August 1, 2002. The lease with respect to C) expires on June 4, 2004, is not subject to any temporary waivers, and is cash collateralized in an amount equal to $58 million. The total cash collateral of $123 million is included in restricted cash, cash equivalents and short-term investments in the accompanying consolidated balance sheet as of May 31, 2002.

The Company purchased its Nakaniida, Japan site on March 8, 2002 for $63 million, which was paid for with cash collateral previously provided under the synthetic lease for this site. On May 1, 2002, the Company purchased two California sites from its lessors for $58 million, which were paid for with cash collateral previously provided under the synthetic leases for these sites. On May 1, 2002, the Company also paid down the synthetic leases for $59 million for sites in Washington and Georgia, which were paid for with cash collateral previously provided under the synthetic leases for these sites. The Company recorded approximately $35 million of impairment charges during the current quarter related to these acquired facilities.

Sale Lease-back Transactions

In addition, Solectron periodically enters into lease arrangements with third-party leasing companies under which it sells fixed assets and leases them back from the leasing companies. Solectron is accounting for these leases as operating leases. Any gains from sale lease-back transactions are deferred and amortized over the lease period.

Derivative Instruments

Solectron enters into foreign exchange forward contracts intended to reduce the short-term impact of foreign currency fluctuations on foreign currency receivables, investments and payables. The gains and losses on the foreign exchange forward contracts offset the transaction gains and losses on the foreign currency receivables, investments, and payables recognized in

9

earnings. The Company does not enter into foreign exchange forward contracts for speculative purposes. Solectron’s foreign exchange forward contracts related to current assets and liabilities are generally three months or less in original maturity.

Solectron periodically hedges foreign currency forecasted transactions related to certain operating expenses with foreign exchange forward contracts. These transactions are treated as cash flow hedges in accordance with Statement of Financial Accounting Standards No. 133. These foreign exchange forward contracts have original maturities of up to 18 months.

Solectron also uses interest rate swaps to hedge its mix of short-term and long-term interest rate exposures resulting from Solectron’s debt obligations. During the quarter, Solectron entered into interest rate swap transactions under which it pays variable rates and receives fixed rates. The interest rate swaps have a total notional amount of $1 billion. $500 million relates to the Company’s $1.1 billion Adjustable Conversion-Rate Equity Security (ACES) and expires on November 15, 2004. The other $500 million which relates to 9.625% $500 million senior notes expires on February 15, 2009. Under each of these swap transactions, Solectron pays an interest rate equal to the 3-month LIBOR rate plus a fixed spread. In exchange, Solectron receives fixed interest rate of 7.25% on the first $500 million and 9.625% on the second $500 million. These swap transactions effectively replace the fixed interest rates that the Company must pay on some of its ACES and its 9.625% senior notes with variable interest rates. These swaps are designated as fair value hedges under Statement of Financial Accounting Standards No. 133.

The Company’s prior $52 million interest rate swap, designated as a cash flow hedge, under which Solectron paid a fixed rate of interest hedging against the variable interest rates implicit in the rent charged by the lessor for the facility lease at Milpitas, California, expired June 3, 2002.

As of May 31, 2002, Solectron had outstanding foreign exchange forward contracts with a total notional amount of approximately $580 million. The interest rate swaps had aggregate notional amounts of $1,052 million. The fair values of these derivatives were not significant.

For all derivative transactions, Solectron is exposed to counterparty credit risk to the extent that the counter parties may not be able to meet their obligations towards Solectron. To manage the counterparty risk, Solectron limits its derivative transactions to those with major financial institutions. Solectron does not expect to experience any material adverse financial consequences as a result of default by Solectron’s counterparties.

Related Party Guarantees

Solectron guarantees $60 million of debt and $88 million of vendor contracts for its minority owned affiliate, Pacific City International Holdings, (PCI). The guarantee will expire during December 2002.

NOTE 5 — Segment Information

As a result of Solectron’s acquisition of C-MAC on December 3, 2001, Solectron has made organizational changes and has created the Microsystems Business Unit. Solectron now has the following four business units: Global Operations, Technology Solutions, Global Services and Microsystems. Each business unit has its own president and support staff. Solectron’s management uses an internal management reporting system, which provides important financial data to evaluate performance and allocate resources for the four business units. Certain corporate expenses have been allocated to Solectron’s business units and were included for performance evaluation. The accounting policies for the segments were the same as for Solectron taken as a whole.

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		Three Months Ended						Nine Months Ended
		May 31,			May 31,			May 31,			May 31,
		2002			2001			2002			2001
					(in millions)
Net sales:
	Global operations	$	2,447.5		$	3,606.0		$	7,766.3		$	13,793.6
	Technology solutions		257.8			293.4			599.7			1,082.0
	Global services		221.4			84.0			586.3			221.8
	Microsystems		106.1			—			207.3			—
		$	3,032.8		$	3,983.4		$	9,159.6		$	15,097.4
Depreciation and amortization:
	Global operations	$	68.5		$	149.0		$	240.0		$	359.5
	Technology solutions		6.4			6.7			21.0			21.3
	Global services		8.0			2.9			22.2			9.0
	Microsystems		7.7			—			16.3			—
		$	90.6		$	158.6		$	299.5		$	389.8
Interest income:
	Global operations	$	3.0		$	4.2		$	19.4		$	11.9
	Technology solutions		0.4			0.4			1.2			1.6
	Global services		0.1			—			0.4			0.1
	Microsystems		—			—			0.3			—
	Corporate		10.5			18.1			34.0			82.3
		$	14.0		$	22.7		$	55.3		$	95.9
Interest expense:
	Global operations	$	4.8		$	4.9		$	13.7		$	13.9
	Technology solutions		0.2			0.6			0.6			1.0
	Global services		0.3			—			1.5			—
	Microsystems		0.3			—			0.8			—
	Corporate		66.6			42.7			160.8			113.1
		$	72.2		$	48.2		$	177.4		$	128.0
Income (loss) before income taxes and extraordinary gain:
	Global operations	$	(214.6	)	$	(222.9	)	$	(598.3	)	$	212.6
	Technology solutions		(15.4	)		(33.9	)		(33.9	)		8.9
	Global services		(7.6	)		11.1			17.2			28.1
	Microsystems		(0.4	)		—			(2.0	)		—
	Corporate		(167.9	)		(34.3	)		(110.0	)		(67.3	)
		$	(405.9	)	$	(280.0	)	$	(727.0	)	$	182.3
Capital expenditures:
	Global operations	$	215.1		$	35.0		$	281.0		$	395.3
	Technology solutions		1.9			1.7			9.0			18.7
	Global services		14.9			0.8			41.6			8.4
	Microsystems		0.8			—			4.2			—
	Corporate		18.0			2.8			32.5			32.5
		$	250.7		$	40.3		$	368.3		$	454.9
Geographic net sales:
	United States	$	1,181.4		$	1,540.3		$	3,585.7		$	7,011.3
	Other North America and Latin America		395.1			629.9			1,058.9			2,240.2
	Europe		506.5			798.9			1,534.5			2,832.7
	Malaysia		323.5			398.1			1,052.1			1,764.9
	Asia Pacific		626.3			616.2			1,928.4			1,248.3
		$	3,032.8		$	3,983.4		$	9,159.6		$	15,097.4

11

		May 31,		August 31,
		2002		2001
		(in millions)
Total assets:
	Global operations	$	9,677.7	$	9,752.4
	Technology solutions		708.7		587.5
	Global services		796.7		184.9
	Microsystems		616.8		—
	Corporate		3,078.5		2,555.1
		$	14,878.4	$	13,079.9

		May 31,		August 31,
		2002		2001
		(in millions)
Total assets:
	United States	$	6,817.3	$	5,854.2
	Other North America and Latin America		2,736.0		1,543.7
	Europe		1,455.4		1,904.0
	Asia Pacific		3,869.7		3,778.0
		$	14,878.4	$	13,079.9

NOTE 6 — Long-Term Debt

Zero-Coupon Convertible Senior Notes

During the third quarter of the fiscal year 2002, Solectron repurchased a portion of its 3.25% Zero Coupon Senior Liquid Yield Option Notes (LYONs) due 2020 with a carrying amount of approximately $25 million for approximately $21 million. These transactions resulted in an extraordinary gain of approximately $3.3 million, net of tax.

During the second quarter of the fiscal year 2002, Solectron repurchased substantially all of its remaining 4.0% LYONs due 2019 with a carrying amount of approximately $607 million for approximately $618 million, a portion of its 2.75% LYONs due 2020 with a carrying amount of approximately $995 million for approximately $940 million, and a portion of its 3.25% LYONs due 2020 with a carrying amount of approximately $65 million for approximately $60 million. The total cash payments for the LYONs repurchased during the second quarter of fiscal 2002 was approximately $1.6 billion. These transactions resulted in an extraordinary gain of approximately $31 million, net of tax.

During the first quarter of the fiscal year 2002, Solectron repurchased a portion of its 4.0% LYONs due 2019 with a carrying amount of approximately $218 million for approximately $222 million resulting in an extraordinary loss of $2 million, net of tax.

Adjustable Conversion-Rate Equity Security units (ACES)

During the second quarter of fiscal year 2002, Solectron closed its public offering of $1.1 billion or 44 million units of 7.25% Adjustable Conversion-Rate Equity Security units (ACES). Each ACES unit has a stated amount of $25 and consists of (a) a contract requiring the holder to purchase, for $25, a number of shares of Solectron common stock to be determined on November 15, 2004, based on the average trading price of Solectron’s common stock at that time and certain specified settlement rates ranging from 2.1597 shares of Solectron’s common stock per purchase contract to 2.5484 shares of Solectron’s common stock per purchase contract (subject to certain anti-dilution adjustments), and (b) $25 principal amount of 7.25% subordinated debentures due 2006. Solectron received net proceeds of approximately $1.1 billion from the transaction. Solectron allocated $48.4 million of the fair value to the purchase contracts. The debentures initially will be held and pledged for Solectron’s benefit to secure the holders’ obligation to purchase Solectron’s common stock on November 15, 2004. On or about August 15, 2004, the ACES debentures will be remarketed and if the remarketing is successful, the interest rate will be reset at then current rates as described in the indentures and the proceeds from the remarketing will be used to satisfy the holders’ obligation to purchase Solectron’s common stock in November 2004. If the debentures are not successfully remarketed, the interest rate will not be reset and Solectron may use the pledged debentures to satisfy the holders’ obligation to purchase the Company’s common stock in November 2004. Solectron used approximately $150.6 million in cash to purchase treasury securities sufficient to collateralize the Company’s obligations under the debentures in an amount equal to the first eight quarterly interest payments on the debentures. The remaining treasury securities are included in restricted cash, cash equivalents and short term investments in the consolidated balance sheet as of May 31, 2002.

12

9.625% Senior Notes

On February 8, 2002, Solectron issued an aggregate principal amount of $500 million of 9.625% senior notes due 2009. Solectron received net proceeds of approximately $486.8 million. Solectron is required to pay interest on the notes in cash on February 15 and August 15 of each year. The indenture governing the terms of these notes contains restrictive covenants that limit Solectron and its subsidiaries from making distributions on their capital stock, investments, incurring debt, issuing preferred stock, engaging in assets sales and other important covenants and restrictions.

NOTE 7 — Stockholders’ Equity

On September 17, 2001, Solectron’s board of directors authorized a $200 million stock repurchase program. During the first fiscal quarter of 2002, Solectron repurchased 442,200 shares of its common stock at an average price of $10.10 for approximately $4.5 million. No purchases were made in the second or third quarter of 2002.

NOTE 8 — Accounting Pronouncements

The FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, in August 2001, SFAS No.144, Accounting for the Impairment or Disposal of Long-lived Assets, in October 2001 and SFAS No.145 Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 143 requires that the fair value of an asset retirement obligation be recorded as a liability in the period in which it incurs the obligation. SFAS No. 144 serves to clarify and further define the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 144 does not apply to goodwill and other intangible assets that are not amortized. SFAS No. 145 requires that certain gains and losses from extinguishment of debt no longer be classified as an extraordinary item. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002, SFAS No. 144 is effective for fiscal years beginning after December 15, 2001 and SFAS No. 145 is effective for fiscal years beginning after May 15, 2002 (with accounting for certain transactions effective May 15, 2002). Solectron expects to adopt these three statements effective September 1, 2002. The adoption of these statements is not expected to have a material effect on the Company’s consolidated financial position or results of operations.

In July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated or completed after June 30, 2001. SFAS No. 141 also specifies the criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated lives to their estimated residual values, and be reviewed for impairment in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.

In accordance with SFAS No. 141, the Company is accounting for all business combinations initiated or completed after June 30, 2001 using the purchase method of accounting. The Company adopted the remaining provisions of SFAS No. 141 and SFAS No. 142 effective September 1, 2001.

SFAS No. 141 required, upon adoption of SFAS No. 142, that Solectron evaluate its existing intangibles assets and goodwill that were acquired in prior purchase business combinations, and to make any necessary reclassifications in order to conform with the new criteria in SFAS No. 141 for recognition apart from goodwill. Upon adoption of SFAS No. 142, Solectron reassessed the useful lives and residual values of all intangible assets acquired in purchase business combinations, and no significant changes were deemed necessary. Solectron was also required to test the intangible assets for impairment in accordance with the provisions of SFAS No. 142 within the first interim period. No impairment loss was deemed necessary related to intangible assets during the first interim period.

13

Goodwill

In connection with the transitional goodwill impairment evaluation, SFAS No. 142 required Solectron to perform an assessment of whether there was an indication that goodwill was impaired as of the date of adoption. To accomplish this, Solectron identified its reporting units to be consistent with its business units as defined in Note 5, using the aggregation criteria included in the standard. Solectron then determined the carrying value of its global operations business unit which includes all but insignificant amounts of goodwill by allocating the assets and liabilities, including the goodwill and intangible assets, to the unit as of the date of adoption. Solectron then determined the fair value of the reporting unit using a discounted cash flow model and compared it to the unit’s carrying value. Based on this test, the fair value of the unit according to the model exceeded the carrying amount, and the second step of the impairment test required by the standard was not required and no impairment loss was recognized.

The following table presents the impact of adopting SFAS 142 on net income (loss) and net income (loss) per share had the standard been in effect for the three and nine months ended May 31, 2002 and 2001.

					Three Months Ended						Nine Months Ended
					May 31,			May 31,			May 31,			May 31,
					2002			2001			2002			2001
				(in millions, except per share data)
Net income (loss) as reported					$	(284.4	)	$	(185.7	)	$	(462.9	)	$	126.8
Adjustments:
		Amortization of goodwill, net of tax				—			47.2			—			78.0
Adjusted net income (loss)					$	(284.4	)	$	(138.5	)	$	(462.9	)	$	204.8
Basic net income (loss) per share as reported					$	(0.35	)	$	(0.28	)	$	(0.60	)	$	0.20
Basic net income (loss) per share adjusted					$	(0.35	)	$	(0.21	)	$	(0.60	)	$	0.32
Diluted net income (loss) per share as reported					$	(0.35	)	$	(0.28	)	$	(0.60	)	$	0.19
Diluted net income (loss) per share adjusted					$	(0.35	)	$	(0.21	)	$	(0.60	)	$	0.31
	Shares used to compute:
			Basic			823.2			654.1			768.4			636.9
			Diluted			823.2			654.1			768.4			653.1

Goodwill information for each reportable segment is as follows:

	As of				As of
	August 31,		Goodwill		May 31,
	2001		Acquired		2002
			(in millions)
Global operations	$	1,927.8	$	2,107.3	$	4,035.1
Technology solutions		50.7		39.7		90.4
Global services		8.7		305.8		314.5
Microsystems		—		66.1		66.1
	$	1,987.2	$	2,518.9	$	4,506.1

14

At May 31, 2002, Solectron had approximately $4.5 billion of goodwill, which was primarily related to the acquisitions of C-MAC and Natsteel Electronic Ltd. Pursuant to SFAS 142, Solectron will perform its annual goodwill impairment test in the fourth quarter of fiscal 2002. If as a result of this analysis Solectron determines that there has been an impairment of the Company’s goodwill, asset impairment charges will be recognized in the fourth quarter of fiscal 2002. Asset impairment charges of this nature could have a material impact on the Company’s consolidated financial position and results of operations. Since the date of the C-MAC acquisition, there has been a decline in Solectron’s stock price resulting in the net book value exceeding the market capitalization of the Company. In addition, the demand for Solectron’s services has been adversely affected by the general economic slowdown. Solectron will take these and other factors into account in making its goodwill impairment determination.

Other Intangible Assets

Solectron has intangible assets other than goodwill (net of accumulated amortization) of $562.3 million as of May 31, 2002. The Company’s intangible assets are categorized into three main classes; supply agreements, intellectual property and other intangible assets. The supply agreements resulted primarily from the Company’s acquisition of several Nortel manufacturing facilities during the third quarter of fiscal 2000. The second class consists of intellectual property resulting from Solectron’s acquisition of various IBM facilities in fiscal 1999 and 2000. The third class, other, consists of miscellaneous acquisition related costs from the Company’s various asset purchases. The following table summarizes the gross amounts and accumulated amortization for each major class (in millions):

	Supply Agreement			Intellectual Property			Other			Total
				(in millions)
Gross amount	$	434.0		$	106.4		$	165.7		$	706.1
Accumulated amortization		(64.4	)		(31.9	)		(47.5	)		(143.8	)
Carrying value	$	369.6		$	74.5		$	118.2		$	562.3

Amortization expense for the third quarter of fiscal 2002 was $11.8 million. The Company expects that its annual amortization expense reportable as required by SFAS No. 142 for these intangibles for each of the next five fiscal years would be approximately $68 million based on existing acquisitions.

NOTE 9 — Acquisitions

Third Quarter of Fiscal Year 2002

On April 1, 2002, the Company announced the completion of its acquisition of NEC Ibaraki, a provider of manufacturing, fulfillment and demand forecasting services. The purchase price of the acquisition was approximately $16.6 million in cash. The transaction was accounted for as a purchase of a business during the third fiscal quarter of 2002.

On May 9, 2002, the Company completed its acquisition of certain assets of NC&C for approximately $2.8 million in cash. This transaction was accounted for as a purchase of assets during the third fiscal quarter of 2002.

On May 31, 2002, the Company announced the completion of a three-year supply agreement to produce optical networking equipment for Lucent Technologies. As part of the three-year supply agreement, the Company purchased equipment and inventory related to Lucent’s optical product lines for approximately $99.4 million in cash. This transaction was accounted for as a purchase of assets during the third fiscal quarter of 2002.

15

The following table summarizes purchase price allocations:

	NEC
	Ibaraki			NC&C		Lucent			Total
				(in millions)
Assets acquired	$	46.1		$	0.7	$	72.5		$	119.3
Intangible assets acquired		—			2.1		28.0			30.1
Liabilities assumed		(29.5	)		—		(1.1	)		(30.6	)
Total purchase price	$	16.6		$	2.8	$	99.4		$	118.8

Pro forma financial information related to NEC Ibaraki, Lucent and NC&C is not provided as its operations were not significant to Solectron as a whole.

Second Quarter of Fiscal Year 2002

On December 3, 2001, the Company completed its acquisition of 100% of the outstanding common stock of C-MAC Industries Inc. (C-MAC). C-MAC provides a comprehensive portfolio of electronic manufacturing services and solutions to customers worldwide. The Company believes that the acquisition will enable Solectron to create a diversified provider of integrated electronic manufacturing solutions that can benefit from complementary high-end technology capabilities, selected vertical integration and improved access to growth opportunities and meet the growing demand by customers for complete supply chain management solutions.

The Company issued approximately 98.8 million shares of its common stock, 52.5 million exchangeable shares of Solectron Global Services Canada Inc., which are exchangeable on a one-to-one basis for Solectron Corporation’s common stock, and 5.2 million options to purchase Solectron Corporation’s common stock in the transaction. The purchase price was $2,571.3 million, consisting of stock valued at $2,487.2 million, stock options valued at $63.1 million and direct acquisition costs of $21 million. The value of the common stock issued was determined based on the average market price of Solectron’s common stock over the five-day period before and after the terms of the acquisition were agreed to and announced.

On December 6, 2001, the Company completed its acquisition of Artesyn Solutions, Inc. for approximately $36.4 million in cash. Artesyn Solutions, Inc. is a provider of extensive repair, refurbishment, logistics and supply chain management and end-of-life planning services for customers in the computer, printer, storage, server, wireless and consumer electronics sector. The transaction was accounted for as a purchase of a business during the second fiscal quarter of 2002. The following table summarizes purchase price allocations:

	C-MAC			Artesyn			Total
				(in millions)
Assets acquired	$	1,182.6		$	7.6		$	1,190.2
Goodwill		2,066.7			32.9			2,099.6
Liabilities assumed		(683.8	)		(4.1	)		(687.9	)
Deferred compensation		5.8			—			5.8
Total purchase price	$	2,571.3		$	36.4		$	2,607.7

Certain allocations above are based on management’s preliminary estimate of assets acquired and liabilities assumed. In connection with the C-MAC acquisition, Solectron intends to close certain locations and terminate employees at those sites. Solectron estimated the impact of these activities and has recorded the affected assets at net realizable value and estimated employee severance liabilities to be incurred. The Company is presently awaiting a final appraisal of the C-MAC assets acquired and certain of the recorded amounts may change based on the results of the appraisals.

16

The Company’s statements of operations include C-MAC’s results from the acquisition date. The following unaudited pro forma financial information presents the combined results of operations of Solectron and C-MAC as if the acquisition had occurred as of the beginning of the nine-month periods in fiscal 2002 and 2001. The pro forma financial information does not necessarily reflect the results of operations that would have occurred if Solectron and C-MAC constituted a single entity during such periods.

	Pro Forma
	Nine Months Ended
	May 31, 2002			May 31, 2001
	(in millions, except per share data)
Revenue	$	9,402.1		$	16,655.9
Income (loss) before extraordinary gain	$	(518.1	)	$	196.0
Net income (loss)	$	(486.4	)	$	196.0
Basic income (loss) per share before extraordinary gain	$	(0.63	)	$	0.25
Basic income (loss) per share	$	(0.59	)	$	0.25
Diluted income (loss) per share before extraordinary gain	$	(0.63	)	$	0.24
Diluted income (loss) per share	$	(0.59	)	$	0.24

Pro forma financial information related to Artesyn is not provided as its operations were not significant to Solectron as a whole.

First Quarter of Fiscal Year 2002

On October 16, 2001, the Company completed its acquisition of Iphotonics, Inc, for approximately 8.8 million shares of Solectron common stock and 428,000 options to purchase Solectron’s common stock. The purchase price was $125.2 million, consisting of stock valued at $121.6 million, stock options valued at $3.1 million and direct acquisition costs of $0.5 million. The value of the common stock issued was determined based on the average market price of Solectron’s common stock over the five-day period before, including, and after the terms of the acquisition were agreed to and announced. This transaction was accounted for as a purchase of a business.

On October 26, 2001, the Company completed its acquisition of Stream International, Inc. for approximately $366.6 million in cash. This transaction was accounted for as a purchase of a business. The following table summarizes purchase price allocations for the first fiscal quarter of 2002:

	Stream			Iphotonics			Total
				(in millions)
Assets acquired	$	155.4		$	25.5		$	180.9
Goodwill		271.0			105.1			376.1
Liabilities assumed		(59.8	)		(7.6	)		(67.4	)
Deferred compensation		—			2.2			2.2
Total purchase price	$	366.6		$	125.2		$	491.8

Pro forma financial information related to the Iphotonics and Stream acquisitions is not provided as the operations of these acquired corporations were not significant to Solectron as a whole.

17

NOTE 10 — Restructuring and Impairment

Fiscal Year 2002

During the first quarter of fiscal 2002, Solectron continued its restructuring activities and total restructuring and impairment costs of $72.9 million were charged against earnings. These restructuring and impairment charges included employee severance and benefit costs of approximately $28.3 million, costs related to leased facilities that will be abandoned and subleased of approximately $1.1 million, costs related to leased equipment that will be abandoned of approximately $1.3 million, impairment of equipment and other assets of approximately $34.2 million, impairment of facilities of approximately $4.0 million and other exit costs of approximately $4.0 million.

The employee severance and benefit costs included in these restructuring charges related to the elimination of approximately 2,000 positions worldwide, all of which were eliminated by November 30, 2001. Approximately 76% of the positions eliminated were in the Americas region and 24% were in Europe. The employment reductions primarily affected employees in manufacturing and back office support functions. Facilities and equipment subject to restructuring were also primarily located in the Americas and Europe. For leased facilities that will be abandoned and subleased, the lease costs represent future lease payments subsequent to abandonment less estimated sublease income. For facilities and equipment held for disposal, the impairment loss recognized was based on the fair value less costs to sell with fair value based on estimates of existing market prices for similar assets.

During the second quarter of fiscal 2002, Solectron continued its restructuring activities and total restructuring and impairment costs of $174.7 million were charged against earnings. These restructuring and impairment charges included employee severance and benefit costs of approximately $40.4 million, costs related to leased facilities that will be abandoned and subleased of approximately $55.0 million, costs related to leased equipment that will be abandoned of approximately $16.5 million, impairment of equipment and other assets of approximately $45.2 million, impairment of facilities of approximately $9.9 million and other exit costs of approximately $7.7 million.

The employee severance and benefit costs included in these restructuring charges relate to the elimination of approximately 5,500 positions worldwide, all of which were eliminated by February 28, 2002. Approximately 78% of the positions eliminated were in the Americas region, 16% were in Europe, and 6% in Asia. The employment reductions primarily affected employees in manufacturing and back office support functions. Facilities and equipment subject to restructuring were primarily located in the Americas and Europe. For leased facilities that will be abandoned and subleased, the lease costs represent future lease payments subsequent to abandonment less estimated sublease income. For facilities and equipment held for disposal, the impairment loss recognized was based on the fair value less costs to sell with fair value based on estimates of existing market prices for similar assets.

During the third quarter of fiscal 2002, Solectron continued its restructuring activities and total restructuring and impairment costs of $313.4 million were charged against earnings. These restructuring and impairment charges included employee severance and benefit costs of approximately $31.8 million, costs related to leased facilities that will be abandoned and subleased of approximately $28.1 million, costs related to leased equipment that will be abandoned of approximately $12.5 million, impairment of equipment of approximately $61.7 million, and impairment of facilities of approximately $47.8 million. Included in impairment of facilities of approximately $47.8 million, approximately $35 million related to impairment losses from purchases of properties previously under synthetic leases during the quarter. The impairment of other assets was approximately $131.5 million which related primarily to IT software no longer in use.

The employee severance and benefit costs included in these restructuring charges relate to the elimination of approximately 4,000 positions worldwide, all of which were eliminated by May 31, 2002. Approximately 62% of the positions eliminated were in the Americas region, 13% were in Europe, and 25% in Asia. The employment reductions primarily affected employees in manufacturing and back office support functions. Facilities and equipment subject to restructuring were primarily located in the Americas and Europe. For leased facilities that will be abandoned and subleased, the lease costs represent future lease payments subsequent to abandonment less estimated sublease income. For facilities and equipment held for disposal, the impairment loss recognized was based on the fair value less costs to sell with fair value based on estimates of existing market prices for similar assets.

18

The following table summarizes quarterly restructuring activities in fiscal 2002 (in millions):

	First		Second		Third		Nine Months
	Quarter		Quarter		Quarter		2002		Nature of
	Charges		Charges		Charges		Charges		Charges
Impairment of equipment	$	31.4	$	34.7	$	61.7	$	127.8	non-cash
Impairment of facilities		4.0		9.9		47.8		61.7	non-cash
Impairment of IT software and other assets		2.8		10.5		131.5		144.8	non-cash
Total property, equipment and other long-term assets impairment	$	38.2	$	55.1	$	241.0	$	334.3
Severance		28.3		40.4		31.8		100.5	cash
Loss on leased equipment		1.3		16.5		12.5		30.3	cash
Loss on leased facilities		1.1		55.0		28.1		84.2	cash
Other exit costs		4.0		7.7		—		11.7	cash
Total	$	72.9	$	174.7	$	313.4	$	561.0

Fiscal Year 2001

Beginning in the second quarter of fiscal 2001, Solectron initiated a restructuring of its operations in light of the current economic downturn. The measures, which included reducing the workforce, consolidating some facilities and changing the strategic focus of a number of sites, was largely intended to align Solectron’s capacity and infrastructure to anticipated customer demand as well as to rationalize its footprint worldwide.

During fiscal 2001, the Company recorded total restructuring and impairment costs of $517.3 million against earnings. These restructuring and impairment charges included employee severance and benefit costs of approximately $70.0 million, costs related to leased facilities that will be abandoned and subleased of approximately $56.4 million, costs related to equipment that will be abandoned of approximately $117.5, impairment of equipment of approximately $188.2 million, impairment of facilities of approximately $37.7 million, impairment of goodwill, intangible and other assets related to closed facilities of approximately $42.2 million and other exit costs of approximately $5.3 million.

The employee severance and benefit costs included in these restructuring charges relate to the elimination of 11,800 positions worldwide and all such positions have been eliminated under this plan. Approximately 67% of the positions eliminated were in the Americas region, 23% were in Europe and 10% were in Asia/Pacific. The employment reductions primarily affected employees in manufacturing and back office support functions. Facilities and equipment subject to restructuring were primarily located in the Americas and Europe. For leased facilities that will be abandoned and subleased, the lease costs represent future lease payments subsequent to abandonment less estimated sublease income.

The following table summarizes quarterly restructuring activities in fiscal 2001(in millions):

	Second		Third		Fourth		Fiscal
	Quarter		Quarter		Quarter		2001		Nature of
	Charges		Charges		Charges		Charges		Charges
Impairment of equipment	$	19.7	$	99.9	$	68.6	$	188.2	non-cash
Impairment of facilities		—		11.3		26.4		37.7	non-cash
Total property and equipment impairment	$	19.7	$	111.2	$	95.0	$	225.9
Severance		3.2		41.8		25.0		70.0	cash
Loss on leased equipment		—		56.2		61.3		117.5	cash
Loss on leased facilities		—		44.7		11.7		56.4	cash
Goodwill impairment		—		28.2		14.0		42.2	non-cash
Other exit costs		2.4		2.9		—		5.3	cash/non-cash
Total	$	25.3	$	285.0	$	207.0	$	517.3

19

The following table summarizes cash restructuring activities in fiscal 2001 and fiscal 2002 (in millions):

	Severance			Lease Payments			Lease Payments
	and Benefits			on Facilities			on Equipment			Other			Total
Balance at December 1, 2000	$	—		$	—		$	—		$	—		$	—
Q2-FY01 provision		3.2			—			—			2.4			5.6
Cash payments		—			—			—			—			—
Balance at February 28, 2001	$	3.2		$	—		$	—		$	2.4		$	5.6
Q3-FY01 provision		41.8			44.7			56.2			2.9			145.6
Cash payments		(31.2	)		—			—			(0.1	)		(31.3	)
Balance at May 31, 2001	$	13.8		$	44.7		$	56.2		$	5.2		$	119.9
Q4-FY01 provision		25.0			11.7			61.3			—			98.0
Cash payments		(38.8	)		(5.5	)		(5.0	)		(0.8	)		(50.1	)
Balance at August 31, 2001	$	—		$	50.9		$	112.5		$	4.4		$	167.8
Q1-FY02 provision		28.3			1.1			1.3			4.0			34.7
Cash payments		(28.3	)		(8.8	)		(7.6	)		(0.7	)		(45.4	)
Balance at November 30, 2001	$	—		$	43.2		$	106.2		$	7.7		$	157.1
Q2-FY02 provision		40.4			55.0			16.5			7.7			119.6
Cash payments		(38.5	)		(6.0	)		(54.5	)		(7.8	)		(106.8	)
Balance at February 28, 2002	$	1.9		$	92.2		$	68.2		$	7.6		$	169.9
Q3-FY02 provision		31.8			28.1			12.5			—			72.4
Cash payments		(31.9	)		(5.8	)		(8.4	)		(5.9	)		(52.0	)
Balance at May 31, 2002	$	1.8		$	114.5		$	72.3		$	1.7		$	190.3

Accruals related to restructuring activities are included in accrued expenses in the consolidated balance sheet.

Under the Company’s prior restructuring plans, the Company believes that it will continue to experience restructuring and impairment charges in the range of an aggregate of $150 million over the next several quarters, although no certainty can be attributed to this amount or the timing of its recognition.

NOTE 11 — Related Party Transactions

Solectron guarantees $60 million of debt and $88 million of vendor contracts for its minority owned affiliate, Pacific City International Holdings, (PCI). The guarantees will expire during December 2002.

NOTE 12 — Subsequent Events

On June 11, 2002, the Company completed its acquisition of Magnetic Data Technologies (MDT), a global provider of after-sales services for the communications, computer and electronic storage markets for $70 million in cash. This acquisition will be accounted for as a purchase of a business.

On June 20, 2002, the Company announced its plan to purchase up to $1.5 billion principal amount at maturity of its 2.75% LYONs due 2020, having a carrying value of $919 million as of May 31, 2002, under a Modified Dutch Auction tender offer. The tender offer commenced Friday June 21, 2002 and is set to expire July 19, 2002, unless extended. The Company intends to fund the tender offer with approximately $900 million of cash on hand.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Statements

With the exception of historical facts, the statements contained in this discussion are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are subject to the Safe Harbor provisions created by that statute. Certain statements contained in the following Management’s Discussion and Analysis of Financial Condition and Results of Operations, including, without limitation, statements containing the words “believes,” “anticipates,” “estimates,” “expects,” and words of similar import, constitute forward-looking statements that involve risks and uncertainties. Such statements are based on current expectations and are subject to risk, uncertainties and changes in condition, significance, value and effect, including those discussed under the heading Risk Factors within the section of this report entitled “Item 2,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and reports filed by Solectron with the Securities and Exchange Commission, specifically, forms 8-K, 10-Q, 10-K, S-3, S-4 and S-8. Such risks, uncertainties and changes in condition, significance, value and effect could cause our actual results to differ materially from our anticipated outcomes. Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate, including, but not limited to, statements about our future operating results and business plans. We disclaim any intention or obligation to update or revise any forward-looking statements as a result of new information, future events or otherwise.

Critical Accounting Policies

Management is required to make judgments, assumptions and estimates that affect the amounts reported when we prepare financial statements and related disclosures in conformity with generally accepted accounting principles in the United States. Note 1 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended August 31, 2001 describes the significant accounting policies and methods used in the preparation of our consolidated financial statements. See also Note 8 hereto. Estimates are used for, but not limited to, our accounting for contingencies, bad debt reserves, inventory allowances, goodwill impairments, and restructuring costs. Actual results could differ from these estimates. The foregoing critical accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of our consolidated financial statements.

We are subject to the possibility of various loss contingencies arising in the ordinary course of business. We consider the likelihood of the loss or impairment of an asset or the incurrence of a liability as well as our ability reasonably to estimate the amount of loss in determining loss contingencies. Estimated loss contingencies are accrued when it is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated. We regularly evaluate current information available to us to determine whether such accruals should be adjusted.

Inventory purchases and commitments are based upon future customer demand forecasts. For the global operations, exposure related to raw materials that are purchased pursuant to such demand forecasts and/or result from changes in accordance with our supply agreements’ contractual terms are the responsibility of our customers. We are responsible for remaining inventory exposures such as those resulting from inventory purchases in excess of customer demand forecasts and other similar situations generally not covered by our supply agreements with our customers. If our customers do not comply with their contractual obligations, the inventory allowances included in our financial statements may not be adequate to cover our exposure.

We perform goodwill impairment tests annually and more frequently if an event or circumstance indicates that is more likely than not that an impairment loss has been incurred. We perform the impairment tests at the reporting unit level which we have determined to be consistent with our business units. The tests are performed by determining the fair value of our reporting units using a discounted future cash flow model and comparing those fair values to the carrying values of the reporting units, including goodwill. Adverse changes in the electronics industry, customer demand and other market conditions could result in future impairments of goodwill.

At May 31, 2002, we had approximately $4.5 billion of goodwill, which was primarily related to the acquisitions of C-MAC and Natsteel Electronic Ltd. Pursuant to SFAS 142, we will perform our annual goodwill impairment test in the fourth quarter of our fiscal 2002. If as a result of this analysis we determine that there has been an impairment of our goodwill, asset impairment charges will be recognized in the fourth quarter of fiscal 2002. Asset impairment charges of this nature could have a material impact on our consolidated financial position and results of operations. Since the date of the C-MAC

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acquisition, there has been a decline in our stock price resulting in net book value exceeding our market capitalization. In addition, the demand for our services has been adversely affected by the general economic slowdown. We will take these and other factors into account in making our goodwill impairment determination.

Recently, we have recorded restructuring and impairment costs in light of customer demand declines and economic downturns. These restructuring and impairment charges include employee severance and benefit costs, costs related to leased facilities that will be abandoned and subleased, costs related to leased equipment that will be abandoned and impairment of equipment and facilities. Severance and benefit costs are recorded in compliance with EITF No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity. For leased facilities that will be abandoned and subleased, the estimated lease loss is accrued for future lease payments subsequent to abandonment less estimated sublease income. For owned facilities and equipment held for disposal, the impairment losses recognized are based on the fair value estimated using existing market prices for similar assets less costs to sell. See Note 10 -Restructuring and Impairment for further discussion of our restructuring activities.

Certain customers contract for us to provide fulfillment services such as warehousing, distribution, or billing to third parties. In order for us to recognize revenues, the following conditions must be met: upon shipment of product to the warehousing location and invoicing the customer for the manufacturing service, we have completed the manufacturing process, with no further performance obligations other than storage of the product. Completed products for which revenue has been recognized are segregated from work in process and not used to fill other orders. Title and risk of ownership have passed to the customer. The customer has a business reason for storing the inventory at Solectron’s or the third party’s warehouse and requests this arrangement. Delivery schedules are fixed by the customer and no special payment terms are given to the customer.

Results of Operations

The electronics industry is subject to rapid technological change, product obsolescence and price competition. These and other factors affecting the electronics industry, or any of Solectron’s major customers in particular, could materially harm Solectron’s results of operations. See “Risk Factors” for additional factors relating to possible fluctuations of our operating results.

The following table sets forth, for the periods indicated, certain items in the consolidated statements of operations as a percentage of net sales. The financial information and the discussion below should be read in conjunction with the condensed consolidated financial statements and notes thereto.

				Three Months Ended						Nine Months Ended
				May 31,			May 31,			May 31,			May 31,
				2002			2001			2002			2001
Net sales					100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales					93.0			92.3			93.3			91.5
Gross profit					7.0			7.7			6.7			8.5
Operating expenses:
	Selling, general and administrative				7.4			5.1			6.6			3.8
	Research and development				0.7			0.5			0.6			0.4
	Goodwill amortization expense				—			1.3			—			0.6
	Acquisition costs				—			—			—			0.2
	Restructuring & impairment costs				10.3			7.2			6.1			2.1
			Operating income (loss)		(11.4	)		(6.4	)		(6.6	)		1.4
Interest income					0.4			0.6			0.6			0.6
Interest expense					(2.4	)		(1.2	)		(1.9	)		(0.8	)
Income (loss) before income taxes and extraordinary gain					(13.4	)		(7.0	)		(7.9	)		1.2
Income tax provision (benefit)					(3.9	)		(2.4	)		(2.5	)		0.4
Income (loss) before extraordinary gain					(9.5	)		(4.6	)		(5.4	)		0.8
Extraordinary gain, net of income tax					0.1			—			0.4			—
		Net income (loss)			(9.4	)%		(4.6	)%		(5.0	)%		0.8	%

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Net Sales

We are organized in four business units including global operations, technology solutions, global services and newly established microsystems created from our acquisition of C-MAC in December 2001. Our largest business unit, global operations, provided 80.7% and 84.8% of net sales, respectively, for the three- and nine-month periods of fiscal 2002 compared to 90.6% and 91.3% of net sales for the same periods in fiscal 2001. Our technology solutions unit contributed 8.5% and 6.5%, respectively, for the three- and nine-month periods of fiscal 2002 compared to 7.3% and 7.2%, respectively, for the same periods in fiscal 2001. The global services unit contributed 7.3% and 6.4% of net sales, respectively, for the three- and nine-month periods of fiscal 2002 compared to 2.1% and 1.5% respectively, for the same period in fiscal 2001. Our microsystems business unit contributed 3.5% and 2.3% of net sales for the three and nine-month periods ended May 31, 2002.

Net sales for the three- and nine-month periods of fiscal 2002 were $3.0 billion and $9.2 billion, respectively, compared to $4.0 billion and $15.1 billion, respectively, for the same periods in fiscal 2001. This represents a 23.9% and 39.3% decrease for the three and nine-month periods, respectively. The decrease in net sales was principally due to continued weakness in customer demand, particularly in our telecommunications segment, resulting from the worldwide economic slowdown. This decrease was partially offset by revenues of our recent acquisitions including approximately $465 million and $817 million from C-MAC for the three- and nine-month periods of fiscal 2002, respectively.

Global Operations Business Unit

Net sales from our global operations business unit decreased to $2.4 billion and $7.8 billion, respectively, for the three- and nine-month periods in fiscal 2002 compared to $3.6 billion and $13.8 billion for the corresponding periods in fiscal 2001. This represented decreases of 32.1% and 43.7%, respectively, for the three- and nine-month periods in fiscal 2002 from the comparable periods of fiscal 2001. The decrease in net sales was principally due to continued weakness in customer demand, particularly in our telecommunications segment. The biggest contributors to the sales decline were our sites in Milpitas, California, Charlotte, North Carolina, Guadalajara, Mexico and France. This was partially offset by revenue increases resulting from our acquisition of C-MAC.

Technology Solutions Business Unit

Net sales from our technology solutions business unit decreased to $257.8 million and $599.7 million, respectively, for the three- and nine-month periods in fiscal 2002, compared to $293.4 million and $1,082.0 million for the corresponding periods of fiscal 2001. This represents decreases of 12.1% for the three-month period and 44.6% for the nine-month period. The decrease in net sales primarily resulted from lower customer demand and decreasing average selling prices of memory components.

Global Services Business Unit

Net sales from our global services business unit increased to $221.4 million and $586.3 million, respectively, for the three- and nine-month periods in fiscal 2002, compared to $84.0 million and $221.8 million for the corresponding periods in fiscal 2001. This represents increases of 163.6% and 164.3%, respectively, for the three- and nine-month periods of fiscal 2002 over the corresponding periods of fiscal 2001. Our recent acquisitions of Stream International and Artesyn Solutions, Inc. were main contributors to the increase as well as higher demand for after-sale support service provided by this business unit.

MicroSystems Business Unit

This new business unit was formed as a result of our acquisitions of C-MAC. MicroSystems business unit is a provider of sensors, controllers, actuators and other sophisticated componentry for key sectors of the economy such as automotive and aviation. Net sales for the three- and nine-month periods of fiscal 2002 were $106.1 million and $207.3 million respectively. This represented 3.5% and 2.3% of our net sales for the three- and nine-month periods of fiscal 2002.

International Sales

In the three- and nine-month periods of fiscal 2002, our international locations contributed 61% of consolidated net sales compared to 61% and 54% for the same periods of fiscal 2001. The increase was primarily due to project transfers from sites in the United States to Asian sites. These transfers are occurring due to weaker demand for our services in the United States as compared to internationally and lower costs in selected international locations. Our international operations are subject to

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various risks of doing business abroad. See “Risk Factors” for additional factors relating to possible fluctuations of our international operating results. While these dynamics have not materially harmed our results of operations, we cannot ensure that there will not be such an impact in the future.

Major Customers

Several of our customers accounted for 10% or more of our net sales in the three- and nine-month periods of fiscal 2002 and 2001. The following table details these customers and the percentage of net sales attributed to them:

	Three Months Ended						Nine Months Ended
	May 31,						May 31,
	2002			2001			2002			2001
Cisco		10.8	%		*			10.9	%		12.3	%
Ericsson		*			13.7	%		*			13.9	%
Nortel		13.3	%		11.8	%		14.3	%		12.0	%
* Less than 10%

Our top ten customers accounted for approximately 60% and 65%, respectively, of consolidated net sales in the three- and nine-month periods of fiscal 2002 compared to 65% and 72% respectively, for the corresponding periods in fiscal 2001. We are dependent upon continued revenues from Cisco and Nortel as well as our other large customers. We cannot guarantee that these or any other customers will not increase or decrease as a percentage of consolidated net sales either individually or as a group. Consequently, any material decrease in sales to these or other customers could materially harm our results of operations.

We believe that our ability to grow depends on increasing sales to existing customers for their current and future product generations and on successfully attracting new customers. Customer contracts can be canceled and volume levels can be changed or delayed. The timely replacement of delayed, canceled or reduced orders with new business cannot be ensured. In addition, we cannot assume that any of our current customers will continue to utilize our services. Consequently, our results of operations may be materially adversely affected.

Gross Profit

Our gross margin percentage decreased to 7.0% and 6.7% respectively, for the three- and nine-month periods of fiscal 2002 compared to 7.7% and 8.5% for the corresponding periods of fiscal 2001. Our gross margin was affected by inefficiencies associated with reduced workload and restructuring activities. We continue to shift capacity to low-cost locations. Those transfer costs are accounted for as operational costs versus restructuring costs and, consequently, they affected our gross margins. We have begun to see the benefits of our restructuring activities and improved product mix on our margin. Gross margins have improved for three consecutive quarters. Gross margins were 5.8%, 6.4%, 6.7% and 7.0% during the fourth quarter of fiscal 2001, and the first, second and third quarters of fiscal 2002, respectively. However, there is no assurance that this trend will continue.

For our global operations unit, we anticipate that a larger percentage of our sales may be derived from systems-build projects that generally yield lower profit margins than PCB assembly. We expect most of our technology solutions sales may continue to be derived from turn-key projects, which typically yield lower profit margins than consignment projects. In addition, factors affecting technology solutions profit margins include the sales mix of specialty memory modules, standard memory modules, communication card products and embedded computer modules, as well as changes in average memory densities used in memory products.

In the foreseeable future, our overall gross margin will depend primarily on product mix, production efficiencies, utilization of manufacturing capacity, start-up and integration costs of new and acquired businesses, percentage of sales derived from systems-build and turn-key projects, pricing within the electronics industry, component costs and delivery linearity, and the cost structure at individual sites. Over time, gross margins at the individual sites and for Solectron as a whole may continue to fluctuate. Increases in the systems-build business or turn-key projects, additional costs associated with new projects and price erosion within the electronics industry could harm our gross margin.

In addition, we have experienced component shortages. While component availability fluctuates from time to time and is still subject to lead-time and other constraints, this could possibly limit our gross profit growth and might have a negative impact

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on our sales and gross margins for the foreseeable future. Therefore, we cannot ensure that our gross margin will not fluctuate or decrease in future periods.

Selling, General and Administrative Expenses

In absolute dollars, selling, general and administrative (SG&A) expenses increased 10.8% and 3.8% for the three- and nine-month period ended May 31, 2002 over the corresponding period of fiscal 2001. As a percentage of net sales, SG&A expenses were 7.4% for the three-month period ended May 31, 2002, compared to 5.1% for the corresponding period in fiscal 2001, and 6.6% for the nine-month period in fiscal 2002 compared to 3.8% for the corresponding period in fiscal 2001. The increase in absolute dollars for the three- and nine-month periods ended May 31, 2002 was primarily due to our recent acquisitions including C-MAC and Stream International. The increase as a percentage of net sales for the three- and nine-month periods resulted from a decrease in net sales as a major portion of these expenses are fixed.

Research and Development Expenses

With the exception of our technology solutions business unit, our research and development (R&D) activities have been primarily developing prototype and engineering design capabilities, developing common tools for electrical, mechanical design, standardizing a single functional test platform, developing methods for handling, processing and re-flow of high I/O ball grid array, high reliability environmental stress technology and the implementation of environmentally friendly assembly processes such as lead free and no-clean. Technology solutions’ R&D efforts are concentrated on new product development and improvement of product designs through improvements in functionality and the use of microprocessors in embedded applications.

In absolute dollars, R&D expenses increased 4.6% for the three-month period ended May 31, 2002 from the corresponding period in fiscal 2001. For the nine-month period ended May 31, 2002, R&D expenses decreased 3.1% from the corresponding period in fiscal 2001. As a percentage of net sales, R&D expenses increased to 0.7% and 0.6% for the three- and nine-month periods in fiscal 2002 compared to 0.5% and 0.4% for the corresponding periods in fiscal 2001. The increase in absolute dollars for the third quarter of fiscal 2002 compared to the same period in fiscal 2001 was primarily due the acquisition of C-MAC. In spite of the C-MAC acquisition, there was a decrease in absolute dollars for the nine-month period ended May 31, 2002. This was mainly due to continued efforts to keep costs under control and the closure of our Force-Westborough site during the first quarter of fiscal 2002. Also, the C-MAC acquisition on December 3, 2001 had only a six-month period impact on the nine-month data.

Net Interest Income (Expense)

Net interest expense was $58.2 million for the three-month period ended May 31, 2002 compared to net interest expense of $25.5 million for the corresponding period of fiscal 2001. For the nine-months ended May 31, 2002, net interest expense was $122.1 million compared to net interest expense of $32.1 million for the corresponding period of fiscal 2001. The increase in net interest expense in the third quarter of fiscal 2002 primarily resulted from our issuance of the Adjustable Conversion-Rate Equity Security units (ACES) and the 9.625% Senior Notes due 2009 during the second quarter of fiscal 2002 which bear interest at higher rates than our LYONs. Additionally, our interest income decreased due to lower average interest rates as compared to the same period in fiscal 2001. The increase in net interest expense during the nine-month period of fiscal 2002 is further due to the fact that the 3.25% LYONs were only outstanding for approximately six months during the nine-month period of fiscal 2001.

Income Taxes

For the nine-month period ended May 31, 2002, we recorded an income tax benefit of $232.4 million on pretax net loss of $727.0 million. We incurred income tax expense of $55.5 million in the corresponding period of fiscal 2001. The difference was primarily due to our loss before income taxes during the first nine months of fiscal 2002. In general, the effective income tax rate is largely a function of the balance between income from domestic and international operations. Our international operations, taken as a whole, have been taxed at a lower rate than those in the United States, primarily due to a tax holiday granted to several of our overseas sites in Malaysia, Singapore, and China. The Malaysian tax holiday is effective through July 2011, subject to some conditions, including maintaining certain levels of research and development expenditures. The Singapore tax holiday is effective through March 2011, subject to some conditions. The tax holidays in China are effective for various terms and are subject to some conditions. Our effective tax rate for the third quarter of fiscal 2002 (29.3%) is less

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than that for the third quarter of fiscal 2001 (33.7%) because we are not recognizing some of the tax benefits in connection with certain foreign operating loss carryforwards.

Liquidity and Capital Resources

Cash, cash equivalents and short-term investments, including restricted balances of $425.7 million, increased to $3.2 billion at May 31, 2002 from $2.8 billion at August 31, 2001. The increase was primarily a result of cash provided by operating activities of approximately $2.0 billion. This increase was partially offset by cash used in investing activities of $1.2 billion (primarily for acquisition of businesses, restricted cash and capital expenditures). Through our recent offering of ACES due 2006, and the 9.625% Senior Notes due 2009, we raised net proceeds of approximately $1.1 billion and $486.8 million, respectively. We used $1.9 billion of our available cash towards repurchase of our LYONs debt during the nine months ended May 31, 2002. We also repaid other debt including C-MAC’s outstanding debt assumed upon acquisition of approximately $341 million. Approximately $425.7 million of our cash, cash equivalents and short-term investments are restricted primarily related to leasing transactions (see further discussion in Note 4) and collateral for our obligations under the ACES securities in an amount equal to the first eight quarterly interest payments on the debentures constituting part of the ACES.

Accounts receivable decreased $426.9 million during the first nine months of fiscal 2002 from August 31, 2001. The decrease in accounts receivable was primarily due to our revenue decrease and our collection effort during the first nine months of fiscal 2002. Inventories decreased $1.1 billion during the first nine months of fiscal 2002 over the fiscal year-end 2001. The inventory decrease was primarily due to the sale of excess raw materials inventory back to customers.

As of May 31, 2002, we had available a $250 million secured, revolving line of credit that expires on February 12, 2003, and a $250 million secured, revolving line of credit that expires on February 14, 2005. Borrowings under the credit facilities bear interest at the London interbank offering rate (LIBOR) plus a margin. As of May 31, 2002, there were no borrowings outstanding under these lines of credit. In light of our recent financial performance, we amended these credit facilities on June 18, 2002 in order to make them less restrictive. We amended the liens, capital expenditures, consolidated tangible net worth and cash interest coverage ratio covenants as well as certain other terms of the credit facilities. We also added a liquidity ratio covenant. These amendments were effective as of May 31, 2002.

On December 18, 2001, Moody’s Investor’s Service and Standard & Poor’s downgraded our senior unsecured debt rating to “Ba1” and “BB+” respectively with a negative outlook. On March 22, 2002, Standard and Poor’s downgraded our senior unsecured debt rating to “BB” with a negative outlook. On May 14, 2002, Moody’s Investors Services further downgraded our senior unsecured debt rating to Ba3 with a stable outlook. These rating downgrades will increase our cost of capital should we borrow under our revolving lines of credit, and may make it more expensive for us to raise additional capital in the future and such capital raising activities may be on terms that are not be acceptable to us or otherwise not available.

In addition, we had approximately $25.0 million and $502.1 million, respectively, in committed and uncommitted foreign lines of credit and other bank facilities as of May 31, 2002. The interest rates range from the bank’s prime lending rate to the bank’s prime rate plus 2.0%. As of May 31, 2002, borrowings and guaranteed amounts were $4.5 million and $261.7 million under committed and uncommitted foreign lines of credit, respectively. Borrowings were payable on demand. The weighted-average interest rate was 7.65% for committed and 3.10% for uncommitted foreign lines of credit.

We have purchased in the past and may continue to purchase in the future our LYONs on an opportunistic basis. In addition, our cash and liquidity could be adversely affected if we require substantial amounts of cash in connection with our obligations to purchase our LYONs as they become due. Instead of repurchasing the LYONs with cash, we may elect to offer holders our common stock or a combination of our cash and common stock. At the time of such election, it may be in the best interests of our shareholders to satisfy such obligation in cash, however, we may not have sufficient cash available and we may not be able to finance the required amount on acceptable terms if at all. As a result, we may be required to satisfy such obligations with our common stock, which would be extremely dilutive at our current stock prices. See “Risk factors-Our Low Stock Price May Reduce Our Earnings Per Share.” Based on the aggregate amount outstanding on May 31, 2002, on May 8, 2003, holders of our 2.75% LYONS due 2020 have the option to require us to repurchase their notes in an amount of $628.57 per $1,000 principal amount for a total of approximately $1.5 billion. Based on the aggregate amount outstanding on May 31, 2002, on May 20, 2004 holders of our 3.25% LYONS due 2020 have the option to require us to repurchase their notes in an amount of $587.46 per $1,000 principal amount for a total of approximately $1.6 billion.

Our 7.25% subordinated ACES debentures are due November 15, 2006. On or about August 15, 2004, the ACES debentures will be remarketed and if the remarketing is successful, the interest rate will be reset at then current rates as described in the

26

indentures and the proceeds from the remarketing will be used to satisfy the holders’ obligation to purchase our common stock in November 2004. If the debentures are not successfully remarketed, the interest rate will not be reset and Solectron may use the pledged debentures to satisfy the holder’s obligation to purchase our common stock in November 2004. In addition, our $500 million aggregate principal amount of 9.625% senior notes are due February 15, 2009.

On June 20, 2002, the Company announced its plan to purchase up to $1.5 billion principal amount at maturity of its 2.75% LYONs due 2020, having a carrying value of $919 million as of May 31, 2002, under a Modified Dutch Auction tender offer. The tender offer commenced Friday June 21, 2002 and is set to expire July 19, 2002, unless extended. The Company intends to fund the tender offer with about $900 million of cash on hand.

We and our subsidiaries have three synthetic lease agreements relating to five manufacturing sites. We have accounted for these arrangements as operating leases in accordance with Statement of Financial Accounting Standards No. 13, Accounting for Leases, as amended. The leases have expiration dates in 2002 to 2004. At the end of the lease term, we have an option, subject to certain conditions to purchase the facility for the “Termination Value,” which approximates original cost, or to cause a third party to purchase the property for the Termination Value. If we, one of our subsidiaries, or a third party purchases the facility for less than the Termination Value or if the property is not purchased, we or the subsidiary leasing the facility, will be contingently liable under a first loss clause for up to 85% of original cost of the facility, which percentage of original cost was approximately $105 million in the aggregate as of May 31, 2002. We are entitled to any proceeds from a sale of the property to a third party in excess of the Termination Value. The approximate maximum Termination Values for each of the leases are provided below, which have been fully cash collateralized by us:

A)	$52 million — Milpitas, CA
B)	$13 million — San Jose, CA
C)	$58 million for one site in Columbia, SC; and two sites in Fremont, CA

If we determine that it is probable that the expected fair value of the property at the end of the lease term will be less than the Termination Value, we will accrue the expected loss on a straight line basis over the remaining lease term.

Each lease agreement contains various affirmative, negative and, except for C), financial covenants. A default under a lease, including violation of these covenants, may require us to purchase the facility (or facilities) for the Termination Value. Monthly lease payments are generally based on the 30-day LIBOR index (1.84% as of May 31, 2002) plus an interest rate margin, which may vary depending upon our, Moody’s, Standard and Poor’s ratings, based on the Termination Value. Prior to May 31, 2002, we obtained written waivers of breaches of financial covenants contained in the leases for A) and B) above. As of May 31, 2002, we were not in breach of any covenants since we obtained waivers from each of the financial institutions, other than for C), for which no waiver was necessary. The waivers have expiration dates of August 1, 2002. These waivers were sought and obtained in relation to our capital raising activities from December 2001 to February 2002. As of May 31, 2002, we provided $65 million of cash as collateral in support of these waivers under these lease agreements. We believe we will be able to refinance these leases with other institutions. If we are not able to refinance these leases, we will be required to purchase the facilities for an aggregate purchase price of $65 million on or before August 1, 2002. The lease with respect to C) expires on June 4, 2004, is not subject to any temporary waivers, and is cash collateralized in an amount equal to $58 million. The total cash collateral of $123 million is included in restricted cash, cash equivalents and short-term investments in the accompanying consolidated balance sheet as of May 31, 2002.

We purchased our Nakaniida, Japan site on March 8, 2002 for $63 million, which was paid for with cash collateral previously provided under the synthetic lease for this site. On May 1, 2002, we purchased two California sites from our lessors for $58 million, which were paid for with cash collateral previously provided under the synthetic leases for these sites. On May 1, 2002, we also paid down the synthetic leases for $59 million for sites in Washington and Georgia, which were paid for with cash collateral previously provided under the synthetic leases for these sites. We recorded approximately $35 million of impairment charges during the current quarter related to these acquired facilities.

We believe that our current cash and cash equivalents, short-term investments, lines of credit and cash generated from operations will satisfy our expected working capital, capital expenditure, debt service and investment requirements through at least the next 12 months.

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The following is a summary of certain obligations and commitments as of May 31, 2002:

		Payment Due by Period
				Less than		1-3		4-5		After 5
		Total		1 year		years		years		years
	(in millions)
Long term debt(1)		$	4,834.2	$	1,484.7	$	1,637.2	$	1,206.7	$	505.6
Operating leases			498.1		167.7		148.6		76.1		105.7
Capital leases			9.3		4.5		3.5		0.6		0.7
Borrowing against lines of credit(2)			202.9		202.9		—		—		—
Standby letters of credit			23.7		15.4		8.3		—		—

(1)

Since the holders of our 2.75% LYONS due 2020 have the option to require us to repurchase their notes on May 8, 2003 in an amount of $628.57 per $1,000 principal amount at maturity, in the table above, the payment date for the 2.75% LYONS due 2020 is May 8, 2003 and the purchase price is $628.57 per $1,000 principal amount at maturity based on amounts outstanding as of May 31, 2002. Since the holders of our 3.25% LYONS due 2020 have the option to require us to repurchase on May 20, 2004 their notes in an amount of $587.46 per $1,000 principal amount at maturity, in the table above, the payment date for the 3.25% LYONS due 2020 is May 20, 2004 and the purchase price is $587.46 per $1,000 principal amount at maturity based on amounts outstanding as of May 31, 2002.

(2)

We guarantee lines of credit, provided by various financial institutions, for our operating subsidiaries worldwide. Lines of credit, used and unused, which we guarantee total $527.1 million. In addition, we guarantee other financial transactions, totaling $320.7 million. These transactions include, among others, certain real estate and equipment operating leases entered into by our subsidiaries.

We guarantee $60 million of debt and $88 million of vendor contracts for our minority owned affiliate, Pacific City International Holdings, (PCI). The guarantee will expire during December 2002.

RECENT ACQUISITIONS

On June 11, 2002, we completed our acquisition of Magnetic Data Technologies (MDT), a global provider of after-sales services for the communications, computer and electronic storage markets for $70 million in cash. The acquisition will be accounted for as a purchase of a business.

On May 31, 2002, we announced the completion of a three-year supply agreement to produce optical networking equipment for Lucent Technologies. As part of the three-year supply agreement, we purchased equipment and inventory related to Lucent’s optical product lines for approximately $99.4 million in cash. This acquisition was accounted for as a purchase of assets.

On May 9, 2002, we completed our acquisition of the assets of NC&C for approximately $2.8 million in cash. This transaction was accounted for as a purchase of assets.

On April 1, 2002, we announced the completion of the acquisition of NEC Ibaraki. The purchase price of the acquisition was approximately $16.6 million in cash. The transaction was accounted for as a purchase of a business.

On December 6, 2001, we completed our acquisition of Artesyn Solutions, Inc. for approximately $36.4 million in cash. The transaction was accounted for as a purchase of a business.

On December 3, 2001, we completed our acquisition of C-MAC Industries, Inc. We issued approximately 98.8 million shares of our common stock, 52.5 million exchangeable shares of Solectron Global Services Canada Inc., which are exchangeable on a one-to-one basis for our common stock, and 5.2 million options in the transaction. The purchase price was $2,571.3 million, consisting of stock valued at $2,487.2 million, stock options valued at $63.1 million and direct acquisition costs of $21 million.

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RECENT DEVELOPMENT

Tender offer for a portion of outstanding 2.75% LYONs

On June 20, 2002, we announced our plan to purchase up to $1.5 billion principal amount at maturity of our 2.75% LYONs due 2020, having a carrying value of $919 million as of May 31, 2002, under a Modified Dutch Auction tender offer. The tender offer commenced Friday June 21, 2002 and is set to expire July 19, 2002, unless extended. We intend to fund the tender offer with about $900 million of cash on hand.

RISK FACTORS

WE ARE EXPOSED TO GENERAL ECONOMIC CONDITIONS, WHICH COULD HAVE A MATERIAL ADVERSE IMPACT ON OUR BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION.

As a result of unfavorable general economic conditions in the U.S. and internationally, and reduced capital spending, our sales have continued to decline in recent fiscal quarters. In particular, we started to see sales decline in the telecommunications, workstation and server equipment manufacturing industry worldwide during the second half of fiscal 2001. If the economic conditions in the United States and the other markets we serve worsen, we may experience a material adverse impact on our business, operating results and financial condition.

WE HAVE SIGNIFICANT DEBT LEVERAGE AND DEBT SERVICE OBLIGATIONS.

For the nine months ended May 31, 2002 our fixed charges exceeded our earnings by $727.8 million as compared to our ratio of earnings to fixed charges for the nine months ended May 31, 2001 of 2.10x, and our ratio of earnings to fixed charges of 0.23x for fiscal year 2001. This decline in the ratio is primarily due to our operating losses and interest expense growing at a greater rate since the second half of fiscal 2001 and during the nine-month period of fiscal 2002. We have computed the ratio of earnings to fixed charges by dividing earnings available for fixed charges by fixed charges. The computations include us and our consolidated subsidiaries. For these ratios, “earnings” represents (1) income (loss) before taxes and before adjustment for minority interests, plus (2) fixed charges (excluding capitalized interest), plus (3) amortization of capitalized interest. Fixed charges consist of (1) interest on all indebtedness and amortization of debt discount and expense, plus (2) capitalized interest, plus (3) an interest factor attributable to rentals under operating leases.

As of May 31, 2002, the Company had approximately $203 million of short-term indebtedness, $1.447 billion of current portion of long-term indebtedness and $3.251 billion of long-term indebtedness (which in the case of all Liquid Yield Option Notes were the accreted values as of that date). The degree to which we may be leveraged could materially and adversely affect our ability to obtain financing for working capital, acquisitions or other purposes, could make us more vulnerable to industry downturns and competitive pressures, or could limit our flexibility in planning for, or reacting to, changes and opportunities in, the electronics manufacturing industry, which may place us at a competitive disadvantage compared to our competitors. Our ability to meet our debt service obligations will be dependent upon our future performance, which will be subject to financial, business and other factors affecting our operations, many of which are beyond our control.

We will require substantial amounts of cash to fund scheduled payments of principal and interest on our outstanding indebtedness, as well as future capital expenditures and any increased working capital requirements. In addition, we may require substantial amounts of cash in connection with our obligations to purchase our LYONs. On January 28, 2002, holders of our 4% LYONs due 2019 exercised their option to require us to repurchase their LYONs in an amount of $510.03 per $1,000 principal amount at maturity, of which we purchased $482.8 million. As of May 31, 2002, following our repurchase of these LYONs for cash, approximately $919,000 of accreted value of these LYONs remained outstanding. Based on the aggregate amount outstanding on May 31, 2002, on May 8, 2003, holders of our 2.75% LYONs due 2020 will have the option to require us to repurchase their notes in an amount of $628.57 per $1,000 principal amount for a total of up to approximately $1.5 billion. If our publicly announced tender offer on June 20, 2002 for the LYONs is consummated on the terms currently proposed, we will purchase up to $1.5 billion aggregate principal amount at maturity of these LYONs and $850 million aggregate principal amount at maturity of these LYONs would remain outstanding. Based on the aggregate amount outstanding on May 31, 2002, on May 20, 2004, holders of our 3.25% LYONs due 2020 will have the option to require us to repurchase their notes in an amount of $587.46 per $1,000 principal amount for a total of approximately $1.6 billion. Instead of repurchasing the LYONs with cash, we may elect to offer holders our common stock or a combination of our cash and common stock. At the time of such election, it may be in the best interests of our shareholders to satisfy such obligation in cash, however, we may not have sufficient cash available and we may not be able to finance the required amount on

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acceptable terms if at all. As a result, we may be required to satisfy such obligations with our common stock, which would be extremely dilutive at our current stock prices. See “Risk factors-Our Low Stock Price May Reduce Our Earnings Per Share.”

If we are unable to meet our cash requirements from operations we would be required to fund these cash requirements by alternative financings. There can be no assurance that we will be able to obtain alternative financing, that any such financing would be on acceptable terms, or that we will be permitted to do so under the terms of our existing financing arrangements, or our financing arrangements in effect in the future. In the absence of such financing, our ability to respond to changing business and economic conditions, make future acquisitions, react to adverse operating results or fund required capital expenditures or increased working capital requirements may be adversely affected.

THE AGREEMENTS GOVERNING OUR EXISTING AND FUTURE DEBT CONTAIN AND WILL CONTAIN VARIOUS COVENANTS THAT LIMIT OUR DISCRETION IN THE OPERATION OF OUR BUSINESS.

The agreements and instruments governing our existing and future debt and our secured credit facilities contain and may in the future contain various restrictive covenants that, among other things, require us to comply with or maintain certain financial tests and ratios and restrict our ability to:

• incur debt;

• incur or maintain liens;

• redeem and/or prepay subordinated debt;

• make acquisitions of businesses or entities;

• make investments, including loans and advances;

• make capital expenditures;

• engage in mergers, consolidations or certain sales of assets;

• engage in transactions with affiliates;

• pay dividends or engage in stock redemptions; and

• enter into certain restrictive agreements.

Our secured credit facilities are secured by a pledge of all of the capital stock of our material domestic subsidiaries, 65% of the capital stock of our first-tier material foreign subsidiaries and certain of our intercompany loans.

Our ability to comply with covenants contained in our existing debt and our secured credit facilities and other indebtedness to which we are or may become a party may be affected by events beyond our control, including prevailing economic, financial and industry conditions. Our failure to comply with our debt-related obligations could result in an event of default which, if not cured or waived, could result in an acceleration of our indebtedness and cross-defaults under our other indebtedness, which would have a material adverse effect on our financial condition. Even if we are able to comply with all applicable covenants, the restrictions on our ability to operate our business could harm our business by, among other things, limiting our ability to take advantage of financings, mergers, acquisitions and other corporate opportunities.

In light of our recent financial performance, we amended our credit facilities on June 18, 2002 in order to make them less restrictive. We amended the liens, capital expenditures, consolidated tangible net worth and cash interest coverage ratio covenants as well as certain other terms of the credit facilities. We also added a liquidity ratio covenant. These amendments were effective as of May 31, 2002.

MOST OF OUR NET SALES COME FROM A SMALL NUMBER OF CUSTOMERS; IF WE LOSE ANY OF THESE CUSTOMERS, OUR NET SALES COULD DECLINE SIGNIFICANTLY.

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Most of our annual net sales come from a small number of our customers. Our ten largest customers accounted for approximately 60% and 65% of net sales in the three- and nine-month periods ended May 31, 2002 and approximately 65% and 72% of net sales in the corresponding periods of fiscal 2001. Since we depend on continued net sales from our largest customers, any material delay, cancellation or reduction of orders from these or other major customers could cause our net sales to decline significantly. Some of these customers individually account for more than ten percent of our annual net sales. We cannot guarantee that we will be able to retain any of our largest customers or any other accounts. In addition, our customers may materially reduce the level of services ordered from us at any time. This could cause a significant decline in our net sales and we may not be able to reduce the accompanying expenses at the same time. Moreover, our business, market share, financial condition and results of operations will continue to depend significantly on our ability to obtain orders from new customers, as well as on the financial condition and success of our customers. Therefore, any adverse factors affecting any of our customers or their customers could have a material adverse effect on our business, financial condition and results of operations. In addition to the above, some industry sources have projected that our market share by revenues may decline in the near term.

WE MAY ENCOUNTER SIGNIFICANT DELAYS OR DEFAULTS IN PAYMENTS OWED TO US BY CUSTOMERS FOR PRODUCTS WE HAVE MANUFACTURED OR COMPONENTS THAT ARE UNIQUE TO PARTICULAR CUSTOMERS.

We structure our agreements with customers to minimize our risks related to obsolete or unsold inventory. However, enforcement of these contracts may result in material expense and delay in payment for inventory. If any of our significant customers becomes unable or unwilling to purchase such inventory, our business may be materially harmed.

OUR CONTRACTS GENERALLY DO NOT INCLUDE MINIMUM PURCHASE REQUIREMENTS AND OUR PROJECTIONS OF FUTURE REVENUES FROM CUSTOMER BID WINS MAY BE LOWER THAN EXPECTED.

Although we have long-term contracts with a few of our top ten customers, including Ericsson and Nortel, under which these customers are obligated to obtain services from us, only Nortel is obligated to purchase any minimum amount of services. As a result, we cannot guarantee that we will receive any net sales from these contracts or any of our other contracts with customers. In addition, the customers with whom we have contracts may materially reduce the level of services ordered at any time, which they have done in the past. This could cause a significant decline in our net sales, and we may not be able to reduce our accompanying expenses at the same time.

IF WE ARE UNABLE TO MANAGE OUR GROWTH AND COST-EFFECTIVELY ASSIMILATE NEW OPERATIONS, OUR PROFITABILITY COULD DECLINE FURTHER.

We have experienced rapid growth over many years. In recent years, we have established operations in different locations throughout the world. For example, in fiscal 1998, we opened offices, acquired facilities or commenced manufacturing operations in nine foreign locations. Furthermore, through acquisitions in fiscal 1998 and 1999, we acquired or expanded our capabilities in six domestic facilities.

In fiscal 2000, we completed acquisitions of AMERICOM, SMART and Bluegum. Through additional acquisitions, we also acquired facilities in fourteen foreign locations. During fiscal 2001, we completed acquisitions of NEL, Shinei, Centennial, MCC-Sequel, and Sony’s manufacturing facilities in Japan and Taiwan as well as IBM’s repair center in the Netherlands. Thus far in fiscal 2002, we have completed acquisitions of Iphotonics, Inc., Stream International, C-MAC Industries Inc., Artesyn Solutions, Inc., certain assets of Lucent Technologies, NEC Ibaraki and NC&C. We intend to continue to make acquisitions of companies and strategic assets under our acquisition strategy, subject to compliance with any restrictions that may exist under our financial instruments. These acquisitions may be for cash, capital stock or any combination of cash and capital stock, and may include the incurrence or assumption of indebtedness and a reduction of our available cash.

In order to achieve anticipated revenue and other financial performance targets, we must manage our assets and operations efficiently. Our expansion and growth place a heavy strain on our personnel and management, manufacturing and other resources. Our ability to manage the expansion to date, as well as any future expansion, will require progressive increases in manufacturing infrastructure, as well as enhancements or upgrades of accounting and other internal management systems and the implementation of a variety of procedures and controls. We cannot assure you that significant problems in these areas will not occur. Any failure to enhance or expand these systems and implement such procedures and controls in an efficient manner and at a pace consistent with our business activities could harm our financial condition and results of operations. In addition, should we continue to expand geographically, we may experience inefficiencies from the management

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of geographically dispersed facilities. As we manage and continue to expand new operations, we may incur substantial infrastructure and working capital costs.

POSSIBLE FLUCTUATION OF OPERATING RESULTS FROM QUARTER TO QUARTER COULD AFFECT THE MARKET PRICE OF OUR SECURITIES.

Our quarterly earnings may fluctuate in the future due to a number of factors including the following:

• differences in the profitability of the types of manufacturing services we provide. For example, high velocity and low complexity printed circuit boards and systems assembly services have lower gross margins than low volume/complex printed circuit boards and systems assembly services;

• our ability to maximize the hours of use of our equipment and facilities is dependent on the duration of the production run time for each job and customer;

• the amount of automation that we can use in the manufacturing process for cost reduction varies, depending upon the complexity of the product being made;

• our customers’ demand for our products, and their ability to take delivery of our products and to make timely payments for delivered products;

• our ability to optimize the ordering of inventory as to timing and amount to avoid holding inventory in excess of immediate production needs;

• fluctuations in demand for our services or the products being manufactured;

• fluctuations in the availability and pricing of components;

• timing of expenditures in anticipation of increased sales;

• cyclicality in our target markets; and

• expenses associated with acquisitions.

Therefore, our operating results in the future could be below the expectations of securities analysts and investors. If this occurs, the market price of our outstanding securities could be harmed.

WE DEPEND UPON ECONOMIC DEVELOPMENTS IN THE ELECTRONICS INDUSTRY AS A WHOLE, WHICH CONTINUALLY PRODUCES TECHNOLOGICALLY ADVANCED PRODUCTS WITH SHORT LIFE CYCLES; OUR INABILITY TO CONTINUALLY MANUFACTURE SUCH PRODUCTS IN A COST EFFECTIVE MANNER WOULD HARM OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Most of our net sales are to companies in the electronics industry, which is subject to rapid technological change and product obsolescence. If our customers are unable to create products that keep pace with the changing technological environment, our customers’ products could become obsolete and the demand for our services could decline significantly. If we are unable to offer technologically advanced, cost effective, quick response manufacturing services to customers, demand for our services will also decline. In addition, a substantial portion of our net sales is derived from our ability to offer complete service solutions for our customers. For example, if we fail to maintain high-quality design and engineering services, our net sales would significantly decline.

For our technology solutions business, we have experienced, and may in the future experience, delays from time to time in the development and introduction of new products. Moreover, we cannot ensure that we will be successful in selecting, developing, manufacturing and marketing new products or enhancements. We cannot ensure that defects or errors will not be found in our products after commencement of commercial shipments, which could result in the delay in market acceptance of such products. The inability to introduce new products or enhancements could harm our business, financial condition and results of operations.

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WE DEPEND ON LIMITED OR SOLE SOURCE SUPPLIERS FOR CRITICAL COMPONENTS. THE INABILITY TO OBTAIN SUFFICIENT COMPONENTS AS REQUIRED WOULD CAUSE HARM TO OUR BUSINESS.

We are dependent on certain suppliers, including limited and sole source suppliers, to provide key components used in our products. We have experienced, and may continue to experience, delays in component deliveries, which could cause delays in product shipments and require the redesign of certain products. Also for our technology solutions business, we are dependent upon certain limited or sole source suppliers for critical components used for our memory module, communications card and embedded computer products. The electronics industry has experienced in the past, and may experience in the future, shortages in semiconductor devices, including DRAM, SRAM, flash memory, tantalum capacitors and other commodities that may be caused by such conditions as overall market demand surges or supplier production capacity constraints. Except for certain commodity parts, we generally have no written agreements with our suppliers. We cannot give any assurance that we will receive adequate component supplies on a timely basis in the future. The inability to continue to obtain sufficient components as required, or to develop alternative sources as required, could cause delays, disruptions or reductions in product shipments or require product redesigns which could damage relationships with current or prospective customers, thereby causing harm to our business.

WE POTENTIALLY BEAR THE RISK OF PRICE INCREASES ASSOCIATED WITH POTENTIAL SHORTAGES IN THE AVAILABILITY OF ELECTRONICS COMPONENTS.

At various times, there have been shortages of components in the electronics industry. One of the services that we perform for many customers is purchasing electronics components used in the manufacturing of the customers’ products. As a result of this service, we potentially bear the risk of price increases for these components because we are unable to purchase components at the pricing level anticipated to support the margins assumed in our agreements with our customers.

OUR NET SALES COULD DECLINE IF OUR COMPETITORS PROVIDE COMPARABLE MANUFACTURING SERVICES AND IMPROVED PRODUCTS AT A LOWER COST.

We compete with different contract manufacturers, depending on the type of service we provide or the geographic locale of our operations. The memory module, communications card and embedded computer subsystem industries are also intensely competitive. These competitors may have greater manufacturing, financial, R&D and/or marketing resources than we have. In addition, we may not be able to offer prices as low as some of our competitors because those competitors may have lower cost structures as a result of their geographic location or the services they provide. Our inability to provide comparable or better manufacturing services at a lower cost than our competitors could cause our net sales to decline. We also expect our competitors to continue to improve the performance of their current products or services, to reduce their current products or service sales prices and to introduce new products or services that may offer greater performance and improved pricing. Any of these could cause a decline in sales, loss of market acceptance of our products or services, or profit margin compression.

WE DEPEND ON THE MEMORY MODULE PRODUCT MARKET.

Most of our technology solutions net sales are derived from memory modular products. The market for these products is characterized by frequent transitions in which products rapidly incorporate new features and performance standards. A failure to develop products with required feature sets or performance standards or a delay as short as a few months in bringing a new product to market could reduce our net sales which may materially harm our business, financial condition and results of operations. In addition, the market for semiconductor memory devices has been cyclical. The industry has experienced significant economic downturns at various times including at the present time, characterized by diminished product demand, accelerated erosion of average selling prices and excess production. In the past, there have been significant declines in the prices for DRAM, SRAM and flash memory. Similar occurrences will reduce our profit.

WE DEPEND ON THE CONTINUING TREND OF OEMS TO OUTSOURCE.

A substantial factor in our revenue growth was attributable to the transfer of manufacturing and supply base management activities from our OEM customers. Future growth is partially dependent on new outsourcing opportunities. To the extent that these opportunities are not available, our future growth would be unfavorably impacted. These outsourcing opportunities may include the transfer of assets such as facilities, equipment and inventory.

OUR NON-U.S. LOCATIONS REPRESENT A SIGNIFICANT AND GROWING PORTION OF OUR NET SALES; WE ARE INCREASINGLY EXPOSED TO RISKS ASSOCIATED WITH OPERATING INTERNATIONALLY.

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In the three- and nine-month periods ended May 31, 2002, approximately 61% of net sales came from sites outside the United States, while approximately 61% and 54% of net sales came from sites outside the United States in the same periods of fiscal 2001. As a result of our foreign sales and facilities, our operations are subject to a variety of risks that are unique to international operations, including the following:

• adverse movement of foreign currencies against the U.S. dollar in which our results are reported;

• import and export duties, and value added taxes;

• import and export regulation changes that could erode our profit margins or restrict exports;

• potential restrictions on the transfer of funds;

• inflexible employee contracts in the event of business downturns; and

• the burden and cost of compliance with foreign laws.

In addition, we have operations in several locations in emerging or developing economies that have a potential for higher risk. The risks associated with these economies include but are not limited to currency volatility, and other economic or political risks. In the future, these factors may harm our results of operations. Our locations in emerging or developing economies include Mexico, Brazil, China, Malaysia, Hungary, Indonesia and Romania. While, to date, these factors have not had a significant adverse impact on our results of operations, we cannot give any assurance that there will not be such an impact. Furthermore, while we may adopt measures to reduce the impact of losses resulting from volatile currencies and other risks of doing business abroad, we cannot assure that such measures will be adequate.

The Malaysian government adopted currency exchange controls, including controls on its currency, the ringgit, held outside Malaysia, and established a fixed exchange rate for the ringgit against the U.S. dollar. The fixed exchange rate provides a stable rate environment when applied to local expenses denominated in ringgit. The long-term impact of such controls is not predictable due to dynamic economic conditions that also affect or are affected by other regional or global economies.

We have been granted tax holidays, which are effective through 2011, subject to some conditions, for our Malaysian and Singapore sites. We have also been granted various tax holidays in China. These tax holidays are effective for various terms and are subject to some conditions. It is possible that the current tax holidays will be terminated or modified or that future tax holidays that we may seek will not be granted. If the current tax holidays are terminated or modified, or if additional tax holidays are not granted in the future, our effective income tax rate would likely increase.

WE ARE EXPOSED TO FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE RATES.

We enter into foreign exchange forward contracts intended to reduce the short-term impact of foreign currency fluctuations on foreign currency receivables, investments and payables. The gains and losses on the foreign exchange forward contracts offset the transaction gains and losses on the foreign currency receivables, investments, and payables recognized in earnings. We do not enter into foreign exchange forward contracts for speculative purposes. Our foreign exchange forward contracts related to current assets and liabilities are generally three months or less in original maturity.

We periodically hedge foreign currency forecasted transactions related to certain operating expenses with foreign exchange forward contracts. These transactions are treated as cash flow hedges. These foreign exchange forward contracts generally have original maturities of 18 months.

As of May 31, 2002, the majority of the foreign currency hedging contracts were scheduled to mature in approximately three months and there were no material deferred gains or losses. In addition, our international operations in some instances act as a natural hedge because both operating expenses and a portion of sales are denominated in local currency. In these instances, although an unfavorable change in the exchange rate of a foreign currency against the U.S. dollar will result in lower sales when translated to U.S. dollars, operating expenses will also be lower in these circumstances. Although approximately 21% of our net sales in the third quarter of fiscal 2002 were denominated in currencies other than U.S. dollar, we do not believe our total exposure to be significant because of natural hedges.

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We have currency exposure arising from both sales and purchases denominated in currencies other than the functional currency of our sites. Fluctuations in the rate of exchange between the currency of the exposure and the functional currency of our site could seriously harm our business, operating results and financial condition. For example, if there is an increase in the rate at which a foreign currency is exchanged for U.S. dollars, it will require more of the foreign currency to equal a specified amount of U.S. dollars than before the rate increase. In such cases, and if we price our products and services in the foreign currency, we will receive less in U.S. dollars than we did before the rate increase went into effect. If we price our products and services in U.S. dollars and competitors price their products in local currency, an increase in the relative strength of the U.S. dollar could result in our prices being uncompetitive in markets where business is transacted in the local currency.

WE ARE EXPOSED TO INTEREST RATE FLUCTUATIONS.

The primary objective of our investment activities is to preserve principal, while at the same time, maximize yields without significantly increasing risk. To achieve this objective, we maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including both government and corporate obligations, certificates of deposit and money market funds. As of May 31, 2002, approximately 90% of our total portfolio was scheduled to mature in less than six months. In addition, our investments are diversified and of relatively short maturity. A hypothetical 10% increase in interest rates would not have a material effect on our investment portfolios.

The following table presents the amounts of our cash equivalents and short-term investments that are subject to interest rate risk by fiscal year of expected maturity and weighted average interest rates as of May 31, 2002:

	2002			2003			2004			Total		Fair Value
Cash equivalents and short-term investments (in millions)	$	511.6		$	46.5		$	10.8		$	568.9	$	568.9
Average interest rate		1.56	%		3.66	%		3.94	%

Interest on long-term debt instruments are payable at fixed rates. In addition, the amount of principal to be repaid at maturity is also fixed. During the quarter ended May 31, 2002, we entered into interest rate swap transactions under which we pay variable rates and we receive fixed rates. The interest swaps effectively convert $1 billion of our long-term debt with a fixed interest rate into debt with a variable rate of interest. Since our investment portfolio earns variable interest rates, the interest rate swaps allow us to partially offset the variable rate risk from the investment portfolio. In the case of the convertible notes, such notes are based on fixed conversion ratios into common stock. We are exposed to variable interest rates on this $1 billion of interest rate swaps, and we may increase our exposure if there were to be material borrowings under our revolving lines of credit.

WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS; AND WE COULD BECOME INVOLVED IN INTELLECTUAL PROPERTY DISPUTES.

Our ability to effectively compete may be affected by our ability to protect our proprietary information. We hold a number of patents and other license rights. These patent and license rights may not provide meaningful protection for our manufacturing processes and equipment innovations. In the past, third parties have asserted infringement claims against us or our customers and are likely to do so in the future. In the event of a successful infringement claim, we may be required to spend a significant amount of money to develop a non-infringing alternative or to obtain licenses. We may not be successful in developing such an alternative or obtaining a license on reasonable terms, if at all. In addition, any such litigation could be lengthy and costly and could harm our financial condition.

FAILURE TO COMPLY WITH ENVIRONMENTAL REGULATIONS COULD HARM OUR BUSINESS.

As a company in the electronics manufacturing services industry, we are subject to a variety of environmental regulations relating to the use, storage, discharge and disposal of hazardous chemicals used during our manufacturing process. Although we have never sustained any significant loss as a result of non-compliance with such regulations, any failure by us to comply with environmental laws and regulations could result in liabilities or the suspension of production. In addition, these

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laws and regulations could restrict our ability to expand our facilities or require us to acquire costly equipment or incur other significant costs to comply with regulations. The addition of numerous production and manufacturing service facilities as a result of our recent combination with C-MAC could generate additional risks that we have yet been unable to evaluate fully.

The investigations of the C-MAC facilities to date indicate that there are some contaminated sites for which C-MAC has been indemnified by third parties for any required remediation, sites for which there is a risk of the presence of contamination, and sites with some levels of contamination for which C-MAC may be liable and which may or may not ultimately require any remediation. We have obtained environmental insurance to mitigate certain environmental liabilities posed by C-MAC’s operations and facilities. We believe, based on our current knowledge, that the cost of any groundwater or soil clean-up that may be required at C-MAC facilities would not materially harm our business, financial condition and results of operations. Nevertheless, the process of remediating contamination in soil and groundwater at the facilities is costly and cannot be estimated with high levels of confidence, and there can be no assurance that the costs of such activities would not harm our business, financial condition and results of operations in the future.

OUR STOCK PRICE MAY BE VOLATILE DUE TO FACTORS OUTSIDE OF OUR CONTROL.

Our stock price could fluctuate due to the following factors, among others:

• announcements of operating results and business conditions by our customers;

• announcements by our competitors relating to new customers or technological innovation or new services;

• economic developments in the electronics industry as a whole;

• ratings downgrades may have a negative impact on our stock price;

• political and economic developments in countries in which we have operations; and

• general market conditions.

OUR RATING DOWNGRADES MAKES IT MORE EXPENSIVE FOR US TO BORROW MONEY.

On December 18, 2001 Moody’s Investor’s Service and Standard & Poor’s downgraded our senior unsecured debt rating to “Ba1” and “BB+”, respectively, both with negative outlooks. On March 22, 2002, Standard and Poor’s downgraded our senior unsecured debt rating to “BB” with a negative outlook. On May 14, 2002, Moody’s Investor Services further downgraded our senior unsecured debt rating to Ba3 with a stable outlook. These rating downgrades will increase our cost of capital should we borrow under our revolving lines of credit, and may make it more expensive for us to raise additional capital in the future on terms that are acceptable to us or at all. In addition, any further ratings downgrades may further negatively impact the price of our common stock and many have other negative implications on our business, many of which are beyond our control.

OUR LOW STOCK PRICE MAY REDUCE OUR EARNINGS PER SHARE.

On May 8, 2003, we may become obligated to purchase, at the option of the holders, all or a portion of the outstanding 2.75% LYONs at a price of $628.57 per note and on May 20, 2004 we may become obligated to purchase, at the option of the holders, all or a portion of the outstanding 3.25% LYONs at a price of $587.46 per note. We have the option to pay the purchase price of LYONs in cash or common stock or any combination thereof. At the time of such election, it may be in the best interests of our shareholders to satisfy such obligation in cash, however, we may not have sufficient cash available and we may not be able to finance the required amounts on acceptable terms, if at all. As a result, we may be required to satisfy such obligations with our common stock. If we elect to pay the purchase price, in whole or part, in shares of our common stock, the number of shares of common stock to be delivered shall equal the purchase price divided by the average of the sale prices of the common stock for the five trading day period ending on the third business day prior to May 8, 2003 or May 20, 2004, as the case may be. On each respective repurchase date the 2.75% LYONs or the 3.25% LYONs are convertible into common stock at a price of $50.98 per share or 12.3309 shares per LYON in the case of the 2.75% LYONs or at a price of $49.84 per share or 11.7862 shares per LYON, in the case of the 3.25% LYONs. In the event that our stock price remains below $50.98 per share at May 8, 2003 or below $49.84 per share at May 20, 2004, as the case may be, we may

36

have to issue a significant amount of additional shares to such holders. Accordingly, our earnings per share may be significantly reduced.

FAILURE TO ATTRACT AND RETAIN KEY PERSONNEL AND SKILLED ASSOCIATES COULD HURT OUR OPERATIONS.

     Our continued success depends to a large extent upon the efforts and abilities of key managerial and technical associates. Losing the services of key personnel could harm us. Our business also depends upon our ability to continue to attract and retain senior managers and skilled associates. Failure to do so could harm our operations.

OUR ANTI TAKEOVER DEFENSE PROVISIONS MAY DETER POTENTIAL ACQUIRORS AND MAY DEPRESS OUR STOCK PRICE.

Our certificate of incorporation, bylaws and stockholder rights plan contain provisions that could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of Solectron. These provisions allow us to issue preferred stock with rights senior to those of our common stock and impose various procedural and other requirements that could make it more difficult for our stockholders to effect certain corporate actions.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See Management’s Discussion and Analysis of Financial Condition and Results of Operations for factors related to fluctuations in the exchange rates of foreign currency and fluctuations in interest rates under “Risk Factors.”

PART II. OTHER INFORMATION

Item 1: Legal Proceedings

In the semiconductor, computer, telecommunications and networking industries, companies receive notices from time to time alleging infringement of patents, copyrights, or other intellectual property rights. Solectron has been and may from time to time continue to be notified of claims that it may be infringing patents, copyrights or other intellectual property rights owned by other third parties. Any litigation could result in substantial costs and diversion of resources and could have a material adverse effect on Solectron’s business, financial condition and results of operations. In the future, third parties may assert infringement claims against Solectron or its customers. In the event of an infringement claim, Solectron may be required to spend a significant amount of money to develop a non-infringing alternative or to obtain licenses. Solectron may not be successful in developing such an alternative or obtaining a license on reasonable terms, if at all. In addition, any such litigation could be lengthy and costly and could harm Solectron’s financial condition.

Item 2: Changes in Securities

     None

Item 3: Defaults upon Senior Securities

     None

Item 4: Submission of Matters to a Vote of Security Holders

     None

37

Item 5: Other Information

     None

Item 6: Exhibits and Reports on Form 8-K

     (a) Exhibits:

Exhibit No.	Exhibit Description
3.1*	Restated Certificate of Incorporation of the Company, as amended.
3.2**	Bylaws of the Company, as amended.
3.3***	Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock of the Company.
10.1	Amendment of 364-Day facility Credit Agreement dated as of June 18, 2002, among the registrant and Goldman Sachs Credit Partners L.P., Bank of America, N.A., JPMorgan Chase Bank and The Bank of Nova Scotia.
10.2	Amendment of Three-Year facility Credit Agreement dated as of June 18, 2002, among the registrant and Goldman Sachs Credit Partners L.P., Bank of America, N.A., JPMorgan Chase Bank and The Bank of Nova Scotia.

*	Incorporated by reference from Exhibit 3.1 filed with the Company's Form 10-Q for the quarter ended February 28, 2001, Exhibit 3.1 filed with the Company's Form 10-Q for the quarter ended February 25, 2000, and Exhibit 3.1 filed with the Company's Form 10-Q for quarter ended February 26, 1999.
**	Incorporated by reference from Exhibit 3.2 filed with the Company's Form 10-Q for the quarter ended February 26, 1999.
***	Incorporated by reference from Exhibit 3.3 filed with the Company's Annual Report on Form 10-K for fiscal year ended August 31, 2001.

(b)	Reports on Form 8-K
	On April 2, 2002, Solectron filed a Current Report on Form 8-K regarding its completion of the purchase of equipment and inventory, and the three-year supply agreement with Lucent Technologies.

SOLECTRON CORPORATION

SIGNATURE

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.

	SOLECTRON CORPORATION (Registrant)
Date: July 10, 2002	By /S/ Kiran Patel
	Kiran Patel Executive Vice President, Chief Financial Officer (Principal Financial and Accounting Officer)

38

INDEX TO EXHIBITS

Exhibit No.	Exhibit Description
3.1*	Restated Certificate of Incorporation of the Company, as amended.
3.2**	Bylaws of the Company, as amended.
3.3***	Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock of the Company.
10.1	Amendment of 364-Day facility Credit Agreement dated as of June 18, 2002, among the registrant and Goldman Sachs Credit Partners L.P., Bank of America, N.A., JPMorgan Chase Bank and The Bank of Nova Scotia.
10.2	Amendment of Three-Year facility Credit Agreement dated as of June 18, 2002, among the registrant and Goldman Sachs Credit Partners L.P., Bank of America, N.A., JPMorgan Chase Bank and The Bank of Nova Scotia.

*	Incorporated by reference from Exhibit 3.1 filed with the Company's Form 10-Q for the quarter ended February 28, 2001, Exhibit 3.1 filed with the Company's Form 10-Q for the quarter ended February 25, 2000, and Exhibit 3.1 filed with the Company's Form 10-Q for quarter ended February 26, 1999.
**	Incorporated by reference from Exhibit 3.2 filed with the Company's Form 10-Q for the quarter ended February 26, 1999.
***	Incorporated by reference from Exhibit 3.3 filed with the Company's Annual Report on Form 10-K for fiscal year ended August 31, 2001.

EX-10.1 3 f82833exv10w1.txt EXHIBIT 10.1 EXHIBIT 10.1 AMENDMENT AGREEMENT This AMENDMENT AGREEMENT (this "Amendment") is entered into as of June 18, 2002 among SOLECTRON CORPORATION, a Delaware corporation (the "Company"), the several financial institutions party to the Credit Agreement referred to below (each a "Lender" and, collectively, the "Lenders"), GOLDMAN SACHS CREDIT PARTNERS L.P., as Sole Lead Arranger, Sole Book Runner and Co-Syndication Agent ("Lead Arranger"), and Bank of America, N.A., as Administrative Agent. The Company, the Lenders, Lead Arranger and the Administrative Agent entered into a 364-Day Credit Agreement dated as of February 14, 2002 (as in effect as of the date of this Amendment, the "Credit Agreement"). The Company has requested that the Lenders agree to certain amendments to the Credit Agreement and provide certain consents together therewith and the Lenders have agreed to such request, subject to the terms and conditions of this Amendment. In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows: 1. Definitions; References; Interpretation. (a) Unless otherwise specifically defined herein, each term used herein (including in the Recitals hereof and in the Consent and Agreement attached hereto as Exhibit A) which is defined in the Credit Agreement shall have the meaning assigned to such term in the Credit Agreement. (b) As used herein, "Amendment Documents" means this Amendment, the Consent and Agreement related hereto and the Credit Agreement (as amended by this Amendment). (c) Each reference to "this Agreement", "hereof", "hereunder", "herein" and "hereby" and each other similar reference contained in the Credit Agreement, and each reference to "the Credit Agreement" and each other similar reference in the other Loan Documents, shall from and after the Effective Date refer to the Credit Agreement as amended hereby. (d) The rules of interpretation set forth in Sections 1.02, 1.03 and 1.05 of the Credit Agreement shall be applicable to this Amendment. 2. Amendments to Credit Agreement. Subject to the terms and conditions hereof, effective as of the date of satisfaction of the conditions set forth in Section 4 (the "Effective Date") the Credit Agreement is amended as follows as of May 31, 2002: (a) Amendments to Article I of the Credit Agreement. (1) The definition of "Applicable Rate" is amended by replacing the pricing table set forth therein in its entirety with the pricing table set forth in Annex I attached to this 1. Amendment; (2) A new definition of "Cash Interest Coverage Ratio Compliance Date" as set forth below shall be inserted immediately following the definition of "Capital Stock": "`Cash Interest Coverage Ratio Compliance Date' means the last day of any fiscal quarter ending on or after November 30, 2002 during which the Borrower has maintained a Cash Interest Coverage Ratio as of the end of such fiscal quarter and the immediately prior fiscal quarter of not less than 4:00 to 1.00." (3) The definition of "Cash Interest Coverage Ratio" is amended in its entirety as follows: "`Cash Interest Coverage Ratio' means, as of any date of determination, the ratio of: (x) the sum of (i) Consolidated EBITDA for the period of the four prior fiscal quarters ending on such date, (ii) the Non-Cash Restructuring Charges deducted in calculating Consolidated Net Income for such period and (iii) the Cash Restructuring Charges deducted in calculating Consolidated Net Income for such period; provided that, the cumulative aggregate amount of Cash Restructuring Charges taken in fiscal quarters ending on or after May 31, 2002 but on or prior to August 29, 2003 and which are included in calculating the Cash Interest Coverage Ratio shall not exceed $235,000,000, to (y) Consolidated Cash Interest Charges during such period." (4) A new definition of "Cash Restructuring Charges" as set forth below shall be inserted immediately following the definition of "Cash Interest Coverage Ratio": "`Cash Restructuring Charges' means, in respect of any period, any cash restructuring charges taken by the Borrower and its Subsidiaries on a consolidated basis during such period in accordance with GAAP; provided that, for purposes of calculating the Cash Interest Coverage Ratio in respect of any fiscal quarter ending on or prior to February 28, 2002, the sum of Cash Restructuring Charges and Non-Cash Restructuring Charges for such quarter shall not exceed the amount set forth on Schedule 7.13 relating to any such fiscal quarter." (5) The definition of "Consolidated Cash Interest Charges" is amended in its entirety as follows: "`Consolidated Cash Interest Charges' means, for any period, for the Borrower and its Subsidiaries on a consolidated basis, the sum of cash 2. payments for (a) all interest, premium payments, fees, charges and related expenses of the Borrower and its Subsidiaries in connection with borrowed money or in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP, (b) the portion of rent expense of the Borrower and its Subsidiaries with respect to such period under capital leases that is treated as interest in accordance with GAAP and (c) the portion of rent expense comprising interest with respect to the Synthetic Lease Obligations of the Borrower and its Subsidiaries plus any net payment made, or minus any net payment received, by the Borrower or any consolidated Subsidiary under any Swap Contract consisting of an interest rate swap relating to Indebtedness of the Borrower or any such Subsidiary. This definition shall not include non-cash interest charges (including accretion on the Borrower's LYONs)." (6) The definition of "Consolidated Tangible Net Worth" is amended in its entirety as follows: "`Consolidated Tangible Net Worth' means, as of any date of determination, for the Borrower and its Subsidiaries on a consolidated basis, Shareholders' Equity of the Borrower and its Subsidiaries on that date minus the Intangible Assets of the Borrower and its Subsidiaries on that date; provided that, to the extent any charge relating to a reduction in goodwill taken by Borrower and its Subsidiaries on a consolidated basis results in gain or income relating thereto, then such gain or income shall be excluded from the calculation of Consolidated Tangible Net Worth as of such date of determination for purposes of testing the Borrower's compliance with Section 7.13(a) (the intent of the parties being that the effect of any such reduction in goodwill and any related gain or income on the calculation of Consolidated Tangible Net Worth for the purposes of testing the Borrower's compliance with Section 7.13(a) be neutral)." (7) A new definition of "Non-Cash Restructuring Charges" as set forth below shall be inserted immediately following the definition of "New Revolving Loan Commitments": "`Non-Cash Restructuring Charges' means, for any period, any non-cash restructuring charges, other than charges relating to accounts receivable or inventory write-downs, taken by the Borrower and its Subsidiaries during such period on a consolidated basis in accordance with GAAP; provided that, for purposes of calculating the Cash Interest Coverage Ratio in respect of any fiscal quarter ending on or prior to February 28, 2002, the sum of Non-Cash Restructuring Charges and Cash Restructuring Charges for such quarter shall not exceed the amount set forth on Schedule 7.13 relating to any such fiscal quarter." (8) The definition of "Restricted Junior Payment" is amended by inserting the following at the end thereof: 3. "or (C) any repurchase, prepayments, redemption or acquisition of the LYONs that does not violate the terms of this Agreement, including, but not limited to, any such repurchase, prepayments, redemption or acquisition made in accordance with Section 7.14"; (9) The definition of "Restructuring Charges" is deleted in its entirety. (b) Amendments to Article VI of the Credit Agreement. (1) Section 6.14(b) is amended by inserting immediately after the phrase "`Material Subsidiary'" in both instances where it appears therein the following: "or `First Tier Foreign Subsidiary', as the case may be," (c) Amendments to Article VII of the Credit Agreement. (1) Section 7.01(t) is amended in its entirety to provide as follows: "(t) Liens consisting of pledges of cash collateral to secure (i) Synthetic Lease Obligations in existence on the Closing Date and any refinancings or extensions thereof (provided that the aggregate amount of such cash collateral securing such Synthetic Lease Obligations shall not at any time exceed $124,000,000 (plus on a one-time basis any reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in connection with the first refinancing or restructuring of such obligations after June 18, 2002) less any amount of such cash collateral released to the Borrower or its Subsidiaries subsequent to June 18, 2002 as a result of any refinancing or restructuring of such obligations or otherwise, other than any of such cash collateral utilized to collateralize any reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in each case to the extent the same are capitalized in connection with any such refinancing or restructuring), or (ii) Indebtedness of any non-U.S. Subsidiary solely for the purpose of repatriating, on a tax-efficient basis, cash held by any non-U.S. Subsidiary out of the applicable foreign jurisdiction for the benefit of any Loan Party; and"; (2) Section 7.10 is amended in its entirety to provide as follows: "(a) Make or become legally obligated to make any expenditure in respect of the purchase or other acquisition of any fixed or capital asset (excluding normal replacements and maintenance which are properly charged to current operations, Permitted Acquisitions, and acquisitions of assets as a result of the termination of Synthetic Lease Obligations), except for capital expenditures not exceeding, in the aggregate for the Borrower and its Subsidiaries for any consecutive four-quarter period beginning on September 1, 2001, and each four-quarter period beginning on each 4. September 1 thereafter an amount equal to $300,000,000.00; provided, however, that so long as no Default or Event of Default has occurred and is continuing or would result from such expenditure, upon the receipt by the Administrative Agent of a notice confirming the Investment Grade Ratings of the Borrower, this Section 7.10(a) shall be terminated and be of no further force and effect; provided however that, upon the occurrence of the Cash Interest Coverage Ratio Compliance Date, this Section 7.10(a) shall be terminated and be of no further force and effect provided that the Borrower instead complies with Section 7.10(b). (b) Make or become legally obligated to make any expenditure in respect of the purchase or other acquisition of any fixed or capital asset (excluding normal replacements and maintenance which are properly charged to current operations, Permitted Acquisitions, and acquisitions of assets as a result of the termination of Synthetic Lease Obligations), except for capital expenditures not exceeding, in the aggregate for the Borrower and its Subsidiaries for any consecutive four-quarter period beginning immediately after the Cash Interest Coverage Ratio Compliance Date, and each four-quarter period beginning on a twelve month anniversary of the Cash Interest Coverage Ratio Compliance Date, an amount equal to $600,000,000.00; provided, however, that so long as no Default or Event of Default has occurred and is continuing or would result from such expenditure, upon the receipt by the Administrative Agent of a notice confirming the Investment Grade Ratings of the Borrower, this Section 7.10(b) shall be terminated and be of no further force and effect; provided however that, this Section 7.10(b) shall only have force and effect in the event that the Borrower has satisfied the conditions therefor set forth in the proviso to Section 7.10(a). For the avoidance of doubt, no amount permitted to be expended under Section 7.10(a) may be carried over for expenditure under this Section 7.10(b)."; (3) Section 7.13(a) is amended in its entirety to provide as follows: "(a) Consolidated Tangible Net Worth. (i) For the fiscal quarter of the Borrower ended May 31, 2002, permit Consolidated Tangible Net Worth as of the end of such fiscal quarter of the Borrower to be less than $2,000,000,000.00; and (ii) For any fiscal quarter ending after May 31, 2002, permit Consolidated Tangible Net Worth as of the end of any such fiscal quarter of the Borrower to be less than the sum of (x) (A) in the case of the fiscal quarter of the Borrower ending August 31, 2002, $1,850,000,000.00 and (B) in the case of any fiscal quarter of the Borrower ending after August 31, 2002, $1,800,000,000.00, (y) an amount equal to 50% of the Consolidated Net Income earned in each fiscal quarter ending after May 31, 2002 (with no deduction for a net loss in any such fiscal quarter), and (z) an amount 5. equal to 50% of the aggregate increases in Shareholders' Equity of the Borrower and its Subsidiaries after May 31, 2002 by reason of the issuance of Capital Stock of the Borrower (including upon any conversion of debt securities of the Borrower into such Capital Stock) during any fiscal quarter of the Borrower ending subsequent to May 31, 2002."; (4) Section 7.13(b) is amended in its entirety to provide as follows: "(b) Cash Interest Coverage Ratio. Permit the Cash Interest Coverage Ratio as of the end of any fiscal quarter of the Borrower to be less than the following amounts:

Fiscal Quarter Ending Minimum Ratio --------------------- ------------- May 31, 2002 3.75:1.00 August 31, 2002 3.00:1.00 November 30, 2002 2.50:1.00 February 28, 2003 3.00:1.00 May 31, 2003 and thereafter 4.00:1.00

(5) Section 7.13 is amended by adding a new subsection (d) thereto as follows: "(d) Liquidity Ratio. Permit as of the end of any fiscal quarter of the Borrower the ratio of: (x) the sum of (1) cash-on-hand, (2) cash equivalents, (3) marketable securities and (4) current accounts receivable, in each case not subject to a Lien, to (y) all accounts payable of the Borrower and its Subsidiaries on a consolidated basis and Consolidated Indebtedness other than (1) Subordinated Indebtedness, (2) Indebtedness under the LYONS, (3) Attributable Indebtedness of the Borrower and its Subsidiaries on a consolidated basis in respect of capital leases and Synthetic Lease Obligations which are fully cash collateralized and (4) Indebtedness of the 6. Borrower and its Subsidiaries on a consolidated basis described under clause (b) of the definition of "Indebtedness" herein, unless and until any such Indebtedness constitutes a matured reimbursement obligation or matured payment obligation and is no longer contingent, to be less than 1.20 to 1.00; provided that, from and after the Cash Interest Coverage Ratio Compliance Date, this Section 7.13(d) shall be terminated and be of no further force and effect." (d) Amendment to Exhibit C of the Credit Agreement. Exhibit C of the Credit Agreement is replaced in its entirety by Exhibit C attached to this Amendment. 3. Representations and Warranties. The Company hereby represents and warrants to the Administrative Agent, the Lead Arranger and the Lenders as follows: (a) After giving effect to the amendments set forth in Section 2, no Default or Event of Default has occurred and is continuing (or would result from the amendment of the Credit Agreement contemplated hereby). (b) The execution, delivery and performance by the Company of the Amendment Documents have been duly authorized by all necessary corporate and other action and do not and will not require any registration with, consent or approval of, or notice to or action by, any Person (including any Governmental Authority) in order to be effective and enforceable. (c) The Amendment Documents constitute the legal, valid and binding obligations of the Company, enforceable against it in accordance with their respective terms. (d) All representations and warranties of the Company contained in the Credit Agreement are true and correct in all material respects (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct as of such earlier date and except that this subsection (d) shall be deemed instead to refer to the last day of the most recent fiscal quarter and fiscal year for which financial statements have then been delivered in respect of the representations and warranties made in subsections 5.05(a) and (b) of the Credit Agreement. (e) The Company is entering into this Amendment on the basis of its own investigation and for its own reasons, without reliance upon the Administrative Agent, the Lead Arranger and the Lenders or any other Person. (f) The Company's obligations under the Credit Agreement and under the other Loan Documents are not subject to any defense, counterclaim, set-off, right of recoupment, abatement or other claim. 4. Conditions of Effectiveness. 7. (a) The effectiveness of Section 2 of this Amendment shall be subject to the satisfaction of each of the following conditions precedent: (1) The Administrative Agent shall have received from the Company and the Required Lenders a duly executed original (or, if elected by the Administrative Agent, an executed facsimile copy) of this Amendment. (2) The Administrative Agent shall have received the consent of a number of Subsidiaries of the Company satisfactory to the Administrative Agent, in form and substance satisfactory to the Administrative Agent, which are Guarantors, parties to a Pledge Agreement or parties to the Interco Subordination Agreement, in their capacities as such, to the execution and delivery hereof by the Company. (3) The Administrative Agent shall have received evidence of payment by the Company of all fees, costs and expenses due and payable as of the Effective Date hereunder and under the Credit Agreement, including any fees arising under or referenced in Section 5 of this Amendment and any costs and expenses payable under Section 7(g) of this Amendment (including the Administrative Agent's and the Lead Arranger's Attorney Costs, to the extent invoiced on or prior to the Effective Date). (4) The Administrative Agent shall have received from the Company, in form and substance satisfactory to the Administrative Agent, a copy of the resolutions passed by the board of directors of the Company, certified as of the Effective Date by the Secretary or an Assistant Secretary of such Person, authorizing the execution, delivery and performance of the Amendment Documents. (5) The Administrative Agent shall have received all other documents it or the Required Lenders may reasonably request relating to any matters relevant hereto, all in form and substance satisfactory to the Administrative Agent. (6) The representations and warranties in Section 3 of this Amendment shall be true and correct on and as of the Effective Date with the same effect as if made on and as of the Effective Date. (b) For purposes of determining compliance with the conditions specified in Section 4(a), each Lender that has executed this Amendment shall be deemed to have consented to, approved or accepted, or to be satisfied with, each document or other matter either sent, or made available for inspection, by the Administrative Agent to such Lender for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to such Lender. (c) From and after the Effective Date, the Credit Agreement is amended as set forth herein. Except as expressly amended pursuant hereto, the Credit Agreement shall remain unchanged and in full force and effect and is hereby ratified and confirmed in all respects. (d) The Administrative Agent will notify the Company and the Lenders of the 8. occurrence of the Effective Date. 5. Fees. The Company shall pay (through the Administrative Agent) to each Lender that executes and delivers this Amendment by no later than 5:00 p.m. (Pacific time) on or before June 17, 2002, a non-refundable amendment fee equal to 0.20% of such Lender's Commitment as of the Effective Date. Such amendment fee shall be fully-earned upon becoming due and payable, shall not be refundable for any reason whatsoever and shall be in addition to any fee, cost or expense otherwise payable by the Company pursuant to the Credit Agreement or this Amendment. 6. FASB 145. The company has notified the Administrative Agent and the Lenders of a recent change in FASB 145 which will allow the Company to report, when and if it elects to apply FASB 145 to its fiscal year end results, gains resulting from the extinguishment of debt as ordinary income rather than an extraordinary item. In accordance with Section 1.3 of the Credit Agreement the Company, the Administrative Agent and the Required Lenders agree that, and consent to, such ordinary income items being included in the Company's Consolidated Net Income for the relevant period as net income from continuing operations in accordance with GAAP after such election is made. 7. Miscellaneous. (a) The Company acknowledges and agrees that the execution and delivery by the Administrative Agent, the Lead Arranger and the Lenders of this Amendment shall not be deemed to create a course of dealing or an obligation to execute similar waivers or amendments under the same or similar circumstances in the future. (b) This Amendment shall be binding upon and inure to the benefit of the parties hereto and thereto and their respective successors and assigns. (c) This Amendment shall be governed by and construed in accordance with the law of the State of New York (including Sections 5-1401 and 5-1402 of the General Obligations Law of the State of New York); provided that, the Administrative Agent and the Lenders shall retain all rights arising under Federal law. (d) This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each of the parties hereto understands and agrees that this document (and any other document required herein) may be delivered by any party thereto either in the form of an executed original or an executed original sent by facsimile transmission to be followed promptly by mailing of a hard copy original, and that receipt by the Administrative Agent of a facsimile transmitted document purportedly bearing the signature of a Lender or the Company shall bind such Lender or the Company, respectively, with the same force and effect as the delivery of a hard copy original. Any failure by the Administrative Agent to receive the hard copy executed original of such document shall not diminish the binding effect of receipt of the facsimile transmitted executed original of such document of the party whose hard copy page was not received by the Administrative Agent. 9. (e) This Amendment and the other Amendment Documents contains the entire and exclusive agreement of the parties hereto with reference to the matters discussed herein. This Amendment supersedes all prior drafts and communications with respect hereto. This Amendment may not be amended except in accordance with the provisions of Section 10.01 of the Credit Agreement. (f) If any term or provision of this Amendment shall be deemed prohibited by or invalid under any applicable law, such provision shall be invalidated without affecting the remaining provisions of this Amendment, the Credit Agreement or the Loan Documents. (g) The Company agrees to pay or reimburse Bank of America (including in its capacity as Administrative Agent) and the Lead Arranger, upon demand, for all reasonable costs and expenses (including reasonable Attorney Costs) incurred by Bank of America (including in its capacity as Administrative Agent) and the Lead Arranger in connection with the development, preparation, negotiation, execution and delivery of the Amendment Documents. (h) The Company hereby agrees and covenants that within fifteen (15) Business Days after the Effective Date it will provide to the Administrative Agent the consent of each Subsidiary of the Company not previously delivered in accordance with Section 4(a)(2), in form and substance satisfactory to the Administrative Agent, which is a Guarantor, a party to a Pledge Agreement or a party to the Interco Subordination Agreement, in their capacities as such, to the execution and delivery hereof by the Company. The Company hereby agrees and acknowledges that any failure on its part to comply with the covenant set forth in the preceding sentence shall be an immediate Event of Default under the Credit Agreement. [signature pages follow] 10. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. SOLECTRON CORPORATION By: /s/ PERRY G. HAYES ------------------------------------ Name: Perry G. Hayes Title: Vice President - Treasury BANK OF AMERICA, N.A., AS ADMINISTRATIVE AGENT AND A LENDER By: ------------------------------------ Name: Title: S-1. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. SOLECTRON CORPORATION By: ------------------------------------ Name: Title: BANK OF AMERICA, N.A., AS ADMINISTRATIVE AGENT AND A LENDER By: /s/ JAMES P. JOHNSON ------------------------------------ Name: JAMES P. JOHNSON Title: Managing Director S-1. GOLDMAN SACHS CREDIT PARTNERS L.P., AS SOLE LEAD ARRANGER, SOLE BOOK RUNNER AND CO-SYNDICATION AGENT AND A LENDER By: /s/ Stephen King ------------------------------------ Authorized Signatory S-2. ADDISON CDO, LIMITED (ACCT 1279) By: Pacific Investment Management Company LLC, as its Investment Advisor By: /s/ MOHAN V. PHANSALKAR ------------------------------------ Mohan V. Phansalkar Executive Vice President S-3. THE BANK OF NOVA SCOTIA By: /s/ KEMP LEONARD ------------------------------------ Name: Kemp Leonard Title: Director S-4. BEDFORD CDO, LIMITED (ACCT 1276) By: Pacific Investment Management Company LLC, as its Investment Advisor By: /s/ MOHAN V. PHANSALKAR ------------------------------------ Mohan V. Phansalkar Executive Vice President S-5. BNP PARIBAS By: /s/ ROBERT MIMAKI ------------------------------------ Name: Robert Mimaki Title: Vice President By: /s/ RICHARD ONG PHO ------------------------------------ Name: Richard Ong Pho Title: Associate S-6. DELANO COMPANY (ACCT 274) By: Pacific Investment Management Company LLC, as its Investment Advisor By: /s/ MOHAN V. PHANSALKAR ------------------------------------ Mohan V. Phansalkar Executive Vice President S-7. THE DEVELOPMENT BANK OF SINGAPORE LTD., LOS ANGELES AGENCY By: /s/ WIL KIM LONG ------------------------------------ Name: Wil Kim Long Title: General Manager S-8. FLEET NATIONAL BANK By: /s/ GREG ROUX ------------------------------------ Name: Greg Roux Title: Director S-9. JPMORGAN CHASE BANK By: /s/ WILLIAM P.RINDFUSS ------------------------------------ Name: William P.Rindfuss Title: Vice President S-10. OAK HILL CREDIT PARTNERS I, LIMITED By: Oak Hill CLO Management I, LLC As Investment Manager By: /s/ SCOTT D. KRASE ------------------------------------ Name: SCOTT D. KRASE Title: Authorized Signatory S-11. OAK HILL SECURITIES FUND, L.P. By: Oak Hill Securities GenPar, L.P. its General Partner By: Oak Hill Securities MGP, Inc. its General Partner By: /s/ SCOTT D. KRASE ------------------------------------ Name: SCOTT D. KRASE Title: Authorized Signatory S-12. OAK HILL SECURITIES FUND II, L.P. By: Oak Hill Securities GenPar II, L.P. its General Partner By: Oak Hill Securities MGP II, Inc. its General Partner By: /s/ SCOTT D. KRASE ------------------------------------ Name: SCOTT D. KRASE Title: Authorized Signatory S-13. THE PRESIDENT & FELLOWS OF HARVARD COLLEGE (REF. HARVARD SPECIAL SITUATIONS ACCOUNT) BY: WHIPPORWILL ASSOCIATES, INCORPORATED AS: AGENT AND AUTHORIZED SIGNATORY By: /s/ SHELLEY F. GREENHAUS ------------------------------------ Name: Shelley F. Greenhaus Title: Managing Director S-14. THE ROYAL BANK OF SCOTLAND plc By: /s/ RICHARD FREEDMAN ------------------------------------ Name: Richard Freedman Title: Senior Vice-President S-15. SEQUILS-MAGNUM, LTD. (#1280) By: Pacific Investment Management Company LLC, as its Investment Advisor By: /s/ MOHAN V. PHANSALKAR ------------------------------------ Mohan V. Phansalkar Executive Vice President S-16. STANDARD CHARTERED BANK By: /s/ MARY MACHADO-SCHAMMEL ------------------------------------ Name: MARY MACHADO-SCHAMMEL Title: Sr. Vice President By: /s/ FRIEDA YOULIOS ------------------------------------ Name: FRIEDA YOULIOS Title: Vice President S-17. SUNAMERICA SENIOR FLOATING RATE FUND, INC. By: Stanfield Capital Partners LLC as subadvisor By: /s/ CHRISTOPHER E. JANSEN ------------------------------------ Name: Christopher E. Jansen Title: Managing Partner S-18. WACHOVIA BANK, NATIONAL ASSOCIATION By: /s/ Scott Grzawkowski ------------------------------------ Name: Scott Grzawkowski Title: Associate S-19. EXHIBIT A CONSENT AND AGREEMENT OF GUARANTORS, PLEDGORS AND CREDITOR SUBSIDIARIES Each of the undersigned, in its capacity as a Guarantor, a party to the Interco Subordination Agreement and/or the Pledge Agreement, acknowledges that its consent to the foregoing Amendment Agreement (the "Agreement") is not required, but each of the undersigned nevertheless does hereby consent to the foregoing Agreement and to the documents and agreements referred to therein. Nothing herein shall in any way limit any of the terms or provisions of the Guaranty of the undersigned, the Interco Subordination Agreement or the Pledge Agreement executed by the undersigned in the Administrative Agent's and the Lenders' favor, or any other Loan Document executed by the undersigned (as the same may be amended from time to time), all of which are hereby ratified and affirmed in all respects. THE SUBSIDIARIES LISTED ON SCHEDULE A By: ------------------------------------ Title: --------------------------------- SCHEDULE A American Information and Communications, Inc. Americom Wireless Services, Inc. Apex Data, Inc. Artesyn Solutions, Inc. C-MAC Credit Corporation C-MAC Design Corporation C-MAC Finance LLC C-MAC Holdings Inc. C-MAC Interconnect USA Inc. C-MAC Microtechnology Holdings Inc. C-MAC Network Systems, Inc. C-MAC Nevada Inc. C-MAC Properties, Inc. C-MAC Quartz Crystals Inc. C-MAC West Coast Operations, Inc. Fine Pitch (Morgan Hill) Corporation Fine Pitch Technology, Inc. Force Computers, Inc. Iphotonics, Inc. Kavlico Corporation Kavlico International, Inc. Memquest, Inc. Metaltek, Inc. Natsteel Electronics, Inc. Navox Corporation Nel (US) Holdings, Inc. Patria Design, Inc. Rivus Internet Group, Inc. Scrantom Engineering, Inc. Shinei USA, Inc. Smart Modular Technologies, Inc. Smart Modular Technologies (MA) Inc. Smart Modular Technologies (P.R.), Inc. Solectron California Corporation Solectron Capital Trust 1 Solectron Federal Systems, Inc. Solectron Funding Corporation Solectron Georgia Corporation Solectron Global Services, Inc. Solectron Holdings Inc. Solectron Holdings Ltd. Solectron International Distribution, Inc. Solectron Massachusetts Corporation A-1 Solectron Oregon Corporation Solectron Puerto Rico, Inc. Solectron South Carolina Corporation Solectron Technology, Inc. Solectron Texas, Inc. Solectron Texas L.P. Solectron Washington, Inc. Stream International L.L.C. Stream International, Inc. Stream International Services Corporation Stream Services, Inc. A-2 Annex I Pricing Grid for Credit Agreement (364-Day)

APPLICABLE APPLICABLE DEBT RATINGS FACILITY FEE APPLICABLE UTILIZATION FEE PRICING LEVEL S&P/MOODY'S RATE LIBO RATE RATE - ------------- ------------ ------------ ---------- --------------- 1 BBB/Baa2 12.5 bps 75.0 bps 12.5 bps (or better) 2 BBB-/Baa3 20.0 bps 105.0 bps 25.0 bps 3 BB+/Ba1 25.0 bps 125.0 bps 25.0 bps 4 BB/Ba2 30.0 bps 145.0 bps 50.0 bps 5 BB-/Ba3 50.0 bps 175.0 bps 50.0 bps 6 B+/B1 62.5 bps 212.5 bps 50.0 bps (or lower)

I-1 EXHIBIT C FORM OF COMPLIANCE CERTIFICATE Financial Statement Date: ____________, ___ To: Bank of America, N.A., as Administrative Agent Ladies and Gentlemen: Reference is made to that certain Credit Agreement, dated as of February 14, 2002 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the "Agreement"; terms defined therein being used herein as therein defined), among Solectron Corporation, a Delaware corporation (the "Borrower"), Goldman Sachs Credit Partners L.P., as sole lead arranger, sole book runner and co-syndication agent, JPMorgan Chase Bank, as co-syndication agent, The Bank of Nova Scotia, as documentation agent, each lender from time to time party thereto (collectively, the "Lenders," and individually, a "Lender"), and Bank of America, N.A., as Administrative Agent. The undersigned Responsible Officer hereby certifies as of the date hereof that he/she is the _______________ of the Borrower, and that, as such, he/she is authorized to execute and deliver this Compliance Certificate to the Administrative Agent on the behalf of the Borrower, and that: [Use following for fiscal YEAR-END financial statements] 1. Attached hereto as Schedule 1 are the year-end audited financial statements required by Section 6.01(a) of the Agreement for the fiscal year of the Borrower ended as of the above date, together with the report and opinion of an independent certified public accountant required by such section. 2. Attached hereto as Schedule 2 is a list of Material Subsidiaries and First Tier Foreign Subsidiaries. [Use following for fiscal QUARTER-END financial statements] 1. Attached hereto as Schedule 1 are the unaudited financial statements required by Section 6.01(b) of the Agreement for the fiscal quarter of the Borrower ended as of the above date. Such financial statements fairly present the financial condition, results of operations and cash flows of the Borrower and its Subsidiaries in accordance with GAAP as at such date and for such period, subject only to normal year-end audit adjustments and the absence of footnotes. 2. Attached hereto as Schedule 2 is a list of Material Subsidiaries and First Tier Foreign Subsidiaries. C-1 3. The undersigned has reviewed and is familiar with the terms of the Agreement and has made, or has caused to be made under his/her supervision, a detailed review of the transactions and condition (financial or otherwise) of the Borrower during the accounting period covered by the attached financial statements. 4. A review of the activities of the Borrower during such fiscal period has been made under the supervision of the undersigned with a view to determining whether during such fiscal period the Borrower performed and observed all its Obligations under the Loan Documents, and [select one:] [to the knowledge of the undersigned after due inquiry, no Default or Event of Default exists as of the date hereof] --or-- [the following covenants or conditions have not been performed or observed and the following is a list of each such Default or Event of Default, its nature and status and the action that the Borrower proposes to take with respect thereto:] 5. The representations and warranties contained in Article V of the Agreement, or which are contained in any document furnished at any time under or in connection with the Loan Documents, are true and correct in all material respects on and as of the date hereof, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date. 6. The financial covenant analyses and information set forth on Schedules 3 and 4 attached hereto are true and accurate on and as of the date of this Compliance Certificate. (remainder of page intentionally left blank) C-2 IN WITNESS WHEREOF, the undersigned has executed this Compliance Certificate as of __________, __________. By: __________________________________ Name: Title: C-3 SCHEDULE 1 to the Compliance Certificate For the Quarter/Year ended ___________, ______ (the "Statement Date") [Attach Financial Statements] C-4 SCHEDULE 2 to the Compliance Certificate For the Quarter/Year ended ___________, ______ (the "Statement Date") List of Material Subsidiaries and First Tier Foreign Subsidiaries: C-5 SCHEDULE 3 to the Compliance Certificate ($ in 000's) For the Quarter/Year ended ___________, ______ (the "Statement Date") I. SECTION 7.10 - CAPITAL EXPENDITURES. (a) If required to comply with Section 7.10(a): For the four-quarter period beginning on September 1, 2001, and each four-quarter period beginning on September 1 thereafter. A. Capital expenditures: $ ------------ B. Capital expenditures permitted to be made: $ 300,000 ------------ C. Remaining availability (amount overspent) for covenant compliance (Line I.(a).B - I.(a).A): $ ------------ (b) If required to comply with Section 7.10(b): For the four-quarter period beginning immediately after the Cash Interest Coverage Ratio Compliance Date, and each four-quarter period beginning on the twelve month anniversary thereof. A. Capital expenditures: $ ------------ B. Capital expenditures permitted to be made: $ 600,000 ------------ C. Remaining availability (amount overspent) for covenant compliance (Line I.(b).B - I.(b).A): $ ------------ II. SECTION 7.13(a) - CONSOLIDATED TANGIBLE NET WORTH. Actual Consolidated Tangible Net Worth at the Statement Date: 1. Shareholders' Equity: $ ------------ 2. Intangible Assets: $ ------------ 3. Consolidated Tangible Net Worth (Line II.1 - Line II.2)[(1)]: $ ------------ - -------- [(1)] To the extent any charge relating to a reduction in goodwill taken by Borrower and its Subsidiaries on a consolidated basis results in gain or income relating thereto, then such gain or income shall be excluded from the calculation of Consolidated Tangible Net Worth as of the Statement Date. C-6 (i) If Statement Date is May 31, 2002: A. Minimum required Consolidated Tangible Net Worth: $ 2,000,000 ------------ B. Excess (deficiency) for covenant compliance (Line II.3 - II.(i).A): $ ------------ (ii) If Statement Date is after May 31, 2002: A. Starting figure for Consolidated Tangible Net Worth as of the Closing Date[(2)]: $ ------------ B. 50% of Consolidated Net Income for each fiscal quarter ending after May 31, 2002 (no reduction for net losses): $ ------------ C. 50% of aggregate increases in Shareholders' Equity of the Borrower and its Subsidiaries after May 31, 2002 from issuance and sale of Capital Stock of the Borrower (including from conversion of debt securities) during any fiscal quarter ending subsequent to May 31, 2002: $ ------------ D. Minimum required Consolidated Tangible Net Worth (Lines II.(ii).A + II.(ii).B + II.(ii).C): $ ------------ E. Excess (deficiency) for covenant compliance (Line II.3 - II.(ii).D): $ ------------ III. SECTION 7.13(b) - CASH INTEREST COVERAGE RATIO. A. Consolidated EBITDA for four consecutive fiscal quarters ending on the Statement Date ("Subject Period"): 1. Consolidated Net Income for Subject Period: $ ------------ 2. Consolidated Interest Charges for Subject Period: $ ------------ 3. Provision for income taxes for Subject Period: $ ------------ 4. Depreciation expenses for Subject Period: $ ------------ 5. Amortization expenses for intangibles for Subject Period: $ ------------ 6. Consolidated EBITDA (sum of Lines III.A.1 through III.A.5): $ ------------ - -------- [(2)] In the case of the fiscal quarter ending August 31, 2002, insert $1,850,000,000.00; and in the case of any fiscal quarter ending after August 31, 2002, insert $1,800,000,000.00. C-7 B. Non-Cash Restructuring Charges deducted in calculating Consolidated Net Income for Subject Period: $ ------------ C. Cash Restructuring Charges deducted in calculating Consolidated Net Income for Subject Period:[(3)] D. Consolidated Cash Interest Charges for Subject Period: $ ------------ E. Cash Interest Coverage Ratio ((Line III.A.6 + Line III.B + Line III.C) / Line III.D): _____ to 1.0 Minimum required: _____ to 1.0 IV. SECTION 7.13(c) - CONSOLIDATED INDEBTEDNESS TO CAPITALIZATION RATIO. A. Consolidated Indebtedness at the Statement Date: $ ------------ B. Shareholders' Equity at the Statement Date: $ ------------ C. Consolidated Indebtedness to Capitalization Ratio (Line IV.A / (Line IV.A + Line IV.B)): _____ to 1.0 Maximum permitted: 0.5 to 1.0 V. SECTION 7.13(d) - LIQUIDITY RATIO. A. Cash and cash equivalents not subject to a Lien as of the Statement Date 1. Cash-on-hand: $ ------------ 2. Cash equivalents: $ ------------ 3. Marketable securities: $ ------------ 4. Accounts receivable: $ ------------ 5. Cash and cash equivalents not subject to a Lien (sum of Lines V.A.1 through V.A.4): $ ------------ B. Consolidated Indebtedness and accounts payable as of the Statement Date 1. Accounts payable: $ ------------ 2. Consolidated Indebtedness: $ ------------ - -------- [(3)] The cumulative aggregate amount of Cash Restructuring Charges taken in fiscal quarters ending on or after May 31, 2002 but on or prior to August 29, 2003 and which are included in calculating the Cash Interest Coverage Ratio shall not exceed $235,000,000. C-8 3. Consolidated Indebtedness and accounts payable (Line V.B.1 + Line V.B.2): $ ------------ C. Excluded Indebtedness as of the Statement Date 1. Subordinated Indebtedness: $ ------------ 2. Indebtedness under the LYONS: $ ------------ 3. Attributable Indebtedness in respect of capital leases and Synthetic Lease Obligations which are fully cash collateralized: $ ------------ 4. Indebtedness described under clause (b) of the definition of "Indebtedness" (unless and until any such Indebtedness constitutes a matured reimbursement obligation or matured payment obligation and is no longer contingent): $ ------------ 5. Excluded Indebtedness (sum of Lines V.C.1 through Line V.C.4): $ ------------ D. Liquidity Ratio ((Line V.A.5) / (Line V.B.3 - Line V.C.5)) ____ to 1.00 Minimum required: 1.20 to 1.00 Attached hereto is a schedule of marketable securities and their associated values included in Line V.A.3 above. C-9 SCHEDULE 4 to the Compliance Certificate For the Quarter/Year ended ________, ____ (the "Statement Date") [Attach list of marketable securities and associated values.] C-10 EX-10.2 4 f82833exv10w2.txt EXHIBIT 10.2 EXHIBIT 10.2 AMENDMENT AGREEMENT This AMENDMENT AGREEMENT (this "Amendment") is entered into as of June 18, 2002 among SOLECTRON CORPORATION, a Delaware corporation (the "Company"), the several financial institutions party to the Credit Agreement referred to below (each a "Lender" and, collectively, the "Lenders"), GOLDMAN SACHS CREDIT PARTNERS L.P., as Sole Lead Arranger, Sole Book Runner and Co-Syndication Agent ("Lead Arranger"), and BANK OF AMERICA, N.A., as Administrative Agent. The Company, the Lenders, Lead Arranger and the Administrative Agent entered into a Credit Agreement dated as of February 14, 2002 (as in effect as of the date of this Amendment, the "Credit Agreement"). The Company has requested that the Lenders agree to certain amendments to the Credit Agreement and provide certain consents together therewith and the Lenders have agreed to such request, subject to the terms and conditions of this Amendment. In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows: 1. Definitions; References; Interpretation. (a) Unless otherwise specifically defined herein, each term used herein (including in the Recitals hereof and in the Consent and Agreement attached hereto as Exhibit A) which is defined in the Credit Agreement shall have the meaning assigned to such term in the Credit Agreement. (b) As used herein, "Amendment Documents" means this Amendment, the Consent and Agreement related hereto and the Credit Agreement (as amended by this Amendment). (c) Each reference to "this Agreement", "hereof", "hereunder", "herein" and "hereby" and each other similar reference contained in the Credit Agreement, and each reference to "the Credit Agreement" and each other similar reference in the other Loan Documents, shall from and after the Effective Date refer to the Credit Agreement as amended hereby. (d) The rules of interpretation set forth in Sections 1.02, 1.03 and 1.05 of the Credit Agreement shall be applicable to this Amendment. 2. Amendments to Credit Agreement. Subject to the terms and conditions hereof, effective as of the date of satisfaction of the conditions set forth in Section 4 (the "Effective Date") the Credit Agreement is amended as follows as of May 31, 2002: (a) Amendments to Article I of the Credit Agreement. (1) The definition of "Applicable Rate" is amended by replacing the pricing table set forth therein in its entirety with the pricing table set forth in Annex I attached to this Amendment; 1. (2) A new definition of "Cash Interest Coverage Ratio Compliance Date" as set forth below shall be inserted immediately following the definition of "Cash Collateralize": "`Cash Interest Coverage Ratio Compliance Date' means the last day of any fiscal quarter ending on or after November 30, 2002 during which the Borrower has maintained a Cash Interest Coverage Ratio as of the end of such fiscal quarter and the immediately prior fiscal quarter of not less than 4:00 to 1.00." (3) The definition of "Cash Interest Coverage Ratio" is amended in its entirety as follows: "`Cash Interest Coverage Ratio' means, as of any date of determination, the ratio of: (x) the sum of (i) Consolidated EBITDA for the period of the four prior fiscal quarters ending on such date, (ii) the Non-Cash Restructuring Charges deducted in calculating Consolidated Net Income for such period and (iii) the Cash Restructuring Charges deducted in calculating Consolidated Net Income for such period; provided that, the cumulative aggregate amount of Cash Restructuring Charges taken in fiscal quarters ending on or after May 31, 2002 but on or prior to August 29, 2003 and which are included in calculating the Cash Interest Coverage Ratio shall not exceed $235,000,000, to (y) Consolidated Cash Interest Charges during such period." (4) A new definition of "Cash Restructuring Charges" as set forth below shall be inserted immediately following the definition of "Cash Interest Coverage Ratio": "`Cash Restructuring Charges' means, in respect of any period, any cash restructuring charges taken by the Borrower and its Subsidiaries on a consolidated basis during such period in accordance with GAAP; provided that, for purposes of calculating the Cash Interest Coverage Ratio in respect of any fiscal quarter ending on or prior to February 28, 2002, the sum of Cash Restructuring Charges and Non-Cash Restructuring Charges for such quarter shall not exceed the amount set forth on Schedule 7.13 relating to any such fiscal quarter." (5) The definition of "Consolidated Cash Interest Charges" is amended in its entirety as follows: "`Consolidated Cash Interest Charges' means, for any period, for the Borrower and its Subsidiaries on a consolidated basis, the sum of cash payments for (a) all interest, premium payments, fees, charges and related expenses of the Borrower and its Subsidiaries in connection with borrowed money or in connection with the deferred purchase price of 2. assets, in each case to the extent treated as interest in accordance with GAAP, (b) the portion of rent expense of the Borrower and its Subsidiaries with respect to such period under capital leases that is treated as interest in accordance with GAAP and (c) the portion of rent expense comprising interest with respect to the Synthetic Lease Obligations of the Borrower and its Subsidiaries plus any net payment made, or minus any net payment received, by the Borrower or any consolidated Subsidiary under any Swap Contract consisting of an interest rate swap relating to Indebtedness of the Borrower or any such Subsidiary. This definition shall not include non-cash interest charges (including accretion on the Borrower's LYONs)." (6) The definition of "Consolidated Tangible Net Worth" is amended in its entirety as follows: "`Consolidated Tangible Net Worth' means, as of any date of determination, for the Borrower and its Subsidiaries on a consolidated basis, Shareholders' Equity of the Borrower and its Subsidiaries on that date minus the Intangible Assets of the Borrower and its Subsidiaries on that date; provided that, to the extent any charge relating to a reduction in goodwill taken by Borrower and its Subsidiaries on a consolidated basis results in gain or income relating thereto, then such gain or income shall be excluded from the calculation of Consolidated Tangible Net Worth as of such date of determination for purposes of testing the Borrower's compliance with Section 7.13(a) (the intent of the parties being that the effect of any such reduction in goodwill and any related gain or income on the calculation of Consolidated Tangible Net Worth for the purposes of testing the Borrower's compliance with Section 7.13(a) be neutral)." (7) A new definition of "Non-Cash Restructuring Charges" as set forth below shall be inserted immediately following the definition of "New Revolving Loan Commitments": "`Non-Cash Restructuring Charges' means, for any period, any non-cash restructuring charges, other than charges relating to accounts receivable or inventory write-downs, taken by the Borrower and its Subsidiaries during such period on a consolidated basis in accordance with GAAP; provided that, for purposes of calculating the Cash Interest Coverage Ratio in respect of any fiscal quarter ending on or prior to February 28, 2002, the sum of Non-Cash Restructuring Charges and Cash Restructuring Charges for such quarter shall not exceed the amount set forth on Schedule 7.13 relating to any such fiscal quarter." (8) The definition of "Restricted Junior Payment" is amended by inserting the following at the end thereof: "or (C) any repurchase, prepayments, redemption or acquisition of the LYONs that does not violate the terms of this Agreement, including, but 3. not limited to, any such repurchase, prepayments, redemption or acquisition made in accordance with Section 7.14"; (9) The definition of "Restructuring Charges" is deleted in its entirety. (b) Amendments to Article VI of the Credit Agreement. (1) Section 6.14(b) is amended by inserting immediately after the phrase "`Material Subsidiary'" in both instances where it appears therein the following: "or `First Tier Foreign Subsidiary', as the case may be," (c) Amendments to Article VII of the Credit Agreement. (1) Section 7.01(t) is amended in its entirety to provide as follows: "(t) Liens consisting of pledges of cash collateral to secure (i) Synthetic Lease Obligations in existence on the Closing Date and any refinancings or extensions thereof (provided that the aggregate amount of such cash collateral securing such Synthetic Lease Obligations shall not at any time exceed $124,000,000 (plus on a one-time basis any reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in connection with the first refinancing or restructuring of such obligations after June 18, 2002) less any amount of such cash collateral released to the Borrower or its Subsidiaries subsequent to June 18, 2002 as a result of any refinancing or restructuring of such obligations or otherwise, other than any of such cash collateral utilized to collateralize any reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in each case to the extent the same are capitalized in connection with any such refinancing or restructuring), or (ii) Indebtedness of any non-U.S. Subsidiary solely for the purpose of repatriating, on a tax-efficient basis, cash held by any non-U.S. Subsidiary out of the applicable foreign jurisdiction for the benefit of any Loan Party; and"; (2) Section 7.10 is amended in its entirety to provide as follows: "(a) Make or become legally obligated to make any expenditure in respect of the purchase or other acquisition of any fixed or capital asset (excluding normal replacements and maintenance which are properly charged to current operations, Permitted Acquisitions, and acquisitions of assets as a result of the termination of Synthetic Lease Obligations), except for capital expenditures not exceeding, in the aggregate for the Borrower and its Subsidiaries for any consecutive four-quarter period beginning on September 1, 2001, and each four-quarter period beginning on each September 1 thereafter an amount equal to $300,000,000.00; provided, however, that so long as no Default or Event of Default has occurred and is continuing or would result from such expenditure, upon the receipt by 4. the Administrative Agent of a notice confirming the Investment Grade Ratings of the Borrower, this Section 7.10(a) shall be terminated and be of no further force and effect; provided however that, upon the occurrence of the Cash Interest Coverage Ratio Compliance Date, this Section 7.10(a) shall be terminated and be of no further force and effect provided that the Borrower instead complies with Section 7.10(b). (b) Make or become legally obligated to make any expenditure in respect of the purchase or other acquisition of any fixed or capital asset (excluding normal replacements and maintenance which are properly charged to current operations, Permitted Acquisitions, and acquisitions of assets as a result of the termination of Synthetic Lease Obligations), except for capital expenditures not exceeding, in the aggregate for the Borrower and its Subsidiaries for any consecutive four-quarter period beginning immediately after the Cash Interest Coverage Ratio Compliance Date, and each four-quarter period beginning on a twelve month anniversary of the Cash Interest Coverage Ratio Compliance Date, an amount equal to $600,000,000.00; provided, however, that so long as no Default or Event of Default has occurred and is continuing or would result from such expenditure, upon the receipt by the Administrative Agent of a notice confirming the Investment Grade Ratings of the Borrower, this Section 7.10(b) shall be terminated and be of no further force and effect; provided however that, this Section 7.10(b) shall only have force and effect in the event that the Borrower has satisfied the conditions therefor set forth in the proviso to Section 7.10(a). For the avoidance of doubt, no amount permitted to be expended under Section 7.10(a) may be carried over for expenditure under this Section 7.10(b)."; (3) Section 7.13(a) is amended in its entirety to provide as follows: "(a) Consolidated Tangible Net Worth. (i) For the fiscal quarter of the Borrower ended May 31, 2002, permit Consolidated Tangible Net Worth as of the end of such fiscal quarter of the Borrower to be less than $2,000,000,000.00; and (ii) For any fiscal quarter ending after May 31, 2002, permit Consolidated Tangible Net Worth as of the end of any such fiscal quarter of the Borrower to be less than the sum of (x) (A) in the case of the fiscal quarter of the Borrower ending August 31, 2002, $1,850,000,000.00 and (B) in the case of any fiscal quarter of the Borrower ending after August 31, 2002, $1,800,000,000.00, (y) an amount equal to 50% of the Consolidated Net Income earned in each fiscal quarter ending after May 31, 2002 (with no deduction for a net loss in any such fiscal quarter), and (z) an amount equal to 50% of the aggregate increases in Shareholders' Equity of the Borrower and its Subsidiaries after May 31, 2002 by reason of the issuance of Capital Stock of the Borrower (including upon any conversion of debt securities of the Borrower into such Capital Stock) during any fiscal 5. quarter of the Borrower ending subsequent to May 31, 2002."; (4) Section 7.13(b) is amended in its entirety to provide as follows: "(b) Cash Interest Coverage Ratio. Permit the Cash Interest Coverage Ratio as of the end of any fiscal quarter of the Borrower to be less than the following amounts:

Fiscal Quarter Ending Minimum Ratio --------------------- ------------- May 31, 2002 3.75:1.00 August 31, 2002 3.00:1.00 November 30, 2002 2.50:1.00 February 28, 2003 3.00:1.00 May 31, 2003 and thereafter 4.00:1.00

(5) Section 7.13 is amended by adding a new subsection (d) thereto as follows: "(d) Liquidity Ratio. Permit as of the end of any fiscal quarter of the Borrower the ratio of: (x) the sum of (1) cash-on-hand, (2) cash equivalents, (3) marketable securities and (4) current accounts receivable, in each case not subject to a Lien, to (y) all accounts payable of the Borrower and its Subsidiaries on a consolidated basis and Consolidated Indebtedness other than (1) Subordinated Indebtedness, (2) Indebtedness under the LYONS, (3) Attributable Indebtedness of the Borrower and its Subsidiaries on a consolidated basis in respect of capital leases and Synthetic Lease Obligations which are fully cash collateralized and (4) Indebtedness of the Borrower and its Subsidiaries on a consolidated basis described under clause (b) of the definition of "Indebtedness" herein, unless and until any such Indebtedness constitutes a matured reimbursement obligation or matured payment obligation and is no longer contingent, 6. to be less than 1.20 to 1.00; provided that, from and after the Cash Interest Coverage Ratio Compliance Date, this Section 7.13(d) shall be terminated and be of no further force and effect." (d) Amendment to Exhibit C of the Credit Agreement. Exhibit C of the Credit Agreement is replaced in its entirety by Exhibit C attached to this Amendment. 3. Representations and Warranties. The Company hereby represents and warrants to the Administrative Agent, the Lead Arranger and the Lenders as follows: (a) After giving effect to the amendments set forth in Section 2, no Default or Event of Default has occurred and is continuing (or would result from the amendment of the Credit Agreement contemplated hereby). (b) The execution, delivery and performance by the Company of the Amendment Documents have been duly authorized by all necessary corporate and other action and do not and will not require any registration with, consent or approval of, or notice to or action by, any Person (including any Governmental Authority) in order to be effective and enforceable. (c) The Amendment Documents constitute the legal, valid and binding obligations of the Company, enforceable against it in accordance with their respective terms. (d) All representations and warranties of the Company contained in the Credit Agreement are true and correct in all material respects (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct as of such earlier date and except that this subsection (d) shall be deemed instead to refer to the last day of the most recent fiscal quarter and fiscal year for which financial statements have then been delivered in respect of the representations and warranties made in subsections 5.05(a) and (b) of the Credit Agreement. (e) The Company is entering into this Amendment on the basis of its own investigation and for its own reasons, without reliance upon the Administrative Agent, the Lead Arranger and the Lenders or any other Person. (f) The Company's obligations under the Credit Agreement and under the other Loan Documents are not subject to any defense, counterclaim, set-off, right of recoupment, abatement or other claim. 4. Conditions of Effectiveness. (a) The effectiveness of Section 2 of this Amendment shall be subject to the satisfaction of each of the following conditions precedent: (1) The Administrative Agent shall have received from the Company and the Required Lenders a duly executed original (or, if elected by the Administrative Agent, an executed facsimile copy) of this Amendment. 7. (2) The Administrative Agent shall have received the consent of a number of Subsidiaries of the Company satisfactory to the Administrative Agent, in form and substance satisfactory to the Administrative Agent, which are Guarantors, parties to a Pledge Agreement or parties to the Interco Subordination Agreement, in their capacities as such, to the execution and delivery hereof by the Company. (3) The Administrative Agent shall have received evidence of payment by the Company of all fees, costs and expenses due and payable as of the Effective Date hereunder and under the Credit Agreement, including any fees arising under or referenced in Section 5 of this Amendment and any costs and expenses payable under Section 7(g) of this Amendment (including the Administrative Agent's and the Lead Arranger's Attorney Costs, to the extent invoiced on or prior to the Effective Date). (4) The Administrative Agent shall have received from the Company, in form and substance satisfactory to the Administrative Agent, a copy of the resolutions passed by the board of directors of the Company, certified as of the Effective Date by the Secretary or an Assistant Secretary of such Person, authorizing the execution, delivery and performance of the Amendment Documents. (5) The Administrative Agent shall have received all other documents it or the Required Lenders may reasonably request relating to any matters relevant hereto, all in form and substance satisfactory to the Administrative Agent. (6) The representations and warranties in Section 3 of this Amendment shall be true and correct on and as of the Effective Date with the same effect as if made on and as of the Effective Date. (b) For purposes of determining compliance with the conditions specified in Section 4(a), each Lender that has executed this Amendment shall be deemed to have consented to, approved or accepted, or to be satisfied with, each document or other matter either sent, or made available for inspection, by the Administrative Agent to such Lender for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to such Lender. (c) From and after the Effective Date, the Credit Agreement is amended as set forth herein. Except as expressly amended pursuant hereto, the Credit Agreement shall remain unchanged and in full force and effect and is hereby ratified and confirmed in all respects. (d) The Administrative Agent will notify the Company and the Lenders of the occurrence of the Effective Date. 5. Fees. The Company shall pay (through the Administrative Agent) to each Lender that executes and delivers this Amendment by no later than 5:00 p.m. (Pacific time) on or before June 17, 2002, a non-refundable amendment fee equal to 0.20% of such Lender's Commitment as of the Effective Date. Such amendment fee shall be fully-earned upon becoming due and payable, shall not be refundable for any reason whatsoever and shall be in addition to any fee, cost or 8. expense otherwise payable by the Company pursuant to the Credit Agreement or this Amendment. 6. FASB 145. The company has notified the Administrative Agent and the Lenders of a recent change in FASB 145 which will allow the Company to report, when and if it elects to apply FASB 145 to its fiscal year end results, gains resulting from the extinguishment of debt as ordinary income rather than an extraordinary item. In accordance with Section 1.3 of the Credit Agreement the Company, the Administrative Agent and the Required Lenders agree that, and consent to, such ordinary income items being included in the Company's Consolidated Net Income for the relevant period as net income from continuing operations in accordance with GAAP after such election is made. 7. Miscellaneous. (a) The Company acknowledges and agrees that the execution and delivery by the Administrative Agent, the Lead Arranger and the Lenders of this Amendment shall not be deemed to create a course of dealing or an obligation to execute similar waivers or amendments under the same or similar circumstances in the future. (b) This Amendment shall be binding upon and inure to the benefit of the parties hereto and thereto and their respective successors and assigns. (c) This Amendment shall be governed by and construed in accordance with the law of the State of New York (including Sections 5-1401 and 5-1402 of the General Obligations Law of the State of New York); provided that, the Administrative Agent and the Lenders shall retain all rights arising under Federal law. (d) This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each of the parties hereto understands and agrees that this document (and any other document required herein) may be delivered by any party thereto either in the form of an executed original or an executed original sent by facsimile transmission to be followed promptly by mailing of a hard copy original, and that receipt by the Administrative Agent of a facsimile transmitted document purportedly bearing the signature of a Lender or the Company shall bind such Lender or the Company, respectively, with the same force and effect as the delivery of a hard copy original. Any failure by the Administrative Agent to receive the hard copy executed original of such document shall not diminish the binding effect of receipt of the facsimile transmitted executed original of such document of the party whose hard copy page was not received by the Administrative Agent. (e) This Amendment and the other Amendment Documents contains the entire and exclusive agreement of the parties hereto with reference to the matters discussed herein. This Amendment supersedes all prior drafts and communications with respect hereto. This Amendment may not be amended except in accordance with the provisions of Section 10.01 of the Credit Agreement. 9. (f) If any term or provision of this Amendment shall be deemed prohibited by or invalid under any applicable law, such provision shall be invalidated without affecting the remaining provisions of this Amendment, the Credit Agreement or the Loan Documents. (g) The Company agrees to pay or reimburse Bank of America (including in its capacity as Administrative Agent) and the Lead Arranger, upon demand, for all reasonable costs and expenses (including reasonable Attorney Costs) incurred by Bank of America (including in its capacity as Administrative Agent) and the Lead Arranger in connection with the development, preparation, negotiation, execution and delivery of the Amendment Documents. (h) The Company hereby agrees and covenants that within fifteen (15) Business Days after the Effective Date it will provide to the Administrative Agent the consent of each Subsidiary of the Company not previously delivered in accordance with Section 4(a)(2), in form and substance satisfactory to the Administrative Agent, which is a Guarantor, a party to a Pledge Agreement or a party to the Interco Subordination Agreement, in their capacities as such, to the execution and delivery hereof by the Company. The Company hereby agrees and acknowledges that any failure on its part to comply with the covenant set forth in the preceding sentence shall be an immediate Event of Default under the Credit Agreement. [signature pages follow] 10. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. SOLECTRON CORPORATION By: /s/ PERRY G. HAYES ------------------------------------ Name: Perry G. Hayes Title: Vice President - Treasury BANK OF AMERICA, N.A., AS ADMINISTRATIVE AGENT AND A LENDER By: ------------------------------------ Title: S-1. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. SOLECTRON CORPORATION By: ------------------------------------ Name: Title: BANK OF AMERICA, N.A., AS ADMINISTRATIVE AGENT AND A LENDER By: /s/ JAMES P. JOHNSON ------------------------------------ Name: JAMES P. JOHNSON Title: Managing Director S-1. GOLDMAN SACHS CREDIT PARTNERS L.P., AS SOLE LEAD ARRANGER, SOLE BOOK RUNNER AND CO-SYNDICATION AGENT AND A LENDER By: /s/ Stephen King ------------------------------------ Authorized Signatory S-2. THE BANK OF NOVA SCOTIA By: /s/ KEMP LEONARD ------------------------------------ Name: Kemp Leonard Title: Director S-3. BNP PARIBAS By: /s/ ROBERT MIMAKI ------------------------------------ Name: Robert Mimaki Title: Vice President By: /s/ RICHARD ONG PHO ------------------------------------ Name: Richard Ong Pho Title: Associate S-4. CSAM FUNDING II By: /s/ ANDREW H. MARSHAK ------------------------------------ Name: ANDREW H. MARSHAK Title: AUTHORIZED SIGNATORY S-5. THE DEVELOPMENT BANK OF SINGAPORE LTD., LOS ANGELES AGENCY By: /s/ WIL KIM LONG ------------------------------------ Name: Wil Kim Long Title: General Manager S-6. FLEET NATIONAL BANK, AS L/C ISSUER AND A LENDER By: /s/ GREG ROUX ------------------------------------ Name: Greg Roux Title: Director S-7. JPMORGAN CHASE BANK By: /s/ WILLIAM P. RINDFUSS ------------------------------------ Name: William P. Rindfuss Title: Vice President S-8. MORGAN STANLEY SENIOR FUNDING, INC. By: /s/ MARK D. CROSS ------------------------------------ Name: MARK D. CROSS Title: VICE PRESIDENT S-9. THE ROYAL BANK OF SCOTLAND PLC By: /s/ RICHARD FREEDMAN ------------------------------------ Name: Richard Freedman Title: Senior Vice-President S-10. STANDARD CHARTERED BANK By: /s/ MARY MACHADO-SCHAMMEL ------------------------------------ Name: MARY MACHADO-SCHAMMEL Title: Sr. Vice President By: /s/ FRIEDA YOULIOS ------------------------------------ Name: FRIEDA YOULIOS Title: Vice President S-11. EXHIBIT A CONSENT AND AGREEMENT OF GUARANTORS, PLEDGORS AND CREDITOR SUBSIDIARIES Each of the undersigned, in its capacity as a Guarantor, a party to the Interco Subordination Agreement and/or the Pledge Agreement, acknowledges that its consent to the foregoing Amendment Agreement (the "Agreement") is not required, but each of the undersigned nevertheless does hereby consent to the foregoing Agreement and to the documents and agreements referred to therein. Nothing herein shall in any way limit any of the terms or provisions of the Guaranty of the undersigned, the Interco Subordination Agreement or the Pledge Agreement executed by the undersigned in the Administrative Agent's and the Lenders' favor, or any other Loan Document executed by the undersigned (as the same may be amended from time to time), all of which are hereby ratified and affirmed in all respects. THE SUBSIDIARIES LISTED ON SCHEDULE A By: ---------------------------------- Title: ------------------------------- SCHEDULE A American Information and Communications, Inc. Americom Wireless Services, Inc. Apex Data, Inc. Artesyn Solutions, Inc. C-MAC Credit Corporation C-MAC Design Corporation C-MAC Finance LLC C-MAC Holdings Inc. C-MAC Interconnect USA Inc. C-MAC Microtechnology Holdings Inc. C-MAC Network Systems, Inc. C-MAC Nevada Inc. C-MAC Properties, Inc. C-MAC Quartz Crystals Inc. C-MAC West Coast Operations, Inc. Fine Pitch (Morgan Hill) Corporation Fine Pitch Technology, Inc. Force Computers, Inc. Iphotonics, Inc. Kavlico Corporation Kavlico International, Inc. Memquest, Inc. Metaltek, Inc. Natsteel Electronics, Inc. Navox Corporation Nel (US) Holdings, Inc. Patria Design, Inc. Rivus Internet Group, Inc. Scrantom Engineering, Inc. Shinei USA, Inc. Smart Modular Technologies, Inc. Smart Modular Technologies (MA) Inc. Smart Modular Technologies (P.R.), Inc. Solectron California Corporation Solectron Capital Trust 1 Solectron Federal Systems, Inc. Solectron Funding Corporation Solectron Georgia Corporation Solectron Global Services, Inc. Solectron Holdings Inc. Solectron Holdings Ltd. Solectron International Distribution, Inc. Solectron Massachusetts Corporation Solectron Oregon Corporation A-1 Solectron Puerto Rico, Inc. Solectron South Carolina Corporation Solectron Technology, Inc. Solectron Texas, Inc. Solectron Texas L.P. Solectron Washington, Inc. Stream International L.L.C. Stream International, Inc. Stream International Services Corporation Stream Services, Inc. A-2 Annex I Pricing Grid for Credit Agreement (Three Year)

APPLICABLE LIBO RATE AND APPLICABLE DEBT RATINGS APPLICABLE LETTERS OF UTILIZATION FEE PRICING LEVEL S&P/MOODY'S FACILITY FEE RATE CREDIT FEE RATE RATE ------------- ------------ ----------------- --------------- --------------- 1 BBB/Baa2 17.5 bps 70.0 bps 12.5 bps (or better) 2 BBB-/Baa3 25.0 bps 100.0 bps 25.0 bps 3 BB+/Ba1 30.0 bps 120.0 bps 25.0 bps 4 BB/Ba2 40.0 bps 135.0 bps 50.0 bps 5 BB-/Ba3 50.0 bps 175.0 bps 50.0 bps 6 B+/B1 62.5 bps 212.5 bps 50.0 bps (or lower)

I-1 EXHIBIT C FORM OF COMPLIANCE CERTIFICATE Financial Statement Date: ____________, ___ To: Bank of America, N.A., as Administrative Agent Ladies and Gentlemen: Reference is made to that certain 364-Day Credit Agreement, dated as of February 14, 2002 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the "Agreement"; terms defined therein being used herein as therein defined), among Solectron Corporation, a Delaware corporation (the "Borrower"), Goldman Sachs Credit Partners L.P., as sole lead arranger, sole book runner and co-syndication agent, JPMorgan Chase Bank, as co-syndication agent, The Bank of Nova Scotia, as documentation agent, each lender from time to time party thereto (collectively, the "Lenders," and individually, a "Lender"), and Bank of America, N.A., as Administrative Agent. The undersigned Responsible Officer hereby certifies as of the date hereof that he/she is the _______________ of the Borrower, and that, as such, he/she is authorized to execute and deliver this Compliance Certificate to the Administrative Agent on the behalf of the Borrower, and that: [Use following for fiscal YEAR-END financial statements] 1. Attached hereto as Schedule 1 are the year-end audited financial statements required by Section 6.01(a) of the Agreement for the fiscal year of the Borrower ended as of the above date, together with the report and opinion of an independent certified public accountant required by such section. 2. Attached hereto as Schedule 2 is a list of Material Subsidiaries and First Tier Foreign Subsidiaries. [Use following for fiscal QUARTER-END financial statements] 1. Attached hereto as Schedule 1 are the unaudited financial statements required by Section 6.01(b) of the Agreement for the fiscal quarter of the Borrower ended as of the above date. Such financial statements fairly present the financial condition, results of operations and cash flows of the Borrower and its Subsidiaries in accordance with GAAP as at such date and for such period, subject only to normal year-end audit adjustments and the absence of footnotes. 2. Attached hereto as Schedule 2 is a list of Material Subsidiaries and First Tier Foreign Subsidiaries. C-1 3. The undersigned has reviewed and is familiar with the terms of the Agreement and has made, or has caused to be made under his/her supervision, a detailed review of the transactions and condition (financial or otherwise) of the Borrower during the accounting period covered by the attached financial statements. 4. A review of the activities of the Borrower during such fiscal period has been made under the supervision of the undersigned with a view to determining whether during such fiscal period the Borrower performed and observed all its Obligations under the Loan Documents, and [select one:] [to the knowledge of the undersigned after due inquiry, no Default or Event of Default exists as of the date hereof] --or-- [the following covenants or conditions have not been performed or observed and the following is a list of each such Default or Event of Default, its nature and status and the action that the Borrower proposes to take with respect thereto:] 5. The representations and warranties contained in Article V of the Agreement, or which are contained in any document furnished at any time under or in connection with the Loan Documents, are true and correct in all material respects on and as of the date hereof, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date. 6. The financial covenant analyses and information set forth on Schedules 3 and 4 attached hereto are true and accurate on and as of the date of this Compliance Certificate. (remainder of page intentionally left blank) C-2 IN WITNESS WHEREOF, the undersigned has executed this Compliance Certificate as of ____________, ____________. By: ____________________________________ Name: Title: C-3 SCHEDULE 1 to the Compliance Certificate For the Quarter/Year ended ___________, ______ (the "Statement Date") [Attach Financial Statements] C-4 SCHEDULE 2 to the Compliance Certificate For the Quarter/Year ended ___________, ______ (the "Statement Date") List of Material Subsidiaries and First Tier Foreign Subsidiaries: C-5 SCHEDULE 3 to the Compliance Certificate ($ in 000's) For the Quarter/Year ended ___________, ______ (the "Statement Date") I. SECTION 7.10 - CAPITAL EXPENDITURES. (a) If required to comply with Section 7.10(a): For the four-quarter period beginning on September 1, 2001, and each four-quarter period beginning on September 1 thereafter. A. Capital expenditures: $ ---------- B. Capital expenditures permitted to be made: $ 300,000 ---------- C. Remaining availability (amount overspent) for covenant compliance (Line I.(a).B - I.(a).A): $ ---------- (b) If required to comply with Section 7.10(b): For the four-quarter period beginning immediately after the Cash Interest Coverage Ratio Compliance Date, and each four-quarter period beginning on the twelve month anniversary thereof. A. Capital expenditures: $ ---------- B. Capital expenditures permitted to be made: $ 600,000 ---------- C. Remaining availability (amount overspent) for covenant compliance (Line I.(b).B - I.(b).A): $ ---------- II. SECTION 7.13(a) - CONSOLIDATED TANGIBLE NET WORTH. Actual Consolidated Tangible Net Worth at the Statement Date: 1. Shareholders' Equity: $ ---------- 2. Intangible Assets: $ ---------- 3. Consolidated Tangible Net Worth (Line II.1 - Line II.2)[(1)]: $ ---------- - -------- [(1)] To the extent any charge relating to a reduction in goodwill taken by Borrower and its Subsidiaries on a consolidated basis results in gain or income relating thereto, then such gain or income shall be excluded from the calculation of Consolidated Tangible Net Worth as of the Statement Date. C-6 (i) If Statement Date is May 31, 2002: A. Minimum required Consolidated Tangible Net Worth: $2,000,000 ---------- B. Excess (deficiency) for covenant compliance (Line II.3 - II.(i).A): $ ---------- (ii) If Statement Date is after May 31, 2002: A. Starting figure for Consolidated Tangible Net Worth as of the Closing Date[(2)] $ ---------- B. 50% of Consolidated Net Income for each fiscal quarter ending after May 31, 2002 (no reduction for net losses): $ ---------- C. 50% of aggregate increases in Shareholders' Equity of the Borrower and its Subsidiaries after May 31, 2002 from issuance and sale of Capital Stock of the Borrower (including from conversion of debt securities) during any fiscal quarter ending subsequent to May 31, 2002: $ ---------- D. Minimum required Consolidated Tangible Net Worth (Lines II.(ii).A + II.(ii).B + II.(ii).C): $ ---------- E. Excess (deficiency) for covenant compliance (Line II.3 - II.(ii).D): $ ---------- III. SECTION 7.13(b) - CASH INTEREST COVERAGE RATIO. A. Consolidated EBITDA for four consecutive fiscal quarters ending on the Statement Date ("Subject Period"): 1. Consolidated Net Income for Subject Period: $ ---------- 2. Consolidated Interest Charges for Subject Period: $______ 3. Provision for income taxes for Subject Period: $ ---------- 4. Depreciation expenses for Subject Period: $ ---------- 5. Amortization expenses for intangibles for Subject Period: $ ---------- 6. Consolidated EBITDA (sum of Lines III.A.1 through III.A.5): $ ---------- - -------- [(2)] In the case of the fiscal quarter ending August 31, 2002, insert $1,850,000,000.00; and in the case of any fiscal quarter ending after August 31, 2002, insert $1,800,000,000.00. C-7 B. Non-Cash Restructuring Charges deducted in calculating Consolidated Net Income for Subject Period: $ ---------- C. Cash Restructuring Charges deducted in calculating Consolidated Net Income for Subject Period:[(3)] D. Consolidated Cash Interest Charges for Subject Period: $ ---------- E. Cash Interest Coverage Ratio ((Line III.A.6 + Line III.B + Line III.C) / Line III.D): ___ to 1.0 Minimum required: ___ to 1.0 IV. SECTION 7.13(c) - CONSOLIDATED INDEBTEDNESS TO CAPITALIZATION RATIO. A. Consolidated Indebtedness at the Statement Date: $ ---------- B. Shareholders' Equity at the Statement Date: $ ---------- C. Consolidated Indebtedness to Capitalization Ratio (Line IV.A / (Line IV.A + Line IV.B)): ___ to 1.0 Maximum permitted: 0.5 to 1.0 V. SECTION 7.13(d) - LIQUIDITY RATIO. A. Cash and cash equivalents not subject to a Lien as of the Statement Date 1. Cash-on-hand: $ ---------- 2. Cash equivalents: $ ---------- 3. Marketable securities: $ ---------- 4. Accounts receivable: $ ---------- 5. Cash and cash equivalents not subject to a Lien (sum of Lines V.A.1 through V.A.4): $ ---------- B. Consolidated Indebtedness and accounts payable as of the Statement Date 1. Accounts payable: $ ---------- 2. Consolidated Indebtedness: $ ---------- - -------- [(3)] The cumulative aggregate amount of Cash Restructuring Charges taken in fiscal quarters ending on or after May 31, 2002 but on or prior to August 29, 2003 and which are included in calculating the Cash Interest Coverage Ratio shall not exceed $235,000,000. C-8 3. Consolidated Indebtedness and accounts payable (Line V.B.1 + Line V.B.2): $ ---------- C. Excluded Indebtedness as of the Statement Date 1. Subordinated Indebtedness: $ ---------- 2. Indebtedness under the LYONS: $ ---------- 3. Attributable Indebtedness in respect of capital leases and Synthetic Lease Obligations which are fully cash collateralized: $ ---------- 4. Indebtedness described under clause (b) of the definition of "Indebtedness" (unless and until any such Indebtedness constitutes a matured reimbursement obligation or matured payment obligation and is no longer contingent): $ ---------- 5. Excluded Indebtedness (sum of Lines V.C.1 through Line V.C.4): $ ---------- D. Liquidity Ratio ((Line V.A.5) / (Line V.B.3 - Line V.C.5)) ____ to 1.00 Minimum required: 1.20 to 1.00 Attached hereto is a schedule of marketable securities and their associated values included in Line V.A.3 above. C-9 SCHEDULE 4 to the Compliance Certificate For the Quarter/Year ended ________, ____ (the "Statement Date") [Attach list of marketable securities and associated values.] C-10 -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.1

                                                                    EXHIBIT 10.1



                               AMENDMENT AGREEMENT

               This AMENDMENT AGREEMENT (this "Amendment") is entered into as of
June 18, 2002 among SOLECTRON CORPORATION, a Delaware corporation (the
"Company"), the several financial institutions party to the Credit Agreement
referred to below (each a "Lender" and, collectively, the "Lenders"), GOLDMAN
SACHS CREDIT PARTNERS L.P., as Sole Lead Arranger, Sole Book Runner and
Co-Syndication Agent ("Lead Arranger"), and Bank of America, N.A., as
Administrative Agent.

               The Company, the Lenders, Lead Arranger and the Administrative
Agent entered into a 364-Day Credit Agreement dated as of February 14, 2002 (as
in effect as of the date of this Amendment, the "Credit Agreement").

               The Company has requested that the Lenders agree to certain
amendments to the Credit Agreement and provide certain consents together
therewith and the Lenders have agreed to such request, subject to the terms and
conditions of this Amendment.

               In consideration of the mutual covenants and agreements herein
contained, the parties hereto covenant and agree as follows:

1.      Definitions; References; Interpretation.

        (a) Unless otherwise specifically defined herein, each term used herein
(including in the Recitals hereof and in the Consent and Agreement attached
hereto as Exhibit A) which is defined in the Credit Agreement shall have the
meaning assigned to such term in the Credit Agreement.

        (b) As used herein, "Amendment Documents" means this Amendment, the
Consent and Agreement related hereto and the Credit Agreement (as amended by
this Amendment).

        (c) Each reference to "this Agreement", "hereof", "hereunder", "herein"
and "hereby" and each other similar reference contained in the Credit Agreement,
and each reference to "the Credit Agreement" and each other similar reference in
the other Loan Documents, shall from and after the Effective Date refer to the
Credit Agreement as amended hereby.

        (d) The rules of interpretation set forth in Sections 1.02, 1.03 and
1.05 of the Credit Agreement shall be applicable to this Amendment.

2.      Amendments to Credit Agreement. Subject to the terms and conditions
hereof, effective as of the date of satisfaction of the conditions set forth in
Section 4 (the "Effective Date") the Credit Agreement is amended as follows as
of May 31, 2002:

        (a) Amendments to Article I of the Credit Agreement.

               (1) The definition of "Applicable Rate" is amended by replacing
the pricing table set forth therein in its entirety with the pricing table set
forth in Annex I attached to this


                                       1.


Amendment;

               (2) A new definition of "Cash Interest Coverage Ratio Compliance
Date" as set forth below shall be inserted immediately following the definition
of "Capital Stock":

                      "`Cash Interest Coverage Ratio Compliance Date' means the
                      last day of any fiscal quarter ending on or after November
                      30, 2002 during which the Borrower has maintained a Cash
                      Interest Coverage Ratio as of the end of such fiscal
                      quarter and the immediately prior fiscal quarter of not
                      less than 4:00 to 1.00."

               (3) The definition of "Cash Interest Coverage Ratio" is amended
in its entirety as follows:

                      "`Cash Interest Coverage Ratio' means, as of any date of
                      determination, the ratio of:

                             (x) the sum of (i) Consolidated EBITDA for the
                      period of the four prior fiscal quarters ending on such
                      date, (ii) the Non-Cash Restructuring Charges deducted in
                      calculating Consolidated Net Income for such period and
                      (iii) the Cash Restructuring Charges deducted in
                      calculating Consolidated Net Income for such period;
                      provided that, the cumulative aggregate amount of Cash
                      Restructuring Charges taken in fiscal quarters ending on
                      or after May 31, 2002 but on or prior to August 29, 2003
                      and which are included in calculating the Cash Interest
                      Coverage Ratio shall not exceed $235,000,000, to

                             (y) Consolidated Cash Interest Charges during such
                      period."

               (4) A new definition of "Cash Restructuring Charges" as set forth
below shall be inserted immediately following the definition of "Cash Interest
Coverage Ratio":

                      "`Cash Restructuring Charges' means, in respect of any
                      period, any cash restructuring charges taken by the
                      Borrower and its Subsidiaries on a consolidated basis
                      during such period in accordance with GAAP; provided that,
                      for purposes of calculating the Cash Interest Coverage
                      Ratio in respect of any fiscal quarter ending on or prior
                      to February 28, 2002, the sum of Cash Restructuring
                      Charges and Non-Cash Restructuring Charges for such
                      quarter shall not exceed the amount set forth on Schedule
                      7.13 relating to any such fiscal quarter."

               (5) The definition of "Consolidated Cash Interest Charges" is
amended in its entirety as follows:

                      "`Consolidated Cash Interest Charges' means, for any
                      period, for the Borrower and its Subsidiaries on a
                      consolidated basis, the sum of cash


                                       2.


                      payments for (a) all interest, premium payments, fees,
                      charges and related expenses of the Borrower and its
                      Subsidiaries in connection with borrowed money or in
                      connection with the deferred purchase price of assets, in
                      each case to the extent treated as interest in accordance
                      with GAAP, (b) the portion of rent expense of the Borrower
                      and its Subsidiaries with respect to such period under
                      capital leases that is treated as interest in accordance
                      with GAAP and (c) the portion of rent expense comprising
                      interest with respect to the Synthetic Lease Obligations
                      of the Borrower and its Subsidiaries plus any net payment
                      made, or minus any net payment received, by the Borrower
                      or any consolidated Subsidiary under any Swap Contract
                      consisting of an interest rate swap relating to
                      Indebtedness of the Borrower or any such Subsidiary. This
                      definition shall not include non-cash interest charges
                      (including accretion on the Borrower's LYONs)."

               (6) The definition of "Consolidated Tangible Net Worth" is
amended in its entirety as follows:

                      "`Consolidated Tangible Net Worth' means, as of any date
                      of determination, for the Borrower and its Subsidiaries on
                      a consolidated basis, Shareholders' Equity of the Borrower
                      and its Subsidiaries on that date minus the Intangible
                      Assets of the Borrower and its Subsidiaries on that date;
                      provided that, to the extent any charge relating to a
                      reduction in goodwill taken by Borrower and its
                      Subsidiaries on a consolidated basis results in gain or
                      income relating thereto, then such gain or income shall be
                      excluded from the calculation of Consolidated Tangible Net
                      Worth as of such date of determination for purposes of
                      testing the Borrower's compliance with Section 7.13(a)
                      (the intent of the parties being that the effect of any
                      such reduction in goodwill and any related gain or income
                      on the calculation of Consolidated Tangible Net Worth for
                      the purposes of testing the Borrower's compliance with
                      Section 7.13(a) be neutral)."

               (7) A new definition of "Non-Cash Restructuring Charges" as set
forth below shall be inserted immediately following the definition of "New
Revolving Loan Commitments":

                      "`Non-Cash Restructuring Charges' means, for any period,
                      any non-cash restructuring charges, other than charges
                      relating to accounts receivable or inventory write-downs,
                      taken by the Borrower and its Subsidiaries during such
                      period on a consolidated basis in accordance with GAAP;
                      provided that, for purposes of calculating the Cash
                      Interest Coverage Ratio in respect of any fiscal quarter
                      ending on or prior to February 28, 2002, the sum of
                      Non-Cash Restructuring Charges and Cash Restructuring
                      Charges for such quarter shall not exceed the amount set
                      forth on Schedule 7.13 relating to any such fiscal
                      quarter."

               (8) The definition of "Restricted Junior Payment" is amended by
inserting the following at the end thereof:


                                       3.


                      "or (C) any repurchase, prepayments, redemption or
                      acquisition of the LYONs that does not violate the terms
                      of this Agreement, including, but not limited to, any such
                      repurchase, prepayments, redemption or acquisition made in
                      accordance with Section 7.14";

               (9) The definition of "Restructuring Charges" is deleted in its
entirety.

        (b) Amendments to Article VI of the Credit Agreement.

               (1) Section 6.14(b) is amended by inserting immediately after the
phrase "`Material Subsidiary'" in both instances where it appears therein the
following:

                      "or `First Tier Foreign Subsidiary', as the case may be,"

        (c) Amendments to Article VII of the Credit Agreement.

               (1) Section 7.01(t) is amended in its entirety to provide as
follows:

                      "(t) Liens consisting of pledges of cash collateral to
                      secure (i) Synthetic Lease Obligations in existence on the
                      Closing Date and any refinancings or extensions thereof
                      (provided that the aggregate amount of such cash
                      collateral securing such Synthetic Lease Obligations shall
                      not at any time exceed $124,000,000 (plus on a one-time
                      basis any reasonable premium or other reasonable amount
                      paid, and fees and expenses reasonably incurred, in
                      connection with the first refinancing or restructuring of
                      such obligations after June 18, 2002) less any amount of
                      such cash collateral released to the Borrower or its
                      Subsidiaries subsequent to June 18, 2002 as a result of
                      any refinancing or restructuring of such obligations or
                      otherwise, other than any of such cash collateral utilized
                      to collateralize any reasonable premium or other
                      reasonable amount paid, and fees and expenses reasonably
                      incurred, in each case to the extent the same are
                      capitalized in connection with any such refinancing or
                      restructuring), or (ii) Indebtedness of any non-U.S.
                      Subsidiary solely for the purpose of repatriating, on a
                      tax-efficient basis, cash held by any non-U.S. Subsidiary
                      out of the applicable foreign jurisdiction for the benefit
                      of any Loan Party; and";

               (2) Section 7.10 is amended in its entirety to provide as
follows:

                      "(a) Make or become legally obligated to make any
                      expenditure in respect of the purchase or other
                      acquisition of any fixed or capital asset (excluding
                      normal replacements and maintenance which are properly
                      charged to current operations, Permitted Acquisitions, and
                      acquisitions of assets as a result of the termination of
                      Synthetic Lease Obligations), except for capital
                      expenditures not exceeding, in the aggregate for the
                      Borrower and its Subsidiaries for any consecutive
                      four-quarter period beginning on September 1, 2001, and
                      each four-quarter period beginning on each


                                       4.


                      September 1 thereafter an amount equal to $300,000,000.00;
                      provided, however, that so long as no Default or Event of
                      Default has occurred and is continuing or would result
                      from such expenditure, upon the receipt by the
                      Administrative Agent of a notice confirming the Investment
                      Grade Ratings of the Borrower, this Section 7.10(a) shall
                      be terminated and be of no further force and effect;
                      provided however that, upon the occurrence of the Cash
                      Interest Coverage Ratio Compliance Date, this Section
                      7.10(a) shall be terminated and be of no further force and
                      effect provided that the Borrower instead complies with
                      Section 7.10(b).

                      (b) Make or become legally obligated to make any
                      expenditure in respect of the purchase or other
                      acquisition of any fixed or capital asset (excluding
                      normal replacements and maintenance which are properly
                      charged to current operations, Permitted Acquisitions, and
                      acquisitions of assets as a result of the termination of
                      Synthetic Lease Obligations), except for capital
                      expenditures not exceeding, in the aggregate for the
                      Borrower and its Subsidiaries for any consecutive
                      four-quarter period beginning immediately after the Cash
                      Interest Coverage Ratio Compliance Date, and each
                      four-quarter period beginning on a twelve month
                      anniversary of the Cash Interest Coverage Ratio Compliance
                      Date, an amount equal to $600,000,000.00; provided,
                      however, that so long as no Default or Event of Default
                      has occurred and is continuing or would result from such
                      expenditure, upon the receipt by the Administrative Agent
                      of a notice confirming the Investment Grade Ratings of the
                      Borrower, this Section 7.10(b) shall be terminated and be
                      of no further force and effect; provided however that,
                      this Section 7.10(b) shall only have force and effect in
                      the event that the Borrower has satisfied the conditions
                      therefor set forth in the proviso to Section 7.10(a). For
                      the avoidance of doubt, no amount permitted to be expended
                      under Section 7.10(a) may be carried over for expenditure
                      under this Section 7.10(b).";

               (3) Section 7.13(a) is amended in its entirety to provide as
follows:

                      "(a) Consolidated Tangible Net Worth. (i) For the fiscal
                      quarter of the Borrower ended May 31, 2002, permit
                      Consolidated Tangible Net Worth as of the end of such
                      fiscal quarter of the Borrower to be less than
                      $2,000,000,000.00; and

                      (ii) For any fiscal quarter ending after May 31, 2002,
                      permit Consolidated Tangible Net Worth as of the end of
                      any such fiscal quarter of the Borrower to be less than
                      the sum of (x) (A) in the case of the fiscal quarter of
                      the Borrower ending August 31, 2002, $1,850,000,000.00 and
                      (B) in the case of any fiscal quarter of the Borrower
                      ending after August 31, 2002, $1,800,000,000.00, (y) an
                      amount equal to 50% of the Consolidated Net Income earned
                      in each fiscal quarter ending after May 31, 2002 (with no
                      deduction for a net loss in any such fiscal quarter), and
                      (z) an amount


                                       5.


                      equal to 50% of the aggregate increases in Shareholders'
                      Equity of the Borrower and its Subsidiaries after May 31,
                      2002 by reason of the issuance of Capital Stock of the
                      Borrower (including upon any conversion of debt securities
                      of the Borrower into such Capital Stock) during any fiscal
                      quarter of the Borrower ending subsequent to May 31,
                      2002.";

               (4) Section 7.13(b) is amended in its entirety to provide as
follows:

                      "(b) Cash Interest Coverage Ratio. Permit the Cash
                      Interest Coverage Ratio as of the end of any fiscal
                      quarter of the Borrower to be less than the following
                      amounts:



                             Fiscal Quarter Ending      Minimum Ratio
                             ---------------------      -------------
                                                  
                             May 31, 2002                   3.75:1.00

                             August 31, 2002                3.00:1.00

                             November 30, 2002              2.50:1.00

                             February 28, 2003              3.00:1.00

                             May 31, 2003
                             and thereafter                 4.00:1.00


               (5) Section 7.13 is amended by adding a new subsection (d)
thereto as follows:

                      "(d) Liquidity Ratio. Permit as of the end of any fiscal
                      quarter of the Borrower the ratio of:

                             (x) the sum of (1) cash-on-hand, (2) cash
                      equivalents, (3) marketable securities and (4) current
                      accounts receivable, in each case not subject to a Lien,
                      to

                             (y) all accounts payable of the Borrower and its
                      Subsidiaries on a consolidated basis and Consolidated
                      Indebtedness other than (1) Subordinated Indebtedness, (2)
                      Indebtedness under the LYONS, (3) Attributable
                      Indebtedness of the Borrower and its Subsidiaries on a
                      consolidated basis in respect of capital leases and
                      Synthetic Lease Obligations which are fully cash
                      collateralized and (4) Indebtedness of the


                                       6.


                      Borrower and its Subsidiaries on a consolidated basis
                      described under clause (b) of the definition of
                      "Indebtedness" herein, unless and until any such
                      Indebtedness constitutes a matured reimbursement
                      obligation or matured payment obligation and is no longer
                      contingent,

                      to be less than 1.20 to 1.00; provided that, from and
                      after the Cash Interest Coverage Ratio Compliance Date,
                      this Section 7.13(d) shall be terminated and be of no
                      further force and effect."

        (d) Amendment to Exhibit C of the Credit Agreement. Exhibit C of the
Credit Agreement is replaced in its entirety by Exhibit C attached to this
Amendment.

3.      Representations and Warranties. The Company hereby represents and
warrants to the Administrative Agent, the Lead Arranger and the Lenders as
follows:

        (a) After giving effect to the amendments set forth in Section 2, no
Default or Event of Default has occurred and is continuing (or would result from
the amendment of the Credit Agreement contemplated hereby).

        (b) The execution, delivery and performance by the Company of the
Amendment Documents have been duly authorized by all necessary corporate and
other action and do not and will not require any registration with, consent or
approval of, or notice to or action by, any Person (including any Governmental
Authority) in order to be effective and enforceable.

        (c) The Amendment Documents constitute the legal, valid and binding
obligations of the Company, enforceable against it in accordance with their
respective terms.

        (d) All representations and warranties of the Company contained in the
Credit Agreement are true and correct in all material respects (except to the
extent such representations and warranties expressly refer to an earlier date,
in which case they shall be true and correct as of such earlier date and except
that this subsection (d) shall be deemed instead to refer to the last day of the
most recent fiscal quarter and fiscal year for which financial statements have
then been delivered in respect of the representations and warranties made in
subsections 5.05(a) and (b) of the Credit Agreement.

        (e) The Company is entering into this Amendment on the basis of its own
investigation and for its own reasons, without reliance upon the Administrative
Agent, the Lead Arranger and the Lenders or any other Person.

        (f) The Company's obligations under the Credit Agreement and under the
other Loan Documents are not subject to any defense, counterclaim, set-off,
right of recoupment, abatement or other claim.

4.      Conditions of Effectiveness.


                                       7.


        (a) The effectiveness of Section 2 of this Amendment shall be subject to
the satisfaction of each of the following conditions precedent:

               (1) The Administrative Agent shall have received from the Company
and the Required Lenders a duly executed original (or, if elected by the
Administrative Agent, an executed facsimile copy) of this Amendment.

               (2) The Administrative Agent shall have received the consent of a
number of Subsidiaries of the Company satisfactory to the Administrative Agent,
in form and substance satisfactory to the Administrative Agent, which are
Guarantors, parties to a Pledge Agreement or parties to the Interco
Subordination Agreement, in their capacities as such, to the execution and
delivery hereof by the Company.

               (3) The Administrative Agent shall have received evidence of
payment by the Company of all fees, costs and expenses due and payable as of the
Effective Date hereunder and under the Credit Agreement, including any fees
arising under or referenced in Section 5 of this Amendment and any costs and
expenses payable under Section 7(g) of this Amendment (including the
Administrative Agent's and the Lead Arranger's Attorney Costs, to the extent
invoiced on or prior to the Effective Date).

               (4) The Administrative Agent shall have received from the
Company, in form and substance satisfactory to the Administrative Agent, a copy
of the resolutions passed by the board of directors of the Company, certified as
of the Effective Date by the Secretary or an Assistant Secretary of such Person,
authorizing the execution, delivery and performance of the Amendment Documents.

               (5) The Administrative Agent shall have received all other
documents it or the Required Lenders may reasonably request relating to any
matters relevant hereto, all in form and substance satisfactory to the
Administrative Agent.

               (6) The representations and warranties in Section 3 of this
Amendment shall be true and correct on and as of the Effective Date with the
same effect as if made on and as of the Effective Date.

        (b) For purposes of determining compliance with the conditions specified
in Section 4(a), each Lender that has executed this Amendment shall be deemed to
have consented to, approved or accepted, or to be satisfied with, each document
or other matter either sent, or made available for inspection, by the
Administrative Agent to such Lender for consent, approval, acceptance or
satisfaction, or required thereunder to be consented to or approved by or
acceptable or satisfactory to such Lender.

        (c) From and after the Effective Date, the Credit Agreement is amended
as set forth herein. Except as expressly amended pursuant hereto, the Credit
Agreement shall remain unchanged and in full force and effect and is hereby
ratified and confirmed in all respects.

        (d) The Administrative Agent will notify the Company and the Lenders of
the


                                       8.


occurrence of the Effective Date.

5.      Fees. The Company shall pay (through the Administrative Agent) to
each Lender that executes and delivers this Amendment by no later than 5:00 p.m.
(Pacific time) on or before June 17, 2002, a non-refundable amendment fee equal
to 0.20% of such Lender's Commitment as of the Effective Date. Such amendment
fee shall be fully-earned upon becoming due and payable, shall not be refundable
for any reason whatsoever and shall be in addition to any fee, cost or expense
otherwise payable by the Company pursuant to the Credit Agreement or this
Amendment.

6.      FASB 145. The company has notified the Administrative Agent and the
Lenders of a recent change in FASB 145 which will allow the Company to report,
when and if it elects to apply FASB 145 to its fiscal year end results, gains
resulting from the extinguishment of debt as ordinary income rather than an
extraordinary item. In accordance with Section 1.3 of the Credit Agreement the
Company, the Administrative Agent and the Required Lenders agree that, and
consent to, such ordinary income items being included in the Company's
Consolidated Net Income for the relevant period as net income from continuing
operations in accordance with GAAP after such election is made.

7.      Miscellaneous.

        (a) The Company acknowledges and agrees that the execution and delivery
by the Administrative Agent, the Lead Arranger and the Lenders of this Amendment
shall not be deemed to create a course of dealing or an obligation to execute
similar waivers or amendments under the same or similar circumstances in the
future.

        (b) This Amendment shall be binding upon and inure to the benefit of the
parties hereto and thereto and their respective successors and assigns.

        (c) This Amendment shall be governed by and construed in accordance with
the law of the State of New York (including Sections 5-1401 and 5-1402 of the
General Obligations Law of the State of New York); provided that, the
Administrative Agent and the Lenders shall retain all rights arising under
Federal law.

        (d) This Amendment may be executed in any number of counterparts, each
of which shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument. Each of the parties hereto
understands and agrees that this document (and any other document required
herein) may be delivered by any party thereto either in the form of an executed
original or an executed original sent by facsimile transmission to be followed
promptly by mailing of a hard copy original, and that receipt by the
Administrative Agent of a facsimile transmitted document purportedly bearing the
signature of a Lender or the Company shall bind such Lender or the Company,
respectively, with the same force and effect as the delivery of a hard copy
original. Any failure by the Administrative Agent to receive the hard copy
executed original of such document shall not diminish the binding effect of
receipt of the facsimile transmitted executed original of such document of the
party whose hard copy page was not received by the Administrative Agent.


                                       9.


        (e) This Amendment and the other Amendment Documents contains the entire
and exclusive agreement of the parties hereto with reference to the matters
discussed herein. This Amendment supersedes all prior drafts and communications
with respect hereto. This Amendment may not be amended except in accordance with
the provisions of Section 10.01 of the Credit Agreement.

        (f) If any term or provision of this Amendment shall be deemed
prohibited by or invalid under any applicable law, such provision shall be
invalidated without affecting the remaining provisions of this Amendment, the
Credit Agreement or the Loan Documents.

        (g) The Company agrees to pay or reimburse Bank of America (including in
its capacity as Administrative Agent) and the Lead Arranger, upon demand, for
all reasonable costs and expenses (including reasonable Attorney Costs) incurred
by Bank of America (including in its capacity as Administrative Agent) and the
Lead Arranger in connection with the development, preparation, negotiation,
execution and delivery of the Amendment Documents.

        (h) The Company hereby agrees and covenants that within fifteen (15)
Business Days after the Effective Date it will provide to the Administrative
Agent the consent of each Subsidiary of the Company not previously delivered in
accordance with Section 4(a)(2), in form and substance satisfactory to the
Administrative Agent, which is a Guarantor, a party to a Pledge Agreement or a
party to the Interco Subordination Agreement, in their capacities as such, to
the execution and delivery hereof by the Company. The Company hereby agrees and
acknowledges that any failure on its part to comply with the covenant set forth
in the preceding sentence shall be an immediate Event of Default under the
Credit Agreement.

                            [signature pages follow]



                                      10.


               IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed as of the date first above written.


                                        SOLECTRON CORPORATION


                                        By: /s/ PERRY G. HAYES
                                            ------------------------------------
                                            Name:  Perry G. Hayes
                                            Title: Vice President - Treasury


                                        BANK OF AMERICA, N.A., AS ADMINISTRATIVE
                                        AGENT AND A LENDER


                                        By:
                                            ------------------------------------
                                            Name:
                                            Title:



                                      S-1.


               IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed as of the date first above written.


                                        SOLECTRON CORPORATION


                                        By:
                                            ------------------------------------
                                            Name:
                                            Title:


                                        BANK OF AMERICA, N.A., AS ADMINISTRATIVE
                                        AGENT AND A LENDER


                                        By: /s/ JAMES P. JOHNSON
                                            ------------------------------------
                                            Name:  JAMES P. JOHNSON
                                            Title: Managing Director



                                      S-1.




                                     GOLDMAN SACHS CREDIT PARTNERS L.P.,
                                     AS SOLE LEAD ARRANGER, SOLE BOOK RUNNER AND
                                     CO-SYNDICATION AGENT AND A LENDER


                                     By: /s/ Stephen King
                                         ------------------------------------
                                         Authorized Signatory




                                      S-2.


                                  ADDISON CDO, LIMITED (ACCT 1279)


                                  By: Pacific Investment Management Company LLC,
                                      as its Investment Advisor

                                        By:   /s/ MOHAN V. PHANSALKAR
                                            ------------------------------------
                                                  Mohan V. Phansalkar
                                                  Executive Vice President



                                      S-3.


                                        THE BANK OF NOVA SCOTIA


                                        By: /s/ KEMP LEONARD
                                            ------------------------------------
                                            Name:  Kemp Leonard
                                            Title: Director



                                      S-4.


                                  BEDFORD CDO, LIMITED (ACCT 1276)


                                  By: Pacific Investment Management Company LLC,
                                      as its Investment Advisor

                                        By:   /s/ MOHAN V. PHANSALKAR
                                            ------------------------------------
                                                  Mohan V. Phansalkar
                                                  Executive Vice President



                                      S-5.


                                        BNP PARIBAS


                                        By: /s/ ROBERT MIMAKI
                                            ------------------------------------
                                            Name:  Robert Mimaki
                                            Title: Vice President


                                        By: /s/ RICHARD ONG PHO
                                            ------------------------------------
                                            Name:  Richard Ong Pho
                                            Title: Associate



                                      S-6.


                                  DELANO COMPANY (ACCT 274)


                                  By: Pacific Investment Management Company LLC,
                                      as its Investment Advisor

                                        By:   /s/ MOHAN V. PHANSALKAR
                                            ------------------------------------
                                                  Mohan V. Phansalkar
                                                  Executive Vice President



                                      S-7.


                                        THE DEVELOPMENT BANK OF
                                        SINGAPORE LTD., LOS ANGELES AGENCY


                                        By: /s/ WIL KIM LONG
                                            ------------------------------------
                                            Name:  Wil Kim Long
                                            Title: General Manager



                                      S-8.


                                        FLEET NATIONAL BANK


                                        By: /s/ GREG ROUX
                                            ------------------------------------
                                            Name:  Greg Roux
                                            Title: Director



                                      S-9.


                                        JPMORGAN CHASE BANK


                                        By: /s/ WILLIAM P.RINDFUSS
                                            ------------------------------------
                                            Name:  William P.Rindfuss
                                            Title: Vice President



                                     S-10.


                                        OAK HILL CREDIT PARTNERS I, LIMITED


                                        By: Oak Hill CLO Management I, LLC
                                            As Investment Manager


                                        By: /s/ SCOTT D. KRASE
                                            ------------------------------------
                                            Name:  SCOTT D. KRASE
                                            Title: Authorized Signatory



                                     S-11.


                                        OAK HILL SECURITIES FUND, L.P.


                                        By: Oak Hill Securities GenPar, L.P.
                                            its General Partner


                                        By: Oak Hill Securities MGP, Inc.
                                            its General Partner


                                        By: /s/ SCOTT D. KRASE
                                            ------------------------------------
                                            Name:  SCOTT D. KRASE
                                            Title: Authorized Signatory



                                     S-12.


                                        OAK HILL SECURITIES FUND II, L.P.


                                        By: Oak Hill Securities GenPar II, L.P.
                                            its General Partner


                                        By: Oak Hill Securities MGP II, Inc.
                                            its General Partner


                                        By: /s/ SCOTT D. KRASE
                                            ------------------------------------
                                            Name:  SCOTT D. KRASE
                                            Title: Authorized Signatory



                                     S-13.


                                        THE PRESIDENT & FELLOWS OF
                                        HARVARD COLLEGE (REF. HARVARD
                                        SPECIAL SITUATIONS ACCOUNT)
                                        BY: WHIPPORWILL ASSOCIATES, INCORPORATED
                                        AS: AGENT AND AUTHORIZED SIGNATORY


                                        By: /s/ SHELLEY F. GREENHAUS
                                            ------------------------------------
                                            Name:  Shelley F. Greenhaus
                                            Title: Managing Director



                                     S-14.


                                        THE ROYAL BANK OF SCOTLAND plc


                                        By: /s/ RICHARD FREEDMAN
                                            ------------------------------------
                                            Name:  Richard Freedman
                                            Title: Senior Vice-President




                                     S-15.


                                  SEQUILS-MAGNUM, LTD. (#1280)


                                  By: Pacific Investment Management Company LLC,
                                      as its Investment Advisor

                                        By:   /s/ MOHAN V. PHANSALKAR
                                            ------------------------------------
                                                  Mohan V. Phansalkar
                                                  Executive Vice President




                                     S-16.


                                        STANDARD CHARTERED BANK


                                        By: /s/ MARY MACHADO-SCHAMMEL
                                            ------------------------------------
                                            Name:  MARY MACHADO-SCHAMMEL
                                            Title: Sr. Vice President


                                        By: /s/ FRIEDA YOULIOS
                                            ------------------------------------
                                            Name:  FRIEDA YOULIOS
                                            Title: Vice President




                                     S-17.


                                        SUNAMERICA SENIOR FLOATING RATE
                                        FUND, INC.

                                        By: Stanfield Capital Partners LLC
                                            as subadvisor


                                        By: /s/ CHRISTOPHER E. JANSEN
                                            ------------------------------------
                                            Name:  Christopher E. Jansen
                                            Title: Managing Partner




                                     S-18.


                                        WACHOVIA BANK, NATIONAL ASSOCIATION


                                        By: /s/ Scott Grzawkowski
                                            ------------------------------------
                                            Name: Scott Grzawkowski
                                            Title: Associate





                                     S-19.


                                                                       EXHIBIT A


                              CONSENT AND AGREEMENT

                                       OF

                 GUARANTORS, PLEDGORS AND CREDITOR SUBSIDIARIES

               Each of the undersigned, in its capacity as a Guarantor, a party
to the Interco Subordination Agreement and/or the Pledge Agreement, acknowledges
that its consent to the foregoing Amendment Agreement (the "Agreement") is not
required, but each of the undersigned nevertheless does hereby consent to the
foregoing Agreement and to the documents and agreements referred to therein.
Nothing herein shall in any way limit any of the terms or provisions of the
Guaranty of the undersigned, the Interco Subordination Agreement or the Pledge
Agreement executed by the undersigned in the Administrative Agent's and the
Lenders' favor, or any other Loan Document executed by the undersigned (as the
same may be amended from time to time), all of which are hereby ratified and
affirmed in all respects.


                                        THE SUBSIDIARIES LISTED ON SCHEDULE A


                                        By:
                                            ------------------------------------
                                        Title:
                                               ---------------------------------



                                                                      SCHEDULE A


American Information and Communications, Inc.
Americom Wireless Services, Inc.
Apex Data, Inc.
Artesyn Solutions, Inc.
C-MAC Credit Corporation
C-MAC Design Corporation
C-MAC Finance LLC
C-MAC Holdings Inc.
C-MAC Interconnect USA Inc.
C-MAC Microtechnology Holdings Inc.
C-MAC Network Systems, Inc.
C-MAC Nevada Inc.
C-MAC Properties, Inc.
C-MAC Quartz Crystals Inc.
C-MAC West Coast Operations, Inc.
Fine Pitch (Morgan Hill) Corporation
Fine Pitch Technology, Inc.
Force Computers, Inc.
Iphotonics, Inc.
Kavlico Corporation
Kavlico International, Inc.
Memquest, Inc.
Metaltek, Inc.
Natsteel Electronics, Inc.
Navox Corporation
Nel (US) Holdings, Inc.
Patria Design, Inc.
Rivus Internet Group, Inc.
Scrantom Engineering, Inc.
Shinei USA, Inc.
Smart Modular Technologies, Inc.
Smart Modular Technologies (MA) Inc.
Smart Modular Technologies (P.R.), Inc.
Solectron California Corporation
Solectron Capital Trust 1
Solectron Federal Systems, Inc.
Solectron Funding Corporation
Solectron Georgia Corporation
Solectron Global Services, Inc.
Solectron Holdings Inc.
Solectron Holdings Ltd.
Solectron International Distribution, Inc.
Solectron Massachusetts Corporation


                                       A-1


Solectron Oregon Corporation
Solectron Puerto Rico, Inc.
Solectron South Carolina Corporation
Solectron Technology, Inc.
Solectron Texas, Inc.
Solectron Texas L.P.
Solectron Washington, Inc.
Stream International L.L.C.
Stream International, Inc.
Stream International Services Corporation
Stream Services, Inc.




                                       A-2


                                                                         Annex I


                   Pricing Grid for Credit Agreement (364-Day)




                                         APPLICABLE                            APPLICABLE
                      DEBT RATINGS      FACILITY FEE        APPLICABLE       UTILIZATION FEE
PRICING LEVEL          S&P/MOODY'S          RATE             LIBO RATE            RATE
- -------------         ------------      ------------        ----------       ---------------
                                                                 
      1                BBB/Baa2           12.5 bps           75.0 bps           12.5 bps
                      (or better)

      2                BBB-/Baa3          20.0 bps           105.0 bps          25.0 bps

      3                 BB+/Ba1           25.0 bps           125.0 bps          25.0 bps

      4                 BB/Ba2            30.0 bps           145.0 bps          50.0 bps

      5                 BB-/Ba3           50.0 bps           175.0 bps          50.0 bps

      6                  B+/B1            62.5 bps           212.5 bps          50.0 bps
                      (or lower)




                                       I-1


                                                                       EXHIBIT C


                         FORM OF COMPLIANCE CERTIFICATE

                                     Financial Statement Date: ____________, ___

To:  Bank of America, N.A., as Administrative Agent

Ladies and Gentlemen:

        Reference is made to that certain Credit Agreement, dated as of February
14, 2002 (as amended, restated, extended, supplemented or otherwise modified in
writing from time to time, the "Agreement"; terms defined therein being used
herein as therein defined), among Solectron Corporation, a Delaware corporation
(the "Borrower"), Goldman Sachs Credit Partners L.P., as sole lead arranger,
sole book runner and co-syndication agent, JPMorgan Chase Bank, as
co-syndication agent, The Bank of Nova Scotia, as documentation agent, each
lender from time to time party thereto (collectively, the "Lenders," and
individually, a "Lender"), and Bank of America, N.A., as Administrative Agent.

        The undersigned Responsible Officer hereby certifies as of the date
hereof that he/she is the _______________ of the Borrower, and that, as such,
he/she is authorized to execute and deliver this Compliance Certificate to the
Administrative Agent on the behalf of the Borrower, and that:

            [Use following for fiscal YEAR-END financial statements]

        1. Attached hereto as Schedule 1 are the year-end audited financial
statements required by Section 6.01(a) of the Agreement for the fiscal year of
the Borrower ended as of the above date, together with the report and opinion of
an independent certified public accountant required by such section.

        2. Attached hereto as Schedule 2 is a list of Material Subsidiaries and
First Tier Foreign Subsidiaries.


           [Use following for fiscal QUARTER-END financial statements]

        1. Attached hereto as Schedule 1 are the unaudited financial statements
required by Section 6.01(b) of the Agreement for the fiscal quarter of the
Borrower ended as of the above date. Such financial statements fairly present
the financial condition, results of operations and cash flows of the Borrower
and its Subsidiaries in accordance with GAAP as at such date and for such
period, subject only to normal year-end audit adjustments and the absence of
footnotes.

        2. Attached hereto as Schedule 2 is a list of Material Subsidiaries and
First Tier Foreign Subsidiaries.

                                      C-1


        3. The undersigned has reviewed and is familiar with the terms of the
Agreement and has made, or has caused to be made under his/her supervision, a
detailed review of the transactions and condition (financial or otherwise) of
the Borrower during the accounting period covered by the attached financial
statements.

        4. A review of the activities of the Borrower during such fiscal period
has been made under the supervision of the undersigned with a view to
determining whether during such fiscal period the Borrower performed and
observed all its Obligations under the Loan Documents, and

                                  [select one:]

[to the knowledge of the undersigned after due inquiry, no Default or Event of
Default exists as of the date hereof]

                                     --or--

        [the following covenants or conditions have not been performed or
observed and the following is a list of each such Default or Event of Default,
its nature and status and the action that the Borrower proposes to take with
respect thereto:]

        5. The representations and warranties contained in Article V of the
Agreement, or which are contained in any document furnished at any time under or
in connection with the Loan Documents, are true and correct in all material
respects on and as of the date hereof, except to the extent that such
representations and warranties specifically refer to an earlier date, in which
case they are true and correct as of such earlier date.

        6. The financial covenant analyses and information set forth on
Schedules 3 and 4 attached hereto are true and accurate on and as of the date of
this Compliance Certificate.


                  (remainder of page intentionally left blank)



                                      C-2


        IN WITNESS WHEREOF, the undersigned has executed this Compliance
Certificate as of __________, __________.


                                       By: __________________________________
                                       Name:
                                       Title:





                                      C-3


                                   SCHEDULE 1
                          to the Compliance Certificate

      For the Quarter/Year ended ___________, ______ (the "Statement Date")

                          [Attach Financial Statements]




                                      C-4


                                   SCHEDULE 2
                          to the Compliance Certificate

      For the Quarter/Year ended ___________, ______ (the "Statement Date")

       List of Material Subsidiaries and First Tier Foreign Subsidiaries:





                                      C-5


                                   SCHEDULE 3
                          to the Compliance Certificate
                                  ($ in 000's)

      For the Quarter/Year ended ___________, ______ (the "Statement Date")


                                                                      
I.      SECTION 7.10 - CAPITAL EXPENDITURES.

(a)     If required to comply with Section 7.10(a):

        For the four-quarter period beginning on September 1, 2001,
        and each four-quarter period beginning on September 1
        thereafter.

        A.  Capital expenditures:                                           $
                                                                            ------------

        B.  Capital expenditures permitted to be made:                      $    300,000
                                                                            ------------

        C.  Remaining availability (amount overspent) for
            covenant compliance (Line I.(a).B - I.(a).A):                   $
                                                                            ------------

(b)     If required to comply with Section 7.10(b):

        For the four-quarter period beginning immediately after the
        Cash Interest Coverage Ratio Compliance Date, and each
        four-quarter period beginning on the twelve month
        anniversary thereof.

        A.  Capital expenditures:                                           $
                                                                            ------------

        B.  Capital expenditures permitted to be made:                      $    600,000
                                                                            ------------

        C.  Remaining availability (amount overspent) for
            covenant compliance (Line I.(b).B - I.(b).A):                   $
                                                                            ------------

II.     SECTION 7.13(a) - CONSOLIDATED TANGIBLE NET WORTH.

        Actual Consolidated Tangible Net Worth at the
        Statement Date:

        1.  Shareholders' Equity:                                           $
                                                                            ------------

        2.  Intangible Assets:                                              $
                                                                            ------------

        3.  Consolidated Tangible Net Worth
            (Line II.1 - Line II.2)[(1)]:                                     $
                                                                            ------------



- --------
[(1)] To the extent any charge relating to a reduction in goodwill taken by
Borrower and its Subsidiaries on a consolidated basis results in gain or income
relating thereto, then such gain or income shall be excluded from the
calculation of Consolidated Tangible Net Worth as of the Statement Date.


                                      C-6


                                                                      
(i)     If Statement Date is May 31, 2002:

        A.  Minimum required Consolidated
            Tangible Net Worth:                                             $  2,000,000
                                                                            ------------

        B.  Excess (deficiency) for covenant compliance
            (Line II.3 - II.(i).A):                                         $
                                                                            ------------

(ii)    If Statement Date is after May 31, 2002:

        A.  Starting figure for Consolidated Tangible Net Worth
            as of the Closing Date[(2)]:                                      $
                                                                            ------------

        B.  50% of Consolidated Net Income for each fiscal
            quarter ending after May 31, 2002 (no reduction for
            net losses):                                                    $
                                                                            ------------

        C.  50% of aggregate increases in Shareholders' Equity
            of the Borrower and its Subsidiaries after May 31,
            2002 from issuance and sale of Capital Stock of the
            Borrower (including from conversion of debt
            securities) during any fiscal quarter ending
            subsequent to May 31, 2002:                                     $
                                                                            ------------

        D.  Minimum required Consolidated Tangible Net Worth
            (Lines II.(ii).A + II.(ii).B + II.(ii).C):                      $
                                                                            ------------

        E.  Excess (deficiency) for covenant compliance
            (Line II.3 - II.(ii).D):                                        $
                                                                            ------------

III.    SECTION 7.13(b) - CASH INTEREST COVERAGE RATIO.

        A.  Consolidated EBITDA for four consecutive fiscal quarters
            ending on the Statement Date ("Subject Period"):

            1.  Consolidated Net Income for Subject Period:                 $
                                                                            ------------
            2.  Consolidated Interest Charges for Subject
                Period:                                                     $
                                                                            ------------

            3.  Provision for income taxes for Subject Period:              $
                                                                            ------------

            4.  Depreciation expenses for Subject Period:                   $
                                                                            ------------

            5.  Amortization expenses for intangibles for
                Subject Period:                                             $
                                                                            ------------

            6.  Consolidated EBITDA (sum of Lines III.A.1
                through III.A.5):                                           $
                                                                            ------------



- --------
[(2)] In the case of the fiscal quarter ending August 31, 2002, insert
$1,850,000,000.00; and in the case of any fiscal quarter ending after August 31,
2002, insert $1,800,000,000.00.



                                      C-7


                                                                      
        B.  Non-Cash Restructuring Charges deducted in
            calculating Consolidated Net Income for Subject Period:         $
                                                                            ------------

        C.  Cash Restructuring Charges deducted in calculating
             Consolidated Net Income for Subject Period:[(3)]

        D.  Consolidated Cash Interest Charges for Subject Period:          $
                                                                            ------------

        E.  Cash Interest Coverage Ratio ((Line III.A.6 + Line III.B
            + Line III.C) / Line III.D):                                    _____ to 1.0

            Minimum required:                                               _____ to 1.0

IV.     SECTION 7.13(c) - CONSOLIDATED INDEBTEDNESS TO
        CAPITALIZATION RATIO.

        A.  Consolidated Indebtedness at the Statement Date:                $
                                                                            ------------

        B.  Shareholders' Equity at the Statement Date:                     $
                                                                            ------------

        C.  Consolidated Indebtedness to Capitalization Ratio
            (Line IV.A / (Line IV.A + Line IV.B)):                          _____ to 1.0

            Maximum permitted:                                                0.5 to 1.0

V.      SECTION 7.13(d) - LIQUIDITY RATIO.

        A.  Cash and cash equivalents not subject to a Lien as of
            the Statement Date

            1.  Cash-on-hand:                                               $
                                                                            ------------

            2.  Cash equivalents:                                           $
                                                                            ------------

            3.  Marketable securities:                                      $
                                                                            ------------

            4.  Accounts receivable:                                        $
                                                                            ------------

            5.  Cash and cash equivalents not
                subject to a Lien
                (sum of Lines V.A.1 through V.A.4):                         $
                                                                            ------------

        B.  Consolidated Indebtedness and accounts payable as
            of the Statement Date

            1.  Accounts payable:                                           $
                                                                            ------------

            2.  Consolidated Indebtedness:                                  $
                                                                            ------------



- --------
[(3)] The cumulative aggregate amount of Cash Restructuring Charges taken in
fiscal quarters ending on or after May 31, 2002 but on or prior to August 29,
2003 and which are included in calculating the Cash Interest Coverage Ratio
shall not exceed $235,000,000.



                                      C-8


                                                                      
            3.  Consolidated Indebtedness and accounts
                payable (Line V.B.1 + Line V.B.2):                          $
                                                                            ------------

        C.  Excluded Indebtedness as of the Statement Date

            1.  Subordinated Indebtedness:                                  $
                                                                            ------------

            2.  Indebtedness under the LYONS:                               $
                                                                            ------------

            3.  Attributable Indebtedness in respect of capital
                leases and Synthetic Lease Obligations which are
                fully cash collateralized:                                  $
                                                                            ------------

            4.  Indebtedness described under clause (b) of the
                definition of "Indebtedness" (unless and until
                any such Indebtedness constitutes a matured
                reimbursement obligation or matured
                payment obligation and is no longer contingent):            $
                                                                            ------------

            5.  Excluded Indebtedness
                (sum of Lines V.C.1 through Line V.C.4):                    $
                                                                            ------------

        D.  Liquidity Ratio ((Line V.A.5) /
            (Line V.B.3 - Line V.C.5))                                      ____ to 1.00

            Minimum required:                                               1.20 to 1.00

        Attached hereto is a schedule of marketable securities and their
        associated values included in Line V.A.3 above.





                                      C-9


                                   SCHEDULE 4
                          to the Compliance Certificate


        For the Quarter/Year ended ________, ____ (the "Statement Date")



          [Attach list of marketable securities and associated values.]




                                      C-10

EX-10.2

                                                                    EXHIBIT 10.2



                               AMENDMENT AGREEMENT

               This AMENDMENT AGREEMENT (this "Amendment") is entered into as of
June 18, 2002 among SOLECTRON CORPORATION, a Delaware corporation (the
"Company"), the several financial institutions party to the Credit Agreement
referred to below (each a "Lender" and, collectively, the "Lenders"), GOLDMAN
SACHS CREDIT PARTNERS L.P., as Sole Lead Arranger, Sole Book Runner and
Co-Syndication Agent ("Lead Arranger"), and BANK OF AMERICA, N.A., as
Administrative Agent.

               The Company, the Lenders, Lead Arranger and the Administrative
Agent entered into a Credit Agreement dated as of February 14, 2002 (as in
effect as of the date of this Amendment, the "Credit Agreement").

               The Company has requested that the Lenders agree to certain
amendments to the Credit Agreement and provide certain consents together
therewith and the Lenders have agreed to such request, subject to the terms and
conditions of this Amendment.

               In consideration of the mutual covenants and agreements herein
contained, the parties hereto covenant and agree as follows:

1.      Definitions; References; Interpretation.

        (a) Unless otherwise specifically defined herein, each term used herein
(including in the Recitals hereof and in the Consent and Agreement attached
hereto as Exhibit A) which is defined in the Credit Agreement shall have the
meaning assigned to such term in the Credit Agreement.

        (b) As used herein, "Amendment Documents" means this Amendment, the
Consent and Agreement related hereto and the Credit Agreement (as amended by
this Amendment).

        (c) Each reference to "this Agreement", "hereof", "hereunder", "herein"
and "hereby" and each other similar reference contained in the Credit Agreement,
and each reference to "the Credit Agreement" and each other similar reference in
the other Loan Documents, shall from and after the Effective Date refer to the
Credit Agreement as amended hereby.

        (d) The rules of interpretation set forth in Sections 1.02, 1.03 and
1.05 of the Credit Agreement shall be applicable to this Amendment.

2.      Amendments to Credit Agreement. Subject to the terms and conditions
hereof, effective as of the date of satisfaction of the conditions set forth in
Section 4 (the "Effective Date") the Credit Agreement is amended as follows as
of May 31, 2002:

        (a) Amendments to Article I of the Credit Agreement.

               (1) The definition of "Applicable Rate" is amended by replacing
the pricing table set forth therein in its entirety with the pricing table set
forth in Annex I attached to this Amendment;


                                       1.


               (2) A new definition of "Cash Interest Coverage Ratio Compliance
Date" as set forth below shall be inserted immediately following the definition
of "Cash Collateralize":

                      "`Cash Interest Coverage Ratio Compliance Date' means the
                      last day of any fiscal quarter ending on or after November
                      30, 2002 during which the Borrower has maintained a Cash
                      Interest Coverage Ratio as of the end of such fiscal
                      quarter and the immediately prior fiscal quarter of not
                      less than 4:00 to 1.00."

               (3) The definition of "Cash Interest Coverage Ratio" is amended
in its entirety as follows:

                      "`Cash Interest Coverage Ratio' means, as of any date of
                      determination, the ratio of:

                             (x) the sum of (i) Consolidated EBITDA for the
                      period of the four prior fiscal quarters ending on such
                      date, (ii) the Non-Cash Restructuring Charges deducted in
                      calculating Consolidated Net Income for such period and
                      (iii) the Cash Restructuring Charges deducted in
                      calculating Consolidated Net Income for such period;
                      provided that, the cumulative aggregate amount of Cash
                      Restructuring Charges taken in fiscal quarters ending on
                      or after May 31, 2002 but on or prior to August 29, 2003
                      and which are included in calculating the Cash Interest
                      Coverage Ratio shall not exceed $235,000,000, to

                             (y) Consolidated Cash Interest Charges during such
                      period."

               (4) A new definition of "Cash Restructuring Charges" as set forth
below shall be inserted immediately following the definition of "Cash Interest
Coverage Ratio":

                      "`Cash Restructuring Charges' means, in respect of any
                      period, any cash restructuring charges taken by the
                      Borrower and its Subsidiaries on a consolidated basis
                      during such period in accordance with GAAP; provided that,
                      for purposes of calculating the Cash Interest Coverage
                      Ratio in respect of any fiscal quarter ending on or prior
                      to February 28, 2002, the sum of Cash Restructuring
                      Charges and Non-Cash Restructuring Charges for such
                      quarter shall not exceed the amount set forth on Schedule
                      7.13 relating to any such fiscal quarter."

               (5) The definition of "Consolidated Cash Interest Charges" is
amended in its entirety as follows:

                      "`Consolidated Cash Interest Charges' means, for any
                      period, for the Borrower and its Subsidiaries on a
                      consolidated basis, the sum of cash payments for (a) all
                      interest, premium payments, fees, charges and related
                      expenses of the Borrower and its Subsidiaries in
                      connection with borrowed money or in connection with the
                      deferred purchase price of


                                       2.


                      assets, in each case to the extent treated as interest in
                      accordance with GAAP, (b) the portion of rent expense of
                      the Borrower and its Subsidiaries with respect to such
                      period under capital leases that is treated as interest in
                      accordance with GAAP and (c) the portion of rent expense
                      comprising interest with respect to the Synthetic Lease
                      Obligations of the Borrower and its Subsidiaries plus any
                      net payment made, or minus any net payment received, by
                      the Borrower or any consolidated Subsidiary under any Swap
                      Contract consisting of an interest rate swap relating to
                      Indebtedness of the Borrower or any such Subsidiary. This
                      definition shall not include non-cash interest charges
                      (including accretion on the Borrower's LYONs)."

               (6) The definition of "Consolidated Tangible Net Worth" is
amended in its entirety as follows:

                      "`Consolidated Tangible Net Worth' means, as of any date
                      of determination, for the Borrower and its Subsidiaries on
                      a consolidated basis, Shareholders' Equity of the Borrower
                      and its Subsidiaries on that date minus the Intangible
                      Assets of the Borrower and its Subsidiaries on that date;
                      provided that, to the extent any charge relating to a
                      reduction in goodwill taken by Borrower and its
                      Subsidiaries on a consolidated basis results in gain or
                      income relating thereto, then such gain or income shall be
                      excluded from the calculation of Consolidated Tangible Net
                      Worth as of such date of determination for purposes of
                      testing the Borrower's compliance with Section 7.13(a)
                      (the intent of the parties being that the effect of any
                      such reduction in goodwill and any related gain or income
                      on the calculation of Consolidated Tangible Net Worth for
                      the purposes of testing the Borrower's compliance with
                      Section 7.13(a) be neutral)."

               (7) A new definition of "Non-Cash Restructuring Charges" as set
forth below shall be inserted immediately following the definition of "New
Revolving Loan Commitments":

                      "`Non-Cash Restructuring Charges' means, for any period,
                      any non-cash restructuring charges, other than charges
                      relating to accounts receivable or inventory write-downs,
                      taken by the Borrower and its Subsidiaries during such
                      period on a consolidated basis in accordance with GAAP;
                      provided that, for purposes of calculating the Cash
                      Interest Coverage Ratio in respect of any fiscal quarter
                      ending on or prior to February 28, 2002, the sum of
                      Non-Cash Restructuring Charges and Cash Restructuring
                      Charges for such quarter shall not exceed the amount set
                      forth on Schedule 7.13 relating to any such fiscal
                      quarter."

               (8) The definition of "Restricted Junior Payment" is amended by
inserting the following at the end thereof:

                      "or (C) any repurchase, prepayments, redemption or
                      acquisition of the LYONs that does not violate the terms
                      of this Agreement, including, but


                                       3.


                      not limited to, any such repurchase, prepayments,
                      redemption or acquisition made in accordance with Section
                      7.14";

               (9) The definition of "Restructuring Charges" is deleted in its
entirety.

        (b) Amendments to Article VI of the Credit Agreement.

               (1) Section 6.14(b) is amended by inserting immediately after the
phrase "`Material Subsidiary'" in both instances where it appears therein the
following:

                      "or `First Tier Foreign Subsidiary', as the case may be,"

        (c) Amendments to Article VII of the Credit Agreement.

               (1) Section 7.01(t) is amended in its entirety to provide as
follows:

                      "(t) Liens consisting of pledges of cash collateral to
                      secure (i) Synthetic Lease Obligations in existence on the
                      Closing Date and any refinancings or extensions thereof
                      (provided that the aggregate amount of such cash
                      collateral securing such Synthetic Lease Obligations shall
                      not at any time exceed $124,000,000 (plus on a one-time
                      basis any reasonable premium or other reasonable amount
                      paid, and fees and expenses reasonably incurred, in
                      connection with the first refinancing or restructuring of
                      such obligations after June 18, 2002) less any amount of
                      such cash collateral released to the Borrower or its
                      Subsidiaries subsequent to June 18, 2002 as a result of
                      any refinancing or restructuring of such obligations or
                      otherwise, other than any of such cash collateral utilized
                      to collateralize any reasonable premium or other
                      reasonable amount paid, and fees and expenses reasonably
                      incurred, in each case to the extent the same are
                      capitalized in connection with any such refinancing or
                      restructuring), or (ii) Indebtedness of any non-U.S.
                      Subsidiary solely for the purpose of repatriating, on a
                      tax-efficient basis, cash held by any non-U.S. Subsidiary
                      out of the applicable foreign jurisdiction for the benefit
                      of any Loan Party; and";

               (2) Section 7.10 is amended in its entirety to provide as
follows:

                      "(a) Make or become legally obligated to make any
                      expenditure in respect of the purchase or other
                      acquisition of any fixed or capital asset (excluding
                      normal replacements and maintenance which are properly
                      charged to current operations, Permitted Acquisitions, and
                      acquisitions of assets as a result of the termination of
                      Synthetic Lease Obligations), except for capital
                      expenditures not exceeding, in the aggregate for the
                      Borrower and its Subsidiaries for any consecutive
                      four-quarter period beginning on September 1, 2001, and
                      each four-quarter period beginning on each September 1
                      thereafter an amount equal to $300,000,000.00; provided,
                      however, that so long as no Default or Event of Default
                      has occurred and is continuing or would result from such
                      expenditure, upon the receipt by


                                       4.


                      the Administrative Agent of a notice confirming the
                      Investment Grade Ratings of the Borrower, this Section
                      7.10(a) shall be terminated and be of no further force and
                      effect; provided however that, upon the occurrence of the
                      Cash Interest Coverage Ratio Compliance Date, this Section
                      7.10(a) shall be terminated and be of no further force and
                      effect provided that the Borrower instead complies with
                      Section 7.10(b).

                      (b) Make or become legally obligated to make any
                      expenditure in respect of the purchase or other
                      acquisition of any fixed or capital asset (excluding
                      normal replacements and maintenance which are properly
                      charged to current operations, Permitted Acquisitions, and
                      acquisitions of assets as a result of the termination of
                      Synthetic Lease Obligations), except for capital
                      expenditures not exceeding, in the aggregate for the
                      Borrower and its Subsidiaries for any consecutive
                      four-quarter period beginning immediately after the Cash
                      Interest Coverage Ratio Compliance Date, and each
                      four-quarter period beginning on a twelve month
                      anniversary of the Cash Interest Coverage Ratio Compliance
                      Date, an amount equal to $600,000,000.00; provided,
                      however, that so long as no Default or Event of Default
                      has occurred and is continuing or would result from such
                      expenditure, upon the receipt by the Administrative Agent
                      of a notice confirming the Investment Grade Ratings of the
                      Borrower, this Section 7.10(b) shall be terminated and be
                      of no further force and effect; provided however that,
                      this Section 7.10(b) shall only have force and effect in
                      the event that the Borrower has satisfied the conditions
                      therefor set forth in the proviso to Section 7.10(a). For
                      the avoidance of doubt, no amount permitted to be expended
                      under Section 7.10(a) may be carried over for expenditure
                      under this Section 7.10(b).";

               (3) Section 7.13(a) is amended in its entirety to provide as
follows:

                      "(a) Consolidated Tangible Net Worth. (i) For the fiscal
                      quarter of the Borrower ended May 31, 2002, permit
                      Consolidated Tangible Net Worth as of the end of such
                      fiscal quarter of the Borrower to be less than
                      $2,000,000,000.00; and

                      (ii) For any fiscal quarter ending after May 31, 2002,
                      permit Consolidated Tangible Net Worth as of the end of
                      any such fiscal quarter of the Borrower to be less than
                      the sum of (x) (A) in the case of the fiscal quarter of
                      the Borrower ending August 31, 2002, $1,850,000,000.00 and
                      (B) in the case of any fiscal quarter of the Borrower
                      ending after August 31, 2002, $1,800,000,000.00, (y) an
                      amount equal to 50% of the Consolidated Net Income earned
                      in each fiscal quarter ending after May 31, 2002 (with no
                      deduction for a net loss in any such fiscal quarter), and
                      (z) an amount equal to 50% of the aggregate increases in
                      Shareholders' Equity of the Borrower and its Subsidiaries
                      after May 31, 2002 by reason of the issuance of Capital
                      Stock of the Borrower (including upon any conversion of
                      debt securities of the Borrower into such Capital Stock)
                      during any fiscal


                                       5.


                      quarter of the Borrower ending subsequent to May 31,
                      2002.";

               (4) Section 7.13(b) is amended in its entirety to provide as
follows:

                      "(b) Cash Interest Coverage Ratio. Permit the Cash
                      Interest Coverage Ratio as of the end of any fiscal
                      quarter of the Borrower to be less than the following
                      amounts:



                             Fiscal Quarter Ending          Minimum Ratio
                             ---------------------          -------------
                                                         
                             May 31, 2002                   3.75:1.00

                             August 31, 2002                3.00:1.00

                             November 30, 2002              2.50:1.00

                             February 28, 2003              3.00:1.00

                             May 31, 2003
                             and thereafter                 4.00:1.00


               (5) Section 7.13 is amended by adding a new subsection (d)
thereto as follows:

                      "(d) Liquidity Ratio. Permit as of the end of any fiscal
                      quarter of the Borrower the ratio of:

                             (x) the sum of (1) cash-on-hand, (2) cash
                      equivalents, (3) marketable securities and (4) current
                      accounts receivable, in each case not subject to a Lien,
                      to

                             (y) all accounts payable of the Borrower and its
                      Subsidiaries on a consolidated basis and Consolidated
                      Indebtedness other than (1) Subordinated Indebtedness, (2)
                      Indebtedness under the LYONS, (3) Attributable
                      Indebtedness of the Borrower and its Subsidiaries on a
                      consolidated basis in respect of capital leases and
                      Synthetic Lease Obligations which are fully cash
                      collateralized and (4) Indebtedness of the Borrower and
                      its Subsidiaries on a consolidated basis described under
                      clause (b) of the definition of "Indebtedness" herein,
                      unless and until any such Indebtedness constitutes a
                      matured reimbursement obligation or matured payment
                      obligation and is no longer contingent,


                                       6.


                      to be less than 1.20 to 1.00; provided that, from and
                      after the Cash Interest Coverage Ratio Compliance Date,
                      this Section 7.13(d) shall be terminated and be of no
                      further force and effect."

        (d) Amendment to Exhibit C of the Credit Agreement. Exhibit C of the
Credit Agreement is replaced in its entirety by Exhibit C attached to this
Amendment.

3.      Representations and Warranties. The Company hereby represents and
warrants to the Administrative Agent, the Lead Arranger and the Lenders as
follows:

        (a) After giving effect to the amendments set forth in Section 2, no
Default or Event of Default has occurred and is continuing (or would result from
the amendment of the Credit Agreement contemplated hereby).

        (b) The execution, delivery and performance by the Company of the
Amendment Documents have been duly authorized by all necessary corporate and
other action and do not and will not require any registration with, consent or
approval of, or notice to or action by, any Person (including any Governmental
Authority) in order to be effective and enforceable.

        (c) The Amendment Documents constitute the legal, valid and binding
obligations of the Company, enforceable against it in accordance with their
respective terms.

        (d) All representations and warranties of the Company contained in the
Credit Agreement are true and correct in all material respects (except to the
extent such representations and warranties expressly refer to an earlier date,
in which case they shall be true and correct as of such earlier date and except
that this subsection (d) shall be deemed instead to refer to the last day of the
most recent fiscal quarter and fiscal year for which financial statements have
then been delivered in respect of the representations and warranties made in
subsections 5.05(a) and (b) of the Credit Agreement.

        (e) The Company is entering into this Amendment on the basis of its own
investigation and for its own reasons, without reliance upon the Administrative
Agent, the Lead Arranger and the Lenders or any other Person.

        (f) The Company's obligations under the Credit Agreement and under the
other Loan Documents are not subject to any defense, counterclaim, set-off,
right of recoupment, abatement or other claim.

4.      Conditions of Effectiveness.

        (a) The effectiveness of Section 2 of this Amendment shall be subject to
the satisfaction of each of the following conditions precedent:

               (1) The Administrative Agent shall have received from the Company
and the Required Lenders a duly executed original (or, if elected by the
Administrative Agent, an executed facsimile copy) of this Amendment.


                                       7.


               (2) The Administrative Agent shall have received the consent of a
number of Subsidiaries of the Company satisfactory to the Administrative Agent,
in form and substance satisfactory to the Administrative Agent, which are
Guarantors, parties to a Pledge Agreement or parties to the Interco
Subordination Agreement, in their capacities as such, to the execution and
delivery hereof by the Company.

               (3) The Administrative Agent shall have received evidence of
payment by the Company of all fees, costs and expenses due and payable as of the
Effective Date hereunder and under the Credit Agreement, including any fees
arising under or referenced in Section 5 of this Amendment and any costs and
expenses payable under Section 7(g) of this Amendment (including the
Administrative Agent's and the Lead Arranger's Attorney Costs, to the extent
invoiced on or prior to the Effective Date).

               (4) The Administrative Agent shall have received from the
Company, in form and substance satisfactory to the Administrative Agent, a copy
of the resolutions passed by the board of directors of the Company, certified as
of the Effective Date by the Secretary or an Assistant Secretary of such Person,
authorizing the execution, delivery and performance of the Amendment Documents.

               (5) The Administrative Agent shall have received all other
documents it or the Required Lenders may reasonably request relating to any
matters relevant hereto, all in form and substance satisfactory to the
Administrative Agent.

               (6) The representations and warranties in Section 3 of this
Amendment shall be true and correct on and as of the Effective Date with the
same effect as if made on and as of the Effective Date.

        (b) For purposes of determining compliance with the conditions specified
in Section 4(a), each Lender that has executed this Amendment shall be deemed to
have consented to, approved or accepted, or to be satisfied with, each document
or other matter either sent, or made available for inspection, by the
Administrative Agent to such Lender for consent, approval, acceptance or
satisfaction, or required thereunder to be consented to or approved by or
acceptable or satisfactory to such Lender.

        (c) From and after the Effective Date, the Credit Agreement is amended
as set forth herein. Except as expressly amended pursuant hereto, the Credit
Agreement shall remain unchanged and in full force and effect and is hereby
ratified and confirmed in all respects.

        (d) The Administrative Agent will notify the Company and the Lenders of
the occurrence of the Effective Date.

5.      Fees. The Company shall pay (through the Administrative Agent) to
each Lender that executes and delivers this Amendment by no later than 5:00 p.m.
(Pacific time) on or before June 17, 2002, a non-refundable amendment fee equal
to 0.20% of such Lender's Commitment as of the Effective Date. Such amendment
fee shall be fully-earned upon becoming due and payable, shall not be refundable
for any reason whatsoever and shall be in addition to any fee, cost or


                                       8.


expense otherwise payable by the Company pursuant to the Credit Agreement or
this Amendment.

6.      FASB 145. The company has notified the Administrative Agent and the
Lenders of a recent change in FASB 145 which will allow the Company to report,
when and if it elects to apply FASB 145 to its fiscal year end results, gains
resulting from the extinguishment of debt as ordinary income rather than an
extraordinary item. In accordance with Section 1.3 of the Credit Agreement the
Company, the Administrative Agent and the Required Lenders agree that, and
consent to, such ordinary income items being included in the Company's
Consolidated Net Income for the relevant period as net income from continuing
operations in accordance with GAAP after such election is made.

7.      Miscellaneous.

        (a) The Company acknowledges and agrees that the execution and delivery
by the Administrative Agent, the Lead Arranger and the Lenders of this Amendment
shall not be deemed to create a course of dealing or an obligation to execute
similar waivers or amendments under the same or similar circumstances in the
future.

        (b) This Amendment shall be binding upon and inure to the benefit of the
parties hereto and thereto and their respective successors and assigns.

        (c) This Amendment shall be governed by and construed in accordance with
the law of the State of New York (including Sections 5-1401 and 5-1402 of the
General Obligations Law of the State of New York); provided that, the
Administrative Agent and the Lenders shall retain all rights arising under
Federal law.

        (d) This Amendment may be executed in any number of counterparts, each
of which shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument. Each of the parties hereto
understands and agrees that this document (and any other document required
herein) may be delivered by any party thereto either in the form of an executed
original or an executed original sent by facsimile transmission to be followed
promptly by mailing of a hard copy original, and that receipt by the
Administrative Agent of a facsimile transmitted document purportedly bearing the
signature of a Lender or the Company shall bind such Lender or the Company,
respectively, with the same force and effect as the delivery of a hard copy
original. Any failure by the Administrative Agent to receive the hard copy
executed original of such document shall not diminish the binding effect of
receipt of the facsimile transmitted executed original of such document of the
party whose hard copy page was not received by the Administrative Agent.

        (e) This Amendment and the other Amendment Documents contains the entire
and exclusive agreement of the parties hereto with reference to the matters
discussed herein. This Amendment supersedes all prior drafts and communications
with respect hereto. This Amendment may not be amended except in accordance with
the provisions of Section 10.01 of the Credit Agreement.


                                       9.


        (f) If any term or provision of this Amendment shall be deemed
prohibited by or invalid under any applicable law, such provision shall be
invalidated without affecting the remaining provisions of this Amendment, the
Credit Agreement or the Loan Documents.

        (g) The Company agrees to pay or reimburse Bank of America (including in
its capacity as Administrative Agent) and the Lead Arranger, upon demand, for
all reasonable costs and expenses (including reasonable Attorney Costs) incurred
by Bank of America (including in its capacity as Administrative Agent) and the
Lead Arranger in connection with the development, preparation, negotiation,
execution and delivery of the Amendment Documents.

        (h) The Company hereby agrees and covenants that within fifteen (15)
Business Days after the Effective Date it will provide to the Administrative
Agent the consent of each Subsidiary of the Company not previously delivered in
accordance with Section 4(a)(2), in form and substance satisfactory to the
Administrative Agent, which is a Guarantor, a party to a Pledge Agreement or a
party to the Interco Subordination Agreement, in their capacities as such, to
the execution and delivery hereof by the Company. The Company hereby agrees and
acknowledges that any failure on its part to comply with the covenant set forth
in the preceding sentence shall be an immediate Event of Default under the
Credit Agreement.

                            [signature pages follow]



                                      10.


               IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed as of the date first above written.


                                        SOLECTRON CORPORATION


                                        By: /s/ PERRY G. HAYES
                                            ------------------------------------
                                            Name:  Perry G. Hayes
                                            Title: Vice President - Treasury


                                        BANK OF AMERICA, N.A., AS ADMINISTRATIVE
                                        AGENT AND A LENDER


                                        By:
                                            ------------------------------------
                                            Title:



                                      S-1.


               IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed as of the date first above written.


                                        SOLECTRON CORPORATION


                                        By:
                                            ------------------------------------
                                            Name:
                                            Title:


                                        BANK OF AMERICA, N.A., AS ADMINISTRATIVE
                                        AGENT AND A LENDER


                                        By: /s/ JAMES P. JOHNSON
                                            ------------------------------------
                                            Name:  JAMES P. JOHNSON
                                            Title: Managing Director



                                      S-1.


                                        GOLDMAN SACHS CREDIT PARTNERS L.P.,
                                        AS SOLE LEAD ARRANGER, SOLE BOOK RUNNER
                                        AND CO-SYNDICATION AGENT AND A LENDER


                                        By:    /s/  Stephen King
                                            ------------------------------------
                                                    Authorized Signatory



                                      S-2.




                                        THE BANK OF NOVA SCOTIA


                                        By: /s/ KEMP LEONARD
                                            ------------------------------------
                                            Name:  Kemp Leonard
                                            Title: Director



                                      S-3.


                                        BNP PARIBAS


                                        By: /s/ ROBERT MIMAKI
                                            ------------------------------------
                                            Name:  Robert Mimaki
                                            Title: Vice President


                                        By: /s/ RICHARD ONG PHO
                                            ------------------------------------
                                            Name:  Richard Ong Pho
                                            Title: Associate



                                      S-4.


                                        CSAM FUNDING II


                                        By: /s/ ANDREW H. MARSHAK
                                            ------------------------------------
                                            Name:  ANDREW H. MARSHAK
                                            Title: AUTHORIZED SIGNATORY



                                      S-5.


                                        THE DEVELOPMENT BANK OF
                                        SINGAPORE LTD., LOS ANGELES AGENCY


                                        By: /s/ WIL KIM LONG
                                            ------------------------------------
                                            Name:  Wil Kim Long
                                            Title: General Manager



                                      S-6.


                                        FLEET NATIONAL BANK, AS L/C ISSUER
                                        AND A LENDER


                                        By: /s/ GREG ROUX
                                            ------------------------------------
                                            Name:  Greg Roux
                                            Title: Director



                                      S-7.


                                        JPMORGAN CHASE BANK


                                        By: /s/ WILLIAM P. RINDFUSS
                                            ------------------------------------
                                            Name:  William P. Rindfuss
                                            Title: Vice President



                                      S-8.


                                        MORGAN STANLEY
                                        SENIOR FUNDING, INC.


                                        By: /s/ MARK D. CROSS
                                            ------------------------------------
                                            Name:  MARK D. CROSS
                                            Title: VICE PRESIDENT



                                      S-9.


                                        THE ROYAL BANK OF SCOTLAND PLC


                                        By: /s/ RICHARD FREEDMAN
                                            ------------------------------------
                                            Name:  Richard Freedman
                                            Title: Senior Vice-President



                                     S-10.


                                        STANDARD CHARTERED BANK


                                        By: /s/ MARY MACHADO-SCHAMMEL
                                            ------------------------------------
                                            Name:  MARY MACHADO-SCHAMMEL
                                            Title: Sr. Vice President


                                        By: /s/ FRIEDA YOULIOS
                                            ------------------------------------
                                            Name:  FRIEDA YOULIOS
                                            Title: Vice President



                                     S-11.


                                                                       EXHIBIT A


                              CONSENT AND AGREEMENT

                                       OF

                 GUARANTORS, PLEDGORS AND CREDITOR SUBSIDIARIES

               Each of the undersigned, in its capacity as a Guarantor, a party
to the Interco Subordination Agreement and/or the Pledge Agreement, acknowledges
that its consent to the foregoing Amendment Agreement (the "Agreement") is not
required, but each of the undersigned nevertheless does hereby consent to the
foregoing Agreement and to the documents and agreements referred to therein.
Nothing herein shall in any way limit any of the terms or provisions of the
Guaranty of the undersigned, the Interco Subordination Agreement or the Pledge
Agreement executed by the undersigned in the Administrative Agent's and the
Lenders' favor, or any other Loan Document executed by the undersigned (as the
same may be amended from time to time), all of which are hereby ratified and
affirmed in all respects.


                                        THE SUBSIDIARIES LISTED ON SCHEDULE A


                                        By:
                                           ----------------------------------
                                        Title:
                                              -------------------------------



                                                                      SCHEDULE A


American Information and Communications, Inc.
Americom Wireless Services, Inc.
Apex Data, Inc.
Artesyn Solutions, Inc.
C-MAC Credit Corporation
C-MAC Design Corporation
C-MAC Finance LLC
C-MAC Holdings Inc.
C-MAC Interconnect USA Inc.
C-MAC Microtechnology Holdings Inc.
C-MAC Network Systems, Inc.
C-MAC Nevada Inc.
C-MAC Properties, Inc.
C-MAC Quartz Crystals Inc.
C-MAC West Coast Operations, Inc.
Fine Pitch (Morgan Hill) Corporation
Fine Pitch Technology, Inc.
Force Computers, Inc.
Iphotonics, Inc.
Kavlico Corporation
Kavlico International, Inc.
Memquest, Inc.
Metaltek, Inc.
Natsteel Electronics, Inc.
Navox Corporation
Nel (US) Holdings, Inc.
Patria Design, Inc.
Rivus Internet Group, Inc.
Scrantom Engineering, Inc.
Shinei USA, Inc.
Smart Modular Technologies, Inc.
Smart Modular Technologies (MA) Inc.
Smart Modular Technologies (P.R.), Inc.
Solectron California Corporation
Solectron Capital Trust 1
Solectron Federal Systems, Inc.
Solectron Funding Corporation
Solectron Georgia Corporation
Solectron Global Services, Inc.
Solectron Holdings Inc.
Solectron Holdings Ltd.
Solectron International Distribution, Inc.
Solectron Massachusetts Corporation
Solectron Oregon Corporation


                                      A-1


Solectron Puerto Rico, Inc.
Solectron South Carolina Corporation
Solectron Technology, Inc.
Solectron Texas, Inc.
Solectron Texas L.P.
Solectron Washington, Inc.
Stream International L.L.C.
Stream International, Inc.
Stream International Services Corporation
Stream Services, Inc.






                                      A-2


                                                                         Annex I

                 Pricing Grid for Credit Agreement (Three Year)



                                                             APPLICABLE
                                                            LIBO RATE AND       APPLICABLE
                      DEBT RATINGS        APPLICABLE         LETTERS OF       UTILIZATION FEE
 PRICING LEVEL         S&P/MOODY'S     FACILITY FEE RATE   CREDIT FEE RATE         RATE
 -------------        ------------     -----------------   ---------------    ---------------
                                                                  
       1                BBB/Baa2           17.5 bps           70.0 bps           12.5 bps
                       (or better)

       2                BBB-/Baa3          25.0 bps           100.0 bps          25.0 bps

       3                 BB+/Ba1           30.0 bps           120.0 bps          25.0 bps

       4                 BB/Ba2            40.0 bps           135.0 bps          50.0 bps

       5                 BB-/Ba3           50.0 bps           175.0 bps          50.0 bps

       6                  B+/B1            62.5 bps           212.5 bps          50.0 bps
                       (or lower)




                                       I-1


                                                                       EXHIBIT C


                         FORM OF COMPLIANCE CERTIFICATE

                                     Financial Statement Date: ____________, ___

To: Bank of America, N.A., as Administrative Agent

Ladies and Gentlemen:

        Reference is made to that certain 364-Day Credit Agreement, dated as of
February 14, 2002 (as amended, restated, extended, supplemented or otherwise
modified in writing from time to time, the "Agreement"; terms defined therein
being used herein as therein defined), among Solectron Corporation, a Delaware
corporation (the "Borrower"), Goldman Sachs Credit Partners L.P., as sole lead
arranger, sole book runner and co-syndication agent, JPMorgan Chase Bank, as
co-syndication agent, The Bank of Nova Scotia, as documentation agent, each
lender from time to time party thereto (collectively, the "Lenders," and
individually, a "Lender"), and Bank of America, N.A., as Administrative Agent.

        The undersigned Responsible Officer hereby certifies as of the date
hereof that he/she is the _______________ of the Borrower, and that, as such,
he/she is authorized to execute and deliver this Compliance Certificate to the
Administrative Agent on the behalf of the Borrower, and that:

            [Use following for fiscal YEAR-END financial statements]

        1. Attached hereto as Schedule 1 are the year-end audited financial
statements required by Section 6.01(a) of the Agreement for the fiscal year of
the Borrower ended as of the above date, together with the report and opinion of
an independent certified public accountant required by such section.

        2. Attached hereto as Schedule 2 is a list of Material Subsidiaries and
First Tier Foreign Subsidiaries.

           [Use following for fiscal QUARTER-END financial statements]

        1. Attached hereto as Schedule 1 are the unaudited financial statements
required by Section 6.01(b) of the Agreement for the fiscal quarter of the
Borrower ended as of the above date. Such financial statements fairly present
the financial condition, results of operations and cash flows of the Borrower
and its Subsidiaries in accordance with GAAP as at such date and for such
period, subject only to normal year-end audit adjustments and the absence of
footnotes.

        2. Attached hereto as Schedule 2 is a list of Material Subsidiaries and
First Tier Foreign Subsidiaries.


                                      C-1


        3. The undersigned has reviewed and is familiar with the terms of the
Agreement and has made, or has caused to be made under his/her supervision, a
detailed review of the transactions and condition (financial or otherwise) of
the Borrower during the accounting period covered by the attached financial
statements.

        4. A review of the activities of the Borrower during such fiscal period
has been made under the supervision of the undersigned with a view to
determining whether during such fiscal period the Borrower performed and
observed all its Obligations under the Loan Documents, and

                                  [select one:]

[to the knowledge of the undersigned after due inquiry, no Default or Event of
Default exists as of the date hereof]

                                     --or--

        [the following covenants or conditions have not been performed or
observed and the following is a list of each such Default or Event of Default,
its nature and status and the action that the Borrower proposes to take with
respect thereto:]

        5. The representations and warranties contained in Article V of the
Agreement, or which are contained in any document furnished at any time under or
in connection with the Loan Documents, are true and correct in all material
respects on and as of the date hereof, except to the extent that such
representations and warranties specifically refer to an earlier date, in which
case they are true and correct as of such earlier date.

        6. The financial covenant analyses and information set forth on
Schedules 3 and 4 attached hereto are true and accurate on and as of the date of
this Compliance Certificate.


                  (remainder of page intentionally left blank)



                                      C-2


        IN WITNESS WHEREOF, the undersigned has executed this Compliance
Certificate as of ____________, ____________.


                                        By: ____________________________________
                                        Name:
                                        Title:



                                      C-3


                                   SCHEDULE 1
                          to the Compliance Certificate

      For the Quarter/Year ended ___________, ______ (the "Statement Date")

                          [Attach Financial Statements]





                                      C-4


                                   SCHEDULE 2
                          to the Compliance Certificate

      For the Quarter/Year ended ___________, ______ (the "Statement Date")

       List of Material Subsidiaries and First Tier Foreign Subsidiaries:





                                      C-5


                                   SCHEDULE 3
                          to the Compliance Certificate
                                  ($ in 000's)

      For the Quarter/Year ended ___________, ______ (the "Statement Date")


                                                                       
I.      SECTION 7.10 - CAPITAL EXPENDITURES.

(a)     If required to comply with Section 7.10(a):

        For the four-quarter period beginning on September 1, 2001, and each
        four-quarter period beginning on September 1 thereafter.

        A.  Capital expenditures:                                            $
                                                                             ----------

        B.  Capital expenditures permitted to be made:                       $  300,000
                                                                             ----------

        C.  Remaining availability (amount overspent) for
            covenant compliance (Line I.(a).B - I.(a).A):                    $
                                                                             ----------

(b)     If required to comply with Section 7.10(b):

        For the four-quarter period beginning
        immediately after the Cash Interest
        Coverage Ratio Compliance Date, and each
        four-quarter period beginning on the
        twelve month anniversary thereof.

        A.  Capital expenditures:                                            $
                                                                             ----------

        B.  Capital expenditures permitted to be made:                       $  600,000
                                                                             ----------

        C.  Remaining availability (amount overspent) for
            covenant compliance (Line I.(b).B - I.(b).A):                    $
                                                                             ----------

II.     SECTION 7.13(a) - CONSOLIDATED TANGIBLE NET WORTH.

        Actual Consolidated Tangible Net Worth at the
        Statement Date:

        1.  Shareholders' Equity:                                            $
                                                                             ----------

        2.  Intangible Assets:                                               $
                                                                             ----------

        3.  Consolidated Tangible Net Worth
            (Line II.1 - Line II.2)[(1)]:                                    $
                                                                             ----------




- --------
[(1)] To the extent any charge relating to a reduction in goodwill taken by
Borrower and its Subsidiaries on a consolidated basis results in gain or income
relating thereto, then such gain or income shall be excluded from the
calculation of Consolidated Tangible Net Worth as of the Statement Date.


                                      C-6


                                                                       
(i)     If Statement Date is May 31, 2002:

        A.  Minimum required Consolidated
            Tangible Net Worth:                                              $2,000,000
                                                                             ----------

        B.  Excess (deficiency) for covenant compliance
            (Line II.3 - II.(i).A):                                          $
                                                                             ----------

(ii)    If Statement Date is after May 31, 2002:

        A.  Starting figure for Consolidated Tangible Net Worth
            as of the Closing Date[(2)]                                      $
                                                                             ----------

        B.  50% of Consolidated Net Income for each fiscal
            quarter ending after May 31, 2002 (no reduction for
            net losses):                                                     $
                                                                             ----------

        C.  50% of aggregate increases in Shareholders' Equity
            of the Borrower and its Subsidiaries after May 31,
            2002 from issuance and sale of Capital Stock of the
            Borrower (including from conversion of debt
            securities) during any fiscal quarter ending
            subsequent to May 31, 2002:                                      $
                                                                             ----------

        D.  Minimum required Consolidated Tangible Net Worth
            (Lines II.(ii).A + II.(ii).B + II.(ii).C):                       $
                                                                             ----------

        E.  Excess (deficiency) for covenant compliance
            (Line II.3 - II.(ii).D):                                         $
                                                                             ----------

III.    SECTION 7.13(b) - CASH INTEREST COVERAGE RATIO.

        A.  Consolidated EBITDA for four consecutive fiscal quarters
            ending on the Statement Date ("Subject Period"):

            1.  Consolidated Net Income for Subject Period:                  $
                                                                             ----------

            2.  Consolidated Interest Charges for Subject
                Period: $______

            3.  Provision for income taxes for Subject Period:               $
                                                                             ----------

            4.  Depreciation expenses for Subject Period:                    $
                                                                             ----------

            5.  Amortization expenses for intangibles for
                Subject Period:                                              $
                                                                             ----------

            6.  Consolidated EBITDA (sum of Lines III.A.1
                through III.A.5):                                            $
                                                                             ----------



- --------
[(2)] In the case of the fiscal quarter ending August 31, 2002, insert
$1,850,000,000.00; and in the case of any fiscal quarter ending after August 31,
2002, insert $1,800,000,000.00.


                                      C-7


                                                                       
        B.  Non-Cash Restructuring Charges deducted in
            calculating Consolidated Net Income for Subject Period:          $
                                                                             ----------

        C.  Cash Restructuring Charges deducted in calculating
             Consolidated Net Income for Subject Period:[(3)]

        D.  Consolidated Cash Interest Charges for Subject Period:           $
                                                                             ----------

        E.  Cash Interest Coverage Ratio ((Line III.A.6 + Line III.B
            + Line III.C) / Line III.D):                                     ___ to 1.0

            Minimum required:                                                ___ to 1.0

IV.     SECTION 7.13(c) - CONSOLIDATED INDEBTEDNESS TO
        CAPITALIZATION RATIO.

        A.  Consolidated Indebtedness at the Statement Date:                 $
                                                                             ----------

        B.  Shareholders' Equity at the Statement Date:                      $
                                                                             ----------

        C.  Consolidated Indebtedness to Capitalization Ratio (Line IV.A /
            (Line IV.A + Line IV.B)):                                        ___ to 1.0

            Maximum permitted:                                               0.5 to 1.0

V.      SECTION 7.13(d) - LIQUIDITY RATIO.

        A.  Cash and cash equivalents not subject to a Lien as of
            the Statement Date

            1.  Cash-on-hand:                                                $
                                                                             ----------

            2.  Cash equivalents:                                            $
                                                                             ----------

            3.  Marketable securities:                                       $
                                                                             ----------

            4.  Accounts receivable:                                         $
                                                                             ----------

            5.  Cash and cash equivalents not
                subject to a Lien
                (sum of Lines V.A.1 through V.A.4):                          $
                                                                             ----------

        B.  Consolidated Indebtedness and accounts payable as of the
            Statement Date

            1.  Accounts payable:                                            $
                                                                             ----------

            2.  Consolidated Indebtedness:                                   $
                                                                             ----------



- --------
[(3)] The cumulative aggregate amount of Cash Restructuring Charges taken in
fiscal quarters ending on or after May 31, 2002 but on or prior to August 29,
2003 and which are included in calculating the Cash Interest Coverage Ratio
shall not exceed $235,000,000.



                                      C-8


                                                                       
            3.  Consolidated Indebtedness and accounts
                payable (Line V.B.1 + Line V.B.2):                           $
                                                                             ----------

        C.  Excluded Indebtedness as of the Statement Date

            1.  Subordinated Indebtedness:                                   $
                                                                             ----------

            2.  Indebtedness under the LYONS:                                $
                                                                             ----------

            3.  Attributable Indebtedness in respect of capital
                leases and Synthetic Lease Obligations which
                are fully cash collateralized:                               $
                                                                             ----------

            4.  Indebtedness described under clause (b) of the
                definition of "Indebtedness" (unless and until
                any such Indebtedness constitutes a matured
                reimbursement obligation or matured
                payment obligation and is no longer
                contingent):                                                 $
                                                                             ----------

            5.  Excluded Indebtedness
                (sum of Lines V.C.1 through Line V.C.4):                     $
                                                                             ----------

        D.  Liquidity Ratio ((Line V.A.5) /
            (Line V.B.3 - Line V.C.5))                                     ____ to 1.00

            Minimum required:                                              1.20 to 1.00

        Attached hereto is a schedule of marketable securities and their
        associated values included in Line V.A.3 above.





                                      C-9


                                   SCHEDULE 4
                          to the Compliance Certificate


        For the Quarter/Year ended ________, ____ (the "Statement Date")




          [Attach list of marketable securities and associated values.]


                                      C-10