-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Dy/oePkC0uZdqeOQrxF4Cuc+aqEbYhBRgTUR+h0avaavalOwUO+vMSCbYUuLLVnB xMDlvuDLmCFtf6JW0u/YNA== 0000891618-01-501490.txt : 20010702 0000891618-01-501490.hdr.sgml : 20010702 ACCESSION NUMBER: 0000891618-01-501490 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010629 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLEXTRONICS INTERNATIONAL LTD CENTRAL INDEX KEY: 0000866374 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 000000000 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-23354 FILM NUMBER: 1672865 BUSINESS ADDRESS: STREET 1: 11 UBI ROAD 1 STREET 2: #07 01 02 MEIBAN INDUSTRIAL BLDG CITY: SINGAPORE 408723 STATE: U0 BUSINESS PHONE: 0654495255 FORMER COMPANY: FORMER CONFORMED NAME: FLEX HOLDINGS PTE LTD DATE OF NAME CHANGE: 19940201 10-K 1 f73624e10-k.txt FORM 10-K FISCAL YEAR ENDED MARCH 31, 2001 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K ---------------- (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 2001 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 000-23354 FLEXTRONICS INTERNATIONAL LTD. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) SINGAPORE NOT APPLICABLE (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 11 UBI ROAD 1, #07-01/02 MEIBAN INDUSTRIAL BUILDING SINGAPORE 408723 (65) 844-3366 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: ORDINARY SHARES, S$0.01 PAR VALUE Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of June 21, 2001, 482,431,643 shares of the Registrant's common stock were outstanding. The aggregate market value of the common stock held by shareholders other than our executive officers, directors and 10% or greater shareholders of the Registrant as of June 21, 2001 was approximately $10.8 billion. ================================================================================ 2 TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business................................................................................... 3 Item 2. Properties................................................................................. 15 Item 3. Legal Proceedings.......................................................................... 16 Item 4. Submission of Matters to a Vote of Security Holders........................................ 16 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.................. 16 Item 6. Selected Financial Data.................................................................... 19 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 20 Item 7A. Quantitative and Qualitative Disclosures About Market Risk................................. 28 Item 8. Financial Statements and Supplementary Data................................................ 30 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....... 56 PART III Item 10. Directors and Executive Officers of the Registrant......................................... 56 Item 11. Executive Compensation..................................................................... 58 Item 12. Security Ownership of Certain Beneficial Owners and Management............................. 61 Item 13. Certain Relationships and Related Transactions............................................. 63 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................... 65
3 PART I ITEM 1. BUSINESS Except for historical information contained herein, the matters discussed in this annual report on Form 10-K are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. The words "will," "may," "designed to," "outlook," "believes," "should," "anticipates," "plans," "expects," "intends," "estimates" and similar expressions identify forward-looking statements, which speak only as of the date of this annual report. These forward-looking statements are contained principally under Item 1, "Business," and Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." Because these forward-looking statements are subject to certain risks and uncertainties, actual results could differ materially from the expectations expressed in the forward-looking statements. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements include those described in this section under "Risk Factors," including, - our ability to integrate acquired companies and manage change in our operations; - fluctuations in our customers' requirements and demand for their products; - increased competition; - tax matters; and - currency fluctuations. We undertake no obligation to update or revise these forward-looking statements to reflect subsequent events or circumstances. OVERVIEW Flextronics International Ltd. ("Flextronics") was incorporated in the Republic of Singapore in May 1990. We are a leading provider of electronics manufacturing services to original equipment manufacturers ("OEMs"), primarily in the telecommunications, networking, consumer electronics and computer industries. We provide a network of design, engineering and manufacturing operations in 27 countries across four continents. Our strategy is to provide customers with end-to-end solutions where we take responsibility for engineering, new product introduction and implementation, manufacturing, supply chain management and logistics management, with the goal of delivering a complete packaged product. Our manufacturing services include the fabrication and assembly of plastic and metal enclosures, printed circuit boards or PCBs, backplanes and the assembly of complete systems and products. In addition, through our photonics division, we manufacture and assemble photonics components and integrate them into PCB assemblies and other systems. Throughout the production process, we offer design and technology services; logistics services, such as materials procurement, inventory management, vendor management, packaging and distribution; and automation of key components of the supply chain through advanced information technologies. In addition, we have added other after-market services such as network installation. Through a combination of internal growth and acquisitions, we have become one of the world's largest electronics manufacturing services ("EMS") providers, with revenues of $12.1 billion and EBITDA (earnings before interest, tax, depreciation and amortization, excluding unusual charges) of $838.0 million in fiscal 2001. In addition, we have increased our manufacturing square footage from 1.5 million square feet on April 1, 1998 to over 16.0 million square feet on March 31, 2001. We offer a complete and flexible manufacturing solution that provides accelerated time-to-market and time-to-volume production, reduced production costs and advanced engineering and design capabilities. By working closely with and being highly responsive to customers throughout the design, manufacturing and distribution process, we believe that we can be an integral part of their operations. We believe that our size, global presence, broad service offerings and expertise enable us to win large programs from leading multinational OEMs for the manufacture of electronic products. 3 4 Our customers include industry leaders such as Alcatel, Cabletron Systems, Cisco Systems, Inc., Ericsson Telecom AB ("Ericsson"), Hewlett-Packard Company, Microsoft Corporation, Motorola, Inc. ("Motorola"), Nokia Corporation, Palm, Inc., Philips Electronics and Siemens AG. Due to our focus on high growth technology sectors, our prospects are influenced by such major trends as the upgrade of the communications and Internet infrastructure, the proliferation of wireless and optical devices, increasing product miniaturization and other trends in electronics technologies. In addition, our growth is affected by the pace at which leading OEMs are continuing to adopt outsourcing as a core business strategy. We have established an extensive network of manufacturing facilities in the world's major electronics markets, the Americas, Asia and Europe, in order to serve the increased outsourcing needs of both multinational and regional OEMs. Moreover, we strategically locate facilities near our customers and their end markets. In fiscal 2001, production in the Americas, Asia and Europe, represented 42%, 21% and 37% of our net sales, respectively. We have also established fully integrated, high volume industrial parks in low-cost regions near our customers' end markets. These industrial parks provide total supply chain management by co-locating our manufacturing and distribution operations with our suppliers at a single location. This approach to production and distribution is designed to benefit our customers by reducing logistical barriers and costs, increasing flexibility, lowering transportation costs and reducing turnaround times. Our industrial parks are located in Brazil, China, Hungary, Mexico and Poland. In addition to our industrial parks, we have established product introduction centers which provide engineering expertise in developing new products and preparing them for high volume manufacturing. INDUSTRY OVERVIEW With electronic products growing in technical complexity and experiencing shorter product lifecycles in response to customer requirements, the demand for advanced manufacturing capabilities and related services has grown rapidly. Many OEMs in the electronics industry are increasingly utilizing EMS providers in their business and manufacturing strategies. Outsourcing allows OEMs to take advantage of the manufacturing expertise and capital investments of EMS providers, thereby enabling OEMs to concentrate on their core competencies, such as product development, marketing and sales. We believe that by developing strategic relationships with EMS providers, OEMs can enhance their competitive position by: - reducing production costs; - accelerating time-to-market and time-to-volume production; - accessing advanced manufacturing, design and engineering capabilities; - reducing capital investment requirements and fixed overhead costs; - improving inventory management and purchasing power; and - accessing worldwide manufacturing capabilities. We believe that the market for electronics manufacturing services will continue to grow, driven largely by OEMs' need for increasing flexibility to respond to rapidly changing markets, technologies and accelerating product life cycles, in addition to advanced manufacturing and engineering capabilities as a result of increased complexity and reduced size of electronic products. STRATEGY Our objective is to provide customers with the ability to outsource, on a global basis, a complete product. We intend to achieve this objective by taking responsibility for the engineering, assembly, integration, test, supply chain management and logistics management to accelerate their time-to-market and time-to-volume. To achieve this objective, we will continue to implement the following strategies: Enhance Our Customers' Product Development and Manufacturing Strategy. We believe we can become an integral part of our customers' operations by working closely with them throughout the design, manufacturing and distribution process, and by offering flexible, highly responsive services. We believe our customer relationships 4 5 are strengthened through a management approach which fosters rapid decision-making and a customer service orientation that responds quickly to frequently changing customer design specifications and production requirements. Our approach allows our customers to focus on their core competencies and thus enables them to accelerate their time-to-market and time-to-volume production. Leverage Our Global Presence. We have established an extensive network of design and manufacturing facilities in the world's major electronics markets, the Americas, Asia and Europe, to serve the increased outsourcing needs of both multinational and regional OEMs. Our global network of manufacturing facilities in 27 countries gives us the flexibility to transition customer projects to any of our locations. This flexibility allows design, prototyping and initial production to be located near the customer's own research and development centers, so that manufacturing can then be moved to locations closer to their end markets, or transitioned to low-cost regional manufacturing facilities or industrial parks as volumes increase over the product life-cycle. Expand Our Industrial Parks Strategy. Our industrial parks are self-contained facilities that co-locate our manufacturing and distribution operations with our suppliers in low-cost regions near our customers' end markets. Our industrial parks provide a total supply chain management. This approach to production and distribution benefits our customers by reducing logistical barriers and costs, improving communications, increasing flexibility, lowering transportation costs and reducing turnaround times. We have strategically established large industrial parks in Brazil, China, Hungary, Mexico and Poland. Offer Comprehensive Solutions. We offer a comprehensive range of engineering, assembly, integration, test, supply chain management and logistics management services to our customers that simplify the global product development process and provide them meaningful cost savings. Our capabilities help our customers improve product quality and performance, reduce costs and accelerate time-to-market. Streamline Business Processes Through Information Technologies. We utilize new information technologies to streamline business processes for our customers. For example, we use innovative Internet supply chain solutions to improve order placement, tracking and fulfillment. We are also able to provide our customers with online access to product design and manufacturing process information. Integrating our information systems with those of our customers allows us to assist our customers in improving their communications and relationships across their supply chain. Pursue Strategic Opportunities. We have actively pursued acquisitions and purchases of manufacturing facilities to expand our worldwide operations, broaden our service offering, diversify and strengthen our customer relationships and enhance our management depth. We will continue to review opportunities and are currently in preliminary discussions to acquire manufacturing operations and enter into business combinations. We cannot assure the terms of, or that we will complete, such transactions. We will continue to selectively pursue strategic transactions that we believe will further our business objectives. We cannot assure that our strategies can be successfully implemented, or will reduce the risks associated with our business. EXPANSION We have actively pursued mergers and other business acquisitions to expand our global reach, manufacturing capacity and service offerings, in addition to diversifying and strengthening customer relationships. These acquisitions have enabled us to provide more integrated outsourcing technology solutions with time-to-market and lower cost advantages. Acquisitions have also played an important part in expanding our presence in the global electronics marketplace. We have completed several significant business combinations since the end of fiscal 2000. In fiscal 2001, we acquired all the outstanding shares of The DII Group, Inc. ("DII"), Palo Alto Products International Pte. Ltd. ("Palo Alto Products International"), Chatham Technologies, Inc. ("Chatham"), Lightning Metal Specialties and related entities ("Lightning") and JIT Holdings Ltd. ("JIT"). Each of these acquisitions were accounted for as pooling of interests. Additionally, we have completed other immaterial pooling of interests transactions in fiscal 2001. We have also made a number of business acquisitions which were accounted for using the purchase method. In addition, we have purchased a number of manufacturing facilities and related assets from customers and simultaneously entered into manufacturing agreements to provide electronics design, assembly and test services to these customers. In fiscal 2001, we purchased a facility in Italy from Siemens Mobile, a facility in 5 6 Switzerland from Ascom, a facility in Denmark from Bosch Telecom GmbH and a facility in Sweden from Ericsson Radio AB. In the first quarter of fiscal 2002, we commenced management of the operations of Ericsson's mobile telephone operations using facilities owned by Ericsson in Brazil, Great Britain, Malaysia and Sweden, as well as our own facilities. In connection with this relationship, we purchased certain equipment, inventory and other assets, and assumed certain accrued expenses, from Ericsson at their net book value of approximately $450.0 million. Additionally, in the first quarter of fiscal 2002, we announced our intentions to purchase a manufacturing facility and related assets from Alcatel located in Laval, France. By enhancing our capability to provide a wide range of related electronics design and manufacturing services to a global market that is increasingly dependent on outsourcing providers, these acquisitions have enabled us to enhance our competitive position as a leading provider of comprehensive outsourcing technology solutions. For more information on our acquisitions, please see Item 7, " Management's Discussion and Analysis of Financial Condition and Results of Operations--Acquisitions." CUSTOMERS Our customers consist of a select group of OEMs primarily in the telecommunications, networking, consumer electronics and computer industries. Within these industries, our strategy is to establish relationships with leading companies that seek to outsource significant production volumes of complex products. We have focused on building long-term relationships with these customers and expanding our relationship to include additional product lines and services. We have increasingly focused on sales to larger companies and to customers in the telecommunications, networking, consumer electronics and computer industries. In fiscal 2001, our ten largest customers accounted for approximately 59% of our net sales. No customer accounted for more than 10% of net sales in fiscal 2001. The following table lists in alphabetical order some of our largest customers in fiscal 2001 and the products of those customers for which we provide manufacturing services:
CUSTOMER END PRODUCTS - -------- ------------ Alcatel Cellular phones, accessories and telecommunications infrastructure Cabletron Systems Data communications products Cisco Systems, Inc. Data communications products Ericsson Telecom AB Cellular phones, business telecommunications systems and GSM infrastructure Hewlett-Packard Company Inkjet printers and storage devices Motorola, Inc. Cellular phones, set-top boxes and telecommunications infrastructure Nokia Corporation Cellular phone accessories, cellular phones, office phones and telecommunications infrastructure Palm, Inc. Pilot electronic organizers Philips Electronics Consumer electronics products Siemens AG Cellular phones and telecommunications infrastructure
On May 30, 2000, we entered into a strategic alliance for product manufacturing with Motorola. In connection with this strategic alliance, Motorola paid $100.0 million for an equity instrument that provided it with incentives to purchase products and services from us by entitling it to acquire 22,000,000 of our ordinary shares at any time through December 31, 2005 upon meeting targeted purchase levels of up to $32.0 billion or making additional payments to us. In June 2001, we entered into an agreement with Motorola under which we repurchased this equity instrument for $112.0 million. No current or planned manufacturing programs are affected by this repurchase and we anticipate that Motorola will continue to be a customer following the repurchase, although our future revenue from Motorola may be less than it would have been had this instrument remained in effect. 6 7 In April 2001, we entered into a definitive agreement with Ericsson with respect to our management of the operations of Ericsson's mobile telephone operations. Operations under this arrangement commenced in the first quarter of fiscal 2002. Under this agreement, we are to provide a substantial portion of Ericsson's mobile phone requirements. We assumed responsibility for product assembly, new product prototyping, supply chain management and logistics management, in which we process customer orders from Ericsson and configure and ship products to Ericsson's customers. We expect to also provide PCBs and plastics, primarily from our Asian operations. SALES AND MARKETING We achieve worldwide sales coverage through a direct sales force, which focuses on generating new accounts, and through program managers, who are responsible for managing relationships with existing customers and making follow-on sales. Our Asian sales offices are located in Hong Kong and Singapore. In North America, we maintain sales offices in California, Florida, Massachusetts and Texas. In Europe, we maintain sales offices in England, France, Germany, the Netherlands and Sweden. In addition to our sales force, our executive staff plays an integral role in our sales efforts. SERVICES We offer a broad range of integrated services, providing customers with a total design and manufacturing solution that takes a product from its initial design through volume production, test, distribution and into post-sales service and support. We operate and are managed internally by four geographic business segments, including Asia, the Americas, Western Europe and Central Europe. For additional information on these geographic business segments, please see Note 12, "Segment Reporting," of the Notes to Consolidated Financial Statements in Item 8, "Financial Statements and Supplementary Data." Our integrated services include the following: Flextronics Systems Assembly. Our assembly and manufacturing operations, which reflect the majority of our revenues, include PCB assembly, assembly of systems, and subsystems that incorporate PCBs and complex electromechanical components. A substantial portion of our net sales is derived from the manufacture and assembly of complete products. We employ just-in-time, ship-to-stock and ship-to-line programs, continuous flow manufacturing, demand flow processes and statistical process controls. As OEMs seek to provide greater functionality in smaller products, they increasingly require more sophisticated manufacturing technologies and processes. Our investment in advanced manufacturing equipment and our experience and expertise in innovative miniaturization, packaging and interconnect technologies, such as chip scale packaging, chip-on-board and ball grid array, enable us to offer a variety of advanced manufacturing solutions. In addition, we have recently developed significant expertise in the manufacture of wireless communications products employing radio frequency technology. We offer computer-aided testing of assembled PCBs, systems and subsystems, which contributes significantly to our ability to deliver high-quality products on a consistent basis. Our test capabilities include management defect analysis, in-circuit tests and functional tests. In addition, we also provide environmental stress tests of board or system assemblies. Multek. Multek provides PCB and backpanel fabrication services. PCBs and backpanels are platforms which provide interconnection for integrated circuits and other electronic components. Backpanels also provide interconnection for other printed circuit boards. Semiconductor designs are currently so complex that they often require printed circuit boards with many layers of narrow, densely spaced wiring. We manufacture high density, complex multilayer printed circuit boards and backpanels on a low-volume, quick-turn basis, as well as on a high-volume production basis. Our quick-turn prototype service allows us to provide small test quantities to customers' product development groups in as short as 24 hours. We are one of only a few independent manufacturers who can respond to our customers' demands for an accelerated transition from prototype to volume production, and are the only major PCB supplier with fabrication service capabilities on four major continents (North America, South America, Europe and Asia). The manufacture of complex multilayer interconnect products often requires the use of sophisticated circuit interconnections between layers, referred to as vias, and adherence to strict electrical characteristics to maintain 7 8 consistent circuit transmission speeds. Our production of microvias, by laser ablation and our surface laminar circuit technology, a photo generated microvia capability, provides our customers with proven high volume production capacity in both of the major high density interconnect process solutions. Flextronics Enclosures. We offer a comprehensive set of custom electronic enclosures and related products and services worldwide. Our services include design, manufacturing and integration of electronics packaging systems from custom enclosure systems, power and thermal subsystems to interconnect subsystems, cabling and cases. In addition to the typical sheet metal and plastic fabrication, we assist in the design of electronic packaging systems that protect sensitive electronics and enhance functionality. Our enclosure design services focus on functionality, manufacturability and testing. These services are integrated with our other services to provide our customers with greater responsiveness, improved logistics and overall improved supply chain management. Flextronics Design Services. We offer a comprehensive spectrum of value-added design services for products we manufacture for our customers from product design services (hardware, software, mechanical and test) to semiconductor design. Products designed by this group range from commercial and military applications, including radio frequency analog, high-speed digital, multi-chip module and flex circuits to high volume consumer products and small quantity prototypes. We work with our customers to develop product-specific test strategies and can custom design test equipment and software ourselves or use test equipment and software provided by our customers. Additionally, a significant competitive differentiator we possess is our semiconductor design group. We provide ASIC design services to our OEM customers, which include: - Conversion services from field programmable gate arrays to ASICs. These services focus on designs that utilize primarily digital signals, with only a small amount of analog signals. - Design services for mixed-signal ASICs. These services focus on designs that utilize primarily analog signals, with only a small amount of digital signals. - Silicon integration design services. These services utilize silicon design modules that are used to accelerate complex ASIC designs, including system-on-a-chip. Our semiconductor design group utilizes external foundry suppliers for its customers' silicon manufacturing requirements, thereby using a "fabless" manufacturing approach. This enables us to take advantage of the suppliers' high volume economies of scale and access to advanced process technology. We believe that our semiconductor design expertise provides us with a competitive advantage by enabling us to offer our customers reduced costs through the consolidation of components onto silicon chips. Additionally, by integrating the combined capabilities of design, engineering and semiconductor services, we can compress the time from product concept to market introduction and minimize product development costs. To assist customers with initial design, we provide computer-aided engineering and computer-aided design, engineering for manufacturability, printed circuit board layout and test development. At our product introduction centers, we employ hundreds of advanced engineers to provide the engineering expertise in developing new products and preparing them for high volume manufacturing. These centers coordinate and integrate our worldwide design, prototype, test development practices and, in some locations, provide dedicated production lines for prototypes. Flextronics Photonics. We provide design, industrialization, supply chain management and manufacturing services for the optical component and optical networking industries. We offer a broad range of photonic packaging design and industrialization services to assist in bringing products from schematics to shipment while meeting our customers time-to-market objectives. As the world's largest non-captive photonic component manufacturer, we offer leading edge process development and volume manufacturing of active and passive photonic devices. Flextronics Network Services. We offer network installation services to OEMs in the data and telecommunications industries. Our services include project planning, documentation, engineering, production, installation and commissioning of equipment. We have expertise in the installation of public and mobile telecommunications systems, exchanges, corporate networks and peripheral equipment. 8 9 Supply Chain Services. We provide materials procurement, information technology solutions and logistics. Materials procurement and management consist of the planning, purchasing, expediting and warehousing of components and materials used in the manufacturing process. Our inventory management expertise and volume procurement capabilities contribute to cost reductions and reduce total cycle time. Our industrial parks include providers of many of the custom components that we use to reduce material and transportation costs, simplify logistics and facilitate inventory management. We also use sophisticated automated manufacturing resources planning systems and enhanced electronic data interchange capabilities to ensure inventory control and optimization. Through our manufacturing resources planning system, we have real-time visibility on material availability and real-time tracking of work in process. We also utilize electronic data interchange with our customers and suppliers to implement a variety of supply chain management programs. Electronic data interchange allows customers to share demand and product forecasts and deliver purchase orders while also assisting suppliers with just-in-time delivery and supplier-managed inventory. We offer our customers flexible, just-in-time delivery programs allowing product shipments to be closely coordinated with customers' inventory requirements. Increasingly, we ship products directly into customers' distribution channels or directly to the end-user. We believe that this service can provide our customers with a more comprehensive solution and enable them to be more responsive to market demands. Flextronics Logistics. We provide global logistics services and turnkey supply chain solutions for our customers. Our worldwide logistics services include freight forwarding, warehousing/inventory management and outbound/e-commerce solutions through our global supply chain network. We leverage new technologies such as XML links to factories, extranet-based management, vendor managed inventory and build-to-order programs, to simultaneously connect suppliers, manufacturing operations and OEM customers. By joining these logistics solutions with worldwide manufacturing operations and total supply chain management, we can significantly reduce market costs and can create tightly integrated processes and facilities worldwide. Moreover, the combination of these capabilities allows us to react quickly to demand signals from our customers worldwide, creating innovative links to suppliers while serving the world market. BACKLOG Although we obtain firm purchase orders from our customers, OEM customers typically do not make firm orders for delivery of products more than 30 to 90 days in advance. We do not believe that the backlog of expected product sales covered by firm purchase orders is a meaningful measure of future sales since orders may be rescheduled or canceled. COMPETITION The EMS industry is extremely competitive and includes hundreds of companies, several of whom have achieved substantial market share. We compete with different companies, depending on the type of service or geographic area. We compete against numerous domestic and foreign EMS providers, and current and prospective customers also evaluate our capabilities against the merits of internal production. In addition, in recent years the EMS industry has attracted a significant number of new entrants, including large OEMs with excess manufacturing capacity, and many existing participants, including us, have significantly increased their manufacturing capacity by expanding their facilities and adding new facilities. In the event of a decrease in overall demand for electronics manufacturing services, this increased capacity could result in substantial pricing pressures which could harm our operating results. Some of our competitors, may have greater manufacturing, financial or other resources than us. As competitors increase the scale of their operations, they may increase their ability to realize economies of scale, to reduce their prices and to more effectively meet the needs of large OEMs. We believe that the principal competitive factors in the segments of the EMS industry in which we operate are cost, technological capabilities, responsiveness and flexibility, delivery cycles, location of facilities, product quality and range of services available. Failure to satisfy any of the foregoing requirements could seriously harm our business. ENVIRONMENTAL REGULATION Our operations are subject to certain federal, state and local regulatory requirements relating to the use, storage, discharge and disposal of hazardous chemicals used during their manufacturing processes. We believe that our operations are currently in compliance with applicable regulations and do not believe that costs of compliance with these laws and regulations will have a material effect upon our capital expenditures, operating results or 9 10 competitive position. Currently we have no commitments with environmental authorities regarding any compliance related matters. We determine the amount of our accruals for environmental matters by analyzing and estimating the range of possible costs in light of information currently available. The imposition of more stringent standards or requirements under environmental laws or regulations, the results of future testing and analysis undertaken by us at our operating facilities, or a determination that we are potentially responsible for the release of hazardous substances at other sites could result in expenditures in excess of amounts currently estimated to be required for such matters. No assurance can be given that actual costs will not exceed amounts accrued or that costs will not be incurred with respect to sites as to which no problem is currently known. Further, there can be no assurance that additional environmental matters will not arise in the future. EMPLOYEES As of March 31, 2001, our global workforce totaled approximately 75,000 employees. We have never experienced a work stoppage or strike and we believe that our employee relations are good. Our success depends to a large extent upon the continued services of key managerial and technical employees. The loss of such personnel could seriously harm our business, results of operations, prospects and debt service ability. To date, we have not experienced significant difficulties in attracting or retaining such personnel. Although we are not aware that any of our key personnel currently intend to terminate their employment, we cannot assure you of their future services. RISK FACTORS IF WE DO NOT MANAGE EFFECTIVELY THE EXPANSION OF OUR OPERATIONS, OUR BUSINESS MAY BE HARMED. We have grown rapidly in recent periods. Our workforce has more than doubled in size over the last year as a result of internal growth and acquisitions. This growth is likely to strain considerably our management control systems and resources, including decision support, accounting management, information systems and facilities. If we do not continue to improve our financial and management controls, reporting systems and procedures to manage our employees effectively and to expand our facilities, our business could be harmed. We plan to increase our manufacturing capacity in low-cost regions by expanding our facilities and adding new equipment. This expansion involves significant risks, including, but not limited to, the following: - we may not be able to attract and retain the management personnel and skilled employees necessary to support expanded operations; - we may not efficiently and effectively integrate new operations and information systems, expand our existing operations and manage geographically dispersed operations; - we may incur cost overruns; - we may encounter construction delays, equipment delays or shortages, labor shortages and disputes and production start-up problems that could harm our growth and our ability to meet customers' delivery schedules; and - we may not be able to obtain funds for this expansion, and we may not be able to obtain loans or operating leases with attractive terms. In addition, we expect to incur new fixed operating expenses associated with our expansion efforts that will increase our cost of sales, including substantial increases in depreciation expense and rental expense. If our revenues do not increase sufficiently to offset these expenses, our operating results would be seriously harmed. Our expansion, both through internal growth and acquisitions, has contributed to our incurring significant unusual charges. For example, in connection with our acquisitions of DII, Palo Alto Products International, Chatham, Lightning and JIT, we recorded merger related charges and related facility closure costs of approximately $258.7 10 11 million, net of tax, and in connection with the issuance of an equity instrument to Motorola relating to our strategic alliance, we recorded a one-time non-cash charge of approximately $286.5 million. WE DEPEND ON THE TELECOMMUNICATIONS, NETWORKING, ELECTRONICS AND COMPUTER INDUSTRIES WHICH CONTINUALLY PRODUCE TECHNOLOGICALLY ADVANCED PRODUCTS WITH SHORT LIFE CYCLES; OUR INABILITY TO CONTINUALLY MANUFACTURE SUCH PRODUCTS ON A COST-EFFECTIVE BASIS WOULD HARM OUR BUSINESS. We depend on sales to customers in the telecommunications, networking, electronics and computer industries. Factors affecting these industries in general could seriously harm our customers and, as a result, us. These factors include: - the inability of our customers to adapt to rapidly changing technology and evolving industry standards, which results in short product life cycles; - the inability of our customers to develop and market their products, some of which are new and untested, the potential that our customers' products may become obsolete or the failure of our customers' products to gain widespread commercial acceptance; and - recessionary periods in our customers' markets. If any of these factors materialize, our business would suffer. Currently, many sectors of the telecommunications, networking, electronics and computer industries are experiencing a significant decrease in demand for their products and services, which has led to reduced demand for the services provided by EMS companies. These changes in demand and generally uncertain economic conditions have resulted, and may continue to result, in some customers deferring delivery schedules for some of the products that we manufacture for them, which could affect our results of operations. Further, a protracted downturn in these industries could have a significant negative impact on our business, financial condition and results of operation. OUR CUSTOMERS MAY CANCEL THEIR ORDERS, CHANGE PRODUCTION QUANTITIES OR DELAY PRODUCTION. EMS providers must provide increasingly rapid product turnaround for their customers. We generally do not obtain firm, long-term purchase commitments from our customers and we continue to experience reduced lead-times in customer orders. Customers may cancel their orders, change production quantities or delay production for a number of reasons. The generally uncertain economic condition of several of the industries of our customers has resulted, and may continue to result, in some of our customers delaying the delivery of some of the products we manufacture for them. Cancellations, reductions or delays by a significant customer or by a group of customers would seriously harm our results of operations. In addition, we make significant decisions, including determining the levels of business that we will seek and accept, production schedules, component procurement commitments, personnel needs and other resource requirements, based on our estimates of customer requirements. The short-term nature of our customers' commitments and the possibility of rapid changes in demand for their products reduce our ability to estimate accurately future customer requirements. This makes it difficult to schedule production and maximize utilization of our manufacturing capacity. We often increase staffing, purchase materials and incur other expenses to meet the anticipated demand of our customers. Anticipated orders may not materialize, and delivery schedules may be deferred as a result of changes in demand for our customers' products. On occasion, customers may require rapid increases in production, which can stress our resources and reduce margins. Although we have increased our manufacturing capacity, and plan further increases, we may not have sufficient capacity at any given time to meet our customers' demands. In addition, because many of our costs and operating expenses are relatively fixed, a reduction in customer demand could harm our gross profit and operating income. OUR OPERATING RESULTS VARY SIGNIFICANTLY. We experience significant fluctuations in our results of operations. The factors that contribute to fluctuations include: - the timing of customer orders; 11 12 - the volume of these orders relative to our capacity; - market acceptance of customers' new products; - changes in demand for customers' products and product obsolescence; - our ability to manage the timing and amount of our procurement of components to avoid delays in production and excess inventory levels; - the timing of our expenditures in anticipation of future orders; - our effectiveness in managing manufacturing processes and costs; - changes in the cost and availability of labor and components; - changes in our product mix; - changes in economic conditions; - local factors and events that may affect our production volume, such as local holidays; and - seasonality in customers' product requirements. One of our significant end-markets is the consumer electronics market. This market exhibits particular strength toward the end of the calendar year in connection with the holiday season. As a result, we have historically experienced relative strength in revenues in our fiscal third quarter. We are reconfiguring certain of our operations to further increase our concentration in low-cost locations. This shift of operations resulted in a restructuring charge of $275.6 million, net of tax, in the fourth quarter of fiscal 2001, and may result in additional restructuring charges in fiscal 2002. In addition, some of our customers are currently experiencing increased volatility in demand, and in some cases reduced demand, for their products. This increases the difficulty of anticipating the levels and timing of future revenues from these customers, and could lead them to defer delivery schedules for products, which could lead to a reduction or delay in such revenues. Any of these factors or a combination of these factors could seriously harm our business and result in fluctuations in our results of operations. WE MAY ENCOUNTER DIFFICULTIES WITH ACQUISITIONS, WHICH COULD HARM OUR BUSINESS. In the past year, we completed a significant number of acquisitions of businesses and facilities, including our acquisitions of DII, Palo Alto Products International, Chatham, Lightning and JIT. We expect to continue to acquire additional businesses and facilities in the future and are currently in preliminary discussions to acquire additional businesses and facilities. Any future acquisitions may require additional debt or equity financing, which could increase our leverage or be dilutive to our existing shareholders. We cannot assure the terms of, or that we will complete, any acquisitions in the future. To integrate acquired businesses, we must implement our management information systems and operating systems and assimilate and manage the personnel of the acquired operations. The difficulties of this integration may be further complicated by geographic distances. The integration of acquired businesses may not be successful and could result in disruption to other parts of our business. In addition, acquisitions involve a number of other risks and challenges, including, but not limited to: - diversion of management's attention; - potential loss of key employees and customers of the acquired companies; - lack of experience operating in the geographic market of the acquired business; and 12 13 - an increase in our expenses and working capital requirements. Any of these and other factors could harm our ability to achieve anticipated levels of profitability at acquired operations or realize other anticipated benefits of an acquisition. OUR STRATEGIC RELATIONSHIPS WITH ERICSSON AND OTHER MAJOR CUSTOMERS CREATE RISKS. In April 2001, we entered into a definitive agreement with Ericsson with respect to our management of its mobile telephone operations. Our ability to achieve any of the anticipated benefits of this new relationship with Ericsson is subject to a number of risks, including our ability to meet Ericsson's volume, product quality, timeliness and price requirements, and to achieve anticipated cost reductions. If demand for Ericsson's mobile phone products declines, Ericsson may purchase a lower quantity of products from us than we anticipate. If Ericsson's requirements exceed the volume anticipated by us, we may not be able to meet these requirements on a timely basis. Our inability to meet Ericsson's volume, quality, timeliness and cost requirements, and to quickly resolve any issues with Ericsson, could seriously harm our results of operations. As a result of these and other risks, we may be unable to achieve anticipated levels of profitability under this arrangement, and it may not result in any material revenues or contribute positively to our net income per share. Due to our relationship with Ericsson, other OEMs may not wish to obtain logistics or operations management services from us. We have entered into strategic relationships with other customers, have recently announced our plans to enter into a strategic relationship with Alcatel, and plan to continue to pursue such relationships. These relationships generally involve many, or all, of the risks involved in our new relationship with Ericsson. Similar to our other customer relationships, there are no volume purchase commitments under these relationships, and the revenues we actually achieve may not meet our expectations. In anticipation of future activities under these strategic relationships, we are incurring substantial expenses as we add personnel and manufacturing capacity and procure materials. Our operating results will be seriously harmed if sales do not develop to the extent and within the time frame we anticipate. WE DEPEND ON THE CONTINUING TREND OF OUTSOURCING BY OEMs. A substantial factor in our revenue growth is the transfer of manufacturing and supply base management activities from our OEM customers. Future growth partially depends 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. THE MAJORITY OF OUR SALES COMES FROM A SMALL NUMBER OF CUSTOMERS; IF WE LOSE ANY OF THESE CUSTOMERS, OUR SALES COULD DECLINE SIGNIFICANTLY. Sales to our ten largest customers have represented a significant percentage of our net sales in recent periods. Our ten largest customers in fiscal 2001 and 2000 accounted for approximately 59% and 57% of net sales in fiscal 2001 and fiscal 2000, respectively. No customer accounted for more than 10% of net sales in fiscal 2001. Our largest customer during fiscal 2000 was Ericsson, who accounted for approximately 12% of net sales. No other customer accounted for more than 10% of net sales in fiscal 2000. We anticipate that our strategic relationship with Ericsson will substantially increase the percentage of our sales attributable to Ericsson. The identity of our principal customers have varied from year to year, and our principal customers may not continue to purchase services from us at current levels, if at all. Significant reductions in sales to any of these customers, or the loss of major customers, would seriously harm our business. If we are not able to timely replace expired, canceled or reduced contracts with new business, our revenues could be harmed. OUR INDUSTRY IS EXTREMELY COMPETITIVE. The EMS industry is extremely competitive and includes hundreds of companies, several of which have achieved substantial market share. Current and prospective customers also evaluate our capabilities against the merits of internal production. Some of our competitors have substantially greater market share and manufacturing, financial and marketing resources than us. 13 14 In recent years, many participants in the industry, including us, have substantially expanded their manufacturing capacity. If overall demand for electronics manufacturing services should decrease, this increased capacity could result in substantial pricing pressures, which could seriously harm our operating results. WE MAY BE ADVERSELY AFFECTED BY SHORTAGES OF REQUIRED ELECTRONIC COMPONENTS. At various times, there have been shortages of some of the electronic components that we use, and suppliers of some components have lacked sufficient capacity to meet the demand for these components. In some cases, supply shortages and delays in deliveries of particular components have resulted in curtailed production, or delays in production, of assemblies using that component, which has contributed to an increase in our inventory levels. If we are unable to obtain sufficient components on a timely basis, we may experience manufacturing and shipping delays, which could harm our relationships with current or prospective customers and reduce our sales. OUR CUSTOMERS MAY BE ADVERSELY AFFECTED BY RAPID TECHNOLOGICAL CHANGE. Our customers compete in markets that are characterized by rapidly changing technology, evolving industry standards and continuous improvement in products and services. These conditions frequently result in short product life cycles. Our success will depend largely on the success achieved by our customers in developing and marketing their products. If technologies or standards supported by our customers' products become obsolete or fail to gain widespread commercial acceptance, our business could be adversely affected. WE ARE SUBJECT TO THE RISK OF INCREASED INCOME TAXES. We have structured our operations in a manner designed to maximize income in countries where: - tax incentives have been extended to encourage foreign investment; or - income tax rates are low. We base our tax position upon the anticipated nature and conduct of our business and upon our understanding of the tax laws of the various countries in which we have assets or conduct activities. However, our tax position is subject to review and possible challenge by taxing authorities and to possible changes in law which may have retroactive effect. We cannot determine in advance the extent to which some jurisdictions may require us to pay taxes or make payments in lieu of taxes. Several countries in which we are located allow for tax holidays or provide other tax incentives to attract and retain business. We have obtained holidays or other incentives where available. Our taxes could increase if certain tax holidays or incentives are not renewed upon expiration, or tax rates applicable to us in such jurisdictions are otherwise increased. In addition, further acquisitions of businesses may cause our effective tax rate to increase. WE CONDUCT OPERATIONS IN A NUMBER OF COUNTRIES AND ARE SUBJECT TO RISKS OF INTERNATIONAL OPERATIONS. The geographical distances between the Americas, Asia and Europe create a number of logistical and communications challenges. Our manufacturing operations are located in a number of countries throughout East Asia, the Americas and Europe. As a result, we are affected by economic and political conditions in those countries, including: - fluctuations in the value of currencies; - changes in labor conditions; - longer payment cycles; - greater difficulty in collecting accounts receivable; - the burdens and costs of compliance with a variety of foreign laws; 14 15 - political and economic instability; - increases in duties and taxation; - imposition of restrictions on currency conversion or the transfer of funds; - limitations on imports or exports; - expropriation of private enterprises; and - a potential reversal of current tax or other policies encouraging foreign investment or foreign trade by our host countries. The attractiveness of our services to our U.S. customers can be affected by changes in U.S. trade policies, such as "most favored nation" status and trade preferences for some Asian nations. In addition, some countries in which we operate, such as Brazil, the Czech Republic, Hungary, Mexico, Malaysia and Poland, have experienced periods of slow or negative growth, high inflation, significant currency devaluations or limited availability of foreign exchange. Furthermore, in countries such as China and Mexico, governmental authorities exercise significant influence over many aspects of the economy, and their actions could have a significant effect on us. Finally, we could be seriously harmed by inadequate infrastructure, including lack of adequate power and water supplies, transportation, raw materials and parts in countries in which we operate. WE DEPEND ON OUR KEY PERSONNEL. Our success depends to a large extent upon the continued services of our key executives, managers and skilled personnel. Generally our employees are not bound by employment or non-competition agreements, and we cannot assure that we will retain our key officers and employees. We could be seriously harmed by the loss of key personnel. In addition, in order to manage our growth, we will need to recruit and retain additional skilled management personnel and if we are not able to do so, our business and our ability to continue to grow could be harmed. WE ARE SUBJECT TO ENVIRONMENTAL COMPLIANCE RISKS. We are subject to various federal, state, local and foreign environmental laws and regulations, including those governing the use, storage, discharge and disposal of hazardous substances in the ordinary course of our manufacturing process. In addition, we are responsible for cleanup of contamination at some of our current and former manufacturing facilities and at some third party sites. If more stringent compliance or cleanup standards under environmental laws or regulations are imposed, or the results of future testing and analyses at our current or former operating facilities indicate that we are responsible for the release of hazardous substances, we may be subject to additional remediation liability. Further, additional environmental matters may arise in the future at sites where no problem is currently known or at sites that we may acquire in the future. Currently unexpected costs that we may incur with respect to environmental matters may result in additional loss contingencies, the quantification of which cannot be determined at this time. THE MARKET PRICE OF OUR ORDINARY SHARES IS VOLATILE. The stock market in recent years has experienced significant price and volume fluctuations that have affected the market prices of technology companies. These fluctuations have often been unrelated to or disproportionately impacted by the operating performance of these companies. The market for our ordinary shares may be subject to similar fluctuations. Factors such as fluctuations in our operating results, announcements of technological innovations or events affecting other companies in the electronics industry, currency fluctuations and general market conditions may have a significant effect on the market price of our ordinary shares. ITEM 2. PROPERTIES Our facilities consist of a global network of industrial parks, regional manufacturing and technology centers, and design/engineering and product introduction centers, providing over 16.0 million square feet of capacity 15 16 as of March 31, 2001. We own facilities with approximately 1.1 million square feet in the Americas, 2.5 million square feet in Asia and 4.8 million square feet of capacity in Europe. We lease facilities with approximately 2.9 million square feet in the Americas, 1.5 million square feet in Asia and 3.5 million square feet of capacity in Europe. Over the past several years, we have actively increased our overall capacity through internal growth, acquisitions and purchases of manufacturing facilities. We plan to further expand our facilities in low cost locations, adding new equipment and further developing our industrial parks. We cannot assure that we will not encounter unforeseen difficulties, costs or delays in expanding our facilities or that our expanded facilities will not prove to be in excess of our requirements. In connection with the consummated mergers and restructuring activities in fiscal 2001, we developed formal plans to exit certain activities. Management's plan to exit an activity included the identification of duplicate manufacturing and administrative facilities for closure and the identification of manufacturing and administrative facilities for consolidation into other facilities. As a result of these integration activities, we identified approximately 3.2 million of owned and leased square feet of capacity for closure in the Americas. Approximately 700,000 of owned and leased square feet of capacity in Asia was identified for closure. In Europe, we identified approximately 800,000 of owned and leased square feet of capacity for closure. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations--Unusual Charges." Our industrial parks, each incorporating from approximately 400,000 to 1.2 million square feet of facilities, are self-contained facilities that co-locate our manufacturing and distribution operations with our suppliers in low-cost regions near our customers' end markets. Our industrial parks provide a total supply chain management. This approach to production and distribution benefits our customers by reducing logistical barriers and costs, improving communications, increasing flexibility, lowering transportation costs and reducing turnaround times. We have strategically established large industrial parks in China, Hungary, Mexico, Brazil and Poland. Our regional manufacturing and technology centers are facilities that have both medium and high volume manufacturing and product introduction centers and, as a result, are where we focus on launching customers' new products and transitioning them to volume production. Each center features advanced technological competency. These regional manufacturing facilities range from approximately 70,000 to 500,000 square feet and provide production in locations close to strategic markets. We have established regional manufacturing and technology centers in Austria, Brazil, China, Denmark, England, Finland, France, Germany, Hungary, India, Indonesia, Ireland, Israel, Italy, Malaysia, Mexico, Norway, Scotland, Sweden, Switzerland and in various states throughout the United States. Our design/engineering and product introduction centers provide a broad range of advanced engineering services and prototype and low volume production capabilities. The locations of our product introduction centers include Austria, China, Finland, Germany, Italy, Sweden, Switzerland and the United States. Our facilities are generally well maintained and suitable for the operations conducted and, in substantially all cases where owned, free and clear of any encumbrances. The productive capacity of our plants is generally adequate for current needs. All of our manufacturing facilities are registered to the quality requirements of the International Organization for Standardization (ISO 9002) or are in the process of final certification. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS PRICE RANGE OF ORDINARY SHARES 16 17 Our ordinary shares are quoted on the Nasdaq National Market under the symbol "FLEX". The following table sets forth the high and low per share sales prices for our ordinary shares since the beginning of fiscal 2000 as reported on the Nasdaq National Market.
HIGH LOW ------ ------ FISCAL YEAR ENDED MARCH 31, 2000 First Quarter................................................. $14.59 $ 9.34 Second Quarter................................................ 17.03 10.63 Third Quarter................................................. 24.69 14.28 Fourth Quarter................................................ 39.88 19.16 FISCAL YEAR ENDED MARCH 31, 2001 First Quarter................................................. $38.06 $22.38 Second Quarter................................................ 44.91 32.38 Third Quarter................................................. 43.00 21.38 Fourth Quarter................................................ 40.13 14.25
All share prices have been adjusted to give effect to the two-for-one stock splits effected as bonus issues (the Singapore equivalent of a stock dividend), distributed to our shareholders on January 11, 1999, December 22, 1999 and October 16, 2000. As of June 15, 2001, there were 3,703 holders of record of our ordinary shares and the closing sale price of the ordinary shares as reported on the Nasdaq National Market was $21.76 per share. DIVIDENDS Since inception, we have not declared or paid any cash dividends on our ordinary shares (exclusive of dividends paid by pooled entities prior to acquisition), and our bank credit facility prohibits the payment of cash dividends without the lenders' prior consent. The terms of our outstanding senior subordinated notes also restrict our ability to pay cash dividends. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." We anticipate that all earnings in the foreseeable future will be retained to finance the continuing development of our business. TAXATION This summary of Singapore and U.S. tax considerations is based on current law and is provided for general information. The discussion does not purport to deal with all aspects of taxation that may be relevant to particular shareholders in light of their investment or tax circumstances, or to certain types of shareholders (including insurance companies, tax-exempt organizations, regulated investment companies, financial institutions or broker-dealers, and shareholders that are not U.S. shareholders subject to special treatment under the U.S. federal income tax laws. Such shareholders should consult their own tax advisors regarding the particular tax consequences to such shareholders of any investment in our ordinary shares. INCOME TAXATION UNDER SINGAPORE LAW Under current provisions of the Income Tax Act, Chapter 134 of Singapore, corporate profits are taxed at a rate equal to 24.5%. Under Singapore's taxation system, the tax paid by a company is deemed paid by its shareholders. Thus, the shareholders receive dividends net of the tax paid by Flextronics. Dividends received by either a resident or a nonresident of Singapore are not subject to withholding tax. Shareholders are taxed on the gross amount of dividends (meaning the cash amount of the dividend plus the amount of corporate tax paid by Flextronics). The tax paid by Flextronics will be available to shareholders as a tax credit to offset the Singapore income tax liability on their overall income (including the gross amount of dividends). No tax treaty currently exists between the Republic of Singapore and the U.S. Under current Singapore tax law there is no tax on capital gains, and, thus, any profits from the disposal of shares are not taxable in Singapore unless the vendor is regarded as carrying on a trade in shares in Singapore (in which case, the disposal profits would be taxable as trade profits rather than capital gains). 17 18 There is no stamp duty payable in respect of the holding and disposition of shares. No duty is payable on the acquisition of new shares. Where existing shares are acquired in Singapore, stamp duty is payable on the instrument of transfer of the shares at the rate of S$2 for every S$1,000 of the market value of the shares. The stamp duty is borne by the purchaser unless there is an agreement to the contrary. Where the instrument of transfer is executed outside of Singapore, stamp duty must be paid if the instrument of transfer is received in Singapore. Under Article 22 (iii) of our Articles of Association, our directors are authorized to refuse to register a transfer unless the instrument of transfer has been duly stamped. INCOME TAXATION UNDER UNITED STATES LAW Individual shareholders that are U.S. citizens or resident aliens (as defined in Section 7701(b) of the Internal Revenue Code of 1986), corporations or partnerships or other entities created or organized under the laws of the United States, or any political subdivision thereof, an estate the income of which is subject to U.S. federal income taxation regardless of its source or a trust which is subject to the supervision of a court within the United States and the control of section 7701(b)(30) of the Internal Revenue Code will, upon the sale or exchange of a share, recognize gain or loss for U.S. income tax purposes in an amount equal to the difference between the amount realized and the U.S. shareholder's tax basis in such a share. If paid in currency other than U.S. dollars, certain currency translation rules will apply to determine the U.S. dollar amount realized. Such gain or loss will be capital gain or loss if the share was a capital asset in the hands of the U.S. shareholder and will be short-term capital gain or loss if the share has been held for not more than one year, mid-term capital gain or loss if the share has been held for more than one year but not more than eighteen months and, long-term capital gain or loss if the share has been held for more than eighteen months. If a U.S. shareholder receives any currency other than U.S. dollars on the sale of a share, such U.S. shareholder may recognize ordinary income or loss as a result of currency fluctuations between the date of such sale and the date such sale proceeds are converted into U.S. dollars. U.S. shareholders will be required to report as income for U.S. income tax purposes the amount of any dividend received from us to the extent paid out of our current or accumulated earnings and profits, as determined under current U.S. income tax principles. If over 50% of our stock (by vote or value) were owned by U.S. shareholders who individually held 10% or more of our voting stock, such U.S. shareholders potentially would be required to include in income a portion or all of their pro rata share of our and our non-U.S. subsidiaries' earnings and profits. Certain attribution rules apply in this regard. If 50% or more of our assets during a taxable year produced or were held for the production of passive income, as defined in section 1297(b) of the Code (e.g., certain forms of dividends, interest and royalties), or 75% or more of our gross income for a taxable year was passive income, adverse U.S. tax consequences could result to U.S. shareholders. As of March 31, 2001, we were not aware of any U.S. shareholder who individually held 10% or more of our voting stock. Shareholders that are not U.S. shareholders will not be required to report for U.S. federal income tax purposes the amount of any dividend received from us. Non-U.S. shareholders, upon the sale or exchange of a share, would not be required to recognize gain or loss for U.S. federal income tax purposes. ESTATE TAXATION In the case of an individual who is not domiciled in Singapore, a Singapore estate tax is imposed on the value of all movable and immovable properties situated in Singapore. Our shares are considered to be situated in Singapore. Thus, an individual shareholder who is not domiciled in Singapore at the time of his or her death will be subject to Singapore estate tax on the value of any such shares held by the individual upon the individual's death. Such a shareholder will be required to pay Singapore estate tax to the extent that the value of the shares (or in aggregate with any other assets subject to Singapore estate tax) exceeds S$600,000. Any such excess will be taxed at a rate equal to 5% on the first S$12,000,000 of the individual's Singapore chargeable assets and thereafter at a rate equal to 10%. An individual shareholder who is a U.S. citizen or resident (for U.S. estate tax purposes) also will have the value of the shares included in the individual's gross estate for U.S. estate tax purposes. An individual shareholder generally will be entitled to a tax credit against the shareholder's U.S. estate tax to the extent the individual shareholder actually pays Singapore estate tax on the value of the shares; however, such tax credit is generally limited to the percentage of the U.S. estate tax attributable to the inclusion of the value of the shares included in the shareholder's gross estate for U.S. estate tax purposes, adjusted further by a pro rata apportionment of available exemptions. Individuals who are domiciled in Singapore should consult their own tax advisors regarding the Singapore estate tax consequences of their investment. 18 19 ITEM 6. SELECTED FINANCIAL DATA The following selected financial data have been prepared to give retroactive effect to the pooling of interests mergers completed by us in fiscal 2001. In fiscal 2001, we acquired DII in April 2000, Palo Alto Products International in April 2000, Lightning in August 2000, Chatham in August 2000 and JIT in November 2000. These historical results are not necessarily indicative of the results to be expected in the future. The following table is qualified by reference to and should be read in conjunction with the consolidated financial statements, related notes thereto and other financial data included elsewhere herein.
FISCAL YEAR ENDED MARCH 31, ---------------------------------------------------------------------- 1997 1998 1999 2000 2001 ---------- ---------- ----------- ---------- ------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) CONSOLIDATED STATEMENTS OF OPERATIONS DATA: Net sales ...................................... $1,498,332 $2,577,926 $ 3,952,786 $6,959,122 $ 12,109,699 Cost of sales .................................. 1,289,567 2,246,135 3,512,229 6,335,242 11,127,896 Unusual charges(1) ............................. 16,443 8,869 77,286 7,519 510,495 ---------- ---------- ----------- ---------- ------------ Gross profit ................................ 192,322 322,922 363,271 616,361 471,308 Selling, general and administrative ............ 113,308 169,586 240,512 319,952 430,109 Goodwill and intangibles amortization .......... 5,979 10,487 29,156 41,326 63,541 Unusual charges(1) ............................. 4,649 12,499 2,000 3,523 462,847 Interest and other expense, net ................ 8,398 21,480 52,234 69,912 67,115 ---------- ---------- ----------- ---------- ------------ Income(loss) before income taxes ............ 59,988 108,870 39,369 181,648 (552,304) Provision for (benefit from) income taxes ...... 16,415 22,378 (11,634) 23,080 (106,285) ---------- ---------- ----------- ---------- ------------ Net income (loss) ........................... $ 43,573 $ 86,492 $ 51,003 $ 158,568 $ (446,019) ========== ========== =========== ========== ============ Diluted earnings (loss) per share(2) ........... $ 0.18 $ 0.30 $ 0.17 $ 0.42 $ (1.01) ========== ========== =========== ========== ============ Shares used in computing diluted per share amounts(2) ............................. 238,770 297,307 329,352 383,119 441,991
AS OF MARCH 31, ---------------------------------------------------------------- 1997 1998 1999 2000 2001 -------- ---------- ---------- ---------- ---------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEETS DATA: Working capital ................................ $ 87,855 $ 372,870 $ 384,084 $1,161,535 $1,914,741 Total assets ................................... 937,865 1,862,088 2,783,707 5,134,943 7,571,655 Total long-term debt, excluding current portion ...................................... 139,383 580,441 789,471 645,267 917,313 Shareholders' equity ........................... 331,622 641,667 915,305 2,376,628 4,030,361
- ---------- (1) In fiscal 1997, we incurred approximately $4.6 million of merger-related expenses associated with an acquisition and $16.4 million in costs associated with the closing and sale of several manufacturing facilities. In fiscal 1998, we incurred approximately $12.5 million of merger-related expenses and approximately $8.9 million in costs associated with the closure of a manufacturing operation. In fiscal 1999, we incurred approximately $77.3 million of expenses primarily associated with the closure of a semiconductor wafer fabrication facility and wrote-off approximately $2.0 million of in-process research and development associated with an acquisition. In fiscal 2000, we incurred approximately $3.5 million of merger-related expenses and $7.5 million in costs primarily associated with the closure of several manufacturing facilities. In fiscal 2001, we recognized unusual pre-tax charges of $973.3 million. Of this amount, $286.5 million related to the issuance of an equity instrument to Motorola. The remaining $686.8 million includes merger-related expenses of approximately $102.4 million and approximately $584.4 million of costs associated with the closing of several manufacturing facilities. (2) We completed a stock split during each of fiscal 1999, 2000 and 2001. Each of the stock splits was effected as bonus issues (the Singapore equivalent of a stock dividend). The stock dividend has been reflected in our financial statements for all periods presented unless otherwise noted. All share and per share amounts have been retroactively restated to reflect the stock splits. 19 20 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. The words "expects," "anticipates," "believes," "intends," "plans" and similar expressions identify forward-looking statements. In addition, any statements which refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. We undertake no obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this Form 10-K with the Securities and Exchange Commission. These forward-looking statements are subject to risks and uncertainties, including, without limitation, those discussed in this section. Accordingly, our future results could differ materially from historical results or from those discussed or implied by these forward-looking statements. ACQUISITIONS We have actively pursued mergers and other business acquisitions to expand our global reach, manufacturing capacity and service offerings and to diversify and strengthen customer relationships. The significant business combinations completed in fiscal 2001, include the following:
DATE ACQUIRED COMPANY NATURE OF BUSINESS CONSIDERATION - ---- ---------------- ------------------ ------------- November 2000 JIT Holdings Ltd. Provides electronics 17,323,531 ordinary shares manufacturing and design services August 2000 Chatham Technologies, Inc. Provides industrial and 15,234,244 ordinary shares electronics manufacturing and design services August 2000 Lightning Metal Provides injection molding, 2,573,072 ordinary shares Specialties metal and related entities stamping and integration services April 2000 Palo Alto Products Provides industrial and 7,236,748 ordinary shares International Pte. Ltd. electronics manufacturing and design services April 2000 The DII Group, Inc. Provides electronics 125,536,310 ordinary shares manufacturing services
Each of these acquisitions was accounted for as a pooling of interests and our consolidated financial statements have been restated to reflect the combined operations of the merged companies for all periods presented. Additionally, we have completed other immaterial pooling of interests transactions in fiscal 2001. Prior period statements have not been restated for these transactions. We have also made a number of business acquisitions of other companies. These transactions were accounted for using the purchase method and, accordingly our consolidated financial statements include the operating results of each business from the date of acquisition. Pro forma results of operations have not been presented because the effects of these acquisitions were not material on either an individual or an aggregate basis. OTHER STRATEGIC TRANSACTIONS On May 30, 2000, we entered into a strategic alliance for product manufacturing with Motorola. In connection with this strategic alliance, Motorola paid $100.0 million for an equity instrument that provided it with incentives to purchase products and services from us by entitling it to acquire 22,000,000 of our ordinary shares at any time by meeting targeted purchase levels of up to $32.0 billion through December 31, 2005 or by making additional payments to us. The issuance of this equity instrument on May 30, 2000 resulted in a one-time non-cash charge equal to the excess of the fair value of the equity instrument issued over the $100.0 million proceeds received. As a result, the one-time non-cash charge amounted to approximately $286.5 million offset by a corresponding credit to additional paid-in capital in the first quarter of fiscal 2001. In June 2001, we entered into an agreement with Motorola under which we repurchased this equity instrument for $112.0 million. No current or planned manufacturing programs are affected by the repurchase, and we anticipate that Motorola will continue to be a customer following the repurchase, although our future revenue from Motorola may be less than it would have been had this instrument remained in effect. 20 21 In April 2001, we entered into a definitive agreement with Ericsson with respect to our management of the operations of Ericsson's mobile telephone operations. Operations under this arrangement commenced in the first quarter of fiscal 2002. Under this agreement, we are to provide a substantial portion of Ericsson's mobile phone requirements. We will assume responsibility for product assembly, new product prototyping, supply chain management and logistics management, in which we will process customer orders from Ericsson and configure and ship products to Ericsson's customers. We expect to provide PCBs and plastics, primarily from our Asian operations. In connection with this relationship, we purchased certain equipment, inventory and other assets, and assumed certain accrued expenses, from Ericsson at their net book value of approximately $450.0 million. See Item 1, "Business--Risk Factors--Our strategic relationship with Ericsson creates risks." RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain statements of operations data expressed as a percentage of net sales.
FISCAL YEAR ENDED MARCH 31, --------------------------------- 1999 2000 2001 ------ ------ ------ Net sales ....................................... 100.0% 100.0% 100.0% Cost of sales ................................... 88.9 91.0 91.9 Unusual charges ................................. 1.9 0.1 4.2 ------ ------ ------ Gross margin ............................... 9.2 8.9 3.9 Selling, general and administrative ............. 6.1 4.6 3.6 Goodwill and intangibles amortization ........... 0.7 0.6 0.5 Unusual charges ................................. 0.1 0.1 3.8 Interest and other expense, net ................. 1.3 1.0 0.6 ------ ------ ------ Income (loss) before income taxes .......... 1.0 2.6 (4.6) Provision for (benefit from) income taxes ....... (0.3) 0.3 (0.9) ------ ------ ------ Net income (loss) .......................... 1.3% 2.3% (3.7)% ====== ====== ======
Net Sales We derive our net sales from a wide range of service offerings, including product design, semiconductor design, printed circuit board assembly and fabrication, enclosures, material procurement, inventory and supply chain management, final system assembly and test, packaging, logistics and distribution. Net sales for fiscal 2001 increased 74% to $12.1 billion from $7.0 billion in fiscal 2000. The increase in sales for fiscal 2001 was primarily the result of our ability to continue to expand sales to our existing customers as well as expanding sales to new customers worldwide and, to a lesser extent, the incremental revenue associated with the purchases of several manufacturing facilities and related assets during fiscal 2001. During fiscal 2001, our ten largest customers accounted for approximately 59% of net sales, with no customer accounting for more than 10% of net sales. While we experienced significant growth in net sales in fiscal 2001, this growth was hampered in late fiscal 2001 by a decline in demand due to the downturn experienced by the electronics industry, which was driven by a combination of weakening end-market demand (particularly in the telecommunications and networking sectors) and our customers' inventory imbalances. Along with other providers of electronics manufacturing services, our fourth quarter net sales were adversely affected by reductions in purchase volumes and delays in purchases by certain customers, as they continued to experience erosion in demand for their products. This trend has continued through the first quarter of fiscal 2002 and may continue, or worsen, in future periods, as the timing of any recovery in our customers' markets is uncertain. Net sales for fiscal 2000 increased 76% to $7.0 billion from $4.0 billion in fiscal 1999. The increase in sales for fiscal 2000 was primarily due to expanding sales to existing customers and, to a lesser extent, sales to new customers. In fiscal 2000, our ten largest customers accounted for approximately 57% of net sales, with Ericsson accounting for approximately 12% of net sales. No other customer accounted for more than 10% of net sales. Gross Profit 21 22 Gross profit varies from period to period and is affected by a number of factors, including product mix, component costs, product life cycles, unit volumes, startup, expansion and consolidation of manufacturing facilities, pricing, competition and new product introductions. See Item 1, "Business--Risk Factors." Gross margin decreased to 3.9% for fiscal 2001 from 8.9% in fiscal 2000. The decrease in gross margin is primarily attributable to unusual pre-tax charges amounting to $510.5 million, which were associated with the plant closures, as described in "Unusual Charges," below. Excluding unusual pre-tax charges of $510.5 million and $7.5 million in fiscal 2001 and fiscal 2000, respectively, gross margin decreased to 8.1% for fiscal 2001 from 9.0% in fiscal 2000. Gross margin decreased to 8.9% for fiscal 2000 from 9.2% in fiscal 1999. Excluding unusual pre-tax charges of $7.5 million and $77.3 million in fiscal 2000 and 1999, respectively, gross margin decreased from 11.1% in fiscal 1999 to 9.0% in fiscal 2000. Our gross profit in each fiscal year was adversely affected by several factors, including costs associated with expanding our facilities, costs associated with the startup of new customers and projects, which typically carry higher levels of under absorbed manufacturing overhead costs until the projects reach higher volume production, and changes in our product mix to higher volume projects, which typically have a lower gross margin because of higher material content. Increased mix of products that have relatively high material costs as a percentage of total unit costs can adversely affect our gross margins. Further, we may enter into supply arrangements in connection with strategic relationships and OEM divestitures. These arrangements, which are relatively larger in scale, could adversely affect our gross margins. We believe that these and other factors may adversely affect our gross margins, but we do not expect that this will have a material effect on our income from operations. Unusual Charges FISCAL 2001 We recognized unusual pre-tax charges of approximately $973.3 million during fiscal year 2001. Of this amount, $493.1 million was recorded in the first quarter and was comprised of approximately $286.5 million related to the issuance of an equity instrument to Motorola combined with approximately $206.6 million of expenses resulting from the DII and Palo Alto Products International mergers and related facility closures. In the second quarter, unusual pre-tax charges amounted to approximately $48.4 million associated with the Chatham and Lightning mergers and related facility closures. In the third quarter, we recognized unusual pre-tax charges of approximately $46.3 million, primarily related to the JIT merger and related facility closures. During the fourth quarter, we recognized unusual pre-tax charges, amounting to $385.6 million related to the closures of several manufacturing facilities. On May 30, 2000, we entered into a strategic alliance for product manufacturing with Motorola. See Note 8, "Shareholders' Equity," and Note 14, "Subsequent Events," of the Notes to Consolidated Financial Statements in Item 8, "Financial Statements and Supplementary Data" for further information concerning the strategic alliance. In connection with this strategic alliance, Motorola paid $100.0 million for an equity instrument that entitled it to acquire 22,000,000 of our ordinary shares at any time through December 31, 2005, upon meeting targeted purchase levels or making additional payments to us. The issuance of this equity instrument resulted in a one-time non-cash charge equal to the excess of the fair value of the equity instrument issued over the $100.0 million proceeds received. As a result, the one-time non-cash charge amounted to approximately $286.5 million offset by a corresponding credit to additional paid-in capital in the first quarter of fiscal 2001. In connection with the aforementioned mergers and facility closures, we recorded aggregate unusual charges of $686.8 million, which included approximately $584.4 million of facility closure costs and approximately $102.4 million of direct transaction costs. As discussed below, $510.5 million of the charges relating to facility closures have been classified as a component of Cost of Sales during the fiscal year ended March 31, 2001. The components of the unusual charges recorded are as follows (in thousands): 22 23
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER TOTAL NATURE OF CHARGES CHARGES CHARGES CHARGES CHARGES CHARGES --------- --------- ---------- ---------- --------- ------------- Facility closure costs: Severance..................... $ 62,487 $ 5,677 $ 3,606 $ 60,703 $ 132,473 cash Long-lived asset impairment... 46,646 14,373 16,469 155,046 232,534 non-cash Exit costs.................... 24,201 5,650 19,703 169,818 219,372 cash/non-cash --------- --------- ---------- ---------- --------- Total facility closure costs 133,334 25,700 39,778 385,567 584,379 Direct transaction costs: Professional fees............. 50,851 7,247 6,250 -- 64,348 cash Other costs................... 22,382 15,448 248 -- 38,078 cash/non-cash --------- --------- ---------- ---------- --------- Total direct transaction costs 73,233 22,695 6,498 -- 102,426 --------- --------- ---------- ---------- --------- Total Unusual Charges........... 206,567 48,395 46,276 385,567 686,805 --------- --------- ---------- ---------- --------- Income tax benefit.............. (30,000) (6,000) (6,500) (110,000) (152,500) --------- --------- ---------- ---------- --------- Net Unusual Charges............. $ 176,567 $ 42,395 $ 39,776 $ 275,567 $ 534,305 ========= ========= ========== ========== =========
In connection with the facility closures, we developed formal plans to exit certain activities and involuntarily terminate employees. Management's plan to exit an activity included the identification of duplicate manufacturing and administrative facilities for closure and the identification of manufacturing and administrative facilities for consolidation into other facilities. Management currently anticipates that the facility closures and activities to which all of these charges relate will be substantially completed within one year of the commitment dates of the respective exit plans, except for certain long-term contractual obligations. The following table summarizes the components of the facility closure costs and related activities in fiscal 2001:
LONG-LIVED ASSET EXIT SEVERANCE IMPAIRMENT COSTS TOTAL --------- ---------- --------- --------- Balance at March 31, 2000 ............. $ -- $ -- $ -- $ -- Activities during the year: First quarter provision ............. 62,487 46,646 24,201 133,334 Cash charges ........................ (35,800) -- (1,627) (37,427) Non-cash charges .................... -- (46,646) (7,441) (54,087) -------- --------- --------- --------- Balance at June 30, 2000 .............. 26,687 -- 15,133 41,820 Activities during the year: Second quarter provision ............ 5,677 14,373 5,650 25,700 Cash charges ........................ (4,002) -- (4,231) (8,233) Non-cash charges .................... -- (14,373) (8,074) (22,447) -------- --------- --------- --------- Balance at September 30, 2000 ......... 28,362 -- 8,478 36,840 Activities during the year: Third quarter provision ............. 3,606 16,469 19,703 39,778 Cash charges ........................ (7,332) -- (2,572) (9,904) Non-cash charges .................... -- (16,469) (14,070) (30,539) -------- --------- --------- --------- Balance at December 31, 2000 .......... 24,636 -- 11,539 36,175 Activities during the year: Fourth quarter provision ............ 60,703 155,046 169,818 385,567 Cash charges ........................ (13,605) -- (14,686) (28,291) Non-cash charges .................... -- (155,046) (71,328) (226,374) -------- --------- --------- --------- Balance at March 31, 2001 ............. $ 71,734 $ -- $ 95,343 $ 167,077 ======== ========= ========= =========
Of the total pre-tax facility closure costs, $132.5 million relates to employee termination costs, of which $67.8 million has been classified as a component of Cost of Sales. As a result of the various exit plans, we identified 11,269 employees to be involuntarily terminated related to the various mergers and facility closures. As of March 31, 2001, 4,457 employees have been terminated, and another 6,812 employees have been notified that they are to be terminated upon completion of the various facility closures and consolidations. During fiscal 2001, we paid employee termination costs of approximately $60.7 million. The remaining $71.7 million of employee termination costs is classified as accrued liabilities as of March 31, 2001 and is expected to be paid out within one year of the commitment dates of the respective exit plans. The unusual pre-tax charges include $232.5 million for the write-down of long-lived assets to fair value. This amount has been classified as a component of Cost of Sales. Included in the long-lived asset impairment are charges of $229.1 million, which relate to property, plant and equipment associated with the various manufacturing and administrative facility closures which were written down to their net realizable value based on their estimated sales price. Certain facilities will remain in service until their anticipated disposal dates pursuant to the exit plans. Since the assets will remain in service from the date of the decision to dispose of these assets to the anticipated disposal date, the assets are being depreciated over this expected period. The impaired long-lived assets consisted primarily of machinery and equipment of $153.0 million and building and improvements of $76.1 million. The long-lived 23 24 asset impairment also includes the write-off of the remaining goodwill and other intangibles related to certain closed facilities of $3.4 million. The unusual pre-tax charges also include approximately $219.4 million for other exit costs. Approximately $210.2 million of this amount has been classified as a component of Cost of Sales. The other exit costs recorded, primarily related to items such as building and equipment lease termination costs, warranty costs, current asset impairments and payments to suppliers and vendors to terminate agreements and were incurred directly as a result of the various exit plans. We paid approximately $23.1 million of other exit costs during fiscal 2001. Additionally, approximately $101.0 million of other exit costs were non-cash charges utilized during fiscal 2001. The remaining $95.3 million is classified in accrued liabilities as of March 31, 2001 and is expected to be substantially paid out within one year from the commitment dates of the respective exit plans, except for certain long-term contractual obligations. The direct transaction costs include approximately $64.3 million of costs primarily related to investment banking and financial advisory fees as well as legal and accounting costs associated with the merger transactions. Other direct transaction costs which totaled approximately $38.1 million were mainly comprised of accelerated debt prepayment expense, accelerated executive stock compensation and benefit-related expenses. We paid approximately $70.9 million of the direct transaction costs during fiscal 2001. Additionally, approximately $28.2 million of the direct transaction costs were non-cash charges utilized during fiscal 2001. The remaining $3.3 million is classified in accrued liabilities as of March 31, 2001 and is expected to be substantially paid out in the first quarter of fiscal 2002. FISCAL 2000 In fiscal 2000, we recognized unusual pre-tax charges of $7.5 million related to the operations of Chatham, which included severance and related charges of approximately $4.4 million and other facility exit costs of approximately $3.1 million. Additionally, unusual pre-tax charges of $3.5 million were recorded in fiscal 2000, related to the Kyrel EMS Oyj merger. The unusual charges consisted of a transfer tax of $1.7 million, approximately $0.4 million of investment banking fees and approximately $1.4 million of legal and accounting fees. FISCAL 1999 During fiscal 1999, we recognized unusual pre-tax charges of approximately $79.3 million, substantially all of which related to the operations of our wholly owned subsidiary, Orbit Semiconductor, Inc. ("Orbit"). We decided to sell Orbit's 6-inch, 0.6 micron wafer fabrication facility ("Fab") and adopt a fabless manufacturing strategy to complement Orbit's design and engineering services. The charges were primarily due to the impaired recoverability of inventories, intangible assets and fixed assets, and other costs associated with the exit of semiconductor manufacturing. The Fab was ultimately sold in January 1999. The components of the unusual charges recorded in fiscal 1999 are as follows:
FIRST FOURTH QUARTER QUARTER TOTAL NATURE OF CHARGES CHARGES CHARGES CHARGES -------- -------- -------- ---------- Severance............................... $ 498 $ 2,371 $ 2,869 cash Long-lived asset impairment............. 38,257 16,538 54,795 non-cash Losses on sales contracts............... 2,658 3,100 5,758 non-cash Incremental uncollectible accounts receivable........................... 900 -- 900 non-cash Incremental sales returns and allowances .......................... 1,500 500 2,000 non-cash Inventory write-downs................... 5,500 250 5,750 non-cash Acquired in-process research and development.......................... -- 2,000 2,000 non-cash Other exit costs........................ 1,845 3,369 5,214 cash/non-cash -------- -------- -------- Total Unusual Pre-Tax Charges.... $ 51,158 $ 28,128 $ 79,286 ======== ======== ========
Of the total unusual pre-tax charges, approximately $2.9 million relates to employee termination costs. As a result of the closure of the fabrication facility, 460 employees were terminated. The terminations were completed and related severance costs were fully paid out by the first quarter of fiscal 2000. 24 25 The unusual pre-tax charges include approximately $54.8 million for the write-down of long-lived assets to fair value. Included in the long-lived asset impairment are charges of $50.7 million related to the Fab which was written down to its net realizable value based on its sales price. The impaired long-lived assets consisted primarily of machinery and equipment of $43.4 million and building and improvements of $7.3 million. The long-lived asset impairment also includes the write-off of the remaining goodwill of $0.6 million. The remaining $3.5 million of asset impairment relates to the write-down to net realizable value of a facility we exited during fiscal 1999. We entered into certain non-cancelable sales contracts to provide semiconductors to customers at fixed prices. Because we were obligated to fulfill the terms of the agreements at selling prices which were not sufficient to cover the cost to produce or acquire such products, a liability for losses on sales contracts was recorded for the estimated future amount of such losses. The unusual pre-tax charges include approximately $8.7 million for losses on sales contracts, incremental amounts of uncollectible accounts receivable, and estimated incremental costs for sales returns and allowances, all of which were fully utilized by the end of fiscal 2000. The unusual pre-tax charges also include approximately $10.9 million for losses on inventory write-downs and other exit costs. We have written off and disposed of approximately $5.8 million of inventory. The remaining $5.1 million relates primarily to incremental costs and contractual obligations for items such as lease termination costs, litigation, environmental clean-up costs, and other exit costs incurred directly as a result of the exit plan, all of which were paid out or non-cash charges utilized by the end of fiscal 2000. Based on an independent valuation of certain of the assets of Advanced Component Labs ("ACL") and other factors, we determined that the purchase price of ACL included in-process research and development costs totaling $2.0 million which had not reached technological feasibility and had no probable alternative future use. Accordingly, we wrote-off $2.0 million of in-process research and development in fiscal 1999. Selling, General and Administrative Expenses Selling, general and administrative expenses, or SG&A, for fiscal 2001 increased to $430.1 million from $320.0 million in fiscal 2000 but decreased as a percentage of net sales to 3.6% in fiscal 2001 from 4.6% in fiscal 2000. SG&A for fiscal 2000 increased to $320.0 million from $240.5 million in fiscal 1999 but decreased as a percentage of net sales to 4.6% in fiscal 2000 from 6.1% in fiscal 1999. The dollar increase in SG&A for each fiscal year was primarily due to our continued investment in infrastructure such as sales, marketing, supply-chain management and other related corporate and administrative expenses as well as information systems necessary to support the expansion of our business. The decline in SG&A as a percentage of each fiscal year's net sales reflects our continued focus on controlling operating expenses relative to sales growth and gross margin levels. Goodwill and Intangible Assets Amortization Goodwill and intangible assets amortization in fiscal 2001 increased to $63.5 million from $41.3 million in fiscal 2000. This increase was directly the result of the various acquisitions in fiscal 2001 which were accounted for as purchase transactions, which primarily include Irish Express Cargo Ltd, Fico, Inc. (United States), Li Xin Industries, Ltd. and Ojala Yhtyma Oy. Goodwill and intangible assets amortization in fiscal 2000 increased to $41.3 million from $29.2 million in fiscal 1999 primarily related to the acquisition of ACL which was completed in late March 1999, and various business acquisitions completed during fiscal 2000. Interest and Other Expense, Net Interest and other expense, net decreased to $67.1 million in fiscal 2001 from $69.9 million in fiscal 2000. The following table sets forth information concerning the components of interest and other expense.
1999 2000 2001 -------- -------- --------- Interest expense ................................... $ 61,430 $ 84,198 $ 135,243 Interest income .................................... (11,374) (22,681) (32,219) Foreign exchange (gain) loss ....................... 3,543 2,128 (4,028) Other (income) expense, net ........................ (1,365) 6,267 (31,881) -------- -------- --------- Total interest and other expense, net .... $ 52,234 $ 69,912 $ 67,115 ======== ======== =========
25 26 Net interest expense increased to $103.0 million in fiscal 2001 from $61.5 million in fiscal 2000. The increase was primarily attributable to the interest expense associated with the approximately $645.0 million of senior subordinated notes, consisting of $500.0 million of 9.875% notes and euros 150.0 million of 9.75% notes we issued in June 2000. Net interest expense increased to $61.5 million in fiscal 2000 from $50.1 million in fiscal 1999. The increase was attributable to the increased bank borrowings to finance our capital expenditures, expansion of various facilities and industrial parks and purchases of manufacturing assets offset by increased interest income from our deployment of equity offering proceeds in money market funds and corporate debt securities. Fiscal 2000 net interest expense included accelerated amortization of approximately $1.0 million in bank arrangement fees associated with the termination of a credit facility. In fiscal 2001, there was $4.0 million of foreign exchange gain compared to foreign exchange loss of $2.1 million in fiscal 2000. The foreign exchange gain generated in fiscal 2001 mainly relates to net non-functional currency monetary liabilities in Singapore, Germany and Hungary. In fiscal 2000, there was $2.1 million of foreign exchange loss compared to $3.5 million foreign exchange loss in fiscal 1999. The foreign exchange loss in fiscal 2000 mainly relates to net non-functional currency monetary liabilities in Austria, Finland and Hungary. Other (income) expense, net changed from $6.3 million of net other expense in fiscal 2000 to $31.9 million of net other income in fiscal 2001 primarily due to realized gains on sales of marketable equity securities. The other expense in fiscal 2000 was comprised mainly of a loss on disposal of fixed assets in Hungary offset by compensation received in a settlement of a claim. Provision for Income Taxes Certain of our subsidiaries have, at various times, been granted tax relief in their respective countries, resulting in lower income taxes than would otherwise be the case under ordinary tax rates. See Note 7, "Income Taxes," of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data." The consolidated effective tax rate for a particular year will vary depending on the mix of earnings, operating loss carryforwards, income tax credits, and changes in previously established valuation allowances for deferred tax assets based upon management's current analysis of the realizability of these deferred tax assets. The Company's consolidated effective tax rate was a 19% benefit for fiscal year 2001 compared to a 13% provision for fiscal year 2000, however, excluding the unusual charges in fiscal 2001 the effective tax rate was 11%. The slight decrease in the effective tax rate was due primarily to the expansion of operations and increase in profitability in countries with lower tax rates. See Item 1, "Business--Risk Factors--We are subject to the risk of increased income taxes." LIQUIDITY AND CAPITAL RESOURCES At March 31, 2001 we had cash and cash equivalents balances totaling $631.6 million, total bank and other debts amounting to $1.2 billion and $500.0 million available for borrowing under our credit facilities subject to compliance with certain financial ratios. Our working capital increased to $1.9 billion at March 31, 2001 from $1.2 billion at March 31, 2000. Additionally, our debt to equity ratio improved to 31% at March 31, 2001 from 49% at March 31, 2000. Cash used in operating activities was $469.7 million and $34.4 million in fiscal 2001 and 2000, respectively. In fiscal 1999, operating activities provided cash amounting to $160.9 million. Operating activities used cash in fiscal 2001 primarily as a result of significant increases in accounts receivable and inventory, partially offset by an increase in accounts payable combined with the $446.0 million net loss. Cash provided by operating activities decreased in fiscal 2000 from fiscal 1999 because of increases in accounts receivable, inventories and other current assets, offset by increases in net income and accounts payable. Accounts receivable, net of allowance for doubtful accounts, increased to $1.7 billion at March 31, 2001 from $1.1 billion at March 31, 2000. The increase in accounts receivable was primarily due to an increase of approximately 74% in net sales in fiscal 2001. Inventories increased to $1.8 billion at March 31, 2001 from $1.1 billion at March 31, 2000. The increase in inventories was primarily the result of increased purchases of materials to support our growing sales, combined with 26 27 the inventory acquired in connection with the manufacturing facility purchased during the fourth quarter of fiscal 2001. Additionally, many of our customers have experienced a slowdown in demand for their products since late 2000 which in some cases has resulted in the deferral of purchases, thereby adversely affecting our inventory levels at the end of our fiscal year. Cash used in investing activities was $1.1 billion, $879.4 million and $572.2 million in fiscal 2001, 2000 and 1999, respectively. Cash used in investing activities in fiscal 2001 were primarily related to: - $711.2 million of net capital expenditures to purchase equipment and the continued expansion of our manufacturing facilities worldwide, and specifically for our continued expansion of our industrial park strategy with new parks in Gdansk, Poland, Sao Paulo, Brazil and Nyiregyhaza, Hungary; - $239.0 million for purchases of manufacturing facilities and related asset purchases, comprised primarily of Bosch Telecom GmbH's Denmark facility, Ascom's Switzerland facility and Siemens Mobile's Italy and United States facilities; - $54.4 million primarily for minority investment in the stocks of various technology companies in software and related industries; and - $158.9 million for acquisitions of businesses. Additionally, we received proceeds of $46.9 million from the sale of marketable securities of various technology companies. Cash used in investing activities in fiscal 2000 were primarily related to: - $462.4 million of net capital expenditures to purchase equipment and continued expansion of our manufacturing facilities in Brazil, China, Hungary, Mexico, Sweden and United States; - $249.8 million for acquisitions of manufacturing facilities and assets, comprised primarily of Cabletton Systems Inc.'s New Hampshire and Ireland facilities, Fujitsu Siemens Computer's Germany facility, Ericsson Business Network's Sweden facility, ABB Automation Product's Sweden facility and Ericsson AG's Austria facility; - $42.4 million for minority investment in the stocks of various technology companies in software and related industries; - $75.0 million of funding for a loan to another company, and; - $85.7 million for acquisitions of businesses. Additionally, we received proceeds of $35.9 million from the sale of certain subsidiaries. Cash provided by financing activities was $1.5 billion, $1.4 billion and $501.8 million in fiscal 2001, 2000, and 1999, respectively. Cash provided by financing activities in fiscal 2001 were primarily related to our completion of two public stock offerings. In June 2000, we sold a total of 11.0 million ordinary shares at a price of $35.63 per share resulting in net proceeds to us of approximately $375.9 million. In July 2000, we sold an additional 1.65 million ordinary shares at a price of $35.63 per share resulting in net proceeds of $55.7 million, which represented the overallotment option on the public stock offering completed in June 2000. Also, in February 2001, we completed a public stock offering of 27.0 million ordinary shares at a price of $37.94 per share resulting in net proceeds of $990.1 million. Additionally, cash provided by financing activities in fiscal 2001 resulted from: - $1.4 billion of bank borrowings and long-term debt, which primarily resulted from the issuance of approximately $645.0 million of senior subordinated notes, consisting of $500.0 million of 9.875% notes and euros 150.0 million of 9.75% notes we issued in June 2000; - $100.0 million of proceeds from an equity instrument issued to Motorola; - $78.5 million in proceeds from ordinary shares issued under our stock plans. 27 28 Additionally, our financing activities used $1.5 billion for the repayment of bank borrowings and long-term debt and $31.8 million for the repayment of capital lease obligations. The repayments of our bank borrowings and long-term debt primarily resulted from the use of the proceeds from our issuance of the senior notes in June 2000. See Note 4, "Bank Borrowings and Long-Term Debt," of the Notes to Consolidated Financial Statements in Item 8, "Financial Statements and Supplementary Data" for a description of our bank credit facilities and long-term debt. Cash provided by financing activities in fiscal 2000 was primarily related to the completion of three public stock offerings. In February 2000, we sold a total of 17.2 million ordinary shares at a price of $29.50 per share resulting in net proceeds to us of approximately $494.2 million. In October 1999, we sold a total of 27.6 million ordinary shares at a price of $16.92 per share resulting in net proceeds to us of approximately $448.9 million. In addition, in October 1999, DII sold a total of 13.8 million shares of its common stock in a public offering at a price of $16.50 per share, resulting in net proceeds of approximately $215.7 million. Cash provided by financing activities in fiscal 2000 also included: - $181.5 million of net proceeds from bank borrowings, capital leases, and long-term debts; - $26.9 million in proceeds from ordinary shares issued under our stock plans. Additionally, we used cash of approximately $26.6 million for the payment of dividends to former shareholders of acquired companies prior to their acquisition by us. In April 2001, we entered into a definitive agreement with Ericsson with respect to our management of the operations of Ericsson's mobile telephone operations. Operations under this arrangement commenced in the first quarter of fiscal 2002. Under this agreement, we are to provide a substantial portion of Ericsson's mobile phone requirements. In connection with this relationship, we purchased certain equipment, inventory and other assets, and assumed certain accrued expenses, from Ericsson at their net book value of approximately $450.0 million. Additionally, in the first quarter of fiscal 2002, we announced our intentions to purchase the manufacturing facility and related assets from Alcatel located in Laval, France. The estimated purchase price is subject to final negotiations, due diligence and working capital levels at the time of closing, but is not expected to be a material cash requirement. We anticipate that our working capital requirements and capital expenditures will continue to increase in order to support the anticipated continued growth in our operations. In addition to our anticipated manufacturing facilities and related asset purchases, we also anticipate incurring significant capital expenditures and operating lease commitments in order to support our anticipated expansions of our industrial parks in Brazil, China, Hungary, Mexico and Poland as well as our regional manufacturing facilities in the Czech Republic and Ireland. We intend to continue our acquisition strategy and it is possible that future acquisitions may be significant and may require the payment of cash. Future liquidity needs will also depend on fluctuations in levels of inventory, the timing of expenditures by us on new equipment, the extent to which we utilize operating leases for the new facilities and equipment, levels of shipments and changes in volumes of customer orders. Historically, we have funded our operations from the proceeds of public offerings of equity securities and debt offerings, cash and cash equivalents generated from operations, bank debt, sales of accounts receivable and capital equipment lease financings. We believe that our existing cash balances, together with anticipated cash flows from operations and borrowings available under our credit facility will be sufficient to fund our operations through at least the next twelve months. We anticipate that we will continue to enter into debt and equity financings, sales of accounts receivable and lease transactions to fund our acquisitions and anticipated growth. Such financings and other transactions may not be available on terms acceptable to us or at all. See Item 1, "Business--Risk Factors--If we do not manage effectively the expansion of our operations, our business may be harmed." ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST RATE RISK A portion of our exposure to market risk for changes in interest rates relates to our investment portfolio. We do not use derivative financial instruments in our investment portfolio. We invest in high-credit quality issuers and, by policy, limit the amount of credit exposure to any one issuer. As stated in our policy, we protect our invested principal funds by limiting default risk, market risk and reinvestment risk. We mitigate default risk by investing in safe and high-credit quality securities and by constantly positioning the portfolio to respond appropriately to a significant reduction in a credit rating of any investment issuer, guarantor or depository. The portfolio includes only 28 29 marketable securities with active secondary or resale markets to ensure portfolio liquidity. Maturities of short-term investments are timed, whenever possible, to correspond with debt payments and capital investments. As of March 31, 2001, the outstanding amount in the investment portfolio was $349.8 million, comprised mainly of money market funds with an average return of 5.26%. We also have exposure to interest rate risk with certain variable rate lines of credit. These credit lines are located throughout the world and are based on a spread over that country's inter-bank offering rate. We primarily enter into debt obligations to support general corporate purposes including capital expenditures, acquisitions and working capital needs. As of March 31, 2001, the outstanding short-term debt, including capitalized leases was $325.7 million. The following table presents principal cash flows and related interest rates by fiscal year of maturity for debt obligations. The variable interest rate for future years assumes the same rate as March 31, 2001.
EXPECTED FISCAL YEAR OF MATURITY ---------------------------------------------------------------------- DEBT 2002 2003 2004 2005 2006 THEREAFTER TOTAL - ---- ------- -------- -------- ------ ------ ---------- -------- (IN THOUSANDS) Sr. Subordinated Notes ................. -- -- -- -- -- 779.59 779,596 Weighted Average Interest Rate ....... 9.64% 9.6% 9.6% 9.64% 9.64% 9.7% 9.7% Fixed Rate ............................. 118,170 110,126 107,773 86,899 77,077 142,609 642,654 Weighted Average Interest Rate ....... 6.66% 6.48% 6.02% 6.24% 5.48% 6.20% 6.22% Variable Rate .......................... 5.60% 5.80% 5.80% 5.20% 5.20% 5.20% 5.20%
FOREIGN CURRENCY EXCHANGE RISK We transact business in various foreign countries. We manage our foreign currency exposure by borrowing in various foreign currencies and by entering into foreign exchange forward contracts only with respect to transaction exposure. We try to maintain a fully hedged position for all certain, known transaction exposures. These exposures are primarily, but not limited to, revenues, vendor payments, accrued expenses and inter-company balances in currencies other than the functional currency unit of the operating entity. We will first evaluate and, to the extent possible, use non-financial techniques, such as currency of invoice, leading and lagging payments, receivable management or local borrowing to reduce transaction exposure before taking steps to minimize remaining exposure with financial instruments. As of March 31, 2001, the total cumulative outstanding notional amounts of our forward contracts in Euro, French Franc, German Deutsche Mark, Japanese Yen, Swedish Kronor and United States Dollar was approximately $200.4 million. 29 30 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Flextronics International Ltd. We have audited the accompanying consolidated balance sheets of Flextronics International Ltd. (a Singapore Company) and subsidiaries as of March 31, 2000 and 2001 and the related consolidated statements of operations, comprehensive income(loss), shareholders' equity and cash flows for each of the three years in the period ended March 31, 2001. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits. We did not audit the consolidated balance sheet of The DII Group, Inc., a company acquired during fiscal 2001 in a transaction accounted for as a pooling of interests, as of January 2, 2000, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the two years in the period ended January 2, 2000, as discussed in Note 11. Such statements are included in the consolidated financial statements of Flextronics International Ltd. and reflect total assets of 22% of the related consolidated total as of March 31, 2000, and reflect total revenues of 23% and 19% of the related consolidated totals for the years ended March 31, 1999 and 2000, respectively. These statements were audited by other auditors whose report has been furnished to us and our opinion, insofar as it relates to amounts included for The DII Group, Inc., is based solely upon the report of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Flextronics International Ltd. and subsidiaries as of March 31, 2000 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2001 in conformity with accounting principles generally accepted in the United States. Our audits and the report of other auditors were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed under Item 14(a) 2 is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP San Jose, California April 20, 2001 30 31 INDEPENDENT AUDITORS' REPORT Board of Directors The DII Group, Inc. We have audited the consolidated balance sheet of The DII Group, Inc. and Subsidiaries (the "Company") as of January 2, 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the two years in the period ended January 2, 2000 (none of which are presented herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January 2, 2000 and the results of its operations and its cash flows for each of the two years in the period ended January 2, 2000, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Denver, Colorado March 28, 2000 32 FLEXTRONICS INTERNATIONAL LTD. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS MARCH 31, --------------------------- 2000 2001 ----------- ----------- CURRENT ASSETS: Cash and cash equivalents ................................................... $ 747,049 $ 631,588 Accounts receivable, less allowance for doubtful accounts of $24,957 and $44,419 as of March 31, 2000 and 2001, respectively ...................... 1,057,949 1,651,252 Inventories, net ............................................................ 1,142,594 1,787,055 Other current assets ........................................................ 275,152 386,152 ----------- ----------- Total current assets ................................................ 3,222,744 4,456,047 ----------- ----------- Property, plant and equipment, net ............................................ 1,323,732 1,828,441 Goodwill and other intangibles, net ........................................... 390,351 983,384 Other assets .................................................................. 198,116 303,783 ----------- ----------- Total assets ........................................................ $ 5,134,943 $ 7,571,655 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Bank borrowings and current portion of long-term debt ....................... $ 487,773 $ 298,052 Current portion of capital lease obligations ................................ 24,037 27,602 Accounts payable ............................................................ 1,227,142 1,480,468 Other current liabilities ................................................... 317,879 730,246 Deferred revenue ............................................................ 4,378 4,938 ----------- ----------- Total current liabilities ........................................... 2,061,209 2,541,306 ----------- ----------- Long-term debt, net of current portion ........................................ 593,830 879,525 Capital lease obligations, net of current portion ............................. 51,437 37,788 Other liabilities ............................................................. 51,839 82,675 Commitments and contingencies SHAREHOLDERS' EQUITY: Ordinary shares, S$.01 par value; authorized -- 1,500,000,000 shares; issued and outstanding -- 411,596,229 and 481,531,339 as of March 31, 2000 and 2001, respectively .............................................. 2,467 2,871 Additional paid-in capital .................................................. 1,997,016 4,266,908 Retained earnings (deficit) ................................................. 373,735 (132,892) Accumulated other comprehensive income (loss) ............................... 8,494 (106,526) Deferred compensation ....................................................... (5,084) -- ----------- ----------- Total shareholders' equity .......................................... 2,376,628 4,030,361 ----------- ----------- Total liabilities and shareholders' equity .......................... $ 5,134,943 $ 7,571,655 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 31 33 FLEXTRONICS INTERNATIONAL LTD. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED MARCH 31, ------------------------------------------ 1999 2000 2001 ----------- ---------- ------------ Net sales ....................................... $ 3,952,786 $6,959,122 $ 12,109,699 Cost of sales ................................... 3,512,229 6,335,242 11,127,896 Unusual charges ................................. 77,286 7,519 510,495 ----------- ---------- ------------ Gross profit .......................... 363,271 616,361 471,308 Selling, general and administrative ............. 240,512 319,952 430,109 Goodwill and intangibles amortization ........... 29,156 41,326 63,541 Unusual charges ................................. 2,000 3,523 462,847 Interest and other expense, net ................. 52,234 69,912 67,115 ----------- ---------- ------------ Income (loss) before income taxes ..... 39,369 181,648 (552,304) Provision for (benefit from) income taxes ....... (11,634) 23,080 (106,285) ----------- ---------- ------------ Net income (loss) ..................... $ 51,003 $ 158,568 $ (446,019) =========== ========== ============ Earnings (loss) per share: Basic ......................................... $ 0.17 $ 0.44 $ (1.01) =========== ========== ============ Diluted ....................................... $ 0.17 $ 0.42 $ (1.01) =========== ========== ============ Shares used in computing per share amounts: Basic ......................................... 299,984 356,338 441,991 =========== ========== ============ Diluted ....................................... 329,352 383,119 441,991 =========== ========== ============
The accompanying notes are an integral part of these consolidated financial statements. 32 34 FLEXTRONICS INTERNATIONAL LTD. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (IN THOUSANDS)
YEARS ENDED MARCH 31, ------------------------------------ 1999 2000 2001 -------- --------- --------- Net income (loss) ................................................ $ 51,003 $ 158,568 $(446,019) Other comprehensive income (loss): Foreign currency translation adjustment, net of tax ............ (12,793) (16,783) (49,844) Unrealized gain (loss) on available-for-sale securities, net of tax ................................................... -- 59,704 (55,851) -------- --------- --------- Comprehensive income (loss) ...................................... $ 38,210 $ 201,489 $(551,714) ======== ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 33 35 FLEXTRONICS INTERNATIONAL LTD. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED MARCH 31, 1999, 2000 AND 2001 (IN THOUSANDS)
ACCUMULATED ORDINARY SHARES ADDITIONAL RETAINED OTHER TOTAL ------------------ PAID-IN EARNINGS COMPREHENSIVE DEFERRED SHAREHOLDERS' SHARES AMOUNT CAPITAL (DEFICIT) INCOME (LOSS) COMPENSATION EQUITY -------- ------- ----------- --------- -------------- ------------ ------------- BALANCE AT MARCH 31, 1998................. 288,370 $ 1,753 $ 467,584 $ 202,843 $ (17,600) $(12,913) $ 641,667 Issuance of ordinary shares for acquisitions.......................... 511 3 4,798 -- -- -- 4,801 Issuance of common stock................ 4,144 24 49,056 -- -- -- 49,080 Exercise of stock options............... 5,482 32 11,370 -- -- -- 11,402 Ordinary shares issued under Employee Stock Purchase Plan................... 2,957 17 7,304 -- -- -- 7,321 Tax benefit on employee stock plans..... -- -- 1,635 -- -- -- 1,635 Sale of ordinary shares in public offering, net of offering costs....... 21,600 126 193,874 -- -- -- 194,000 Ordinary share repurchase............... (4,684) (27) (24,308) -- -- -- (24,335) Conversion of convertible notes......... 2 -- 15 -- -- -- 15 Dividends paid to former shareholders... -- -- -- (9,227) -- -- (9,227) Deferred stock compensation............. -- -- (938) -- -- 1,172 234 Amortization of deferred stock compensation.......................... -- -- -- -- -- 2,247 2,247 Net income.............................. -- -- -- 51,003 -- -- 51,003 Foreign currency translation............. -- -- -- -- (14,538) -- (14,538) -------- ------- ----------- --------- --------- -------- ----------- BALANCE AT MARCH 31, 1999................. 318,382 1,928 710,390 244,619 (32,138) (9,494) 915,305 Adjustment to conform fiscal year of pooled entity......................... -- -- -- (818) -- -- (818) Impact of immaterial pooling of interests acquisitions................ 1,847 6 1,607 (2,062) -- -- (449) Issuance of common stock................ 2,448 14 9,975 -- -- -- 9,989 Exercise of stock options............... 4,991 29 18,068 -- -- -- 18,097 Ordinary shares issued under Employee Stock Purchase Plan................... 2,118 13 8,822 -- -- -- 8,835 Tax benefit on employee stock plans .... -- -- 4,785 -- -- -- 4,785 Sale of ordinary shares in public offering, net of offering costs....... 67,018 391 1,158,382 -- -- -- 1,158,773 Conversion of convertible notes......... 14,792 86 84,988 -- -- -- 85,074 Dividends paid to former shareholders... -- -- -- (26,572) -- -- (26,572) Deferred stock compensation............. -- -- (1) -- -- 361 360 Amortization of deferred stock compensation.......................... -- -- -- -- -- 4,049 4,049 Net income.............................. -- -- -- 158,568 -- -- 158,568 Change in unrealized gain (loss) on available for sale securities........ -- -- -- -- 59,704 -- 59,704 Foreign currency translation............ -- -- -- -- (19,072) -- (19,072) -------- ------- ----------- --------- --------- -------- ----------- BALANCE AT MARCH 31, 2000................. 411,596 2,467 1,997,016 373,735 8,494 (5,084) 2,376,628 Adjustment to conform fiscal year of pooled entities....................... 6,882 40 4,056 (58,306) (3,787) -- (57,997) Impact of immaterial pooling of interests acquisitions................ 728 4 2,482 (2,112) -- -- 374 Issuance of ordinary shares for acquisitions.......................... 10,825 63 365,422 -- -- -- 365,485 Exercise of stock options............... 11,405 66 69,504 -- -- -- 69,570 Ordinary shares issued under Employee Stock Purchase Plan................... 445 3 8,911 -- -- -- 8,914 Tax benefit on employee stock plans..... -- -- 11,537 -- -- -- 11,537 Sale of ordinary shares in public offering, net of offering costs....... 39,650 228 1,421,443 -- -- -- 1,421,671 Dividends paid to former shareholders.. -- -- -- (190) -- -- (190) Amortization of deferred stock compensation.......................... -- -- -- -- -- 5,084 5,084 Issuance of equity instrument (Note 9).. -- -- 386,537 -- -- -- 386,537 Net loss................................ -- -- -- (446,019) -- -- (446,019) Change in unrealized gain (loss) on available for sale securities........ -- -- -- -- (55,851) -- (55,851) Foreign currency translation............ -- -- -- -- (55,382) -- (55,382) -------- ------- ----------- --------- --------- -------- ----------- BALANCE AT MARCH 31, 2001................. 481,531 $ 2,871 $ 4,266,908 $(132,892) $(106,526) $ -- $ 4,030,361 ======== ======= =========== ========= ========= ======== ===========
The accompanying notes are an integral part of these consolidated financial statements. 34 36 FLEXTRONICS INTERNATIONAL LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED MARCH 31, ----------------------------------------- 1999 2000 2001 --------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ........................................................... $ 51,003 $ 158,568 $ (446,019) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation, amortization and impairment charges ......................... 180,153 187,597 518,985 Loss (gain) on sales of equipment ......................................... (427) 2,818 (1,382) Provision for doubtful accounts ........................................... 1,149 12,534 9,429 Provision for inventories ................................................. 7,624 32,345 33,634 Equity in earnings of associated companies ................................ (2,529) (1,591) (79) In-process research and development ....................................... 2,000 -- -- Gain on sales of subsidiaries and long-term investments ................... (67) (365) -- Amortization of deferred stock compensation ............................... 2,247 4,049 5,084 Non-cash charge from issuance of equity instrument ........................ -- -- 286,537 Minority interest expense and other non-cash unusual charges .............. 11,553 (2,414) 139,067 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable ..................................................... (180,873) (444,306) (581,225) Inventories ............................................................. (112,381) (597,698) (559,842) Other current assets .................................................... (30,848) (89,464) (159,902) Other current liabilities, including accounts payable ................... 253,645 721,965 464,009 Deferred revenue ........................................................ 314 (2,292) 1,723 Deferred income taxes ................................................... (21,681) (16,107) (179,744) --------- ----------- ----------- Net cash provided by (used in) operating activities ................ 160,882 (34,361) (469,725) --------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment, net of proceeds from sale of equipment ................................................. (322,185) (462,398) (711,227) Purchases of OEM facilities and related assets .............................. (104,900) (249,755) (239,042) Proceeds from sales of subsidiaries and investments ......................... -- 35,871 46,910 Other investments and notes receivable ...................................... (15,250) (117,391) (54,398) Acquisitions of businesses, net of cash acquired ............................ (130,441) (85,743) (158,882) Other ....................................................................... 572 -- -- --------- ----------- ----------- Net cash used in investing activities .............................. (572,204) (879,416) (1,116,639) --------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Bank borrowings and proceeds from long-term debt ............................ 497,188 342,691 1,420,594 Repayments of bank borrowings and long-term debt ............................ (178,872) (120,231) (1,451,114) Repayments of capital lease obligations ..................................... (19,337) (40,930) (31,788) Dividends paid to former shareholders ....................................... (9,227) (26,572) (190) Proceeds from exercise of stock options and Employee Stock Purchase Plan ............................................................. 18,723 26,932 78,484 Net proceeds from issuance of common stock .................................. 23,621 9,804 -- Net proceeds from sale of ordinary shares in public offering ................ 194,000 1,158,773 1,421,671 Proceeds from issuance of equity instrument ................................. -- -- 100,000 Payments to acquire treasury stock .......................................... (24,335) -- -- Other ....................................................................... -- 1,162 -- --------- ----------- ----------- Net cash provided by financing activities .......................... 501,761 1,351,629 1,537,657 --------- ----------- ----------- Effect on cash from: Exchange rate changes .................................................... (5,872) (8,150) (34,048) Adjustment to conform fiscal year of pooled entities ..................... -- (818) (32,706) --------- ----------- ----------- Net increase (decrease) in cash and cash equivalents ........................ 84,567 428,884 (115,461) Cash and cash equivalents, beginning of year ................................ 233,598 318,165 747,049 --------- ----------- ----------- Cash and cash equivalents, end of year ...................................... $ 318,165 $ 747,049 $ 631,588 ========= =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 35 37 FLEXTRONICS INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 1. ORGANIZATION OF THE COMPANY Flextronics International Ltd. ("Flextronics" or the "Company") was incorporated in the Republic of Singapore in May 1990. Flextronics provides electronics manufacturing services to original equipment manufacturers, or OEMs, primarily in the telecommunications, networking, consumer electronics and computer industries. The Company provides a network of design, engineering and manufacturing operations in 27 countries across four continents. Flextronics provides customers with the opportunity to outsource on a global basis, a complete product where the Company takes responsibility for engineering, new product introduction and implementation, manufacturing, supply chain management and logistics management. The Company provides complete product design and technology services; logistics services, such as materials procurement, inventory management, vendor management, packaging and distribution; and automation of key components of the supply chain through advanced information technologies. 2. SUMMARY OF ACCOUNTING POLICIES Principles of consolidation and basis of presentation All dollar amounts included in the financial statements are expressed in U.S. dollars unless otherwise designated as Singapore dollars (S$) or Euro. The accompanying consolidated financial statements include the accounts of Flextronics and its wholly and majority-owned subsidiaries, after elimination of all significant intercompany accounts and transactions. In the current fiscal year, Flextronics acquired 100% of the outstanding shares of The DII Group, Inc. ("DII"), Lightning Metal Specialties and related entities ("Lightning"), Chatham Technologies, Inc. ("Chatham"), Palo Alto Products International Pte. Ltd. ("Palo Alto Products International") and JIT Holdings Ltd. ("JIT"). These acquisitions were accounted for as pooling of interests and the consolidated financial statements have been prepared to give retroactive effect to the mergers. DII, Lightning and Chatham operated under a different fiscal year end than Flextronics prior to the respective mergers. However, starting in fiscal 2001, DII, Lightning and Chatham changed their respective year ends to conform to the Company's March 31 year end. Accordingly, DII's and Lightning's operations for the three months ended March 31, 2000, and Chatham's operations for the six months ended March 31, 2000, have been excluded from the consolidated results of operations for fiscal 2001 and reported as an adjustment to retained earnings. Palo Alto Products International and JIT operated under the same fiscal year end as Flextronics, and as such, no alignment of fiscal year ends was required. See Note 11, "Business Combinations," for further details on the respective pooling of interests transactions. A reconciliation of results of operations previously reported by the separate companies and the combined amounts presented in the financial statements are summarized below (in thousands). 36 38
YEARS ENDED MARCH 31, --------------------------- 1999 2000 ----------- ----------- Net sales: Flextronics .................................... $ 2,233,208 $ 4,307,193 DII ............................................ 925,543 1,339,943 Lightning ...................................... 124,795 269,258 Chatham ........................................ 206,736 376,997 Palo Alto Products International ............... 95,519 95,458 JIT ............................................ 368,229 573,132 Intercompany elimination ....................... (1,244) (2,859) ----------- ----------- As restated .................................... $ 3,952,786 $ 6,959,122 =========== =========== Net income (loss): Flextronics .................................... $ 60,883 $ 120,915 DII ............................................ (17,032) 58,382 Lightning ...................................... 5,051 3,461 Chatham ........................................ (15,321) (41,711) Palo Alto Products International ............... 4,949 2,148 JIT ............................................ 12,473 15,373 ----------- ----------- As restated .................................... $ 51,003 $ 158,568 =========== ===========
Reclassifications Certain prior years' balances have been reclassified to conform to the current year's presentation. Translation of Foreign Currencies The functional currency of the majority of Flextronics' Asian subsidiaries and certain other subsidiaries is the U.S. dollar. Accordingly, all of the monetary assets and liabilities of these subsidiaries are translated into U.S. dollars at the current exchange rate as of the applicable balance sheet date, and all non-monetary assets and liabilities are remeasured at historical rates. Revenues and expenses are translated at the average exchange rate prevailing during the period. Gains and losses resulting from the translation of these subsidiaries' financial statements are included in the accompanying consolidated statements of operations. The financial position and results of operations of the Company's Danish, certain Italian, Norwegian, Polish, Swiss and UK subsidiaries are measured using their respective local currencies as the functional currency. Accordingly, for these subsidiaries all assets and liabilities are translated into U.S. dollars at current exchange rates as of the respective balance sheet date. Revenue and expense items are translated at the average exchange rates prevailing during the period. Cumulative translation gains and losses from the translation of these subsidiaries' financial statements are reported as a separate component of shareholders' equity. The Company's Finnish, French, German and certain Italian subsidiaries have adopted the Euro as their functional currency. Cash, Cash Equivalents and Investments All highly liquid investments with a maturity of three months or less at date of purchase are carried at fair market value and considered to be cash equivalents. Cash and cash equivalents consist of cash deposited in checking and money market accounts, corporate debt securities and certificates of deposit. The Company's short-term investments comprise of public corporate equity securities and are included within Other Current Assets in the Company's consolidated balance sheets and carried at fair market value. All investments are generally held in the Company's name and custodied with major financial institutions. The specific identification method is used to determine the cost of securities disposed of, with realized gains and losses reflected in other income and expense. At March 31, 2001, all of the Company's short-term investments were classified as available-for-sale. Unrealized holding gains and losses on these investments are included as a separate component of shareholders' equity, net of any related tax effect. 37 39 Cash equivalents and short-term investments consist of the following (in thousands):
MARCH 31, 2001 -------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE --------- ---------- ---------- --------- Money market funds .................... $344,499 $ -- $ -- $344,499 Certificates of deposits .............. 272 -- -- 272 Corporate debt securities ............. 5,264 -- -- 5,264 Corporate equity securities ........... 1,622 3,853 -- 5,475 -------- ------ ---- -------- $351,657 $3,853 $ -- $355,510 ======== ====== ==== ======== Included in cash and cash equivalents . $350,035 $ -- $ -- $350,035 Included in other current assets ...... 1,622 3,853 -- 5,475 -------- ------ ---- -------- $351,657 $3,853 $ -- $355,510 ======== ====== ==== ========
MARCH 31, 2000 ---------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE --------- ---------- ---------- --------- Money market funds .................... $236,342 $ -- $ -- $236,342 Certificates of deposits .............. 36,775 -- -- 36,775 Corporate debt securities ............. 282,781 -- -- 282,781 Corporate equity securities ........... 19,660 59,704 -- 79,364 -------- ------- ---- -------- $575,558 $59,704 $ -- $635,262 ======== ======= ==== ======== Included in cash and cash equivalents . 555,898 -- -- 555,898 Included in other current assets ...... 19,660 59,704 -- 79,364 -------- ------- ---- -------- $575,558 $59,704 $ -- $635,262 ======== ======= ==== ========
During fiscal year 2001, net gains realized on the sale of marketable equity securities amounted to approximately $33.4 million. There were no sales activities for the fiscal year ended March 31, 2000. The Company also has certain investments in non-publicly traded companies. These investments are included within Other Assets in the Company's consolidated balance sheet and are carried at cost. The Company monitors these investments for impairment and makes appropriate reductions in carrying values when necessary. Property, plant and equipment Property, plant and equipment is stated at cost. Depreciation and amortization are provided on a straight-line basis over the estimated useful lives of the related assets (one to thirty years), with the exception of building leasehold improvements, which are amortized over the life of the lease, if shorter. Repairs and maintenance costs are expensed as incurred. Property, plant and equipment was comprised of the following as of March 31 (in thousands):
2000 2001 ----------- ----------- Machinery and equipment ........................ $ 927,294 $ 1,209,422 Buildings ...................................... 418,332 596,070 Leasehold improvements ......................... 55,834 168,764 Computer equipment and software ................ 74,412 167,115 Furniture, fixtures and vehicles ............... 79,397 216,818 Other, including land .......................... 119,677 88,901 ----------- ----------- 1,674,946 2,447,090 Accumulated depreciation and amortization ...... (351,214) (618,649) ----------- ----------- Property, plant and equipment, net ............. $ 1,323,732 $ 1,828,441 =========== ===========
Concentration of credit risk Financial instruments, which potentially subject the Company to concentrations of credit risk, are primarily accounts receivable, cash equivalents and investments. The Company performs ongoing credit evaluations of its customers' financial condition and maintains an allowance for doubtful accounts based on the outcome of its credit evaluations. The Company maintains cash and cash equivalents with various financial institutions that management 38 40 believes to be of high credit quality. These financial institutions are located in many different locations throughout the world. No customer accounted for more than 10% of net sales in fiscal 1999 and fiscal 2001. In fiscal 2000, Ericsson accounted for approximately 12% of net sales. We have increasingly focused on sales to larger companies and to customers in the telecommunications, networking, consumer electronics and computer industries. In fiscal 2001, our ten largest customers accounted for approximately 59% of our net sales. Goodwill and other intangibles Any excess of cost over net assets acquired (goodwill) is amortized by the straight-line method over estimated lives generally ranging from two to fifteen years. Intangible assets are comprised of technical agreements, patents, trademarks, developed technologies and other acquired intangible assets including assembled work forces, favorable leases and customer lists. Technical agreements are being amortized on a straight-line basis over periods of up to five years. Patents and trademarks are being amortized on a straight-line basis over periods of up to 5 years. Purchased developed technologies are being amortized on a straight-line basis over periods of up to seven years. Intangible assets related to assembled work forces, favorable leases and customer lists are amortized on a straight-line basis over three to ten years. Goodwill and other intangibles were as follows as of March 31 (in thousands):
2000 2001 -------- ----------- Goodwill ....................................... $420,494 $ 1,060,712 Other intangibles .............................. 55,397 79,730 -------- ----------- 475,891 1,140,442 Accumulated amortization ....................... (85,540) (157,058) -------- ----------- Goodwill and other intangibles, net ............ $390,351 $ 983,384 ======== ===========
Long-lived assets The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of property and equipment is measured by comparison of its carrying amount, including the unamortized portion of goodwill allocated to the property and equipment, to future net cash flows the property and equipment are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property and equipment, including the allocated goodwill, if any, exceeds its fair market value. The Company assesses the recoverability of enterprise level goodwill and intangible assets as well as long-lived assets by determining whether the unamortized balances can be recovered through undiscounted future results of the operation or asset. The amount of enterprise level long lived asset impairment, if any, is measured based on projected discounted future results using a discount rate reflecting the Company's average cost of funds. The Company's adjustments to the carrying value of its long-lived assets are discussed in Note 9, "Unusual Charges." Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Inventories Inventories are stated at the lower of cost (first-in, first-out basis) or market value. Cost is comprised of direct materials, labor and overhead. As of March 31, the components of inventories, net of applicable reserves, were as follows (in thousands): 39 41
2000 2001 ---------- ---------- Raw materials ................................ $ 820,070 $1,346,427 Work-in-process .............................. 207,474 301,875 Finished goods ............................... 115,050 138,753 ---------- ---------- $1,142,594 $1,787,055 ========== ==========
Other current liabilities Other current liabilities were comprised of the following as of March 31 (in thousands):
2000 2001 -------- -------- Income taxes payable ................................... $ 26,108 $ 33,777 Accrued payroll ........................................ 112,035 182,217 Sales taxes and other taxes payable .................... 19,600 20,797 Accrued expenses for unusual charges (see Note 9) ...... 931 170,384 Other accrued liabilities .............................. 159,205 323,071 -------- -------- $317,879 $730,246 ======== ========
Revenue recognition In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 provides guidance on applying generally accepted accounting principles to revenue recognition issues in financial statements. The Company adopted SAB 101 as required in the fourth quarter of fiscal 2001 and the adoption of SAB 101 did not have a material impact on the Company's consolidated financial statements. The Company's net sales are comprised of product sales and service revenue earned from engineering and design services. Revenue from product sales is recognized upon shipment of the goods. Service revenue is recognized either at the completion of the service or as the services are performed, depending on the nature of the arrangement. Interest and other expense, net Interest and other expense, net was comprised of the following for the years ended March 31 (in thousands):
1999 2000 2001 -------- -------- --------- Interest expense ...................................... $ 61,430 $ 84,198 $ 135,243 Interest income ....................................... (11,374) (22,681) (32,219) Foreign exchange (gain) loss .......................... 3,543 2,128 (4,028) Other (income) expense, net ........................... (1,365) 6,267 (31,881) -------- -------- --------- Total interest and other expense, net ....... $ 52,234 $ 69,912 $ 67,115 ======== ======== =========
Earnings Per Share Basic earnings per share is computed using the weighted average number of ordinary shares outstanding during the applicable periods. Diluted earnings per share is computed using the weighted average number of ordinary shares and dilutive ordinary share equivalents outstanding during the applicable periods. Ordinary share equivalents include ordinary shares issuable upon the exercise of stock options and other equity instruments, and are computed using the treasury stock method. 40 42 Earnings per share data were computed as follows for the years ended March 31 (in thousands, except per share amounts):
1999 2000 2001 -------- -------- --------- BASIC EARNINGS (LOSS) PER SHARE: Net income (loss) ................................................. $ 51,003 $158,568 $(446,019) -------- -------- --------- Shares used in computation: Weighted-average ordinary shares outstanding ................... 299,984 356,338 441,991 ======== ======== ========= Basic earnings (loss) per share ................................... $ 0.17 $ 0.44 $ (1.01) ======== ======== ========= DILUTED EARNINGS (LOSS) PER SHARE: Net income (loss) ................................................. $ 51,003 $158,568 $(446,019) Plus income impact of assumed conversions: Interest expense (net of tax) on convertible subordinated notes ........................................... 3,105 400 -- Amortization (net of tax) of debt issuance costs on convertible subordinated notes ............................... 260 33 -- -------- -------- --------- Net income (loss) available to shareholders .................... $ 54,368 $159,001 $(446,019) Shares used in computation: Weighted-average ordinary shares outstanding ................... 299,984 356,338 441,991 Shares applicable to exercise of dilutive options(1),(2) ....... 14,174 25,021 -- Shares applicable to deferred stock compensation ............... 432 302 -- Shares applicable to convertible subordinated notes ............ 14,762 1,458 -- -------- -------- --------- Shares applicable to diluted earnings ........................ 329,352 383,119 441,991 ======== ======== ========= Diluted earnings (loss) per share ................................. $ 0.17 $ 0.42 $ (1.01) ======== ======== =========
(1) Stock options of the Company calculated based on the treasury stock method using average market price for the period, if dilutive. Options to purchase 1,591,596 and 961,436 shares outstanding during the fiscal years ended March 31, 1999 and March 31, 2000, respectively, were excluded from the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the Company's ordinary shares during those fiscal years. (2) The ordinary share equivalents from stock options and other equity instruments were antidilutive for the fiscal year ended March 31, 2001, and therefore not assumed to be converted for diluted earnings per share computation. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS No. 133") which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires that companies recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company adopted SFAS No. 133 effective April 2001 and the adoption will not have a material impact on its consolidated financial statements. 3. SUPPLEMENTAL CASH FLOW DISCLOSURES The following information relates to fiscal years ended March 31 (in thousands):
1999 2000 2001 ------- ------- -------- Cash paid for: Interest ................................................................ $42,513 $78,293 $ 68,363 Income taxes ............................................................ 16,846 12,927 15,312 Non-cash investing and financing activities: Equipment acquired under capital lease obligations ...................... 50,843 50,897 10,318 Conversion of convertible notes to common stock ......................... -- 85,074 --
41 43 Issuances of ordinary shares for purchases of OEM assets ................ -- -- 26,902 Issuances of ordinary shares for acquisitions of businesses ............. 4,801 -- 338,583
4. BANK BORROWINGS AND LONG-TERM DEBT In June 2000, the Company issued approximately $645.0 million of senior subordinated notes, consisting of $500.0 million of 9.875% notes and euros 150.0 million of 9.75% notes. Interest is payable on July 1 and January 1 of each year, commencing January 1, 2001. The notes mature on July 1, 2010. The Company may redeem the notes on or after July 1, 2005. The fair value of the 9.875% senior subordinated notes and the 9.75% euro senior subordinated notes based on broker trading prices was 96.5% and 99.0% of the face value on March 31, 2001, respectively. Additionally, the Company has $150.0 million in unsecured senior subordinated notes due in 2007 outstanding with an annual interest rate of 8.75%. Interest is payable on April 15 and October 15 of each year. The notes mature on October 15, 2007. The fair value of the unsecured senior subordinated notes based on broker trading prices was 93.5% of the face value on March 31, 2001. The indentures relating to the notes contain certain covenants that, among other things, limit the ability of the Company and certain of its subsidiaries to (i) incur additional debt, (ii) issue or sell stock of certain subsidiaries, (iii) engage in asset sales, and (iv) make distributions or pay dividends. The covenants are subject to a number of significant exceptions and limitations. In April 2000, the Company replaced its existing credit facilities, with a $500.0 million Revolving Credit Facility ("Credit Facility") with a syndicate of domestic and foreign banks. The Credit Facility consisted of two separate credit agreements, one providing for up to $150.0 million principal amount of revolving credit loans to the Company and designated subsidiaries ("Tranche A") and one providing for up to $350.0 million principal amount of revolving credit loans to the Company's principal United States subsidiaries ("Tranche B"). Both Tranche A and Tranche B are split equally between a 364 day and a three year facility. Borrowings under the Credit Facility bear interest, at the Company's option, at either: (i) the base rate (as defined in the Credit Facility); or (ii) the LIBOR rate (as defined in the Credit Facility) plus the applicable margin for LIBOR loans ranging between 0.625% and 1.75%, based on certain financial ratios of the Company. The Company is required to pay a quarterly commitment fee ranging from 0.15% to 0.375% per annum, based on certain financial ratios of the Company, of the unutilized portion of the Credit Facility. The Credit Facility was amended on April 3, 2001 to provide for an additional 364 day facility with similar terms and conditions. The Credit Facility is unsecured, and contains certain restrictions on the Company's ability to (i) incur certain debt, (ii) make certain investments and (iii) make certain acquisitions of other entities. The Credit Facility also requires that the Company maintain certain financial covenants, including, among other things, a maximum ratio of total indebtedness to EBITDA (earnings before interest, taxes, depreciation, and amortization) and a minimum ratio of fixed charge coverage, as defined, during the term of the Credit Facility. Borrowings under the Credit Facility are guaranteed by the Company and certain of its subsidiaries. As of March 31, 2001, there were no borrowings outstanding under the Credit Facility and the Company was in compliance with its covenants Certain subsidiaries of the Company have various lines of credit available with annual interest rates generally ranging from 3.1% to 7.8%. These lines of credit expire on various dates through 2002. The Company also has term loans with annual interest rates generally below 8.0% with terms of up to 15 years. These lines of credit and term loans are primarily secured by assignment of account receivables and assets. The Company has financed the purchase of certain facilities with mortgages. The mortgages generally have terms of up to 10 years and annual interest rates ranging from 5.0% to 9.0% and are secured by the underlying properties with a net book value of approximately $63.4 million at March 31, 2001. Bank borrowings and long-term debt was comprised of the following at March 31 (in thousands): 2000 2001 ----------- ----------- Senior subordinated notes .................... $ 300,000 $ 779,596 Credit facilities ............................ 433,849 -- Outstanding under lines of credit ............ 116,624 219,579
42 44 Mortgages .................................... 23,550 43,340 Term loans and other debt .................... 207,580 135,062 ----------- ----------- 1,081,603 1,177,577 Current portion .................... (487,773) (298,052) ----------- ----------- Non-current portion ................ $ 593,830 $ 879,525 =========== ===========
Maturities for the bank borrowings and other long-term debt are as follows for the years ended March 31 (in thousands): 2002............................................ $ 298,052 2003............................................ 39,976 2004............................................ 14,141 2005............................................ 9,738 2006............................................ 11,872 Thereafter...................................... 803,798 ----------- $1,177,577 ==========
5. FINANCIAL INSTRUMENTS The value of the Company's cash and cash equivalents, investments, accounts receivable and accounts payable carrying amount approximates fair value. The fair value of the Company's long-term debt (see Note 4, "Bank Borrowings and Long-Term Debt") is determined based on current broker trading prices. The Company's cash equivalents are comprised of cash deposited in money market accounts, corporate debt securities and certificates of deposit (see Note 2, "Summary of Accounting Policies"). The Company's investment policy limits the amount of credit exposure to 20% of the total investment portfolio in any single issuer. The Company enters into forward exchange contracts to hedge underlying transactional currency exposures and does not engage in foreign currency speculation. The credit risk of these forward contracts is minimal since the contracts are with large financial institutions. The Company hedges committed exposures and these forward contracts generally do not subject the Company to risk of accounting losses. The gains and losses on forward contracts generally offset the gains and losses on the asset, liabilities and transactions hedged. The Company's off-balance sheet financial instruments consist of $61.1 million and $200.4 million of aggregate foreign currency forward contracts outstanding at the end of fiscal year 2000 and 2001, respectively. These foreign exchange contracts expire in less than three months and will settle in Euro, French Franc, German Deutsche Mark, Japanese Yen, Swedish Kronor and United States dollar. 6. COMMITMENTS AND CONTINGENCIES As of March 31, 2000 and 2001, the Company has financed a total of $77.6 million and $142.8 million, respectively in machinery and equipment purchases with capital leases. Accumulated amortization for property and equipment under capital leases totaled $26.8 million and $61.2 million at March 31, 2000 and 2001, respectively. These capital leases have interest rates ranging from 1.8% to 14.6%. The Company also leases certain of its facilities under non-cancelable operating leases. The capital and operating leases expire in various years through 2007 and require the following minimum lease payments for the years ended March 31 (in thousands):
CAPITAL OPERATING -------- --------- 2002...................................................... $ 31,354 $117,171 2003...................................................... 20,859 101,714 2004...................................................... 14,069 70,801 2005...................................................... 3,177 35,463 2006...................................................... 1,359 16,456 Thereafter................................................ 400 16,848 -------- -------- Minimum lease payments.................................... 71,218 $358,453 ======== Amount representing interest.............................. (5,828) -------- Present value of minimum lease payments................... 65,390 Current portion........................................... (27,602) -------- Capital lease obligations, net of current portion......... $ 37,788 ========
43 45 Total rent expense was $28.7 million, $50.7 million and $78.7 million for the years ended March 31, 1999, 2000 and 2001, respectively. We are party to various legal proceedings that arise in the normal course of business. In the opinion of management, the ultimate disposition of these proceedings will not have a material adverse effect on our consolidated financial position, liquidity or results of operations. 7. INCOME TAXES The domestic and foreign components of income (loss) before income taxes were comprised of the following for the years ended March 31 (in thousands):
1999 2000 2001 ------- -------- --------- Singapore ................... $ 4,912 $ 32,377 $(269,771) Foreign ..................... 34,457 149,271 (282,533) ------- -------- --------- Total ....................... $39,369 $181,648 $(552,304) ======= ======== =========
The provision for (benefit from) income taxes consisted of the following for the years ended March 31 (in thousands):
1999 2000 2001 -------- --------- --------- Current: Singapore ............... $ 2,828 $ 839 $ 6,607 Foreign ................. 7,755 35,406 27,170 -------- --------- --------- 10,583 36,245 33,777 -------- --------- --------- Deferred: Singapore ............... 363 2,870 (2,206) Foreign ................. (22,580) (16,035) (137,856) -------- --------- --------- (22,217) (13,165) (140,062) -------- --------- --------- $(11,634) $ 23,080 $(106,285) ======== ========= =========
The Singapore statutory income tax rate was approximately 26.0% for each of the years in the two year period ended March 31, 2000, and 24.5% for the one year period ended March 31, 2001. The reconciliation of the income tax expense (benefit) expected based on Singapore statutory income tax rates to the provision for (benefit from) income taxes included in the consolidated statements of operations for the years ended March 31 is as follows (in thousands):
1999 2000 2001 -------- -------- --------- Income taxes based on Singapore statutory rates ........... $ 10,236 $ 47,133 $(135,315) Effect of tax rate differential ........................... (19,220) (41,984) (138,105) Tax exempt income ......................................... (549) (866) (8,790) Amortization of goodwill and other intangibles ............ 3,350 4,334 15,568 Motorola unusual charge ................................... -- -- 70,201 Merger expenses ........................................... -- -- 16,059 Facility closure costs .................................... -- -- 46,094 Change in valuation allowance ............................. (2,827) 15,993 26,848 Tax credits and carryforwards ............................. (1,166) (4,800) -- Other ..................................................... (1,458) 3,270 1,155 -------- -------- --------- Provision for (benefit from) income taxes ....... $(11,634) $ 23,080 $(106,285) ======== ======== =========
The components of deferred income taxes are as follows as of March 31 (in thousands):
2000 2001 --------- --------- Deferred tax liabilities: Unremitted earnings of foreign subsidiaries ..................... $ (2,766) $ -- Intangible assets ............................................... (10,604) (6,665) Fixed assets .................................................... (34,922) -- Others .......................................................... (5,398) (803) --------- --------- Total deferred tax liabilities .......................... $ (53,690) $ (7,468) --------- ---------
Deferred tax assets: 44 46 Fixed assets .................................................... $ -- $ 15,855 Deferred compensation ........................................... 6,057 43,147 Compensated absences ............................................ 1,164 3,210 Provision for inventory obsolescence ............................ 10,867 35,760 Provision for doubtful accounts ................................. 5,625 8,782 Net operating loss carryforwards ................................ 67,689 133,860 Federal and state credits ....................................... 11,857 11,414 Uniform capitalization of inventory ............................. 4,493 2,523 Unusual charges ................................................. -- -- Others .......................................................... 13,069 37,982 --------- --------- Total deferred tax assets ............................... 120,821 292,533 Valuation allowances ............................................ (50,342) (102,792) --------- --------- Total deferred tax assets ............................... $ 70,479 $ 189,741 --------- --------- Net deferred tax asset ......................................... $ 16,789 $ 182,273 ========= ========= The net deferred tax asset is classified as follows: Current asset (classified as Other Current Assets) .............. $ 18,338 $ 42,595 Long-term asset (classified as Other Assets/Liabilities) ........ (1,549) 139,678 --------- --------- $ 16,789 $ 182,273 ========= =========
A deferred tax asset arises from available tax loss carryforwards and non-deductible accruals. The Company has total tax loss carryforwards of approximately $400.0 million, a portion of which begin expiring in tax year 2010. The utilization of these tax loss deductions is limited to the future operations of the Company in the tax jurisdictions in which such loss deductions arose. As a result, management is uncertain as to when or whether these operations will generate sufficient profit to realize the deferred tax asset benefit. The valuation allowance provides a reserve against deferred tax assets that may expire or go unutilized by the Company. However, management has determined that it is more likely than not that the Company will realize certain of these benefits and, accordingly, has recognized a deferred tax asset from these benefits. The amount of deferred tax assets considered realizable, however, could be reduced or increased in the near-term if facts, including the amount of taxable income or the mix of taxable income between subsidiaries, differ from management's estimates. The Company does not provide for federal income taxes on the undistributed earnings of its foreign subsidiaries as such earnings are not intended by management to be repatriated in the foreseeable future. Determination of the amount of the unrecognized deferred tax liability on these undistributed earnings is not practicable. 8. SHAREHOLDERS' EQUITY Secondary offerings During fiscal 1999, the Company completed an offering of its ordinary shares. A total of 21,600,000 ordinary shares were sold, resulting in net proceeds to the Company of $194.0 million. During fiscal 2000, the Company completed three secondary offerings of its ordinary shares. A total of 67,018,000 ordinary shares were sold, resulting in net proceeds to the Company of approximately $1.2 billion. During fiscal 2001, the Company completed two equity offerings of its ordinary shares. A total of 39,650,000 ordinary shares were sold, resulting in net proceeds to the Company of approximately $1.4 billion. Stock splits In fiscal 1999, the Company effected a 2:1 stock split. A distribution of 47,068,458 ordinary shares occurred on January 11, 1999. In fiscal 2000, the Company effected a second 2:1 stock split. A distribution of 57,497,204 ordinary shares occurred on December 22, 1999. In fiscal 2001, the Company effected another 2:1 stock split. A distribution of 209,001,331 ordinary shares occurred on October 16, 2000. Each of the stock splits was effected as a bonus issue (the Singapore equivalent of a stock dividend). The Company has accounted for these transactions as a stock split and all share and per share amounts have been retroactively restated to reflect all stock splits. Strategic Alliance 45 47 On May 30, 2000, the Company entered into a strategic alliance for product manufacturing with Motorola. This alliance provides incentives for Motorola to purchase over $32.0 billion of products and services from us through December 31, 2005. The relationship is not exclusive and does not require that Motorola purchase any specific volumes of products or services from the Company. The Company's ability to achieve any of the anticipated benefits of this relationship is subject to a number of risks, including its ability to provide services on a competitive basis and to expand manufacturing resources, as well as demand for Motorola's products. In connection with this strategic alliance, Motorola paid $100.0 million for an equity instrument that entitles it to acquire 22,000,000 Flextronics ordinary shares at any time through December 31, 2005 upon meeting targeted purchase levels or making additional payments to the Company. The issuance of this equity instrument resulted in a one-time non-cash charge equal to the excess of the fair value of the equity instrument issued over the $100.0 million proceeds received. As a result, the one-time non-cash charge amounted to approximately $286.5 million offset by a corresponding credit to additional paid-in capital in the first quarter of fiscal 2001. During the term of the strategic alliance, if Motorola meets targeted purchase levels, no additional payments may be required by Motorola to acquire 22,000,000 Flextronics ordinary shares. However, there may be additional non-cash charges of up to $300.0 million over the term of the strategic alliance. (See Note 14, "Subsequent Events" for additional information on this equity instrument.) Stock-based compensation The Company's 1993 Share Option Plan (the "Plan") provides for the grant of up to 50,800,000 incentive stock options and non-statutory stock options to employees and other qualified individuals to purchase ordinary shares of the Company. As of March 31, 2001, the Company had 5,741,227 ordinary shares available for future option grants under the Plan at an exercise price of not less than 85% of the fair value of the underlying stock on the date of grant. Options issued under the Plan generally vest over 4 years. Pursuant to an amendment to the provisions relating to the term of options provided under the Plan, options granted subsequent to October 1, 2000 expire 10 years from the date of grant, rather than the five-year term previously provided. The Company's 1997, 1998 and 1999 Interim Option Plans provide for grants of up to 2,000,000, 3,144,000, and 5,200,000 stock options, respectively. These plans provide grants of non-statutory stock options to employees and other qualified individuals to purchase ordinary shares of the Company. Options under these plans cannot be granted to executive officers and directors. As of March 31, 2001, the 1997, 1998 and 1999 Interim Option Plans had 490,594, 173,803 and 1,928,352 ordinary shares available for future option grants, respectively. All Interim Option Plans have an exercise price of not less than 85% of fair market value of the underlying stock on the date of grant. Options issued under these plans generally vest over 4 years and expire 5 years from the date of grant. The Company has assumed certain option plans and the underlying options of companies which the Company has merged with or acquired (the "Assumed Plans"). Options under the Assumed Plans have been converted into the Company's options and adjusted to effect the appropriate conversion ratio as specified by the applicable acquisition or merger agreement, but are otherwise administered in accordance with the terms of the Assumed Plans. Options under the Assumed Plans generally vest over 4 years and expire 10 years from the date of grant. The following table presents the activity for options outstanding under all of the stock option plans as of March 31 ("Price" reflects the weighted average exercise price):
1999 2000 2001 -------------------- -------------------- -------------------- OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ----------- ------ ----------- ------ ----------- ------ Outstanding, beginning of year ........... 28,281,584 $ 3.07 39,283,808 $ 4.25 44,853,772 $ 7.46 Granted .................................. 19,223,312 5.28 11,668,916 13.49 14,655,646 23.23 Exercised ................................ (5,481,928) 2.15 (4,990,596) 3.57 (11,404,613) 5.54 Forfeited ................................ (2,739,160) 4.11 (1,108,356) 6.30 (869,374) 23.98 ---------- ---------- ----------- Outstanding, end of year ................. 39,283,808 $ 4.25 44,853,772 $ 7.46 47,235,431 $13.35 ========== ========== =========== Exercisable, end of year ................. 11,314,768 13,583,702 21,065,008 ========== ========== =========== Weighted average fair value per option granted ................................ $ 3.30 $ 7.44 $ 12.60 ========== ========== ===========
The following table presents the composition of options outstanding and exercisable as of March 31, 2001 ("Price" and "Life" reflect the weighted average exercise price and weighted average contractual life unless otherwise noted): 46 48
RANGE OF OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------- --------------------------- EXERCISE PRICES AMOUNT PRICE LIFE AMOUNT PRICE --------------- ---------- ------ ---- ---------- ------ $ 0.39--$ 4.05 9,686,954 $ 3.16 3.66 8,643,873 $ 3.08 4.12-- 6.00 10,670,262 5.42 2.58 6,651,767 5.38 6.23-- 16.00 10,379,352 11.92 4.86 4,837,944 10.73 16.13-- 25.00 12,824,248 23.22 7.53 644,517 21.49 25.03-- 44.12 3,674,615 32.82 4.42 286,907 29.25 ---------- ---------- Total, March 31, 2001 47,235,431 $13.35 4.79 21,065,008 $ 6.48 ========== ==========
The Company's Employee Stock Purchase Plan (the "Purchase Plan") provides for issuance of up to 2,400,000 ordinary shares. The Purchase Plan was approved by the shareholders in October 1997. Under the Purchase Plan, employees may purchase, on a periodic basis, a limited number of shares of common stock through payroll deductions over a six-month period up to 10% of each participant's compensation. The per share purchase price is 85% of the fair market value of the stock at the beginning or end of the offering period, whichever is lower. As of March 31, 2001, there are 1,444,133 ordinary shares available for sale under this plan. The ordinary shares sold under this plan in fiscal 1999, 2000 and 2001, amounted to 282,088, 278,808 and 445,476, respectively. The weighted-average fair value of ordinary shares sold under this plan in fiscal 1999, 2000 and 2001 was $4.03, $8.69 and $20.00 per share, respectively. In connection with the acquisition of DII, the Company assumed DII's Employee Stock Purchase Plan ("DII's Purchase Plan"). The ordinary shares sold under this plan in fiscal 1999 and 2000 amounted to 1,790,111 and 1,838,932, respectively. The weighted average fair value of ordinary shares sold under the DII Purchase Plan in fiscal 1999 and 2000 was $5.32 and $7.60 per share, respectively. In addition, the Company also assumed DII's Non-Employee Directors' Stock Compensation Plan. The ordinary shares sold under this plan in fiscal 1999 and 2000 amounted to 28,526 and 17,871, respectively. The weighted average fair value of ordinary shares sold under this plan in fiscal 1999 and 2000 was $6.07 and $10.41 per share, respectively. The Company discontinued issuing ordinary shares under both plans in fiscal 2001. The Company has elected to follow APB Opinion No. 25 "Accounting for Stock Issued to Employees" and related interpretations in accounting for its employee stock option plans and employee stock purchase plans and has adopted the disclosure provisions of SFAS No. 123 "Accounting for Stock Based Compensation." Because the exercise price of the Company's stock options has equaled the fair value of the underlying stock on the date of grant, no compensation expense has been recognized under APB Opinion No. 25. Had the compensation cost for the Company's stock-based compensation plans been determined based on the fair values of these options, the Company's fiscal 1999, 2000 and 2001 net income (loss) and earnings (loss) per share would have been adjusted to the proforma amounts indicated below: 47 49
YEARS ENDED MARCH 31, --------------------------------- 1999 2000 2001 -------- -------- --------- Net income (loss): As reported ................................. $ 51,003 $158,568 $(446,019) Proforma .................................... 35,943 133,319 (596,494) Basic earnings (loss) per share: As reported ................................. $ 0.17 $ 0.44 $ (1.01) Proforma .................................... 0.12 0.37 (1.35) Diluted earnings (loss) per share: As reported ................................. $ 0.17 $ 0.42 $ (1.01) Proforma .................................... 0.12 0.35 (1.35)
In accordance with the disclosure provisions of SFAS No. 123, the fair value of employee stock options granted during fiscal 1999, 2000 and 2001 was estimated at the date of grant using the Black-Scholes model and the following weighted average assumptions:
YEARS ENDED MARCH 31, -------------------------------- 1999 2000 2001 ---- ---- ---- Volatility .............................. 58% 58% 62% Risk-free interest rate range ........... 5.2% 6.2% 6.3% Dividend yield .......................... 0% 0% 0% Expected lives .......................... 3.5 yrs 3.5 yrs 3.6 yrs
Because SFAS No. 123 is applicable only to awards granted subsequent to December 30, 1994, and due to the subjective nature of the assumptions used in the Black-Scholes model, the pro-forma net income (loss) and earnings (loss) per share disclosures may not reflect the associated fair value of the outstanding options. Deferred Stock Compensation Under the DII 1994 Stock Incentive Plan, certain key executives of DII were awarded 1,468,320 shares in fiscal 1999. Shares vest over a period of time, which in no event exceeds eight years. The shares vested at an accelerated rate upon the achievement of certain annual earnings per share targets established by DII's Compensation Committee. Non-vested shares for individual participants who are no longer employed by the Company on the plan termination date are forfeited. Participants receive all unissued shares upon death or disability, or in the event of a change of control of the Company. The shares are not reported as outstanding until vested. The Company issued 884,972 vested shares in fiscal 1999. Deferred stock compensation equivalent to the market value at the date the shares were awarded is charged to shareholders' equity and is amortized to expense based upon the estimated number of shares expected to be issued in any particular year. Deferred compensation expense amounting to $2.2 million, $4.0 million and $5.1 million, was amortized to expense during fiscal 1999, 2000 and 2001, respectively. The weighted-average fair value of performance shares awarded in fiscal 1999 and 2000, was $6.20 and $6.23 per share, respectively. 9. UNUSUAL CHARGES FISCAL 2001 The Company recognized unusual pre-tax charges of approximately $973.3 million during fiscal year 2001. Of this amount, $493.1 million was recorded in the first quarter and was comprised of approximately $286.5 million related to the issuance of an equity instrument to Motorola combined with approximately $206.6 million of expenses resulting from the DII and Palo Alto Products International mergers and related facility closures. In the second quarter, unusual pre-tax charges amounted to approximately $48.4 million associated with the Chatham and Lightning mergers and related facility closures. In the third quarter, the Company recognized unusual pre-tax charges of approximately $46.3 million, primarily related to the JIT merger and related facility closures. During the fourth quarter, the Company recognized unusual pre-tax charges, amounting to $385.6 million related to closures of several manufacturing facilities. 48 50 On May 30, 2000, the Company entered into a strategic alliance for product manufacturing with Motorola. See Note 8, "Shareholders' Equity," for further information concerning the strategic alliance. In connection with this strategic alliance, Motorola paid $100.0 million for an equity instrument that entitles it to acquire 22.0 million Flextronics ordinary shares at any time through December 31, 2005, upon meeting targeted purchase levels or making additional payments to the Company. The issuance of this equity instrument resulted in a one-time non-cash charge equal to the excess of the fair value of the equity instrument issued over the $100.0 million proceeds received. As a result, the one-time non-cash charge amounted to approximately $286.5 million offset by a corresponding credit to additional paid-in capital in the first quarter of fiscal 2001. In connection with the aforementioned mergers and facility closures, the Company recorded aggregate unusual charges of $686.8 million, which included approximately $584.4 million of facility closure costs and approximately $102.4 million of direct transaction costs. As discussed below, $510.5 million of the charges relating to facility closures have been classified as a component of Cost of Sales during the fiscal year ended March 31, 2001. The components of the unusual charges recorded are as follows (in thousands):
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER TOTAL NATURE OF CHARGES CHARGES CHARGES CHARGES CHARGES CHARGES -------- ------- -------- --------- --------- ------------- Facility closure costs: Severance............................ $ 62,487 $ 5,677 $ 3,606 $ 60,703 $ 132,473 cash Long-lived asset impairment.......... 46,646 14,373 16,469 155,046 232,534 non-cash Exit costs........................... 24,201 5,650 19,703 169,818 219,372 cash/non-cash -------- ------- -------- --------- --------- Total facility closure costs..... 133,334 25,700 39,778 385,567 584,379 Direct transaction costs: Professional fees.................... 50,851 7,247 6,250 -- 64,348 cash Other costs.......................... 22,382 15,448 248 -- 38,078 cash/non-cash -------- ------- -------- --------- --------- Total direct transaction costs... 73,233 22,695 6,498 -- 102,426 -------- ------- -------- --------- --------- Total Unusual Charges.................. 206,567 48,395 46,276 385,567 686,805 -------- ------- -------- --------- --------- Income tax benefit..................... (30,000) (6,000) (6,500) (110,000) (152,500) -------- ------- -------- --------- --------- Net Unusual Charges.................... $176,567 $42,395 $ 39,776 $ 275,567 $ 534,305 ======== ======= ======== ========= =========
In connection with the facility closures, the Company developed formal plans to exit certain activities and involuntarily terminate employees. Management's plan to exit an activity included the identification of duplicate manufacturing and administrative facilities for closure and the identification of manufacturing and administrative facilities for consolidation into other facilities. Management currently anticipates that the facility closures and activities to which all of these charges relate will be substantially completed within one year of the commitment dates of the respective exit plans, except for certain long-term contractual obligations. The following table summarizes the components of the facility closure costs and related activities in fiscal 2001:
LONG-LIVED ASSET EXIT SEVERANCE IMPAIRMENT COSTS TOTAL --------- ----------- --------- --------- Balance at March 31, 2000 ........... $ -- $ -- $ -- $ -- Activities during the year: First quarter provision ........... 62,487 46,646 24,201 133,334 Cash charges ...................... (35,800) -- (1,627) (37,427) Non-cash charges .................. -- (46,646) (7,441) (54,087) -------- --------- --------- --------- Balance at June 30, 2000 ............ 26,687 -- 15,133 41,820 Activities during the year: Second quarter provision .......... 5,677 14,373 5,650 25,700 Cash charges ...................... (4,002) -- (4,231) (8,233) Non-cash charges .................. -- (14,373) (8,074) (22,447) -------- --------- --------- --------- Balance at September 30, 2000 ....... 28,362 -- 8,478 36,840 Activities during the year: Third quarter provision ........... 3,606 16,469 19,703 39,778 Cash charges ...................... (7,332) -- (2,572) (9,904) Non-cash charges .................. -- (16,469) (14,070) (30,539) -------- --------- --------- --------- Balance at December 31, 2000 ........ 24,636 -- 11,539 36,175 Activities during the year:
49 51 Fourth quarter provision .......... 60,703 155,046 169,818 385,567 Cash charges ...................... (13,605) -- (14,686) (28,291) Non-cash charges .................. -- (155,046) (71,328) (226,374) -------- --------- --------- --------- Balance at March 31, 2001 ........... $ 71,734 $ -- $ 95,343 $ 167,077 ======== ========= ========= =========
Of the total pre-tax facility closure costs, $132.5 million relates to employee termination costs, of which $67.8 million has been classified as a component of Cost of Sales. As a result of the various exit plans, the Company identified 11,269 employees to be involuntarily terminated related to the various mergers and facility closures. As of March 31, 2001, 4,457 employees have been terminated, and another 6,812 employees have been notified that they are to be terminated upon completion of the various facility closures and consolidations. During fiscal 2001, the Company paid employee termination costs of approximately $60.7 million. The remaining $71.7 million of employee termination costs is classified as accrued liabilities as of March 31, 2001 and is expected to be paid out within one year of the commitment dates of the respective exit plans. The unusual pre-tax charges include $232.5 million for the write-down of long-lived assets to fair value. This amount has been classified as a component of Cost of Sales. Included in the long-lived asset impairment are charges of $229.1 million, which relate to property, plant and equipment associated with the various manufacturing and administrative facility closures which were written down to their net realizable value based on their estimated sales price. Certain facilities will remain in service until their anticipated disposal dates pursuant to the exit plans. Since the assets will remain in service from the date of the decision to dispose of these assets to the anticipated disposal date, the assets are being depreciated over this expected period. The impaired long-lived assets consisted primarily of machinery and equipment of $153.0 million and building and improvements of $76.1 million. The long-lived asset impairment also includes the write-off of the remaining goodwill and other intangibles related to certain closed facilities of $3.4 million. The unusual pre-tax charges also include approximately $219.4 million for other exit costs. Approximately $210.2 million of this amount has been classified as a component of Cost of Sales. The other exit costs recorded, primarily related to items such as building and equipment lease termination costs, warranty costs, current asset impairments and payments to suppliers and vendors to terminate agreements and were incurred directly as a result of the various exit plans. The Company paid approximately $23.1 million of other exit costs during fiscal 2001. Additionally, approximately $101.0 million of other exit costs were non-cash charges utilized during fiscal 2001. The remaining $95.3 million is classified in accrued liabilities as of March 31, 2001 and is expected to be substantially paid out within one year from the commitment dates of the respective exit plans, except for certain long-term contractual obligations. The direct transaction costs include approximately $64.3 million of costs primarily related to investment banking and financial advisory fees as well as legal and accounting costs associated with the merger transactions. Other direct transaction costs which totaled approximately $38.1 million were mainly comprised of accelerated debt prepayment expense, accelerated executive stock compensation and benefit-related expenses. The Company paid approximately $70.9 million of the direct transaction costs during fiscal 2001. Additionally, approximately $28.2 million of the direct transaction costs were non-cash charges utilized during fiscal 2001. The remaining $3.3 million is classified in accrued liabilities as of March 31, 2001 and is expected to be substantially paid out in the first quarter of fiscal 2002. FISCAL 2000 In fiscal 2000, the Company recognized unusual pre-tax charges of $7.5 million related to the operations of Chatham, which included severance and related charges of approximately $4.4 million and other facility exit costs of approximately $3.1 million. Additionally, unusual pre-tax charges of $3.5 million were recorded in fiscal 2000, related to the Kyrel EMS Oyj merger. The unusual charges consisted of a transfer tax of $1.7 million, approximately $0.4 million of investment banking fees and approximately $1.4 million of legal and accounting fees. FISCAL 1999 During fiscal 1999, the Company recognized unusual pre-tax charges of $79.3 million, substantially all of which related to the operations of the Company's wholly owned subsidiary, Orbit Semiconductor, Inc. ("Orbit"). 50 52 The Company decided to sell Orbit's 6-inch, 0.6 micron wafer fabrication facility ("Fab") and adopt a fabless manufacturing strategy to complement Orbit's design and engineering services. The charges were primarily due to the impaired recoverability of inventories, intangible assets and fixed assets, and other costs associated with the exit of semiconductor manufacturing. The Fab was ultimately sold in January 2000. The components of the unusual charges recorded in fiscal 1999 are as follows:
FIRST FOURTH QUARTER QUARTER TOTAL NATURE OF CHARGES CHARGES CHARGES CHARGES -------- -------- -------- --------- Severance .................................. $ 498 $ 2,371 $ 2,869 cash Long-lived asset impairment ................ 38,257 16,538 54,795 non-cash Losses on sales contracts .................. 2,658 3,100 5,758 non-cash Incremental uncollectible accounts receivable ............................... 900 -- 900 non-cash Incremental sales return and allowances ............................... 1,500 500 2,000 non-cash Inventory write-downs ...................... 5,500 250 5,750 non-cash Acquired in-process research and development .............................. -- 2,000 2,000 non-cash Other exit costs ........................... 1,845 3,369 5,214 cash/non-cash -------- -------- -------- Total Unusual Pre-Tax Charges .............. $ 51,158 $ 28,128 $ 79,286 ======== ======== ========
Of the total unusual pre-tax charges, approximately $2.9 million relates to employee termination costs. As a result of the closure of the fabrication facility, 460 employees were terminated. The terminations were completed and related severance costs were fully paid out by the first quarter of fiscal 2000. The unusual pre-tax charges include approximately $54.8 million for the write-down of long-lived assets to fair value. Included in the long-lived asset impairment are charges of $50.7 million related to the Fab which was written down to its net realizable value based on its sales price. The impaired long-lived assets consisted primarily of machinery and equipment of $43.4 million and building and improvements of $7.3 million. The long-lived asset impairment also includes the write-off of the remaining goodwill of $0.6 million. The remaining $3.5 million of asset impairment relates to the write-down to net realizable value of a facility, the Company exited during fiscal 1999. The Company entered into certain non-cancelable sales contracts to provide semiconductors to customers at fixed prices. Because the Company was obligated to fulfill the terms of the agreements at selling prices which were not sufficient to cover the cost to produce or acquire such products, a liability for losses on sales contracts was recorded for the estimated future amount of such losses. The unusual pre-tax charges include approximately $8.7 million for losses on sales contracts, incremental amounts of uncollectible accounts receivable, and estimated incremental costs for sales returns and allowances, all of which were fully utilized by the end of fiscal 2000. The unusual pre-tax charges also include approximately $10.9 million for losses on inventory write-downs and other exit costs. The Company has written off and disposed of approximately $5.8 million of inventory. The remaining $5.1 million relates primarily to incremental costs and contractual obligations for items such as lease termination costs, litigation, environmental clean-up costs, and other exit costs incurred directly as a result of the exit plan, all of which were paid out or non-cash charges utilized by the end of fiscal 2000. Additionally, based on an independent valuation of certain of the assets of Advanced Component Labs ("ACL") and other factors, the Company determined that the purchase price of ACL included in-process research and development costs totaling $2.0 million which had not reached technological feasibility and had no probable alternative future use. Accordingly, the Company wrote-off $2.0 million of in-process research and development in fiscal 1999. 10. RELATED PARTY TRANSACTIONS The Company has loaned approximately $22.9 million to various executive officers of the Company. Each loan is evidenced by a promissory note in favor of the Company. Certain notes are non-interest bearing and others have interest rates ranging from 4.19% to 7.25%. The remaining outstanding balance of the loans, including accrued interest, as of March 31, 2001 was approximately $10.4 million. 51 53 11. BUSINESS COMBINATIONS FISCAL 2001 Pooling of Interests Mergers In fiscal 2001, Flextronics acquired 100% of the outstanding shares of DII, Lightning, Chatham, Palo Alto Products International and JIT. These acquisitions were accounted for as pooling of interests and the consolidated financial statements have been prepared to give retroactive effect to the mergers. DII is a leading provider of electronics manufacturing and design services. As a result of the merger, in April 2000, the Company issued approximately 125.5 million ordinary shares for all of the outstanding shares of DII common stock, based upon the exchange ratio of 3.22 Flextronics ordinary shares for each share of DII common stock. Lightning is a provider of fully integrated electronic packaging systems. As a result of the merger, in August 2000, the Company issued approximately 2.6 million ordinary shares for all of the outstanding shares of Lightning common stock and interests. Chatham is a leading provider of integrated electronic packaging systems to the communications industry. As a result of the merger, in August 2000, the Company issued approximately 15.2 million ordinary shares for all of the outstanding Chatham capital stock and interests. DII and Lightning operated under a calendar year end prior to merging with Flextronics and, accordingly, their respective balance sheets, statements of operations, shareholders' equity and cash flows as of December 31, 1999 and for each of the two years ended December 31, 1999 have been combined with the Company's consolidated financial statements as of March 31, 2000 and for each of the two fiscal years ended March 31, 2000. Chatham operated under a fiscal year which ended on the Saturday closest to September 30 prior to merging with Flextronics and, accordingly, Chatham's balance sheets, statements of operations, shareholders' equity and cash flows as of September 24, 1999 and for each of the two years ended September 24, 1999 have been combined with the Company's consolidated financial statements as of March 31, 2000 and for each of the two fiscal years ended March 31, 2000. Starting in fiscal 2001, DII, Lightning and Chatham changed their respective year ends to conform to the Company's March 31 year end. Accordingly, DII's and Lightning's operations for the three months ended March 31, 2000, and Chatham's operations for the six months ended March 31, 2000, have been excluded from the consolidated results of operations for fiscal 2001 and reported as an adjustment to retained earnings. Total net sales related to the omitted periods amounted to approximately $898.3 million. Palo Alto Products International is an enclosure design and plastic molding company. The Company merged with Palo Alto Products International in April 2000 by exchanging approximately 7.2 million ordinary shares of Flextronics for all of the outstanding shares of Palo Alto Products International common stock. JIT is a global provider of electronics manufacturing and design services. The Company merged with JIT in November 2000, by exchanging approximately 17.3 million ordinary shares of Flextronics for all of the outstanding shares of JIT common stock. Palo Alto Products International and JIT operated under the same fiscal year end as Flextronics, and accordingly, their respective balance sheets, statements of operations, shareholders' equity and cash flows have been combined with the Company's consolidated financial statements as of March 31, 1999 and 2000 and for each of the three fiscal years ended March 31, 2000. The Company also completed several other immaterial pooling of interests transactions. In connection with these mergers, the Company issued approximately 0.7 million ordinary shares. The historical operations of these entities were not material to the Company's consolidated operations on either an individual or an aggregate basis; therefore, prior period statements have not been restated for these acquisitions. 52 54 Business Acquisitions In fiscal 2001, the Company completed several immaterial business acquisitions. These transactions have been accounted for under the purchase method of accounting and accordingly, the results of the acquired businesses were included in the Company's consolidated statements of operations from the acquisition dates forward. Comparative proforma information has not been presented, as the results of the acquired operations were not material to the Company's consolidated financial statements. In connection with these business acquisitions, the Company paid total cash consideration of approximately $146.4 million, net of cash acquired, and issued approximately 9.8 million ordinary shares, which equated to approximately $338.6 million of purchase price. The aggregate purchase price paid for these business acquisitions was allocated to the net assets acquired based on their estimated fair values at the dates of the acquisitions. The purchase price for certain acquisitions is subject to adjustments for contingent consideration, based upon the businesses achieving specified levels of earnings through December 2003. The contingent consideration has not been recorded as purchase price, pending the outcome of the contingency. The fair value of the net liabilities acquired, amounted to approximately $117.3 million, including estimated acquisition costs. The costs of acquisitions have been allocated on the basis of the estimated fair value of assets acquired and liabilities assumed. Goodwill and intangibles resulting from these acquisitions amounted to approximately $602.3 million. The respective goodwill associated with these acquisitions is amortized over various years, none of which exceed ten years. Also, the Company increased goodwill in the amount of approximately $12.5 million for contingent purchase price adjustments for historical acquisitions during the current fiscal year. FISCAL 2000 Pooling of Interests Merger In fiscal 2000, the Company acquired 100% of the outstanding shares of Kyrel Ems Oyj ("Kyrel") and PCB Assembly, Inc. ("PCB"). These acquisitions were accounted for as pooling of interests and the consolidated financial statements have been prepared to give retroactive effect to the mergers. Kyrel is an electronics manufacturing services provider with operations in Finland and France. As a result of the merger, the Company issued approximately 7.3 million ordinary shares in exchange for all the outstanding Kyrel shares. Kyrel operated under a calendar year end, prior to merging with Flextronics, and accordingly, Kyrel's balance sheets, statements of operations, shareholders' equity and cash flows as of December 31, 1997 and 1998 and for each of the three years ended December 31, 1998 have been combined with the Company's consolidated financial statements as of March 31, 1998 and 1999 and for each of the three fiscal years ended March 31, 1999. In fiscal 2000, Kyrel's fiscal year end was changed to conform to the Company's fiscal year end. Accordingly, Kyrel's operations for the three months ended March 31, 1999, have been excluded from the consolidated results of operations for fiscal 2000 and have been reported as an adjustment to retained earnings in the first quarter of fiscal 2000. PCB is an electronics manufacturing service provider based in the United States. As a result of the merger, the Company issued approximately 2.2 million ordinary shares in exchange for all the outstanding PCB shares, of which approximately 0.2 million ordinary shares are to be issued upon resolution of certain general and specific contingencies. PCB operated under the same fiscal year end as the Company and, accordingly, their respective balance sheets, statements of operations, shareholders' equity and cash flows have been combined with Flextronics' consolidated financial statements as of March 31, 1999 and 2000 and for each of the three fiscal years ended March 31, 2000. The Company also completed several other immaterial pooling of interests transactions in fiscal 2000. In connection with these mergers, the Company issued 1.8 million ordinary shares. The historical operations of these entities were not material to the Company's consolidated operations on either an individual or an aggregate basis; therefore, prior period statements have not been restated for these acquisitions. 53 55 Business Acquisitions In fiscal 2000, the Company acquired several immaterial businesses and made a payment of an earn-out arrangement to the former owners of Great Sino Electronics Technology (a company acquired by DII in August 1998, as further discussed below). These transactions have been accounted for under the purchase method of accounting and accordingly, the results of the acquired businesses were included in the Company's consolidated statements of operations from the acquisition dates forward. Comparative proforma information has not been presented, as the results of the acquired operations were not material to the Company's consolidated financial statements. In connection with these business acquisitions, the Company paid total cash consideration of approximately $51.6 million, net of cash acquired. The aggregate purchase price paid for these business acquisitions was allocated to the net assets acquired based on their estimated fair values at the dates of the acquisitions. The fair value of the net assets acquired amounted to approximately $17.9 million, including estimated acquisition costs. The costs of acquisitions have been allocated on the basis of estimated fair values of assets acquired and liabilities assumed. Goodwill and intangibles resulting from these acquisitions amounted to approximately $33.7 million. The respective goodwill associated with these acquisitions is amortized over ten years. Also, the Company increased goodwill in the amount of approximately $34.1 million for contingent purchase price adjustments for historical acquisitions during fiscal 2000. FISCAL 1999 Business Acquisitions In fiscal 1999, the Company completed several immaterial business acquisitions. These transactions have been accounted for under the purchase method of accounting and accordingly, the results of the acquired businesses were included in the Company's consolidated statements of operations from the acquisition dates forward. Comparative pro forma information has not been presented, as the results of the acquired operations were not material to the Company's consolidated financial statements. In connection with these business acquisitions, the Company paid total cash consideration of approximately $130.4 million and issued approximately 0.5 million ordinary shares, which equated to approximately $4.8 million of purchase price. The aggregate purchase price paid for these business acquisitions was allocated to the net assets acquired based on their estimated fair values at the dates of acquisitions. The fair value of the net assets acquired, amounted to approximately $50.4 million, including estimated acquisition costs. The costs of acquisitions have been allocated on the basis of estimated fair values of assets acquired and liabilities assumed. Goodwill and intangibles resulting from these acquisitions amounted to approximately $84.8 million. The respective goodwill associated with these acquisitions is amortized over fifteen years. 12. SEGMENT REPORTING Information about segments for the years ended March 31 is as follows (in thousands):
1999 2000 2001 ----------- ------------ ------------ Net Sales: Asia ........................................................... $ 898,304 $ 1,588,665 $ 2,467,629 Americas ....................................................... 1,875,677 2,936,441 5,466,547 Western Europe ................................................. 666,763 1,391,965 2,356,281 Central Europe ................................................. 572,289 1,132,242 2,147,788 Intercompany eliminations ...................................... (60,247) (90,191) (328,546) ----------- ------------ ------------ $ 3,952,786 $ 6,959,122 $ 12,109,699 =========== ============ ============ Income (Loss) before Income Taxes: Asia ........................................................... $ 61,845 $ 102,541 $ 13,611 Americas ....................................................... (52,774) (4,149) (319,420) Western Europe ................................................. 12,803 23,833 7,740 Central Europe ................................................. 31,839 44,107 33,333 Intercompany eliminations, corporate allocations and Motorola one-time non-cash charge (see Note 9) .............. (14,344) 15,316 (287,568) ----------- ------------ ------------ $ 39,369 $ 181,648 $ (552,304) =========== ============ ============ Long-Lived Assets:
54 56 Asia ........................................................... $ 286,797 $ 449,824 $ 503,094 Americas ....................................................... 511,036 712,215 636,399 Western Europe ................................................. 240,759 275,935 371,064 Central Europe ................................................. 114,734 171,165 317,884 ----------- ------------ ------------ $ 1,153,326 $ 1,609,139 $ 1,828,441 =========== ============ ============ Depreciation and Amortization:* Asia ........................................................... $ 25,492 $ 39,889 $ 54,038 Americas ....................................................... 69,079 86,967 126,012 Western Europe ................................................. 18,933 42,534 56,667 Central Europe ................................................. 11,854 18,207 49,734 ----------- ------------ ------------ $ 125,358 $ 187,597 $ 286,451 =========== ============ ============ Capital Expenditures: Asia ........................................................... $ 83,382 $ 155,243 $ 178,557 Americas ....................................................... 141,082 214,224 284,340 Western Europe ................................................. 127,471 52,396 125,072 Central Europe ................................................. 57,720 83,570 193,252 ----------- ------------ ------------ $ 409,655 $ 505,433 $ 781,221 =========== ============ ============
* Excludes unusual charges related to property, plant and equipment and goodwill impairment charges of $54,795 and $232,534 in fiscal 1999 and fiscal 2001, respectively. See Note 9, "Unusual Charges," for additional information regarding unusual charges. For purposes of the preceding tables, "Asia" includes China, Malaysia, Singapore, Thailand and Taiwan, "Americas" includes the U.S., Mexico, and Brazil, "Western Europe" includes Denmark, Finland, France, Germany, Norway, Poland, Sweden, Switzerland and the United Kingdom and "Central Europe" includes Austria, the Czech Republic, Hungary, Ireland, Israel, Italy and Scotland. Geographic revenue transfers are based on selling prices to unaffiliated companies, less discounts. During fiscal 1999, Hungary accounted for approximately 11% of net sales. No other foreign country accounted for more than 10% of net sales in fiscal 1999. China and Hungary accounted for approximately 20% and 11% of long-lived assets at March 31, 1999, respectively. No other foreign country accounted for more than 10% of long-lived assets at March 31, 1999. During fiscal 2000, China, Sweden and Hungary accounted for approximately 11%, 12% and 12% of net sales, respectively. No other foreign country accounted for more than 10% of net sales in fiscal 2000. China accounted for approximately 24% of long-lived assets at March 31, 2000. No other foreign country accounted for more than 10% of long-lived assets at March 31, 2000. During fiscal 2001, China accounted for over 10% of net sales. No other foreign country accounted for more than 10% of net sales in fiscal 2001. China and Hungary accounted for approximately 17% and 11% of long-lived assets at March 31, 2001, respectively. No other foreign country accounted for more than 10% of long-lived assets at March 31, 2001. 13. QUARTERLY FINANCIAL DATA (UNAUDITED) The following table contains selected unaudited quarterly financial data for fiscal years 2000 and 2001:
FISCAL YEAR ENDED FISCAL YEAR ENDED MARCH 31, 2000 MARCH 31, 2001 ---------------------------------------------- ------------------------------------------------- FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH ---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales ...................... $1,237,320 $1,525,366 $1,967,740 $2,228,696 $ 2,676,974 $3,078,998 $3,239,293 $ 3,114,434 Cost of sales .................. 1,112,493 1,383,783 1,797,643 2,041,323 2,470,408 2,829,406 2,964,034 2,864,048 Unusual charges ................ -- -- -- 7,519 83,721 24,268 38,550 363,956 ---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------- Gross profit (loss) ......... 124,827 141,583 170,097 179,854 122,845 225,324 236,709 (113,570) Selling, general and administrative ............... 67,996 73,733 86,534 91,689 94,918 107,931 113,736 113,524 Goodwill and intangibles amortization ................. 9,754 8,787 10,735 12,050 9,370 12,505 15,141 26,525 Unusual charges ................ -- 3,523 -- -- 409,383 24,127 7,726 21,611 Interest and other expense (income), net ................ 14,420 19,236 23,367 12,889 (4,199) 22,359 22,092 26,863 ---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------- Income (loss) before income taxes .............. 32,657 36,304 49,461 63,226 (386,627) 58,402 78,014 (302,093) Provision for (benefit from) income taxes ................. 5,870 5,349 1,662 10,199 (16,065) 8,475 10,232 (108,927) ---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------- Net income (loss) ........... $ 26,787 $ 30,955 $ 47,799 $ 53,027 $ (370,562) $ 49,927 $ 67,782 $ (193,166) ========== ========== ========== ========== =========== ========== ========== ===========
55 57 Diluted earnings (loss) per share .................... $ 0.08 $ 0.09 $ 0.12 $ 0.12 $ (0.88) $ 0.10 $ 0.14 $ (0.41) ========== ========== ========== ========== =========== ========== ========== =========== Shares used in computing diluted per share amounts .... 359,213 360,465 384,017 427,521 418,857 480,801 478,657 468,069 ========== ========== ========== ========== =========== ========== ========== ===========
14. SUBSEQUENT EVENTS (UNAUDITED) In April 2001, the Company entered into a definitive agreement with Ericsson with respect to its management of the operations of Ericsson's mobile telephone operations. Operations under this arrangement commenced in the first quarter of fiscal 2002. Under this agreement the Company is to provide a substantial portion of Ericsson's mobile phone requirements. The Company will assume responsibility for product assembly, new product prototyping, supply chain management and logistics management in which we will process customer orders from Ericsson and configure and ship products to Ericsson's customers. In connection with this relationship, the Company will employ the existing workforce for certain operations, and will purchase from Ericsson certain inventory, equipment and other assets, and may assume certain accounts payable and accrued expenses at their net book value. The Company has not completed the purchasing of the various assets, but estimate that the net asset purchase price is expected to be approximately $450.0 million. We anticipate completing the remaining purchases by the end of the first quarter of fiscal 2002. In April 2001, the Company announced that it had signed a memorandum of understanding with Alcatel to purchase its manufacturing facility and related assets located in Laval, France. Upon completion of this transaction, the Company will enter into a long-term supply agreement with Alcatel to provide printed circuit board assembly, final systems assembly and various engineering support services. The transaction is subject to applicable governmental approvals and customary conditions of closing. This transaction will be accounted for as a purchase of assets. The estimated purchase price is subject to final negotiations, due diligence and working capital levels at the time of closing, but is not expected to be a material cash requirement. In connection with the Company's strategic alliance with Motorola in May 2000, Motorola purchased an equity instrument. In June 2001, the Company entered into an agreement with Motorola under which it repurchased this equity instrument for $112.0 million. No current or planned manufacturing programs are affected by this repurchase, and the Company anticipates that Motorola will continue to be a customer following this repurchase, although the Company's future revenue from Motorola may be less than it would have been had this instrument remained in effect. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The names, ages and positions of our directors and officers as of June 1, 2001 are as follows:
NAME AGE POSITION ---- --- -------- Michael E. Marks 50 Chairman of the Board and Chief Executive Officer Robert R. B. Dykes 51 President, Systems Group and Chief Financial Officer Ronny Nilsson 52 President, Western European Operations Michael McNamara 44 President, Americas Operations Ash Bhardwaj 37 President, Asia Pacific Operations Humphrey Porter 53 President, Central/Eastern European Operations Steven C. Schlepp 44 President, Multek Ross Manire 49 President, Flextronics Enclosure Systems Ronald R. Snyder 44 President, Flextronics Semiconductor Thomas J. Smach 41 Vice President of Finance Tsui Sung Lam 51 Director Michael J. Moritz 46 Director Richard L. Sharp 54 Director Patrick Foley 69 Director
56 58 Chuen Fah Alain Ahkong 52 Director Goh Thiam Poh Tommie 50 Director
MICHAEL E. MARKS - Mr. Marks has been our Chief Executive Officer since January 1994. He has been the Chairman of our Board of Directors since July 1993 and a member since December 1991. From November 1990 to December 1993, Mr. Marks was President and Chief Executive Officer of Metcal, Inc., a precision heating instrument company. He received a B.A. and an M.A. from Oberlin College and an M.B.A. from the Harvard Business School. ROBERT R. B. DYKES - Mr. Dykes has served as our Chief Financial Officer since February 1997 and as our President of the Systems Group since April 1999. From February 1997 to April 1999, he served as our Senior Vice President of Finance and Administration, and from January 1994 to August 1997 as a member of our Board of Directors. From 1988 to February 1997, Mr. Dykes served as Executive Vice President, Worldwide Operations and Chief Financial Officer of Symantec Corporation, an application and system software products company. He received a Bachelor of Commerce and Administration from Victoria University in Wellington, New Zealand. MICHAEL McNAMARA - Mr. McNamara has served as our President of Americas Operations since April 1997. Prior to his promotion, he served as Vice President of North American Operations since April 1994. From May 1993 to March 1994, Mr. McNamara served as President and Chief Executive Officer of Relevant Industries, Inc., which we acquired in March 1994. From May 1992 to May 1993, he served as Vice President, Manufacturing Operations at Anthem Electronics, an electronics distributor. From April 1987 to May 1992, he was a Principal of Pittiglo, Rabin, Todd & McGrath, an operations consulting firm. Mr. McNamara received a B.S. from the University of Cincinnati and an M.B.A. from Santa Clara University. RONNY NILSSON - Mr. Nilsson has served as our President of Western European Operations since April 1997. From May 1995 to April 1997, he served as Vice President and General Manager of Supply and Distribution, and Vice President of Procurement of Ericsson Business Networks. From January 1991 to May 1995, Mr. Nilsson served as Director of Production of the EVOX+RIFA Group, a manufacturer of components, and Vice President of RIFA AB. He received a certificate in Mechanical Engineering from the Lars Kagg School in Kalmar, Sweden and certificates from the Swedish Management Institute and the Ericsson Management Program. ASH BHARDWAJ - Mr. Bhardwaj joined Flextronics in 1988 and was promoted to President of Asia-Pacific Operations. Prior to his promotion, he served as our Vice President of the China region. In addition, Mr. Bhardwaj was General Manager for our Flextronics plant in Shekou, China. He received a degree in Electrical Engineering from Thapar Institute of Engineering and Technology and an M.B.A. from Southeastern Louisiana University. HUMPHREY PORTER - Mr. Porter has served as our President of Central and Eastern European Operations since October 1997. From July 1994 to October 1997, he served as President and Chief Executive Officer of Neutronics Electronics Industries Holding AG, which we acquired in October 1997. Prior to joining Neutronics, Mr. Porter served in various positions at Philips, including Industrial Director for Philips Audio Austria from 1989 to 1994 and Managing Director of the Philips Audio factory in Penang, Malaysia from 1984 to 1989. He received his B.Sc. in Production Engineering from Trent University. STEVEN C. SCHLEPP - Mr. Schlepp has served as our President of Multek since April 2000 following our acquisition of DII. From June 1996 to April 2000, he served as Senior Vice President of DII and President of Multilayer Technology, Inc. From January 1991 until June 1996, Mr. Schlepp served as President of Toppan West Incorporated, a wholly owned subsidiary of Toppan Printing Ltd. ROSS MANIRE - Mr. Manire has served as our President of Flextronics Enclosure Systems, a division of Flextronics, since our acquisition of Chatham Technologies, Inc. in August 2000. At Chatham, Mr. Manire served as the President and Chief Executive Officer. Prior to joining Chatham, he was the Senior Vice President and General Manager of the Carrier Systems Business Unit of 3Com Corporation, a position he held since 1995. He has also served in various executive positions with U.S. Robotics, which was acquired by 3Com in June 1997, including Senior Vice President of Operations and Chief Financial Officer. Mr. Manire received a B.A. in Economics from Davidson College and an M.B.N.A. in Business from the University of Chicago. RONALD R. SNYDER - Mr. Snyder has served as our President of Flextronics Semiconductor since April 2000 following our acquisition of DII. From May 1998 to April 2000, he served as Senior Vice President of DII and 57 59 President of DII Semiconductor. From March 1994 to May 1998, Mr. Snyder served as Senior Vice President of Sales and Marketing of DII. Prior to DII, he served as President of Dovatron Manufacturing Colorado, a division of Dovatron International, Inc. from March 1993 to March 1994. THOMAS J. SMACH - Mr. Smach has served as our Vice President of Finance since April 2000 following our acquisition of DII. From August 1997 to April 2000, he held several positions that included Senior Vice President, Chief Financial Officer and Treasurer of DII. From March 1994 to August 1997, Mr. Smach served as Corporate Controller and Vice President. From 1982 to March 1994, he served as a certified public accountant with KPMG LLP. Mr. Smach received his B.Sc. in Accounting from State University of New York at Binghamton. TSUI SUNG LAM - Mr. Tsui has served as a member of our Board of Directors since 1991. From January 1994 to April 1997, he served as our President and Chief Operating Officer, and from June 1990 to December 1993 he served as our Managing Director and Chief Executive Officer. Between 1982 and June 1990, Mr. Tsui served in various positions for Flextronics, Inc., our predecessor, including Vice President of Asian Operations. He received diplomas in Production Engineering and Management Studies from Hong Kong Polytechnic, and a certificate in Industrial Engineering from Hong Kong University. MICHAEL J. MORITZ - Mr. Moritz has served as a member of our Board of Directors since July 1993. Since 1988, he has been a General Partner of Sequoia Capital, a venture capital firm. Mr. Moritz also serves as a director of Yahoo, Inc., Saba Software and several privately-held companies. RICHARD L. SHARP - Mr. Sharp has served as a member of our Board of Directors since July 1993. He is Chairman of the Board and Chief Executive Officer of Circuit City Stores, Inc., a consumer electronics and appliance retailer. Mr. Sharp joined Circuit City as an Executive Vice President in 1982. He was President from June 1984 to March 1997 and became Chief Executive Officer in 1986, and Chairman of the Board in 1994. Mr. Sharp also serves as a director of Fort James Corporation. PATRICK FOLEY - Mr. Foley has served as a member of our Board of Directors since October 1997. He is Chairman, President and Chief Executive Officer of DHL Corporation, Inc. and its major subsidiary, DHL Airways, Inc., a global document, package and airfreight delivery company. Mr. Foley joined DHL in September 1988 with more than thirty years experience in hotel and airline industries. He also serves as a director of Continental Airlines, Inc., Del Monte Corporation, DHL International, Foundation Health Systems, Inc. and Glenborough Realty Trust, Inc. CHUEN FAH ALAIN AHKONG - Mr. Ahkong has served as a member of our Board of Directors since October 1997. He is a founder of Pioneer Management Services Pte. Ltd., a Singapore-based consultancy firm, and has been the Managing Director of Pioneer since 1990. Pioneer provides advice to us and other multinational corporations on matters related to international taxation. GOH THIAM POH TOMMIE -- Mr. Goh has been a member of our Board of Directors since December 2000. He founded JIT Electronics Pte Ltd in 1988 and grew the company to one of the top 20 largest electronics manufacturing services providers in the world before the merger with Flextronics in November 2000. Mr Goh was named "Entrepreneur of the Year" in 1997 and "Businessman of the Year" in 1999 in Singapore. He was conferred the Doctor of Philosophy in Business Administration by Wisconsin International University in 2000. ITEM 11. EXECUTIVE COMPENSATION The following table presents information concerning the compensation paid or accrued by us for services rendered during fiscal 2001, 2000 and 1998 by the Chief Executive Officer and each of our four most highly compensated executive officers whose total salary and bonus for fiscal 2001 exceeded $100,000. 58 60 SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION AWARDS -------------- ANNUAL COMPENSATION OTHER SECURITIES FISCAL ---------------------- ANNUAL UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION - --------------------------- ------ -------- ---------- ------------ ------------- ------------ Michael E. Marks.................... 2001 $600,000 $1,285,000 $ 5,082(1) 1,036,456 $ 8,627(9) Chairman and 2000 450,000 363,750 230,385(2) 600,000 8,350(10) Chief Executive Officer 1999 400,000 339,315 9,617(3) 3,200,000 7,701(11) Michael McNamara ................... 2001 450,000 831,250 3,925(1) 600,000 4,702(12) President, Americas Operations 2000 375,000 201,250 3,867(1) 600,000 4,750(12) 1999 325,000 177,416 22,611(3) 1,784,000 5,000(12) Robert R.B. Dykes .................. 2001 425,000 798,125 4,668(1) 400,000 5,329(12) President, Systems Group 2000 337,500 156,000 4,599(1) 240,000 3,500(12) and Chief Financial Officer 1999 300,000 166,008 25,337(3) 440,000 5,000(12) Humphrey Porter..................... 2001 400,000 375,000 27,500(4) 200,000 36,000(13) President, Central/ Eastern 2000 300,000 195,000 20,000(5) 160,000 36,000(13) European Operations 1999 250,000 149,000 21,000(6) 880,000 30,000(14) Ronny Nilsson....................... 2001 362,545 405,350 10,154(1) 200,000 33,614(14) President, Western European 2000 317,684 129,563 17,436(7) 160,000 34,884(14) Operations 1999 315,000 148,859 18,096(8) 320,000 43,497(14)
(1) Represents a vehicle allowance. (2) Represents a vehicle allowance of $3,868 and forgiveness of a promissory note due to one of our subsidiaries of $200,000 and forgiveness of interest payment of $26,517 on the promissory note. (3) Represents payment for a company vehicle. (4) Represents a vehicle allowance of $13,500 and a housing allowance of $14,000. (5) Represents a vehicle allowance of $12,000 and a housing allowance of $8,000. (6) Represents a vehicle allowance of $7,000 and an apartment allowance of $14,000. (7) Represents a vehicle allowance of $10,166 and a housing allowance of $7,270. (8) Includes a vehicle allowance of $10,404 and an apartment allowance of $7,692. (9) Represents our contributions to the 401(k) plan of $4,750 and life and disability insurance premium payments of $3,877. (10) Represents our contributions to the 401(k) plan of $4,750 and life and disability insurance premium payments of $3,600. (11) Represents our contributions to the 401(k) plan of $5,000, and life and disability insurance premium payments of $2,701. (12) Represents our contributions to the 401(k) plan. (13) Represents our contributions to a pension retirement fund of $24,000 and life insurance premium payments of $12,000. (14) Represents our contributions to a pension retirement fund. OPTION GRANTS IN FISCAL 2001 The following table presents information regarding option grants during fiscal 2001 to our Chief Executive Officer and each of our four other most highly compensated executive officers. All options were granted pursuant to our 1993 Share Option Plan. The options shown in the table were granted at fair market value and are incentive stock options (to the extent permitted under the Internal Revenue Code). Options granted on or before October 1, 2001 expire five years from the date of grant, subject to earlier termination upon termination of the optionee's employment. Options granted after October 1, 2001 expire ten years from the date of grant, subject to earlier termination as described above. The options become exercisable over a four-year period, with 25% of the shares vesting on the first anniversary of the date of grant and 1/36th of the shares vesting for each full calendar month that an optionee renders services to us thereafter. Each option fully accelerates in the event that, in the 18-month period following certain mergers or acquisitions of us, the optionee's employment with us is terminated or his duties are substantially reduced or changed. Each option includes a limited stock appreciation right pursuant to which the option will automatically be canceled upon the occurrence of certain hostile tender offers, in return for a cash distribution from us based on the tender offer price per share. The exercise price of each option may be paid in cash or through a cashless exercise procedure involving a same-day sale of the purchase shares. We granted options to purchase an aggregate of 14,655,646 Ordinary Shares to our employees during fiscal 2001. In accordance with the rules of the Securities and Exchange Commission, the table presents the potential realizable values that would exist for the options at the end of their respective five-year terms. These values are based on assumed rates of annual compound stock price appreciation of 5% and 10% from the date the option was granted to the end of the option term. Potential realizable values are computed by: - multiplying the number of ordinary shares subject to a given option by the trading price per share of our ordinary shares on the date of grant; 59 61 - assuming that the aggregate option exercise price derived from the calculation compounds at the annual 5% or 10% rates should in the table for the entire five or ten year term of the option, as the case may be; and - subtracting from that result the aggregate option exercise price. The assumed 5% and 10% rates of share price appreciation are mandated by rules of the Securities and Exchange Commission and do not represent our estimate or projection of future ordinary share prices. The closing sale price per share as reported on the Nasdaq National Market on March 30, 2001, the last trading day of fiscal 2001, was $15.00.
INDIVIDUAL GRANTS ----------------------------------------------------- POTENTIAL REALIZE VALUE AT NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATED UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM OPTIONS EMPLOYEES IN PRICE PER EXPIRATION --------------------------- NAME GRANTED FISCAL 2001 SHARE DATE 5% 10% - ---- ---------- ------------- --------- ---------- ------------ ----------- Michael E. Marks........... 36,456 0.25% $32.4375 04/07/2005 $ 326,714 $ 721,953 1,000,000 6.82 23.1875 12/20/2010 14,582,494 36,954,903 Michael McNamara........... 600,000 4.09 23.1875 12/20/2010 8,749,496 22,172,942 Robert R.B. Dykes.......... 400,000 2.73 23.1875 12/20/2010 5,832,998 14,781,961 Humphrey Porter............ 200,000 1.36 23.1875 12/20/2010 2,916,499 7,390,981 Ronny Nilsson.............. 200,000 1.36 23.1875 12/20/2010 2,916,499 7,390,981
AGGREGATED OPTION EXERCISES IN FISCAL 2001 AND OPTION VALUES AT MARCH 31, 2001 The following table presents information concerning the exercise of options during fiscal 2001 by our Chief Executive Officer and each of our four other most highly compensated executive officers, including the aggregate amount of gains on the date of exercise. The amounts set forth in the column entitled "Value Realized" represent the fair market value of the ordinary shares underlying the option on the date of exercise less the aggregate exercise price of the option. In addition, the table includes the number of shares covered by both exercisable and unexercisable stock options as of March 31, 2001. Also reported are values of "in-the-money" options that represent the positive spread between the respective exercise prices of outstanding stock options and $15.00 per share, which was the closing price per ordinary share as reported on the Nasdaq National Market on March 30, 2001, the last day of trading for fiscal 2001. These values, unlike the amounts set forth in the column entitled "Value Realized," have not been, and may never be, realized.
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED NUMBER OF OPTIONS AT IN-THE-MONEY OPTIONS AT SHARES MARCH 31, 2001 MARCH 31, 2001 ACQUIRED VALUE ----------------------- -------------------------- NAME ON EXERCISE REALIZED VESTED UNVESTED VESTED UNVESTED - ---- ----------- ----------- --------- --------- ----------- ----------- Michael E. Marks .......... 935,274 $25,047,854 2,866,039 2,804,167 $42,990,585 $27,062,505 Michael McNamara .......... 109,298 2,925,023 1,767,448 1,666,982 26,511,720 16,004,730 Robert R.B. Dykes ......... 377,166 10,721,962 1,131,002 775,832 16,965,030 5,637,480 Humphrey Porter ........... 231,997 8,934,592 183,670 678,333 2,755,050 7,174,995 Ronny Nilsson ............. -- -- 900,000 -- 10,500,000 --
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS Mr. Nilsson. In connection with the acquisition of two manufacturing facilities from Ericsson Business Networks AB located in Karlskrona, Sweden, we entered into an Employment and Noncompetition Agreement and a Services Agreement with Mr. Ronny Nilsson, each dated as of April 30, 1997. Pursuant to the Employment Agreement, Mr. Nilsson: - was appointed as our Senior Vice President, Europe for a four-year period; 60 62 - is entitled to receive an annual salary of $250,000; and - is entitled to a bonus of up to 45% of his annual salary upon the successful completion of certain performance criteria. Pursuant to the Services Agreement, Mr. Nilsson is to perform management consultation and guidance services to us in consideration for: - an aggregate of $775,000 which was paid between March 31, 1997 and April 15, 1998; and - the issuance by us to Mr. Nilsson of an interest-free loan in the amount of 51,875 kronor ($415,000 as of April 15, 1997, the date of the issuance of the loan) which was repaid by Mr. Nilsson in two installments of $210,000 on September 15, 1997 and $205,000 on April 15, 1998. In connection with Mr. Nilsson's repayment of the interest-free loan, on April 15,1998 we paid to Mr. Nilsson as compensation an amount equal to the two installments paid by Mr. Nilsson. Mr. Goh. In connection with our acquisition of JIT Holdings Limited, JIT entered into a noncompetition agreement with Goh Thiam Poh Tommie, Chairman of the Board of JIT and a principal shareholder of JIT. Pursuant to this agreement, Mr. Goh agreed that within specific geographic areas he will not own or manage a business that competes with JIT or solicit any employees or customers of JIT. This agreement will terminate upon the earlier of one year after the termination of Mr. Goh's employment with JIT or November 30, 2003. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The members of the compensation committee of our Board of Directors during fiscal 2001 were Messrs. Sharp and Moritz. None of our officers serve on our compensation committee. No interlocking relationships exist between our Board of Directors or compensation committee and the board of directors or compensation committee of any other company. DIRECTOR COMPENSATION Each individual who first becomes a non-employee Board member is granted a stock option to subscribe for 15,000 ordinary shares. After this initial grant, on the date of each Annual General Meeting, each individual who is at that time serving as a non-employee director receives a stock option to subscribe for 3,000 ordinary shares, all pursuant to the automatic option grant provisions of our 1993 Share Option Plan. Pursuant to this program, Messrs. Ahkong, Moritz, Sharp, Foley and Tsui each received option grants for 3,000 ordinary shares in fiscal 2001. In addition, all directors receive reimbursement of reasonable out-of-pocket expenses incurred in connection with meetings of the Board of Directors. No non-employee Director receives any cash compensation for services rendered as a director. No director who is our employee receives compensation for services rendered as a director. COMPLIANCE UNDER SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16 of the Securities Exchange Act of 1934, as amended, requires our directors and officers, and persons who own more than 10% of our common stock to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission and the Nasdaq National Market. Such persons are required by Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) forms that they file. Based solely on our review of the copies of such forms furnished to us and written representations from our executive officers and directors, we believe that all Section 16(a) filing requirements for the year ended March 31, 2001 were met with the exception of the following: Messrs. Manire, Schlepp, Snyder and Smach failed to file timely Forms 3; Messrs. Bhardwaj, McNamara, Marks and Schlepp failed to timely file Forms 4 for October 2000; and Messrs. Bhardwaj, McNamara, Marks, Porter, Schlepp and Smach failed to file timely Forms 4 for February 2001. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information as of May 1, 2001 regarding the beneficial ownership of the our ordinary shares, by - each shareholder known to us to be the beneficial owner of more than 5% of our ordinary shares; 61 63 - each director; - each executive officer named in the Summary Compensation Table; and - all directors and executive officers as a group. Information in this table as to our directors and executive officers is based upon information supplied by these individuals. Information in this table as to our 5% shareholders is based solely upon the Schedules 13G filed by these shareholders with the Securities and Exchange Commission. Where information regarding shareholders is based on Schedules 13G, the number of shares owned is as of the date for which information was provided in such schedules. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission that deem shares to be beneficially owned by any person who has voting or investment power with respect to such shares. Ordinary shares subject to options that are currently exercisable or exercisable within 60 days of May 1, 2001 are deemed to be outstanding and to be beneficially owned by the person holding such options for the purpose of computing the percentage ownership of such person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated below, the persons and entities named in the table have sole voting and sole investment power with respect to all the shares beneficially owned, subject to community property laws where applicable. In the table below, percentage ownership is based upon 480,058,647 ordinary shares outstanding as of May 1, 2001.
SHARES BENEFICIALLY OWNED ------------------------- NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT - ------------------------------------ ---------------- ------- 5% SHAREHOLDERS: Entities associated with AXA Financial, Inc.(1)............... 45,279,073 9.4% 1290 Avenue of the Americas New York, NY 10104 T. Rowe Price Associates, Inc.(2)............................. 26,521,115 5.5 100 E. Pratt Street Baltimore, MD 21202 Entitles associated with FMR Corporation(3)................... 24,634,204 5.1 82 Devonshire Street Boston, MA 02109 EXECUTIVE OFFICERS AND DIRECTORS: Richard L. Sharp(4)........................................... 6,062,202 1.3 Goh Thiam Poh Tommie.......................................... 5,573,114 1.2 Michael E. Marks(5)........................................... 5,285,777 1.1 Michael McNamara(6)........................................... 2,641,700 * Robert R.B. Dykes(7).......................................... 1,606,407 * Michael J. Moritz(8).......................................... 455,682 * Ronny Nilsson(9).............................................. 390,000 * Tsui Sung Lam(10)............................................. 313,946 * Humphrey Porter(11)........................................... 272,003 * Patrick Foley(12)............................................. 208,250 * Chuen Fah Alain Ahkong(13).................................... 28,250 * ---------- ---- All 16 directors and executive officers as a group(14)........ 25,986,948 5.3% ========== ====
- ---------------- * Less than 1%. (1) Based on information supplied by AXA Financial, Inc. in an amended Schedule 13G filed with the Securities and Exchange Commission on February 12, 2001. (2) Based on information supplied by T. Rowe Price Associates, Inc. in a Schedule 13G filed with the Securities and Exchange Commission on February 14, 2001. 62 64 (3) Based on information supplied by FMR Corporation in an amended Schedule 13G filed with the Securities and Exchange Commission on February 13, 2001. (4) Includes 1,480,000 shares beneficially owned by Bethany Limited Partnership. Mr. Sharp, the general partner of Bethany Limited Partnership, has voting and investment power over such shares and may be deemed to beneficially own such shares. Mr. Sharp disclaims beneficial ownership of all such shares except to the extent of his proportionate interest therein. Also includes 612,000 shares held by RLS Charitable Remainder Unitrust of which Mr. Sharp is a co-trustee and 96,250 shares subject to options exercisable within 60 days after May 1, 2001 held by Mr. Sharp. (5) Includes 24,000 shares held by the Justin Caine Marks Trust and 24,000 shares held by the Amy G. Marks Trust. Also includes 3,166,039 shares subject to options exercisable within 60 days after May 1, 2001 held by Mr. Marks. (6) Includes 1,950,930 shares subject to options exercisable within 60 days after May 1, 2001 held by Mr. McNamara. (7) Includes 232,166 shares held by the Dykes Family LP Trust. Also includes 1,228,501 shares subject to options exercisable within 60 days after May 1, 2001 held by Mr. Dykes. (8) Includes 359,432 shares held by the Maximus Trust. Also includes 96,250 shares subject to options exercisable within 60 days after May 1, 2001 held by Mr. Moritz. (9) Represents 390,000 shares subject to options exercisable within 60 days after May 1, 2001 held by Mr. Nilsson. (10) Includes 271,594 shares subject to options exercisable within 60 days after May 1, 2001 held by Mr. Tsui. (11) Represents 272,003 shares subject to options exercisable within 60 days after May 1, 2001 held by Mr. Porter. (12) Includes 168,250 shares subject to options exercisable within 60 days after May 1, 2001 held by Mr. Foley. (13) Represents 28,250 shares subject to options exercisable within 60 days after May 1, 2001 held by Mr. Ahkong. (14) Includes 9,065,280 shares subject to options exercisable within 60 days after May 1, 2001. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Other than compensation agreements and other arrangements, which are described in "Executive" Compensation, and the transactions described below, during fiscal 2001, there was not, nor is there currently proposed, any transaction or series of similar transactions to which we were or will be a party: - in which the amount involved exceeded or will exceed $60,000; and - in which any director, executive officer, holder of more than 5% of our ordinary shares or any member of their immediate family had or will have a direct or indirect material interest. LOANS TO EXECUTIVE OFFICERS Mr. Marks. On October 11, 2000, our principal U.S. subsidiary, Flextronics International (USA), Inc., which we refer to in this section as Flextronics USA, loaned $10,569,658 to Mr. Michael Marks, our Chairman of the Board and Chief Executive Officer. Mr. Marks executed a promissory note in favor of Flextronics USA that bore interest at a rate of 5.96% and was to mature on November 11, 2003. In fiscal 2001, Mr. Marks paid the principal in full, together with accrued interest. 63 65 Mr. McNamara. On October 22, 1996, Flextronics USA loaned $135,900 to Mr. Michael McNamara. Mr. McNamara executed a promissory note in favor of Flextronics USA that bears interest at a rate of 7.00% and matures on October 22, 2001. The remaining outstanding balance of the loan as of March 31, 2001 was $179,464 (representing $135,900 in principal and $43,564 in accrued interest). On November 25, 1998, Flextronics USA loaned $130,000 to Mr. McNamara. Mr. McNamara executed a promissory note in favor of Flextronics USA that bears interest at a rate of 7.25% and matures on November 25, 2003. The remaining outstanding balance of the loan as of March 31, 2001 was $152,797 (representing $130,000 in principal and $22,797 in accrued interest). On April 14, 1999, Flextronics USA loaned $950,000 to Mr. McNamara. Mr. McNamara executed a promissory note in favor of Flextronics USA that bears interest at a rate of 4.19% and matures on May 3, 2003. The remaining outstanding balance of the loan as of March 31, 2001 was $1,089,663 (representing $950,000 in principal and $139,663 in accrued interest). On October 11, 2000, Flextronics USA loaned $152,236 to Mr. McNamara. Mr. McNamara executed a promissory note in favor of Flextronics USA that bears interest at a rate of 5.96% and matures on November 11, 2003. The remaining outstanding balance of the loan as of March 31, 2001 was $156,546 (representing $152,236 in principal and $4,310 in accrued interest). Mr. Dykes. On January 15, 1999, Flextronics USA loaned $200,100 to Mr. Robert Dykes. Mr. Dykes executed a promissory note in favor of Flextronics USA that bears interest at a rate of 7.25% and matures on January 15, 2004. In fiscal 2001, Mr. Dykes paid the principal in full, together with accrued interest. On October 11, 2000, Flextronics USA loaned $1,046,886 to Mr. Dykes. Mr. Dykes executed a promissory note in favor of Flextronics USA that bore interest at a rate of 5.96% and was to mature on November 11, 2003. In fiscal 2001, Mr. Dykes paid the principal in full, together with accrued interest. Mr. Smach. On April 3, 2000, Flextronics USA loaned $1,000,000 to Mr. Thomas J. Smach. Mr. Smach executed a Loan and Security Agreement and a promissory note in favor of Flextronics USA that does not bear interest and matures on April 3, 2005. The remaining outstanding balance of the loan as of March 31, 2001 was $1,000,000 in principal. Mr. Snyder. On April 20, 2000, Flextronics USA loaned $1,000,000 to Mr. Ronald R. Snyder. Mr. Snyder executed a Loan and Security Agreement and a promissory note in favor of Flextronics USA that did not bear interest and was to mature on April 20, 2005. In fiscal 2001, Mr. Snyder paid the principal in full. OTHER LOANS TO EXECUTIVE OFFICERS In connection with an investment partnership, Glouple Ventures LLC, one of our subsidiaries, Flextronics International, NV, which we refer to in this section as Flextronics NV, has entered into the following transactions with our executive officers. - in July 2000, Flextronics NV loaned $76,922 to each of Messrs. Marks, McNamara, Dykes, Porter, Nilsson, Bhardwaj, Schlepp, Snyder and Smach, and each executed a promissory note in favor of Flextronics NV that bears interest at a rate of 6.40% and matures on August 15, 2010; - in August 2000, Flextronics NV loaned an aggregate of $51,157 to each of Messrs. Marks, McNamara, Dykes, Porter, Nilsson, Bhardwaj, Schlepp, Snyder and Smach, and each executed promissory notes in favor of Flextronics NV that bear interest at a rate of 6.22% and mature on August 15, 2010; and - in November 2000, Flextronics NV loaned an aggregate of $428,286 to each of Messrs. Marks, McNamara, Dykes, Porter, Nilsson, Bhardwaj, Manire, Schlepp, Snyder and Smach, and each executed promissory notes in favor of Flextronics NV that bear interest at a rate of 6.09% and mature on August 15, 2010. 64 66 As of March 31, 2001, the entire principal amount of these loans, together with $102,698 of accrued interest, was outstanding. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) DOCUMENTS TO BE FILED AS PART OF THIS ANNUAL REPORT ON FORM 10-K 1. Financial Statements. See Item 8, "Financial Statements and Supplementary Data." 2. Financial Statement Schedules. The following financial statement schedule is filed as part of this report and should be read together with our financial statements: Schedule II -- Valuation and qualifying accounts 3. Exhibits. The following exhibits are filed with this annual report on Form 10-K:
INCORPORATED BY REFERENCE --------------------------------------------------- EXHIBIT FILING EXHIBIT FILED NO. EXHIBIT FORM FILE NO. DATE NO. HEREWITH ------- ------- ---- -------- ------ ------- -------- 2.01 Exchange Agreement dated as of June 11, 1999 among 10-K 000-23354 06-29-99 2.3 the Registrant, Flextronics Holding Finland Oyj, Kyrel EMS Oyj, and Seppo Parhankangas 2.02 Agreement and Plan of Merger dated November 22, 1999 8-K 000-23354 12-06-99 2.1 among the Registrant, Slalom Acquisition Corp. and The DII Group, Inc.* 2.03 Agreement and Plan of Reorganization dated July 31, 8-K 000-23354 09-15-00 2.01 2000 among the Registrant, Chatham Acquisition Corporation, and Chatham Technologies, Inc.* 2.04 Merger Agreement dated August 10, 2000 among the S-3 333-46770 09-27-00 2.4 Registrant, JIT Holdings Limited, Goh Thiam Poh Tommie and Goh Mui Teck William, as amended.* 2.05 Agreement and Plan of Reorganization dated August 31, S-3 333-46200 09-20-00 2.4 2000 among the Registrant, Lightning Metal Acquisition Corp., Coating Acquisition Corp., Lightning Tool Acquisition Corp., Lightning Metal Specialties, Incorporated, Coating Technologies, Inc., Lightning Tool and Design, Inc., Lightning Metal Specialties E.M.F., Ltd., Lightning Manufacturing Solutions-Europe, Ltd., Lightning Manufacturing Solutions Texas, L.L.C., Lightning Logistics, L.L.C., Papason, L.L.C., 200 Scott Street, L.L.C., 80 Scott Street, L.L.C., 230 Scott Street, L.L.C., 1350 Lively Blvd, L.L.C., D.A.D. Partnership, S.O.N. Partnership, S.O.N. II Partnership, and shareholders and members of such companies.* 2.06 Exchange Agreement dated January 14, 2000, among the X Registrant, Palo Alto Products International Pte. Ltd., and the shareholders of Palo Alto Products International Pte. Ltd., Palo Alto Manufacturing (Thailand) Ltd., and Palo Alto Plastic (Thailand) Ltd. 3.01 Memorandum and New Articles of Association of the 10-Q 000-23354 02-09-01 3.1 Registrant. 4.01 Indenture dated as of October 15, 1997 between 8-K 000-23354 10-22-97 10.1 Registrant and State Street Bank and Trust Company of California, N.A., as trustee.
65 67
INCORPORATED BY REFERENCE --------------------------------------------------- EXHIBIT FILING EXHIBIT FILED NO. EXHIBIT FORM FILE NO. DATE NO. HEREWITH ------- ------- ---- -------- ------ ------- -------- 4.02 U.S. Dollar Indenture dated June 29, 2000 between the 10-Q 000-23354 08-14-00 4.1 Registrant and Chase Manhattan Bank and Trust Company, N.A., as trustee. 4.03 Euro Indenture dated as of June 29, 2000 between 10-Q 000-23354 08-14-00 4.2 Registrant and Chase Manhattan Bank and Trust Company, N.A., as trustee. 4.04 Credit Agreement dated April 3, 2000 among the 10-K 000-23354 06-13-00 10.26 Registrant and its subsidiaries designated under the Credit Agreement as borrowers from time to time, the lenders named in Schedule I to the Credit Agreement, ABN AMRO Bank N.V. as agent for the lenders, Fleet National Bank as documentation agent, Bank of America, National Association and Citicorp USA, Inc. as managing agents, and The Bank of Nova Scotia as co-agent (the "Flextronics International Credit Agreement.* 4.05 Credit Agreement dated as of April 3, 2000 among 10-K 000-23354 06-13-00 10.27 Flextronics International USA, Inc., The DII Group, Inc., the lenders named in Schedule I to the Credit Agreement, ABN AMRO Bank N.V. as agent for the lenders, Fleet National Bank, as documentation agent, Bank of America, National Association and Citicorp USA, Inc. as managing agents, and The Bank of Nova Scotia as co-agent (the "Flextronics USA Credit Agreement").* 4.06 Amendment, dated as of June 15, 2001, to the 10-Q 000-23354 11-14-01 10.01 Flextronics USA Credit Agreement.* 4.07 First Amendment, dated as of April 3, 2001, to the X Flextronics International Credit Agreement.* 4.08 Second Amendment, dated as of April 3, 2001, to the X Flextronics USA Credit Agreement.* 10.01 Form of Indemnification Agreement between the S-1 33-74622 10.01 Registrant and its Directors and certain officers. 10.02 Registrant's 1993 Share Option Plan.+ S-8 333-55850 02-16-01 4.2 10.03 Registrant's 1997 Employee Share Purchase Plan.+ S-8 333-95189 01-21-00 4.3 10.04 Flextronics U.S.A. 401(k) plan.+ S-1 33-74622 10.52 10.05 Employment and Noncompetition Agreement dated as of 10-K 000-23354 quarter ended April 30, 1997 between Flextronics International Sweden 03-31-97 10.29 AB and Ronny Nilsson.+ 10.06 Services Agreement dated as of April 30, 1997 between 10-K 000-23354 quarter ended Flextronics International USA, Inc. and Ronny Nilsson.+ 03-31-97 10.30 10.07 Promissory Note dated April 15, 1997 executed by 10-K 000-23354 quarter ended Ronny Nilsson in favor of Flextronics International 03-31-97 10.31 USA, Inc. 10.08 Form of Secured Full Recourse Promissory Note X executed by certain executive officers of the Registrant in favor of Flextronics International, NV, in connection with Glouple Ventures 2000 - I. 10.09 Form of Secured Full Recourse Promissory Note X executed by certain executive officers of the Registrant in favor of Flextronics International, NV, in connection with Glouple Ventures 2000 - II. 10.10 Deed of Noncompetition dated November 30, 2000 among JIT Holdings Limited and Goh Thiam Poh Tommie.+ X 21.01 Subsidiaries of Registrant X 23.01 Consent of Arthur Andersen LLP X 23.02 Consent of Deloitte & Touche LLP X
66 68 * Certain schedules have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted schedule to the Commission upon request. + Management contract, compensatory plan or arrangement. (b) Reports on Form 8-K: On January 29, 2001 we filed a current report on Form 8-K including our consolidated financial statements as of March 31, 1999 and 2000 and for each of the three years in the period ended March 31, 2000, giving retroactive effect to our mergers with Chatham Technologies, Inc. and Lightning Metal Specialties and related entities. On February 1, 2001 we filed a current report on Form 8-K relating to (i) our underwritten public offering of 27,000,000 of our ordinary shares, all of which were sold by us, at a public offering price of $37.9375 per share and (ii) our announcement that we had entered into a non-binding memorandum of understanding with Ericsson in which we were selected to manage the operations of Ericsson's mobile phone business. This Form 8-K was amended on February 8, 2001 to file the underwriting agreement relating to our underwritten public offering. 67 69 SIGNATURES Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereto duly authorized. Date: June 29, 2001 FLEXTRONICS INTERNATIONAL LTD. By: /s/ MICHAEL E. MARKS ------------------------------ Michael E. Marks Chairman of the Board and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints jointly and severally, Michael E. Marks and Robert R.B. Dykes and each one of them, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any and all amendments to this Report (including any and all amendments), and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ MICHAEL E. MARKS Chief Executive Officer June 29, 2001 - ----------------------------------------------------- and Chairman of the Board Michael E. Marks (Principal Executive Officer) /s/ ROBERT R.B. DYKES President, Systems Group June 29, 2001 - ----------------------------------------------------- and Chief Financial Officer Robert R.B. Dykes (Principal Financial Officer) /s/ THOMAS J. SMACH Vice President, Finance June 29, 2001 - ----------------------------------------------------- (Principal Accounting Officer) Thomas J. Smach /s/ TSUI SUNG LAM Director June 29, 2001 - ----------------------------------------------------- Tsui Sung Lam /s/ MICHAEL J. MORITZ Director June 29, 2001 - ----------------------------------------------------- Michael J. Moritz /s/ RICHARD L. SHARP Director June 29, 2001 - ----------------------------------------------------- Richard L. Sharp /s/ PATRICK FOLEY Director June 29, 2001 - ----------------------------------------------------- Patrick Foley /s/ CHUEN FAH ALAIN AHKONG Director June 29, 2001 - ----------------------------------------------------- Chuen Fah Alain Ahkong /s/ GOH THIAM POH TOMMIE Director June 29, 2001 - ----------------------------------------------------- Goh Thiam Poh Tommie
68 70 Valuation and Qualifying Accounts Schedule II Years Ended March 31, 1999, 2000 and 2001 (in thousands)
ADDITIONS ------------------------- BALANCE AT EFFECT CHARGED TO BALANCE AT BEGINNING OF OF COSTS AND DEDUCTIONS/ END OF YEAR ACQUISITIONS EXPENSES WRITE-OFFS YEAR ------------ ------------ ---------- ---------- ---------- Allowance for doubtful accounts: Year ended March 31, 1999 $ 15,446 $ 223 $ 1,149 $ 121 $ 16,939 Year ended March 31, 2000 16,939 1,123 12,534 (5,639) 24,957 Year ended March 31, 2001 24,957 10,293 9,429 (260) 44,419 Accrual for unusual charges: Year ended March 31, 1999 5,445 -- 79,286 (78,177) 6,554 Year ended March 31, 2000 6,554 -- -- (5,623) 931 Year ended March 31, 2001 931 -- 686,805 (517,352) 170,384 Reserve for inventory obsolescence: Year ended March 31, 1999 19,834 3,095 7,624 (741) 29,812 Year ended March 31, 2000 29,812 3,046 32,345 (3,411) 61,792 Year ended March 31, 2001 61,792 34,341 33,634 (24,668) 105,099
71 EXHIBIT INDEX
INCORPORATED BY REFERENCE --------------------------------------------------- EXHIBIT FILING EXHIBIT FILED NO. EXHIBIT FORM FILE NO. DATE NO. HEREWITH ------- ------- ---- -------- ------ ------- -------- 2.01 Exchange Agreement dated as of June 11, 1999 among 10-K 000-23354 06-29-99 2.3 the Registrant, Flextronics Holding Finland Oyj, Kyrel EMS Oyj, and Seppo Parhankangas 2.02 Agreement and Plan of Merger dated November 22, 1999 8-K 000-23354 12-06-99 2.1 among the Registrant, Slalom Acquisition Corp. and The DII Group, Inc.* 2.03 Agreement and Plan of Reorganization dated July 31, 8-K 000-23354 09-15-00 2.01 2000 among the Registrant, Chatham Acquisition Corporation, and Chatham Technologies, Inc.* 2.04 Merger Agreement dated August 10, 2000 among the S-3 333-46770 09-27-00 2.4 Registrant, JIT Holdings Limited, Goh Thiam Poh Tommie and Goh Mui Teck William, as amended.* 2.05 Agreement and Plan of Reorganization dated August 31, S-3 333-46200 09-20-00 2.4 2000 among the Registrant, Lightning Metal Acquisition Corp., Coating Acquisition Corp., Lightning Tool Acquisition Corp., Lightning Metal Specialties, Incorporated, Coating Technologies, Inc., Lightning Tool and Design, Inc., Lightning Metal Specialties E.M.F., Ltd., Lightning Manufacturing Solutions-Europe, Ltd., Lightning Manufacturing Solutions Texas, L.L.C., Lightning Logistics, L.L.C., Papason, L.L.C., 200 Scott Street, L.L.C., 80 Scott Street, L.L.C., 230 Scott Street, L.L.C., 1350 Lively Blvd, L.L.C., D.A.D. Partnership, S.O.N. Partnership, S.O.N. II Partnership, and shareholders and members of such companies.* 2.06 Exchange Agreement dated January 14, 2000, among the X Registrant, Palo Alto Products International Pte. Ltd., and the shareholders of Palo Alto Products International Pte. Ltd., Palo Alto Manufacturing (Thailand) Ltd., and Palo Alto Plastic (Thailand) Ltd. 3.01 Memorandum and New Articles of Association of the 10-Q 000-23354 02-09-01 3.1 Registrant. 4.01 Indenture dated as of October 15, 1997 between 8-K 000-23354 10-22-97 10.1 Registrant and State Street Bank and Trust Company of California, N.A., as trustee.
72
INCORPORATED BY REFERENCE --------------------------------------------------- EXHIBIT FILING EXHIBIT FILED NO. EXHIBIT FORM FILE NO. DATE NO. HEREWITH ------- ------- ---- -------- ------ ------- -------- 4.02 U.S. Dollar Indenture dated June 29, 2000 between the 10-Q 000-23354 08-14-00 4.1 Registrant and Chase Manhattan Bank and Trust Company, N.A., as trustee. 4.03 Euro Indenture dated as of June 29, 2000 between 10-Q 000-23354 08-14-00 4.2 Registrant and Chase Manhattan Bank and Trust Company, N.A., as trustee. 4.04 Credit Agreement dated April 3, 2000 among the 10-K 000-23354 06-13-00 10.26 Registrant and its subsidiaries designated under the Credit Agreement as borrowers from time to time, the lenders named in Schedule I to the Credit Agreement, ABN AMRO Bank N.V. as agent for the lenders, Fleet National Bank as documentation agent, Bank of America, National Association and Citicorp USA, Inc. as managing agents, and The Bank of Nova Scotia as co-agent (the "Flextronics International Credit Agreement.* 4.05 Credit Agreement dated as of April 3, 2000 among 10-K 000-23354 06-13-00 10.27 Flextronics International USA, Inc., The DII Group, Inc., the lenders named in Schedule I to the Credit Agreement, ABN AMRO Bank N.V. as agent for the lenders, Fleet National Bank, as documentation agent, Bank of America, National Association and Citicorp USA, Inc. as managing agents, and The Bank of Nova Scotia as co-agent (the "Flextronics USA Credit Agreement").* 4.06 Amendment, dated as of June 15, 2001, to the 10-Q 000-23354 11-14-01 10.01 Flextronics USA Credit Agreement.* 4.07 First Amendment, dated as of April 3, 2001, to the X Flextronics International Credit Agreement.* 4.08 Second Amendment, dated as of April 3, 2001, to the X Flextronics USA Credit Agreement.* 10.01 Form of Indemnification Agreement between the S-1 33-74622 10.01 Registrant and its Directors and certain officers. 10.02 Registrant's 1993 Share Option Plan.+ S-8 333-55850 02-16-01 4.2 10.03 Registrant's 1997 Employee Share Purchase Plan. + S-8 333-95189 01-21-00 4.3 10.04 Flextronics U.S.A. 401(k) plan.+ S-1 33-74622 10.52 10.05 Employment and Noncompetition Agreement dated as of 10-K 000-23354 quarter ended April 30, 1997 between Flextronics International Sweden 03-31-97 10.29 AB and Ronny Nilsson.+ 10.06 Services Agreement dated as of April 30, 1997 between 10-K 000-23354 quarter ended Flextronics International USA, Inc. and Ronny Nilsson.+ 03-31-97 10.30 10.07 Promissory Note dated April 15, 1997 executed by 10-K 000-23354 quarter ended Ronny Nilsson in favor of Flextronics International 03-31-97 10.31 USA, Inc. 10.08 Form of Secured Full Recourse Promissory Note X executed by certain executive officers of the Registrant in favor of Flextronics International, NV, in connection with Glouple Ventures 2000 - I. 10.09 Form of Secured Full Recourse Promissory Note X executed by certain executive officers of the Registrant in favor of Flextronics International, NV, in connection with Glouple Ventures 2000 - II. 10.10 Deed of Noncompetition dated November 30, 2000 among JIT Holdings Limited and Goh Thiam Poh Tommie.+ X 21.01 Subsidiaries of Registrant X 23.01 Consent of Arthur Andersen LLP X 23.02 Consent of Deloitte & Touche LLP X
73 * Certain schedules have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted schedule to the Commission upon request. + Management contract, compensatory plan or arrangement. EX-2.06 2 f73624ex2-06.txt EXHIBIT 2.06 1 EXHIBIT 2.06 EXCHANGE AGREEMENT This EXCHANGE AGREEMENT (this "Agreement") is entered into as of January 14, 2000, by and among Flextronics International Ltd., a company organized under the laws of Singapore ("Acquiror"), Palo Alto Products International Pte Ltd, a company organized under the laws of Singapore ("PAPI") and the shareholders of PAPI, Palo Alto Manufacturing (Thailand) Ltd., a Subsidiary of PAPI ("PAMT") and Palo Alto Plastic (Thailand) Ltd., a Subsidiary of PAPI ("PAPT") listed on Exhibit A hereto that are party to this Agreement (the "Shareholders"). R E C I T A L S A. The parties intend that, subject to the terms and conditions hereinafter set forth, Acquiror will acquire all of the outstanding shares of capital stock of PAPI from the Shareholders that own capital stock of PAPI, and will acquire all of the outstanding shares of capital stock of PAMT and PAPT that are not held by PAPI from the Shareholders that own capital stock of PAMT and PAPT, respectively, in each case pursuant to the terms and conditions set forth herein, in exchange for Acquiror's Ordinary Shares (as defined below). B. The foregoing transactions are intended to be accounted for as a "pooling of interests" for accounting purposes. C. Concurrently with the execution of this Agreement, the Shareholders and Acquiror are entering into the Registration Rights Agreement, dated the date hereof, in the form of Exhibit 11.5 (the "Registration Rights Agreement"). NOW, THEREFORE, the parties hereto hereby agree as follows: 1. CERTAIN DEFINITIONS 1.1 "Acquiror Ordinary Shares" means the Ordinary Shares, S$0.01 par value of Acquiror. 1.2 "Additional Acquiror Ordinary Shares" means any Acquiror Ordinary Shares issued as a result of, or issued upon the conversion or exercise of any security issued as a result of, any stock dividend, reclassification, stock split, subdivision or combination of shares, recapitalization, or similar events made with respect to Acquiror Ordinary Shares from the Closing Date until the Final Release Date. 1.3 "Charter Documents" of an entity means the Articles of Association and By-Laws or Memorandum of Association of such entity or any equivalent corporate documents. 2 1.4 "Claim" means a claim, damage or legal action or proceeding giving rise to indemnification rights under this Agreement. 1.5 "Closing" means the closing of the Exchange pursuant to Section 7. 1.6 "Closing Date" has the meaning set forth in Section 7.1. 1.7 "Estimated Claim Amount" means the sum of the values of (i) all Damages with respect to any all uncontested Claims, plus (ii) all Damages with respect to any contested Claims that have been resolved in favor of the Acquiror as of the Final Release Date, plus (iii) Acquiror's reasonable good faith estimate of the Damages claimed under any contested Claim unresolved as of the Final Release Date, in each case for which the Shareholders have not indemnified Acquiror in cash as of the Final Release Date and as to which the Acquiror has elected to proceed under Section 12.1. 1.8 "Exchange" means, collectively, the exchange of all of the outstanding PAPI Shares, and the exchange of all of the outstanding shares of capital stock of PAMT and PAPT that are not held by PAPI, for the Acquiror Ordinary Shares contemplated by Section 2 below. 1.9 "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 1.10 "Exchange Number" means the quotient obtained by dividing 3,618,374 by the PAPI Fully Diluted Number. 1.11 "Final Release Date" means the date 365 days after the Closing Date. 1.12 "Hold-Back Shares" means the PAPI Hold-Back Shares and the PAMT/PAPT Hold-Back Shares, collectively, each as defined in Section 2.5. 1.13 "Material Adverse Effect" with respect to an entity means any circumstance, change in, or effect on such entity or any of its Subsidiaries that, individually or in the aggregate with any other circumstances, changes in, or effects on such entity or any of its Subsidiaries, (i) is or is reasonably likely to be materially adverse to the condition (financial or otherwise), business, properties, results of operations or prospects of such entity and its Subsidiaries, taken as a whole, or (ii) could adversely affect the ability of such entity to perform its obligations hereunder or consummate the transactions contemplated hereby. 1.14 "PAPI's Knowledge" means the actual knowledge after reasonable inquiry of PAPI and each of its officers. 1.15 "SEC" means the U.S. Securities and Exchange Commission. 1.16 "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. 2 3 1.17 "Singapore GAAP" means generally accepted accounting principles of the Republic of Singapore. 1.18 "Subsidiary" of an entity means a corporation or other business entity in which such entity owns, directly or indirectly, at least a fifty percent (50%) interest or that is otherwise, directly or indirectly, controlled by such entity. 1.19 "PAPI Fully Diluted Number" means that number that is equal to the sum of: (a) the total number of PAPI Shares that are issued and outstanding immediately prior to the Closing; plus (b) the total number of PAPI Shares that are issuable by PAPI upon the exercise of all PAPI options or convertible securities that are issued and outstanding immediately prior to the Closing and, in the case of PAPI options, that are vested or exercisable immediately prior to the Closing or that will become exercisable or vested as a result of the Closing. 1.20 "PAMT Shares" means shares of the capital stock (of any class or series) of PAMT. 1.21 "PAPI Shares" means shares of the capital stock (of any class or series) of PAPI. 1.21 "PAPT Shares" means shares of the capital stock (of any class or series) of PAPT. 1.22 "U.S. GAAP" means generally accepted accounting principles of the United States of America. 1.23 In this Agreement, references to "$" are to United States of America currency and references to "S$" are to Singapore currency. 2. THE EXCHANGE 2.1 Exchange of Shares. 2.1.1 Exchange of PAPI Shares. Subject to the terms and conditions of this Agreement, at the Closing, each Shareholder that holds PAPI Shares shall transfer all of his, her or its PAPI Shares to Acquiror, and in exchange for each such PAPI Share, Acquiror shall issue to each such Shareholder that number of Acquiror Ordinary Shares equal to 90% of the Exchange Number, subject to the provisions of Section 2.2 regarding the elimination of fractional shares. 2.1.2 Exchange of PAPT and PAMT Shares. Subject to the terms and conditions of this Agreement, at the Closing, each Shareholder that holds PAPT Shares or PAMT Shares shall transfer all of his, her or its PAPT Shares and PAMT Shares to Acquiror (or, if so designated by Acquiror, to PAPI or to such other person or entity as may be designated by Acquiror), and in exchange for each such PAPT Share and PAMT Share, Acquiror shall issue to each such Shareholder that number of Acquiror Ordinary Shares equal to 90% of the quotient of (A) the U.S. dollar amount set forth on Exhibit A with respect to such Shareholder plus accrued interest thereon from December 31, 1999 at a rate of 8% per annum, compounded annually, to 3 4 (but excluding) the Closing Date, divided by (B) $44.21875, subject to the provisions of Section 2.2 regarding the elimination of fractional shares. 2.2 Fractional Shares. No fractional Acquiror Ordinary Shares will be issued in connection with the Exchange, but in lieu thereof, if any Shareholder would otherwise be entitled to receive a fraction of an Acquiror Ordinary Share, he will receive from Acquiror, promptly after the Closing or the Final Release Date (as the case may be), an amount of cash equal to the per share market value of Acquiror Ordinary Shares (based on the Closing Price, as defined in Section 2.5.1) multiplied by the fraction of an Acquiror Ordinary Share to which the Shareholders would otherwise be entitled. 2.3 Pooling of Interests. The parties intend that the Exchange be treated as a "pooling of interests" for accounting purposes. 2.4 Full Satisfaction. All Acquiror Ordinary Shares and cash in lieu of fractional shares delivered upon the surrender of PAPI Shares, PAMT Shares or PAPT Shares in accordance with the terms hereof will be deemed to have been delivered in full satisfaction of all rights pertaining to such PAPI Shares, PAMT Shares or PAPT Shares, as the case may be. 2.5 Hold-Back. 2.5.1 Hold-Back With Respect to PAPI Shares. On the Final Release Date (or such later date as determined pursuant to Section 12) Acquiror will issue to each person that was a PAPI Shareholder that number of Acquiror Ordinary Shares equal to the product of (a) the number of PAPI Shares transferred to the Acquiror at the Closing, by such PAPI Shareholder pursuant to Section 2.1.1, multiplied by (b) 10% of the Exchange Number (the "PAPI Hold-Back Shares"), reduced, as provided in Section 12.1, by such PAPI Shareholder's pro rata portion (based on the number of Acquiror Ordinary Shares delivered to such Shareholder at the Closing as a percentage of all of the Acquiror Ordinary Shares delivered to all of the Shareholders at the Closing) of the quotient of (i) the Estimated Claim Amount divided by (ii) the closing price of the Acquiror Ordinary Shares as quoted on The Nasdaq National Market on the Closing Date (the "Closing Price")) rounded down to the nearest whole number of shares (the "PAPI Final Release Shares"). The PAPI Hold-Back Shares will not be represented by certificates and will remain unissued Acquiror Ordinary Shares until the Final Release Date (or such other time as determined in Section 12). 2.5.2 Hold-Back With Respect to PAMT Shares and PAPT Shares. On the Final Release Date (or such later date as determined pursuant to Section 12) Acquiror will issue to each Shareholder that was a PAMT Shareholder (or a PAPT Shareholder) that number of Acquiror Ordinary Shares equal to 10% of the result of (a) the U.S. dollar amount set forth on Exhibit A with respect to such Shareholder plus accrued interest thereon at a rate of 8% per annum, compounded annually, to (but excluding) the Closing Date, divided by (b) $44.21875 (the "PAMT/PAPT Hold-Back Shares"), reduced, as provided in Section 12.1, by such PAMT Shareholder's or PAPT Shareholder's pro rata portion (based on the number of Acquiror Ordinary Shares delivered to such Shareholder at the Closing as a percentage of all of the Acquiror Ordinary Shares delivered to all of the Shareholders at the Closing) of the quotient of (i) the Estimated Claim Amount divided by (ii) the Closing Price, rounded down to the nearest 4 5 whole number of shares (the "PAMT/PAPT Final Release Shares"). The PAMT/PAPT Hold-Back Shares will not be represented by certificates and will remain unissued Acquiror Ordinary Shares until the Final Release Date (or such other time as determined in Section 12). 2.6 Adjustments for Capital Changes. If, between the date hereof and the Closing Date (as to the Acquiror Ordinary Shares to be issued at the Closing Date), or between the date hereof and the Release Date (in the case of the Hold-Back Shares), Acquiror (a) recapitalizes either through a split-up of its outstanding shares into a greater number of shares, or through a combination of its outstanding shares into a lesser number of shares, or (b) reorganizes, reclassifies or otherwise changes its outstanding shares into the same or a different number of shares of other classes (other than through a split-up or combination of shares provided for in the previous clause), or (c) declares a dividend on its outstanding shares payable in shares or securities convertible into shares, the calculation of the number of Acquiror Ordinary Shares to be issued to the Shareholders at the Closing Date or on the Final Release Date will be adjusted appropriately. 2.7 Further Assurances. The Shareholders agree that if, at any time after the Closing, Acquiror considers or is advised that any further deeds, assignments or assurances are reasonably necessary or desirable to vest, perfect, confirm or continue in Acquiror (or any subsidiary or subsidiaries thereof) title to (and record, legal and beneficial ownership of) the PAPI Shares, the PAMT Shares and the PAPT Shares as provided herein, Acquiror and any of its officers are hereby authorized by the Shareholders to execute and deliver all such proper deeds, assignments and assurances and do all other things necessary or desirable to vest, perfect, confirm or continue title to such shares in Acquiror (or any subsidiary or subsidiaries thereof), and otherwise to carry out the purposes of this Agreement, in the name of the Shareholders or otherwise. 2.8 Continuation of Vesting And Repurchase Rights. If any PAPI Shares, PAPT Shares or PAMT Shares that are outstanding immediately prior to the Closing are unvested or are subject to a repurchase option, risk of forfeiture or other condition providing that such shares may be forfeited or repurchased by PAPI, PAPT or PAMT, as the case may be, upon any termination of the stockholders' employment, directorship or other relationship with PAPI, PAPT or PAMT (and/or any affiliate of PAPI, PAPT or PAMT), as the case may be, under the terms of any restricted stock purchase agreement or other agreement with such company that does not by its terms provide that such repurchase option, risk of forfeiture or other condition lapses upon consummation of the Exchange, then the Acquiror Ordinary Shares issued upon the Exchange with respect to such PAPI Shares, PAPT Shares or PAMT Shares will, subject to compliance with applicable laws, continue to be unvested and subject to the same repurchase options, risks of forfeiture or other conditions following the Closing, and the certificates representing such Acquiror Ordinary Shares may accordingly be marked with appropriate legends noting such repurchase options, risks of forfeiture or other conditions. PAPI, PAMT and PAPT shall take all actions that may be necessary to ensure that, from and after the Closing, Acquiror is entitled to exercise any such repurchase option or other right set forth in any such restricted stock purchase agreement or other agreement. 5 6 2.9 PAPI Stock Options. 2.9.1 At the Closing, each of the then outstanding PAPI Options (as defined below) shall by virtue of the Exchange, and without any further action on the part of any holder thereof, be assumed by Acquiror and converted into an option to purchase that number of Acquiror Ordinary Shares (a "Acquiror Option") obtained by multiplying each share of PAPI Ordinary Shares comprised in the relevant PAPI Option by the Exchange Number. If the foregoing calculation results in a Acquiror Option being exercisable for a fraction of a Acquiror Ordinary Share, then the number of Acquiror Ordinary Shares subject to such option shall be rounded down to the nearest whole number of shares. The exercise price of each Acquiror Option shall be equal to the exercise price of the PAPI Option from which such Acquiror Option was converted divided by the Exchange Number, rounded up to the nearest whole cent, provided that if such calculation would result in the exercise price of any Acquiror Option being less than the par value of a Acquiror Ordinary Share, the exercise price shall be the par value of such Acquiror Ordinary Share. Except as otherwise set forth in this Section 2.9, the term and vesting schedule, status as an "Incentive Stock Option" under Section 422 of the Code if applicable, and all the terms and conditions of PAPI Options will, to the extent permitted by law and Acquiror's 1993 Share Option Plan and otherwise reasonably practicable, be unchanged. An optionholder's continuous employment with PAPI shall be credited as employment with Acquiror for purposes of vesting of the Acquiror Options. PAPI will take or cause to be taken, all actions that are necessary, proper, or advisable under the Stock Plans to make effective the transactions contemplated by this Section 2.9. "PAPI Options" means any option or warrant granted and not exercised or expired, to a current or former employee, director or independent contractor of PAPI or any of its subsidiaries or any predecessor thereof or to any other party to purchase PAPI Ordinary Shares pursuant to any stock option, warrant, stock bonus, stock award or stock purchase plan, program or arrangement of PAPI or any of its Subsidiaries or any predecessor thereof (collectively, the "Stock Plans") or any other contract or agreement entered into by PAPI or any of its subsidiaries. 2.9.2 Acquiror shall take all corporate action necessary to reserve for issuance a sufficient number of Acquiror Ordinary Shares for delivery pursuant to, the terms set forth in this Section 2.9. Acquiror shall promptly cause the Acquiror Ordinary Shares issuable upon exercise of the assumed PAPI Options to be registered on, or to be issued pursuant to, an effective registration statement on Form S-8 (or successor form) promulgated by the U.S. Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as amended (the "1933 Act") and shall use commercially reasonable efforts to maintain the effectiveness of such registration statement or registration statements for so long as such Acquiror Options remain outstanding and Acquiror Ordinary Shares are registered under the Securities Exchange Act of 1934, as amended ("1934 Act"). Notwithstanding the foregoing, Acquiror shall not be obligated to register or maintain the registration under the 1933 Act of the issuance of any Acquiror Ordinary Shares that are subject to a Acquiror Option held by a person who is ineligible to have such person's securities registered on Form S-8 (or successor form). 6 7 3. REPRESENTATIONS AND WARRANTIES OF PAPI AND THE SHAREHOLDERS PAPI (and, solely with respect to Section 3.34, each Shareholder) hereby represents and warrants that as of the date hereof and as of the Closing Date: 3.1 Organization and Good Standing. PAPI is a company duly organized, validly existing and in good standing under the laws of Singapore, has the corporate power and authority to own, operate and lease its properties and to carry on its business as now conducted and is duly qualified to do business and is in good standing in each jurisdiction where the character of its properties owned or leased or the nature of its activities make such qualification necessary (each such jurisdiction being listed on Schedule 3.1), except where the failure to be so qualified would not have a Material Adverse Effect on PAPI. 3.2 Power, Authorization and Validity. 3.2.1 PAPI has the right, power, legal capacity and authority to enter into and perform its obligations under this Agreement. This Agreement has been duly and validly approved by the directors of PAPI. 3.2.2 No filing, authorization, consent or approval, governmental or otherwise, or filing with any governmental authority or court is necessary to enable PAPI to enter into, and to perform its obligations under, this Agreement, except for (a) such post-closing filings as may be required to comply with all applicable securities laws, (b) consents required under contracts disclosed in Schedule 3.5, and (c) the filing of a Notification and Report Form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. 3.2.3 This Agreement is a valid and binding obligation of PAPI, enforceable against PAPI in accordance with its terms, except as to the effect, if any, of (a) applicable bankruptcy and other similar laws affecting the rights of creditors generally, and (b) rules of law governing specific performance, injunctive relief and other equitable remedies. 3.3 Capitalization. 3.3.1 Authorized/Outstanding Capital Stock of PAPI. The authorized capital stock of PAPI consists solely of 10,000,000 Ordinary Shares, S$0.10 par value. A total of 4,550,128 PAPI Ordinary Shares are issued and outstanding as of the date of this Agreement, all of which are held of record and owned by the persons or entities set forth in Exhibit A. No equity securities of PAPI shall be issued and outstanding at the time of the Closing other than PAPI Shares set forth on Exhibit A and Ordinary Shares issued after the date of this Agreement upon exercise of options disclosed in Schedule 3.3.4. Exhibit A sets forth the number of PAPI Shares that are held by each Shareholder as of the date of this Agreement and immediately prior to the Closing. All issued and outstanding PAPI Shares have been duly authorized and validly issued, are fully paid and nonassessable, are not subject to any right of rescission and have been offered, issued, sold and delivered by PAPI in compliance with all requirements of applicable laws. There is no liability for dividends accrued and unpaid by PAPI. 7 8 3.3.2 Authorized/Outstanding Capital Stock of PAMT. The authorized capital stock of PAMT consists solely of 32,000,000 Ordinary Shares, all of which are issued and outstanding as of the date of this Agreement and will be issued and outstanding as of the Closing Date, all of which are held of record and owned by PAPI except for an aggregate of 8,400,000 Ordinary Shares which are held by the Shareholders and an aggregate of eight Ordinary Shares which are held by other shareholders, each as set forth in Exhibit A. Exhibit A sets forth the number of PAMT Shares that are held by each Shareholder as of the date of this Agreement and immediately prior to the Closing. All issued and outstanding PAMT Shares have been duly authorized and validly issued, are fully paid and nonassessable (except as disclosed in Schedule 3.3.2) and are not subject to any right of rescission and have been offered, issued, sold and delivered by PAMT in compliance with all requirements of applicable laws. There is no liability for dividends accrued and unpaid by PAMT. 3.3.3 Authorized/Outstanding Capital Stock of PAPT. The authorized capital stock of PAPT consists solely of 100,000,000 Ordinary Shares, all of which are issued and outstanding as of the date of this Agreement and will be issued and outstanding as of the Closing Date, all of which are held of record and owned by PAPI except for an aggregate of 47,222,220 Ordinary Shares which are held by the Shareholders and an aggregate of seven Ordinary Shares which are held by other shareholders, each as set forth in Exhibit A. Exhibit A sets forth the number of PAPT Ordinary Shares that are held by each Shareholder as of the date of this Agreement and immediately prior to the Closing. All issued and outstanding PAPT Shares have been duly authorized and validly issued, are fully paid and nonassessable and are not subject to any right of rescission and have been offered, issued, sold and delivered by PAPT in compliance with all requirements of applicable laws. There is no liability for dividends accrued and unpaid by PAPT. 3.3.4 Options/Rights. A total of 559,475 PAPI Ordinary Shares are issuable pursuant to PAPI Options as of the date of this Agreement and will be subject to outstanding options as of the Closing Date (other than options that have expired or been exercised after the date of this Agreement in accordance with their terms and as to which notice thereof has been provided to Acquiror prior to the Closing), all of which are held by the option holders, in the amounts and with the vesting schedules set forth on Schedule 3.3.4. Schedule 3.3.4 sets forth, as of the date hereof, each option granted by PAPI, the date of grant, the number of shares subject thereto, the date of exercise (if exercised), the number of shares issued on exercise, and the date of expiration (if such option has expired or will expire in 2000). The vesting of the PAPI Options shall not be accelerated as a result of the transactions contemplated by this Agreement. Except for the PAPI Options, there are no stock appreciation rights, options, warrants, calls, rights, commitments, conversion privileges or preemptive or other rights or agreements outstanding to purchase or otherwise acquire any PAPI Shares, PAPT Shares or PAMT Shares (collectively, "Capital Stock") or any securities or debt convertible into or exchangeable for Capital Stock or obligating PAPI, PAPT or PAMT to grant, extend or enter into any such option, warrant, call, commitment, conversion privileges or preemptive or other right or agreement. Except as set forth on Schedule 3.3.4, there are no voting agreements, registration rights, rights of first refusal, preemptive rights, co-sale rights, or other restrictions applicable to any outstanding securities of PAPI, PAPT or PAMT. 8 9 3.4 Subsidiaries. Except as set forth in Schedule 3.4, PAPI does not have any Subsidiaries or any equity interest, direct or indirect, in, or loans to, any corporation, partnership, joint venture, limited liability company or other business entity. Each of the Subsidiaries listed on Schedule 3.4 (including, without, limitation, PAPT and PAMT) is duly organized, validly existing and in good standing (or appropriately recognized as legally in existence and active under the laws of its jurisdiction) under the laws of the jurisdiction identified in Schedule 3.4, and has the requisite power and authority to conduct its business as it is presently being conducted. No corporate proceedings on the part of any Subsidiary are necessary to authorize this Agreement and the transactions contemplated hereby. Schedule 3.4 contains a true, correct and complete list of all jurisdictions in which each Subsidiary is qualified to do business. Each of the Subsidiaries is duly qualified to do business and is in good standing in each jurisdiction where the character of its properties owned or leased or the nature of its activities make such qualification necessary), except where the failure to be so qualified would not have a Material Adverse Effect on PAPI. PAPI owns of record and beneficially all of the issued and outstanding capital or other stock of each Subsidiary free and clear of any encumbrances (except for the shares of PAMT and PAPT listed on Exhibit A, which are held by the persons or entities indicated thereon). 3.5 No Violation of Articles or Existing Agreements. Neither the execution and delivery of this Agreement, nor the consummation of the transactions provided for herein, will conflict with, or (with or without notice or lapse of time, or both) result in a termination, breach, impairment or violation of, (a) any provision of the Charter Documents of PAPI, PAMT or PAPT, as currently in effect, (b) in any material respect, any Material Agreement (as defined in Section 3.12) or (c) any judgment, writ, decree, order, statute, rule or regulation applicable to PAPI or any of its Subsidiaries or any of their assets or properties. Except as set forth in Schedule 3.5, the Exchange will not require the consent of any third party and will not have any material adverse effect upon the rights of PAPI or any Subsidiary pursuant to the terms of any Material Agreement. 3.6 Litigation. Except as set forth on Schedule 3.6, there is no action, proceeding or investigation pending or, to PAPI's Knowledge, threatened against PAPI or any of its Subsidiaries before any court or administrative agency that, if determined adversely to PAPI or such Subsidiary, may reasonably be expected to have a Material Adverse Effect on PAPI or in which the adverse party or parties seek to recover in excess of $50,000 against PAPI or any of its Subsidiaries. There is no basis for any person, firm, corporation or entity to assert a claim against PAPI or any of its Subsidiaries or any Shareholder based upon: (a) ownership or rights to ownership of any PAPI Shares, PAPT shares or PAMT shares, or (b) any rights as a PAPI, PAMT, or PAPT securities holder, including, without limitation, any option or other right to acquire any PAPI, PAMT, or PAPT securities, any preemptive rights or any rights to notice or to vote. 3.7 PAPI Financial Statements. PAPI has delivered to Acquiror PAPI's audited consolidated balance sheet as of March 31, 1998 and March 31, 1999, PAPI's audited consolidated income statement and statement of cash flows for the years then ended, PAPI's unaudited consolidated balance sheet as of September 30, 1999 and PAPI's unaudited consolidated income statement and statement of cash flows in the six months then ended (collectively, the "PAPI Financial Statements"), a copy of each of which is included as 9 10 Schedule 3.7. The PAPI Financial Statements (a) are in accordance with the books and records of PAPI and (b) fairly present the financial condition of PAPI at the respective dates specified therein and the results of operations for the respective periods specified therein in conformity with U.S. GAAP applied on a consistent basis. As of September 30, 1999, neither PAPI nor any of its Subsidiaries was subject to (i) any material debt, liability or obligation of a nature which is accrued on a balance sheet prepared under U.S. GAAP except as reflected in the balance sheet as of September 30, 1999 included in the PAPI Financial Statements or (ii) any material contingent liability of a nature which is not accrued on a balance sheet prepared under U.S. GAAP which is likely to be asserted. Since September 30, 1999 (the "Balance Sheet Date"), neither PAPI nor any of its Subsidiaries has incurred any debt, liability or obligation of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due, except in the ordinary course of PAPI's business, consistent with past practice. 3.8 PAPI Financial Projections. PAPI has delivered to Acquiror PAPI's financial projections for each quarter in the period from October 1, 1999 to September 30, 2000 (the "Financial Projections"), a copy of which is included as Schedule 3.8. The Financial Projections have been prepared in good faith by PAPI based upon reasonable assumptions and represent PAPI's best good faith estimates as to its future results of operations. Such projections are subject to the effect of PAPI's affiliation with Acquiror. No assurance is given that the results stated in the Financial Projections will be achieved. 3.9 Taxes. PAPI and each of its Subsidiaries has filed all tax and information returns required to be filed prior to the date of this Agreement, has paid all taxes required to be paid in respect of all periods prior to the date hereof for which returns have been filed, has made all necessary estimated tax payments, and has no liability for taxes in excess of the amount so paid, except to the extent adequate reserves have been established in the PAPI Financial Statements. Except as set forth on Schedule 3.9, neither PAPI nor any of its Subsidiaries is delinquent in the payment of any tax or in the filing of any tax returns, and no deficiencies for any tax have been threatened, claimed, proposed or assessed which have not been settled or paid. Except as set forth on Schedule 3.9, no tax return of PAPI or any of its Subsidiaries has ever been audited by the U.S. Internal Revenue Service, or any other taxing agency or authority. For the purposes of this Section 3.9, the terms "tax" and "taxes" include all income, gains, franchise, excise, property, sales, use, employment, license, payroll, social contribution, services, occupation, recording, value added or transfer taxes, governmental charges, fees, levies or assessments (whether payable directly or by withholding), and, with respect to such taxes, any estimated tax, interest and penalties or additions to tax and interest on such penalties and additions to tax. The accruals for current and deferred tax liabilities set forth in the balance sheet as of September 30, 1999 are in accordance with U.S. GAAP. If prior to closing PAPI or any of its Subsidiaries were to become subject to an audit by the U.S. Internal Revenue Service, or any other taxing agency or authority for tax years or periods prior to Closing, PAPI and the Shareholders will use all reasonable efforts to resolve all such audits in a manner consistent with the intentions of the parties as expressed in this Agreement. 3.10 Title to Properties; Condition of Equipment. Except as set forth on Schedule 3.10, PAPI and each of its Subsidiaries has good and marketable title to all of its assets used in its business or as shown on the balance sheet as of the Balance Sheet Date included in the PAPI Financial Statements, free and clear of all liens, charges, encumbrances or restrictions 10 11 (other than for taxes not yet due and payable and Permitted Liens as defined below), other than such assets, set forth on Schedule 3.10, as were sold by PAPI in the ordinary course of business since the Balance Sheet Date or which are used under leases. Such assets are sufficient for the continued operation of the business of PAPI and each of its Subsidiaries consistent with current practice. "Permitted Liens" means any lien, mortgage, encumbrance or restriction which is reflected in the PAPI Financial Statements and is not in excess of $100,000 and which does not materially detract from the value or materially interfere with the use, as currently utilized, of the properties subject thereto or affected thereby or otherwise materially impair the business operations being conducted thereon. All leases of real or personal property to which PAPI or any of its Subsidiaries are a party are fully effective and afford PAPI and each of its Subsidiaries peaceful and undisturbed possession of the subject matter of the lease. Neither PAPI nor any of its Subsidiaries is in violation of any material zoning, building, safety or environmental ordinance, regulation or requirement or other law or regulation applicable to the operation of owned or leased properties, and PAPI has not received any notice of such violation with which it has not complied. The machinery and equipment (the "Equipment") owned or leased by PAPI or any of its Subsidiaries is in all material respects (i) suitable for the uses to which it is currently employed, (ii) in generally good operating condition, (iii) regularly and properly maintained, (iv) not obsolete, dangerous or in need of renewal or replacement, except for renewal or replacement in the ordinary course of business, and (v) to PAPI's Knowledge, free from any material defects. 3.11 Absence of Certain Changes. Since the Balance Sheet Date, PAPI and each of its Subsidiaries has carried on its business in the ordinary course substantially in accordance with the procedures and practices in effect on the Balance Sheet Date, and except as set forth in Schedule 3.11, between the Balance Sheet Date and January 31, 2000 there has not been with respect to PAPI or any of its Subsidiaries: (a) any change in the financial condition, properties, assets, liabilities, business, results of operations or prospects of PAPI, which change by itself or in conjunction with all other such changes, whether or not arising in the ordinary course of business, has had or can reasonably be expected to have a Material Adverse Effect on PAPI or its ability to conduct its business as presently conducted, other than any change that PAPI shall sustain the burden of demonstrating resulted from PAPI's affiliation with Acquiror; (b) any contingent liability incurred as guarantor or surety with respect to the obligations of others (other than PAPI or any of its Subsidiaries); (c) any mortgage, encumbrance or lien placed on any of its properties or granted with respect to any of its assets which exceeds $100,000; (d) any material obligation or liability incurred by PAPI or any Subsidiary other than in the ordinary course of business; (e) any purchase or sale or other disposition, or any agreement or other arrangement for the purchase, sale or other disposition, of any of the properties or assets of PAPI or its Subsidiaries other than sales of inventory and purchases in the ordinary course of business consistent with past practices; 11 12 (f) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the properties, assets or business of PAPI or any Subsidiary; (g) any declaration, setting aside or payment of any dividend on, or the making of any other distribution in respect of, the capital stock of PAPI, any split, stock dividend, combination or recapitalization of the capital stock of PAPI or any direct or indirect redemption, purchase or other acquisition by PAPI of the capital stock of PAPI; (h) any labor dispute or claim of material unfair labor practices; (i) any change as of the date hereof, or any material change as of the Closing, with respect to the officers or management employees of PAPI or any Subsidiary (the officers and management employees of PAPI and its Subsidiaries are listed on Schedule 3.11(i) hereof); (j) any material modification of the benefits payable or to become payable to any of its directors or employees, or any increase in the compensation payable or to become payable to any of the directors or employees of PAPI or any Subsidiary, or any bonus payment or arrangement made to or with any of such directors or employees, except salary increases (not in excess of 10% for any individual) in the ordinary course of business consistent with past practice or as disclosed in Schedule 3.11; (k) any increase in or modification of any bonus, pension, insurance or other employee benefit plan to persons that are not executive officers or directors, payment or arrangement (including, but not limited to, the granting of stock options, restricted stock awards or stock appreciation rights) made to, for or with any of its employees, except in the ordinary course of business consistent with past practice or as disclosed in Schedule 3.11; (l) any making of any loan, advance or capital contribution to, or investment in, any person other than (i) travel loans or advances made in the ordinary course of business of PAPI and (ii) other loans and advances in an aggregate amount which does not exceed $100,000 outstanding at any time; (m) any entry into, amendment of, relinquishment, termination or nonrenewal by PAPI of any contract, lease transaction, commitment or other right or obligation other than in the ordinary course of business, but in no event involving obligations (contingent or otherwise) of, or payments to PAPI in excess of $100,000 individually or in the aggregate; (n) any payment or discharge of a material lien or liability thereof, which lien or liability was not either (i) shown on the balance sheet as of the Balance Sheet Date included in the PAPI Financial Statements or (ii) incurred in the ordinary course of business after the Balance Sheet Date; or (o) any obligation or liability incurred by PAPI to any of its officers, directors or shareholders, or any loans or advances made to any of its officers, directors, shareholders or affiliates, except normal compensation and expense allowances payable to officers. 12 13 3.12 Agreements and Commitments. Except as set forth in Schedule 3.12, neither PAPI nor any of its Subsidiaries is a party or subject to any of the following (whether written or oral): (a) any contract, commitment, letter agreement, or purchase order providing for payments by or to PAPI or any of its Subsidiaries in an aggregate amount of (i) $100,000 or more in the ordinary course of business or (ii) $50,000 or more not in the ordinary course of business; (b) any license agreement under which PAPI or any of its Subsidiaries is licensor; or under which PAPI or any of its Subsidiaries is licensee (except for standard "shrink wrap" licenses for off-the-shelf software products); (c) any agreement by PAPI or any of its Subsidiaries to encumber, transfer or sell rights in or with respect to any PAPI Intellectual Property (as defined in Section 3.13 below); (d) any agreement for the sale or lease of real or personal property involving more than $100,000 per year; (e) any dealer, distributor, sales representative, original equipment manufacturer, value added remarketer, volume purchase agreement or other agreement for the distribution or sale of PAPI's products of PAPI or any of its Subsidiaries (other than individual purchase orders in the ordinary course of business); (f) any franchise agreement; (g) any stock redemption or purchase agreement; (h) any joint venture contract or arrangement or any other agreement that involves a sharing of profits with other persons or the payment of royalties to any other person; (i) any instrument evidencing indebtedness for borrowed money or guarantees thereof; (j) any contract containing covenants purporting to limit PAPI's freedom to compete in any line of business in any geographic area; (k) any agreement of indemnification other than standard warranties in connection with the sale of products and/or services in the ordinary course of business; (l) any agreement, contract or commitment relating to capital expenditures and which involves future payments in excess of $100,000; (m) any agreement, contract or commitment relating to the disposition or acquisition of any assets (other than Inventory, as defined in Section 3.26) by PAPI or any of its Subsidiaries or any PAPI Intellectual Property, which involves payments individually in excess of $100,000 or in the aggregate in excess of $250,000; 13 14 (n) any purchase order or contract for the purchase of raw materials which involves payments individually in excess of $100,000 or in the aggregate in excess of $250,000; or (o) any other agreement, contract, obligation or commitment that, to PAPI's Knowledge, is material to PAPI and its Subsidiaries, taken as a whole. All agreements, contracts, obligations and commitments listed in Schedules 3.12, 3.13, 3.16.1, 3.16.2 or 3.16.4 (collectively "Material Agreements"), are valid and in full force and effect. Neither PAPI nor any of its Subsidiaries nor, to PAPI's Knowledge, any other party is in material breach of or default under any Material Agreement, nor will PAPI nor, to PAPI's Knowledge, any other party be in material breach of or default under any such Material Agreement after giving effect to the Exchange. To the knowledge of PAPI, no party to any Material Agreement intends to cancel, withdraw, modify or amend such Material Agreement (other than any cancellation, withdrawal, modification or amendment that PAPI can sustain the burden of demonstrating resulted from PAPI's affiliation with Acquiror). Except as disclosed in Schedule 3.12, neither PAPI nor any of its Subsidiaries is a party to any Material Agreement or any other agreement, contract or instrument with any customer, supplier, landlord or labor union or association that (i) contains any provision that is or could reasonably be expected to become materially burdensome to PAPI or such Subsidiary, other than provisions that are in the ordinary course of PAPI's and its Subsidiaries' business and are consistent with industry practice; (ii) provides for the reduction of prices charged by PAPI or any of its Subsidiaries to any Significant Customer (as defined in Section 3.24) for its products or services other than price reductions that are proportionate to reductions in the related costs, (but including, without limitation, any "most favored customer" provisions); (iii) provides for any increases in the prices to be paid by PAPI or any of its Subsidiaries to any Significant Supplier (as defined in Section 3.25) for any products or services; or (iv) provides for any warranty or similar obligations with respect to products or services other than an obligation to repair or replace products in the event of defective workmanship or materials provided by PAPI or such Subsidiary. 3.13 Intellectual Property. PAPI and each of its Subsidiaries owns all right, title and interest in, or has the right to use, sell or license all patent applications, patents, trademark applications, trademarks, service marks, trade names, copyright applications, copyrights, trade secrets, know-how, technology, customer lists, proprietary processes and formulae, all source and object code, algorithms, inventions, development tools and all documentation and media constituting, describing or relating to the above, including, without limitation, manuals, memoranda and records and other intellectual property and proprietary rights used in or reasonably necessary or required for the conduct of its respective business as presently conducted ("PAPI Intellectual Property"). Set forth on Schedule 3.13 is a true and complete list of all copyright and trademark registrations and applications and all patents and patent applications for PAPI Intellectual Property owned by PAPI and each of its Subsidiaries. PAPI is not aware of any material loss, cancellation, termination or expiration of any such registration or patent. The business of PAPI and each of its Subsidiaries does not cause PAPI or any of its Subsidiaries to infringe or violate any of the patents, trademarks, service marks, trade names, mask works, copyrights, trade secrets, proprietary rights or other intellectual property of any other person in any material respect, and neither PAPI nor any of its Subsidiaries has received 14 15 any written or oral claim or notice of infringement or potential infringement of the intellectual property of any other person which remains pending. There are no royalties, fees or other payments payable by PAPI or any of its Subsidiaries to any person pursuant to any agreement by reason of the ownership, use, license, sale or disposition of the PAPI Intellectual Property (other than as set forth in Schedule 3.13). Neither the manufacture, marketing, sale or intended use of any product currently licensed or sold by PAPI or currently under development by PAPI violates any license or agreement between PAPI and any third party. PAPI and each of its Subsidiaries has taken reasonable and practicable steps designed to safeguard and maintain the secrecy and confidentiality of, and its proprietary rights in, all material PAPI Intellectual Property. PAPI is not aware of any material infringement of any PAPI Intellectual Property by any third party. 3.14 Compliance with Laws. PAPI and each of its Subsidiaries have complied in all material respects and are as of the Closing Date in compliance in all material respects with all laws, ordinances, regulations and rules, and all orders, writs, injunctions, awards, judgments and decrees, applicable to PAPI or any of its Subsidiaries or to the assets, properties and business of PAPI or any of its Subsidiaries. PAPI and each of its Subsidiaries has received all material permits and approvals from, and has made all material filings with, third parties, including government agencies and authorities, that are necessary to the conduct of its business as presently conducted, and there exists no material current default under or violation of any such permit or approval. Schedule 3.14 includes a summary of all violations of, or conflicts with, any applicable statute, law, rule, regulation, ruling, order, judgment or decree, and all allegations of any such violations, of which PAPI has received notice from such governmental entity since December 31, 1995. 3.15 Certain Transactions and Agreements. Except as disclosed in Schedule 3.15, no person who is an officer, director or shareholder of PAPI or any of its Subsidiaries, or a member of any officer's, director's or Shareholders' immediate family, (a) has any direct or indirect ownership interest in or any employment or consulting agreement with any firm or corporation that competes with PAPI or Acquiror (except with respect to any interest in less than 1% of the outstanding voting shares of any corporation whose stock is publicly traded), (b) is directly or indirectly interested in any material contract or informal arrangement with PAPI, except for compensation for services as an officer, director or employee of PAPI or any of its Subsidiaries as listed in Schedule 3.16.5, (c) has any interest in any property, real or personal, tangible or intangible, used in the business of PAPI or any of its Subsidiaries, except for the normal rights of a shareholder, or (d) has had, either directly or indirectly, a material interest in: (i) any person or entity which purchases from or sells, licenses or furnishes to PAPI or any of its Subsidiaries any goods, property, technology or intellectual or other property rights or services; or (ii) any contract or agreement to which PAPI is a party or by which it may be bound or affected. 3.16 Employees. 3.16.1 Neither PAPI nor any of its Subsidiaries are subject to a collective bargaining agreement with respect to its employees or are subject to any current labor dispute. PAPI and its Subsidiaries each have had good labor relations; and to PAPI's Knowledge, there are no facts indicating that the consummation of the transactions provided for herein will have a Material Adverse Effect on its labor relations, or those of any Subsidiary or that (i) as of the date 15 16 hereof, any of its officers or management employees, or any significant number of other employees intends to leave its employ, or the employ of any Subsidiary or (ii) as of the Closing Date, any significant number of employees or officers, intends to leave its employ, or the employ of any Subsidiary. Except as set forth in Schedule 3.11, between December 31, 1998 and the date of this Agreement, to PAPI's Knowledge, no management employee, or significant number of other employees, of PAPI or any Subsidiary, has given notice that such employee intends to terminate his or her employment with PAPI or any Subsidiary. There are no activities or proceedings of any labor union to organize any employees of PAPI or any Subsidiary and there are no strikes, or material slowdowns, work stoppages or lockouts, or threats thereof by or with respect to any employees of PAPI or any Subsidiary. Since December 31, 1997, PAPI and each of its Subsidiaries have been in compliance in all material respects with all applicable laws regarding employment practices, terms and conditions of employment, and wages and hours. 3.16.2 Schedule 3.16.2 contains a list of all employment and consulting agreements, pension, retirement, disability, medical, dental or other health plans, life insurance or other death benefit plans, profit sharing, deferred compensation agreements, stock, option, bonus or other incentive plans, vacation, sick, holiday or other paid leave plans, severance plans or other similar employee benefit plans maintained by PAPI and its Subsidiaries (the "Employee Plans"). PAPI has delivered true and complete copies or descriptions of all the Employee Plans to Acquiror or Acquiror's counsel. Each of the Employee Plans, and its operation and administration, is, in all material respects, in compliance with all applicable laws and ordinances, orders, rules and regulations. No employee of PAPI or any of its Subsidiaries and no person subject to any PAPI health plan has made medical claims through such health plan during the twelve months preceding the date hereof for more than $100,000 or more in the aggregate for which PAPI or any Subsidiary is responsible, or has any catastrophic illness. 3.16.3 To PAPI's knowledge, no employee of PAPI or any of its Subsidiaries is in material violation of any term of any employment contract or any other contract or agreement, or any restrictive covenant, relating to the right of any such employee to be employed by PAPI or to use trade secrets or proprietary information of others, and the employment of any employee of PAPI does not subject PAPI to any liability to any third party. 3.16.4 Except as set forth in Schedule 3.16.4, neither PAPI nor any of its Subsidiaries is a party to any (a) agreement with any executive officer or other key employee of PAPI (i) the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving PAPI in the nature of any of the transactions contemplated by this Agreement, (ii) providing any term of employment or compensation guarantee or (iii) providing severance benefits or other benefits after the termination of employment of such employee regardless of the reason for such termination of employment, or (b) agreement or plan, including, without limitation, any stock option plan, stock appreciation rights plan or stock purchase plan, any of the benefits of which will be materially increased, or the vesting of benefits of which will be materially accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. 3.16.5 A list of all employees and officers of PAPI and its Subsidiaries (other than certain production employees who are listed as a group) and their current 16 17 compensation and benefits (other than options and participation in broad-based benefit plans that are disclosed in other schedules hereto) as of the date of this Agreement is set forth on Schedule 3.16.5. 3.16.6 All contributions due from PAPI or any of its Subsidiaries with respect to any of the Employee Plans and all employee social security contributions have been made or accrued on the PAPI Financial Statements, and no further contributions will be due thereunder as of the Closing Date, other than contributions accrued in the ordinary course of business after the Balance Sheet Date as a result of operations of PAPI and its Subsidiaries after the Balance Sheet Date, all of which have been paid to the extent required. 3.16.7 Neither PAPI nor any of its Subsidiaries is obligated to make any excess parachute payment, as defined in Section 280G(b)(1) of the U.S. Internal Revenue Code (the "Code"), nor will any excess parachute payment be deemed to have occurred as a result of or arising out of the Exchange to the extent Section 280G of the Code is applicable to such company. 3.17 Corporate Documents. PAPI has provided to Acquiror complete and correct copies of all documents identified in the Schedules to this Agreement including, without limitation, the following: (a) copies of PAPI's Charter Documents (and those of each Subsidiary) as currently in effect; (b) copies of any minute books containing records of any proceedings, consents, actions and meetings of PAPI's and each Subsidiary's directors, committees of the board of directors and shareholders; (c) copies of its stock ledger, journal and other records reflecting all stock issuances and transfers and all stock option grants and agreements; (d) copies of the Material Agreements, and all amendments thereto; and (e) all permits, orders and consents issued by any regulatory agency with respect to PAPI, or any securities of PAPI, and all applications for such permits, orders and consents. 3.18 No Brokers. Except as disclosed on Schedule 3.18, neither PAPI nor any of its Subsidiaries is obligated for the payment of fees or expenses of any investment banker, broker or finder in connection with the origin, negotiation or execution of this Agreement in connection with any transaction provided for herein. 3.19 Disclosure. This Agreement, its exhibits and schedules, and any of the certificates or documents to be delivered by PAPI to Acquiror under this Agreement, taken together, do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained herein and therein, in light of the circumstances under which such statements were made, not misleading. 3.20 Books and Records. The books, records and accounts of PAPI and its Subsidiaries (a) are in all material respects true and complete, (b) have been maintained in accordance with reasonable business practices on a basis consistent with prior years, (c) are stated in reasonable detail and accurately and fairly reflect the transactions and dispositions of the assets of PAPI and (d) accurately and fairly reflect the basis for the PAPI Financial Statements. PAPI has devised and maintains a system of internal accounting controls sufficient to provide reasonable assurances that (x) transactions are executed in accordance with management's general or specific authorization; (y) transactions are recorded as necessary (i) to permit 17 18 preparation of financial statements in conformity with U.S. and Singapore GAAP, and (ii) to maintain accountability for assets, and (z) the amount recorded for assets on the books and records of PAPI is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. 3.21 Insurance. PAPI maintains fire, casualty and liability insurance as listed on Schedule 3.21. All premiums heretofore payable under all such policies and bonds have been paid and PAPI is otherwise in compliance in all material respects with the terms of such policies and bonds (or other policies and bonds providing substantially similar insurance coverage). PAPI does not know of any threatened termination of, or premium increase with respect to, any of such policies. 3.22 Environmental, Health, and Safety Matters. 3.22.1 Each of PAPI, its Subsidiaries, its predecessors and affiliates has complied in all material respects and is in compliance in all material respects with all Environmental, Health, and Safety Requirements. For purposes of this Agreement, "Environmental, Health, and Safety Requirements" shall mean all statutes, regulations, ordinances and other provisions having the force or effect of law, all judicial and administrative orders and determinations, all contractual obligations and all law concerning public health and safety, worker health and safety, and pollution or protection of the environment, including without limitation all those relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, release, threatened release, control, or cleanup of any Hazardous Materials, substances or wastes, chemical substances or mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum products or byproducts, asbestos, polychlorinated biphenyls, noise or radiation, each as amended and as now or hereafter in effect. For purposes of this Agreement, "Hazardous Material" means any substance (i) the presence of which requires investigation or remediation under any applicable law or federal, state or local statute, regulation, rule, ordinance, order, action, policy or common law; or (ii) which is or becomes defined as a "hazardous substance," pollutant or contaminant under any applicable law or federal, state or local statute, regulation, rule or ordinance or amendments thereto including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. section 6901 et seq.) and the Resource Conservation and Recovery Act (42 U.S.C. section 6901 et seq.); or (iii) which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, or otherwise hazardous and is or becomes regulated by any governmental or regulatory body, agency or authority; or (iv) the presence of which on any real property owned, leased or occupied by PAPI or any Subsidiary causes or threatens to cause a nuisance upon such real property or to adjacent properties or poses or threatens to pose a hazard to the health or safety of persons on or about the real property; or (v) without limitation which contains gasoline, diesel fuel or other petroleum hydrocarbons; or (vi) without limitation which contains polychlorinated biphenyls (PCB's), asbestos or urea formaldehyde insulation. 3.22.2 Neither PAPI, its Subsidiaries nor their respective predecessors or affiliates has received any written or oral notice, report or other information since December 31, 1998, or which remains pending, regarding any actual or alleged violation of Environmental, Health, and Safety Requirements, or any liabilities or potential liabilities (whether accrued, 18 19 absolute, contingent, unliquidated or otherwise), including any investigatory, remedial or corrective obligations, relating to any of them or its facilities arising under Environmental, Health, and Safety Requirements. 3.22.3 None of the following exists at any property or facility owned or operated by PAPI: (a) underground storage tanks, or (b) landfills, surface impoundments, or disposal areas. 3.22.4 None of PAPI, its Subsidiaries, or their respective predecessors or affiliates has treated, stored, disposed of, arranged for or permitted the disposal of, transported, handled, or released any substance, including without limitation any Hazardous Materials, or owned or operated any property or facility (and no such property or facility is contaminated by any such substance) in a manner that has given or would give rise to material liabilities, including any material liability for response costs, corrective action costs, personal injury, property damage, natural resources damages or attorney fees, pursuant to any Environmental, Health, and Safety Requirements. To PAPI's Knowledge, neither the execution of this Agreement nor the consummation of the transactions that are the subject of this Agreement will result in any obligations of such PAPI or any Subsidiary for site investigation or cleanup, or notification to or consent of government agencies or third parties, pursuant to any of the so called "transaction triggered" or "responsible property transfer" Environmental, Health and Safety Requirements. 3.22.5 Neither PAPI, its Subsidiaries nor its predecessors or affiliates has, either expressly or by operation of law, assumed or undertaken any liability, including without limitation any obligation for corrective or remedial action, of any other person or entity relating to Environmental, Health, and Safety Requirements. 3.22.6 To the best knowledge of PAPI, no facts, events or conditions relating to the past or present facilities, properties or operations of each of PAPI, its Subsidiaries, its and their respective predecessors and affiliates will prevent, hinder or limit continued compliance in all material respects with Environmental, Health, and Safety Requirements, give rise to any investigatory, remedial or corrective obligations pursuant to Environmental, Health, and Safety Requirements, or give rise to any other material liabilities (whether accrued, absolute, contingent, unliquidated or otherwise) pursuant to Environmental, Health, and Safety Requirements, including without limitation any relating to onsite or offsite releases or threatened releases of hazardous materials, substances or wastes, personal injury, property damage or natural resources damage. 3.23 Product and Service Warranties. Between March 31, 1999 and the date of this Agreement, PAPI and its Subsidiaries have not experienced any product or service warranty claims materially greater than the same type of claims reflected in the PAPI Financial Statements for a comparable period in the previous fiscal year ended March 31, 1999. PAPI's (and its Subsidiaries) obligations with respect to defects in materials or workmanship is limited to an obligation to repair or replace the product in question. 3.24 Customers; Backlog; Returns and Complaints. Except as set forth in Schedule 3.24, neither PAPI nor any of its Subsidiaries has outstanding material disputes concerning its goods and/or services in an amount greater than $50,000 with any customer who, in the six months ended September 30, 1999, was one of the twenty largest sources of revenues 19 20 for PAPI and its Subsidiaries, based on amounts paid (a "Significant Customer"). PAPI has not received any information from any current Significant Customer that such customer will not continue as a customer of PAPI (or a Subsidiary thereof, as applicable) after the Closing or that any such customer intends to terminate or materially modify existing contracts or arrangements with PAPI (or such Subsidiary) except for any noncontinuation, termination, or modification that PAPI can sustain the burden of demonstrating resulted from PAPI's affiliation with Acquiror. For the six months ended September 30, 1999, PAPI and its Subsidiaries have not had any of their products returned by a purchaser thereof except for normal warranty returns consistent with past history and those returns that would not result in a reversal of any revenue by PAPI. 3.25 Suppliers. Neither PAPI nor its Subsidiaries have any outstanding material disputes concerning goods or services provided by any supplier who, in the six months ended September 30, 1999, was one of the twenty largest suppliers of goods and services to PAPI and its Subsidiaries, based on amounts paid ("Significant Supplier"). PAPI has not received any written notice of a termination or interruption of any existing contracts or arrangements with any Significant Suppliers. PAPI and its Subsidiaries have access, on commercially reasonable terms, to all goods and services reasonably necessary to them to carry on their business as currently conducted and PAPI has no knowledge of any reason why PAPI and its Subsidiaries will not continue to have such access on commercially reasonable terms. 3.26 Inventory. The inventory of PAPI and its Subsidiaries reflected in the PAPI Financial Statements (the "Inventory") was valued at weighted average cost (determined on a first-in, first-out basis) or market, whichever is lower. The Inventory is in all material respects of good and merchantable quality and is readily usable and salable in the ordinary course of PAPI's businesses, except for items of obsolete materials and materials of below standard quality, all of which have been written down to realizable market value, or for which adequate reserves have been provided, in the PAPI Financial Statements. All items included in such Inventory are owned by PAPI or its Subsidiaries free and clear of all liens and encumbrances, except for inventory sold by PAPI in the ordinary course of business subsequent to the Balance Sheet Date. All Inventory materially in excess of reasonable estimated requirements for PAPI based on current operations for the next six months are set forth on Schedule 3.26. For Inventory manufactured to customer specifications effectively rendering the Inventory salable only to that customer, the terms of the sales contracts applicable thereto require the customer to acquire such Inventory (to the extent of the quantity limits specified in such sales contracts) if it is manufactured and delivered in accordance with such sales contracts. 3.27 Accounts Receivable. The receivables shown on the balance sheet on the Balance Sheet Date arose in the ordinary course of business. The allowances for doubtful accounts and warranty returns shown in the balance sheet as of September 30, 1999 included in the PAPI Financial Statements are in accordance with U.S. GAAP consistently applied. Since March 31, 1999, neither PAPI nor any of its Subsidiaries has materially reduced the credit standards applied to its significant customers. To PAPI's Knowledge, none of the receivables of PAPI and its Subsidiaries is subject to any material claim of offset, recoupment, setoff or counter-claim and PAPI has no knowledge of any specific facts or circumstances (whether asserted or unasserted) that could give rise to any such claim. No material amount of receivables are contingent upon the performance by PAPI or any Subsidiary of any obligation or contract other than normal warranty repair and replacement or normal performance under the terms of a 20 21 design or tooling contract, in cases where progress payments are permitted and have been invoiced. No person has any lien on any of such receivables and no agreement for deduction or discount has been made with respect to any of such receivables. Schedule 3.27 sets forth an aging of accounts receivable of PAPI in the aggregate and by customer, and indicates the amounts of allowances for doubtful accounts and warranty returns and the amounts of accounts receivable which are subject to asserted warranty claims. Schedule 3.27 sets forth such amounts of accounts receivable which are subject to asserted warranty claims by customers and reasonably detailed information regarding asserted warranty claims made within the last year, including the type and amounts of such claims. 3.28 Accounting Matters. To PAPI's Knowledge, neither PAPI, its Subsidiaries nor the Shareholders have taken, or agreed to take, any action that would prevent Acquiror from accounting for the Exchange as a "pooling of interests" under generally accepted accounting principles. PAPI is autonomous and has never been a subsidiary or division or another corporation or other entity. Except as disclosed in Schedule 3.28, PAPI has not (i) issued any shares of its capital stock since September 30, 1996, (ii) paid any dividends or effected any other distributions to its shareholders since September 30, 1996, (iii) reacquired or purchased any Shares of its capital stock from September 30, 1996, (iv) changed any of its equity interests after September 30, 1996 or (v) sold significant assets since September 30, 1996 in contemplation of a merger; and none of the Shareholders have any controlling interest or significant influence in a business similar to Acquiror or which is dependent on employees, assets or other resources of PAPI. 3.29 Restrictions on Business Activities. There is no agreement, judgment, injunction, order or decree binding upon PAPI or which has or could reasonably be expected to have the effect of prohibiting or materially impairing any current business practice of PAPI, any acquisition of property by PAPI or the conduct of business of PAPI as currently conducted or as currently proposed to be conducted. 3.30 Certain Payments. Since December 31, 1997, neither PAPI, its Subsidiaries, the Shareholders nor any representative thereof, has offered, paid, promised to pay, or authorized payment of, or given any money, gift or anything of value to (i) any governmental official or employee, (ii) political party or candidate thereof or (iii) any person while knowing that all or a portion of such money or thing of value will be given or offered to any governmental official or employee or political party or candidate thereof; with the purpose of influencing any act or decision of the recipient in his or her official capacity or to induce the recipient to use his or her influence to affect an act or decision of a government official or employee. 3.31 Year 2000 Compliance. PAPI and each of its Subsidiaries has used its best efforts to ensure that systems used to conduct its business will not be materially interrupted or adversely affected due to Year 2000 Problems, and to PAPI's Knowledge, such systems will not be materially interrupted or adversely affected due to Year 2000 Problems. A "Year 2000 Problem" means a date-handling problem relating to the Year 2000 date change that would cause a computer system, software or equipment to fail to correctly perform, process and handle date-related data for the dates within and between the twentieth and twenty-first centuries and all other centuries 21 22 3.32 Other Entities' Liabilities. Except for (a) guarantees previously disclosed to Acquiror and (b) endorsement of negotiable instruments in the ordinary course of business, neither PAPI nor any of its Subsidiaries has any liabilities, contingent or otherwise, pursuant to any agreement or instrument with respect to the operations, transactions, liabilities or obligations of any other entity (other than the operations, transactions, liabilities or obligations of PAPI or any of its Subsidiaries). 3.33 Bank Accounts. Schedule 3.33 sets forth the names and locations of all banks, trust companies, savings and loan associations, and other financial institutions at which PAPI or any of its Subsidiaries maintains accounts of any nature and the names of all persons authorized to draw thereon or make withdrawals therefrom. 3.34 Shareholders' Representations. 3.34.1 Information. Each Shareholder acknowledges that he, she or it has received, read and understands the Acquiror Disclosure Package (as defined in Section 4.6 of this Agreement). 3.34.2 Access to Other Information. Each Shareholder recognizes that Acquiror has made available to such Shareholders the opportunity to examine such additional documents from Acquiror and to ask questions of, and receive full answers from, Acquiror concerning, among other things, Acquiror, its financial condition, its management, its prior activities and any other information which each Shareholder considers relevant or appropriate in connection with entering into this Agreement. Such Shareholder further represents that the oral information provided by Acquiror's management, if any, has been consistent with the information set forth in the Acquiror Disclosure Package. 3.34.3 Risks of Investment. Each Shareholder acknowledges that the Acquiror Ordinary Shares issued in connection with the Exchange (the "Restricted Securities") are unregistered and may not be resold publicly for a period of at least one year under Rule 144 unless the shares are registered with the SEC. Each Shareholder accepts and is able to bear the risks of holding such shares indefinitely and the other risks set forth in the Acquiror Disclosure Package. Each Shareholder, together with his, her or its advisor, is capable of assessing the risks of an investment in Acquiror Ordinary Shares and is fully aware of the economic risks thereof. 3.34.4 Investment Intent. Each Shareholder is receiving the Restricted Securities in the Exchange for investment for such Shareholders' own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act, other than pursuant to an effective registration statement under the Securities Act. 3.34.5 Restricted Securities; Registration Rights. Each Shareholder acknowledges and understands that the terms of the Exchange have not been reviewed by the SEC or by any state securities authorities, that the Acquiror Ordinary Shares received by the Shareholders pursuant to the Exchange have not been registered under the Securities Act and constitute "restricted securities" under Rule 144(d) of the Securities Act, and have been issued in reliance on the exemptions for non-public offerings provided by Rule 506 and Section 4(2) of the Securities Act, which exemptions depend upon, among other things, the representations made 22 23 and information furnished by the Shareholders, including the bona fide nature of the Shareholders' investment intent as expressed above. Each Shareholder acknowledges that he, she or it has certain rights to register such Restricted Securities as set forth in the Registration Rights Agreement (as defined in Section 8.9) and that they may not be sold or transferred except in accordance with such provisions. Each Shareholder further acknowledges and understands that Acquiror is obligated to register the Restricted Securities to be issued to such Shareholder only as provided in the Registration Rights Agreement. 3.34.6 Legends. Each Shareholder also understands and agrees that there will be placed on the certificates evidencing the ownership of the Restricted Securities, the following legends, in addition to any legends required by applicable state laws: THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED, SOLD, PLEDGED, EXCHANGED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED, EXCHANGED OR TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT (AND CURRENT PROSPECTUS) IS IN EFFECT AS TO THE SECURITIES, OR (2) AN EXEMPTION FROM REGISTRATION IS AVAILABLE, OR (3) THE SECURITIES ARE SOLD PURSUANT TO RULE 144 OF THE SECURITIES ACT. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE OR OTHER NATIONAL SECURITIES LAWS. FURTHERMORE, THE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED, EXCHANGED OR TRANSFERRED UNTIL SUCH TIME AS RESULTS COVERING AT LEAST 30 DAYS OF COMBINED OPERATIONS OF THE ISSUER AND PAPI HAVE BEEN PUBLISHED BY THE ISSUER IN A PUBLIC FILING OR ANNOUNCEMENT. 3.34.7 Stop Transfer Instructions; No Requirement to Transfer. Each Shareholder agrees that, in order to ensure compliance with the restrictions referred to herein, Acquiror may issue appropriate "stop transfer" instructions to its transfer agent. Acquiror shall not be required (i) to transfer or have transferred on its books any Acquiror Ordinary Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or the Registration Rights Agreement or (ii) to treat as owner of such Acquiror Ordinary Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Acquiror Ordinary Shares shall have been so transferred in violation of any provision of this Agreement or the Registration Rights Agreement. 3.34.8 Title to Capital Stock. Except as set forth on Schedule 3.34.8, each Shareholder represents that such shareholder holds good and marketable title to his, her or its PAPI Shares, PAMT Shares or PAPT Shares, as the case may be, free and clear of all liens, agreements, voting trusts, proxies and other arrangements or restrictions of any kind whatsoever. 3.34.9 Accounting Representations. Each Shareholder represents that he or she has not taken, or agreed to take, any action enumerated in Section 11.4. 23 24 3.34.10 Power, Authorization and Validity. Each Shareholder represents that he, she or it has the right, power, legal capacity and authority to enter into and perform his, hers or its obligations under this Agreement and the Registration Rights Agreement. This Agreement and the Registration Rights Agreement are valid and binding obligations of such Shareholder, enforceable against such Shareholder in accordance with their respective terms, except as to the effect, if any, of (a) applicable bankruptcy and other similar laws affecting the rights of creditors generally, (b) rules of law governing specific performance, injunctive relief and other equitable remedies, and (c) the enforceability of provisions requiring indemnification in connection with the offering, issuance or sale of securities. 4. REPRESENTATIONS AND WARRANTIES OF ACQUIROR Acquiror hereby represents and warrants to PAPI and each Shareholder that, except as set forth on the Schedules attached hereto: 4.1 Organization. Acquiror is duly organized and validly existing under the laws of the jurisdiction of its incorporation, and has the corporate power and authority to own, operate and lease its properties and to carry on its business as now conducted and as proposed to be conducted, and is qualified to do business in each jurisdiction in which such qualification is required. 4.2 Power, Authorization and Validity. 4.2.1 Acquiror has the right, power, legal capacity and authority to enter into and perform its obligations under this Agreement and the Registration Rights Agreement. The execution, delivery and performance of this Agreement and the Registration Rights Agreement have been duly and validly approved and authorized by all necessary corporate and shareholder action on the part of Acquiror. 4.2.2 No filing, authorization or approval, governmental or otherwise, is necessary to enable Acquiror to enter into, and to perform its obligations under, this Agreement and the Registration Rights Agreement, except for (a) for such post-closing filings as may be required to comply with federal and state securities laws and (b) the filing of a Notification and Report Form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. 4.2.3 This Agreement and the Registration Rights Agreement are, or when executed by Acquiror will be, valid and binding obligations of Acquiror enforceable in accordance with their respective terms, except as to the effect, if any, of (a) applicable bankruptcy and other similar laws affecting the rights of creditors generally, (b) rules of law governing specific performance, injunctive relief and other equitable remedies and (c) the enforceability of provisions requiring indemnification in connection with the offering, issuance or sale of securities. 4.3 No Violation of Existing Agreements. Neither the execution and delivery of this Agreement nor the Registration Rights Agreement, nor the consummation of the transactions contemplated hereby, will conflict with or (with or without notice or lapse of time, or both) result in a termination, breach, impairment or violation of (a) any provision of the 24 25 Articles of Association or Memorandum of Association of Acquiror, as currently in effect, (b) in any material respect, any material agreement, instrument or contract to which Acquiror is a party or by which Acquiror is bound, or (c) any national, provincial, local or foreign judgment, writ, decree, order, statute, rule or regulation applicable to Acquiror or its assets or properties. 4.4 Litigation. Except as set forth in the Acquiror Disclosure Package (as defined in Section 4.6), there is no action, proceeding or investigation pending or, to Acquiror's actual knowledge, threatened against Acquiror before any court or administrative agency that, if determined adversely to Acquiror, may reasonably be expected to have a Material Adverse Effect on Acquiror. 4.5 Absence of Certain Changes. Since December 31, 1998, there has not been any change in the financial condition, properties, assets, liabilities, business or results of operations of Acquiror, which change by itself or in conjunction with all other such changes, whether or not arising in the ordinary course of business, has had or can reasonably be expected to have a Material Adverse Effect on Acquiror. 4.6 Disclosure. Acquiror has provided to PAPI an investor disclosure package consisting of Acquiror's Annual Report on Form 10-K, as amended, for its fiscal year ended March 31, 1999, all Forms 10-Q and 8-K, as amended, filed by Acquiror with the SEC since March 31, 1999 and up to the date of this Agreement and all proxy materials distributed to Acquiror's shareholders since March 31, 1999 and up to the date of this Agreement, in each case excluding exhibits thereto (the "Acquiror Disclosure Package"). The documents in the Acquiror Disclosure Package (i) conform, as of the dates of their respective filing with the SEC, in all material respects, to the requirements of the Securities Act and the Exchange Act, and (ii) when taken together, do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading. 5. PAPI PRECLOSING COVENANTS During the period from the date of this Agreement until the Closing Date, PAPI and the Shareholders covenant and agree with Acquiror as follows: 5.1 Advice of Changes. PAPI and the Shareholders will promptly advise Acquiror's President, Systems Group in writing, to the extent of the knowledge of any of PAPI's officers, (a) of any event occurring subsequent to the date of this Agreement that would render any representation or warranty of PAPI or the Shareholders contained in this Agreement, if made on or as of the date of such event or the Closing Date, untrue or inaccurate in any material respect and (b) of any Material Adverse Effect with respect to PAPI. 5.2 Maintenance of Business. The parties hereto understand and acknowledge that it is their intent to work closely together during the period from the date hereof until the Closing Date. If PAPI or the Shareholders become aware of a material deterioration in the relationship with any material customer, supplier or key employee, PAPI or the Shareholders will 25 26 promptly bring such information to the attention of Acquiror in writing and, if requested by Acquiror, will exert all reasonable efforts to restore the relationship. 5.3 Conduct of Business. PAPI will continue to (and will cause each of its Subsidiaries to) conduct its business in the ordinary course consistent with the manner as heretofore conducted and, to the extent consistent therewith, use all reasonable efforts to preserve intact its current business organization, keep available the services of its current officers and employees and preserve its relationship with customers, suppliers, licensors, licensees, distributors and others having business dealings with it. Without limiting the foregoing, PAPI will not (and will not permit any of its Subsidiaries to) enter into any transaction or agreement or take any action out of the ordinary course without the prior written consent of the President, Systems Group of Acquiror, including, without limitation: (a) borrow any money other than for the purchase of capital equipment and payment of customs fees for such equipment; provided that the aggregate principal amount of such borrowings under this Section 5.3(a) shall not exceed the aggregate amount of $100,000 after the date of this Agreement; (b) enter into any transaction, or make any payment or capital expenditure, that is not in the ordinary course of business or that is inconsistent with past practice, or enter into any transaction, or make any payment or commitment, involving an expense or capital expenditure in excess of $250,000 in the ordinary course of business or $100,000 not in the ordinary course of business; (c) encumber or permit to be encumbered any of its assets except in the ordinary course of its business consistent with past practice and to an extent which is not material; (d) dispose of any of its assets except sales of inventory and obsolete equipment in the ordinary course of business consistent with past practice; (e) enter into any material lease or contract for the purchase or sale of any property, real or personal, tangible or intangible, except in the ordinary course of business consistent with past practice, or enter into agreement which would be a Material Agreement if in effect on the date hereof; (f) fail to continue normal maintenance programs according to the standards it has maintained to the date of this Agreement; (g) pay any bonus, royalty, increased salary or special remuneration to any officer, employee or consultant or enter into any new employment or consulting agreement with any such person, or enter into any new agreement or plan of the type described in Section 3.16.2 except those paid or entered into in the ordinary course of business consistent with past practices for employees that are not officers or directors of PAPI, PAMT or PAPT; (h) change accounting methods, or materially reduce, write off or write down the value of any asset; 26 27 (i) declare, set aside or pay any cash or stock dividend or other distribution in respect of capital stock, or redeem or otherwise acquire any of its capital stock; (j) amend or terminate any contract, agreement or license to which it is a party except those amended or terminated in the ordinary course of business, consistent with past practice, and which are not material in amount or effect; (k) lend any amount to any person or entity, other than advances to employees for travel and expenses which are incurred in the ordinary course of business consistent with past practice, not material in amount, which travel and expenses shall be documented by receipts for the claimed amounts; (l) guarantee or act as a surety for any obligation except for the endorsement of checks and other negotiable instruments in the ordinary course of business, consistent with past practice which are not material in amount; (m) waive or release any material right or claim except in the ordinary course of business, consistent with past practice; (n) issue or sell any shares of its capital stock of any class or any other of its securities, or issue or create any warrants, obligations, subscriptions, options, convertible securities, stock appreciation rights or other commitments to issue shares of capital stock, or accelerate the vesting of any outstanding option or other security; (o) split or combine the outstanding shares of its capital stock of any class or enter into any recapitalization affecting the number of outstanding shares of its capital stock of any class or affecting any other of its securities; (p) except for the Exchange, merge, consolidate or reorganize with, or acquire any entity; (q) amend its Charter Documents; (r) agree to any audit assessment by any tax authority or file any income or franchise tax return unless copies of such returns have been delivered to Acquiror for its review prior to filing; (s) license any of the PAPI Intellectual Property; (t) change the amount or scope of any insurance coverage; (u) terminate the employment of any management personnel; (v) make or agree to make any new capital expenditure or expenditures which are outside the ordinary course of its business or inconsistent with past practice, or acquire any assets with a book value in excess of $50,000 individually or $100,000 in the aggregate; (w) make any material payments outside the ordinary course of its business; 27 28 (x) commence a lawsuit other than (i) for the routine collection of bills, or (ii) in such cases where it in good faith determines that failure to commence suit would result in the material impairment of a valuable aspect of its business, provided that it consults with Acquiror prior to the filing of such a suit; or (y) agree to do any of the things described in the preceding clauses 5.3(a) through 5.3(x). 5.4 Regulatory Approvals. PAPI and the Shareholders will execute and file, or join in the execution and filing, of any application or other document that may be necessary in order to obtain the authorization, approval or consent of any governmental body which may be reasonably required, or which Acquiror may reasonably request, in connection with the consummation of the transactions provided for in this Agreement. PAPI will use all reasonable efforts to obtain or assist Acquiror in obtaining all such authorizations, approvals and consents. 5.5 Necessary Consents. PAPI and the Shareholders will each use all their reasonable efforts to obtain such written consents and take such other actions as may be necessary or appropriate, in addition to those set forth in Section 5.4, to facilitate and allow the consummation of the transactions provided for herein and to facilitate and allow Acquiror to carry on PAPI's business after the Closing. 5.6 Litigation. PAPI will notify Acquiror in writing promptly after learning of any action, suit, proceeding or investigation by or before any court, board or governmental agency, initiated by or against PAPI or threatened against it. 5.7 No Other Negotiations. From the date hereof until the termination of this Agreement (provided such termination is not in breach of this Agreement) or the consummation of the Exchange, PAPI and the Shareholders will not, and will not authorize any officer, director, employee or affiliate of PAPI, or any other person, on its or their behalf, directly or indirectly, to (a) solicit, facilitate, discuss or encourage any offer, inquiry or proposal received from any party other than Acquiror, concerning the possible disposition of all or any substantial portion of PAPI's business, assets or capital stock by merger, sale or any other means or to otherwise solicit, facilitate, discuss or encourage any such disposition (other than the Exchange), or (b) provide any confidential information to or negotiate with any third party other than Acquiror in connection with any offer, inquiry or proposal concerning any such disposition. PAPI will immediately notify Acquiror of any such offer, inquiry or proposal. 5.8 Access to Information. Until the Closing Date, and subject to the terms and conditions hereof relating to the confidentiality and use of confidential and proprietary information, PAPI will provide Acquiror and its agents with full access to the files, books, records and offices of PAPI, including, without limitation, any and all information relating to PAPI's taxes, commitments, contracts, leases, licenses, real, personal and intangible property, and financial condition reasonably necessary for Acquiror to complete its diligence review of PAPI's products and business. PAPI will cause its accountants to cooperate with Acquiror and its agents in making available all financial information reasonably requested, including without limitation the right to examine all working papers pertaining to all financial statements prepared or audited by such accountants. 28 29 5.9 Satisfaction of Conditions Precedent. PAPI and the Shareholders will use all reasonable efforts to satisfy or cause to be satisfied all the conditions precedent which are set forth in Section 9, and PAPI and the Shareholders will use all reasonable efforts to cause the transactions provided for in this Agreement to be consummated, and, without limiting the generality of the foregoing, to obtain all consents and authorizations of third parties and to make all filings with, and give all notices to, third parties that may be necessary or reasonably required on its part in order to effect the transactions provided for herein. 5.10 Retention of Employees. PAPI will use its all reasonable efforts to secure for employment after the Closing by Acquiror, the employees listed in Schedule 3.11(i), and PAPI will promptly notify Acquiror if any of PAPI's officers becomes aware that any of the employees listed in Schedule 3.11(i) intends to leave its employ. 5.11 Securities Laws. PAPI and the Shareholders shall use all reasonable efforts to assist Acquiror, to the extent necessary, to comply with the securities laws of all jurisdictions applicable in connection with the Exchange; provided, however, that Acquiror shall be responsible for all costs and expenses associated with such compliance. 5.12 Pooling of Interests Accounting. PAPI and the Shareholders shall use all reasonable efforts to cause the business combination to be effected by the Exchange to be accounted for as a "pooling of interests." PAPI and the Shareholders shall use all reasonable efforts to cause PAPI's affiliates not to take any action that would adversely affect the ability of Acquiror to account for the business combination to be effected by the Exchange as a "pooling of interests." PAPI has no persons or entities that own any of its shares, or rights to acquire its shares, other than Shareholders. 5.13 Employee Plans. On the Closing Date, PAPI and each Subsidiary will have terminated all Employee Plans maintained prior to the Closing Date except as otherwise provided herein or unless otherwise specifically agreed to by Acquiror or unless such Employee Plan(s) may not be terminated under applicable law. 6. ACQUIROR PRECLOSING COVENANTS During the period from the date of this Agreement until the Closing Date, Acquiror covenants to and agrees as follows: 6.1 Regulatory Approvals. Acquiror will execute and file, or join in the execution and filing, of any application or other document that may be necessary in order to obtain the authorization, approval or consent of any governmental body which may be reasonably required, or which PAPI may reasonably request, in connection with the consummation of the transactions provided for in this Agreement. Acquiror will use all reasonable efforts to obtain all such authorizations, approvals and consents. 6.2 Satisfaction of Conditions Precedent. Acquiror will use all reasonable efforts to satisfy or cause to be satisfied all the conditions precedent which are set forth in Section 8, and Acquiror will use all reasonable efforts to cause the transactions provided for in this Agreement to be consummated, and, without limiting the generality of the foregoing, to 29 30 obtain all consents and authorizations of third parties and to make all filings with, and give all notices to, third parties that may be necessary or reasonably required on its part in order to effect the transactions provided for herein. 6.3 Advice of Changes. Acquiror will promptly advise PAPI in writing, to the extent of the knowledge of Acquiror's Chief Executive Officer or President, Systems Group, (a) of any event occurring subsequent to the date of this Agreement that would render any representation or warranty of Acquiror contained in this Agreement, if made on or as of the date of such event or the Closing Date, untrue or inaccurate in any material respect and (b) of any material adverse change in Acquiror's financial condition, properties, assets, liabilities, business or results of operations. 6.4 Litigation. Acquiror will notify PAPI in writing promptly after learning of any action, suit, proceeding or investigation by or before any court, board or governmental agency, initiated by or against Acquiror or threatened against it. 6.5 Pooling Accounting. Acquiror shall use all reasonable efforts to cause the business combination to be effected by the Exchange to be accounted for as a "pooling of interests." Acquiror shall use all reasonable efforts to cause its Affiliates not to take any action that would adversely affect the ability of Acquiror to account for the business combination to be effected by the Exchange as a "pooling of interests." 6.6 Acquiror Affiliates Agreements. To ensure that the Exchange will be accounted for as a "pooling of interests," Acquiror will cause each of its affiliates (as such term is defined in Rule 405 under the Securities Act) to sign and deliver to Acquiror, on or prior to the Closing Date, a written agreement (the "Acquiror Affiliates Agreement"), in the form of Exhibit 6.6. 7. CLOSING MATTERS 7.1 The Closing. Subject to termination of this Agreement as provided in Section 10 below, the Closing will take place at the offices of Fenwick & West LLP in Palo Alto, California on April 7, 2000 or, if all conditions to closing have not been satisfied or waived by such date, on the third business day after all such conditions have been satisfied or waived (the "Closing Date"); provided that Acquiror may, by written notice to PAPI, specify that the Closing Date shall be any earlier date that is not less than five business days following the date of such notice, in which case the Closing Date shall be such earlier date (provided that all conditions to closing shall have been satisfied or waived). 7.2 Exchanges at the Closing. 7.2.1 At the Closing, each Shareholder will deliver to Acquiror (a) certificates representing all of the PAPI Shares, PAMT Shares and PAPT Shares owned by such Shareholder, together with such stock powers, assignments or other instruments as may be reasonably required by Acquiror to provide for the transfer of all its PAPI Shares, PAMT Shares and PAPT Shares to Acquiror; and (b) any other documentation required to effectuate the transfer under applicable law. Without limitation to the foregoing, (a) each Shareholder of PAPT and 30 31 PAMT (other than PAPI) shall execute, and deliver to Acquiror, their share certificates representing their shares of PAPT and PAMT, together with a share transfer agreement in form reasonably acceptable to Acquiror, certified by at least one witness, effecting the transfer of their respective shares of PAPT and PAMT in accordance with the Civil and Commercial Code of Thailand, and the Acquiror shall be recorded in the share register books of PAPT and PAMT as the owner of such shares, and such Shareholder de-registered in such books, effective as of the Closing Date and (b) each Shareholder of PAPI shall execute, and deliver to Acquiror , their share certificates representing their shares of PAPI, together with a share transfer form in form reasonably acceptable to Acquiror effecting the transfer of their respective shares of PAPI in accordance with Singapore law, duly stamped to reflect the payment of applicable stamp duty. 7.2.2 Upon receipt of the documents described in Section 7.2.1, Acquiror will deliver to each of the Shareholders a share certificate or certificates issued in the name of such Shareholder for the number of Acquiror Ordinary Shares determined as provided in Section 2.1. 7.2.3 Promptly after the Closing or the Final Release Date (as the case may be), Acquiror will deliver to the Shareholders any cash due in lieu of fractional shares as provided for in Section 2.2. 8. CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS The Shareholders' obligations hereunder are subject to the fulfillment or satisfaction, on and as of the Closing, of each of the following conditions (any one or more of which may be waived by the Shareholders, but only in a writing signed by the Chief Executive Officer or Chairman of PAPI) after obtaining the consent of the Shareholders: 8.1 Accuracy of Representations and Warranties. The representations and warranties of Acquiror set forth in Section 4 shall be true and accurate in every material respect on and as of the Closing. 8.2 Covenants. Acquiror shall have performed and complied in all material respects with all of its covenants contained in Section 6 on or before the Closing. 8.3 Closing Certificate. The Shareholders shall receive a certificate to the effect that the requirements of Sections 8.1 and 8.2 have been satisfied signed by a duly authorized officer of Acquiror. 8.4 Compliance with Law. There shall be no order, decree, or ruling by any court or governmental agency or threat thereof, or any other fact or circumstance, which would prohibit or render illegal the transactions contemplated by this Agreement. 8.5 Government Consents. There shall have been obtained at or prior to the Closing Date such permits or authorizations, and there shall have been taken such other action, as may be required to consummate the Exchange by any regulatory authority having jurisdiction over the parties and the actions herein proposed to be taken, including but not limited to requirements under applicable securities laws, and any applicable notices shall have been filed and waiting periods terminated or expired under any statute or governmental regulation, 31 32 including the filing of a premerger notification and report form, and expiration or early termination of the waiting period, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. 8.6 No Litigation. No litigation or proceeding shall be pending for the purpose or with the probable effect of enjoining or preventing the consummation of any of the transactions contemplated by this Agreement or which would have a Material Adverse Effect on Acquiror. 8.7 Opinion of Flextronics' Counsel. The Shareholders shall have received from Allen & Gledhill, Singapore counsel to Acquiror, an opinion substantially in the form of Exhibit 8.7. 8.8 Documents. The Shareholders shall have received all written consents, assignments, waivers, authorizations or other certificates reasonably deemed necessary by their legal counsel to consummate the transactions contemplated hereby. 8.9 Registration Rights Agreement. Acquiror shall have executed and delivered to the Shareholders a Registration Rights Agreement (the "Rights Agreement") substantially in the form attached as Exhibit 11.5. 9. CONDITIONS TO OBLIGATIONS OF ACQUIROR The obligations of Acquiror hereunder are subject to the fulfillment or satisfaction on, and as of the Closing, of each of the following conditions (any one or more of which may be waived by Acquiror, but only in a writing signed on behalf of Acquiror by its Chief Executive Officer or President, Systems Group): 9.1 Accuracy of Representations and Warranties. The representations and warranties of PAPI set forth in Section 3 (and of the Shareholders set forth in Section 3.34) shall be true and accurate in every material respect on and as of the Closing. 9.2 Covenants. The Shareholders and PAPI shall have performed and complied in all material respects with all of their covenants contained in Section 5 on or before the Closing. 9.3 Closing Certificate. Acquiror shall receive a certificate to the effect that the requirements of Sections 9.1 and 9.2 have been satisfied signed by the Shareholders and PAPI. 9.4 Compliance with Law. There shall be no order, decree, or ruling by any court or governmental agency or threat thereof, or any other fact or circumstance, which would prohibit or render illegal the transactions provided for in this Agreement. 9.5 Government Consents. There shall have been obtained at or prior to the Closing Date such permits or authorizations, and there shall have been taken such other action, as may be required to consummate the Exchange by any regulatory authority having jurisdiction 32 33 over the parties and the actions herein proposed to be taken, including but not limited to satisfaction of all requirements under applicable securities laws, and any applicable notices shall have been filed and waiting periods terminated or expired under any statute or governmental regulation, including the filing of a premerger notification and report form, and expiration or early termination of the waiting period, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. 9.6 Opinion of PAPI's Counsel. Acquiror shall have received the following, each dated as of the Closing Date, and each in form and substance reasonably acceptable to Acquiror: (a) from McCutchen, Doyle, Brown & Enersen, LLP, U.S. counsel to PAPI, their opinion as to (i) the due incorporation and good standing of Palo Alto Design Group, Inc., (ii) the absence of any violation or breach of any Material Agreement or California or United States federal law, and the absence of any required consents or filings thereunder, as a result of the execution and delivery of this Agreement or the consummation of the transactions provided for hereunder, (iii) the enforceability of this Agreement against PAPI and the Shareholders (such counsel being entitled to assume the due authorization, execution and delivery of the Agreement by the Shareholders), and (iv) the absence of any litigation known to such counsel; (b) from Rodyk & Davidson, Singapore counsel to PAPI, their opinion as to (i) the due organization and good standing of PAPI, (ii) the authorized and issued capitalization of PAPI and the ownership of its issued and outstanding shares, (iii) the absence of any violation of any Singapore law or PAPI's Charter Documents, and the absence of any required consents or filings thereunder, as a result of the execution and delivery of this Agreement or the consummation of the transactions provided for hereunder; (iv) the compliance with Singapore law and PAPI's Charter Documents of the issuances of the outstanding capital stock of PAPI, (v) the effectiveness of the documents delivered at the Closing to transfer at the Closing record and beneficial ownership of all of the outstanding capital stock (other than up to 40,000 Ordinary Shares) of PAPI to Acquiror; and (vi) the absence of any litigation known to such counsel and (c) from Nopadol & Khaisri, Thai counsel to PAPI, PAPT and PAMT, their opinion as to (i) the due organization and good standing of PAPT and PAMT, (ii) the authorized and issued capitalization of PAPT and PAMT and the ownership of their issued and outstanding shares; (iii) the absence of any violation of any Thai law or PAMT's or PAPT's Charter Documents, and the absence of any required consents or filings thereunder, as a result of the execution and delivery of this Agreement or the consummation of the transactions provided for hereunder; and (iv) the effectiveness of the documents delivered at the Closing to transfer to Acquiror at the Closing record and beneficial ownership of all of the outstanding capital stock of PAPT and PAMT (other than (A) shares owned of record and beneficially by PAPI, and (B) seven Ordinary Shares of PAPT and eight Ordinary Shares of PAMT owned of record by certain individuals as nominees for PAPI). 9.7 Consents. Acquiror shall have received duly executed copies of all material third-party consents, approvals, assignments, waivers, authorizations or other certificates contemplated by this Agreement or reasonably deemed necessary by Acquiror's legal counsel to provide for the continuation in full force and effect of any and all Material Agreements and any other material contracts and leases of PAPI and for Acquiror to consummate the transactions contemplated hereby in form and substance reasonably satisfactory to Acquiror. 9.8 No Litigation. No litigation or proceeding shall be pending which will have the probable effect of enjoining or preventing the consummation of any of the transactions 33 34 provided for in this Agreement. No litigation or proceeding shall be pending which could reasonably be expected to have a Material Adverse Effect on PAPI. 9.9 Execution of this Agreement and Closing Documents. The holders of at least 98% of the shares of capital stock of each of PAPI, PAPT and PAMT outstanding immediately prior to the Closing shall have duly executed and delivered (a) this Agreement as Shareholders, and (b) the applicable documents and instruments described in Section 7.2. 9.10 Share Ownership and Share Transfer Matters. All actions that may, in the reasonable opinion of counsel to Acquiror, be required in order to transfer to Acquiror (or such subsidiary of Acquiror as may be specified by Acquiror) the shares of PAPI, PAMT and PAPT held by the Shareholders, and to confirm that the share ownership of PAPI, PAPT and PAMT immediately prior to the Closing conforms to Section 3.3 of this Agreement and the related schedules, and to the information set forth on Exhibit A, shall have been taken, and confirmation thereof provided to Acquiror, and any necessary action by the respective boards of directors of PAPI, PAPT and PAMT for the transfer to Acquiror (or such subsidiary of Acquiror as may be specified by Acquiror) of the shares of PAPI, PAPT and PAMT held by the Shareholders shall have been taken (including the consent by each of such boards of directors to such transfers, to the registration of Acquiror as a shareholder, to the cancellation of the share certificates in the name of the Shareholders and to the authorization of the issue of new share certificates in the name of Acquiror). If requested by Acquiror, each of the shareholders of Palo Alto Manufacturing Group, Inc. (other than PAPI), and each of the shareholders of PAMT and PAPT (other than the Shareholders), shall each have entered into agreements in a form reasonably acceptable to Acquiror, to transfer their shares in Palo Alto Manufacturing Group, Inc., PAPT and PAMT, as applicable, to such persons, and at such time (following termination of such shareholders' employment with Palo Alto Manufacturing Group, PAMT and PAPT, if such shareholder is an employee thereof) as Acquiror may request, for a purchase price equal to the purchase price initially paid for such shares by such shareholder. 9.11 Extension of Lease Terms. The terms of each real estate lease to which Palo Alto Manufacturing Group, Inc. is a party shall have been extended to at least December 31, 2000 (or such later date as may be agreed by Acquiror and PAPI). 9.12 Inventory Audit. PAPI and each of its Subsidiaries shall have completed a book-to-physical audit of its inventory as of February 29, 2000, or such other review as may be agreed upon by Acquiror and PAPI, and the results thereof shall not require any material write-down, write-off, charge or expense. 9.13 Compliance with Loan Agreement. Palo Alto Design Group, Inc. ("PADG") shall be in compliance with (or received waivers with respect to) its obligations under the Loan Agreement between PADG and the Comal County Industrial Development Authority dated as of May 1, 1998 and shall have delivered to Acquiror such confirmation thereof as Acquiror may reasonably require. 34 35 9.14 Satisfactory Form of Legal and Accounting Matters. The form, scope and substance of all legal and accounting matters contemplated hereby and all closing documents and other papers delivered hereunder shall be reasonably acceptable to Acquiror's counsel. 9.15 Opinion of Acquiror's Accountant. Acquiror shall have received from (a) Arthur Anderson, its independent public accountant, an opinion that the Exchange qualifies for pooling of interest accounting under U.S. GAAP and (b) from PriceWaterhouseCoopers, PAPI's independent public accountant, a "poolability letter", in form reasonably acceptable to Acquiror (and which may be addressed to PAPI), confirming the absence of circumstances pertaining to PAPI and the Shareholders that could prevent the Exchange from qualifying for pooling of interests accounting. 10. TERMINATION OF AGREEMENT 10.1 Termination. This Agreement may be terminated at any time prior to the Closing: (a) by the mutual written consent of Acquiror and PAPI; (b) by PAPI, if there has been a breach by Acquiror of any representation, warranty, covenant or agreement set forth in this Agreement on the part of Acquiror, or if any representation of Acquiror will have become untrue, in either case which has or can reasonably be expected to have a Material Adverse Effect on Acquiror and which Acquiror fails to cure within a reasonable time, not to exceed thirty (30) days after written notice thereof (except that no cure period will be provided for a breach by Acquiror which by its nature cannot be cured); (c) by Acquiror, if there has been a breach by PAPI of any representation, warranty, covenant or agreement set forth in this Agreement on the part of PAPI, or if any representation of PAPI will have become untrue, in either case which has or can reasonably be expected to have a Material Adverse Effect on PAPI and which PAPI fails to cure within a reasonable time not to exceed thirty (30) days after written notice thereof (except that no cure period will be provided for a breach by PAPI which by its nature cannot be cured); or (d) by either party, if (i) the Exchange shall not have been consummated by May 31, 2000 for any reason; provided, however, that the right to terminate this Agreement under this Section 10.1(d)(i) shall not be available to any party whose action or failure to act has been a principal cause of or resulted in the failure of the Exchange to occur on or before such date if such action or failure to act constitutes a breach of this Agreement; or (ii) a permanent injunction or other order by any court which would make illegal or otherwise restrain or prohibit the consummation of the Exchange will have been issued and will have become final and nonappealable. Any termination of this Agreement under this Section 10.1 will be effective by the delivery of written notice of the terminating party to the other party hereto. 35 36 10.2 Certain Continuing Obligations. Following any termination of this Agreement pursuant to this Section 10, the parties hereto will continue to perform their respective obligations under Section 13 but will not be required to continue to perform their other covenants under this Agreement. 11. CONTINUING COVENANTS 11.1 Survival of Representations. All representations and warranties of the Shareholders and PAPI set forth in this Agreement will remain operative and in full force and effect until the Final Release Date (but only as of the date they were made and as of the Closing Date), regardless of any investigation made or on behalf of the parties to this Agreement; provided, however, that no claim for violations of any representation and warranty (absent knowing fraud or deliberate misconduct by the Shareholder against whom the claim is asserted) shall be made unless Acquiror gives written notice thereof to the Shareholders on or prior to the Final Release Date. Acquiror's representations and warranties set forth in this Agreement shall survive the Closing. 11.2 Shareholders Agreement to Indemnify. 11.2.1 Indemnification by Shareholders. Subject to the limitations set forth in this Section 11.2, each Shareholder will severally indemnify and hold harmless Acquiror and its respective officers, directors, agents and employees, and each person, if any, who controls or may control Acquiror (hereinafter in this Section 11.2 referred to individually as an "Indemnified Person" and collectively as "Indemnified Persons") from and against any and all claims, demands, actions, causes of action, losses, costs, damages, liabilities and expenses including, without limitation, reasonable legal fees (collectively, "Damages") directly or indirectly caused by or arising out of any misrepresentation in or breach of, or default in connection with, any of the representations, warranties or covenants to be performed pre or post-closing given or made by PAPI or the Shareholders in this Agreement or any document delivered by PAPI or by the Shareholders as an Exhibit hereto. In seeking indemnification for Damages under this Section, the Indemnified Persons shall make no claim for Damages unless and until such Damages aggregate at least $50,000 including legal fees (the "Basket"), in which event such Indemnified Person may make claims for all Damages (including the first $50,000 thereof). 11.2.2 Aggregate Liability of the Shareholders. The aggregate liability of each Shareholder pursuant to this Section 11.2 (other than for Ownership Losses) shall be limited to the value of, and be payable in, the Hold-Back Shares to be received by such Shareholder, with each Hold-Back Share valued at the Closing Price (as defined in Section 2.5), and the aggregate liability of each Shareholder pursuant to this Section 11.2 for Ownership Losses shall be limited to the value of, and be payable in, all of the Acquiror Ordinary Shares received or receivable by such Shareholder under Section 2, with each Acquiror Ordinary Share valued at the Closing Price (in each case absent knowing fraud or willful misconduct by PAPI or such Shareholder). As used herein, the term "Ownership Loss" means any Damages resulting directly or indirectly from any act of knowing fraud or willful misconduct on the part of the Shareholders or any misrepresentation in or breach of any representation or warranty set forth in 36 37 Section 3.34.8, Section 3.34.9 or Section 3.34.10. Notwithstanding anything herein to the contrary, the Basket shall not be applicable to any claim by any Indemnified Person for indemnification for any Ownership Loss or for knowing fraud or willful misconduct by the person against whom the claim is asserted. 11.2.3 Survival and Settlement of Claims. Notwithstanding anything to the contrary in this Agreement, if, prior to the expiration of a particular representation or warranty an Indemnified Person makes a claim for indemnification under this Agreement with respect to a misrepresentation or breach of such representation or warranty, then the Indemnified Person's rights to indemnification under this Section 11.2 for such claim shall survive any expiration of such representation or warranty; provided, however, that the parties hereby agree to use all reasonable efforts to settle all claims for breach of a representation or warranty prior to the Final Release Date. 11.2.4 Indemnification Procedures. Mr. James Sacherman shall act as representative (the "Representative") of all Shareholders for purposes of the indemnification provisions of this Section 11.2, and is duly authorized to be such Representative and may bind the Shareholders. Promptly after the receipt by Acquiror of notice or discovery of any Damages giving rise to indemnification rights under this Agreement, Acquiror will give the Representative written notice of such Damages (a "Claim") in accordance with Section 11.2.6. Acquiror may assert a Claim at any time prior to the Final Release Date. Within ten days of delivery of such written notice, the Representative may, at the expense of the Shareholders, elect to contest any Claim and, in the case of any Claim in representing damages alleged to be payable to one or more third parties in any litigation, arbitration, tax audit, or other tax proceeding prosecute such Claim to conclusion or settlement satisfactory to the Representative using counsel reasonably acceptable to Acquiror. If the Representative makes the foregoing election with respect to Claims of third parties, Acquiror will have the right to participate at its own expense in all proceedings. If the Representative does not make such election with respect to Claims of third parties, Acquiror shall be free to handle the prosecution or defense of any such Claim, will take all necessary steps to contest the Claim involving third parties or to prosecute such Claim to conclusion or settlement satisfactory to Acquiror, and will notify the Representative of the progress of any such Claim, will permit the Representative at the sole cost of the Representative to participate in such prosecution or defense and will provide the Representative with reasonable access to all relevant information and documentation relating to the Claim and Acquiror's prosecution or defense thereof. In any case, the party not in control of the Claim will cooperate with the other party in the conduct of the prosecution or defense of such Claim. Neither party will compromise or settle any such Claim without the written consent of either Acquiror (if the Representative defends the Claim) or the Representative (if Acquiror defends the Claim), with such consent not to be unreasonably withheld. In the event that any party to this Agreement elects to contest a Claim against any other party to this Agreement under this Section 11.2, such contest shall be conducted in accordance with Section 13.1 hereof. (a) The Representative shall have the power to act for the 37 38 Shareholders with respect to all transactions contemplated by this Agreement, and in connection with any dispute, litigation or arbitration involving this Agreement, and to do or refrain from doing all such further acts and things, and execute all such documents as the Representative shall deem necessary or appropriate in connection with transactions contemplated by this Agreement, including without limitation, the power (i) to act for the Shareholders with regard to matters pertaining to the indemnification referred to in this Agreement, including the power to compromise any claim on behalf of the Shareholders and to transact matters of litigation; (ii) to do or refrain from doing any further act or deed on behalf of the Shareholders which the Representative deems necessary or appropriate in his sole discretion relating to the subject matter of this Agreement, as fully and completely as each Shareholder could do if personally present; and (iii) to receive all notices and service of process on behalf of the Shareholders in connection with any claims or matters under this Agreement. (b) The Representative or any successor Representative shall have the power to substitute any other Shareholder (with such Shareholder's consent) as a successor Representative hereunder. In the event that the Representative is unable to perform his or her duties hereunder and unable to substitute a successor Representative by reason of the death or incapacity of the Representative and no substitute Representative has previously been appointed, a substitute Representative shall be appointed by Shareholders that will be (or have been issued) a majority of the voting power of the Acquiror Ordinary Shares issuable under Section 2.1 of this Agreement. (c) The Representative shall act for the Shareholders on all matters set forth in this Agreement in a manner the Representative believes to be in the best interests of the Shareholders and consistent with his obligations under this Agreement, but the Representative shall not be responsible to the Shareholders for any loss or damages the Shareholders may suffer by reason of the performance by the Representative of his duties under the Agreement, other than loss or damage arising from willful violation of the law or gross negligence in the performance of his duties under this Agreement. The Shareholders agree, jointly and severally, to indemnify and hold harmless the Representative for any loss or damage arising from the performance of his duties as Representative hereunder, including, without limitation, the cost of any accounting firm or legal counsel retained by the Representative on behalf of the Shareholders, but excluding any loss or damage arising from willful violation of the law or gross negligence in the performance of his duties under this Agreement. (d) All actions, decisions and instructions of the Representative taken, made or given pursuant to the authority granted to the Representative hereunder shall be conclusive and binding upon all of the Shareholders and no Shareholder shall have the right to object, dissent, protest or otherwise contest the same. Acquiror hereby acknowledges that the Representative may with respect to any particular action, decision or instruction, solicit the consent of the Shareholders before acting. (e) The provisions of this Section are independent and severable, shall constitute an irrevocable power of attorney coupled with an interest and shall be binding upon the executors, heirs, legal representatives, successors and assigns of each Shareholder. 38 39 11.2.5 Subrogation. In the event that the Shareholders shall be obligated to indemnify any Indemnified Person pursuant to this Agreement, the Shareholders shall, upon payment of such indemnity in full, be subrogated to all rights of such Indemnified Person with respect to the claim to which such indemnification relates. 11.2.6 Notice of Claim. Each notice of a Claim by Acquiror pursuant to Section 11.2 (the "Notice of Claim") will be in writing and will contain the following information to the extent it is reasonably available to Acquiror: (a) Acquiror's good faith estimate of the reasonably foreseeable maximum amount of the alleged Damages (which amount may be the amount of damages claimed by a third party plaintiff in an action brought against Acquiror or PAPI based on alleged facts, which if true, would constitute a breach of PAPI's representations and warranties); and (b) A brief description in reasonable detail of the facts, circumstances or events giving rise to the alleged Damages based on Acquiror's good faith belief thereof, including, without limitation, the identity and address of any third-party claimant (to the extent reasonably available to Acquiror) and copies of any formal demand or complaint. 11.2.7 Resolution of Notice of Claim. Any Notice of Claim received by the Representative pursuant to Section 11.2.6 above will be resolved as follows: (a) Uncontested Claims. In the event that the Representative does not contest a Notice of Claim in writing to the Acquiror and does not pay the amount demanded within 30 calendar days after the Notice of Claim containing a statement of the claimed Damages is delivered pursuant to Section 11.2.6 above (or, if earlier, by the Final Release Date), such amount of claimed Damages specified in the Notice of Claim shall be added to the Estimated Claim Amount. (b) Contested Claims. In the event that the Representative gives written notice contesting all, or a portion of, a Notice of Claim to Acquiror (a "Contested Claim") within the 30-day period provided above (or, if earlier, by the Final Release Date), matters that are subject to third party claims brought against Acquiror or PAPI in a litigation or arbitration will await the final decision, award or settlement of such litigation or arbitration, while other matters that are not otherwise resolved by the parties shall be resolved as provided in Section 13.1. Any portion of the Notice of Claim that is not contested will be resolved as set forth above in Section 11.2.7(a). 11.3 Securities Act Matters. The Shareholders agree not to sell, transfer or otherwise dispose of any Acquiror Ordinary Shares unless such sale, transfer or disposition is made pursuant to an effective registration statement under the Securities Act or in a transaction that, in the opinion of counsel reasonably acceptable to Acquiror, is exempt from registration thereunder, and the Shareholders understand that the Acquiror Ordinary Shares issued in the Exchange will bear appropriate legends setting forth the restrictions on transfer contained in this Section 11.3 and in Section 11.4. 39 40 11.4 Shareholders Representations and Covenants Relating to "Pooling of Interests" Accounting. 11.4.1 Each Shareholder represents and agrees that such Shareholder has not in contemplation of the Exchange, engaged, and will not, until such time as results covering at least 30 days of combined operations of the Acquiror and PAPI have been published by Acquiror, in the form of a quarterly earnings report, an effective registration statement filed with the SEC, a report to the SEC on Form 10-K, 10-Q, or 8-K, or any other public filing or announcement which includes the combined results of operations, engage, in any sale, exchange, transfer, pledge, disposition of or grant of any option, establish any "short" or put-equivalent position with respect to or the entry into any similar transaction intended to reduce the risk of such Shareholder's ownership of or investment in, any of the following: (a) any Acquiror Ordinary Shares which such Shareholder may acquire in connection with the Exchange, or any securities which may be paid as a dividend or otherwise distributed thereon or with respect thereto or issued or delivered in exchange or substitution therefor, or any option, right or other interest with respect to any Restricted Securities; (b) any capital stock of PAPI, PAMT or PAPT; or (c) any PAPI Shares, PAMT Shares, or PAPT Shares or other PAPI, PAMT or PAPT equity securities which such Shareholder purchases or otherwise acquires after the execution of this Agreement. 11.4.2 As promptly as practicable following the Closing, Acquiror shall publish results covering at least 30 days of combined operations of the Acquiror and PAPI in the form of a quarterly earnings report, an effective registration statement filed with the SEC, a report to the SEC on Form 10-K, 10-Q or 8-K, or any other public filing or announcement which includes the combined results of operations; provided, however, that Acquiror shall be under no obligation to publish any such financial information other than with respect to a fiscal quarter of Acquiror. 11.5 Registration of Acquiror Ordinary Shares. Following the Closing, Acquiror shall take such action with respect to the registration for resale of the Acquiror Ordinary Shares and Hold-Back Shares received or to be received by the Shareholders pursuant to the Exchange. Such registration shall be made in accordance with the terms and conditions set forth in Exhibit 11.5. 11.6 Agreement Not to Compete. 11.6.1 For the three years after the Closing Date (the "Noncompetition Term"), each of the Shareholders identified in Exhibit 11.6 (the "Subject Shareholders") agree that they shall not, without the written consent of Acquiror, directly or indirectly, individually or as an employee, partner, officer, director or shareholder or in any other capacity whatsoever of or for any person, firm, partnership, company or corporation other than Acquiror or its Subsidiaries 40 41 (other than as a holder of less than 5% of the outstanding capital stock of a publicly-traded company): (a) Own, manage, operate, sell, control or participate in the ownership, management, operation, sales or control of or be connected in any manner with any business engaged in printed circuit board design or assembly, electronics contract manufacturing, injection molding, sheet metal stamping or design and manufacture of electronic enclosures or that is otherwise substantially similar to or competitive with any services or products created, distributed or under development by Acquiror or any of its Subsidiaries; (b) Recruit, attempt to hire, solicit, assist others in recruiting or hiring, or refer to others concerning employment, any person who is or was an employee of Acquiror, or any of its Subsidiaries, or induce or attempt to induce any such employee to terminate his employment with Acquiror or any of its Subsidiaries (as the case may be); (c) Induce or attempt to induce any person or entity to curtail or cancel any business or contracts that such person or entity had with Acquiror, or any of its Subsidiaries; or (d) Contact, solicit or call upon any customer or supplier of Acquiror, or any of its Subsidiaries, on behalf of any other person or entity for the purpose of selling or providing any services or products of the type normally sold or provided by Acquiror or any of its Subsidiaries. 11.6.2 The agreements set forth in this Section 11.6 include within their scope all cities, counties, provinces and states of the United States of America, Singapore, Taiwan, the Netherlands and Thailand and other countries in which Acquiror or any of its Subsidiaries has engaged in manufacturing or sales or otherwise conducted business or selling or licensing efforts at any time during the two years prior to the Closing Date hereof or during the Noncompetition Term. The Subject Shareholders each acknowledge that the scope and period of restrictions and the geographical area to which the restriction imposed in this Section 11.6 shall apply are fair and reasonable and are reasonably required for the protection of Acquiror and that Section 11.6.1(a) accurately describes the business to which the restrictions are intended to apply. 11.6.3 It is the desire and intent of the parties that the provisions of this Section 11.6 shall be enforced to the fullest extent permissible under applicable law. If any particular provision or portion of this Section 11.6 shall be adjudicated to be invalid or unenforceable, this Section 11.6 shall be deemed amended to revise those provisions or portions to the minimum extent necessary to render them enforceable. Such amendment shall apply only with respect to the operation of this paragraph in the particular jurisdiction in which such adjudication was made. 11.6.4 The Subject Shareholders each acknowledge that any breach of the covenants of Section 11.6 will result in immediate and irreparable injury to Acquiror and, accordingly, consents to the application of injunctive relief and such other equitable remedies for the benefit of Acquiror as may be appropriate in the event such a breach occurs or is threatened. 41 42 The foregoing remedies shall be in addition to all other legal remedies to which Acquiror may be entitled hereunder, including, without limitation, monetary damages. 12. HOLD-BACK ARRANGEMENT 12.1 Reduction of Hold-Back Shares. Provided the procedures in Sections 11.2.4, 11.2.6 and 11.2.7 are followed, Acquiror may reduce the number of PAPI Hold-Back Shares and PAMT/PAPT Hold-Back Shares issuable to the Shareholders, on a pro rata basis among the Shareholders (based on the number of Acquiror Ordinary Shares delivered to each Shareholder at the Closing as a percentage of all of the Acquiror Ordinary Shares delivered to all of the Shareholders at the Closing), by a number equal to the quotient of (a) the Estimated Claim Amount divided by (b) the Closing Price (as defined in Section 2.5). In the event that the numbers of PAPI Hold-Back Shares and PAMT/PAPT Hold-Back Shares are reduced as a result of any Claim which the Representative shall, on the Final Release Date, be disputing pursuant to Section 11.2.7(b), then upon resolution of such dispute the Acquiror will issue to the Shareholders the number of PAPI Hold-Back Shares and PAMT/PAPT Hold-Back Shares, if any, that the Shareholders would have been entitled to receive had such dispute been resolved prior to the Final Release Date, but which were not issued to the Shareholders on the Final Release Date as a result of the preceding sentence. 12.2 Allotment and Issuance of Shares. Acquiror will allot and issue the PAPI Final Release Shares and the PAMT/PAPT Final Release Shares (as defined in Section 2.5) on the Final Release Date to the Shareholders. Acquiror will take such action as may be necessary to cause share certificates to be issued in the name of the Shareholders and deliver such share certificates to the Shareholders within three business days of the Final Release Date. Cash will be paid in lieu of fractions of Acquiror Ordinary Shares as provided in Section 2.2. Within five business days after written request from the Shareholders, Acquiror will submit a certified schedule of the cash amounts payable for fractional shares and will deliver such funds to the Shareholders. 13. GENERAL PROVISIONS 13.1 Governing Law; Dispute Resolution. The internal laws of the State of California (irrespective of its choice of law principles) will govern the validity of this Agreement, the construction of its terms, and the interpretation and enforcement of the rights and duties of the parties hereto. Any dispute hereunder ("Dispute") shall be settled by arbitration in San Francisco, California, and, except as herein specifically stated, in accordance with the commercial arbitration rules of the American Arbitration Association ("AAA Rules") then in effect. However, in all events, these arbitration provisions shall govern over any conflicting rules which may now or hereafter be contained in the AAA Rules. Any judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction over the subject matter thereof. The arbitrator shall have the authority to grant any equitable and legal remedies that would be available in any judicial proceeding instituted to resolve a Dispute. 13.1.1 Compensation of Arbitrator. Any such arbitration will be conducted before a single arbitrator who will be compensated for his or her services at a rate to be determined by the parties or by the American Arbitration Association, but based upon 42 43 reasonable hourly or daily consulting rates for the arbitrator in the event the parties are not able to agree upon his or her rate of compensation. 13.1.2 Selection of Arbitrator. The American Arbitration Association will have the authority to select an arbitrator from a list of arbitrators who are lawyers familiar with California contract law as appropriate; provided, however, that such lawyers cannot work, or have worked within the last five (5) years, for a firm then performing services for either party, that each party will have the opportunity to make such reasonable objection to any of the arbitrators listed as such party may wish and that the American Arbitration Association will select the arbitrator from the list of arbitrators as to whom neither party makes any such objection. In the event that the foregoing procedure is not followed, each party will choose one person from the list of arbitrators provided by the American Arbitration Association (provided that such person does not have a conflict of interest), and the two persons so selected will select from the list provided by the American Arbitration Association the person who will act as the arbitrator. 13.1.3 Payment of Costs. Acquiror and the Shareholders will bear the expense of deposits and advances required by the arbitrator in equal proportions, but either party may advance such amounts, subject to recovery as an addition or offset to any award. The arbitrator will award to the prevailing party, as determined by the arbitrator, all costs, fees and expenses related to the arbitration, including reasonable fees and expenses of attorneys, accountants and other professionals incurred by the prevailing party. In the event that Acquiror is required to pay any costs, fees or expenses of the Shareholders pursuant to this section, Acquiror shall pay such amounts directly to the Shareholders' attorneys, accountants or other professionals, as appropriate, and shall not under any circumstances pay such amounts to the Shareholders or to persons related to the Shareholders. 13.1.4 Burden of Proof. For any Dispute submitted to arbitration, the burden of proof will be as it would be if the claim were litigated in a judicial proceeding. 13.1.5 Award. Upon the conclusion of any arbitration proceedings hereunder, the arbitrator will render findings of fact and conclusions of law and a written opinion setting forth the basis and reasons for any decision reached and will deliver such documents to each party to this Agreement along with a signed copy of the award. The arbitrator may not award punitive damages. 13.1.6 Terms of Arbitration. The arbitrator chosen in accordance with these provisions will not have the power to alter, amend or otherwise affect the terms of these arbitration provisions or the provisions of this Agreement. 13.1.7 Exclusive Remedy. Except as specifically otherwise provided in this Agreement, arbitration will be the sole and exclusive remedy of the parties for any Dispute arising out of this Agreement. 13.2 Assignment; Binding upon Successors and Assigns. Neither party hereto may assign any of its rights or obligations hereunder without the prior written consent of the other parties hereto; provided however that Acquiror shall have the right to assign its rights 43 44 hereunder, including its right to receive PAPI Shares, to one or more direct or indirect Subsidiaries of Acquiror. Any purported assignment in violation of this Section shall be void. This Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 13.3 Severability. If any provision of this Agreement, or the application thereof, will for any reason and to any extent be invalid or unenforceable, the remainder of this Agreement and application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of the void or unenforceable provision. 13.4 Counterparts. This Agreement may be executed in any number of counterparts, each of which will be an original as regards any party whose signature appears thereon and all of which together will constitute one and the same instrument. This Agreement will become binding against Acquiror and any other party reflected hereon as a signatory when one or more counterparts hereof, individually or taken together, bear the signatures of Acquiror and such party. 13.5 Other Remedies. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby or by law on such party, and the exercise of any one remedy will not preclude the exercise of any other. 13.6 Amendment and Waivers. The observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a writing signed by the party to be bound thereby. The waiver by a party of any breach hereof or default in the performance hereof will not be deemed to constitute a waiver of any other default or any succeeding breach or default. Any term or provision of this Agreement may be amended, either retroactively or prospectively, only by an agreement in writing signed by Acquiror, PAPI and the Shareholders. 13.7 No Waiver. The failure of any party to enforce any of the provisions hereof will not be construed to be a waiver of the right of such party thereafter to enforce such provisions. 13.8 Expenses. Each party will bear its respective expenses and fees of its own accountants, attorneys, investment bankers and other professionals incurred with respect to this Agreement and the transactions contemplated hereby; provided that except as described in the following sentence the Shareholders shall be responsible for the investment banking, legal and accounting fees and expenses incurred by PAPI, PAMT and PAPT. If the Exchange is consummated, Acquiror will pay at the Closing the reasonable accounting and attorneys' fees and expenses and other fees and expenses incurred by PAPI, PAMT and PAPT that are solely and directly related to the Exchange, not to exceed a total of $50,000. Acquiror shall pay such amounts directly to the applicable counsel and accountants and shall not under any circumstances pay such amounts to the Shareholders or to persons related to the Shareholders. If for any reason 44 45 Acquiror, PAPI, PAMT or PAPT pays any amounts in excess of the foregoing limits, Acquiror will be entitled to be reimbursed by the Shareholders for such payment and, if not so reimbursed, Acquiror will be entitled to treat the amount of payment as Damages recoverable under Section 11.2, without giving effect to the Basket. Except as otherwise provided herein, Acquiror will file all necessary tax returns and other documentation with respect to all such transfer, documentary, sales, use, stamp, registration and other taxes and fees, and, if required by applicable law, the Shareholders will join in the execution of any such tax returns and other documentation. 13.9 Attorneys' Fees. Should any arbitration or other suit be brought to enforce or interpret any part of this Agreement, the prevailing party will be entitled to recover, as an element of the costs of suit and not as damages, reasonable attorneys' fees to be fixed by the court or other trier of fact (including, without limitation, costs, expenses and fees on any appeal). The prevailing party will be entitled to recover its costs of suit, regardless of whether such suit proceeds to final judgment. 13.10 Notices. Any notice or other communication required or permitted to be given under this Agreement will be in writing, will be delivered personally or by registered or certified mail, postage prepaid, and will be deemed given upon delivery, if delivered personally, or ten days after deposit in the mails, if mailed, to the following addresses: (i) If to Acquiror: Flextronics International, Ltd. 2090 Fortune Drive San Jose, CA 95131 Telecopy: (408) 428-1300 Attention: President, Systems Group with a copy to: Fenwick & West, LLP Two Palo Alto Square, Suite 800 Palo Alto, CA 94306 Telecopy: (415) 494-1417 Attention: David Michaels (ii) If to PAPI: Palo Alto Products International (Pte) Ltd c/o PADG 567 University Avenue Palo Alto, CA 94301 Telecopy: (650) 327-9446 Attention: President with a copy to: McCutchen, Doyle, Brown & Enersen, LLP 3150 Porter Drive 45 46 Palo Alto, California 94304 Telecopy (650)849-4800 Attention: Bartley C. Deamer (iii) If to any Shareholder, to the address set forth with respect to such Shareholder in Exhibit A hereto: or to such other address as a party may have furnished to the other parties in writing pursuant to this Section 13.10. 13.11 Stamp Duty. Any stamp duty, transfer tax or similar tax payable in connection with the transfer of PAPI Shares, PAMT Shares or PAPT Shares by any Shareholder shall be payable by such Shareholder. 13.12 Construction of Agreement. This Agreement has been negotiated by the respective parties hereto and their attorneys and the language hereof will not be construed for or against either party. A reference to a Section or an exhibit will mean a Section in, or exhibit to, this Agreement unless otherwise explicitly set forth. The titles and headings herein are for reference purposes only and will not in any manner limit the construction of this Agreement which will be considered as a whole. The use of the expression "$" in Sections 2.1, 2.5, 3, 5.3, and 11 refers to U.S. dollars and should the need arise to express such amounts in other currencies the exchange rate used shall be the prevailing exchange rate as of the date of such conversion. 13.13 No Joint Venture. Nothing contained in this Agreement will be deemed or construed as creating a joint venture or partnership between any of the parties hereto. No party is by virtue of this Agreement authorized as an agent, employee or legal representative of any other party. No party will have the power to control the activities and operations of any other and their status is, and at all times will continue to be, that of independent contractors with respect to each other. No party will have any power or authority to bind or commit any other. No party will hold itself out as having any authority or relationship in contravention of this Section. 13.14 Further Assurances. Each party agrees to cooperate fully with the other parties and to execute such further instruments, documents and agreements and to give such further written assurances as may be reasonably requested by any other party to evidence and reflect the transactions described herein and contemplated hereby and to carry into effect the intents and purposes of this Agreement. 13.15 Absence of Third Party Beneficiary Rights. No provisions of this Agreement are intended, nor will be interpreted, to provide or create any third party beneficiary rights or any other rights of any kind in any client, customer, affiliate, stockholder, partner or any party hereto or any other person or entity unless specifically provided otherwise herein, and, except as so provided, all provisions hereof will be personal solely between the parties to this Agreement. 46 47 13.16 Public Announcement. Upon execution of this Agreement, Acquiror and PAPI will issue a press release approved by both parties announcing the Exchange. Thereafter, Acquiror may issue such press releases, and make such other disclosures regarding the Exchange, as it reasonably and in good faith determines are required under applicable securities laws or regulatory rules. 13.17 Confidentiality. The Shareholders, PAPI and Acquiror each recognize that they have received and will receive confidential information concerning the other during the course of the Exchange negotiations and preparations. Accordingly, Acquiror, the Shareholders and PAPI each agrees (a) to use its respective all reasonable efforts to prevent the unauthorized disclosure of any confidential information concerning the other that was or is disclosed during the course of such negotiations and preparations, and is clearly designated in writing as confidential at the time of disclosure, and (b) to not make use of or permit to be used any such confidential information other than for the purpose of effectuating the Exchange and related transactions. The obligations of this Section will not apply to information that (i) is or becomes part of the public domain, (ii) is disclosed by the disclosing party to third parties without restrictions on disclosure, (iii) is received by the receiving party from a third party without breach of a nondisclosure obligation to the other party or (iv) is required to be disclosed by law. If this Agreement is terminated, all copies of documents containing confidential information shall be returned by the receiving party to the disclosing party. 13.18 Entire Agreement. This Agreement and the exhibits, schedules and appendices hereto constitute the entire understanding and agreement of the parties hereto with respect to the subject matter hereof, subject to provisions of law applicable to this Agreement and the transactions provided for herein, and supersede all prior and contemporaneous agreements or understandings, inducements or conditions, express or implied, written or oral, between the parties with respect hereto. The express terms hereof control and supersede any course of performance or usage of the trade inconsistent with any of the terms hereof. [Rest of this page intentionally left blank] 47 48 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. FLEXTRONICS INTERNATIONAL LTD. PALO ALTO PRODUCTS INTERNATIONAL PTE LTD By: /s/ Robert Dykes By: /s/ Jim Sacherman ------------------------------- ------------------------------------ Name: Robert Dykes Name: Jim Sacherman ----------------------------- --------------------------------- Title: President, Systems Group and Title: President and CEO ---------------------------- --------------------------------- Chief Financial Officer ---------------------------- SHAREHOLDERS: DELTA ELECTRONICS THAILAND By: /s/ James K.M. Ng ------------------------------------ Name: James K.M. Ng ---------------------------------- Title: President --------------------------------- DET INTERNATIONAL HOLDING LTD. By: /s/ James K.M. Ng ------------------------------------ Name: James K.M. Ng ---------------------------------- Title: President --------------------------------- TAKAOTEK CORP. By: /s/ Takotek Corp. ------------------------------------ Name: ----------------------------------- Title: ---------------------------------- 48 49 /s/ Hsin Yi Wang ---------------------------------------- Hsin Yi Wang /s/ Chien-Chih Fang ---------------------------------------- Chien-Chih Fang /s/ Meng-Chuan Huang ---------------------------------------- Meng-Chuan Huang /s/ Shen-Lung Huang ---------------------------------------- Shen-Lung Huang /s/ Victor Chung ---------------------------------------- Victor Chung /s/ James Sacherman ---------------------------------------- James Sacherman SACHERMAN FAMILY TRUST By: /s/ John W. Toor ------------------------------------ Name: John W. Toor ---------------------------------- Title: Trustee --------------------------------- /s/ John Toor ---------------------------------------- John Toor TOOR FAMILY TRUST By: /s/ Jim Sacherman ------------------------------------ Name: Jim Sacherman ---------------------------------- Title: Trustee --------------------------------- /s/ Malcolm Smith ---------------------------------------- Malcolm Smith 49 50 SMITH FAMILY TRUST By: /s/ Shannon Smith ------------------------------------ Name: Shannon Smith ---------------------------------- Title: Trustee --------------------------------- ---------------------------------------- Hamid Arjomand ---------------------------------------- Peter Abrams ---------------------------------------- Janette Canare ---------------------------------------- Christina Balzer ---------------------------------------- Richard Blanton /s/ Neil Chan ---------------------------------------- Neil Chan /s/ Tsai-Jung Chan ---------------------------------------- Tsai-Jung Chan /s/ Tsai-Hsun Chan ---------------------------------------- Tsai-Hsun Chan /s/ Chiu-Hsia Chan Wu ---------------------------------------- Chiu-Hsia Chan Wu /s/ Li Hua Chan ---------------------------------------- Li Hua Chan /s/ Yin Ming Chan ---------------------------------------- Yin Ming Chan /s/ Pan Tang Wang ---------------------------------------- Pan Tang Wang /s/ Tzu Min Tong ---------------------------------------- Tzu Min Tong /s/ Chao Chung Hsu ---------------------------------------- Chao Chung Hsu 50 51 /s/ Chin Chin Lin ---------------------------------------- Chin Chin Lin /s/ Chang Lien Tseng ---------------------------------------- Chang Lien Tseng /s/ Ming Tang Yu ---------------------------------------- Ming Tang Yu /s/ Po Jen Huang ---------------------------------------- Po Jen Huang /s/ Mei-Ling Tai ---------------------------------------- Mei-Ling Tai /s/ Kuen Yi Wu ---------------------------------------- Kuen Yi Wu /s/ Fu Hsiun Lien ---------------------------------------- Fu Hsiun Lien /s/ Shih Liang Lin ---------------------------------------- Shih Liang Lin WK TECHNOLOGY FUND By: /s/ David Liu ------------------------------------ Name David Liu ---------------------------------- Title: Executive Vice President --------------------------------- WK TECHNOLOGY FUND II By: /s/ David Liu ------------------------------------ Name David Liu ---------------------------------- Title: Executive Vice President --------------------------------- 51 52 WK TECHNOLOGY FUND III By: /s/ David Liu ------------------------------------ Name David Liu Title: Executive Vice President --------------------------------- WK TECHNOLOGY FUND IV By: /s/ David Liu ------------------------------------ Name David Liu ---------------------------------- Title: Executive Vice President --------------------------------- WK GLOBAL INVESTMENT LIMITED By: /s/ David Liu ------------------------------------ Name David Liu ---------------------------------- Title: Executive Vice President -------------------------------- RICH FORTUNE INDUSTRIAL CO. LTD By: /s/ Rich Fortune Industrial Co. Ltd. ------------------------------------ Name: ----------------------------------- Title: ---------------------------------- [SIGNATURE PAGE TO EXCHANGE AGREEMENT] 52 53 LIST OF ATTACHMENTS Exhibit A Shareholder List Exhibit 6.6 Acquiror Affiliates Agreement Exhibit 8.7 Form of Opinion of Acquiror's Counsel Exhibit 11.5 Registration Rights Agreement Exhibit 11.6 Subject Shareholders Disclosure Schedules 54 EXHIBIT 6.6 ACQUIROR AFFILIATES AGREEMENT 55 TO: Flextronics International Ltd. 2090 Fortune Drive San Jose, California 95151 FLEXTRONICS INTERNATIONAL LTD. AFFILIATES AGREEMENT This Affiliates Agreement (this "Agreement") is being delivered in connection with the Exchange Agreement dated as of January ___, 2000 (the "Exchange Agreement") among Flextronics International Ltd., a company organized under the laws of Singapore ("Flextronics"), Palo Alto Products International (Pte) Ltd. ("PAPI"), and the Shareholders of PAPI. The Exchange Agreement provides that Acquiror will acquire all of the outstanding capital stock of PAPI in exchange for Flextronics Ordinary Shares (the "Exchange"). Unless otherwise defined herein, the capitalized terms in this Agreement have the meanings given to them in the Exchange Agreement. The undersigned understands that, since the Exchange is expected to be accounted for using the "pooling-of-interests" method of financial accounting and the undersigned may be an "affiliate" of Flextronics (within the meaning of Rule 405 promulgated under the Securities Act of 1933, as amended), the Flextronics Securities (as defined below) which the undersigned owns may be disposed of only in conformity with the limitations described herein. The undersigned has been informed that the treatment of the Exchange as a pooling-of-interests for financial accounting purposes is dependent upon the accuracy of certain of the representations and warranties and the compliance with certain of the agreements set forth herein. The undersigned further understands that the representations, warranties and agreements set forth herein will be relied upon by Flextronics and its counsel and accounting firm. 1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE UNDERSIGNED. The undersigned represents, warrants and agrees with Flextronics as follows: (a) Authority; Affiliate Status. The undersigned has full power and authority to enter into, execute, deliver and perform the undersigned's obligations under this Agreement, to make the representations, warranties and covenants herein contained and to perform the undersigned's obligations hereunder. The undersigned further understands and agrees that the undersigned may be deemed to be an "affiliate" of Flextronics within the meaning of Rule 405. (b) Flextronics Securities Owned. Attachment 1 hereto sets forth all Flextronics Ordinary Shares and any other securities of Flextronics owned by the undersigned as of the Effective Time, including all securities of Flextronics as to which the undersigned has sole or shared voting or investment power, and all rights, options and warrants to acquire Flextronics. (c) Transfer Restrictions on Flextronics Securities. The undersigned will not sell, transfer or otherwise dispose of any of Flextronics Ordinary Shares, any other securities of Flextronics or rights, options and warrants to acquire Flextronics Ordinary Shares or other securities of Flextronics (hereinafter collectively referred to as the "Flextronics Securities") or offer or agree to sell, transfer or otherwise dispose of, or in any other way reduce the undersigned's risk of ownership or investment in, any of such Flextronics Securities: (i) in the 30-day period immediately preceding the Closing of the Exchange; or (ii) after the Closing of the Exchange until Flextronics shall have publicly released a report including the combined financial 56 results of Flextronics and PAPI for a period of at least 30 days of post- Exchange combined operations of Flextronics and PAPI. 2. STOP-TRANSFER INSTRUCTIONS. The undersigned also understands that stop-transfer instructions will be given to Flextronics' transfer agent with respect to certificates evidencing the Flextronics Securities. Such stop-transfer instructions will be promptly rescinded upon the publication of the financial report referred to in Section l(c)(ii) above. 3. BINDING AGREEMENT. This Agreement will inure to the benefit of and be binding upon and enforceable against the parties and their successors and assigns, including administrators, executors, representatives, heirs, legatees and devisees of the undersigned and any pledgee holding Flextronics Securities as collateral. 4. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which together shall constitute one instrument. Dated: ___________, Very truly yours, By: Agreed to and accepted: FLEXTRONICS INTERNATIONAL LTD. By: Robert R.B. Dykes President, Systems Group 57 EXHIBIT 8.7 FORM OF OPINION OF ACQUIROR'S COUNSEL 58 EXHIBIT 11.5 REGISTRATION RIGHTS AGREEMENT 59 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement") is made and entered into as of April 7, 2000 by and between Flextronics International Ltd., a Singapore company ("Flextronics") and each of the Shareholders party hereto (the "Holders"). RECITALS A. This Agreement is entered into pursuant to that certain Exchange Agreement dated as of January 14, 2000 (the "Exchange Agreement") by and among Flextronics, Palo Alto Products International (Pte) Ltd. ("PAPI"), and the Holders. B. As an inducement for the Holder to enter into the Exchange Agreement, Flextronics desires to grant the registration rights to the Holder as contained herein. NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises hereinafter set forth, the parties hereto agree as follows: 1. Definitions and References. Unless otherwise defined herein, the capitalized terms in this Agreement have the same meanings given to them in the Exchange Agreement. For purposes of this Agreement, in addition to the definitions set forth elsewhere herein, the following terms shall have the following respective meanings: "Affiliate" of the Holder shall mean a person who controls, is controlled by or is under common control with the Holder or, the spouse or children (or a trust exclusively for the benefit of a spouse and/or children) of the Holder. "Register," "registered" and "registration" shall refer to a registration effected by preparing and filing a Registration Statement or similar document in compliance with the Securities Act of 1933, as amended (the "1933 Act") and the declaration or ordering of effectiveness of such Registration Statement or document by the United States Securities and Exchange Commission (the "SEC"). "Registrable Stock" shall mean (a) the Flextronics Ordinary Shares issued to the Holder pursuant to the Exchange Agreement; and (b) any Ordinary Shares issued as (or issuable upon the conversion or exercise of any warrant, right, option or other convertible security which is issued as) a dividend or other distribution with respect to, or in exchange for, or in replacement of, such Flextronics Ordinary Shares. For purposes of this Agreement, any Registrable Stock shall cease to be Registrable Stock when (x) a Registration Statement covering such Registrable Stock has been declared effective and such Registrable Stock has been disposed of pursuant to such effective Registration Statement, or (y) such Registrable Stock is sold by a person in a transaction in which the rights under the provisions of this Agreement are not assigned. 2. "SHELF" REGISTRATION. As soon as practicable following the Closing, but in no event later than the date forty-five (45) days following the Closing, Flextronics shall file with the SEC a "shelf" registration statement for the public resale by the Holder of the Registrable Stock on a continuous or delayed basis pursuant to Rule 415(a)(1) under the 1933 Act (the "Registration Statement"). Flextronics shall use all reasonable efforts to cause the Registration 60 Statement to be declared effective under the 1933 Act as promptly as possible after the filing thereof, and shall use all reasonable efforts to keep the Registration Statement continuously effective under the 1933 Act until the earlier of (a) the date which is two (2) years after the Closing Date, (b) such date, at least one year after the Closing Date, on which the Registrable Stock represents less than one percent (1%) of the Flextronics' outstanding Ordinary Shares or (c) the date when all Registrable Shares covered by such Registration Statement have been sold or may be sold without volume restrictions pursuant to Rule 144(k) promulgated under the 1933 Act (or any similar provision then in force) as determined by counsel to Flextronics pursuant to a written opinion letter to such effect, addressed and acceptable to Flextronics' transfer agent. 3. OBLIGATIONS OF FLEXTRONICS. Flextronics shall: (a) use all reasonable efforts to cause the Registration Statement to become effective as soon as practicable after the filing thereof, and remain effective for the period set forth in Section 2 hereof; (b) prepare and file with the SEC such amendments and supplements to the Registration Statement and the prospectus used in connection therewith as may be necessary to comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Stock covered by the Registration Statement; (c) furnish to the Holder such numbers of copies of the Registration Statement and the prospectus included therein (including each preliminary prospectus and any amendments or supplements thereto in conformity with the requirements of the 1933 Act) and such other documents and information as they may reasonably request; (d) use all reasonable efforts to register or qualify the Registrable Stock covered by the Registration Statement under the securities or blue sky laws of such jurisdiction within the United States and Puerto Rico as shall be reasonably requested by the Holder for the distribution of the Registrable Stock covered by the Registration Statement; provided, however, that Flextronics shall not be required in connection therewith or as a condition thereto to qualify to do business in or to file a general consent to service of process in any jurisdiction wherein it would not but for the requirements of this paragraph (d) be obligated to do so; and provided, further, that Flextronics shall not be required to qualify such Registrable Stock in any jurisdiction in which the securities regulatory authority requires that the Holder submit any of his Registrable Stock to the terms, provisions and restrictions of any escrow, lockup or similar agreement(s) for consent to sell Registrable Stock in such jurisdiction unless the Holder agrees to do so; (e) notify the Holder at any time when a prospectus relating thereto is required to be delivered under the 1933 Act of the happening of any event as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made, and at the request of the Holder promptly prepare and furnish to the Holder a reasonable number of copies of a supplement to or an amendment of such prospectus, or a revised prospectus, as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made; provided, that in the event 61 of a material development or transaction affecting Flextronics that has not yet been publicly disclosed, if Flextronics shall determine in good faith that it would be adversely affected by such disclosure, Flextronics may so notify the Holder (such notice being referred to herein as a "Deferral Notice"), and shall thereafter be entitled to defer preparing and furnishing such supplement or amendment until such time as it would not be so adversely affected, at which time it shall so notify the Holder and shall prepare and furnish to the Holder any such supplement or amendment as may then be required. Following receipt of any supplement or amendment to any prospectus, the Holder shall deliver such amended, supplemental or revised prospectus in connection with any offers or sales of Registrable Stock, and shall not deliver or use any prospectus not so supplemented, amended or revised. Following receipt of a Deferral Notice, the Holder shall not make any further sales of Registrable Stock pursuant to the Registration Statement until the Holder receives such notice, and any such amendment or supplement, from Flextronics. If Flextronics issues a Deferral Notice, Flextronics will extend the period of effectiveness of the Registration Statement for an amount of time equal to the length of the deferral period; (f) take such other actions as are reasonably required in order to facilitate the disposition of the Registrable Stock to be so included in the Registration Statement; (g) otherwise use all reasonable efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, but not later than eighteen (18) months after the effective date of the Registration Statement, an earnings statement covering the period of at least twelve (12) months beginning with the first full month after the effective date of such Registration Statement, which earnings statements shall satisfy the provisions of Section 11(a) of the 1933 Act; and (h) use all reasonable efforts to list the Registrable Stock covered by such Registration Statement with any securities exchange or over-the-counter market on which the Flextronics Ordinary Shares are then listed or traded. 4. FURNISH INFORMATION. It shall be a condition precedent to the obligations of Flextronics to take any action pursuant to this Agreement that the Holder shall furnish to Flextronics such information regarding himself, the Registrable Stock held by him, and the intended method of disposition of such securities as Flextronics shall reasonably request and as shall be required in connection with the actions to be taken by Flextronics hereunder. 5. EXPENSES. All expenses incurred in connection with the registration pursuant to this Agreement, excluding underwriters' discounts and commissions, but including without limitation all registration, filing and qualification fees, word processing, duplicating, printers' and accounting fees, listing fees, messenger and delivery expenses, all fees and expenses of complying with state securities or blue sky laws, and the fees and disbursements of counsel for Flextronics, shall be paid by Flextronics. The Holder shall bear and pay the underwriting commissions and discounts and brokerage fees applicable to securities offered for his or her account in connection with any registrations, filings and qualifications made pursuant to this Agreement. 6. RULE 144 INFORMATION. With a view to making available the benefits of certain rules and regulations of the SEC which may at any time permit the sale of the Registrable Stock to the public without registration, at all times Flextronics agrees to: 62 (a) make and keep public information available, as provided in Rule 144(c)(1) under the 1933 Act; (b) use all reasonable efforts to file with the SEC in a timely manner all reports and other documents required of Flextronics under the 1933 Act and the Exchange Act; and (c) furnish to the Holder forthwith upon his or her request a written statement by Flextronics as to its compliance with the current public information requirements of Rule 144(c)(1), a copy of the most recent annual or quarterly report of Flextronics, and such other reports and documents so filed by Flextronics as the Holder may reasonably request in availing itself of any rule or regulation of the SEC allowing the Holder to sell any Registrable Stock without registration. 7. TRANSFER OF REGISTRATION RIGHTS. The registration rights of the Holder under this Agreement with respect to any Registrable Stock may be transferred or assigned to (a) any transferee or assignee of such Registrable Stock who, after such transfer or assignment, holds at least 75,000 shares of Registrable Stock previously held by the Holder or (b) an Affiliate of the Holder or a member of the Holder's immediate family, or a trust for the benefit of any such family members; provided, however, that (i) the Holder shall give Flextronics written notice prior to the time of such transfer stating the name and address of the transferee and identifying the securities with respect to which the rights under this Agreement are being transferred; (ii) such transferee shall agree in writing, in form and substance reasonably satisfactory to Flextronics, to be bound as a Holder by the provisions of this Agreement; and (iii) immediately following such transfer the further disposition of such securities by such transferee is restricted under the 1933 Act. 8. INDEMNIFICATION. In the event any Registrable Stock is included in a Registration Statement under this Agreement: (a) Flextronics shall indemnify and hold harmless the Holder, each person who participates in the offering of such Registrable Stock, including underwriters (as defined in the 1933 Act), and each person, if any, who controls any such participating person within the meaning of the 1933 Act, against any losses, claims, damages or liabilities, joint or several, to which they may become subject under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or proceedings in respect thereof) arise out of or are based on any untrue or alleged untrue statement of any material fact contained in the Registration Statement on the effective date thereof (including any prospectus filed under Rule 424 under the 1933 Act or any amendments or supplements thereto) or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse the Holder and such participating person or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 8(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of Flextronics; provided, further, that Flextronics shall not be liable to the Holder, or any such participating person or controlling person in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon an 63 untrue statement or alleged untrue statement or omission or alleged omission made in connection with the Registration Statement, preliminary prospectus, final prospectus or amendments or supplements thereto, in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by the Holder, or any such participating person or controlling person; and provided, further, that Flextronics shall not be liable to the Holder or any such participating person or controlling person in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of an offer or sale by the Holder in violation of any of the Holder's obligations under Section 3(e). Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Holder, or any such participating person or controlling person, and shall survive the transfer of such securities by the Holder, and any termination of this Agreement. (b) The Holder shall indemnify and hold harmless Flextronics, each of its directors and officers, each person, if any, who controls Flextronics within the meaning of the 1933 Act, and each agent and any underwriter for Flextronics (within the meaning of the 1933 Act) against any losses, claims, damages or liabilities, joint or several, to which Flextronics or any such director, officer, controlling person, agent or underwriter may become subject, under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or proceedings in respect thereof) arise solely out of or are based solely upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement (including any prospectus filed under Rule 424 under the 1933 Act or any amendments or supplements thereto) or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, preliminary or final prospectus, or amendments or supplements thereto, in reliance upon and in conformity with written information furnished by or on behalf of the Holder expressly for use in connection with such registration; and the Holder shall reimburse any legal or other expenses reasonably incurred by Flextronics or any such director, officer, controlling person, agent or underwriter in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 8(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder; and provided, further, that the liability of the Holder hereunder shall be limited to the proportion of any such loss, claim, damage, liability or expense which is equal to the proportion that the net proceeds from the sale of the shares sold by the Holder under such Registration Statement bears to the total net proceeds from the sale of all securities sold thereunder, but not in any event to exceed the net proceeds received by the Holder from the sale of Registrable Stock covered by such Registration Statement. (c) Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against any indemnifying party under this Section, notify the indemnifying party in writing of the commencement thereof and the indemnifying party shall have the right to participate in and assume the defense thereof with counsel selected by the indemnifying party and reasonably satisfactory to the indemnified party; provided, however, that an indemnified party shall have the right to retain its own counsel, with all fees and expenses thereof to be paid by such indemnified party, and to be apprised of all progress in any proceeding the defense of which has been assumed by the indemnifying party. The failure to notify an indemnifying party 64 promptly of the commencement of any such action, if and to the extent prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section, but the omission so to notify the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section. (d) To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified party in connection with the actions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages or liabilities referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 9. GENERAL PROVISIONS. (a) Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered, transmitted by facsimile, delivered by nationally recognized overnight courier or if deposited in the U.S. mail by registered or certified mail, return receipt requested, postage prepaid, as follows. If to the Holder, the notice shall be delivered at the address set forth in the Exchange Agreement. If to Flextronics, the notice shall be delivered to Flextronics International Ltd., 2090 Fortune Drive, San Jose, California 95131, attention: Chief Executive Officer, Facsimile No. (408) 428-0859. Any party hereto may by notice so given change its address or facsimile number for future notices hereunder. Notice shall conclusively be deemed to have been given when personally delivered or when deposited in the mail in the manner set forth above. (b) Entire Agreement; Independence of Obligations. This Agreement constitutes and contains the entire agreement and understanding of the parties with respect to the subject matter hereof and supersedes any and all prior negotiations, correspondence, agreements, understandings, duties or obligations between the parties respecting the subject matter hereof. In the event of any conflict between this Agreement and the Exchange Agreement, the terms of this Agreement shall control. 65 (c) Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of California without regard to conflicts of law principles. (d) Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, then such provision(s) shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provision(s) were so excluded and shall be enforceable in accordance with its terms. (e) Third Parties. Nothing in this Agreement, express or implied, is intended to confer upon any person, other than the parties hereto and their successors and assigns, any rights or remedies under or by reason of this Agreement. (f) Successors And Assigns. Subject to the provisions of Section 7, the provisions of this Agreement shall inure to the benefit of, and shall be binding upon, the successors and permitted assigns of the parties hereto. (g) Captions. The captions to sections of this Agreement have been inserted for identification and reference purposes only and shall not be used to construe or interpret this Agreement. (h) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which together shall constitute one instrument. (i) Costs And Attorneys' Fees. In the event that any action, suit or other proceeding is instituted concerning or arising out of this Agreement or any transaction contemplated hereunder, the prevailing party shall recover all of such party's costs and attorneys' fees incurred in each such action, suit or other proceeding, including any and all appeals or petitions therefrom. (j) Adjustments for Stock Splits, Etc. Wherever in this Agreement there is a reference to a specific number of Flextronics Ordinary Shares, then, upon the occurrence of any subdivision, combination or share dividend of such class of shares, the specific number of shares so referenced in this Agreement shall automatically be proportionally adjusted to reflect the effect on the outstanding shares of such class or series of shares by such subdivision, combination or share dividend. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.] 66 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. FLEXTRONICS INTERNATIONAL LTD. By: ------------------------ Name: ------------------------ Title: ------------------------ SHAREHOLDERS: DELTA ELECTRONICS THAILAND By: ---------------------- Name: ---------------------- Title: ---------------------- DET INTERNATIONAL HOLDING LTD. By: ---------------------- Name: ---------------------- Title: ---------------------- TAKAOTEK CORP. By: ---------------------- Name: ---------------------- Title: ---------------------- 67 ----------------------------- Hsin Yi Wang ----------------------------- Chien-Chih Fang ----------------------------- Meng-Chuan Huang ----------------------------- Shen-Lung Huang ----------------------------- Victor Chung ----------------------------- James Sacherman SACHERMAN FAMILY TRUST By: ---------------------- Name: ---------------------- Title: ---------------------- ----------------------------- John Toor TOOR FAMILY TRUST By: ---------------------- Name: ---------------------- Title: ---------------------- ----------------------------- Malcolm Smith 68 SMITH FAMILY TRUST By: ---------------------- Name: ---------------------- Title: ---------------------- ----------------------------- Hamid Arjomand ----------------------------- Peter Abrams ----------------------------- Janette Canare ----------------------------- Christina Balzer ----------------------------- Richard Blanton ----------------------------- Neil Chan ----------------------------- Tsai-Jung Chan ----------------------------- Tsai-Hsun Chan ----------------------------- Chiu-Hsia Chan Wu ----------------------------- Li Hua Chan ----------------------------- Yin Ming Chan ----------------------------- Pan Tang Wang ----------------------------- Tzu Min Tong ----------------------------- Chao Chung Hsu ----------------------------- Chin Chin Lin 69 ----------------------------- Chang Lien Tseng ----------------------------- Ming Tang Yu ----------------------------- Po Jen Huang ----------------------------- Mei-Ling Tai ----------------------------- Kuen Yi Wu ----------------------------- Fu Hsiun Lien ----------------------------- Shih Liang Lin WK TECHNOLOGY FUND By: ---------------------- Name: ---------------------- Title: ---------------------- WK TECHNOLOGY FUND II By: ---------------------- Name: ---------------------- Title: ---------------------- 70 WK TECHNOLOGY FUND III By: ---------------------- Name: ---------------------- Title: ---------------------- WK TECHNOLOGY FUND IV By: ---------------------- Name: ---------------------- Title: ---------------------- WK GLOBAL INVESTMENT LIMITED By: ---------------------- Name: ---------------------- Title: ---------------------- RICH FORTUNE INDUSTRIAL CO. LTD By: ---------------------- Name: ---------------------- Title: ---------------------- [SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT] EX-4.07 3 f73624ex4-07.txt EXHIBIT 4.07 1 EXHIBIT 4.07 FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of April 3, 2001, is entered into by and among: (1) FLEXTRONICS INTERNATIONAL LTD., a Singapore corporation, ("FIL") acting subject to Paragraph 8.15 of the Credit Agreement (as hereinafter defined), through its Hong Kong branch; (2) Each of the financial institutions listed in Schedule I to the Credit Agreement referred to in Recital A below which are to remain parties to the Credit Agreement after the effectiveness of the assignments pursuant to Paragraph 2 below (collectively, the "Existing Lenders"); (3) Each of the financial institutions listed on the signature pages hereof which are to become Lenders under the Credit Agreement after the effectiveness of the assignments pursuant to Paragraph 2 below (collectively, the "New Lenders", and together with the Existing Lenders, the "Lenders"); and (4) ABN AMRO BANK, N.V., as agent for the Lenders (in such capacity, "Agent"). RECITALS A. FIL, the Existing Lenders and Agent are parties to that certain Credit Agreement, dated as of April 3, 2000, (the "Credit Agreement"). B. FIL, as the sole Borrower under the Credit Agreement as of the date hereof, has requested that the Existing Lenders and Agent amend the Credit Agreement in certain respects including, without limitation, extending the Facility A Maturity Date and the Facility B Revolving Loan Maturity Date as provided for herein. C. In addition to and in connection with such amendments, FIL has requested that the New Lenders become parties to the Credit Agreement (as amended by this Amendment) pursuant to the assignments set forth below. D. The New Lenders are willing to become parties to the Credit Agreement, and the Lenders (including the New Lenders) and Agent are willing so to amend the Credit Agreement upon the terms and subject to the conditions set forth below. AGREEMENT NOW, THEREFORE, in consideration of the above recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, FIL, the Lenders and Agent hereby agree as follows: 2 1. DEFINITIONS, INTERPRETATION. All capitalized terms defined above and elsewhere in this Amendment shall be used herein as so defined. Unless otherwise defined herein, all other capitalized terms used herein shall have the respective meanings given to those terms in the Credit Agreement, as amended by this Amendment. The rules of construction set forth in Section I of the Credit Agreement shall, to the extent not inconsistent with the terms of this Amendment, apply to this Amendment and are hereby incorporated by reference. 2. RE-ALLOCATION OF COMMITMENTS AND ALLOCATION OF OUTSTANDING LOANS AMONG EXISTING LENDERS AND NEW LENDERS. Subject to the conditions set forth in the Assignment Agreements and Paragraph 6 below, FIL, the Existing Lenders, the New Lenders and Agent hereby agree that on and after the Effective Date (as hereinafter defined), each Existing Lender and each New Lender shall be a Lender under the Credit Agreement and the other Credit Documents with Commitments as set forth on Schedule I of the Credit Agreement (as amended pursuant to this Amendment), with all of the rights, duties and obligations of a "Lender" under the Credit Agreement and the other Credit Documents, and that each prior Lender under the Credit Agreement whose Commitments and Loans has been reduced to $0 shall cease to be a Lender and shall have no further obligations to make Loans. To effectuate the foregoing, on the Effective Date Agent shall calculate the Proportionate Share of each Existing Lender and each New Lender in each Borrowing then outstanding. Based upon such calculation, each New Lender shall purchase such shares in the outstanding Loans as Agent determines is necessary to cause each Existing Lender and each New Lender to hold Loans in each outstanding Borrowing in a principal amount equal to such Existing Lender's and such New Lender's Proportionate Share of such outstanding Borrowings. 3. AMENDMENTS TO CREDIT AGREEMENT. Subject to the satisfaction of the conditions set forth in Paragraph 6 below, the Credit Agreement is hereby amended as follows: (a) The introductory paragraph is amended by changing clause (5) thereof to read in its entirety as follows: (5) Bank of America, N.A. and Citicorp USA, Inc., as managing agents (collectively, in such capacity, the "Managing Agents"). (b) Paragraph 1.01 is amended by adding thereto, in the appropriate alphabetical order, definitions of the terms "First Amendment Effective Date" and "Net Proceeds" to read in their entirety as follows: "First Amendment Effective Date" shall mean April 3, 2001. "Net Proceeds" shall mean, with respect to any issuance and sale of securities by any Person, (a) the aggregate cash proceeds received by such Person from such sale less (b) the sum of (i) the actual amount of the reasonable fees and commissions payable to Persons other than such Person making the sale or any Affiliate of such Person and (ii) the reasonable legal expenses and other costs and expenses directly related to such sale that are to be paid by such Person. 2 3 (c) Paragraph 1.01 is further amended by changing the definition of the term "Contingent Obligation" set forth therein to read in its entirety as follows: "Contingent Obligation" shall mean, with respect to any Person, (a) any Guaranty Obligation of that Person; and (b) any direct or indirect obligation or liability, contingent or otherwise, of that Person (i) in respect of any Surety Instrument issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings or payments or (ii) in respect to any Rate Contract that is not entered into in connection with a bona fide hedging operation that provides offsetting benefits to such Person. The amount of any Contingent Obligation shall (subject, in the case of Guaranty Obligations, to the last sentence of the definition of "Guaranty Obligation") be deemed equal to the maximum reasonably anticipated liability in respect thereof (subject to reduction as the underlying liability so guaranteed is reduced from time to time), and shall, with respect to item (b)(ii) of this definition be marked to market on a current basis. (d) Paragraph 1.01 is further amended by changing the word "and" in the third line of the definition of the term "Credit Event" to the word "or". (e) Paragraph 1.01 is further amended by changing the definition of the term "EBITDA" set forth therein to read in its entirety as follows: "EBITDA" shall mean, with respect to FIL for any four quarter period, the sum, determined on a consolidated basis in accordance with GAAP, of the following: (a) The net income or net loss of FIL and its Subsidiaries for such period before provision for income taxes; plus (b) The sum (to the extent deducted in calculating net income or loss in clause (a) above) of (i) all Interest Expenses of FIL and its Subsidiaries accruing during such period, (ii) all depreciation and amortization expenses of FIL and its Subsidiaries accruing during such period and (iii) other noncash charges for such period; plus (c) An amount, not to exceed $50,000,000 in any consecutive four fiscal quarters, equal to the sum of all cash charges associated with merger-related expenses and restructuring costs accruing in such period (in each case calculated in accordance with GAAP) incurred by FIL and/or its Subsidiaries in connection with any merger, acquisition or restructuring 3 4 entered into by FIL and/or any of its Subsidiaries which are otherwise permitted under this Agreement and the FIUI Credit Agreement. (f) Paragraph 1.01 is further amended by changing the definition of the term "Existing Secured Indebtedness" set forth therein to read in its entirety as follows: "Existing Secured Indebtedness" shall mean the secured Indebtedness existing on the First Amendment Effective Date specified on Schedule 5.02(a). (g) Paragraph 1.01 is further amended by changing the definition of the term "Facility A Maturity Date" set forth therein to read in its entirety as follows: "Facility A Maturity Date" shall mean April 3, 2004. (h) Paragraph 1.01 is further amended by changing the definition of the term "FIUI Credit Agreement" set forth therein to read in its entirety as follows: "FIUI Credit Agreement" shall mean the Credit Agreement dated the date hereof among FIUI, FHUI, each of the financial institutions from time to time party thereto, ABN AMRO Bank N.V., as agent, and Fleet National Bank, as documentation agent, Bank of America, N.A. and Citicorp USA, Inc., as managing agents, and The Bank of Nova Scotia, as co-agent, as amended or restated from time to time. (i) Paragraph 1.01 is further amended by changing the definition of the term "Facility B Loan Maturity Date" set forth therein to read in its entirety as follows: "Facility B Revolving Loan Maturity Date" shall have the meaning given to that term in Subparagraph 2.01(b)(iii). (j) Paragraph 1.01 is further amended by changing the definition of the term "Guarantor" set forth therein to read in its entirety as follows: "Guarantor" shall mean each of the Eligible Material Subsidiaries and other Subsidiaries that has executed the Guaranty or otherwise become a party thereto. (k) Paragraph 1.01 is further amended by changing the definition of the term "Guaranty Obligation" set forth therein to read in its entirety as follows: "Guaranty Obligation" shall mean, with respect to any Person, subject to the last sentence of this definition, any direct or indirect liability of that Person 4 5 with respect to any indebtedness, lease, dividend, letter of credit or other obligation (other than endorsements of instruments for collection or deposits in the ordinary course of business) in each case to the extent constituting Indebtedness (the "primary obligations") of another Person (the "primary obligor"), including any obligation of that Person, whether or not contingent, (a) to purchase, repurchase or otherwise acquire such primary obligations or any property constituting direct or indirect security therefor, or (b) to advance or provide funds (i) for the payment or discharge of any such primary obligation, or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, or (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof. The amount of any Guaranty Obligation shall be deemed equal to the stated or determinable amount of the primary obligation in respect of which such Guaranty Obligation is made or, if not stated or if indeterminable, the maximum reasonably anticipated liability in respect thereof (subject to reduction as the underlying liability so guaranteed is reduced from time to time); provided, however, that with respect to any Guaranty Obligation by FIL or any of its Subsidiaries in respect of a primary obligation of FIL or any of its Subsidiaries, the maximum reasonably anticipated liability in respect thereof shall be deemed to be limited to an amount that actually becomes past due from time to time with respect to such primary obligation. (l) Paragraph 1.01 is further amended by changing the definition of the term "Indebtedness" set forth therein to read in its entirety as follows: "Indebtedness" of any Person shall mean, without duplication, the following (each, unless otherwise noted, calculated in accordance with GAAP): (a) All obligations of such Person evidenced by notes, bonds, debentures or other similar instruments and all other obligations of such Person for borrowed money (including obligations to repurchase receivables and other assets sold with recourse); (b) All obligations of such Person for the deferred purchase price of property or services (including obligations under letters of credit and other credit facilities which secure or finance such purchase price, and the capitalized amount reported for income tax purposes with respect to obligations under "synthetic" leases, but excluding accounts payable for inventory or services or the deferred purchase price of inventory to the extent not past due); (c) All obligations of such Person under conditional sale or other title retention agreements with respect to property (other than inventory) acquired by such Person (to the extent of the value of such property if the rights and remedies 5 6 of the seller or lender under such agreement in the event of default are limited solely to repossession or sale of such property); (d) All obligations of such Person as lessee under or with respect to Capital Leases; (e) All Guaranty Obligations of such Person with respect to the Indebtedness of any other Person, and all other Contingent Obligations of such Person; and (f) All obligations of other Persons of the types described in clauses (a) - (e) above to the extent secured by (or for which any holder of such obligations has an existing right, contingent or otherwise, to be secured by) any Lien in any property (including accounts and contract rights) of such Person, even though such Person has not assumed or become liable for the payment of such obligations. (m) Paragraph 1.01 is further amended by changing the reference to "clause (h)" set forth in the definition of "Investment" to "clause (f)". (n) Paragraph 1.01 is further amended by changing the definition of the term "Material Subsidiaries" set forth therein by (i) deleting the "or" appearing between the word "hereof;" and the "(ii)" in the seventh line thereof and replacing it with a ";"; (ii) adding the phrase "of FIL" immediately after the phrase "with respect to any Subsidiary" appearing at the beginning of clause ------ (ii) thereof; (iii) deleting the " ." appearing at the end of the last line thereof and replacing it with a "; and"; and (iv) adding a new clause (iii) at ------------ the end thereof to read in its entirety as follows: (iii) each of (A) FLX Cyprus Limited, a Cyprus corporation, and Flextronics Kft, a Hungarian corporation. (o) Paragraph 1.01 is further amended by changing the definition of the term "Security Documents" set forth therein to read in its entirety as follows: "Security Documents" shall mean and include (i) the Guaranty, (ii) at all times prior to the First Amendment Effective Date, the Pledge Agreements and (iii) all other instruments, agreements, certificates, opinions and documents (including Uniform Commercial Code financing statements) delivered to Agent or any Lender in connection with any Collateral or to secure the Obligations. (p) Subparagraphs 2.01(a), 2.03(b), 2.06(b) and 2.11(b) and Paragraph 8.04 are amended by changing the references to "Facility A 7 Revolving Loan Maturity Date" set forth therein to "Facility A Maturity Date". (q) Subparagraph 2.01(a) is further amended by deleting the word "the" immediately prior to the words "such Lender's Facility A Revolving Loans" appearing in the proviso thereof. (r) Subparagraph 2.01(b) is amended by adding a new clause (iii) at the end thereof to read in its entirety as follows: (iii) Facility B Revolving Loan Maturity Date. As used herein and in the other Credit Documents, the term "Facility B Revolving Loan Maturity Date" shall mean (A) at all times prior to the First Amendment Effective Date, April 3, 2001; and (B) at all times on and after the First Amendment Effective Date, April 2, 2002. (s) Subparagraphs 2.01(c) and 2.02(b) are amended by changing the references to "each Term Loan Borrowing" set forth therein to "the Term Loan Borrowing". (t) Subparagraphs 2.05(c) and 2.05(d) are amended to read in their entirety as follows: (c) Reduction or Cancellation of Commitments. (i) Mandatory Reduction of Agent Lenders' Commitments. Borrowers hereby acknowledge and agree that each of (A) ABN AMRO Bank N.V. ("ABN"), (B) Bank of America, N.A. ("BofA") and (C) Citicorp USA, Inc. ("Citicorp", and together with ABN and BofA, the "Agent Lenders") has agreed to temporarily provide Facility A Commitments and Facility B Commitments in excess of their original committed amounts such that the Total Facility A Commitment and Total Facility B Commitment as of the First Amendment Effective Date each total Seventy Five Million Dollars ($75,000,000). Borrowers further acknowledge and agree that it is the intent of each Agent Lender to reduce its respective Facility A Commitment and Facility B Commitment from such higher amounts through one or more assignments involving each Agent Lender as Assignor Lenders in accordance with Paragraph 8.05 (with each Agent Lender assigning their respective Commitments on a pro rata basis) such that the final Facility A Commitments and Facility B Commitments of each such Agent Lender shall be as follows: Facility A Commitment Facility B Commitment --------------------- --------------------- ABN $9,375,000 $9,375,000 BofA $8,250,000 $8,250,000 Citicorp $8,250,000 $8,250,000 If, on or prior to May 2, 2001, the Agent Lenders' respective Facility A Commitments and Facility B Commitments have not been reduced to such amounts, Borrowers hereby acknowledge and agree that on and as of such 7 8 date (1) the Total Facility A Commitment shall be immediately and permanently reduced to $67,500,000 plus the amount (if any) assigned by the Agent Lenders on or prior to such date, and (2) the Total Facility B Commitment shall be immediately and permanently reduced to $67,500,000 plus the amount (if any) assigned by the Agent Lenders on or prior to such date, and (2) the Total Facility B Commitment shall be immediately and permanently reduced to $67,500,000 plus the amount (if any) assigned by the Agent Lenders on or prior to such date, such that the final Facility A Commitments and Facility B Commitments of each Agent Lender shall be in the amounts as set forth above. To effectuate the foregoing, the parties hereto acknowledge and agree that on such date Agent shall calculate the revised Proportionate Share of each Lender after giving effect to the reduction of the Commitment, and based upon such calculation, the Lenders shall purchase from the Agent Lenders such shares in the outstanding Loans as Agent determines is necessary to cause each Lender to hold Loans in each outstanding Borrowing in a principal amount equal to such Lender's revised Proportionate Share of such outstanding Borrowings. (ii) Voluntary Reductions of the Commitments. Upon four (4) Business Days prior written notice to Agent, Borrowers may permanently reduce the Total Facility A Commitment and/or the Total Facility B Commitment by the Dollar Equivalent amount of (x) at all times prior to May 2, 2001, Two Million Five Hundred Thousand Dollars ($2,500,000) or integral multiples in excess thereof, and (y) at all times thereafter, Five Million Dollars ($5,000,000) or integral multiples in excess thereof, or cancel the Total Facility A Commitment and/or the Total Facility B Commitment in its entirety; provided, however, that: (A) Borrowers may not reduce the Total Facility A Commitment prior to the Facility A Maturity Date, if, after giving effect to such reduction, the Dollar Equivalent of the aggregate principal amount of all Facility A Revolving Loans then outstanding would exceed the Total Facility A Commitment; (B) Borrowers may not reduce the Total Facility B Commitment prior to the Facility B Revolving Loan Maturity Date if, after giving effect to such reduction, the Dollar Equivalent of the aggregate principal amount of all Facility B Revolving Loans then outstanding would exceed the Total Facility B Commitment; (C) Borrowers may not cancel the Total Facility A Commitment prior to the Facility A Maturity Date, if, after giving effect to such cancellation, any Facility A Revolving Loan would then remain outstanding; and (D) Borrowers may not cancel the Total Facility B Commitment prior to the Facility B Revolving Loan Maturity Date, if, after giving effect to such cancellation, any Facility B Revolving Loan would then remain outstanding. Unless sooner terminated pursuant to this Agreement, the Facility A Commitments shall terminate on the Facility A Maturity Date and the Facility B Commitments shall terminate on the Facility B Revolving Loan Maturity Date. 8 9 (d) Effect of Commitment Reductions. From the effective date of any reduction of the Total Facility A Commitment or the Total Facility B Commitment, the Commitment Fees payable pursuant to Subparagraph 2.06(b) shall be computed on the basis of the Total Facility A Commitment and/or the Total Facility B Commitment as so reduced. Once reduced or cancelled, the Total Facility A Commitment or the Total Facility B Commitment may not be increased or reinstated without the prior written consent of all Facility A Lenders or Facility B Lenders, as applicable. Any reduction of the Total Facility A Commitment pursuant to clause (i) of Subparagraph 2.05(c) shall be applied ratably among the Agent Lenders, and any reduction of the Total Facility A Commitment pursuant to clause (i) of Subparagraph 2.05(c) shall be applied ratably to reduce each Facility A Lender's Facility A Commitment in accordance with clause (ii) of Subparagraph 2.11(a). Any reduction of the Total Facility B Commitment pursuant to clause (i) of Subparagraph 2.05(c) shall be applied ratably among the Agent Lenders, and any reduction of the Total Facility B Commitment pursuant to clause (i) of Subparagraph 2.05(c) shall be applied to reduce each Facility B Lender's Facility B Commitment in accordance with clause (ii) of Subparagraph 2.11(a). (u) Clauses (a), (b) and (c) of Subparagraph 2.15 are amended to read in their entirety as follows: (a) Guaranties, Etc. The Obligations shall be secured by the following: (i) A Guaranty in the form of Exhibit D (the "Guaranty"), duly executed by all Eligible Material Subsidiaries and other Subsidiaries of FIL that have executed the Guaranty or otherwise become a party thereto , with such changes thereto as may be appropriate based on the law of the applicable jurisdictions; and (ii) Subject to the last paragraph of this Subparagraph 2.15(a), Pledge Agreement or Pledge Agreements, each in the form of Exhibit E (individually a "Pledge Agreement"), duly executed by FIL and any Subsidiary that directly owns the stock of any Ineligible Material Subsidiaries, together with the Guaranty executed by any such Subsidiary, with such changes thereto as may be appropriate based on the law of the applicable jurisdictions; provided, however, that (1) in lieu of providing a pledge of stock of Flextronics Industrial (Shenzhen) Co. Ltd. by Flextronics Singapore Pte Ltd., FIL shall provide a pledge of the stock of Flextronics Singapore Pte Ltd. and Flextronics Singapore Pte Ltd. shall execute the Guaranty, (2) in lieu of providing a pledge of the stock of Flextronics International Sweden AB by F.L. Tronics Holdings AB and a pledge of the stock of Flextronics International Finland Oy by Flextronics Holding Finland OY, Flextronics Holdings UK Limited shall execute the Guaranty and pledge of the stock of F.L. Tronics Holdings AB and (3) in lieu of providing a pledge of the 9 10 stock of Flextronics International Kft, FIL shall pledge the stock of Flextronics International GmbH; (4) with respect to Flextronics Singapore Pte Ltd., on or prior to the date such Subsidiary is dissolved and the stock of Flextronics International (Shenzhen) Co. Ltd. is thereafter held by Flextronics International Singapore Pte Ltd., FIL shall promptly provide a pledge of the stock of Flextronics International Singapore Pte Ltd. and Flextronics International Singapore Pte Ltd. shall promptly execute the Guaranty which shall replace the guaranty of Flextronics Singapore Pte Ltd.; (5) if FIL does not dissolve Flextronics International Fremont, Inc. on or before May 31, 2000, Flextronics International Fremont, Inc. shall also promptly execute the Guaranty; and (6) on or prior to April 14, 2000, Dovatron Malaysia Sdn. Bhd. shall execute the Guaranty, in connection with the DII Acquisition. Notwithstanding the foregoing, Lenders and Agent agree that upon and as of the First Amendment Effective Date, Agent shall terminate each of the following Pledge Agreements and release the collateral pledged to Agent for the benefit of Agent and Lenders thereunder: (A) that certain Pledge Agreement, dated as of April 3, 2000, by and between FIL and Agent with respect to securities of Flextronics International GmbH (Austria); (B) that certain Pledge Agreement, dated as of April 3, 2000, by and between FIL and Agent with respect to securities of Flextronics Singapore Pte. Ltd; and (C) that certain Pledge Agreement, dated as of April 3, 2000, by and between Flextronics Holdings UK Limited and Agent with respect to securities of F.L. Tronics Holdings AB (Sweden). In connection with the foregoing, Agent on behalf of the Lenders shall duly execute and deliver to FIL a Termination and Release Agreement (substantially in the form set forth in Exhibit A to that certain First Amendment to Credit Agreement dated as of the First Amendment Effective Date) in favor of the pledgor with respect to each such Pledge Agreement. Thereafter, upon request by any pledgor or Borrowers, Agent shall, without further consideration other than reimbursement for any costs and expenses, execute, deliver and acknowledge all such further documents, agreements, certificates and instruments and do such further acts as any pledgor or Borrowers may reasonably request to more effectively evidence or effectuate the transactions contemplated by this provision, including, but not limited to, the release and discharge of all security interests and all other rights and interests that Agent, on behalf of itself and Lenders, may have had in such pledged Collateral. (b) Changes in Material Subsidiaries. (i) If, at any time after the date of this Agreement, any Subsidiary of FIL that is not a Guarantor under the Guaranty shall become an Eligible Material Subsidiary, FIL promptly shall deliver, or cause to be delivered, to Agent, within sixty (60) days of any such event, (A) a 10 11 Subsidiary Joinder in the form of Attachment 1 to the Guaranty, appropriately completed and duly executed by such Subsidiary, and (B) such other instruments, agreements, certificates, opinions and documents as Agent may reasonably request to secure, maintain, protect and evidence the obligations of such Subsidiary under the Guaranty. (ii) If, at any time after the date of this Agreement, any Subsidiary of FIL that is a Guarantor under the Guaranty shall cease to be, or shall not have become, an Eligible Material Subsidiary, Agent shall if requested by FIL release such Subsidiary from its obligations under the Guaranty. (c) Further Assurances. Borrowers shall deliver, and shall cause their Guarantors and their Subsidiaries to deliver, to Agent such other guaranties, guaranty supplements and other instruments, agreements, certificates, opinions and documents as Agent may reasonably request to implement the provisions of Subparagraph 2.15(a) and otherwise to establish, maintain, protect and evidence the rights provided to Agent, for the benefit of Agents and Lenders, pursuant to the Security Documents. Borrowers shall fully cooperate with Agent and Lenders and perform all additional acts reasonably requested by Agent or any Lender to effect the purposes of this Paragraph 2.15. Without limiting the generality of the foregoing, FIL covenants and agrees that it will ensure that the aggregate revenues of the Subsidiaries that have executed and delivered the Guaranty pursuant to this Agreement and the FIUI Credit Agreement for each year will equal or exceed 53% of the consolidated total revenues of FIL and all of its Subsidiaries as reflected for such year in FIL's annual audited Financial Statements. (v) Subparagraph 4.01(i) is hereby amended by deleting the word "Borrower" immediately after the word "FIL" in the second sentence thereof. (w) Clauses (iii) and(iv) of Subparagraph 5.02(a) are amended to read in their entirety as follows: (iii) Existing Secured Indebtedness, together with initial or successive refinancings thereof, provided that (A) the principal amount of any such refinancing does not exceed the principal amount of the Indebtedness being refinanced (except to the extent necessary to pay fees, expenses, underwriting discounts and prepayment penalties in connection therewith) and (B) the other terms and provisions of any such refinancing with respect to maturity, redemption, prepayment, default and subordination are no less favorable in any material respect to Lenders than the Indebtedness being refinanced; (iv) Indebtedness of any Borrower or Guarantor to any other Borrower or any Eligible Material Subsidiary or Indebtedness of any Eligible Material Subsidiary to any Borrower, any other Eligible Material Subsidiary or any Guarantor, in each case to the extent otherwise permitted pursuant to Subparagraph 5.02(e) and Subparagraph 5.02(i); and (x) Clause (i) of Subparagraph 5.02(b) is amended to read in its entirety as follows: 11 12 (i) Liens that secure only Indebtedness which constitutes Permitted Indebtedness under clause (ii), (iii), (iv) or (v) of Subparagraph 5.02(a); (y) Clause (ii) of Subparagraph 5.02(b) is amended to read in its entirety as follows: (ii) Liens in favor of any of the Borrowers, any Eligible Material Subsidiary or any Guarantor on all or part of the assets of Subsidiaries of any Borrower, any Eligible Material Subsidiary or any Guarantor securing Indebtedness owing by Subsidiaries of any of the Borrowers, any Eligible Material Subsidiary or any Guarantor, as the case may be, to any of the Borrowers or such other Eligible Material Subsidiary or Guarantor; (z) Clause (vi) of Subparagraph 5.02(b) is amended to read in its entirety as follows: (vi) encumbrances on real property consisting of easements, rights of way, zoning restrictions, restrictions on the use of real property and defects and irregularities in the title thereto, landlord's or lessor's or lessee's Liens under leases to which a Borrower or a Subsidiary is a party, and other minor Liens or encumbrances none of which interferes materially with the use of the property, in each case which do not individually or in the aggregate have a Material Adverse Effect; (aa) Clause (xi) of Subparagraph 5.02(b) is amended by adding the phrase "or by" immediately after the phrase "rights of third parties in equipment or inventory consigned to" appearing in the first line thereof. (bb) Subparagraph 5.02(c) is amended to read in its entirety as follows: (c) Asset Dispositions. None of the Borrowers or any of their Subsidiaries shall sell, lease, transfer or otherwise dispose of any of their assets or property, whether now owned or hereafter acquired, except for (i) assets or property sold, leased, transferred or otherwise disposed of in the ordinary course of business for fair market value; (ii) sales of accounts receivable in securitization or financing transactions, provided that the aggregate principal amount of any accounts receivable sold in any fiscal quarter of FIL shall not exceed thirty percent (30%) of the aggregate principal amount of accounts receivable originated by FIL and its Subsidiaries during such fiscal quarter; (iii) sales of duplicative or excess assets existing as a result of transactions otherwise permitted pursuant to Subparagraph 5.02(d), provided that the aggregate principal amount of any such duplicative assets sold in any fiscal year does not exceed five percent (5%) of all fixed assets of FIL and its Subsidiaries net of depreciation held by FIL and its Subsidiaries as of the end of the immediately preceding fiscal quarter; (iv) sales or transfers of assets or property to any Borrower or Material Subsidiary for a purchase price that is not less than fair market value; provided, however, that the foregoing exception shall not permit any sale, lease, transfer or other disposition 12 13 of any Collateral or of any other Equity Securities issued by any Subsidiary of FIL and owned by FIL or any of its other Subsidiaries, except for Liens in favor of Agent securing the Obligations or pursuant to the FIUI Credit Documents; (v) assets sold and leasedback by FIL or its Subsidiaries in the ordinary course of business; and (vi) dispositions of Investments permitted under Subparagraph 5.02(e) for a purchase price that is not less than fair market value of the Investments being sold. (cc) Clause (ii) of Subparagraph 5.02(e) is amended to read in its entirety as follows: (ii) Investments listed in Schedule 5.02(e) existing or committed on the First Amendment Effective Date; (dd) Clause (iv) of Subparagraph 5.02(e) is amended to read in its entirety as follows: (iv) Investments by Borrowers and the Material Subsidiaries and the Guarantors directly or indirectly in each other; (ee) Clause (x) of Subparagraph 5.02(e) is amended to read in its entirety as follows: (x) Other Investments, provided that: (A) No Default has occurred and is continuing on the date of, or will result after giving effect to, any such Investment; and (B) The aggregate consideration paid by Borrowers and their Subsidiaries for all such Investments in any fiscal year (without duplication) does not exceed the sum of (1) ten percent (10%) of the total assets of FIL and its Subsidiaries at the end of the immediately preceding fiscal quarter, plus (2) seventy-five percent (75%) of the Net Proceeds received from the issuance by FIL of any Equity Securities of the type described in clause (a) of the definition of "Equity Securities" during calendar year 2001 or thereafter. (ff) Clauses (ii) of Subparagraph 5.02(f) is amended to read in its entirety as follows: (ii) Any Subsidiary of any of the Borrowers may pay dividends to or repurchase its capital stock from such Subsidiary's parent; and (gg) Subparagraph 5.02(i) is amended to read in its entirety as follows: Transactions With Affiliates. None of the Borrowers or any of their Subsidiaries shall enter into any Contractual Obligation with any Affiliate (other than one of the Borrowers or one of its Subsidiaries) or engage in any other 13 14 transaction with any such Affiliate except (A) upon terms at least as favorable to such Borrower or such Subsidiary as an arms-length transaction with unaffiliated Persons, except as disclosed or reflected in the Financial Statements of FIL dated December 31, 1999, furnished by FIL to Agent prior to the date hereof, or in the Financial Statements delivered to Agent pursuant to clause (i) or (ii) of Subparagraph 5.01(a), or (B) in connection with transactions made pursuant to Subparagraphs 5.02(d) or 5.02(e). (hh) Subparagraph 5.02(l) is amended to read in its entirety as follows: Senior Debt. None of the Borrowers or any of their Subsidiaries will designate or permit to exist any other Indebtedness as "Designated Senior Debt" for the purposes of and as defined in of the Subordinated Indenture, other than the Obligations arising under this Agreement and the other Credit Documents and obligations arising under facilities providing or guaranteeing at least Seventy Five Million Dollars ($75,000,000) in the aggregate of loans or other debt or synthetic lease financings. (ii) Subparagraph 8.06(a) is amended by changing the phrase "with the prior consent of Agent" set forth in the second line thereof to "with prior notice to Agent". (jj) Schedule I is amended to read in its entirety as set forth on Attachment 1 hereto. (kk) Schedule 5.02(a) is amended to read in its entirety as set forth on Attachment 2 hereto. (ll) Schedule 5.02(e) is amended to read in its entirety as set forth on Attachment 3 hereto. 4. GLOBAL AMENDMENTS TO CREDIT DOCUMENTS. In addition to the amendments to the Credit Agreement set forth in Paragraph 3 above and subject to the satisfaction of the conditions set forth in Paragraph 6 below, (a) all references in the Credit Documents (including the Credit Agreement) to "The DII Group, Inc." are hereby amended and changed to "Flextronics Holdings USA, Inc. (formerly known as The DII Group, Inc.)"; and (b) all references in the Credit Documents (including the Credit Agreement) to "DII" are hereby amended and changed to "FHUI"; provided, however, that references to the term "DII Acquisition" shall continue to refer to the term "DII Acquisition" (as such term is being amended pursuant to this Paragraph 4). 5. REPRESENTATIONS AND WARRANTIES. FIL hereby represents and warrants to Agent and Lenders that the following are true and correct on the date of this Amendment and that, after giving effect to the amendments set forth in Paragraphs 3 and 4 above, the following will be true and correct on the Effective Date (as defined below): (a) The representations and warranties of FIL set forth in Paragraph 4.01 of the Credit Agreement and in the other Credit Documents are true and correct in all material respects as if made on the 14 15 Effective Date (except for representations and warranties expressly made as of a specified date, which are true and correct as of such date); (b) No Default has occurred and is continuing; and (c) Each of the Credit Documents is in full force and effect. (Without limiting the scope of the term "Credit Documents," FIL expressly acknowledges in making the representations and warranties set forth in this Paragraph 5 that, on and after the date hereof, such term includes this Amendment.) 6. EFFECTIVE DATE. The addition of the New Lenders as parties to the Credit Agreement effected by Paragraph 2 above, and the amendments to the Credit Agreement effected by Paragraphs 3 and 4 above, shall become effective on April 3, 2001 (the "Effective Date"), subject to receipt by Agent and Lenders on or prior to the Effective Date of the following, each in form and substance satisfactory to Agent, Lenders and their respective counsel: (a) This Amendment duly executed by FIL, each Lender and Agent; (b) The Second Amendment to Credit Agreement, dated as of the date hereof, between Flextronics International USA, Inc., Flextronics Holding International Inc. (formerly known as The DII Group, Inc.), each "Existing Lender" (as defined therein) party thereto, each "New Lender" (as defined therein) party thereto and Agent, amending in certain respects the FIUI Credit Agreement; (c) A letter in the form of Exhibit B hereto, dated the Effective Date and duly executed by each of the Guarantors; (d) A Subsidiary Joinder, in the form attached as Attachment 1 to the Guaranty, duly executed by each of the following Eligible Material Subsidiaries, pursuant to which each such Eligible Material Subsidiary shall become a Guarantor under the Guaranty and shall be bound by all of the provisions of the Guaranty to the same extent as if such Person had executed the Guaranty on the Closing Date (collectively, the "New Guarantors"): (i) Flextronics International Marketing (L) Ltd., a Labuan corporation, (ii) JIT Holdings Limited, a Singapore corporation; (iii) Flextronics Distribution Inc., a California corporation; (iv) Multilayer Technology, Inc., a California corporation; and (iv) Flextronics Enclosures, Inc., a Delaware corporation; (e) A Certificate of the Secretary of FIL and each domestic (U.S.) Guarantor which is currently a Guarantor under the Guaranty, dated the Effective Date, certifying that (i) the Certificate of Incorporation and Bylaws of FIL or such Subsidiary, in the form delivered to Agent on the Closing Date, are in full force and effect and have not been amended, supplemented, revoked or repealed since such date (or, if such Certificates of Incorporation and/or Bylaws have been amended, supplemented, revoked or repealed since such date, a true and correct copy of each such new and currently effective 15 16 Certificates of Incorporation and/or Bylaws), (ii) with respect to the Certificate of the Secretary of FIL, that attached thereto are true and correct copies of resolutions duly adopted by the Board of Directors of FIL and continuing in effect, which (A) authorize the execution, delivery and performance by FIL of this Amendment and the consummation of the transactions contemplated hereby and (B) designate the officers authorized to so execute, deliver and perform on behalf of FIL, (iii) with respect to the Certificate of the Secretary of each Guarantor, that the resolutions (authorizing the execution, delivery and performance by such Person of the Guaranty) delivered to Agent on the Closing Date continue in effect and have not been amended, supplemented, revoked or repealed since the Closing Date; and (iv) that there are no proceedings for the dissolution or liquidation of FIL or such Guarantor; (f) With respect to each New Guarantor, the Certificate of Incorporation (or comparable certificate) of such Subsidiary, certified as of a recent date prior to the Effective Date by the Secretary of State (or comparable public official) of its jurisdiction of incorporation (or, if any such Subsidiary is organized under the laws of any jurisdiction outside the United States, such other evidence as Agent may request to establish that such Person is duly organized and existing under the laws of such jurisdiction), together with an English translation thereof (if appropriate); (g) With respect to each New Guarantor, to the extent such jurisdiction has the legal concept of a corporation being in good standing and a Governmental Authority in such jurisdiction issues any evidence of such good standing, a Certificate of Good Standing (or comparable certificate) for such Subsidiary, certified as of a recent date prior to the Effective Date by the Secretary of State (or comparable public official) of its jurisdiction of incorporation (or, if any such Person is organized under the laws of any jurisdiction outside the United States, such other evidence as Agent may request to establish that such Person is duly qualified to do business and in good standing under the laws of such jurisdiction), together with an English translation thereof (if appropriate); (h) With respect to each New Guarantor, a certificate of the Secretary or an Assistant Secretary (or comparable officer) of such Subsidiary, dated the Effective Date, certifying (a) that attached thereto is a true and correct copy of the Bylaws of such Subsidiary as in effect on the Effective Date (or, if any such Subsidiary is organized under the laws of any jurisdiction outside the United States, any comparable document provided for in the respective corporate laws of that jurisdiction); (b) that attached thereto are true and correct copies of resolutions duly adopted by the Board of Directors of such Subsidiary (or other comparable enabling action) and continuing in effect, which (i) authorize the execution, delivery and performance by such Person of the Subsidiary Joinder and the consummation of the transactions contemplated thereby and (ii) designate the officers, directors and attorneys authorized so to execute, deliver and perform on behalf of such Person; and (c) that there are no proceedings for the dissolution or liquidation of such Person, together with a certified English translation thereof (if appropriate); (i) With respect to each New Guarantor, a certificate of the Secretary or an Assistant Secretary (or comparable officer) of such Subsidiary, certifying the 16 17 incumbency, signatures and authority of the officers, directors and attorneys of such Person authorized to execute, deliver the Subsidiary Joinder and perform its obligations under the Guaranty, together with a certified English translation thereof (if appropriate); (j) A favorable written opinion of each of counsel to FIL, and Fenwick & West (as counsel to the domestic (U.S.) Guarantors), dated the Effective Date, addressed to Agent for the benefit of Agent and Lenders, covering such legal matters as Agent may reasonably request and otherwise in form and substance satisfactory to Agent; (k) A nonrefundable amendment fee to be paid to each Lender equal to 0.15% of each Lender's Commitment on the Effective Date; (l) Payment of all fees and expenses payable to Agent on or prior to the Effective Date (including all fees payable to Agent pursuant to the arrangement fee letter agreement dated as of April 2, 2001); and (m) Such other evidence as Agent or any Lender may reasonably request to establish the accuracy and completeness of the representations and warranties and the compliance with the terms and conditions contained in this Amendment and the other Credit Documents. 7. POST-EFFECTIVE DATE DELIVERIES. In addition to the foregoing, FIL hereby covenants that no later than 15 days after the Effective Date, FIL shall deliver or caused to be delivered to Agent and Lenders (in form and substance satisfactory to Agent, Lenders and their respective counsel) (a) a Certificate of the Secretary of each foreign (non-U.S.) Guarantor which has been a Guarantor since the Closing Date, certifying that (i) the Certificate of Incorporation and Bylaws of such Guarantor, in the form delivered to Agent on the Closing Date, are in full force and effect and have not been amended, supplemented, revoked or repealed since such date, (ii) that the resolutions (authorizing the execution, delivery and performance by such Person of the Guaranty) delivered to Agent on the Closing Date continue in effect and have not been amended, supplemented, revoked or repealed since the Closing Date; and (iii) that there are no proceedings for the dissolution or liquidation of such Subsidiary, together with an English translation thereof (if appropriate); (b) as requested by each Lender, new Revolving Loan Notes and Term Loan Notes, appropriately completed and duly executed by FIL, each of which shall be (i) payable to the order of such Lender, (ii) dated the Effective Date and (ii) otherwise appropriately completed; and (c) the items (if any) set forth in Paragraph 5 above the delivery of which has been temporarily waived by Agent with the consent of the Lenders upon the request of FIL made to Agent immediately prior to the Effective Date. 8. EFFECT OF THIS AMENDMENT. On and after the Effective Date, each reference in the Credit Agreement and the other Credit Documents to the Credit Agreement shall mean the Credit Agreement as amended hereby. Except as specifically amended above, (a) the Credit Agreement and the other Credit Documents shall remain in full force and effect and are hereby ratified and confirmed and (b) the execution, delivery and effectiveness of this Amendment shall not, except 17 18 as expressly provided herein, operate as a waiver of any right, power, or remedy of the Lenders or Agent, nor constitute a waiver of any provision of the Credit Agreement or any other Credit Document. 9. MISCELLANEOUS. (a) Counterparts. This Amendment may be executed in any number of identical counterparts, any set of which signed by all the parties hereto shall be deemed to constitute a complete, executed original for all purposes. (b) Headings. Headings in this Amendment are for convenience of reference only and are not part of the substance hereof. (c) Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of California without reference to conflicts of law rules. [Signature Pages Follow] 18 19 IN WITNESS WHEREOF, FIL, Agent, the Existing Lenders and the New Lenders have caused this Amendment to be executed as of the day and year first above written. BORROWER: FLEXTRONICS INTERNATIONAL LTD. By: ----------------------------- Name: ----------------------------- Title: ----------------------------- AGENT: ABN AMRO BANK, N.V., as Agent By: ----------------------------- Name: ----------------------------- Title: ----------------------------- By: ----------------------------- Name: ----------------------------- Title: ----------------------------- EXISTING LENDERS: ABN AMRO BANK, N.V., as a Lender By: ----------------------------- Name: ----------------------------- Title: ----------------------------- By: ----------------------------- Name: ----------------------------- Title: ----------------------------- FLEET NATIONAL BANK, as a Lender By: ----------------------------- Name: ----------------------------- Title: ----------------------------- 19 20 BANK OF AMERICA, N.A., as a Lender By: ----------------------------- Name: ----------------------------- Title: ----------------------------- CITICORP USA, INC., as a Lender By: ----------------------------- Name: ----------------------------- Title: ----------------------------- THE BANK OF NOVA SCOTIA, as a Lender By: ----------------------------- Name: ----------------------------- Title: ----------------------------- BAYERISCHE HYPO-UND VEREINSBANK AG, NEW YORK BRANCH, as a Lender By: ----------------------------- Name: ----------------------------- Title: ----------------------------- By: ----------------------------- Name: ----------------------------- Title: ----------------------------- 20 21 BNP PARIBAS, as a Lender By: ----------------------------- Name: ----------------------------- Title: ----------------------------- By: ----------------------------- Name: ----------------------------- Title: ----------------------------- DANKSE BANK, as a Lender By: ----------------------------- Name: ----------------------------- Title: ----------------------------- By: ----------------------------- Name: ----------------------------- Title: ----------------------------- THE FUJI BANK, LIMITED, as a Lender By: ----------------------------- Name: ----------------------------- Title: ----------------------------- SUMITOMO MITSUI BANKING CORPORATION, as a Lender By: ----------------------------- Name: ----------------------------- Title: ----------------------------- 21 22 WELLS FARGO BANK, NATIONAL ASSOCIATION, as a Lender By: ----------------------------- Name: ----------------------------- Title: ----------------------------- COMERICA BANK, as a Lender By: ----------------------------- Name: ----------------------------- Title: ----------------------------- NEW LENDERS: FIRST UNION NATIONAL BANK, as a Lender By: ----------------------------- Name: ----------------------------- Title: ----------------------------- DEUTSCHE BANK AG, NEW YORK BRANCH, as a Lender By: ----------------------------- Name: ----------------------------- Title: ----------------------------- 22 23 EXHIBIT A FORM OF TERMINATION AND RELEASE AGREEMENT This TERMINATION AND RELEASE AGREEMENT, dated as of April 3, 2001 (this "Agreement"), is executed by and between _______________ ("Pledgor") and ABN AMRO BANK N.V., acting as agent (in such capacity, "Agent") for the financial institutions which are parties to the Credit Agreement referred to in the Recitals below (collectively, "Lenders"). RECITALS A. In connection with that certain Credit Agreement, dated as of April 3, 2000, by and among Flextronics International Ltd. ("FIL"), Designated Borrowers, Lenders, Agent, Managing Agents and Co-Agent (the "Original Credit Agreement"), Pledgor and Agent entered into a Pledge Agreement, dated as of April 3, 2000 (the "Pledge Agreement"). B. Pursuant to the Pledge Agreement, Pledgor has granted to Agent, for the ratable benefit of Lenders and Agent, a security interest in all right, title and interest of the Pledgor in and to the Collateral (as defined in the Pledge Agreement) to secure Borrowers' obligations under the Original Credit Agreement. C. The Original Credit Agreement has been amended by a First Amendment to Credit Agreement, dated as of April 3, 2001, by and among FIL (as the sole Borrower under the Original Credit Agreement as of the date of such amendment), Lenders and Agent (the "First Amendment"). The Original Credit Agreement, as amended by the First Amendment, shall be referred to herein as the "Credit Agreement." D. Pursuant to the First Amendment, Lenders and Agent have agreed that, immediately after the First Amendment becomes effective, Agent shall terminate the Pledge Agreement and release all of Agent's security interest in the Collateral. E. The First Amendment has become effective on the date hereof. NOW, THEREFORE, in consideration of the above Recitals and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Pledgor and Agent hereby agree as follows: 1. Termination of Pledge Agreement. The Pledge Agreement referred to in the Recitals above is hereby terminated and Pledgor is hereby released therefrom. The Agent hereby releases, assigns, transfers and delivers to Pledgor, without recourse and without representation or warranty, all of its right, title and interest in the Collateral. Immediately upon the effectiveness of this Agreement, Agent shall return to Pledgor the originals of any Pledged Shares previously delivered by Pledgor to Agent pursuant to the Pledge Agreement. 2. Further Assurances. From time to time, upon request by Pledgor or FIL, Agent shall, without further consideration other than reimbursement for any costs and expenses, 24 execute, deliver and acknowledge all such further documents, agreements, certificates and instruments and do such further acts as Pledgor or FIL may reasonably request to more effectively evidence or effectuate the transactions contemplated by this Agreement, including, but not limited to, the release and termination of the Pledge Agreement and the release and discharge of all security interests and all other rights and interests that Agent, on behalf of itself and Lenders, has or may have had in the Collateral. 3. Miscellaneous. This Agreement may not be amended, modified or waived except in writing signed by the party against whom enforcement of such amendment, modification or waiver is sought. This Agreement shall be construed and interpreted in accordance with the laws of the State of California. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which, when taken together, shall constitute one and the same instrument. IN WITNESS WHEREOF, the undersigned have entered into this Agreement as of the day and year first above written. PLEDGOR: By: ----------------------------- Name: ----------------------------- Title: ----------------------------- AGENT: ABN AMRO BANK, N.V., as Agent By: ----------------------------- Name: ----------------------------- Title: ----------------------------- By: ----------------------------- Name: ----------------------------- Title: ----------------------------- 25 EXHIBIT B FORM OF GUARANTOR CONSENT LETTER [Effective Date] TO: ABN AMRO BANK N.V., As Agent for the Lenders under the Credit Agreement referred to below 1. Reference is made to the following: (a) The Credit Agreement dated as of April 3, 2000, among Flextronics International Ltd. ("FIL") and Designated Borrowers, Lenders, Agent, Documentation Agent, Managing Agents and Co-Agent, (the "Credit Agreement"); (b) The Guaranty dated as of April 3, 2000 (the "Guaranty"), by the undersigned ("Guarantors") in favor of Agent for the benefit of Agent and Lenders; and (c) The First Amendment to Credit Agreement dated as of April 3, 2001 (the "First Amendment") by and among FIL (as the sole Borrower under the Credit Agreement as of the date of the First Amendment), Lenders and Agent. 2. Guarantor hereby consents to the First Amendment. Each Guarantor expressly agrees that such amendment shall in no way affect or alter the rights, duties, or obligations of any Guarantor, any Lender or Agent under the Guaranty. 3. From and after the date hereof, the term "Credit Agreement" as used in the Guaranty shall mean the Credit Agreement, as amended by the First Amendment. 4. Guarantors' consent to the First Amendment shall not be construed (i) to have been required by the terms of the Guaranty or any other document, instrument or agreement relating thereto or (ii) to require the consent of any Guarantor in connection with any future amendment of the Credit Agreement or any other Credit Document. 5. Unless otherwise defined herein, all capitalized terms used herein shall have the respective meanings given to those terms in the Credit Agreement. 6. Pursuant to clause (i) of Subparagraph 6(l) of the Guaranty, this Guarantor Consent Letter shall be governed by and construed in accordance with the laws of the State of California, except for the purposes of any suit or legal action brought in Mexico in which case it shall be governed by the laws of Mexico. 26 IN WITNESS WHEREOF, Guarantors have executed this Guarantor Consent Letter as of the day and year first written above. FLEXTRONICS INTERNATIONAL LATIN AMERICA (L) LTD. By: ---------------------------------- Name: ---------------------------- Title: --------------------------- FLEXTRONICS MANUFACTURING MEX, S.A. DE C.V. By: ---------------------------------- Name: ---------------------------- Title: --------------------------- FLEXTRONICS HOLDINGS UK LIMITED By: ---------------------------------- Name: ---------------------------- Title: --------------------------- FLEX INTERNATIONAL MARKETING (L) LTD. By: ---------------------------------- Name: ---------------------------- Title: --------------------------- 27 FLEXTRONICS USA, INC. By: ---------------------------------- Name: ---------------------------- Title: --------------------------- FLEXTRONICS (MALAYSIA) SDN. BHD By: ---------------------------------- Name: ---------------------------- Title: --------------------------- FLEXTRONICS USA INC. By: ---------------------------------- Name: ---------------------------- Title: --------------------------- FLEXTRONICS INTERNATIONAL USA, INC. By: ---------------------------------- Name: ---------------------------- Title: --------------------------- 28 ATTACHMENT 1 SCHEDULE 1 TO CREDIT AGREEMENT See Attachment 29 ATTACHMENT 2 SCHEDULE 5.02 (A) TO CREDIT AGREEMENT See Attachment 30 ATTACHMENT 3 SCHEDULE 5.02(E) TO CREDIT AGREEMENT See Attachment EX-4.08 4 f73624ex4-08.txt EXHIBIT 4.08 1 EXHIBIT 4.08 SECOND AMENDMENT TO CREDIT AGREEMENT THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of April 3, 2001, is entered into by and among: (1) FLEXTRONICS INTERNATIONAL USA, INC., a California corporation ("FIUI") and FLEXTRONICS HOLDING USA, INC. (formerly known as The DII Group, Inc.), a Delaware corporation ("FHUI" and together with FIUI, "Borrowers"); (2) Each of the financial institutions listed in Schedule I to the Credit Agreement referred to in Recital A below which are to remain parties to the Credit Agreement after the effectiveness of the assignments pursuant to Paragraph 2 below (collectively, the "Existing Lenders"); (3) Each of the financial institutions listed on the signature pages hereof which are to become Lenders under the Credit Agreement after the effectiveness of the assignments pursuant to Paragraph 2 below (collectively, the "New Lenders", and together with the Existing Lenders, the "Lenders"); and (4) ABN AMRO BANK, N.V., as agent for the Lenders (in such capacity, "Agent"). RECITALS A. Borrowers, the Existing Lenders and Agent are parties to that certain Credit Agreement, dated as of April 3, 2000, as amended by that certain Amendment to Credit Agreement, dated as of June 15, 2000 (as so amended, the "Credit Agreement"). B. Borrowers have requested that the Existing Lenders and Agent amend the Credit Agreement in certain respects including, without limitation, extending the Facility A Maturity Date and the Facility B Revolving Loan Maturity Date as provided for herein. C. In addition to and in connection with such amendments, Borrowers have requested that the New Lenders become parties to the Credit Agreement (as amended by this Amendment) pursuant to the assignments set forth below. D. The New Lenders are willing to become parties to the Credit Agreement, and the Lenders (including the New Lenders) and Agent are willing so to amend the Credit Agreement upon the terms and subject to the conditions set forth below. AGREEMENT NOW, THEREFORE, in consideration of the above recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Borrowers, the Lenders and Agent hereby agree as follows: 2 10. DEFINITIONS, INTERPRETATION. All capitalized terms defined above and elsewhere in this Amendment shall be used herein as so defined. Unless otherwise defined herein, all other capitalized terms used herein shall have the respective meanings given to those terms in the Credit Agreement, as amended by this Amendment. The rules of construction set forth in Section I of the Credit Agreement shall, to the extent not inconsistent with the terms of this Amendment, apply to this Amendment and are hereby incorporated by reference. 11. RE-ALLOCATION OF COMMITMENTS AND ALLOCATION OF OUTSTANDING LOANS AMONG EXISTING LENDERS AND NEW LENDERS. Subject to the conditions set forth in Paragraph 6 below, Borrowers, the Existing Lenders, the New Lenders and Agent hereby agree that on and after the Effective Date (as hereinafter defined), each Existing Lender and each New Lender shall be a Lender under the Credit Agreement and the other Credit Documents with Commitments as set forth on Schedule I of the Credit Agreement (as amended pursuant to this Amendment), with all of the rights, duties and obligations of a "Lender" under the Credit Agreement and the other Credit Documents, and that each prior Lender under the Credit Agreement whose Commitments and Loans has been reduced to $0 shall cease to be a Lender and shall have no further obligations to make Loans. To effectuate the foregoing, on the Effective Date Agent shall calculate the Proportionate Share of each Existing Lender and each New Lender in each Borrowing then outstanding. Based upon such calculation, each New Lender shall purchase such shares in the outstanding Loans as Agent determines is necessary to cause each Existing Lender and each New Lender to hold Loans in each outstanding Borrowing in a principal amount equal to such Existing Lender's and such New Lender's Proportionate Share of such outstanding Borrowings. 12. AMENDMENTS TO CREDIT AGREEMENT. Subject to the satisfaction of the conditions set forth in Paragraph 6 below, the Credit Agreement is hereby amended as follows: (a) The introductory paragraph is amended by changing clause (5) thereof to read in its entirety as follows: (5) Bank of America, N.A. and Citicorp USA, Inc., as managing agents (collectively, in such capacity, the "Managing Agents"). (b) Paragraph 1.01 is amended by adding thereto, in the appropriate alphabetical order, definitions of the terms "Net Proceeds" and "Second Amendment Effective Date" to read in their entirety as follows: "Net Proceeds" shall mean, with respect to any issuance and sale of securities by any Person, (a) the aggregate cash proceeds received by such Person from such sale less (b) the sum of (i) the actual amount of the reasonable fees and commissions payable to Persons other than such Person making the sale or any Affiliate of such Person and (ii) the reasonable legal expenses and other costs and expenses directly related to such sale that are to be paid by such Person. "Second Amendment Effective Date" shall mean April 3, 2001. 2 3 (c) Paragraph 1.01 is further amended by changing the definition of the term "Contingent Obligation" set forth therein to read in its entirety as follows: "Contingent Obligation" shall mean, with respect to any Person, (a) any Guaranty Obligation of that Person; and (b) any direct or indirect obligation or liability, contingent or otherwise, of that Person (i) in respect of any Surety Instrument issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings or payments or (ii) in respect to any Rate Contract that is not entered into in connection with a bona fide hedging operation that provides offsetting benefits to such Person. The amount of any Contingent Obligation shall (subject, in the case of Guaranty Obligations, to the last sentence of the definition of "Guaranty Obligation") be deemed equal to the maximum reasonably anticipated liability in respect thereof (subject to reduction as the underlying liability so guaranteed is reduced from time to time), and shall, with respect to item (b)(ii) of this definition be marked to market on a current basis. (d) Paragraph 1.01 is further amended by changing the definition of the term "EBITDA" set forth therein to read in its entirety as follows: "EBITDA" shall mean, with respect to FIL for any four quarter period, the sum, determined on a consolidated basis in accordance with GAAP, of the following: (a) The net income or net loss of FIL and its Subsidiaries for such period before provision for income taxes; plus (b) The sum (to the extent deducted in calculating net income or loss in clause (a) above) of (i) all Interest Expenses of FIL and its Subsidiaries accruing during such period, (ii) all depreciation and amortization expenses of FIL and its Subsidiaries accruing during such period and (iii) other noncash charges for such period; plus (c) An amount, not to exceed $50,000,000 in any consecutive four fiscal quarters, equal to the sum of all cash charges associated with merger-related expenses and restructuring costs accruing in such period (in each case calculated in accordance with GAAP) incurred by FIL and/or its Subsidiaries in connection with any merger, acquisition or restructuring entered into by FIL and/or any of its Subsidiaries which are otherwise permitted under this Agreement and the FIL Credit Agreement. 3 4 (e) Paragraph 1.01 is further amended by changing the definition of the term "Existing Secured Indebtedness" set forth therein to read in its entirety as follows: "Existing Secured Indebtedness" shall mean the secured Indebtedness existing on the Second Amendment Effective Date specified on Schedule 5.02(a). (f) Paragraph 1.01 is further amended by changing the definition of the term "Facility A Maturity Date" set forth therein to read in its entirety as follows: "Facility A Maturity Date" shall mean April 3, 2004. (g) Paragraph 1.01 is further amended by changing the definition of the term "Facility B Loan Maturity Date" set forth therein to read in its entirety as follows: "Facility B Revolving Loan Maturity Date" shall have the meaning given to that term in Subparagraph 2.01(b)(iii). (h) Paragraph 1.01 is further amended by changing the definition of the term "FIL Credit Agreement" set forth therein to read in its entirety as follows: "FIL Credit Agreement" shall mean the Credit Agreement dated the date hereof among FIL, the designated borrowers from time to time party thereto, each of the financial institutions from time to time party thereto, ABN AMRO Bank N.V., as agent, Fleet National Bank, as documentation agent, Bank of America, N.A. and Citicorp USA, Inc., as managing agents, and The Bank of Nova Scotia, as co-agent, as amended or restated from time to time. (i) Paragraph 1.01 is further amended by changing the definition of the term "Guarantor" set forth therein to read in its entirety as follows: "Guarantor" shall mean each of the Borrowers and each of the Eligible Material Subsidiaries and other Subsidiaries that has executed the Guaranty or otherwise become a party thereto. (j) Paragraph 1.01 is further amended by changing the definition of the term "Guaranty Obligation" set forth therein to read in its entirety as follows: "Guaranty Obligation" shall mean, with respect to any Person, subject to the last sentence of this definition, any direct or indirect liability of that Person with respect to any indebtedness, lease, dividend, letter of credit or other obligation (other than endorsements of instruments for collection or deposits in the ordinary course of business) in each case to the extent constituting 4 5 Indebtedness (the "primary obligations") of another Person (the "primary obligor"), including any obligation of that Person, whether or not contingent, (a) to purchase, repurchase or otherwise acquire such primary obligations or any property constituting direct or indirect security therefor, or (b) to advance or provide funds (i) for the payment or discharge of any such primary obligation, or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, or (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof. The amount of any Guaranty Obligation shall be deemed equal to the stated or determinable amount of the primary obligation in respect of which such Guaranty Obligation is made or, if not stated or if indeterminable, the maximum reasonably anticipated liability in respect thereof (subject to reduction as the underlying liability so guaranteed is reduced from time to time); provided, however, that with respect to any Guaranty Obligation by FIL or any of its Subsidiaries in respect of a primary obligation of FIL or any of its Subsidiaries, the maximum reasonably anticipated liability in respect thereof shall be deemed to be limited to an amount that actually becomes past due from time to time with respect to such primary obligation. (k) Paragraph 1.01 is further amended by changing the definition of the term "Indebtedness" set forth therein to read in its entirety as follows: "Indebtedness" of any Person shall mean, without duplication, the following (each, unless otherwise noted, calculated in accordance with GAAP): (a) All obligations of such Person evidenced by notes, bonds, debentures or other similar instruments and all other obligations of such Person for borrowed money (including obligations to repurchase receivables and other assets sold with recourse); (b) All obligations of such Person for the deferred purchase price of property or services (including obligations under letters of credit and other credit facilities which secure or finance such purchase price, and the capitalized amount reported for income tax purposes with respect to obligations under "synthetic" leases, but excluding accounts payable for inventory or services or the deferred purchase price of inventory to the extent not past due); (c) All obligations of such Person under conditional sale or other title retention agreements with respect to property (other than inventory) acquired by such Person (to the extent of the value of such property if the rights and remedies of the seller or lender under such agreement in the event of default are limited solely to repossession or sale of such property); 5 6 (d) All obligations of such Person as lessee under or with respect to Capital Leases; (e) All Guaranty Obligations of such Person with respect to the Indebtedness of any other Person, and all other Contingent Obligations of such Person; and (f) All obligations of other Persons of the types described in clauses (a) - (e) above to the extent secured by (or for which any holder of such obligations has an existing right, contingent or otherwise, to be secured by) any Lien in any property (including accounts and contract rights) of such Person, even though such Person has not assumed or become liable for the payment of such obligations. (l) Paragraph 1.01 is further amended by changing the reference to "clause (h)" set forth in the definition of "Investment" to "clause (f)". (m) Paragraph 1.01 is further amended by changing the definition of the term "Material Subsidiaries" set forth therein by (i) deleting the "or" appearing between the word "hereof;" and the "(ii)" in the seventh line thereof and replacing it with a ";"; (ii) adding the phrase "of FIL" immediately after the phrase "with respect to any Subsidiary" appearing at the beginning of clause (ii) thereof; (iii) deleting the "." appearing at the end of the last line thereof and replacing it with a "; and"; and (iv) adding a new clause (iii) at the end thereof to read in its entirety as follows: (iii) each of (A) FLX Cyprus Limited, a Cyprus corporation, and Flextronics Kft, a Hungarian corporation. (n) Paragraph 1.01 is further amended by changing the definition of the term "Security Documents" set forth therein to read in its entirety as follows: "Security Documents" shall mean and include (i) the Guaranty, (ii) at all times prior to the Second Amendment Effective Date, the Pledge Agreements and (iii) all other instruments, agreements, certificates, opinions and documents (including Uniform Commercial Code financing statements) delivered to Agent or any Lender in connection with any Collateral or to secure the Obligations. (o) Subparagraphs 2.01(a), 2.03(b), 2.06(b) and 2.11(b) and Paragraph 8.04 are amended by changing the references to "Facility A Revolving Loan Maturity Date" set forth therein to "Facility A Maturity Date". 6 7 (p) Subparagraph 2.01(b) is amended by adding a new clause (iii) at the end thereof to read in its entirety as follows: (iii) Facility B Revolving Loan Maturity Date. As used herein and in the other Credit Documents, the term "Facility B Revolving Loan Maturity Date" shall mean (A) at all times prior to the Second Amendment Effective Date, April 3, 2001; and (B) at all times on and after the Second Amendment Effective Date, April 2, 2002. (q) Subparagraphs 2.01(c) and 2.02(b) are amended by changing the references to "each Term Loan Borrowing" set forth therein to "the Term Loan Borrowing". (r) Subparagraphs 2.05(b) and 2.05(c) are amended to read in their entirety as follows: (b) Reduction or Cancellation of Commitments. (i) Mandatory Reduction of Agent Lenders' Commitments. Borrowers hereby acknowledge and agree that each of (A) ABN AMRO Bank N.V. ("ABN"), (B) Bank of America, N.A. ("BofA") and (C) Citicorp USA, Inc. ("Citicorp", and together with ABN and BofA, the "Agent Lenders") has agreed to temporarily provide Facility A Commitments and Facility B Commitments in excess of their original committed amounts such that the Total Facility A Commitment and Total Facility B Commitment as of the First Amendment Effective Date each total One Hundred Seventy Five Million Dollars ($175,000,000). Borrowers further acknowledge and agree that it is the intent of each Agent Lender to reduce its respective Facility A Commitment and Facility B Commitment from such higher amounts through one or more assignments involving each Agent Lender as Assignor Lenders in accordance with Paragraph 8.05 (with each Agent Lender assigning their respective Commitments on a pro rata basis) such that the final Facility A Commitments and Facility B Commitments of each such Agent Lender shall be as follows:
Facility A Commitment Facility B Commitment --------------------- --------------------- ABN $21,875,000 $21,875,000 BofA $19,250,000 $19,250,000 Citicorp $19,250,000 $19,250,000
If, on or prior to May 2, 2001, the Agent Lenders' respective Facility A Commitments and Facility B Commitments have not been reduced to such amounts, Borrowers hereby acknowledge and agree that on and as of such date (1) the Total Facility A Commitment shall be immediately and permanently reduced to $157,500,000 plus the amount (if any) assigned by the Agent Lenders on or prior to such date, and (2) the Total Facility B Commitment shall be immediately and permanently reduced to $157,500,000 plus the amount (if any) assigned by the Agent Lenders on or prior to such date, such that the final Facility A Commitments and 7 8 Facility B Commitments of each Agent Lender shall be in the amounts as set forth above. To effectuate the foregoing, the parties hereto acknowledge and agree that on such date Agent shall calculate the revised Proportionate Share of each Lender after giving effect to the reduction of the Commitment, and based upon such calculation, the Lenders shall purchase from the Agent Lenders such shares in the outstanding Loans as Agent determines is necessary to cause each Lender to hold Loans in each outstanding Borrowing in a principal amount equal to such Lender's revised Proportionate Share of such outstanding Borrowings. (ii) Voluntary Reductions of the Commitments. Upon four (4) Business Days prior written notice to Agent, Borrowers may permanently reduce the Total Facility A Commitment and/or the Total Facility B Commitment by the amount of (x) at all times prior to May 2, 2001, Two Million Five Hundred Thousand Dollars ($2,500,000) or integral multiples in excess thereof, and (y) at all times thereafter, Five Million Dollars ($5,000,000) or integral multiples in excess thereof, or cancel the Total Facility A Commitment and/or the Total Facility B Commitment in its entirety; provided, however, that: (A) Borrowers may not reduce the Total Facility A Commitment prior to the Facility A Maturity Date, if, after giving effect to such reduction, the aggregate principal amount of all Facility A Revolving Loans then outstanding would exceed the Total Facility A Commitment; (B) Borrowers may not reduce the Total Facility B Commitment prior to the Facility B Revolving Loan Maturity Date if, after giving effect to such reduction, the aggregate principal amount of all Facility B Revolving Loans then outstanding would exceed the Total Facility B Commitment; (C) Borrowers may not cancel the Total Facility A Commitment prior to the Facility A Maturity Date, if, after giving effect to such cancellation, any Facility A Revolving Loan would then remain outstanding; and (D) Borrowers may not cancel the Total Facility B Commitment prior to the Facility B Revolving Loan Maturity Date, if, after giving effect to such cancellation, any Facility B Revolving Loan would then remain outstanding. Unless sooner terminated pursuant to this Agreement, the Facility A Commitments shall terminate on the Facility A Maturity Date and the Facility B Commitments shall terminate on the Facility B Revolving Loan Maturity Date. (c) Effect of Commitment Reductions. From the effective date of any reduction of the Total Facility A Commitment or the Total Facility B Commitment, the Commitment Fees payable pursuant to Subparagraph 2.06(b) shall be computed on the basis of the Total Facility A Commitment and/or the Total Facility B Commitment as so reduced. Once reduced or cancelled, the Total Facility A Commitment or the Total Facility B Commitment may not be increased 8 9 or reinstated without the prior written consent of all Facility A Lenders or Facility B Lenders, as applicable. Any reduction of the Total Facility A Commitment pursuant to clause (i) of Subparagraph 2.05(b) shall be applied ratably among the Agent Lenders, and any reduction of the Total Facility A Commitment pursuant to clause (i) of Subparagraph 2.05(b) shall be applied ratably to reduce each Facility A Lender's Facility A Commitment in accordance with clause (ii) of Subparagraph 2.11(a). Any reduction of the Total Facility B Commitment pursuant to clause (i) of Subparagraph 2.05(b) shall be applied ratably among the Agent Lenders, and any reduction of the Total Facility B Commitment pursuant to clause (i) of Subparagraph 2.05(b) shall be applied to reduce each Facility B Lender's Facility B Commitment in accordance with clause (ii) of Subparagraph 2.11(a). (s) Clauses (a), (b) and (c) of Subparagraph 2.15 are amended to read in their entirety as follows: (a) Guaranties, Etc. The Obligations shall be secured by the following: (i) A Guaranty in the form of Exhibit D (the "Guaranty"), duly executed by FIL and all Eligible Material Subsidiaries and other Subsidiaries of FIL that have executed the Guaranty or otherwise become a party thereto , with such changes thereto as may be appropriate based on the law of the applicable jurisdictions; and (ii) Subject to the last paragraph of this Subparagraph 2.15(a), Pledge Agreement or Pledge Agreements, each in the form of Exhibit E (individually a "Pledge Agreement"), duly executed by FIL and any Subsidiary that directly owns the stock of any Ineligible Material Subsidiaries, together with the Guaranty executed by any such Subsidiary, with such changes thereto as may be appropriate based on the law of the applicable jurisdictions; provided, however, that (1) in lieu of providing a pledge of stock of Flextronics Industrial (Shenzhen) Co. Ltd. by Flextronics Singapore Pte Ltd., Borrowers shall provide a pledge of the stock of Flextronics Singapore Pte Ltd. and Flextronics Singapore Pte Ltd. shall execute the Guaranty, (2) in lieu of providing a pledge of the stock of Flextronics International Sweden AB by F.L. Tronics Holdings AB and a pledge of the stock of Flextronics International Finland Oy by Flextronics Holding Finland OY, Flextronics Holdings UK Limited shall execute the Guaranty and pledge of the stock of F.L. Tronics Holdings AB and (3) in lieu of providing a pledge of the stock of Flextronics International Kft, FIL shall pledge the stock of Flextronics International GmbH; (4) with respect to Flextronics Singapore Pte Ltd., on or prior to the date such Subsidiary is dissolved and the stock of Flextronics International (Shenzhen) Co. Ltd. is thereafter held by Flextronics International Singapore Pte Ltd., FIL shall promptly provide a pledge of the stock of Flextronics International 9 10 Singapore Pte Ltd. and Flextronics International Singapore Pte Ltd. shall promptly execute the Guaranty which shall replace the guaranty of Flextronics Singapore Pte Ltd.; (5) if FIL does not dissolve Flextronics International Fremont, Inc. on or before May 31, 2000, Flextronics International Fremont, Inc. shall also promptly execute the Guaranty; and (6) on or prior to April 14, 2000, Dovatron Malaysia Sdn. Bhd. shall execute the Guaranty, in connection with the DII Acquisition. Notwithstanding the foregoing, Lenders and Agent agree that upon and as of the Second Amendment Effective Date, Agent shall terminate each of the following Pledge Agreements and release the collateral pledged to Agent for the benefit of Agent and Lenders thereunder: (A) that certain Pledge Agreement, dated as of April 3, 2000, by and between FIL and Agent with respect to securities of Flextronics International GmbH (Austria); (B) that certain Pledge Agreement, dated as of April 3, 2000, by and between FIL and Agent with respect to securities of Flextronics Singapore Pte. Ltd; and (C) that certain Pledge Agreement, dated as of April 3, 2000, by and between Flextronics Holdings UK Limited and Agent with respect to securities of F.L. Tronics Holdings AB (Sweden). In connection with the foregoing, Agent on behalf of the Lenders shall duly execute and deliver to FIL a Termination and Release Agreement (substantially in the form set forth in Exhibit A to that certain Second Amendment to Credit Agreement dated as of the Second Amendment Effective Date) in favor of the pledgor with respect to each such Pledge Agreement. Thereafter, upon request by any pledgor or Borrowers, Agent shall, without further consideration other than reimbursement for any costs and expenses, execute, deliver and acknowledge all such further documents, agreements, certificates and instruments and do such further acts as any pledgor or Borrowers may reasonably request to more effectively evidence or effectuate the transactions contemplated by this provision, including, but not limited to, the release and discharge of all security interests and all other rights and interests that Agent, on behalf of itself and Lenders, may have had in such pledged Collateral. (b) Changes in Material Subsidiaries. (i) If, at any time after the date of this Agreement, any Subsidiary of FIL that is not a Guarantor under the Guaranty shall become an Eligible Material Subsidiary, Borrowers promptly shall deliver, or cause to be delivered, to Agent, within sixty (60) days of any such event, (A) a Subsidiary Joinder in the form of Attachment 1 to the Guaranty, appropriately completed and duly executed by such Subsidiary, and (B) such other instruments, agreements, certificates, opinions and documents as Agent may reasonably request to secure, maintain, protect and evidence the obligations of such Subsidiary under the Guaranty. (ii) If, at any time after the date of this Agreement, any 10 11 Subsidiary of FIL that is a Guarantor under the Guaranty shall cease to be, or shall not have become, an Eligible Material Subsidiary, Agent shall if requested by FIL release such Subsidiary from its obligations under the Guaranty. (c) Further Assurances. Borrowers shall deliver, and shall cause their Guarantors and their Subsidiaries to deliver, to Agent such other guaranties, guaranty supplements and other instruments, agreements, certificates, opinions and documents as Agent may reasonably request to implement the provisions of Subparagraph 2.15(a) and otherwise to establish, maintain, protect and evidence the rights provided to Agent, for the benefit of Agents and Lenders, pursuant to the Security Documents. Borrowers shall fully cooperate with Agent and Lenders and perform all additional acts reasonably requested by Agent or any Lender to effect the purposes of this Paragraph 2.15. Without limiting the generality of the foregoing, Borrowers covenant and agree that they will ensure that the aggregate revenues of the Subsidiaries that have executed and delivered the Guaranty pursuant to this Agreement and the FIL Credit Agreement for each year will equal or exceed 53% of the consolidated total revenues of FIL and all of its Subsidiaries as reflected for such year in FIL's annual audited Financial Statements. (t) Clauses (iii) and(iv) of Subparagraph 5.02(a) are amended to read in their entirety as follows: (iii) Existing Secured Indebtedness, together with initial or successive refinancings thereof, provided that (A) the principal amount of any such refinancing does not exceed the principal amount of the Indebtedness being refinanced (except to the extent necessary to pay fees, expenses, underwriting discounts and prepayment penalties in connection therewith) and (B) the other terms and provisions of any such refinancing with respect to maturity, redemption, prepayment, default and subordination are no less favorable in any material respect to Lenders than the Indebtedness being refinanced; (iv) Indebtedness of any Borrower or Guarantor to any other Borrower, FIL or any Eligible Material Subsidiary or Indebtedness of any Eligible Material Subsidiary to any Borrower, any other Eligible Material Subsidiary or any Guarantor, in each case to the extent otherwise permitted pursuant to Subparagraph 5.02(e) and Subparagraph 5.02(i); and (u) Clause (ii) of Subparagraph 5.02(b) is amended to read in its entirety as follows: (ii) Liens in favor of either Borrower, any Eligible Material Subsidiary or any Guarantor on all or part of the assets of Subsidiaries of either Borrower, any Eligible Material Subsidiary or any Guarantor securing Indebtedness owing by Subsidiaries of either Borrower, any Eligible Material Subsidiary or any Guarantor, as the case may be, to either Borrower or such other Eligible Material Subsidiary or Guarantor; 11 12 (v) Clause (vi) of Subparagraph 5.02(b) is amended to read in its entirety as follows: (vi) encumbrances on real property consisting of easements, rights of way, zoning restrictions, restrictions on the use of real property and defects and irregularities in the title thereto, landlord's or lessor's or lessee's Liens under leases to which either Borrower or any of its Subsidiaries is a party, and other minor Liens or encumbrances none of which interferes materially with the use of the property, in each case which do not individually or in the aggregate have a Material Adverse Effect; (w) Clause (xi) of Subparagraph 5.02(b) is amended by adding the phrase "or by" immediately after the phrase "rights of third parties in equipment or inventory consigned to" appearing in the first line thereof. (x) Subparagraph 5.02(c) is amended to read in its entirety as follows: (c) Asset Dispositions. Neither Borrower nor any of their Subsidiaries shall sell, lease, transfer or otherwise dispose of any of their assets or property, whether now owned or hereafter acquired, except for (i) assets or property sold, leased, transferred or otherwise disposed of in the ordinary course of business for fair market value; (ii) sales of accounts receivable in securitization or financing transactions, provided that the aggregate principal amount of any accounts receivable sold in any fiscal quarter of FIL shall not exceed [thirty percent (30%)] of the aggregate principal amount of accounts receivable originated by FIL and its Subsidiaries during such fiscal quarter; (iii) sales of duplicative or excess assets existing as a result of transactions otherwise permitted pursuant to Subparagraph 5.02(d), provided that the aggregate principal amount of any such duplicative assets sold in any fiscal year does not exceed five percent (5%) of all fixed assets of FIL and its Subsidiaries net of depreciation held by FIL and its Subsidiaries as of the end of the immediately preceding fiscal quarter; (iv) sales or transfers of assets or property to either Borrower or any Material Subsidiary for a purchase price that is not less than fair market value; provided, however, that the foregoing exception shall not permit any sale, lease, transfer or other disposition of any Collateral or of any other Equity Securities issued by any Subsidiary of either Borrower and owned by either Borrower or any of their other Subsidiaries, except for Liens in favor of Agent securing the Obligations or pursuant to the FIL Credit Documents; (v) assets sold and leasedback by FIL or its Subsidiaries in the ordinary course of business; and (vi) dispositions of Investments permitted under Subparagraph 5.02(e) for a purchase price that is not less than fair market value of the Investments being sold. (y) Clause (ii) of Subparagraph 5.02(e) is amended to read in its entirety as follows: (ii) Investments listed in Schedule 5.02(e) existing or committed on the Second Amendment Effective Date; 12 13 (z) Clause (iv) of Subparagraph 5.02(e) is amended to read in its entirety as follows: (iv) Investments by Borrowers and the Material Subsidiaries and the Guarantors directly or indirectly in each other; (aa) Clause (x) of Subparagraph 5.02(e) is amended to read in its entirety as follows: (x) Other Investments, provided that: (A) No Default has occurred and is continuing on the date of, or will result after giving effect to, any such Investment; and (B) The aggregate consideration paid by FIL and its Subsidiaries for all such Investments in any fiscal year (without duplication) does not exceed the sum of (1) ten percent (10%) of the total assets of FIL and its Subsidiaries at the end of the immediately preceding fiscal quarter, plus (2) seventy-five percent (75%) of the Net Proceeds received from the issuance by FIL of any Equity Securities of the type described in clause (a) of the definition of "Equity Securities" during calendar year 2001 or thereafter. (bb) Clauses (ii) of Subparagraph 5.02(f) is amended to read in its entirety as follows: (ii) Any Subsidiary of either Borrower may pay dividends to or repurchase its capital stock from such Subsidiary's parent; and (i) Subparagraph 5.02(i) is amended to read in its entirety as follows: Transactions With Affiliates. Neither Borrower nor any of their Subsidiaries shall enter into any Contractual Obligation with any Affiliate (other than FIL, any other borrower under the FIL Credit Agreement or one of their Subsidiaries) or engage in any other transaction with any such Affiliate except (A) upon terms at least as favorable to such Borrower or such Subsidiary as an arms-length transaction with unaffiliated Persons, except as disclosed or reflected in the Financial Statements of FIL dated December 31, 1999, furnished by Borrowers to Agent prior to the date hereof, or in the Financial Statements delivered to Agent pursuant to clause (i) or (ii) of Subparagraph 5.01(a) or (B) in connection with transactions made pursuant to Subparagraphs 5.02(d) or 5.02(e). (cc) Subparagraph 8.06(a) is amended by changing the phrase "with the prior consent of Agent" set forth in the second line thereof to "with prior notice to Agent". (dd) Schedule I is amended to read in its entirety as set forth on Attachment 1 hereto. 13 14 (ee) Schedule 5.02(a) is amended to read in its entirety as set forth on Attachment 2 hereto. (ff) Schedule 5.02(e) is amended to read in its entirety as set forth on Attachment 3 hereto. 13. GLOBAL AMENDMENTS TO CREDIT DOCUMENTS. In addition to the amendments to the Credit Agreement set forth in Paragraph 3 above and subject to the satisfaction of the conditions set forth in Paragraph 6 below, (a) all references in the Credit Documents (including the Credit Agreement) to "The DII Group, Inc." are hereby amended and changed to "Flextronics Holdings USA, Inc. (formerly known as The DII Group, Inc.)"; and (b) all references in the Credit Documents (including the Credit Agreement) to "DII" are hereby amended and changed to "FHUI"; provided, however, that all references to the term "DII Acquisition" shall continue to refer to the term "DII Acquisition" (as such term is being amended pursuant to this Paragraph 4). 14. REPRESENTATIONS AND WARRANTIES. Borrowers hereby represent and warrant to Agent and Lenders that the following are true and correct on the date of this Amendment and that, after giving effect to the amendments set forth in Paragraphs 3 and 4 above, the following will be true and correct on the Effective Date (as defined below): (a) The representations and warranties of Borrowers set forth in Paragraph 4.01 of the Credit Agreement and in the other Credit Documents are true and correct in all material respects as if made on the Effective Date (except for representations and warranties expressly made as of a specified date, which are true and correct as of such date); (b) No Default has occurred and is continuing; and (c) Each of the Credit Documents is in full force and effect. (Without limiting the scope of the term "Credit Documents," Borrowers expressly acknowledge in making the representations and warranties set forth in this Paragraph 5 that, on and after the date hereof, such term includes this Amendment.) 15. EFFECTIVE DATE. The addition of the New Lenders as parties to the Credit Agreement effected by Paragraph 2 above, and the amendments to the Credit Agreement effected by Paragraphs 3 and 4 above, shall become effective on April 3, 2001 (the "Effective Date"), subject to receipt by Agent and Lenders on or prior to the Effective Date of the following, each in form and substance satisfactory to Agent, Lenders and their respective counsel: (a) This Amendment duly executed by each Borrower, each Lender and Agent; (b) The First Amendment to Credit Agreement, dated as of the date hereof, between FIL, each "Existing Lender" (as defined therein) 14 15 party thereto, each "New Lender" (as defined therein) party thereto and Agent, amending in certain respects the FIL Credit Agreement; (c) A letter in the form of Exhibit B hereto, dated the Effective Date and duly executed by each of the Guarantors; (d) A Subsidiary Joinder, in the form attached as Attachment 1 to the Guaranty, duly executed by each of the following Eligible Material Subsidiaries, pursuant to which each such Eligible Material Subsidiary shall become a Guarantor under the Guaranty and shall be bound by all of the provisions of the Guaranty to the same extent as if such Person had executed the Guaranty on the Closing Date (collectively, the "New Guarantors"): (i) Flextronics International Marketing (L) Ltd., a Labuan corporation, (ii) JIT Holdings Limited, a Singapore corporation; (iii) Flextronics Distribution Inc., a California corporation; (iv) Multilayer Technology, Inc., a California corporation; and (iv) Flextronics Enclosures, Inc., a Delaware corporation; (e) A Certificate of the Secretary of each of the Borrowers, dated the Effective Date, certifying that (i) the Certificate of Incorporation and Bylaws of such Borrower, in the form delivered to Agent on the Closing Date, are in full force and effect and have not been amended, supplemented, revoked or repealed since such date (or, if such Certificates of Incorporation and/or Bylaws have been amended, supplemented, revoked or repealed since such date, a true and correct copy of each such new and currently effective Certificates of Incorporation and/or Bylaws), (ii) that attached thereto are true and correct copies of resolutions duly adopted by the Board of Directors of such Borrower and continuing in effect, which authorize (A) the execution, delivery and performance by such Borrower of this Amendment and the consummation of the transactions contemplated hereby and (B) designate the officers authorized to so execute, deliver and perform on behalf of such Borrower, and (iii) that there are no proceedings for the dissolution or liquidation of such Borrower; (f) With respect to each New Guarantor, the Certificate of Incorporation (or comparable certificate) of such Subsidiary, certified as of a recent date prior to the Effective Date by the Secretary of State (or comparable public official) of its jurisdiction of incorporation (or, if any such Subsidiary is organized under the laws of any jurisdiction outside the United States, such other evidence as Agent may request to establish that such Person is duly organized and existing under the laws of such jurisdiction), together with an English translation thereof (if appropriate); (g) With respect to each New Guarantor, to the extent such jurisdiction has the legal concept of a corporation being in good standing and a Governmental Authority in such jurisdiction issues any evidence of such good standing, a Certificate of Good Standing (or comparable certificate) for such Subsidiary, certified as of a recent date prior to the Effective Date by the Secretary of State (or comparable public official) of its 15 16 jurisdiction of incorporation (or, if any such Person is organized under the laws of any jurisdiction outside the United States, such other evidence as Agent may request to establish that such Person is duly qualified to do business and in good standing under the laws of such jurisdiction), together with an English translation thereof (if appropriate); (h) With respect to each New Guarantor, a certificate of the Secretary or an Assistant Secretary (or comparable officer) of such Subsidiary, dated the Effective Date, certifying (a) that attached thereto is a true and correct copy of the Bylaws of such Subsidiary as in effect on the Effective Date (or, if any such Subsidiary is organized under the laws of any jurisdiction outside the United States, any comparable document provided for in the respective corporate laws of that jurisdiction); (b) that attached thereto are true and correct copies of resolutions duly adopted by the Board of Directors of such Subsidiary (or other comparable enabling action) and continuing in effect, which (i) authorize the execution, delivery and performance by such Person of the Subsidiary Joinder and the consummation of the transactions contemplated thereby and (ii) designate the officers, directors and attorneys authorized so to execute, deliver and perform on behalf of such Person; and (c) that there are no proceedings for the dissolution or liquidation of such Person, together with a certified English translation thereof (if appropriate); (i) With respect to each New Guarantor, a certificate of the Secretary or an Assistant Secretary (or comparable officer) of such Subsidiary, certifying the incumbency, signatures and authority of the officers, directors and attorneys of such Person authorized to execute, deliver the Subsidiary Joinder and perform its obligations under the Guaranty, together with a certified English translation thereof (if appropriate); (j) A favorable written opinion of Fenwick & West, counsel to FIUI, FHUI and the domestic (U.S.) Guarantors, dated the Effective Date, addressed to Agent for the benefit of Agent and Lenders, covering such legal matters as Agent may reasonably request and otherwise in form and substance satisfactory to Agent; (k) A nonrefundable amendment fee to be paid to each Lender equal to 0.15% of each Lender's Commitment on the Effective Date; (l) Payment of all fees and expenses payable to Agent on or prior to the Effective Date (including all fees payable to Agent pursuant to the arrangement fee letter agreement dated as of April 2, 2001); and (m) Such other evidence as Agent or any Lender may reasonably request to establish the accuracy and completeness of the representations and warranties and the compliance with the terms and conditions contained in this Amendment and the other Credit Documents. 16 17 16. POST-EFFECTIVE DATE DELIVERIES. In addition to the foregoing, Borrowers hereby covenants that no later than 15 days after the Effective Date, Borrowers shall deliver or caused to be delivered to Agent and Lenders (in form and substance satisfactory to Agent, Lenders and their respective counsel) (a) a Certificate of the Secretary of each foreign (non-U.S.) Guarantor which has been a Guarantor since the Closing Date, certifying that (i) the Certificate of Incorporation and Bylaws of such Guarantor, in the form delivered to Agent on the Closing Date, are in full force and effect and have not been amended, supplemented, revoked or repealed since such date, (ii) that the resolutions (authorizing the execution, delivery and performance by such Person of the Guaranty) delivered to Agent on the Closing Date continue in effect and have not been amended, supplemented, revoked or repealed since the Closing Date; and (iii) that there are no proceedings for the dissolution or liquidation of such Subsidiary, together with an English translation thereof (if appropriate); (b) as requested by each Lender, new Revolving Loan Notes and Term Loan Notes, appropriately completed and duly executed by Borrowers, each of which shall be (i) payable to the order of such Lender, (ii) dated the Effective Date and (ii) otherwise appropriately completed; and (c) the items (if any) set forth in Paragraph 5 above the delivery of which has been temporarily waived by Agent with the consent of the Lenders upon the request of Borrowers made to Agent immediately prior to the Effective Date. 17. EFFECT OF THIS AMENDMENT. On and after the Effective Date, each reference in the Credit Agreement and the other Credit Documents to the Credit Agreement shall mean the Credit Agreement as amended hereby. Except as specifically amended above, (a) the Credit Agreement and the other Credit Documents shall remain in full force and effect and are hereby ratified and confirmed and (b) the execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power, or remedy of the Lenders or Agent, nor constitute a waiver of any provision of the Credit Agreement or any other Credit Document. 18. MISCELLANEOUS. (a) Counterparts. This Amendment may be executed in any number of identical counterparts, any set of which signed by all the parties hereto shall be deemed to constitute a complete, executed original for all purposes. (b) Headings. Headings in this Amendment are for convenience of reference only and are not part of the substance hereof. (c) Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of California without reference to conflicts of law rules. [Signature Pages Follow] 17 18 IN WITNESS WHEREOF, Borrowers, Agent, the Existing Lenders and the New Lenders have caused this Amendment to be executed as of the day and year first above written. BORROWERS: FLEXTRONICS INTERNATIONAL U.S.A., INC. By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- FLEXTRONICS HOLDING USA, INC. By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- AGENT: ABN AMRO BANK, N.V., as Agent By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- EXISTING LENDERS: ABN AMRO BANK, N.V., as a Lender 18 19 By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- FLEET NATIONAL BANK, as a Lender By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- BANK OF AMERICA, N.A., as a Lender By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- CITICORP USA, INC., as a Lender By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- THE BANK OF NOVA SCOTIA, as a Lender By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- 19 20 BAYERISCHE HYPO-UND VEREINSBANK AG, NEW YORK BRANCH, as a Lender By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- BNP PARIBAS, as a Lender By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- DANKSE BANK, as a Lender By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- 20 21 THE FUJI BANK, LIMITED, as a Lender By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- SUMITOMO MITSUI BANKING CORPORATION, as a Lender By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- WELLS FARGO BANK, NATIONAL ASSOCIATION, as a Lender By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- COMERICA BANK, as a Lender By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- NEW LENDERS: FIRST UNION NATIONAL BANK, as a Lender By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- 21 22 DEUTSCHE BANK AG, NEW YORK BRANCH, as a Lender By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- 22 23 EXHIBIT A FORM OF TERMINATION AND RELEASE AGREEMENT This TERMINATION AND RELEASE AGREEMENT, dated as of April 3, 2001 (this "Agreement"), is executed by and between _______________ ("Pledgor") and ABN AMRO BANK N.V., acting as agent (in such capacity, "Agent") for the financial institutions which are parties to the Credit Agreement referred to in the Recitals below (collectively, "Lenders"). RECITALS A. In connection with that certain Credit Agreement, dated as of April 3, 2000, by and among Flextronics International USA, Inc. and Flextronics Holding USA, Inc. (formerly known as The DII Group, Inc.) (together, "Borrowers"), Lenders, Agent, Managing Agents and Co-Agent (the "Original Credit Agreement"), Pledgor and Agent entered into a Pledge Agreement, dated as of April 3, 2000 (the "Pledge Agreement"). B. Pursuant to the Pledge Agreement, Pledgor has granted to Agent, for the ratable benefit of Lenders and Agent, a security interest in all right, title and interest of the Pledgor in and to the Collateral (as defined in the Pledge Agreement) to secure Borrowers' obligations under the Original Credit Agreement. C. The Original Credit Agreement has been amended by an Amendment to Credit Agreement, dated as of June 15, 2000, by and among Borrowers, Lenders and Agent (the "First Amendment") and a Second Amendment to Credit Agreement, dated as of April 3, 2001, by and among Borrowers, Lenders and Agent (the "Second Amendment"). The Original Credit Agreement, as amended by the First Amendment and the Second Amendment, shall be referred to herein as the "Credit Agreement." D. Pursuant to the Second Amendment, Lenders and Agent have agreed that, immediately after the Second Amendment becomes effective, Agent shall terminate the Pledge Agreement and release all of Agent's security interest in the Collateral. E. The Second Amendment has become effective on the date hereof. NOW, THEREFORE, in consideration of the above Recitals and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Pledgor and Agent hereby agree as follows: 1. Termination of Pledge Agreement. The Pledge Agreement referred to in the Recitals above is hereby terminated and Pledgor is hereby released therefrom. The Agent hereby releases, assigns, transfers and delivers to Pledgor, without recourse and without representation or warranty, all of its right, title and interest in the Collateral. Immediately upon the effectiveness of this Agreement, Agent shall return to Pledgor the originals of any Pledged Shares previously delivered by Pledgor to Agent pursuant to the Pledge Agreement. 24 2. Further Assurances. From time to time, upon request by Pledgor or Borrowers, Agent shall, without further consideration other than reimbursement for any costs and expenses, execute, deliver and acknowledge all such further documents, agreements, certificates and instruments and do such further acts as Pledgor or Borrowers may reasonably request to more effectively evidence or effectuate the transactions contemplated by this Agreement, including, but not limited to, the release and termination of the Pledge Agreement and the release and discharge of all security interests and all other rights and interests that Agent, on behalf of itself and Lenders, has or may have had in the Collateral. 3. Miscellaneous. This Agreement may not be amended, modified or waived except in writing signed by the party against whom enforcement of such amendment, modification or waiver is sought. This Agreement shall be construed and interpreted in accordance with the laws of the State of California. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which, when taken together, shall constitute one and the same instrument. IN WITNESS WHEREOF, the undersigned have entered into this Agreement as of the day and year first above written. PLEDGOR:_______________________ By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- AGENT: ABN AMRO BANK, N.V., as Agent By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- 25 EXHIBIT B FORM OF GUARANTOR CONSENT LETTER [Effective Date] TO: ABN AMRO BANK N.V., As Agent for the Lenders under the Credit Agreement referred to below 1. Reference is made to the following: (a) The Credit Agreement dated as of April 3, 2000, among Flextronics International USA, Inc. and Flextronics Holding USA, Inc. (formerly known as The DII Group, Inc.) (together, "Borrowers"), Lenders, Agent, Documentation Agent, Managing Agents and Co-Agent, as amended by the Amendment to Credit Agreement dated as of June 15, 2000, by and among Borrowers, Lenders and Agent (as so amended, the "Credit Agreement"); (b) The Guaranty dated as of April 3, 2000 (the "Guaranty"), by the undersigned ("Guarantors") in favor of Agent for the benefit of Agent and Lenders; and (c) The Second Amendment to Credit Agreement dated as of April 3, 2001 (the "Second Amendment") by and among Borrowers, Lenders and Agent. 2. Guarantor hereby consents to the Second Amendment. Each Guarantor expressly agrees that such amendment shall in no way affect or alter the rights, duties, or obligations of any Guarantor, any Lender or Agent under the Guaranty. 3. From and after the date hereof, the term "Credit Agreement" as used in the Guaranty shall mean the Credit Agreement, as amended by the Second Amendment. 4. Guarantors' consent to the Second Amendment shall not be construed (i) to have been required by the terms of the Guaranty or any other document, instrument or agreement relating thereto or (ii) to require the consent of any Guarantor in connection with any future amendment of the Credit Agreement or any other Credit Document. 5. Unless otherwise defined herein, all capitalized terms used herein shall have the respective meanings given to those terms in the Credit Agreement. 6. Pursuant to clause (i) of Subparagraph 6(l) of the Guaranty, this Guarantor Consent Letter shall be governed by and construed in accordance with the laws of the State of California, except for the purposes of any suit or legal action brought in Mexico in which case it shall be governed by the laws of Mexico. 26 IN WITNESS WHEREOF, Guarantors have executed this Guarantor Consent Letter as of the day and year first written above. FLEXTRONICS INTERNATIONAL LTD., acting through its Hong Kong Branch By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- FLEXTRONICS INTERNATIONAL LATIN AMERICA (L) LTD. By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- FLEXTRONICS MANUFACTURING MEX, S.A. DE C.V. By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- FLEXTRONICS HOLDINGS UK LIMITED By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- 27 FLEX INTERNATIONAL MARKETING (L) LTD. By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- FLEXTRONICS USA, INC. By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- FLEXTRONICS (MALAYSIA) SDN. BHD By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- FLEXTRONICS HOLDING USA, INC. By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- FLEXTRONICS INTERNATIONAL USA, INC. By: --------------------------------------- Name: ---------------------------------- Title: ---------------------------------- 28 ATTACHMENT 1 SCHEDULE 1 TO CREDIT AGREEMENT See Attachment 29 ATTACHMENT 2 SCHEDULE 5.02 (a) TO CREDIT AGREEMENT See Attachment 30 ATTACHMENT 3 SCHEDULE 5.02(e) TO CREDIT AGREEMENT See Attachment EX-10.08 5 f73624ex10-08.txt EXHIBIT 10.08 1 EXHIBIT 10.08 FORM OF SECURED FULL RECOURSE PROMISSORY NOTE San Jose, California Date: _________, 2000 Reference is made to that certain Limited Liability Company Agreement (the "LLC AGREEMENT") dated ______, 2000 for Glouple Ventures 2000 - I, a Delaware limited liability company (the "COMPANY") among the undersigned (the "BORROWER"), Flextronics International NV, a Netherlands Antilles company (the "LENDER") and the other members of the Company. This Secured Full Recourse Promissory Note (the "NOTE") is being tendered by Borrower to the Lender in connection with certain loans that the Lender may in the future make to the Borrower to finance capital contributions by the Borrower to the Company pursuant to the LLC Agreement. 1. OBLIGATION. The Lender is making a loan to the Borrower to enable the Borrower to acquire a membership interest in the Company (the "MEMBERSHIP INTEREST"), and may from time to time make additional loans to the Borrower to enable the Borrower to fund additional capital contributions to the Company required to be made by Borrower pursuant to the LLC Agreement. All such loans are herein collectively referred to as the "LOANS." The proceeds of such Loans may be disbursed by Lender directly to the Company on the Borrower's behalf. Borrower hereby promises to pay to the order of the Lender on or before August 15, 2010 at the Lender's place of business located at Landhuis Joonchi, Kaya Richard J. Beaujon z/n, P.O. Box 837, Curacao, Netherlands Antilles, or at such other place as the Lender may direct, the aggregate outstanding principal balance of all Loans, together with interest compounded annually on the unpaid principal at the rate of seven percent (7%) (which rate shall be no less than equal to the minimum rate applicable on the date the Loan in question is made as determined in accordance with Section ss.1274(D) of the Internal Revenue Code of 1986, as amended from time to time (the "CODE"); provided, however, that the rate at which interest will accrue on unpaid principal under this Note will not exceed the highest rate permitted by applicable law. All payments hereunder shall be made in lawful tender of the United States. Borrower hereby authorizes Lender to record on the schedule annexed to this Note the date and amount of each Loan, the applicable interest rate and the date and amount of each payment or prepayment of principal made by Borrower and agrees that all such notations shall constitute prima facie evidence of the matters noted; provided, however, that the failure of Lender to make any such notation shall not affect Borrower's obligations hereunder. 2. SECURITY. Performance of Borrower's obligations under this Note is secured by a security interest in and to all right, title and interest of Borrower in the outstanding limited liability company interest in the Company now or hereafter owned by Borrower and certain rights related thereto as more fully described in a Pledge Agreement, dated as of ____, 2000, between Borrower and Lender (the "PLEDGE AGREEMENT"). 3. EVENTS OF DEFAULT. Borrower will be deemed to be in default under this Note upon the occurrence of any of the following events (each an "EVENT OF DEFAULT"): (i) upon Borrower's failure to make any payment when due under this Note which failure shall continue for a period of thirty (30) days after such due date; (ii) Borrower is no longer employed by the Lender or by a subsidiary of Lender for any reason; (iii) the failure of any representation or warranty in the Pledge Agreement to have been true, the failure of Borrower to perform any 2 obligation under the Pledge Agreement, or upon any other material breach by the Borrower of the Pledge Agreement; (iv) any voluntary or involuntary transfer of any of the membership interests in the company which is not in compliance with the LLC Agreement or; (v) upon the filing regarding the Borrower of any voluntary or involuntary petition for relief under the United States Bankruptcy Code or any similar law of any jurisdiction outside of the United States, or the initiation of any proceeding under applicable law for the general relief of debtors; or (vi) upon the execution by Borrower of an assignment for the benefit of creditors or the appointment of a receiver, custodian, trustee or similar party to take possession of Borrower's assets or property. 4. ACCELERATION; REMEDIES ON DEFAULT. Upon the occurrence of any Event of Default, at the option of the Lender, all principal and other amounts owed under this Note shall become immediately due and payable without notice or demand on the part of the Lender, and the Lender will have, in addition to its rights and remedies under this Note and the Pledge Agreement, full recourse against any real, personal, tangible or intangible assets of Borrower, and may pursue any legal or equitable remedies that are available to it. 5. PREPAYMENT. Prepayment of principal, interest and/or other amounts owed under this Note may be made at any time without penalty. In addition, if at any time the Borrower otherwise would be entitled to receive any cash distributions from the Company, the Borrower will apply the entire amount of such cash distribution as a prepayment of principal (together with then-accrued interest thereon) and/or other amounts owed under this Note, and Borrower hereby authorizes and directs the Company to pay over to the Lender, on behalf of the Borrower, any cash that otherwise would be distributed to the Borrower, to be applied to such prepayment, to the extent that the amount of such distribution is less than or equal to the outstanding principal and accrued interest on, and other amounts owed under, this Note. Unless otherwise agreed in writing by the Lender, each payment will be applied to the extent of available funds from such payment in the following order: (i) first to the accrued and unpaid costs and expenses under the Note or the Pledge Agreement, (ii) then to accrued but unpaid interest on the principal to be prepaid, and (iii) lastly to the outstanding principal. 6. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. The validity of this Note, the construction, interpretation, and enforcement hereof, and the rights of the parties hereto with respect to all matters arising hereunder or related hereto shall be determined under, governed by, and construed in accordance with the laws of the State of California. The parties agree that all actions or proceedings arising in connection with this agreement and the other loan documents shall be tried and litigated only in the state and federal courts located in the County of Santa Clara, State of California or, at the sole option of Lender, in any other court in which Lender shall initiate legal or equitable proceedings and which has subject matter jurisdiction over the matter in controversy. Each of Lender and Borrower waives, to the extent permitted under applicable law, any right each may have to assert the doctrine of forum non conveniens or to object to venue to the extent any proceeding is brought in accordance with this Section 6. Lender and Borrower hereby waive their respective rights to a jury trial on any claim or cause of action based upon or arising out of this document or any of the transactions contemplated hereby, including contract claims, tort claims, breach of duty claims, and all other common law or statutory claims. Each of Lender and Borrower represents that it has reviewed this waiver and each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. In the event of litigation, a copy of this agreement may be filed as a written consent to a trial by the court. Borrower hereby waives presentment, notice of non-payment, notice of 2 3 dishonor, protest, demand and diligence. 7. ATTORNEYS' FEES. If suit is brought for collection of this Note, Borrower agrees to pay all reasonable expenses, including attorneys' fees, incurred by the holder in connection therewith whether or not such suit is prosecuted to judgment. IN WITNESS WHEREOF, Borrower has executed this Note as of the date and year first above written. BORROWER: ---------------------------------------- Borrower's Signature ---------------------------------------- Borrower's Name [type or print] LENDER: FLEXTRONICS INTERNATIONAL NV By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- 3 EX-10.09 6 f73624ex10-09.txt EXHIBIT 10.09 1 EXHIBIT 10.09 FORM OF SECURED FULL RECOURSE PROMISSORY NOTE San Jose, California Date: 31 August, 2000 Reference is made to that certain Limited Liability Company Agreement (the "LLC AGREEMENT") dated ______, 2000 for Glouple Ventures 2000 - II, a Delaware limited liability company (the "COMPANY") among the undersigned (the "BORROWER"), Flextronics International NV, a Netherlands Antilles company (the "LENDER") and the other members of the Company. This Secured Full Recourse Promissory Note (the "NOTE") is being tendered by Borrower to the Lender in connection with certain loans that the Lender may in the future make to the Borrower to finance capital contributions by the Borrower to the Company pursuant to the LLC Agreement. 1. OBLIGATION. The Lender is making a loan to the Borrower to enable the Borrower to acquire a membership interest in the Company (the "MEMBERSHIP Interest"), and may from time to time make additional loans to the Borrower to enable the Borrower to fund additional capital contributions to the Company required to be made by Borrower pursuant to the LLC Agreement. All such loans are herein collectively referred to as the "LOANS." The proceeds of such Loans may be disbursed by Lender directly to the Company on the Borrower's behalf. Borrower hereby promises to pay to the order of the Lender on or before August 15, 2010 at the Lender's place of business located at Landhuis Joonchi, Kaya Richard J. Beaujon z/n, P.O. Box 837, Curacao, Netherlands Antilles, or at such other place as the Lender may direct, the aggregate outstanding principal balance of all Loans, together with interest compounded annually on the unpaid principal at the rate of seven percent (7%) (which rate shall be no less than equal to the minimum rate applicable on the date the Loan in question is made as determined in accordance with Section ss.1274(D) of the Internal Revenue Code of 1986, as amended from time to time (the "CODE"); provided, however, that the rate at which interest will accrue on unpaid principal under this Note will not exceed the highest rate permitted by applicable law. All payments hereunder shall be made in lawful tender of the United States. Borrower hereby authorizes Lender to record on the schedule annexed to this Note the date and amount of each Loan, the applicable interest rate and the date and amount of each payment or prepayment of principal made by Borrower and agrees that all such notations shall constitute prima facie evidence of the matters noted; provided, however, that the failure of Lender to make any such notation shall not affect Borrower's obligations hereunder. 2. SECURITY. Performance of Borrower's obligations under this Note is secured by a security interest in and to all right, title and interest of Borrower in the outstanding limited liability company interest in the Company now or hereafter owned by Borrower and certain rights related thereto as more fully described in a Pledge Agreement, dated as of ____, 2000, between Borrower and Lender (the "PLEDGE AGREEMENT"). 3. EVENTS OF DEFAULT. Borrower will be deemed to be in default under this Note upon the occurrence of any of the following events (each an "EVENT OF DEFAULT"): (i) upon Borrower's failure to make any payment when due under this Note which failure shall continue for a period of thirty (30) days after such due date; (ii) Borrower is no longer employed by the Lender or by a subsidiary of Lender for any reason; (iii) the failure of any representation or warranty in the Pledge Agreement to have been true, the failure of Borrower to perform any 2 obligation under the Pledge Agreement, or upon any other material breach by the Borrower of the Pledge Agreement; (iv) any voluntary or involuntary transfer of any of the membership interests in the company which is not in compliance with the LLC Agreement or; (v) upon the filing regarding the Borrower of any voluntary or involuntary petition for relief under the United States Bankruptcy Code or any similar law of any jurisdiction outside of the United States, or the initiation of any proceeding under applicable law for the general relief of debtors; or (vi) upon the execution by Borrower of an assignment for the benefit of creditors or the appointment of a receiver, custodian, trustee or similar party to take possession of Borrower's assets or property. 4. ACCELERATION; REMEDIES ON DEFAULT. Upon the occurrence of any Event of Default, at the option of the Lender, all principal and other amounts owed under this Note shall become immediately due and payable without notice or demand on the part of the Lender, and the Lender will have, in addition to its rights and remedies under this Note and the Pledge Agreement, full recourse against any real, personal, tangible or intangible assets of Borrower, and may pursue any legal or equitable remedies that are available to it. 5. PREPAYMENT. Prepayment of principal, interest and/or other amounts owed under this Note may be made at any time without penalty. In addition, if at any time the Borrower otherwise would be entitled to receive any cash distributions from the Company, the Borrower will apply the entire amount of such cash distribution as a prepayment of principal (together with then-accrued interest thereon) and/or other amounts owed under this Note, and Borrower hereby authorizes and directs the Company to pay over to the Lender, on behalf of the Borrower, any cash that otherwise would be distributed to the Borrower, to be applied to such prepayment, to the extent that the amount of such distribution is less than or equal to the outstanding principal and accrued interest on, and other amounts owed under, this Note. Unless otherwise agreed in writing by the Lender, each payment will be applied to the extent of available funds from such payment in the following order: (i) first to the accrued and unpaid costs and expenses under the Note or the Pledge Agreement, (ii) then to accrued but unpaid interest on the principal to be prepaid, and (iii) lastly to the outstanding principal. 6. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. The validity of this Note, the construction, interpretation, and enforcement hereof, and the rights of the parties hereto with respect to all matters arising hereunder or related hereto shall be determined under, governed by, and construed in accordance with the laws of the State of California. The parties agree that all actions or proceedings arising in connection with this agreement and the other loan documents shall be tried and litigated only in the state and federal courts located in the County of Santa Clara, State of California or, at the sole option of Lender, in any other court in which Lender shall initiate legal or equitable proceedings and which has subject matter jurisdiction over the matter in controversy. Each of Lender and Borrower waives, to the extent permitted under applicable law, any right each may have to assert the doctrine of forum non conveniens or to object to venue to the extent any proceeding is brought in accordance with this Section 6. Lender and Borrower hereby waive their respective rights to a jury trial on any claim or cause of action based upon or arising out of this document or any of the transactions contemplated hereby, including contract claims, tort claims, breach of duty claims, and all other common law or statutory claims. Each of Lender and Borrower represents that it has reviewed this waiver and each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. In the event of litigation, a copy of this agreement may be filed as a written consent to a trial by the court. Borrower hereby waives presentment, notice of non-payment, notice of 2 3 dishonor, protest, demand and diligence. 7. ATTORNEYS' FEES. If suit is brought for collection of this Note, Borrower agrees to pay all reasonable expenses, including attorneys' fees, incurred by the holder in connection therewith whether or not such suit is prosecuted to judgment. IN WITNESS WHEREOF, Borrower has executed this Note as of the date and year first above written. BORROWER: ---------------------------------------- Borrower's Signature ---------------------------------------- Borrower's Name [type or print] LENDER: FLEXTRONICS INTERNATIONAL NV By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- 3 EX-10.10 7 f73624ex10-10.txt EXHIBIT 10.10 1 EXHIBIT 10.10 DEED OF NONCOMPETITION This Deed of NONCOMPETITION (this "DEED") is made as of November 30, 2000 by and between JIT Holdings Limited, a company incorporated in Singapore (the "COMPANY"), and Goh Thiam Poh Tommie, a resident of Singapore ("COVENANTOR"). This Deed shall become effective immediately prior, and subject, to the Merger Date (as defined below). A. The Company and Covenantor desire to enter into this Deed in connection with the transactions contemplated by the Merger Agreement dated as of August 10, 2000 (the "MERGER AGREEMENT") entered into between Flextronics International Ltd. ("FLEXTRONICS"), the Company, Goh Thiam Poh Tommie and Goh Mui Teck William. Pursuant to the terms of the Merger Agreement, on the Merger Date, as defined in the Merger Agreement (the "MERGER DATE"), Flextronics will acquire all of the outstanding equity interests in the Company in exchange for new ordinary shares of S$0.01 each in the capital of Flextronics ("ORDINARY SHARES") calculated according to the Share Exchange Ratio (as defined in the Merger Agreement). Capitalized terms used without definition herein shall have the same meanings given them in the Merger Agreement. B. As at the date hereof, Covenantor is a principal shareholder, officer and key employee of the Company, and has been actively involved in the development, marketing and sale of the Company's products and services and whose talents and abilities have been critical to the Company's ability to successfully carry on their respective businesses and accordingly, would remain critical in the period following immediately after the Merger (as defined in the Merger Agreement). To preserve and protect the intangible assets of the Company, including their goodwill, customers and trade secrets of which Covenantor has and will have knowledge, and in consideration for and as a material inducement to Flextronics' willingness to enter into and perform under the Merger Agreement, Covenantor has agreed to enter into this Deed. NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises hereinafter set forth, the parties hereto agree as follows: 1. PROVISION OF SERVICES. For a period of six months following the Merger Date, Covenantor shall provide such services to JIT and its related corporations as deemed necessary by JIT for the effective integration of business of both Flextronics and the Company pursuant to the Merger Agreement and Covenantor shall be paid a fair and reasonable salary every month, taking into account the last monthly salary drawn by the Covenantor and the length of time spent by Covenantor in performing such necessary services. 2. COVENANT NOT TO COMPETE. (a) During the Noncompetition Period (as defined below), Covenantor shall not, without the written consent of the Company, directly or indirectly, individually or as an 2 employee, partner, officer, director or shareholder or in any other capacity whatsoever of or for any person, firm, partnership, company or corporation other than the Company or its subsidiaries (other than as a holder of less than five per cent. of the outstanding share capital of a publicly-traded company): (i) own, manage, operate, sell, control or participate in the ownership, management, operation or control of, or be connected in any similar manner with, any Competitive Business. As used herein, the term "Competitive Business" means any business that is engaged in printed circuit board design or assembly or electronics contract manufacturing or that is otherwise substantially similar to or competitive with any services or products created, distributed or under development by the Company or any of the Company's subsidiaries; (ii) recruit, attempt to hire, solicit, assist others in recruiting or hiring, or refer to others concerning employment, any person who is, or was within the three months prior to such action, an employee of the Company, any of its subsidiaries, or induce or attempt to induce any such employee to terminate his employment with the Company, or any of the Company's subsidiaries; (iii) induce or attempt to induce any person or entity to curtail or cancel any business or contracts that such person or entity had with the Company, or any of its subsidiaries; or (iv) contact, solicit or call upon any customer of the Company, or any of its subsidiaries on behalf of any other person or entity for the purpose of selling or providing any services or products of the type normally sold or provided by the Company, or any of its subsidiaries. "NONCOMPETITION PERIOD" means the period beginning on the Merger Date and ending on the latter of (i) the first anniversary after the termination of Covenantor's employment with the Company and (ii) the third anniversary of the Merger Date. (b) The agreements set forth in this Section 2 include within their scope (i) Singapore, Malaysia, Indonesia, Hungary and the People's Republic of China (ii) all states of the United States, and all other countries, in which the Company, any of its subsidiaries has engaged in manufacturing or sales or otherwise conducted business or selling or licensing efforts at any time during the period beginning one year prior to the Merger Date and ending at such time as Covenantor is no longer an employee of the Company. Covenantor acknowledges that the scope and period of restrictions and the geographical area to which the restriction imposed in this Section 2 shall apply are fair and reasonable and are reasonably required for the protection of the Company and that Section 2(a) of this Deed accurately describes the business to which the restrictions are intended to apply. (c) It is the desire and intent of the parties that the provisions of this Section 2 shall be enforced to the fullest extent permissible under applicable law. If any particular provision or portion of this Section shall be adjudicated to be invalid or unenforceable, this Deed shall be deemed amended to revise those provisions or portions to the minimum extent necessary to render them enforceable. Such amendment shall apply only with respect to the operation of 2 3 this paragraph in the particular jurisdiction in which such adjudication was made. (d) Covenantor acknowledges that any breach of the covenants of Section 2 will result in immediate and irreparable injury to the Company and, accordingly, consents to the application of injunctive relief and such other equitable remedies for the benefit of the Company as may be appropriate in the event such a breach occurs or is threatened. The foregoing remedies shall be in addition to all other legal remedies to which the Company may be entitled hereunder, including, without limitation, monetary damages. 3. MISCELLANEOUS. (a) Notices. Any and all notices permitted or required under this Deed must be in writing. Notices will be delivered personally, by mail or express delivery, postage prepaid, or by facsimile, and will be deemed given upon actual delivery or, if mailed by registered or certified mail, on the third business day following deposit in the mails, or, if by facsimile, against confirmation of receipt thereof, addressed as follows: If to the Company: 2 Changi South Lane Singapore 486123 Attention: Tong Choo Cherng Fax: (65) 543 1888 With a copy to: Flextronics International (USA), Inc. 2090 Fortune Drive San Jose, CA 95131 Attn: Tom Smach If to Covenantor: GOH THIAM POH TOMMIE 3 Sunset Crescent Singapore 597492 (b) Amendments. This Deed contains the entire agreement between the Company and Covenantor with respect to the Noncompetition covenants to the Company, and supersedes all prior agreements between the Company and Covenantor concerning any such covenants, and may not be changed or modified in whole or in part except by a writing signed by the party against whom enforcement of the change or modification is sought. (c) Successors and Assigns; Beneficiaries. This Deed shall extend to and be binding upon Covenantor, Covenantor's legal representatives, heirs and distributees, and upon the Company, its successors and assigns. This Deed is not assignable by either Covenantor or the Company, except that the rights and obligations of the Company under this Deed may be 3 4 assigned to a corporation which becomes the successor to the Company as the result of a merger or other corporate reorganization and which continues the business of the Company, or to any subsidiary of the Company. (d) Governing Law. This Deed shall be governed by and construed in accordance with the laws of Singapore without regard to conflicts of law principles. (e) No Waiver. The failure of either party to insist on strict compliance with any of the terms of this Deed will not be deemed to be a waiver of any term of this Deed or of that party's right to require strict compliance with the terms of this Deed in any other instance. (f) Severability. Covenantor and the Company each recognise that the limitations contained herein are reasonably and properly required for the adequate protection of the interests of the Company. If for any reason a court of competent jurisdiction or binding arbitration proceeding finds any provision of this Deed, or the application thereof, to be unenforceable, the remaining provisions of this Deed will be interpreted so as best to reasonably effect the intent of the parties. The parties further agree to replace any such invalid or unenforceable provisions with valid and enforceable provisions designed to achieve, to the extent possible, the business purposes and intent of such unenforceable provisions. (g) Counterparts. This Deed may be executed in one or more counterparts, each of which shall be deemed an original, and all of which together shall constitute one instrument. (h) Independent Review. Covenantor acknowledges that Covenantor has had an opportunity to consult with independent legal counsel of Covenantor's own choosing with regard to terms of this Deed, and enters into this Deed voluntarily and with a full understanding of its terms. (i) Arbitration. Any disputes or controversy between the parties to this Deed, including allegations of fraud, misrepresentation or violation of any federal, state or local statute, regulation, ordinance or law including those pertaining to employment discrimination, arising from or as a result of this Deed, or the resulting business dealings between the Company and Covenantor shall be resolved, after the parties attempt informal resolution, exclusively by arbitration in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce. All arbitration hearings shall be held in Singapore within one hundred twenty (120) days from the date arbitration is demanded by any of the parties and the arbitrator shall render his/her written decision within thirty (30) days after the Arbitration hearing has concluded. The decision of the arbitrator shall be final and binding on all parties, and may be entered as a judgment by any party with any federal or state court of competent jurisdiction. The parties to the arbitration hearing shall share any filing fees and arbitrator's fees which must be paid in advance of the hearing equally; however, as set forth below the prevailing party shall be entitled to recover from the losing party all costs that it has incurred as a result of the arbitration hearing, including fees paid to the arbitrator, travel costs and attorney's fees. This provision shall not alter the rights of the parties to seek and obtain the provisional equitable remedies provided under any applicable state or federal law. (j) Jurisdiction; Venue; Attorney's Fees. Subject to the provisions of Section 3(i) hereof, the parties do hereby agree and submit to personal jurisdiction in Singapore for the 4 5 purposes of any proceedings brought to enforce or construe the terms of this Deed or to resolve any dispute or controversy arising under, as a result of, or in connection with this Deed, and do hereby agree and stipulate that any such proceedings shall be venued and held in Singapore. The prevailing party in any such proceeding shall be entitled to recover from the losing party all costs that it has incurred as a result of such proceeding including but not limited to all travel costs and attorney's fees. 5 6 IN WITNESS WHEREOF, this Deed has been executed by the Covenantor and is intended to be and is hereby delivered on the date first above written. JIT HOLDINGS LIMITED COVENANTOR By: ---------------------------------- ---------------------------------------- Name: Signed, sealed and delivered by Goh Thiam Title: Tommie in the presence of: 6 EX-21.01 8 f73624ex21-01.txt EXHIBI 21.01 1 EXHIBIT 21.01 SUBSIDIARIES OF REGISTRANT
NAME OF SUBSIDIARY JURISDICTION OF ORGANIZATION - ------------------ ---------------------------- Flextronics International GmbH Austria Flextronics International Kindberg GmbH Austria Hotman Handels GmbH Austria Flextronics Global Procurement Ltd. Bermuda Flextronics International (Bermuda) Ltd. Bermuda Flextronics International Bermuda Ltd. (Bermuda) Bermuda Chatham Technologies do Brasil Ltd. Brazil Dovatron Brazil Ltda. Brazil Flextronics do Brasil Servicos, Ltda. Brazil Flextronics International Industrial, Ltda. Brazil Flextronics International Technologia Ltda. Brazil Micro Multek SA Brazil Ltda. Brazil Flextronics International Sales, Ltd. (Cayman Islands) Caymen Islands Chatham Swedform Technology (Changzhou) Co. Ltd. China Flextronics Computer (Shekou) Ltd. China Flextronics Industrial (Shenzhen) Co., Ltd. China Flextronics Industrial (Zhuhai) Co., Ltd. China Flextronics International (Beijing) Ltd. China Flextronics International Changzhou Ltd. China Flextronics Plastic (Shenzhen) Ltd. China Flextronics Plastic (Zhuihai) Ltd. China Flextronics Technology (Shenzhen) Co., Ltd. China Flextronics Technology (Zhuhai) Ltd. China JIT (China) Pte Ltd. China JIT Electronics Co., Ltd. (Shanghai) China JIT Electronics Co., Ltd. (Tianjin) China Li Xin Industries Ltd. China Li Xin Mould Manufacturing Pte Ltd. China Li Xin Moulding & Tooling (Shanghai) Co., Ltd. China Li Xin Plastic Industries Pte Ltd. China Li Xin Precision Engineering Pte Ltd. China Multek China Limited China Multek Electronics (China) Ltd. China Multek Industries Ltd. (Zhuhai) China Multek Zhuhai Limited China Ojala-Mech. Equipment Co. Ltd. China Flextronics Network Services Colombia S.A. Colombia Team Logistics NV Curacao Flextronics Cyprus I Ltd. Cyprus Flextronics Cyprus II Ltd. Cyprus Dovatron Czech a.s Czech Republic Dovatron Czech s.r.o Czech Republic Flextronics International Denmark A/S Denmark Flextronics Network Denmark AS Denmark DII Europe BV Europe Alfatel Oy Finland
2 Flextronics Design Finland Oy Finland Flextronics Holding Finland Oy Finland Flextronics International Finland Oy Finland Koskituonti Oy Finland Ojala-Yhtyma Oy Finland Chatham Technologies Holding Grolleau S.A. France Chatham Technologies, Holding France SAS France Flextronics International France SA France Dovatron Verwaltungs GmbH Germany Flextronics General Partner GmbH Germany Flextronics Holding Germany GmbH Germany Flextronics International Germany GmbH & Co. KG Germany Flextronics Network Services GmbH Germany Flextronics Technology Holding (Switzerland) GmbH Germany Multilayer Technology GmbH Germany Multilayer Technology GmbH & Co KG Germany Germany Astron Group limited Hong Kong Flextronics Manufacturing (HK) Limited Hong Kong Flextronics Plastic (Hong Kong) Limited Hong Kong The DII Group Asia, Ltd. Hong Kong Vastbright PCB (Holding) Ltd. Hong Kong Flextronics Hungaria Kft. Hungary Flextronics Hungaria Kft. II Hungary Flextronics International Kft Hungary Neutronics Components Kft. Savar Hungary Hungary Neutronics, Ecoplast, Muanyagipari, Termekeket, Gyarto Kft. Hungary San Marco Hungary Kft. Hungary Flextronics Technologies (India) Private Limited India PT JIT Electronics Indonesia Indonesia Express Cargo Forwarding Ltd. Ireland Flextronics International Ireland, Ltd. Ireland Flextronics LMS, Ltd. Ireland IEC Holdings, Ltd. Ireland Irish Express Cargo Ltd. Ireland Irish Express Logistics BV Ireland Irish Express Logistics Ltd. Ireland LMS EMF Limited Ireland Stelton Ltd. Ireland Vahodright Ltd. Ireland Flextronics International (Israel) Ltd. Israel Flextronics Holding Italy S.p.a Italy Flextronics International Avellino S.p.a Italy Flextronics International L' Aquila S.p.a Italy Flextronics International Udine S.p.a Italy Mecha Design Monza srl Italy San Marco Engineering S.r.l Italy Flex International Marketing (L) Ltd. Labuan Flextronics International Latin America (L), Ltd. Labuan Flextronics International Marketing (L) Ltd. Labuan Flextronics (Malaysia) Sdn Bhd Malaysia
3 Flextronics Ind. (Melaka) Sdn. Bhd Malaysia Flextronics Technology Sdn Bhd. (Malaysia) Malaysia JIT Electronics (M) Sdn Bhd Malaysia JIT Manaufacturing Services (M) Sdn Bhd Malaysia Li Xin Industries Sdn Bhd Malaysia Palo Alto Sales Group, Inc. Malaysia Flextronics Asia Pacific Ltd. Mauritius Multek Technologies Limited Mauritius Chatham Technologies Holdings Mexico, S de RL de CV Mexico Chatham Technologies Mexico, S de RL de CV Mexico Cumex Electronics SA de C.V. Mexico Flextronics Holding Puebla S de RL de CV Mexico Flextronics Manufacturing Mexico, SA de CV Mexico Flextronics Manufacturing Puebla S de RL de CV Mexico Flextronics Network Services Mexico, S.A. de CV Mexico Flextronics Plastics de Mexico, SA de CV Mexico Flextronics Real Estate Puebla S de RL de CV Mexico Flextronics Servicios Mexico S de RL de CV Mexico Flextronics Vet. Servicios del Mexico, SA de CV Mexico IEC Integrated Services SA de CV Mexico Irish Express Logistics SA de CV Mexico JIT Electronics Mexico SA de CV Mexico JIT Services Mexico SA de CV Mexico Multilayer Technologies de Mexico Mexico Parque de Technologia Electronica, SA de CV Mexico Chatham International Holding BV Netherlands Chatham Technologies Inc., Holding BV Netherlands DII International Holdings CV Netherlands Flextronics Cork BCV Netherlands Flextronics International Central Europe B.V. Netherlands Flextronics International Europe B.V. Netherlands Flextronics International Holland B.V. Netherlands Flextronics International Ireland, Ltd. Netherlands Flextronics International NV Netherlands Flextronics Network Services Holland BV Netherlands Palo Alto Products International BV Netherlands Flextronics Interantional Norway AS Norway Flextronics International Gdansk Sp. Z.o.o Poland Flextronics International Poland Sp.z.o.o Poland Flextronics Consultadoria e Servicios Ltda. Portugal Flextronics Servicos de Rede no Ambito da Engenharia e Design, Lda Portugal Flextronics International Singapore Pte Ltd. Singapore Flextronics Singapore Pte Ltd. Singapore JIT Electronics Pte Ltd. Singapore JIT Investments Pte Ltd. Singapore JIT Logisitics Centre Pte Ltd. Singapore Palo Alto Products International Pte. Ltd. Singapore The DII Group Singapore Pte. Ltd. Singapore TTI Testron Singapore Pte. Ltd. Singapore Chatham Integration S.L. Spain
4 Chatham Technologies Espana S.L. Spain Flextronics Argo AB Sweden Flextronics Group Sweden AB Sweden Flextronics International Sweden AB Sweden Flextronics Network Services Sweden AB Sweden IEC Sweden AB Sweden Multek Sweden AB Sweden Swedform AB Sweden Swedform AK Verkstads AB Sweden Swedform Holdings AB Sweden Swedform International Finance HB Sweden Swedform Metall AB Sweden Swedform Verkygsteknik AB Sweden Flextronics Interanational (Switzerland) GmbH Switzerland Flextronics Technology Switzerland GmbH Switzerland Palo Alto Manufacturing Group, Inc. Taiwan Li Xin Co., Ltd. Thailand Palo Alto Manufacturing (Thailand) Ltd. Thailand Palo Alto Plastics (Thailand) Ltd. Thailand Flextronics Holdings (UK) Ltd. United Kingdom Flextronics International (UK) Ltd. United Kingdom Flextronics Design S.D., Inc. California, United States Flextronics Distribution, Inc. California, United States Flextronics Enterprise Solution, Inc. California, United States Flextronics International PA, Inc. California, United States Flextronics International USA, Inc. California, United States Flextronics Logistics USA, Inc. California, United States Flextronics Network Services USA, Inc. California, United States Flextronics Photonics Wave Optics, Inc. California, United States JIT International USA, Inc. California, United States Multilayer Technology, Inc. California, United States Summit Manufacturing, Inc. California, United States Flextronics Coating, Inc. Colorado, United States ASIC, Inc. Delaware, United States Chatham International I, Inc. Delaware, United States Chatham International II, Inc. Delaware, United States Flextronics Enclosures Systems, Inc. Delaware, United States Flextronics Enclosures, Inc. Delaware, United States Flextronics Holding USA, Inc. Delaware, United States Flextronics International Holding Corp. Delaware, United States Flextronics Semiconductor, Inc. Delaware, United States Flextronics USA, Inc. Delaware, United States Multek Texas, Inc. Delaware, United States Flextronics Metal Specialties, Inc. Illinois, United States Flextronics Tool & Design, Inc. Illinois, United States FICO, Inc. Massachusetts, United States EMC, International, Inc. North Carolina, United States Flextronics International North Carolina, Inc. North Carolina, United States Flextronics Photonics PPT, Inc. Oregon, United States Irish Express Logistics Inc. Tennessee, United States
5 Lightning Logistics LLC Texas, United States Flextronics Foreign Sales Corporation, Inc. Virgin Islands, United States Flextronics International Andina S.A. Venezuela
EX-23.01 9 f73624ex23-01.txt EXHIBIT 23.01 1 Exhibit 23.01 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report dated April 20, 2001 included in this Form 10-K for the year ended March 31, 2001, into Flextronics International Ltd.'s previously filed registration statements on Form S-8 Nos. 333-42255, 333-71049, 333-95189, 333-34016, 333-34698, 333-46166, 333-55528, 333-55850, 333-57680, 333-60270 and on Form S-3 Nos. 333-87139, 333-87601, 333-94941, 333-41646, 333-46200, 333-46770, 333-55530, 333-56230, 333-60968. /S/ ARTHUR ANDERSEN LLP San Jose, California June 28, 2001 EX-23.02 10 f73624ex23-02.txt EXHIBIT 23.02 1 Exhibit 23.02 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 333-87601, 333-87139, 333-41646, 333-46200, 333-46770, 333-55530, 333-56230 and 333-60968 of Flextronics International Ltd. on Forms S-3 and Registration Statement Nos. 333-95189, 333-71049, 333-42255, 333-34698, 333-34016, 333-46166, 333-55528, 333-55850, 333-57680 and 333-60270 of Flextronics International Ltd. on Forms S-8 of our report dated March 28, 2000 (relating to the consolidated financial statements of The DII Group, Inc. and Subsidiaries as of January 2, 2000 and for each of the two years in the period ended January 2, 2000 not presented separately herein) appearing in this Annual Report on Form 10-K of Flextronics International Ltd. for the year ended March 31, 2001. DELOITTE & TOUCHE LLP Denver, Colorado June 28, 2001 -----END PRIVACY-ENHANCED MESSAGE-----